Amendment to Mutual Agreement Procedure Under Income Tax

Mutual Agreement Procedure (MAP) is meant for resolving disputes usually arising on account of double taxation or taxation that violates the trade agreement between two countries. In other words, the Mutual Agreement Procedure is an alternative dispute resolution process under the tax treaties, wherein the competent authorities of two countries enter into the discussion to resolve the tax-related disputes. Recently, the Central Board of Direct Taxes, vide notification no. 23/2020-Income Tax dated 6

th May 2020, introduced the Income Tax (8th Amendment) Rules, 2020. The notification amended rule 44G, which deals with the application and procedure for giving effect to the Mutual Agreement Procedure and also amended Form No. 34F relating to making an application to the competent authority for invoking Mutual Agreement Procedure. The amended rule 44G is taken up and explained in the present article.

Rule 44G Procedure

Application or reference to invoke Mutual Agreement Procedure to the competent authority of India

If the action of the tax authorities of any other country is not as per the terms of the agreement entered into between India and such other country, then, the assessee (i.e., resident of India), can make an application to the competent authority in India in Form No. 34F. On the other hand, the reference can also be made by the Competent Authority of any other county against the action taken by any

Income-tax authority in India, provided such action is against the terms of the agreement.

Calling for relevant records and discussion

On acceptance of an application or reference, the Competent Authority in India can demand relevant records and additional documents from the income-tax authority or the assessee/authorized representative. In order to understand the breach of terms of the agreement, the Competent Authority can also hold a discussion with the authorities or assessee/authorized representative.

Mutual agreeable resolution

In accordance with the terms of the agreement between India and the other country, the Competent Authority in India shall make an effort to arrive at the mutually agreeable resolution within an average time period of 24 months.

Acceptance or non-acceptance of resolution by the assessee

On receipt of communication of mutually agreeable resolution, the assessee is required to communicate his acceptance or non-acceptance of the resolution within a period of 30 days.

Procedure in case of acceptance of resolution by the assessee

If the assessee accepts the resolution, then, he is required to withdraw the appeal pending on the subject matter and submit the proof of withdrawal of the appeal.
The competent authority in India shall communicate the acceptance of the resolution to the appropriate authorities like Principal Chief Commissioner/the Chief Commissioner/the Principal Director General/the Director-General.
The appropriate authority shall in-turn, communicate the acceptance of the resolution to the Assessing Officer.

Procedure for the Assessing Officer on acceptance of the resolution

On receiving the communication of acceptance, the Assessing Officer is required to pass an order in writing. Such order is to be passed within a period of one month from the end of the month in which communication of acceptance is received by the Assessing Officer.
The order passed the Assessing Officer shall be sent to the Competent Authority in India and also to the assessee. Along with the order, the Assessing Officer shall intimate the tax payable by the assessee.
The assessee is required to pay the requisite tax (as intimated by the Assessing Officer) and submit the proof of payment of tax to the Assessing Officer.
On receipt of proof of payment, the Assessing Officer shall proceed to withdraw the pending appeal filed by either the Assessing Officer/the Principal Commissioner/Commissioner/any other income-tax authority in the matter.

Amendments to Form No. 34F

The assessee (resident in India) seeking the invocation of the Mutual Agreement Procedure is required to file an application in

Form No. 34F to the competent authority in India. Form No. 34F is also amended vide the Income Tax (8th Amendment) Rules, 2020. The amended Form No. 34F now seeks to include actions of the authorities that are not in accordance with the terms of the agreement entered between India and the other country. The amended form also includes details of remedy along with the relevant documentary evidence.

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Frequently Asked Questions

Common questions about Mutual Agreement Procedure Amendments in India Tax.

The Mutual Agreement Procedure is an alternative dispute resolution process under tax treaties, wherein the competent authorities of two countries enter into discussions to resolve tax-related disputes. It is typically invoked to resolve issues of double taxation or taxation that violates the trade agreement between the two countries.

According to the amended rule 44G, an Indian resident assessee can make an application to the competent authority in India in Form No. 34F to invoke the Mutual Agreement Procedure if the action of the tax authorities of another country is not as per the terms of the agreement between India and that country. Alternatively, the Competent Authority of the other country can also make a reference against the action taken by any Income-tax authority in India, provided such action is against the terms of the agreement.

On acceptance of an application or reference, the Competent Authority in India can demand relevant records and additional documents from the income-tax authority or the assessee/authorized representative. The Competent Authority can also hold discussions with the authorities or assessee/authorized representative to understand the breach of terms of the agreement.

As per the amended rule 44G, the Competent Authority in India shall make an effort to arrive at a mutually agreeable resolution within an average time period of 24 months, in accordance with the terms of the agreement between India and the other country.

If the assessee accepts the resolution, they are required to withdraw any pending appeal on the subject matter and submit the proof of withdrawal. The Competent Authority in India will communicate the acceptance to the appropriate authorities, who will then instruct the Assessing Officer to pass an order within one month. The assessee must pay the tax as intimated by the Assessing Officer and submit the proof of payment.

The amended Form No. 34F now seeks to include actions of the authorities that are not in accordance with the terms of the agreement entered between India and the other country. It also includes details of the remedy along with relevant documentary evidence.

On receiving the communication of acceptance, the Assessing Officer is required to pass an order in writing within one month. The order must include the tax payable by the assessee. After the assessee pays the tax and submits the proof, the Assessing Officer must withdraw any pending appeal filed by the income-tax authority in the matter.

The Mutual Agreement Procedure aims to resolve disputes arising due to double taxation or taxation that violates the trade agreement between two countries. It provides an alternative dispute resolution process to resolve such tax-related disputes through discussions between the competent authorities of the involved countries.

Yes, according to the amended rule 44G, the Competent Authority in India can hold discussions with the income-tax authority or the assessee/authorized representative to understand the breach of terms of the agreement during the Mutual Agreement Procedure.

The amendments to rule 44G and Form No. 34F aim to streamline the procedure for invoking the Mutual Agreement Procedure and giving effect to its resolution. The changes clarify the process, documentation requirements, and timelines involved, making the dispute resolution process more transparent and efficient.