Institute of Chartered Accountant’s of
India
Authority for Advance Ruling (AAR)
Mutual Agreement Procedure (MAP)
Sheetal Shah
9th August 2013
CA Rajan Vora
Outline
Authority for Advance Rulings (AAR)
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Overview
Key benefits of advance rulings
Procedure for applying
AAR – Scope
Maintainability of application
Hearing on pronouncement of ruling
Binding nature of ruling
Withdrawal and revocation of ruling
Appeal against the ruling
AAR (Procedure) Rules, 1996
Important rulings
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ICAI Webcast
Overview
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The Authority for Advance Rulings (‘AAR’) is an independent quasi-judicial
body, which is set up to consider international tax issues arising from
proposed or existing transactions.
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The body was conceptualized as a mechanism to provide, certainty on an
expeditious basis to non-residents, with respect to their Indian tax obligations
by pronouncing rulings quickly.
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AAR rulings are binding only on the parties involved. However, since its
inception, the AAR has contributed significantly to the texture and depth of
Indian international tax jurisprudence by its consideration of evolving issues
of international tax.
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Advance rulings instill a sense of confidence in foreign investors as it helps
them plan their business affairs in an efficient manner keeping in mind the tax
implications in India.
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ICAI Webcast
Key Benefits of Advance Ruling
►Significantly faster dispute resolution process as compared to the normal
litigation process
►Advance ruling take approx 12-15 months, as compared to substantial time involved
even at the second-level appellate tribunal level
Time taken :
7-12 years
Writ / Special
High Court/
Leave Petition
Approx 12 mths Supreme Court
Supreme Court
High Court
Advance Ruling
ITAT
Time taken :
12-15 months
CIT (A)/ DRP
Assessing
Officer
Authority for
Advance Rulings
Standard Appeal Process
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Advance Ruling
ICAI Webcast
Overview
Composition of Bench
The AAR comprises of three members:
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Chairman, who is a retired judge of the Supreme Court;
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Member from the Indian Revenue Service, who is qualified to be a member of the CBDT; and
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Member from the Indian Legal Service who is, or is qualified to be, an Additional Secretary to
the Government of India
Current bench of the AAR
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Chairman - Hon’ble Justice Arijit Pasayat
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Member (Revenue) - Mr. T B C Rozara
However, the Chairman alone could also constitute a valid AAR bench
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ICAI Webcast
Advance Ruling
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An application can be made before the AAR by ►
Tax liability arising from a transaction which has been
undertaken / proposed to be undertaken by the
non-resident
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Tax liability of a non- resident arising from a transaction
undertaken / proposed to be undertaken with the resident
Non-Residents
Residents
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Determination in respect of an issue relating to the
computation of income which is pending before any income
tax authority or the Appellate Tribunal
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COD is not required for PSU for advance ruling as there is
no dispute between applicant and revenue
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Determination/ decision whether an arrangement which is
proposed to be undertaken by any person is an
impermissible avoidance arrangement as referred to in
Chp X-A or not . GAAR to be effective from 1.4.2015
Public Sector
Companies
Non-resident/
resident
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ICAI Webcast
Procedure Checklist…
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Application for Advance Ruling should be made in –
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Form No. 34C – in case of non-resident applicant
Form No. 34D – in case of resident applicant
Form No. 34E – in case of resident applicant (notified by Central Government)
No. of copies of the application –
6 + 1 copies – if the taxpayer has a jurisdictional commissioner
► 7 + 1 copies – if the taxpayer doest not have a jurisdictional commissioner
(On a safe side, it is always better to have 9 copies executed in original)
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Filing Fees–
► A Filing fees of INR 10,000/- is payable (by means of an account payee
demand draft in favor of ‘Authority for Advance Rulings’ payable at New Delhi
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Paper size –
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There is no restriction on the type and size of paper. The application can be printed
and filed on a regular A4 size paper
ICAI Webcast
Procedure Checklist (Contd.)
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Signing of the Application
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The application and annexure, in case of a company should be signed by the
Managing Director or Director
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In case if Managing Director / Director is not able to sign, the application/annexure
should be signed by an person duly authorised in that behalf
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The Power of Attorney authorising the signatories is to be attached along with the
application.
