Rule 109 — Procedure.
Rule 109 is the processing rule for an advance pricing agreement application that has been allowed to be proceeded with under rule 108. Sub-rule (1) puts the team, or the competent authority of India or his representative, in charge of processing it in consultation and discussion with the applicant.
Sub-rule (2) gives the powers used to do that: hold meetings with the applicant at such time and date as it deems fit, call for additional document or information or material, visit the applicant's business premises, and make such inquiries as it deems fit. Sub-rule (4) gives the applicant the corresponding right to provide further document and information for consideration.
Sub-rule (3) sets a soft outer time for a unilateral agreement: the proceedings under sub-rule (2) may, where it is possible, be completed within one year from the end of the financial year in which the application was allowed to be proceeded with.
Sub-rules (5) to (7) route a bilateral or multilateral case. The competent authority forwards the application to the Principal Chief Commissioner of Income-tax (International Taxation), who assigns it to one of the teams. The team assigned carries out the enquiry and prepares a draft report, which the Principal Chief Commissioner (International Taxation) forwards to the competent authority of India. Where the applicant has asked for a bilateral or multilateral agreement, the competent authority of India must, in addition to this rule's procedure, invoke the procedure in rule 122.
Sub-rules (8) to (10) produce the agreement. The Principal Chief Commissioner of Income-tax (International Taxation) for a unilateral agreement, or the competent authority of India for a bilateral or multilateral agreement, and the applicant prepare a proposed mutually agreed draft agreement setting out the result of the process, including the effect of the arrangement referred to in rule 122(5) accepted by the applicant under rule 122(8). The agreement is entered into by the Board with the applicant after approval by the Central Government. Once entered into, a copy is sent to the Commissioner of Income-tax having jurisdiction over the assessee.
Sub-rules (11) and (12) allow closure for non-cooperation. Where no agreement has been entered into within three years from the end of the financial year in which the application was furnished, the Board may direct that the proceedings be treated as closed, but only if the applicant has not provided any relevant document, information or material required under sub-rule (2), or fails to comply with a direction for holding a meeting, facilitating a premises visit or making inquiries. Such a direction may be given only after a reasonable opportunity of being heard.
Sub-rules (13) and (14) impose a hard closure in one case. Where a unilateral advance pricing agreement is applied for and the primary covered transaction is the provision of information technology services referred to in rule 89(2) [Table: Sl. No. 1], and the agreement is not entered into within two years from the end of the quarter in which the application is made, the proceedings shall be treated as closed. The assessee may request an additional period of six months, and in that case the time limit is extended by six months.
Sub-rule (15) provides that where the proceedings are closed, the fee paid under rule 106 is not refunded.
An advance pricing agreement is negotiated, not adjudicated, so the rules that govern it have to describe a process rather than a decision. Rule 109 supplies that process: who handles the file, what they may ask for, how a bilateral case is routed to the competent authority and back, and who signs. The closure provisions exist because a negotiation with no end date is a standing burden on both sides — sub-rule (11) closes a file the applicant is not cooperating with, and sub-rules (13) and (14) close a standard information technology services file on time whatever the reason.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Indicative time to complete the proceedings for a unilateral agreement | One year | From the end of the financial year in which the application was allowed to be proceeded with; expressed as "may, where it is possible", not as a binding limit | Sub-rule (3) |
| Period after which the Board may treat proceedings as closed for non-cooperation | Three years | From the end of the financial year in which the application is furnished, and only where the applicant has not provided required material or has failed to comply with a direction under sub-rule (2) | Sub-rule (11) |
| Automatic closure period for a unilateral agreement on information technology services | Two years | From the end of the quarter in which the application is made, where the primary covered transaction is the provision of information technology services referred to in rule 89(2) [Table: Sl. No. 1] | Sub-rule (13) |
| Extension available on the assessee's request | An additional period of six months | Requested by the assessee beyond the two-year limit in sub-rule (13); the limit is then extended by six months | Sub-rule (14) |
The two closure provisions are not the same animal and the difference decides real files. Sub-rule (11) is discretionary and conditional — the Board may close, and only on a finding of non-cooperation, after a hearing under sub-rule (12) — so three years of slow progress is not itself a ground. Sub-rule (13) is automatic: on the information technology services fact pattern the proceedings shall be treated as closed at two years from the end of the quarter of application, with no hearing and no finding, and the only relief is the six-month extension the assessee must ask for under sub-rule (14). Ask before the limit expires, not after. Note also that the Board, not the negotiating authority, enters into the agreement, and only after Central Government approval, so a mutually agreed draft under sub-rule (8) is not yet an agreement. Closure costs the applicant the rule 106 fee, which sub-rule (15) says is not refunded. Two cross-references in the published text do not line up: sub-rule (6) speaks of an application assigned "under sub-rule (4)" when the assignment is made under sub-rule (5), and sub-rule (11)(a) cites "sub-rule (2)(ii)" although sub-rule (2) is lettered (a) to (d) — read them against the sub-rules that actually do the work.
A company applies for a unilateral advance pricing agreement whose primary covered transaction is the provision of information technology services within rule 89(2) [Table: Sl. No. 1], applying in the quarter ending 30 June. Sub-rule (13) runs two years from 30 June, so unless the agreement is entered into by that date the proceedings are treated as closed. The company sees the negotiation slipping and requests an additional six months under sub-rule (14), extending the limit accordingly. Had it instead simply stopped answering the team's requests for documents, the Board could have closed the file under sub-rule (11) after three years from the end of the financial year of the application, and after a hearing; in either case the fee paid under rule 106 is not refunded.
An applicant meets it as the working stage of an advance pricing agreement — the meetings, document requests and premises visits that follow acceptance of the application under rule 108 — and finally as the agreement the Board executes, a copy of which reaches the jurisdictional Commissioner.
the proceedings referred to in sub-rule (2) may, where it is possible, be completed within a period of one year from the end of the financial year in which application referred to in rule 108 has been allowed to be proceeded with
The agreement shall be entered into by the Board with the applicant after its approval by the Central Government.
Where the proceedings are closed, the fee paid by the applicant under rule 106 shall not be refunded.
