Make system of advance tax ruling more comprehensive: SC to Centre

The apex court gave this suggestion while hearing the case of the National Co-operative Development Corporation (NCDC)

The Supreme Court has recommended to the Centre to make the current advance tax ruling system more effective and comprehensive as a tool for the settlement of disputes.

The apex court gave this suggestion while hearing the case of the National Co-operative Development Corporation. The point of dispute between the Corporation and the income tax department was whether grants disbursed from the common pool fund, which consisted of capital receipts received from the Centre and interest income earned through the idle funds parked in fixed deposits, by the NCDC during 1976-77 was a deductible revenue expenditure or not.

The court remarked,"Which pocket of the government should be enriched has taken forty-four years to decide -- a classic case of what ought not to be."

Noting that the petition rate of the tax department with the SC is 87 per cent, the court opined that "a vibrant system of advance ruling can go a long way in reducing taxation litigation".

SC said there was an increasing number of applications pending before the Authority for Advance Rulings due to its low disposal rate.

It said contrary to the expectation that a ruling would be given in six months (as per section 245R (6) of the I-T Act), the average time taken is stated to be around four years. This is primarily attributable to the large number of vacancies and delayed appointment of AAR members, the court said.

Amit Maheshwari, tax partner at AKM Global, a consultancy firm, said the advance ruling had lost its relevance considering the frequent delays and unfavourable orders which were coming of late. "Considering the various initiatives taken by the government to reduce litigation, this recommendation by the Supreme Court has the potential to reduce litigation by binding tax authorities," he said.