Kapri International Pvt. Ltd. (In Liquidation) Through Liquidator Vs CIT (Delhi High Court)
Held that any proceeding challenging a decision by the department in respect of tax, interest, penalty, fee etc. would come within the purview of a ‘dispute’ which would enable a party to approach the department for a resolution under the Direct Tax Vivad Se Vishwas Act, 2020.
Facts- Prior to winding up order, the petitioner was assessed for Income Tax. Court directed the liquidator to release the outstanding amount of department and granted liberty to the liquidator to seek waiver of interest and penalty. However, the application of the assessee seeking waiver of interest was rejected by the Commissioner of Income Tax (CIT). against the said rejection, the assessee filed a company application before the Delhi High Court.
Thereafter, the assessee applied under the Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act), for resolution of the disputed interest liability. The assessee filed the declarations and provided the details of the amount payable under the VSV Act against the disputed interest liability. However, the said declarations were rejected by the Principal Commissioner of Income Tax (PCIT). Against this, the assessee filed a writ petition before the Court.
Conclusion- There is no definition of ‘appeal’ in the VSV Act. The term ‘dispute’ as per clause (b) of rule 2 includes an appeal, writ, special leave petition, arbitration, conciliation and mediation.
Held that that the intent of the VSV Act was to provide resolution of all nature of disputes relating to tax, penalty, interest, fee as determined under provisions of the VSV Act.
Therefore, for the CIT to contend that Section 2 (1) (h) relates to a disputed interest on a disputed tax only and therefore the petitioner was non-suited since there was no disputed tax but only disputed interest, is not tenable. Provisions have to read purposively and in harmony with the scheme of the VSV Act and its intent. It is a well settled principle of law that a statute should be given a purposive construction in order to give effect to its legislative purpose. This, not being a taxing statute but one which propounds a dispute resolution scheme for tax disputes would be amenable to a purposive construction.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. By way of this writ petition, the petitioner (a Company in liquidation, represented through the liquidator) assails the rejection dated 5th January, 2021 of From I and II filed by petitioner on 20th March, 2020 for the assessment years (AY) 1984-85 and 1985-86 under the Direct Tax Vivad Se Vishwas Act, 2020 (the VSV Act) read with its Rules, 2020, by the Principal Commissioner of Income Tax-IV, Delhi (CIT).
Factual Background:
2. The petitioner is a company incorporated in India in the year 1972 for manufacture and export of readymade garments etc. On 1st May, 1995, a winding up order for the petitioner was passed by this Court in Company Petition No.59/1994. Prior to the winding up order in 1987, the petitioner was assessed for Income Tax AY 1984-85 at Rs.89,53,788/-. Accordingly, in 2006, the Department of Income Tax moved Company Application no.857/2006 under Rule 9 of the Companies (Court) “Rules, 1959 read with Section 178 of the Income Tax Act” before this Court praying for directions to attach rent received/receivable for adjusting towards the payment of Income Tax dues of the petitioner. However, this application was dismissed as not being pressed.
3. On 5th November 2015, the Liquidator requested the respondent-CIT to inform about the status of demand outstanding against the petitioner under Income Tax Act and Wealth Tax Act. On 27th November, 2015, ITO Ward-14(I) informed that the total demand for AYs 1984-85 to 1999-2000 amounted to Rs.19,06,496/- and the Wealth Tax to Rs.8,88,652/-, totalling as Rs.27,95,148/-. On 17th December, 2015, this Court directed the liquidator to release this amount in favour of the Department and granted liberty to the Liquidator to seek waiver of interest and penalty.
4. While the CIT accorded waiver of penalties on 28th March, 2016 under Section 273 (A) (4), as regards the waiver of interest, the petitioner filed an application under Section 220 (2A) before the CIT for the AY 1984-85 and 1985-86 in March 2017. This application for waiver of interest was rejected by the CIT on 26th February 2018. The petitioner then filed an application being Co. Appl. 577/2019 disputing this rejection under Section 220 (2A) on which this Court issued notice on 28th May, 2019. However, the matter is pending adjudication. In the meantime, on 17th March, 2020, the VSV Act was notified by the Union of India to provide for „resolution of disputed tax and for matters connected therewith or incidental thereto‟. The Rules to be framed under the VSV Act were also notified immediately thereafter.
5. The petitioner chose to apply under the VSV Act providing details of the amount payable under the VSV Act viz. Rs.10,47,891/- for AY 1984-85 (against the disputed interest of Rs. 41,91,567/-) and Rs.27,795/- for AY 1985-86 (against the disputed interest of Rs.1,11,180/-).