If the Power of Attorney is executed by a non-resident, the same should be duly
apostilled
Documents
► The documents attached alongwith the Application need to be duly certified /
apostilled as appropriately required
Translation of documents
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If the documents are in a language other than English, the same should be
translated in English / Hindi and properly verified.
ICAI Webcast
Procedure on filing
Application
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Application to be filed
in prescribed form
along with filing fees
Details of questions
proposed and
applicant’s analysis to
be provided
Applicant permitted to
withdraw application
within 30 days
Commissioner (CIT)
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Application forwarded
to the jurisdictional CIT
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Where applicant is not
assessed to tax,
CBDT to designate a
CIT within two weeks
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CIT to provide
comments on the
application *
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AAR can call for tax
records from the CIT,
where required
Examination
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AAR examines the
allowability of the
application
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AAR may admit or
reject the application
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Applicant to be given a
reasonable opportunity
to be heard before
rejection
* Whether the action of CIT calling for additional information from the Applicant by issuing notice
u/s.133(6) or by carrying out survey/ search for the relevant information valid?
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ICAI Webcast
Procedure on filing (Contd.)
Hearing
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AAR can call for
additional information,
where necessary
Additional facts/
questions can be
admitted at the AAR’s
discretion
AAR to hear applicant
as well as the CIT
Default in appearance
by the CIT/applicant
could result in an
ex-parte order
Ruling
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Appeal
AAR to endeavor to
pronounce a ruling
within six months
(recommendatory)
Ruling can be modified
where there is a
change in law or facts
Rectification of order
possible in the event of
a mistake apparent on
record
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Writ petition filed
before the High Court
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Special Leave Petition
(SLP) filed before the
Supreme Court*
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Writ / SLP can be filed
either by the applicant
or the tax authorities
Modification / rectification
not possible after ruling
has been given effect to
* If there is a change of Law with retrospective effect , application by the Applicant or revenue has to
be made to AAR
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ICAI Webcast
Advance Ruling - Scope
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Residential Status – Non-resident, when can apply?
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Previous year i.e. the financial year immediately preceding the financial
year in which the application is made that has to be considered for
purposes of determining the maintainability of an application for
advance ruling.
Generally, applicants may raise any question which relates to tax
liability ►
Both ‘questions of law’ as well as ‘questions of fact’ can be raised
before the AAR
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Questions can pertain to both, concluded transactions as well as
anticipated transactions
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Hypothetical questions can not be raised before AAR
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ICAI Webcast
Advance Ruling - Scope
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Questions on which advance rulings can be sought?
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The advance ruling is to be given on questions specified in relation to a
transaction by the applicant. The question must relate to the applicant
itself and not to any other person.
Illustration:
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Where the question sought to be raised relates not to the applicant,
who is a non-resident company, but to its resident Indian subsidiary the
application is liable to be rejected.
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However, a foreign company can ask for a ruling on questions
regarding its tax liability on the income derived by it from an Indian trust
and as to whether the trust would be taxable under section 164 or
section 161 on which would depend the assessment of the foreign
company.
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ICAI Webcast
Advance Ruling – Maintainability of
application
Maintainability of the application before the AAR – Section 245R(2)
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Authority shall not allow the application where question raised in the
application –
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Is “already pending” before any income tax authority, Tribunal or any
Court; except resident notified by CG – PSU
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Involves determination of fair market value of any property; or
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relates to a transaction, which is designed prima facie for avoidance of
income tax
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ICAI Webcast
Advance Ruling – Maintainability of
application
Significance of the word ‘already pending”
When is a ‘question’ said to be pending? What is the stage at which
it can be said that a question is said to be pending?
a. Can a question be said to be pending when a return of income is filed by the
applicant before filing of application and hence entire assessment is open
before the Tax Authority?
b. After filing the return of income, intimation u/s 143(1) is received with or
without further tax payable/ refundable and no assessment u/s 143(3) is
made. In such a case, does intimation u/s 143(1) amounts to ‘pendency of
question’?
c. Can a question be said to be pending where the assessment proceedings
are pending but the particular question/issue has not been raised therein? In
other words, is a question said to be pending only when that question is
pending before the income-tax authorities and not simply because the entire
assessment proceedings are pending.
