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ADVANCE RULING AND BEST JUDGMENTS

Author: Komal Bhati, V year of B.A., LL.B.(Hons.) from Galgotias University


Introduction

Advance Ruling means written opinion and decision of superior authority or tax authorities. It is issued to those people who want clarification on tax matters. It is issued to the assessee when he is confused about certain provisions. It is applied before the procedure of advance tax ruling.


An advance ruling is for non-residents to find out the income tax liability or to plan their income tax in advance and to avoid costly legal disputes. An advance ruling is defined in section 245 N (a) of the Income-tax Act, 1961. Non-Resident Investors or people always want to determine their liability under the Indian tax laws for their proposed transactions. Considering their problems in the Indian tax laws, the government introduced the concept of Advance Ruling.


Statement of the problem

Authority of the advance ruling is good for those who are non-resident of India but if a resident seeks advance ruling then he has about the tax liability of non -resident arising out of a transaction he needs to propose to take undertaken by a non-resident this is the main problem which arises.


Review of literature

Studies from the different backgrounds such as incometaxindia.gov.in and cbic.gov.in and updated or today’s news from business today sites came to know about the concept of advance ruling and best judgments here in this research paper it states about the meaning concept and provisions of advance ruling and best judgments and there is furthermore scope to work on it as this is a wider term.


Significance of the topic

When a taxpayer has any problem regarding tax liability for proposed transactions, he can always demand an advance ruling from the authority. The advance ruling helps to settle the disputes in advance. It helps foreign investors to determine their tax liabilities.


The Best Judgment Assessment is defined under the IT Act to act by the principles of natural justice. Section 144 of the Income Tax Act states 1961 the Assessing Officer is under an obligation to assess the total income or less to the best of his judgment in the following cases.


In case of best judgment assessment, a taxpayer has a right to file an appeal under S. 246A that makes an application for revision in Sec.246 to the Income Tax Commissioner. The best judgment assessment can only be made after listening or by allowing the taxpayer.


These types of opportunities are given by issuing a notice for the cause of assessment which should not be completed to the best of the judgment and for the opportunity of being heard. It will not be necessary where the notice u/s 142(1) has been issued. The best judgment assessment takes place when the officer is forced to assess with all the knowledge and full resources.


Objectives of research

The objective of the research is to provide knowledge about the advance ruling that how the tax liability undertakes or proposed by the applicant and about attracting the foreign direct investment it reduces the litigation process and it also pronounces the ruling expeditiously transparently and inexpensively.

Best judgments state about the principle of natural justice and according to income tax act liability of assessing officer and obligation to make an assessment of total income and best of his judgments.


Hypothesis

In advance ruling the evidentiary questions and determinations of admissibility take place in course of the trial. in advance ruling the evidence should be excluded on basis of judicial discretion. The uniform act is silent on the issue of advance rulings they do not confer power to give an advance ruling as to how the discrepancies in sec. 135 or 137 should be exercised that discretion can only be exercised when it is invoked.


Scope and limitation

The scope and limitation of best judgment are very wide and it reduces the quantum of litigation between taxpayer and tax department. The decision of advance ruling is binding on the applicant as well as on government authorities too as a legally constituted body under the GST law.


Research methodology and approach

It determines certain matters and questions as specified by law and it regards the interpretation of law specifically in those cases where there is ambiguity in the law itself and taxpayers avoid any type of litigation on basis of such ambiguity.


RESEARCH PAPER

Advance ruling and best judgments

Advance Ruling means written opinion and decision of superior authority or tax authorities. It's issued to those who want clarification on tax matters. It's issued to the assessee when he's confused about certain laws. It's applied before the procedure of advance tax ruling. An advance ruling is for non-residents to search out the revenue enhancement liability or to plan their revenue enhancement before and to avoid costly legal disputes.


Definition of the Advance ruling is defined under section 245 N (a) of the Income-tax Act, 1961[1].


Non-Resident Investors or people always want to work out their liability under the Indian tax laws for his or her proposed transactions. Considering their problems within the Indian tax laws, the govt. introduced the concept of Advance Ruling.

Meaning of advance ruling

Section 245N (a) states the definition of ‘advance ruling’.

“Advance Ruling” means:

• AAR determines a transaction that has been undertaken or proposed to be undertaken by a non-resident applicant.

•A determination by the AAR in respect to the liabilities of a resident applicant, arising out of 1 or more transaction valuing Rs.100 crores or more [vide Notification No. 73/2014, dated 28-11-2014] in total which determines or undertake such applicant and determination shall also include in determining the question of law.


Authority for Advance Rulings (AAR), this paper aims to judge the performance of India’s Authority for Advance Rulings (AAR) in providing timely and effective guidance to taxpayers and also the tax administration through advance rulings. It highlights lacunae within the system and suggests measures so that the private advance ruling system in India can better overcome the challenge of tax uncertainty in an increasingly complex business environment[2].


Types of Advance Rulings

There are two categories of advance rulings[3]:

Public Rulings – In the tax administration system it issues public rulings to clarify the provision of tax law for all or very large scale people in the form of interpretation ruling or clarification. In India, we are having the Central Board of Direct Taxes (CBDT), which is the apex institution of the tax administration, issues. These issues are binding upon the tax authorities, where the taxpayers can only rely on them and the applicability of their facts. They are non-binding taxpayers.


Private Rulings – The rulings are issued to a taxpayer regarding the tax treatment of a particular transaction. In India, AAR is an authority that is independent of the tax administration it gives the rulings, those which are made by the public through the identity of the taxpayer concerned is kept unknown. India and Sweden both have the authority to the independence of the tax administration which means that these issues are private rulings.


