The Finance Minister while presenting the Union Budget 2021 has proposed to replace the Authority of Advance Ruling (AAR) with Board for Advance Rulings (BFAR or Board).
In order to ensure faster disposal of cases, it is proposed to replace the Authority for Advance Rulings with a Board for Advance Rulings. It is also proposed to provide a right to appeal against the order of such Board to the High Court.
Constitution of the Board for Advance Ruling
With a view to avoiding dispute in respect of the assessment of tax liability and to provide tax certainty, a scheme of Advance Rulings was incorporated in the Act vide the Finance Act, 1993 by inserting a new Chapter XIX-B.
Under these provisions, the Authority for Advance Rulings (AAR) pronounces rulings on the applications of the non-resident/residents and such rulings are binding both on the applicants and the Tax department. AAR consists of a Chairman and various Vice-Chairman, revenue members and law members. There are three benches of the Authority. The principal bench consists of Chairman, one revenue member and one law member. The other benches consist of one Vice-Chairman, one revenue member and one law member, each. A bench cannot function if the post of Chairman or Vice-Chairman is vacant. As per section 245-O of the Act, persons eligible for appointment as Chairman of AAR are retired judges of the Supreme Court, retired Chief Justice of a High Court or retired Judge of a High Court who has served in that capacity for at least seven years. Similarly, the persons eligible for appointment as Vice-Chairman are retired judges of a High Court. As per past experience, the posts of Chairman and Vice-Chairman have remained vacant for a long time due to the non-availability of eligible persons.
This has seriously hampered the working of AAR and a large number of applications are pending since last many years. There is, therefore, a need to look for an alternative method of providing advance ruling which can give rulings to taxpayers in a timely manner. Hence, it is proposed to constitute a Board of Advance Ruling and to make the following amendments in the existing provisions of AAR:-
(i) The Authority for Advance Rulings shall cease to operate with effect from such date, as may be notified by the Central Government in the Official Gazette (hereinafter referred to as the notified date).
(ii) It is proposed that the Central Government shall constitute one or more Board for Advance Rulings for giving advance rulings under the said Chapter on and after the notified date. Every such Board shall consist of two members, each being an officer not below the rank of Chief Commissioner. Advance rulings of such Board shall not be binding on the applicant or the Department and if aggrieved, the applicant or the Department may appeal against the ruling or order passed by the Board before the High Court.
(iii) Since the work of Authority shall be carried out by the Board for Advance Rulings on and after the notified date, amendments are proposed to be made to the various provisions of the Chapter to this effect.
(iv) Section 245N is proposed to be amended to incorporate the definitions of the Board of Advance Rulings, notified date, Member of the Board of Advance Rulings and change in the definition of Authority to include the Board for Advance Rulings
(v) Section 245-O is proposed to be amended to provide that the Authority constituted under the said section shall cease to operate on or after the notified date.
(vi) Section 245-OB shall be inserted to provide for the constitution of the Board of Advance Rulings.
(vii) Section 245P is proposed to be amended to provide that on or from the notified date, the provisions of the said section shall have effect as if for the words ―Authority‖, the words ―Board for Advance Rulings‖ had been substituted;
(viii) Section 245Q (which deals with filing of application) is proposed to be amended to provide that the pending application with the Authority i.e. in respect of which order under section 245R(2) or section 245R(4) has not been passed before the notified date shall be transferred to the Board for Advance Rulings along with all records, documents or material, by whatever name called and shall be deemed to be records before the Board for all purposes.
(ix) Section 245R (which deals with the procedure) is proposed to be amended to provide that on or from the notified date, the provisions of the said section shall have effect as if for the words ―Authority‖, the words ―Board for Advance Rulings‖ had been substituted and the provisions of the said section shall apply mutatis mutandi to the Board for Advance Rulings as they apply to the Authority.
(x) The Central Government is also proposed to be empowered to make a scheme by notification in the Official Gazette for the purpose of giving advance ruling by Board of Advance Ruling under this provision. The scheme shall impart greater efficiency, transparency and accountability by eliminating interface to the extent technologically feasible, by optimising utilisation of resources and introducing dynamic jurisdiction. The Central Government may, for the purposes of giving effect to the scheme, by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification. However, no such direction shall be issued after the 31st day of March 2023. Every such notification shall, as soon as may be after the notification is issued, be laid before each House of Parliament.
(xi) Section 245S (which deals with the applicability of advance ruling and makes it binding on the assessee and the Department) is proposed to be amended to provide that nothing contained in the said section shall apply on and after the notified date.
(xii) Section 245T (which deals with the advance ruling to be void in a certain situation) is proposed to be amended to provide that on or from the notified date, the provisions of the said section shall have effect as if for the words ―Authority‖, the words "Board for Advance Rulings" had been substituted. Also, a specific reference to advance ruling pronounced by the Authority shall be amended to make it advance ruling pronounced under sub-section (6) of section 245R so that the Board for Advance Ruling can also exercise powers under the said section in respect of rulings pronounced by the present Authority.
