Section 245R of ITA, 1961 : Section 245R: Procedure On Receipt Of Application

Explanation using Example

Imagine a company, TechCorp, that is planning to set up a new type of data center in India and is unsure about the tax implications of its proposed activities under the Income-tax Act, 1961. TechCorp wants to avoid any future tax disputes and decides to seek clarity on its tax obligations in advance. They submit an application to the Authority for Advance Rulings (AAR) under Section 245R of the Income-tax Act, hoping to get an advance ruling on their tax questions.

The AAR receives the application and forwards a copy to the Principal Commissioner of Income Tax (PCIT) for records. After examining the application and the records, the AAR finds that the questions raised by TechCorp are not pending before any other tax authority, do not involve the determination of fair market value, and are not designed for the avoidance of income tax. Thus, the AAR decides to allow the application and proceeds to examine further material.

Before pronouncing the advance ruling, the AAR provides TechCorp with an opportunity to be heard, as requested. TechCorp presents its case through its authorized representative. Finally, within six months from receiving the application, the AAR pronounces its advance ruling, providing TechCorp with a clear understanding of the tax treatment for its data center project. A copy of the ruling is sent to both TechCorp and the PCIT, ensuring that all parties are informed of the decision.