Salient features

•a. the transaction which relates proposed to be entered by the applicant: -

The advance ruling is to run given on questions laid out in respect to such a transaction by the applicant[4].


•b. Questions on which ruling may be sought:—

i. While the word employed in the definition is "question", the non-resident can raise quiet one question in one application.


ii. A word "question" means unqualified, only regarding questions of law or fact, enhancement of revenue by the liability of non-resident.


iii. The question is also on points of law likewise as on facts; therefore, mixed questions of law and fact also can be included within the application. The questions should be so drafted that every question may be replied to in the short answer. This might need the breaking-up of the complex question into two or more simple questions.


iv. The questions should arise out of the statement of facts given with the applying. No rulings are going to be given on a purely hypothetical question. An issue not laid out in the applying cannot be urged. Normally an issue is not allowed to be amended but in deserving cases, the Authority may allow the amendment to at least one or more questions.


v.Subject to the constraints, the question may relate to any aspect of the non-resident's liability including international aspects and aspects governed by double tax agreements. The questions may even cover aspects of allied laws which will affect liabilities like the law of contracts, the law of trusts and also the like, but the question must be an immediate relation and or focal point with the interpretation of the Indian Income-tax Act.


vi. Advance Rulings may be obtained to work out whether a rendezvous, which is proposed to be undertaken by any person being a resident or a non-resident, is an impermissible avoidance arrangement.


Reasons for the Concept of Advance Rulings

Non-Resident investors always want to measure their liability under the Indian tax laws about their proposed transactions. Considering the complexities in the Indian tax laws, the govt. introduced the concept of Advance Ruling. Whenever a taxpayer doubts liabilities in respect of proposed transactions, he can seek an advance ruling from the authority. The advance ruling helps in settling disputes before. It helps foreign investors in determining their tax liabilities before order that they'll assess the transaction that they propose to undertake.


It also brings to determine the liabilities, because the ruling given by the Authority for Advance Ruling is binding on the applicant as Government authorities.

Benefits of Scheme of Advance Ruling:

•Determination of liabilities before.

•Reducing Litigation.

•Attract Foreign Direct Investment.

•It is inexpensive.

•Rulings are binding on the applicant likewise because of the department[5].


Best judgment assessment

Best judgment assessment means evaluating or estimate the income of the assessee by the officer. In best judgment assessment the assessing officer honestly or without being partial give the best judgment to the assessee. Best judgment is defined under section 144 of the income tax act, 1961.

The best judgment assessment can only be considered after allowing the assessee for being heard[6].


Section 144 of the income tax act 1961 states about the best judgment assessee is also known as ex-parte assessment.

In these circumstances:

1. When there is the failure to file the return under section 139(1), 139(4) or 139(5)

2. When there is the failure to comply with all terms of notice under section 142(1), 142(2A)

3. When there is having filed return of income and when the assessee fails to with the term of notice issued under section 143(2).

AO after considering into account take all the relevant fact and gave the assessee an opportunity for a hearing.


It is divided into 2 judgment assessment:

Compulsory best judgment assessment- this judgment is made by the assessing officer when the assessee does not cooperate or there is the default in supplying the information[7].

Discretionary best judgment assessment–means the best judgment assessment in which the assessing officer by himself done all kind of accounting if he finds any inconsistency in the method.


The objective of the Best Judgment Assessment

The main purpose of Best Judgment is to arrive or come to a fair and proper turnover of the dealer. The best judgment does not mean to increase in the turnover of the dealer. The assessee should provide sufficient opportunity to explain his case for making an assessment order. If in a case assessing officer receives any information regarding the assessee regarding his institution or business of an assessee he must disclose it in front of the assessee[8]. Assessee is entitled to get summons as he can witness for cross-examination to remove the false allegation or to represent the truth.


Conclusion

Best judgment assessment procedure gave a large number of discretionary powers to assessing authority to assess in the case where there has been willful elimination and hiding of income and turnover by the assessee. The power and authority are given to AO that he has the authority to assume from the documents and also present to provide an assessment for the increase and decrease of turnover. Income tax assessment should be taken seriously. It is important that while filing the income tax return it needs to be correct so there is no need for any kind of tax assessment in front of AO. In the case of the advance ruling, the GST implementer needs to turn over their attention for reform of advance ruling mechanism under the legislation. The divergent ruling was given on the facts which were similar for two or more state authorities for advance rulings. Much or more effort should be taken to make AAR more effective. Bold measures need to be taken by an institution for fair rulings. As GST is completely new for each and everyone it can only be guided as to how the arrangements of tax and the transaction take place, it should be wholly at its own risk. Over there only advance ruling can help you out. Advance Ruling under the GST improves the scope of showing a particular issue. Different jurisdictional tax authorities have or give different interpretations for the same subject. In case of dispute arising over there, an advance ruling cannot be possible. It will destroy the purpose of advance ruling. Now we just need to see how to advance ruling to help out the matter of GST.


[1] Handbook of the advance ruling, concept sec.245N(a)

[2] https;//www.incometaxindia.gov.in

[3] https://taxguru.in>income-tax

[4] https://ctconline.org

[5] The authority of advance ruling, a critical analysis by sweccha malik

[6] MRV, Rao book on the concept of taxation

[7] Narayan Jain and Deepak Jain Loyalka, how to handle tax problem-book

[8] Best judgment law teacher.in the basis of best judgment