Rule 121 — Application seeking to give effect to terms of any agreement under section 533(2)(p) and procedure for giving effect to decision under agreement. Made under s.533 of the Income-tax Act, 2025.
Rule 121 gives effect to Section 533 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) lets a resident assessee who is aggrieved by any action of the tax authorities of a country or specified territory outside India, which he says is not in accordance with the terms of the agreement with that country or territory, apply to the competent authority of India in Form No. 55 to invoke the mutual agreement procedure, if the agreement provides one. Sub-rule (2) deals with the other direction: where a reference comes from the competent authority of the other country or territory about action taken by an income-tax authority in India or by that country's tax authorities, the competent authority of India communicates its acceptance or non-acceptance of taking up the reference to that competent authority.
Sub-rule (3) allows the competent authority of India, on the issues in Form No. 55 or in the foreign reference, to call for relevant records and additional documents from the income-tax authorities, the assessee or his authorised representative in India, or to have a discussion with them, to understand the actions said not to be in accordance with the agreement. Sub-rule (4) requires the competent authority of India to endeavour to arrive at a mutually agreeable resolution of the tax disputes within an average time period of twenty-four months. Sub-rule (5) provides that where the procedure was invoked on account of action by an income-tax authority in India, the resolution shall not result in decreasing the income or increasing the loss of the assessee in India as declared in the return of income of that year.
Sub-rules (6) to (9) carry the resolution to the assessee and back. The resolution is communicated to the assessee in writing; the assessee communicates acceptance or non-acceptance in writing within one month from the end of the month in which he received that communication; acceptance must be accompanied by proof of withdrawal of any appeal pending on the issues resolved; and on receipt of the acceptance the competent authority of India sends the resolution, the acceptance and the proof of withdrawal to the Principal Chief Commissioner or Chief Commissioner, who forwards it to the Assessing Officer.
Sub-rules (10) to (13) complete the process. The Assessing Officer gives effect to the resolution by an order in writing within one month from the end of the month in which he received the communication, and intimates the tax payable. The assessee pays within the time allowed and submits proof, after which the Assessing Officer withdraws any pending appeal on the subject matter filed by him, the Principal Commissioner or Commissioner or any other income-tax authority. A copy of the order goes to the competent authority of India and to the assessee. Tax, interest or penalty already determined is adjusted in accordance with the resolution and in the manner provided under the Act or the rules, to the extent that manner is not contrary to the resolution. Sub-rule (14) defines the competent authority of India as an officer authorised by the Central Government to discharge the functions provided under this rule.
An agreement with another country promises relief from taxation not in accordance with its terms, but the promise needs a domestic channel: someone to receive the grievance, someone to talk to the other side, and an officer to translate the outcome into an assessment. This rule builds that channel end to end and puts time limits at each hinge. Sub-rule (5) draws the boundary the Act would not otherwise supply, that a mutually agreed resolution cannot be used to go below the income the assessee himself declared.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Period within which the competent authority of India is to endeavour to arrive at a resolution | An average time period of twenty-four months | Endeavour only; measured as an average and not as a limit on any single case | Rule 121(4) |
| Time for the assessee to communicate acceptance or non-acceptance of the resolution | Within one month from the end of the month in which the communication was received | Communication of the resolution under sub-rule (6); acceptance must carry proof of withdrawal of any pending appeal | Rule 121(7) |
| Time for the Assessing Officer to give effect to the resolution | Within one month from the end of the month in which the communication was received by him | Communication forwarded under sub-rule (9); by an order in writing, intimating the tax payable | Rule 121(10) |
The twenty-four months in sub-rule (4) is an endeavour expressed as an average time period, not a deadline that expires against the Department, and nothing in the rule attaches a consequence to its being exceeded. The relief has a floor: under sub-rule (5), where the procedure was invoked against action by an Indian income-tax authority, the resolution cannot take the income below, or the loss above, what the assessee declared in his own return for that year. Acceptance is not free either; sub-rule (8) requires proof of withdrawal of any appeal pending on the same issues, so a taxpayer choosing the resolution gives up the appellate route on those issues. Departmental appeals go the same way, but only after payment: sub-rule (11) has the Assessing Officer withdraw the pending departmental appeal once the tax determined is paid and proof is filed.
A resident company is taxed abroad on a margin it says the agreement does not permit, and files Form No. 55 with the competent authority of India. A resolution is reached and communicated to the company in March; under sub-rule (7) the company must accept or refuse in writing by the end of April, and its acceptance must carry proof that it has withdrawn its pending appeal on the same issues. If the Assessing Officer receives the forwarded acceptance in May, sub-rule (10) requires him to pass the order giving effect to it by the end of June and to intimate the tax payable.
You meet it as Form No. 55, then as the written communication of the resolution, and finally as the Assessing Officer's order giving effect to it and intimating the tax payable.
The competent authority of India shall endeavour to arrive at a mutually agreeable resolution of the tax disputes, arising from such actions of the income-tax authorities, in accordance with the agreement between India and the other country or specified territory within an average time period of twenty-four months.
the resolution arrived at under sub-rule (4) in a tax year shall not result in decreasing the income or increasing the loss, as the case may be, of the assessee in India, as declared by him in the return of income of the said year