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ICAI Webcast
Advance Ruling – Maintainability of
application
Significance of the word ‘already pending”
d. If intimation u/s 143(1) or order u/s 143(3) is passed and if the period for
issue of notice u/s 148/ 263 has not expired? Does it mean that since there
is a probability of assessment/ revision being made under such provisions,
the ‘question is pending’ before the Income tax authorities?
e. After an assessment order is received, the Assessee has 30 days of filing
an appeal before the CIT(A). If the Assessee files an application before the
AAR before the expiry of 30 days, and then files an appeal against the
assessment, is the application maintainable which is filed during the vacuum
period of 30 days?
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ICAI Webcast
Advance Ruling – Maintainability of
application
Significance of the word ‘already pending” - Recent judicial updates
1) Whether the question on which the ruling is sought is maintainable, if the
applicant had filed tax returns before filing application for advance ruling
and whether the same can be considered as issue pending before Income
Tax Authorities in terms of proviso Sec 245R?
Net App B.V. (Delhi High Court) [W.P.(C) 3959/2012] dt: 14.08.2012
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Upon a return of income being filed, the matter is “pending“, in the sense that the
AO has the right to take such steps, including issuance of notice.
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The rationale for the bar in the Proviso to s. 245R(2) is that if the applicant wishes to
plan its affairs and transactions in advance, it is free to do but once it proceeds to file
a return, the AAR’s jurisdiction to entertain the application for advance ruling is taken
away, because the AO would then be seized of the matter, and would possess a
multitude of statutory powers to examine and rule on the return.
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The fact that the AAR followed a different practice in the past, is irrelevant because
there is no estoppel against a statute.
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ICAI Webcast
Advance Ruling – Maintainability of
application
Significance of the word ‘already pending” - Judicial updates
Earlier rulings delivered on this issue:
Name of the case
Reason
RED HAT INDIA PRIVATE LIMITED, [AAR No.
1050 of 2011] 3rd February, 2012
AAR observed that the applicants
had filed tax returns before filing
application for advance ruling.
NetApp B.V. [ A.A.R. No. 955 of 2010] 2nd
February, 2012 –Upheld by High Court
FOSTER WHEELER FRANCE SA [AAR. No.
963 of 2010] 2nd February, 2012
GTB INVEST ASA [AAR No.932-933 of 2010]
3rd February, 2012
WAVEFIELD INSEIS ASA [AAR No. 951 of
2010] 2nd February, 2012
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Accordingly, the issue raised in
application would be regarded one
question pending before
Income Tax Authority in terms of
proviso Sec 245R.
AAR also held that the date of filing
of returns was crucial point to decide
whether the question raised in
application was pending before
Income-tax authorities.
ICAI Webcast
Advance Ruling – Maintainability of
application
Significance of the word ‘already pending” – Judicial updates
Earlier rulings delivered on this issue:
Name of the case
Reason
SEPCO III Electric Power
Construction Corporation [340
ITR 231]
Where applicant has filed a return of income
for relevant year even before filing application
under section 245Q, it must be taken that
question that is posed before Advance Ruling
authority for a ruling was already pending
before Assessing Officer within meaning of
clause (i) of proviso to section 245R(2) and, in
such a case, application for advance ruling
cannot be admitted.
Rotem Company, In re [195 CTR 289]
(AAR)
Filing of return does not constitute - Pending
question
Jagtar Singh Purewal, In re [213 ITR
512] (AAR)
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ICAI Webcast
Advance Ruling – Maintainability of
application
Significance of the word ‘already pending” – Judicial updates
Name of the case
Reason
A [343 ITR 455]
The application is maintainable before the
AAR, where an identical issue in relation to
taxability of buy-back of shares done earlier in
2008 was pending before the Tax Authority for
adjudication.
Nuclear Power Corpn [ 246 CTR 165]
Question would need to be pending in the
case of the applicant, and not any other
person
Airport Authority of India [168 Taxman
158] (AAR)
Ericsson Telephone Corporation India
AB [224 ITR 203] (AAR)
LS Cables (337 ITR 35)
Monte Harris vs CIT [218 ITR 413]
(AAR)
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Questions pending in the applicant’s case
before the tax authorities, the Appellate
Tribunal or any Court at the time of the
application
ICAI Webcast
Advance Ruling – Maintainability of
application
Significance of the word ‘already pending”
2) Whether a subsidiary company’s AAR application is admissible where the
holding company’s case is pending before Tribunal?
