Arunachalam was born on 14 September 1853 in Colombo in south western Ceylon. He was the son of Gate Mudaliyar A. Ponnambalam, a leading government functionary, and Sellachi Ammai. He was the brother of P. Coomaraswamy and P. Ramanathan. Arunachalam was educated at Royal Academy, Colombo where he won many prizes including the Turnour Prize. After school he joined Christ's College, Cambridge in 1871 on a scholarship, graduating in 1874 with BA degree in law and history. He received a MA degree from Cambridge in 1880.
Arunachalam married Svarnambal, daughter of Namasivayam, in 1883. They had three sons (Padmanabha, Mahadeva and Ramanathan) and five daughters (Maheswari, Manonmani, Sivanandam, Pathmavathy and Sunthari).
Arunachalam was called to the bar at Lincoln's Inn in 1875. He wanted to start a career in law but was persuaded by his maternal uncle Muthu Coomaraswamy to join the civil service. He sat the Civil Service Examinations in 1875 and became the first Ceylonese to enter the Ceylon Civil Service via open competition. His initial posting was at the Government Agent's office in Colombo. Thereafter he held numerous posts within the civil service: police court in Kandy; police magistrate and commissioner of requests at Kalpitiya, Puttalam, Matara, Avissawella, Pasyala, Matale, Kalutara and Colombo; and district judge in Chilaw, Kegalle, Kalutara, Batticaloa and Kurunegala.
Early on his career, Arunachalam's quality of work was noticed by Chief Justice John Budd Phear who recommended him to the Governor and Secretary of State. In 1887 Governor Arthur Hamilton-Gordon appointed Arunachalam acting Registrar-General and Fiscal of the Western Province, by passing 30 officers senior to Arunachalam.. Fraud, corruption and inefficiency was endemic in the department and so Arunachalam successfully re-organised the department. He was appointed acting Commissioner of Requests in 1891 and Registrar-General in 1898.
Arunachalam was entrusted with managing the 1901 census by being appointed Superintendent of Census in 1900. He started codifying Ceylon's law but only managed to produce the first volume of A Digest of the Civil Law of Ceylon. Arunachalam was an official member of the Legislative Council of Ceylon and a member of the Executive Council of Ceylon between 1912 and 1913. He retired from the civil service in 1913.