Income Tax 2025

Appearance

Procedure on receipt of application. ​

384(1) ​

On receipt of an application, the Board for Advance Rulings shall forward a copy thereof to the Principal Commissioner or Commissioner and, call upon him to furnish the relevant records, which shall be returned at the earliest opportunity.

384(2) ​

The Board for Advance Rulings may, after examining the application and the records called for either allow or reject the application by an order.

384(3) ​

For the purposes of sub-section (2), an application shall be rejected if the question raised therein—

  • (a) is already pending before any income-tax authority or Appellate Tribunal except in the case of a resident applicant falling in section 380(b)(iv) or any court;
  • (b) involves determination of fair market value of any property;
  • (c) relates to a transaction or issue which is designed prima facie for the avoidance of income-tax except in the case of a resident applicant falling in section 380(b)(iv) or in the case of an applicant falling in section 380(b)(v).

384(4) ​

The application shall not be rejected under sub-section (2), unless an opportunity has been given to the applicant of being heard and the reasons for such rejection are given in the order.

384(5) ​

A copy of every order made under sub-section (2) shall be sent to the applicant and to the Principal Commissioner or Commissioner.

384(6) ​

Where an application is allowed under sub-section (2), the Board for Advance Rulings shall, after examining such further material as may be placed before it by the applicant or obtained by the Board for Advance Rulings, pronounce its advance ruling in writing, on the question specified in the application within six months of the receipt of application.

384(7) ​

On a request from the applicant, the Board for Advance Rulings shall, before pronouncing its advance ruling, provide an opportunity to the applicant of being heard, either in person or through a duly authorised representative.

384(8) ​

A copy of the advance ruling pronounced by the Board for Advance Rulings, duly signed by the Members and certified in the manner, as prescribed shall be sent to the applicant and to the Principal Commissioner or Commissioner, as soon as may be, after such pronouncement.

384(9) ​

In this section, “authorised representative” shall have the meaning assigned to it in section 515(3)(a), as if the applicant were an assessee.

Explanation

Section Summary: ​

Section 384 outlines the procedure followed by the Board for Advance Rulings (BAR) when it receives an application for an advance ruling. An advance ruling is a decision provided by the BAR on specific tax-related questions raised by taxpayers, helping them gain clarity on their tax obligations before undertaking transactions. This section details how the BAR processes applications, including forwarding them to the relevant tax authorities, examining records, and deciding whether to allow or reject the application. It also specifies the timeline for issuing rulings and the rights of applicants during the process.

Key Changes: ​

  1. Rejection Criteria Clarified: The section explicitly lists grounds for rejecting an application, such as if the question is already pending before another tax authority, involves fair market value determination, or relates to tax avoidance (with exceptions for certain resident applicants).
  2. Hearing Opportunity: Applicants must be given an opportunity to be heard before their application is rejected, ensuring procedural fairness.
  3. Timeline for Rulings: The BAR must issue an advance ruling within six months of receiving the application, providing a clear deadline for resolution.
  4. Authorised Representative: The definition of an "authorised representative" is linked to Section 515(3)(a), ensuring consistency in representation rules.

Practical Implications: ​

  1. For Taxpayers: Applicants can seek advance rulings to clarify tax implications of transactions, reducing uncertainty. However, they must ensure their questions do not fall under the rejection criteria (e.g., pending cases or tax avoidance issues).
  2. For Businesses: Businesses planning complex transactions can use advance rulings to mitigate tax risks, but they must provide complete and accurate information to avoid rejection.
  3. For Tax Authorities: The Principal Commissioner or Commissioner must cooperate by providing relevant records promptly, ensuring the BAR can make informed decisions.
  4. Timely Resolution: The six-month timeline ensures quicker resolution of tax queries, benefiting both taxpayers and authorities.

Critical Concepts: ​

  1. Advance Ruling: A binding decision by the BAR on specific tax questions raised by taxpayers before undertaking transactions.
  2. Fair Market Value (FMV): The estimated market value of a property or asset, which is excluded from advance ruling questions.
  3. Tax Avoidance: Transactions designed primarily to reduce tax liability, which are generally excluded from advance rulings unless specific exceptions apply.
  4. Authorised Representative: A person authorised to represent the applicant before the BAR, as defined under Section 515(3)(a).

Compliance Steps: ​

  1. Application Submission: Submit a complete application to the BAR with all necessary details and supporting documents.
  2. Avoid Rejection Grounds: Ensure the question is not already pending before another authority, does not involve FMV determination, and is not related to tax avoidance (unless exceptions apply).
  3. Respond to BAR Requests: Provide any additional information or records requested by the BAR promptly.
  4. Request a Hearing: If desired, request an opportunity to be heard before the BAR pronounces its ruling.
  5. Monitor Timeline: Track the six-month timeline for the BAR’s decision and follow up if necessary.

Examples: ​

  1. Scenario 1: A company plans to enter into a cross-border transaction and wants clarity on the tax implications. It applies to the BAR for an advance ruling. The BAR forwards the application to the Principal Commissioner, examines the records, and issues a ruling within six months, providing the company with certainty.

  2. Scenario 2: An individual applies for an advance ruling on the tax treatment of a property transaction. However, the BAR rejects the application because the question involves determining the fair market value of the property, which is excluded under Section 384(3)(b). The individual is given an opportunity to be heard before the rejection is finalized.

  3. Scenario 3: A resident applicant raises a question about a transaction that could be seen as tax avoidance. However, since the applicant falls under Section 380(b)(iv), the BAR considers the application and provides a ruling, as the exception applies.

This section ensures a structured and fair process for obtaining advance rulings, balancing the needs of taxpayers and the interests of tax authorities.