Yes, refer decision of Gujarat High Court in case of GSPL India Transco Ltd [ TS –
632-HC-2012 (Guj)]
3) Whether pendency of proceedings or order passed under section 201, as a
consequence of failure to comply with the requirements of section 195, can
stand in way of the Authority to give an advance ruling under section
245R(4)?
No, refer Groupe Industrial Marcel Dassault [340 ITR 353], Burmah Control Plc [305
ITR 375], Partly, SEPCO III Electric Power Construction Corpn [340 ITR 225]
4) Whether a ruling can be declined on the ground that the amalgamation
proceedings are pending under the Companies Act?
No, refer Star Television Entertainment [321 ITR 1]
5) Where no litigation is pending in case of payee, application filed by payer
is ,maintainable
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ICAI Webcast
Advance Ruling – Maintainability of
application
Transaction or an issue which is designed prima facie for avoidance of
income-tax
Depends upon the facts of each case.
Useful reference can be made to the following rulings:
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A [343 ITR 455]
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XYZ Re, [220 ITR 377] (AAR)]
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Groupe Industrial Marcel Dassault [340 ITR 353]
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ABC International Inc [241 CTR (AAR) 289]
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Goodyear Tire & Rubber [334 ITR 69]
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Star Television Entertainment [321 ITR 1]
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Canoro Resources Ltd [313 ITR 2]
Determination of Arm’s Length Price in a Transfer Pricing scenario typically
outside the purview of an advance ruling
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ICAI Webcast
Advance Ruling – Maintainability of
application
Recently, Bombay High Court in case of Mahindra BT [Writ Petition No 2632 of 2012
dated 25 July 2013]
Background
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Mahindra BT (Mauritiius Co) had moved an application seeking a ruling from the
AAR regarding the taxability of the sale of Indian Company’s shares to AT&T USA.
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The said ruling was admitted under section 245R(2) by AAR.
Ruling of AAR u/s 245R(4) [210 taxman 638]
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It noted that this transaction is in circumvention of SEBI Guidelines.
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It held that when a transaction is entered into by circumventing a provision, rule or
guideline enacted or issued in public interest, that transaction has to be looked at
from the angle of public interest sought to be subserved and the consequence of
that transaction on public interest.
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Even outside the proviso to Section 245R(2) of the Act, this Authority has a
discretion to refuse a ruling in an appropriate case. Hence, AAR under its discretion,
refused to rule on the application, citing it as an act intended to circumvent a
guideline issued in public interest.
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ICAI Webcast
Advance Ruling – Maintainability of
application
Aggrieved by the above, the applicant filed a Writ Petition before the Bombay High Court
Ruling of Bombay High Court
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No contravention by Tech Mahindra of SEBI guidelines, full disclosure made in red
herring prospectus, as evidenced by SEBI letter to Income tax Department
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Discretionary power of AAR to refuse a ruling cannot be arbitrary or based on mere
suspicion of illegality but can be exercised only where fraud or illegality is ex-facie
evident or established in some proceedings
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In these circumstances, the authority is not correct in refusing to give a ruling at the
time of final hearing in the absence of any fresh material, merely on the basis of the
suspicion.
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Hence, the matter is set aside and AAR is directed to give a ruling on merits of the
case.
Regarding department’s contention that applicant can move to AAR for
modification/rectification of order under Rule 18/19 of the AAR (Procedure) Rules, 1996.
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On this aspect, the HC rejected the department contention and held that under the
present facts no application for modification or rectification under Rule 18 or 19 of
the Advance Ruling Rules would lie.
ICAI Webcast
Advance Ruling – Maintainability of
application
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As Rule 19 also presupposes that the order to be rectified is an order on which a
ruling is rendered. Admittedly no ruling has been rendered by the impugned order.
Therefore, rectification application would also not lie.
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However, the HC has left the issue open on the aspect that, whether the Authority
after having admitted the questions can refuse to give a ruling on the question of
law formulated at the final hearing without there being any change in facts or
circumstances and whether an Authority being a creature of the statue can refuse to
rule on the question raised before it even if the same is not hit by the proviso under
Section 245R(2) of the Act.