6. It is the case of the petitioner that on filing of the above declarations in prescribed forms in terms of Section 4 (1) of the VSV Act, the designated authority was required to issue certificate under Section 5 (1) intimating the particulars of tax arrears and the amount payable after such determination. Thereafter, the declarant would be required to withdraw the petition in the concerned court of law and intimate the payment to the designated authority under Section 5 (2) of the VSV Act.
7. However, the petitioner did not receive any response ever since filing on 20th March, 2020 and it was only on 5th January, 2021 that a message flashed on the portal of the department indicating that the declarations so furnished by the petitioner have been rejected. Since there was no reason indicated on portal for such rejection, the petitioner moved an application before the CIT for inspection of the files with a request to take out certified copies. This request was reiterated through an email dated 12th January, 2021 but no response was received. Yet another reminder was given by the petitioner on 18th January, 2021, however having received no response, the petitioner filed this writ petition praying for setting aside the rejection dated 5th January, 2021 communicated by the respondent on the portal and directing the respondent to issue certificate in respect of the Forms filed by the petitioner under the VSV Act.
8. The respondent-CIT filed a counter affidavit stating inter alia that the Co. Appl. 577/2019 filed by the petitioner against the order of rejection of waiver application, was primarily a petition under the Companies Act and not an „appeal‟ within the meaning of VSV Act. It was further pointed out in the counter affidavit that the reasons for rejecting were available in e-filing database and stated as under:
“FAQ-13 does not treat waiver applications as appeals, therefore writ against that are also not appeals for VSV purpose.”
9. It was contended by the CIT that Section 2 (1) (a) of the VSV Act defines „appellant’ and Section 2 (1) (h) defines the „disputed interest’ and that neither was the petitioner an appellant nor its case was of disputed interest for the purposes of VSV Act. For this purpose, the CIT quotes the Central Board of Direct Taxes (CBDT) Circular No.9/2020 issued under the VSV Act clarifying that only the disputes relating to Income Tax Act are covered under the VSV Act and that interest waiver applications are not “appeals” under the VSV Act. The CIT further clarified that at the time of rejection of petitioner’s application, the reasons for rejection were not visible in the e-filing account but that was only a technical issue as reasons were in fact entered by the designated authority in the portal and the technical issue was resolved.
10. In the rejoinder, the petitioner contended that the word „appeal’ has not been defined in the VSV Act. Essentially, under the VSV Act, a declaration has to be filed under Section 4 in respect of „tax arrears’, and the amount payable is calculated under section 3. The expression „appeal’ was considered by the Hon’ble Supreme Court in „State of Gujarat vs Salimbhai Abdulgaffar Shaikh & Ors.’ (2003) 8 SCC 50 wherein the Supreme Court held that appeal is a proceeding taken to rectify a proceeding for reconsideration of a decision of a lower court for review / possible reversal or for a retrial and therefore, is a rehearing of a case by a superior court on both law and facts.
11. The petitioner contended that since this Court had given liberty to approach authorities seeking waiver of interest and penalties and while the penalty was waived under Section 273 (A)(4) of the VSV Act, Section 220 (2A) being almost similar, interest ought to have been waived as well. All these issues were therefore disputed in the application before this Court. In relation to the CIT‟s contention that as per FAQ-13 waiver applications were not considered as „appeal‟ within the VSV Act rubric, the petitioner contended that FAQ-13 dealt with a situation of a waiver application being pending in itself and not an appeal / proceeding decision on the waiver application. For the sake of convenient reference, FAQ-13 is reproduced hereunder:
“Question No.13- With respect to interest under section 234A, 234B or 234C, there is no appeal but the assessee had filed waiver application before the competent authority which is pending as on 31.1.2020? Will such cases be covered under Vivad Se Vishwas?
Answer: No, such cases are not covered. Waiver applications are not appeal within the meaning of Vivad Se Vishwas.”
12. The petitioner further contended that interest had been computed under Section 220 (2) of the VSV Act which could not have been charged contrary to Rule 156 of the Companies Court Rules and accordingly, there was a dismissal of the waiver application leading to filing of Co. Appl. 577/2019 before this Court. This, according to the petitioner, was as good as an appeal and therefore, comes within the purview of „disputed interest‟ as defined in Section 2 (1) (h) of VSV Act.
The relevant provisions:
13. Since the dispute between the parties relates to the scope and applicability of certain provisions of VSV Act and the Income Tax Act, it would be useful to extract those relevant provisions for convenient reference:
Income Tax Act, 1961
