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Amended Rules for Mutual Agreement Procedure

May 11, 2020 | Latest Update, Latest Updates, MBG, News

Amendment in existing Rules and Form in relation to Mutual Agreement Procedure Summary
  • Mutual Agreement Procedure (MAP) is an alternate dispute resolution mechanism incorporated in a Double Tax Avoidance Agreement (DTAA) for the resolution of international tax disputes resulting in double taxation.
  • The resolution is provided through the intervention of the Competent Authorities (CA) of the two countries to negotiate to arrive at a mutually acceptable solution of the disputes.
  • The Central Board of Direct Taxes (CBDT) has notified new Rule 44G of the Income Tax Rules, 1962 (ITR), and revised Form 34F.
  • The amended Rule mainly provides as follows:

a. The CA in India shall attempt to resolve the tax disputes, arising due to the actions of the tax authorities, within an average time of 24 months.

b. The resolution arrived by CA in India shall not result in decreasing the income or increasing the loss, declared by the taxpayer in the return of income.

c. The taxpayer shall be required to communicate the decision to the CA in India with confirmation on withdrawal of appeals if any within 30 days from the receipt of the communication.

d. The Assessing Officer (AO) shall give effect to the resolution, within one month from the end of the month in which the communication was received by him and intimate the taxpayer on tax payable or refundable if any.

  • These amendments in Rules shall provide guidance on the procedures for invoking MAP effectively.
Discussion MAP is an alternate dispute resolution mechanism incorporated in a DTAA for the resolution of international tax disputes resulting in double taxation. It may also be resorted to when there is a conflict on the interpretations of the DTAA. The resolution is provided through the intervention of the CA of the two countries to negotiate to arrive at a mutually acceptable solution of the disputes. A person may seek relief under MAP in addition to remedies available under the domestic tax laws. The resolution provided through MAP is not binding on the person in case it is not in favor of the taxpayer. In case resolution provided by MAP is not accepted, tax disputes can be resolved through the normal route provided under the domestic tax laws. However, if the resolution is accepted and the appeal is withdrawn by the person concerned, the final order in accordance with the resolution provided by MAP with final demand is raised by the AO inline with MAP resolution. As per Section 295(2)(h) of the Income Tax Act, 1961 (ITA), the CBDT has the power to make rules relating to the procedure for giving effect to the terms of the DTAA for granting of relief in respect of double taxation or for the avoidance of double taxation. Accordingly, the CBDT has notified new Rule 44G of the Income Tax Rules, 1962 (ITR) and revised Form 34F vide Notification No. 23/2020 dated 6 May 2020. The existing Rule 44G of the ITR (now substituted) related to the application of MAP by a resident of India aggrieved by the action of the tax authorities of any “country outside India”. However, as per the new Rule 44G of the ITR, the tax authorities of “specified territory outside India” are also covered in addition to tax authorities of any “country outside India”. As per the Explanation 2 to Section 90 of the ITA, “Specified territory” means any area outside India which may be notified as such by the Central Government. The application to the CA in India seeking to invoke the MAP can be filed in Form 34F if such an option is provided in the DTAA between India and such other country or specified territory. In this regard, revised Form 34F is also notified vide the aforementioned notification. The existing Rule 44H of the ITR provided for  the “Action by the Competent Authority of India and procedure for giving effect to the decision under the agreement” and the same has been omitted and the following revised provisions in this regard have been incorporated in the new Rule 44G of the ITR:
  • On receipt of a reference from the CA of any country or specified territory outside India with whom India has a tax treaty in relation to any action taken by any income-tax authority in India or other country or specified territory, the CA in India shall convey his acceptance or otherwise for taking up the reference under MAP to the CA of the other country or specified territory.
  • The CA in India shall, with regard to the issues contained in Form No. 34F or in the reference from the CA of a country or specified territory outside India, call for the relevant records and additional document(s) from the income-tax authorities or the assessee or his authorized representative in India, or have a discussion with such authorities or assessee or its representative, to understand the actions taken by the income-tax authorities in India or outside that are not in accordance with the terms of the tax treaty between India and the other country or specified territory.
  • The CA in India shall endeavor to arrive at a mutually agreeable resolution of the tax disputes, arising from such actions of the income-tax authorities, in accordance with the tax treaty between India and the other country or specified territory within an average time period of twenty-four months.
  • In case the MAP is invoked on account of action taken by any income-tax authority in India, the resolution arrived by CA in India 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.
  • If the resolution is arrived by CA in India and CA of the other country or specified territory, the same shall be communicated in writing to the assessee.
  • The assessee shall communicate his acceptance or non-acceptance of the resolution in writing to the CA in India within thirty days of receipt of the communication of resolution.
  • The assessee’s acceptance of the resolution shall be accompanied by proof of withdrawal of the appeal, if any, pending on the issues that were the subject matter of the resolution.
  • On receipt of acceptance, the CA in India shall communicate the resolution arrived by CA in India and the acceptance by the assessee along with proof of withdrawal of the appeal, if any, to the Principal Chief Commissioner or the Chief Commissioner or the Principal Director General or Director-General, as the case may be, who in turn shall forward it to the Assessing Officer.
  • On receipt of the communication, the Assessing Officer shall give effect to the resolution, by an order in writing, within one month from the end of the month in which the communication was received by him and intimate the assessee about the tax payable determined by him if any.
  • The assessee shall pay the tax payable referred above within the time allowed by the Assessing Officer and shall submit the proof of payment of taxes to the Assessing Officer who shall then proceed to withdraw the pending appeal, if any, which were filed by the Assessing Officer or the Principal Commissioner or Commissioner or any other income-tax authority.
  • A copy of the order passed by the Assessing Officer shall be sent to the Competent Authority in India and to the assessee.
  • The amount of tax, interest, or penalty already determined shall be adjusted in accordance with the resolution.
The above amendments in Rules and Form relating to MAP provide guidance on the procedures for invoking MAP effectively. These amendments also show India’s intention to make dispute resolution mechanism’s more effective. Last Updated: 11th May 2020 This article is contributed by:  Janardan Singh Associate Director, Taxation  

Tag: Mutual Agreement