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ICAI Webcast
Advance Ruling – hearing and
pronouncement of the ruling
Post admission stages
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Once the application is admitted, an order under section 245R(2) is
issued i.e. admission order.
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A notice for final hearing is issued for giving an opportunity of being
heard to the applicant.
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Final hearing takes place
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Pronouncement of ruling within 6 months. However, it is made clear that
the time limit of six months for pronouncing advance ruling is
recommendatory and not mandatory and an advance ruling given after
the expiry of six months is not invalid as being beyond the said period.
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Publishing* the ruling on the website.
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ICAI Webcast
Advance Ruling – Binding Nature of the
ruling
The ruling pronounced by the authority is binding on both parties before it.
“245S: Applicability of Advance Ruling:
(1) The advance ruling pronounced by the Authority under section 245R shall be binding
only:
(a) on the applicant who had sought it;
(b) in respect of the transaction in relation to which the ruling had been sought;
and
(c) on the Commissioner, and the income-tax authorities subordinate to him, in
respect of the applicant and the said transaction.”
The advance ruling so pronounced continues to be binding unless there
is a change in law or facts on the basis of which the advance ruling was
pronounced.
Although, the ruling pronounced by AAR is binding in respect of that
transaction, both on applicant and Tax Authorities, however it has persuasive
value for others.
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ICAI Webcast
Advance Ruling – Withdrawal and
Revocation of the ruling
Withdrawal of application - Section 245Q(3)
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Within 30 days from the date of filing of a valid application complete in all
respects according to the Act and Rules in the office of the Authority.
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The limit of 30 days is not to be construed in a strict sense, as one may ask for
withdrawal after the expiry of 30 days or before the final hearing is concluded.
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However, in such cases withdrawal of the application is at the discretion of the
Authority and depends on the facts of each case.
Advance ruling to be void in certain circumstances – Section 245T
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Where the Authority finds, on a representation made to it by the Commissioner of
Income-tax or otherwise, that an advance ruling pronounced by it has been obtained
by the applicant by fraud or misrepresentation of facts.
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In such a situation all the provisions of the Income-tax Act shall apply as if such
advance ruling had never been made. The applicants are advised to ensure that
there is full and true disclosure of all material facts while seeking ruling from the
Authority.
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ICAI Webcast
Advance Ruling – Appeal against the ruling
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No provision under the Act for appealing against the ruling of AAR
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In order to ensure the degree of certainty, it was specified that the rulings would be
non-appealable in nature.
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However, parties may opt to exercise their constitutional rights of reconsideration by
approaching the Supreme Court under the SLP route under Article 136 of the
Constitution of India, and in certain situations, by approaching a High Court by filing
a writ petition in terms of Article 226 and 227 of the Constitution.
Recent ruling of Supreme Court (SC) regarding appealability against the Rulings of AAR
- in case of Columbia Sportswear Company vs. Director of Income Tax, Bangalore
dated 30 July 2012 [SLP (C)No. 31543 of 2011]
Question before the SC
Whether an advance ruling pronounced by the Authority for Advance Rulings (‘AAR’) can
be challenged before the High Court (‘HC’) under Article 226/ 227 of the Constitution of
India (‘the Constitution’) or before the SC under Article 136 of the Constitution?
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ICAI Webcast
Advance Ruling – Appeal against the ruling
Decision of the SC
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AAR is not a Court and it is a body exercising judicial power conferred under the
Income Tax Act, 1961 and accordingly, is a ‘Tribunal’ within the meaning of Articles
136 and 226/ 227 of the Constitution.
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The fact that the ruling pronounced by the AAR is "binding" does not affect the
jurisdiction of the Court under Article 136 or under Articles 226 and 227 of the
Constitution to entertain a challenge to the ruling.
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Further, if the Special Leave Petition (‘SLP’) raises “substantial question of general
importance” or “a similar question is already pending before the SC for a decision”
or good grounds are made or put up, the SC would entertain a SLP, directly against
an order of the Authority and not otherwise.