(xiii) Section 245U is proposed to be amended to provide that on or from the notified date, the powers of the ―Authority‖ under the said section shall be exercised by the ―Board for Advance Rulings‖ and the provisions of the said section shall apply mutatis mutandi to the Board for Advance Rulings as they apply to the Authority.
(xiv) Section 245V is proposed to be amended to provide that nothing contained in the said section shall apply on and after the notified date
(xv) A new section 245W is proposed to be inserted to provide for appeal to High Court against the order passed or ruling pronounced by the Board for Advance Ruling. This appeal can be filed by the applicant as well as by the Department. Such appeal shall be filed within sixty days from the date of the communication of such ruling or order, in such form and manner as may be prescribed. However, where the High Court is satisfied, on an application made in this behalf, that the appellant was prevented by sufficient cause from presenting the appeal within the period specified in this section, it may allow a further period of thirty days for filing such appeal. The Central Government shall be empowered to notify a scheme for filing of appeal by the Assessing Officer so as to impart greater efficiency, transparency and accountability by optimising utilisation of the resources through economies of scale and functional specialisation; introducing a system with dynamic jurisdiction. The Central Government may, for the purposes of giving effect to the scheme, by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification. However, no such direction shall be issued after the 31st day of March 2023. Every such notification shall, as soon as may be after the notification is issued, be laid before each House of Parliament.
(xvi) References to Customs Act, 1962, Central Excise Act, 1944 and Finance Act, 1994 in the definition of the applicant in section 245N and in section 245Q relating to the application for advance ruling is proposed to be omitted.
These amendments will take effect from 1st April 2021
For this purpose, amendments were carried out in the provisions of the Income Tax Act, 1961 vide Clauses 67 to 77 of the Finance Bill, 2021.
Amendment of section 245N.
67. In section 245N of the Income-tax Act,––
(i) in clause (b), sub-clauses (B), (C) and (D) shall be omitted with effect from such date as the Central Government may, by notification in the Official Gazette, appoint;
(ii) in clause (c), after the word “Authority”, the words “or the Board for Advance Rulings” shall be inserted;
(iii) after clause (c), the following clause shall be inserted, namely:—
‘(ca) “Board for Advance Rulings” means the Board for Advance Rulings constituted by the Central Government under section 245-OB;’;
(iv) in clause (f), after the word “Vice-Chairman”, the words “or a Member of the Board for Advance Rulings” shall be inserted.
Amendment of section 245-O.
68. In section 245-O of the Income-tax Act, in sub-section (1), after the proviso, the following proviso shall be inserted, namely:—
“Provided further that the Authority so constituted shall cease to operate on and from such date as the Central Government may, by notification in the Official Gazette, appoint.”.
Insertion of new section 245-OB.
69. After section 245-OA of the Income-tax Act, the following section shall be inserted, namely:—
Board for Advance Rulings
“245-OB. (1) The Central Government shall constitute one or more Boards for Advance Rulings, as may be necessary, for giving advance rulings under this Chapter on or after such date as the Central Government may, by notification in the Official Gazette, appoint.
(2) The Board for Advance Rulings shall consist of two members, each being an officer not below the rank of Chief Commissioner, as may be nominated by the Board.”.
Amendment of section 245P.
70. Section 245P of the Income-tax Act shall be numbered as sub-section (1) thereof, and after sub-section (1) as so numbered, the following sub-section shall be inserted, namely:––
“(2) With effect from such date as the Central Government may, by notification in the Official Gazette, appoint, the provisions of this section shall have effect as if for the word “Authority”, the words “Board for Advance Rulings” had been substituted.”.
Amendment of section 245Q.
71. In section 245Q of the Income-tax Act,—
(a) in sub-section (1), the words, figures and letters “or under Chapter IIIA of the Central Excise Act, 1944 or under Chapter VA of the Finance Act, 1994” shall be omitted with effect from such date as the Central Government may, by notification in the Official Gazette, appoint;
(b) after sub-section (3), the following sub-section shall be inserted, namely:—
“(4) Where an application is made under this section before such date as the Central Government may, by notification in the Official Gazette appoint, and in respect of which no order under sub-section (2) of section 245R has been passed or advance ruling under sub-section (4) of section 245R has been pronounced before such date, such application along with all the relevant records, documents or material, by whatever name called, on the file of the Authority shall be transferred to the Board for Advance Rulings and shall be deemed to be the records before the Board for Advance Rulings for all purposes.”.
Amendment of section 245R.
