In order to avoid unnecessary litigation and promoting better taxpayer relations, a scheme for giving advance rulings in respect of transactions involving non-residents, Indians and foreigners alike, an Authority for Advance Ruling (AAR) was set up with effect from June 1, 1993 by insertion of Chapter XIX B in Income Tax Act, 1961. In keeping with the cannons of certainty and administrative assistance, the AAR was set up to provide correct interpretation of Indian tax laws and help taking investment decisions. The primary object of an advance ruling is to enable a taxpayer to know his tax liability in advance so that he can make a well informed decision whether or not to proceed with the transaction he has planned to undertake.

AAR has gained significant importance with a large number of applications being made to it for obtaining tax certainty on transactions. At the beginning of the twenty-fifth year of the introduction of the provision for advance ruling, this paper tries to critically analyse the performance of AAR.