Tvl. Sanmac Mootor Finance Ltd. Vs Central Board of Income Tax (Madras High Court)
In a significant decision regarding the interpretation of the Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act), the Madras High Court has ruled that a taxpayer is eligible to avail the scheme’s benefits for disputed interest, even if the challenge to the interest demand was pending before the court in a writ petition on the specified date. The court set aside the rejection of a declaration filed by Tvl. Sanmac Mootor Finance Ltd. and directed the income tax authorities to process the application under the amnesty scheme.
The case stemmed from assessment orders passed against Sanmac Mootor Finance Ltd. for the assessment years 1995-96, 1996-97, and 1997-98, which included demands for interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961. Following the payment of the disputed tax amount, the company had sought a waiver of the levied interest under a circular issued by the Central Board of Direct Taxes (CBDT) in 2006. This waiver application was, however, rejected by the Chief Commissioner of Income Tax in 2010.
Aggrieved by the rejection of the interest waiver, Sanmac Mootor Finance Ltd. had filed a writ petition (W.P. No. 12500 of 2010) before the Madras High Court. This writ petition was pending before the court on January 31, 2020, the “specified date” crucial for determining eligibility under the VSV Act.
During the pendency of this writ petition, the Direct Tax Vivad Se Vishwas Act, 2020, was enacted with the aim of resolving long-standing direct tax disputes. The petitioner subsequently filed a declaration under the VSV Act on January 29, 2021, offering to settle the dispute, which primarily involved the disputed interest amount.
Meanwhile, the Madras High Court delivered its judgment in W.P. No. 12500 of 2010 on February 10, 2020 (after the VSV specified date but before the VSV application). The court partly allowed the writ petition, quashed the 2010 order rejecting the interest waiver, and remitted the matter back to the department. The court directed the tax authorities to re-compute the interest payable by excluding the period between June 18, 2001, and October 27, 2006. Following this judgment, the department passed a re-computation order on November 20, 2020, determining the net interest payable for the respective assessment years.
Despite the re-computation order, the petitioner sought to settle the matter under the VSV Act based on their pending dispute status as of January 31, 2020, when W.P. No. 12500 of 2010 was pending.
However, the income tax authorities rejected the petitioner’s VSV declaration on February 3, 2021. The department’s primary contention was that a pending application for waiver of interest before the competent authority did not constitute an “appeal” as understood within the framework of the VSV Act. They referred to CBDT Circular No. 9 of 2020, specifically the answer to Question No. 13, which stated that cases where only a waiver application for interest is pending are not covered by the Vivad Se Vishwas scheme, as waiver applications are not considered “appeals.” The department argued that since no appeal was pending solely regarding the interest amount on the specified date, the VSV application was not maintainable and was auto-rejected by the system.
Challenging the rejection order before the Madras High Court, the petitioner argued that the rejection was contrary to the provisions of the VSV Act. They contended that their pending writ petition (W.P. No. 12500 of 2010), which specifically challenged the rejection of the interest waiver, qualified them as an “appellant” with “disputed interest” under the scheme.
The petitioner relied on judgments from other High Courts, including the Bombay High Court in Mrs. Premalatha Mohan Agarwal vs. Principal Commissioner of Income Tax, Pune and the Delhi High Court in Kapri International (P.) Ltd. vs. Commissioner of Income Tax -IV. These judgments held that interest charged under Sections 234A, 234B, and 234C is not excluded from the VSV Act and that a pending appeal, writ petition, or special leave petition qualifies a person as an “appellant” eligible for the scheme concerning disputed interest.
The Delhi High Court in Kapri International had further clarified that the definition of “dispute” under the VSV Rules is expansive, including writ petitions, and that FAQ 13 in CBDT Circular No. 9 of 2020 is not applicable to cases where a waiver application has been decided and challenged in court, but rather to situations where a waiver application is merely pending before the department without a decision. The Delhi High Court also referenced Supreme Court principles on purposive construction of statutes, citing cases like Tanna and Modi v. CIT. It also referred to Sadruddin Tejani v. ITO from the Bombay High Court, which termed the VSV Act a beneficial legislation.
Considering the arguments and the cited precedents, the Madras High Court examined the definitions provided in the VSV Act, including “appellant,” “declarant,” “tax arrears,” “disputed tax,” and “disputed interest.” The court specifically noted that “tax arrears” explicitly includes “disputed interest” and that the definition of “appellant” expressly covers a person in whose case a writ petition is pending before an appellate forum on the specified date.
Referencing Supreme Court definitions of “appeal” from cases like State of Gujarat v. Salimbhai Abdulgaffar Shaikh and James Joseph v. State of Kerala, the Madras High Court observed that while “appeal” is not strictly defined in the VSV Act, a writ proceeding challenging an order of a lower authority can, in certain circumstances, function akin to an appeal in the court’s revisional jurisdiction.
The court concluded that since W.P. No. 12500 of 2010, challenging the Chief Commissioner’s rejection of the interest waiver, was pending on the specified date (January 31, 2020), the petitioner indeed qualified as an “appellant” with “disputed interest” as defined under the VSV Act. The court explicitly agreed with the views expressed by the Bombay and Delhi High Courts on these matters.
Furthermore, the Madras High Court agreed with the petitioner and the reasoning in the Kapri International judgment that FAQ 13 of CBDT Circular No. 9 of 2020 was not applicable to the petitioner’s case. The court noted that such clarifications, while useful, are not binding on the court and that the definition of “appellant” in the Act itself includes writ petitions.
The court also highlighted the legislative intent behind the VSV Act, noting from the Finance Minister’s speech and the Statement of Objects and Reasons that the scheme was intended to provide a broad opportunity for taxpayers to settle tax disputes, including those related to “tax arrears,” which encompass disputed interest.
In light of these findings, the Madras High Court held that the rejection order was contrary to the VSV Act. The court allowed the writ petitions, quashed the impugned rejection order dated February 3, 2021, and directed the tax authorities to process the petitioner’s VSV declaration filed on January 29, 2021. The court instructed the respondents to process the application in accordance with Sections 3 and 5 of the VSV Act expeditiously, preferably within six months, and to close the file against the petitioner thereafter. The judgment provides clarity on the scope of the Vivad Se Vishwas Act concerning disputed interest challenged through writ petitions, aligning the Madras High Court’s position with that of other High Courts.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