72. In section 245R of the Income-tax Act, after sub- section (7), the following sub-sections shall be inserted, namely:—
‘(8) On and from such date as the Central Government may, by notification in the Official Gazette, appoint, the provisions of this section shall have effect as if for the word “Authority”, the words “Board for Advance Rulings” had been substituted and the provisions of this section shall apply mutatis mutandis to the Board for Advance Rulings as they apply to the Authority.
(9) The Central Government may, by notification in the Official Gazette, make a scheme for the purposes of giving advance rulings under this Chapter by the Board for Advance Rulings, so as to impart greater efficiency, transparency and accountability by—
(a) eliminating the interface between the Board for Advance Rulings and the applicant in the course of proceedings to the extent technologically feasible;
(b) optimising utilisation of the resources through economies of scale and functional specialisation;
(c) introducing a system with dynamic jurisdiction.
(10) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (9), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification:
Provided that no such direction shall be issued after the 31st day of March, 2023.
(11) Every notification issued under sub-section (9) and sub-section (10) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.’.
Amendment of section 245S.
73. In section 245S of the Income-tax Act, after sub- section (2), the following sub-section shall be inserted, namely:—
“(3) Nothing contained in this section shall apply to any advance ruling pronounced under section 245R on or after such date as the Central Government may, by notification in the Official Gazette, appoint.”.
Amendment of section 245T.
74. In section 245T of the Income-tax Act,—
(a) in sub-section (1), the words “by it” shall be omitted;
(b) after sub-section (2), the following sub-section shall be inserted, namely:—
‘(3) With effect from such date as the Central Government may, by notification in the Official Gazette, appoint, the provisions of this section shall have effect as if for the word “Authority”, the words “Board for Advance Rulings” had been substituted.’.
Amendment of section 245U.
75. In section 245U of the Income-tax Act, after sub-section (2), the following sub-section shall be inserted, namely:—
“(3) On and from such date as the Central Government may, by notification in the Official Gazette, appoint, the powers of the Authority under this section shall be exercised by the Board for Advance Rulings and the provisions of this section shall mutatis mutandis apply to the Board for Advance Rulings as they apply to the Authority.”.
Amendment of section 245V.
76. In section 245V of the Income-tax Act, the following proviso shall be inserted, namely:—
“Provided that nothing contained in this section shall apply on or after such date as the Central Government may, by notification in the Official Gazette, appoint.”.
Insertion of new section 245W.
77. After section 245V of the Income-tax Act, the following section shall be inserted, namely:—
Appeal.
“245W. (1) The applicant, if he is aggrieved by any ruling pronounced or order passed by the Board for Advance Rulings or the Assessing Officer, on the directions of the Principal Commissioner or Commissioner, may appeal to the High Court against such ruling or order of the Board of Advance Rulings within sixty days from the date of the communication of that ruling or order, in such form and manner, as may be prescribed:
Provided that where the High Court is satisfied, on an application made by the appellant in this behalf, that the appellant was prevented by sufficient cause from presenting the appeal within the period specified in sub-section (1), it may grant further period of thirty days for filing such appeal.
(2) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of filing appeal to the High Court under sub-section (1) by the Assessing Officer, so as to impart greater efficiency, transparency and accountability by—
(a) optimising utilisation of the resources through economies of scale and functional specialisation;
(b) introducing a team-based mechanism with dynamic jurisdiction.
(3) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (2), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification:
Provided that no such direction shall be issued after the 31st day of March, 2023.
(4) Every notification issued under sub-section (2) and sub-section (3) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.”.
Amended Provisions Explained
Clause 67 of the Bill seeks to amend section 245N of the Income-tax Act relating to definitions.
It is proposed to omit sub-clauses (B), (C) and (D) of the said section with effect from such date as may be appointed by the Central Government by notification in the Official Gazette.
It is further proposed to amend clause (c) of the said section so as to insert the words “or the Board for Advance Rulings”. It is also proposed to insert clause (ca) to said section so as to provide definitions of Board for Advance Rulings and members of the Board for Advance Rulings.
Clause 68 of the Bill seeks to amend section 245-O of the Income-tax Act relating to Authority for Advance Rulings.
It also proposed to insert a proviso in the sub-section (1) of said section so as to provide that the Authority constituted under the said sub-section shall cease to operate on and from such date as may be appointed by the Central Government by notification in the Official Gazette.
Clause 69 of the Bill seeks to insert a section 245-OB relating to Board for Advance Rulings so as to provide that the Central Government shall constitute one or more Board for Advance Rulings, as may be necessary, for giving advance rulings under this Chapter on or after such date as may be appointed by the Central Government by notification in the Official Gazette. The Board for Advance Rulings constituted shall consist of two members, each being an officer not below the rank of Chief Commissioner, as may be nominated by the Board.
Clause 70 of the Bill seeks to amend section 245P of the Income-tax Act relating to vacancies, etc., not to invalidate proceedings.