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Writ Petition against AAR ruling to be heard "directly" by division bench of High
Courts and to be decided by Courts as "expeditiously as possible“
This ruling has affirmed the view expressed by Delhi High Court that
‘AAR is Tribunal’ in case of UAE Exchange Centre [ 313 ITR 94 ]
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ICAI Webcast
Advance Ruling – AAR Procedure Rules,
1996
Certain Important rules
Rule 11 - Submission of additional facts before the Authority
Discretion of the authority to permit or require the applicant to submit such
additional facts as may be necessary to enable it to pronounce its advance
ruling.
Rule 19 - Rectification of mistakes
The Authority may, with a view to rectifying any mistake apparent
from the record, mend any order passed by it before the ruling pronounced
by the Authority has been given effect to by the Assessing Officer.
Such amendment may be made suo motu or when the mistake is brought
to its notice by the applicant or the Commissioner, but only after allowing the
applicant and the Commissioner reasonable opportunity of being heard.
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ICAI Webcast
Advance Ruling – AAR Procedure Rules,
1996
Scope of rectification power of AAR
Recently, AAR in case of CTCI Overseas Corporation Ltd [AAR No 854 of 2009
dated 31 May 2013, has explained the scope of rectification power of AAR
Background:
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A Hong Kong company (FCo) entered into a consortium agreement with an Indian
company to execute a project in India. As per the contract, FCo was responsible for
offshore supplies and services. FCo approached the AAR to determine the taxability
in India of the income earned from offshore supplies.
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It was claimed that since offshore supply took place outside of India, no part of
income from offshore supplies was liable to tax in India.
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The AAR in the original Ruling [342 ITR 217, dated 1 February 2012] seems to
conclude that the consortium constituted AOP through which FCo had business
connection and that Fco accordingly triggered tax liability in India under s.9(1)(i) in
absence of treaty protection.
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However, no part of income was held chargeable, as no operations were carried out
in India.
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ICAI Webcast
Advance Ruling – AAR Procedure Rules,
1996
Rectification Petition by the Tax Authority
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The Tax Authority filed rectification application to AAR under Rule 19 of Authority for
Advance Rulings (Procedure) Rules, 1996 (Rules) against original ruling contending
that once the consortium is held to be giving rise to AOP, individual members cannot
be assessed to tax.
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Conclusion of AAR in original ruling that FCo was not liable to pay tax in India was
contended to be a mistake apparent from record.
Recall order by AAR
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After hearing parties in its recall order [76 DTR 282, dated 27 August 2012], the
AAR observed that, the conclusion that offshore supplies are not taxable in India is
inconsistent with the finding’ of AAR that the assessable entity in India was AOP;
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The members thereof cannot be assessable entities. Accordingly, the AAR directed
for reopening of that part of the Ruling which held that offshore supplies were not
liable to tax in India. The original application of FCo itself was directed to be posted
for fresh hearing on the question of taxability of offshore supplies.
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ICAI Webcast
Advance Ruling – AAR Procedure Rules,
1996
Final order of AAR
After final hearing, the AAR disposed of the proceedings by concluding as follows:
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Jurisdiction of AAR is confined to questions on which the Ruling is sought. The
issues raised before AAR for Ruling can be reframed for greater clarity and
convenience.
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Under rectification application, it is not permissible to reframe the questions or
issues already dealt with in original Ruling. Also, no further questions can be added
in rectification petition to raise issues for the first time.
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AAR does not have jurisdiction to decide new questions which were not originally
formulated or adjudicated. Reopening of the earlier issues is not permissible.
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The AAR cannot give a Ruling on the issue that the applicant is not liable to tax and
somebody else is liable to be taxed.
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ICAI Webcast
Advance Ruling – AAR Procedure Rules,
1996
Certain Important rules
Rule 25 – Publication of order
Such of the orders of the Authority, as the Chairman deems fit for publication in
any authoritative report or the press, may be released for such publication on
such terms and conditions as the Chairman may specify.
Taxpayers may apply to the AAR for not publishing the Ruling due to client
sensitivity/ confidentiality. However, the decision of whether to publish or not to
publish lies with the Chairman.
