Clarifications on rollback provisions of advance pricing agreement scheme
Circular 10/2015 was issued by the Central Board of Direct Taxes on 10 June 2015. Its subject is Clarifications on rollback provisions of advance pricing agreement scheme.
This amends the Income-tax Rules. What it changes is the Rules, not the Act — and a rule can never take away what the section gives.
Answers questions on the rollback limb of the advance pricing agreement scheme, brought in by sub-section (9A) of section 92CC inserted by the Finance (No. 2) Act, 2014 and worked out in rules 10MA and 10RA notified by S.O. 758(E) dated 14 March 2015 and S.O. 915(E) dated 1 April 2015. On the return condition in rule 10MA(2)(ii), the Board holds that a revised return under section 139(5) carries the rollback, because it replaces an original return that was itself filed by the due date in Explanation 2 to section 139(1); a belated return under section 139(4) does not, because it was not filed by the due date. On the requirement in rule 10MA(2)(i) that the rollback apply to an international transaction that is the same as the one covered by the agreement for future years, the Board reads 'same' as a transaction of the same nature with the same associated enterprises, and says there can be no rollback for a transaction the agreement does not cover going forward. On the functions, assets and risks analysis, rollback is available only if the analysis for the rollback year does not differ materially from the one validated for the agreement, 'materially' being defined in the agreements the Board enters into.
Once rules 10MA and 10RA were notified, requests for clarification on how they worked came in to the Board, which chose to answer them in question-and-answer form.
Circular No. 10/2015
F.No. 500/7/2015-APA-II
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Foreign Tax and Tax Research Division-I
APA-II Section
New Delhi, dated 10th June, 2015
Subject: Clarifications on Rollback Provisions of Advance Pricing Agreement
Scheme
The Advance Pricing Agreement provisions were introduced in 2012
through insertion of sections 92CC and 92CD in the Income-tax Act, 1961 by the
Finance Act, 2012. Subsequently, the Advance Pricing Agreement Scheme was
notified vide S.O. 2005 (E), dated 30/8/2012, thereby inserting Rules 10F to 10T
and Rule 44GA in the Income-tax Rules, 1962.
2. Rollback provisions in the APA Scheme were introduced through subsection (9A) inserted in section 92CC by the Finance (No. 2) Act, 2014 and the
relevant rules, namely, Rules 10MA and 10RA, have been notified recently vide
S.O. 758(E) dated 14th March, 2015 and S.O. 915(E) dated 1st April, 2015.
Subsequent to the notification of the rules, requests for clarification regarding
certain issues have been received in the Central Board of Direct Taxes. In order
to clarify such issues, the Board has decided to adopt a Question and Answer
format and the clarifications are hereby provided as below:
Q.1 Under rule 10 MA(2)(ii) there is a condition that "the return of income for the
relevant roll back year has been or is furnished by the applicant before the due
date specified in Explanation 2 to sub-section (1) of section 139 of the Income-tax Act". It is not clear as to whether
applicants who have filed returns under section 139(4) or 139(5) of the Act
would be eligible for roll back.
Page 2 of 8
Answer:
The return of income under section 139(5) of the Act can be filed only when a
return under section 139(1) has already been filed. Therefore, the return of
income filed under section 139(5) of the Act, replaces the original return of
income filed under section 139(1) of the Act. Hence, if there is a return which is
filed under section 139(5) of the Act to revise the original return filed before the
due date specified in Explanation 2 to sub-section (1) of section 139, the
applicant would be entitled for rollback on this revised return of income.
However, rollback provisions will not be available in case of a return of income
filed under section 139(4) because it is a return which is not filed before the due
date.
Q.2 Rule 10MA (2)(i) mandates that the rollback provision shall apply in respect
of an international transaction that is same as the international transaction to
which the agreement (other than the rollback provision) applies. It is not clear
what is the meaning of the word "same". Further, it is not clear whether this
restriction also applies to the Functions, Assets, Risks (FAR) analysis.
Answer:
The international transaction for which a rollback provision is to be allowed
should be the same as the one proposed to be undertaken in the future years
and in respect of which the agreement has been reached. There cannot be a
situation where rollback is finalised for a transaction which is not covered in the
agreement for future years. "The term same international transaction implies that
the transaction in the rollback year has to be of same nature and undertaken
with the same associated enterprise(s), as proposed to be undertaken in the
future years and in respect of which agreement has been reached." In the
context of FAR analysis, the restriction would operate to ensure that rollback
provisions would apply only if the FAR analysis of the rollback year does not differ
materially from the FAR validated for the purpose of reaching an agreement in
respect of international transactions to be undertaken in the future years for
which the agreement applies.
The word "materially" is generally being defined in the Advance Pricing
Agreements being entered into by CBDT.
When applying for rollback along with an advance pricing agreement, and in a transfer pricing assessment for a rollback year where the department disputes whether the year or the transaction qualifies.
Rules it names. Rule 10, 10MA, 44GA of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
It mentions. Circular No. 10/2015
Source: the Income Tax Department’s own published text — its page for this instrument.