It is proposed to insert sub-section (2) in the said section so as to provide that on and from the notified date, the provisions of the said section shall have effect as if for the words “Authority”, the words “Board for Advance Rulings” had been substituted.
Clause 71 of the Bill seeks to amend section 245Q of the Income-tax Act relating to the application for advance ruling.
It is proposed to amend sub-section (1) of the said section so as to omit the portion “or under Chapter IIIA of the Central Excise Act, 1944 under Chapter VA of the Finance Act, 1994” with effect from such date as may be appointed by the Central Government by notification in the Official Gazette.
It is further proposed to insert sub-section (4) so as to provide where an application was made under the said section before the notified date but in respect of which no order under sub-section (2) of section 245R has been passed or advance ruling under sub-section (4) of section 245R has been pronounced before such date, such application along with all the relevant records, documents or material, by whatever name called, on the file of the Authority shall be transferred to the Board for Advance Rulings and shall be deemed to be the records before it for all purposes.
Clause 72 of the Bill seeks to amend section 245R of the Income-tax Act relating to the procedure on receipt of application.
It is proposed to insert sub-sections (8), (9), (10) and (11) so as to provide that on such date as may be appointed by the Central Government by notification in the Official Gazette, the provisions of the said section shall have effect as if for the words “Authority”, the words “Board for Advance Rulings” had been substituted and the provisions of that section shall apply mutatis mutandis to the Board for Advance Rulings as they apply to the Authority. Further, it provides that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of giving advance ruling under Chapter XIX-B by the Board for Advance Rulings, so as to impart greater efficiency, transparency and accountability by eliminating the interface between the Board for Advance Rulings and the applicant in the course of proceedings to the extent technologically feasible; optimising utilisation of the resources through economies of scale and functional specialisation; introducing a system with dynamic jurisdiction. It also provides that the Central Government may, for the purposes of giving effect to the said scheme, by notification in the Official Gazette, direct that any of the provisions of the Income-tax Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification. However, no direction shall be issued after 31st March, 2023. Every notification so issued shall, as soon as may be after the notification is issued, be laid before each House of Parliament.
Clause 73 of the Bill seeks to amend section 245S of the Income-tax Act relating to applicability of advance ruling.
It is proposed to amend the said section to insert sub-section (3) so as to provide that nothing contained in this section shall apply to any advance ruling pronounced under section 245R on or after on such date as may be appointed by the Central Government by notification in the Official Gazette.
Clause 74 of the Bill seeks to amend section 245T of the Income-tax Act relating to advanced ruling to be void in certain circumstances.
It is proposed to amend the said section so as to provide that the reference in sub-section (1) to advance ruling pronounced by the Authority shall be omitted by omitting the words “by it”. It is also proposed to insert sub-section (3) to the said section so as to provide that on and from such date as may be appointed by the Central Government by notification in the Official Gazette the provisions of that section shall have effect as if for the word “Authority”, the words “Board for Advance Rulings” had been substituted.
Clause 75 of the Bill seeks to amend section 245U of the Income-tax Act relating to powers of Authority.
It is proposed to insert sub-section (3) to the said section so as to provide that on and from such date as may be appointed by the Central Government by notification in the Official Gazette, the powers of the Authority under this section shall be exercised by the Board for Advance Rulings and the provisions of this section shall apply mutatis mutandis to the Board for Advance Rulings as they apply to the Authority.
Clause 76 of the Bill seeks to amend section 245V of the Income-tax Act relating to the procedure of Authority.
It is proposed to insert a proviso to the said section so as to provide that nothing contained in that section shall apply on or after the notified date.
Clause 77 of the Bill seeks to insert a new section 245W to the Income-tax Act relating to Appeal.
It is proposed to insert a new section 245W so as to provide that the applicant may, if he is aggrieved by any ruling pronounced or order passed by the Board for Advance Rulings; or the Assessing Officer, on the directions of the Principal Commissioner or Commissioner, appeal to the High Court within sixty days from the date of the communication of such ruling or order, in such form and manner as may be provided by rules. However, where the High Court is satisfied, on an application made by the appellant in this behalf, that the appellant was prevented by sufficient cause from presenting the appeal within the period specified in sub-section (1), it may grant a further period of thirty days for filing such appeal. It is also proposed that the Central Government may make a scheme, by notification in the Official Gazette, for the purposes of preferring appeal to the High Court by the Assessing Officer, so as to impart greater efficiency, transparency and accountability by optimising utilisation of the resources through economies of scale and functional specialisation; introducing a team-based mechanism with dynamic jurisdiction. It is also proposed that the Central Government may, for the purposes of giving effect to the said scheme, by notification in the Official Gazette, direct that any of the provisions of the Income-tax Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification. However, no direction shall be issued after 31st March 2023. Every notification so issued shall, as soon as may be after the notification is issued, be laid before each House of Parliament.
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