Authority for Advance Rulings ( AAR )

Many companies are vexed as they are unable to plan their tax affairs due to delays in securing advance rulings on their international transactions. An advance ruling gives certainty as to tax liability and reduces disputes. The authority for advance rulings (AAR), a quasi judicial body. The AAR’s verdict is binding on the taxpayer and the revenue department, though some rulings have been challenged in the Supreme Court.

  • Objective of AAR is to provide the facility of ascertaining the Income-tax liability of a non-resident, to plan their Income-tax affairs well in advance and to avoid long drawn and expensive litigation. A non-resident or certain categories of resident can obtain binding rulings from the Authority on question of law or fact arising out of any transaction/proposed transactions which are relevant for the determination of his tax liability.
  • The Authority for Advance Rulings (AAR) pronounces rulings on the applications of the non-resident/residents submitted in the prescribed form following prescribed procedure and such rulings are binding both on the applicant and the income-tax department. Thus, the applicant can avoid expensive and time consuming litigation on any question of law or fact which might arise from normal income-tax assessment proceedings. AAR (Procedure) Rules, 1996 provide detailed procedure for obtaining advance rulings.
  • The Authority for Advance Rulings consists of a Chairman, who is a retired Judge of the Supreme Court and two members of the rank of Additional Secretary to the Government of India, one each from the Indian Revenue Service and the Indian Legal Service.
  • Any non-resident person whether individual, company, firm, association of persons or other body corporates can make an application for seeking an advance ruling in regard to his/its tax liability. Similarly, certain category on residents can also seek advance rulings.

Why AAR was in news recently?

AAR is mandated under the income-tax law to deliver its verdict within six months. But cases are piling up, with the AAR missing the deadline by as long as 11 months and counting. The issue was raised by ET in one of its editorials. It said that the AAR, steered by a retired judge of the Supreme Court, cannot be a sinecure. It has to be a full-fledged assignment. And rulings must be fast-tracked as the lack of certainty in tax laws and arbitrariness of tax administration are among the biggest challenges faced by investors today.


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