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Taxpayers can approach AAR for tax liabilities on deals above Rs 100 cr

In a positive move to cut tax litigation, the Central Board of Direct Taxes (CBDT) has notified that resident taxpayers who have undertaken or plan to undertake one or more transactions valuing Rs 100 crore or above are eligible to approach the AAR (Authority for Advance Rulings) for determination of their tax liabilities under such transaction.

This step, corporate lawyers say, will help reduce litigation on M&As and transfer pricing orders issued by the tax department after a transaction is announced.

The tax department clarified that the advance rulings are, however, not applicable if the question being sought to be raised before the AAR is not already pending before any tax authority or Appellate Tribunal and the application should not involve a question relating to determination of the fair market value of any property etc.

The CBDT notification is part of measures to reduce tax litigation as promised by the Finance Minister Arun Jaitley in his maiden budget in July 2014. The budget had announced that the opportunity to seek advance rulings from the Authority for Advance Rulings (AAR) would also be available to the notified categories of resident taxpayers.

Initially, resident taxpayers could approach the AAR only to determine the tax liability of non-resident taxpayers with respect to a transaction which they entered into or proposed to enter into with such non-resident taxpayers. However, post this announcement, Indian resident taxpayers can approach the AAR to get a ruling determining their own tax liability with respect to a transaction that they undertake or propose to undertake.

Tax lawyers say this is a positive step towards achieving a non-adversarial tax regime as promised by the new government.

“It is expected to bring about clarity at the time the transactions or projects are on the drawing board, making the tax outcome more certain and minimising the possibility of a tax dispute arising at a later stage thereby saving resources in terms of time, cost and efforts in defending or litigating a dispute,” said a lawyer with Khaitan & Co.

“One would now look forward to hearing from the government regarding the additional benches of the AAR in other metrosthat would be set up as announced in the Budget, which will strengthen the infrastructure of the AAR and would result in speedy disposal of applications for advance rulings,” he said.

The AAR forum will soon become functional as the government has now appointed new Chairman V.S. Sirpurkar to take charge of AAR. Thus the hearings of pending cases and the new applications for advance rulings is expected to commence soon.

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