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ICAI Webcast
Advance Ruling – Important Rulings
Taxability of direct or Indirect transfer of shares of an Indian Company by a non resident
company
Favourable
M/S.Sanofi Pasteur Holding SA, [Andhra Pradesh High Court] 257 CTR 401
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Armstrong World Mauritius Multiconsult Ltd [252 CTR 260]
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Smithkline Beecham Port Louis Ltd. [24 taxmann.com 153]
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Castleton Inv.Ltd. [(No.999 of 2010) dt 14 August 2012]
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Moody’s Analytics Inc. (AAR Nos. 1186 to 1189 of 2011)
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Ardex Investments Mauritius [ 63 DTR 257]
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Deere & Company [337 ITR 277]
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D.B. Zwirn Mauritius [333 ITR 32]
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VNU International [334 ITR 56]
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Dana Corporation [321 ITR 178]
Adverse
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Orient Green Power Pte Ltd [ AAR 973 of 2010 dt 14 August 2012]
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Z [249 CTR 225]
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A [343 ITR 455]
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ICAI Webcast
Advance Ruling – Recent Important Rulings
Taxability of payments made to group companies under a secondment
agreement - Deputation of expatriates
Favourable
►
Cholamandalam Ms General Insurance Co. Ltd.[309 ITR 356]
►
Bangalore Tribunal decision in Ariba Technologies (India) Pvt. Ltd [TS-258ITAT-2012(Bang)] and Abbey Business Services (India) P. Ltd [TS-532-ITAT2012(Bang)]
Adverse
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Centrica India Offshore Private Ltd [249 CTR 11]
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Target Corporation India Ltd [24 taxman.com 152]
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Verizon Data Services India Ltd [337 ITR 192], set aside by High Court
Madras HC [WP No 14921 of 2011 DT 14 Nov 2011]
Page 36
ICAI Webcast
Advance Ruling – Recent Important Rulings
Taxability of payments received from use or sale of/ access to software
Favourable
►
Dassault Systems K.K. [ 322 ITR 125]
►
Factset Research Systems Inc., [317 ITR 169]
►
Bharati AXA General Insurance Co. Ltd [326 ITR 477]
Adverse
►
Acclerys KK, [68 DTR (AAR) 206]
►
Citrix Systems Asia Pacific Pty Limited [68 DTR (AAR) 185]
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Millennium IT Software Ltd [338 ITR 391]
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Lanka Hydraulic Institute Ltd [337 ITR 47] - Partly
Page 37
ICAI Webcast
Advance Ruling – Recent Important Rulings
Taxability of payments made / received for availing or providing general
business support services, IT Services, Inspection verfication services.
Favourable
►
Shell Technology India Pvt Ltd [246 CTR 158]
►
R.R. Donnelley India Outsource (P) Ltd [335 ITR 122]
►
Bharati Axa General Insurance Co. Ltd[326 ITR 477]
►
Ernst & Young (P) Ltd [323 ITR 184]
Against
►
Mersen India Pvt Ltd [A.A.R. No.1074 of 2010] dt: 16 April 2012
►
Thoughtbuzz Pvt Ltd [250 CTR 1]
►
XYZ [AAR Nos. 886 to 911, 913 to 924, 927, 929 and 930 of 2010] 19 March 2012 Partly
►
Shell India Markets (P) Ltd. [67 DTR (AAR) 1]
►
Perfetti Van Melle Holding B.V [65 DTR (AAR) 12]
Page 38
ICAI Webcast
Advance Ruling – Recent Important Rulings
Applicability of section 115JB to foreign companies
Favourable
►
Timken Company [326 ITR 193]
►
Praxair Pacific Ltd [326 ITR 276 ]
Against
►
Castleton Inv.Ltd. [(No.999 of 2010) dt 14 August 2012]
►
Smithkline Beecham Port Louis Ltd. [24 taxmann.com 153]
►
Moody’s Analytics Inc. (AAR Nos. 1186 to 1189 of 2011)
Page 39
ICAI Webcast
Further information can be obtained from
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AAR website - www.aar.gov.in
Relevant sections governing the provisions of AAR – 245N to 245V of
the Income Tax Act, 1961
Authority for Advance Rulings (Procedure) Rules, 1996
Notes provided in the respective forms of Application
BCAS Publication - Advance Rulings Law and Procedures – A
Compilation
Handbook available on the AAR website
Page 40
ICAI Webcast
Outline
Mutual Agreement Procedure - MAP
►
►
►
Overview
Mechanism of MAP
Categories of dispute covered
Page 41
ICAI Webcast
MAP
► Mechanism to resolve disputes relating to taxation not in accordance with a
tax treaty
► Resolution of disputes through Competent Authorities (‘CA’) of contracting
states
► India CA: Officer authorized by Central Government, Recently, CBDT
appointed Akhilesh Ranjan as new Indian Competent Authority
► Other Countries CA: Ministry of Finance or Apex tax authority or Tax
Commissioners or Directors as their representatives
► Disputes involve cases of double taxation (juridical and economic) as well as
inconsistencies in the interpretation and application of a convention
► Remedy under Mutual Agreement Procedures (‘MAP’) available irrespective
of remedies available under the domestic tax law
Page 42
Mechanism under MAP
► Application could be made
where taxation not in
accordance with tax treaty
has occurred
Tax
dispute
Applicant approaches the
CA in country of residence (home country)
Yes
Should be
resolved by CA
of home country
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Dispute
capable of
unilateral
resolution
► CA of home country has
discretion to accept or
reject the application
► Tax payer could make
representations before CA
No
Should be
resolved by
consultation
Categories of disputes covered
General
interpretative
provisions
Specific case
provisions
►
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Arise where a person
who is resident of a
contracting state
considers that the
actions of one or both
the contracting states
results or will result in
taxation not in
accordance with the
provisions of a DTAA
►
►
Includes issues
relating to
interpretation of
terms under treaty
General in nature
and could be
initiated suo-moto
by CA
Cases not
provided for in
DTAA
►
Provides for
elimination of
double taxation in
cases not provided
in DTAA
MAP Procedure – An overview
MAP request
(Application)
Tax payer to make a
MAP request to the
home country CA
Solution
MAP solution issued
by CA of home country
- Implementation of
solution
Admission
Application admitted at
CA’s discretion
Negotiation
CAs initiate
negotiation and
attempt to reach an
amicable resolution
Process typically requires 2 – 3 years for completion
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Consultation
Host country CA called
upon for dispute
resolution - Where
issue cannot be
resolved unilaterally by
home country CA,
Representation
Tax payer may be
requested to make
written or oral
representations
Indian statutory regime
MAP- Indian Statutory Regime
Rule 44G - For Residents
Rule 44H – For Non-Residents
Applicable to resident assessee
Indian CA receives a reference from CA outside
India, he shall call for records and endeavour to
arrive at a resolution
Aggrieved by action of the tax authority outside
India
Resolution arrived at shall be communicated to
DGIT or CCIT
Such action is not in accordance with the
agreement or tax laws
Assessee can give his acceptance to the
resolution and withdraw the appeal under
traditional avenues
May make an application to CA in Form 34F in
India to invoke MAP
AO to give effect to MAP within 90 days of receipt
of the same by CCIT or DGIT, subject to
conditions fulfilled
Example: Indian Software companies affected by
Taxation in Japan and sought the help of Indian
CA to resolve the issue
Tax, interest or penalty to be adjusted as per MAP
in accordance with the provision of the Income tax
Act 1961. irrespective of time barring of
proceeding
Page 46
MAP vs Appeal Process – Comparative
Overview
Criteria
MAP
Appeal
Time frame
Generally 2 to 3 years
Can range from 7 to 12 years,
depending upon level
Approach
More scope for negotiation/compromise.
Legalistic approach, no negotiations
CAs could agree on a “middle path”
Taxpayer
involvement
At the discretion of CA
Binding Nature
Binding on Revenue; Taxpayer need not
accept if detrimental, can continue with
domestic tax law appeal
Binding, but sequential appeals can
be made to higher judicial authorities
Double tax
mitigation
Possibility of avoiding double tax impact
through correlative relief
Double tax exposure if appeal is
against Taxpayer; uncertainty on
correlative relief
Collection of
taxes
MOU for suspending collection of taxes
(with US, UK and Denmark)
Stay of demand at the discretion of
the Revenue and Appellate
Authorities
Finality
Greater chance of reaching finality,
decision of CA binding on Revenue
Revenue can prefer appeal if firstlevel appeal is in Taxpayer’s favor
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Significant involvement
- Onus to prove
Thank You