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Settlement Commission: It functions under the Ministry of Finance and allows the applicant an opportunity to undisclosed income and settle its cases. The taxpayer can approach the commission when his/her case is pending before a tax authority. The key reason for a taxpayer to approach the commission is the power of the commission to grant immunity from penalties and prosecutions.

Key constrains in efficient functioning:

1. The taxpayer can only file application before the commission if the case is pending before the assessing officer and the assessment has not become time-barred. There are no provisions under the IT Act for the taxpayer to access the commission, in case the dispute has reached the appellate forum.

2. The tax authorities may use the confidential information furnished by the applicant. The applicant is required to make a ‘a full and true disclosure’ of additional income before the commission. Therefore, the maintainability standard of the application before the commission is very high. The requirement for maintainability of the application should be relaxed so that the disputes can be admitted and resolved quickly.

3. The existence of an internal directive for review of order of the commission by a Revenue officer implies lack of trust in its decision. For better dispute resolution mechanism, the trust of the taxpayer is very important, thus it should be increased and the decision of the commission should be challenged only in very rare circumstances.

Key recommendations:

1. The commission should be given discretion powers to waive interest in cases of bona fide disputes involving interpretation matters.

2. To strengthen the forum, the members should be trained with skills to settle tax dispute. Members should include technical members with requisite experience in areas of economics, finance, banking and tax law.

3. The CBDT should withdraw departmental instruction which require evaluation of the commission’s decision. It should be only allowed in exceptional circumstances, which should be mentioned in the rules.

4. What is “full and true disclosure” of information should be left to the discretion of the commission.

Dispute Resolution Panel: It functions under the Department of Revenue, Ministry of Finance. The DRP provide speedy disposal of first stage tax disputes arising from the assessment proposed by the Assessing Officer in the case of non-residents, and taxpayer who have TP adjustments.

Key constrains in efficient functioning:

1. The accessibility of the DRP should be widened, so that more matters can be taken up by the panel. Lack of sufficient benches to absorb the cases being submitted.

2. Absence of independent experts in the collegium of DRP and tight timelines for filing the objections by taxpayer and adjudication by the department renders the process ineffective.

3. Lack of well-reasoned orders. The orders do not reflect DRP’s thought process on factual observations/legal arguments of the taxpayer.

Key recommendations:

1. Legislative amendments should be introduced to expand reach and power of DRP. It powers should include power to compromise, arbitrate and power to settle.

2. Each DRP should comprise of at least one technical member with requisite experience in areas of economics, finance, banking and tax law. This can ensure quality as well as elicit taxpayer’s confidence in the composition of DRP.

3. DRP proceedings should be amenable to conciliation process.

Advance Pricing Agreements (APA): It provides a framework under which taxpayers can voluntarily enter into an agreement with the tax administration to mutually agree in advance the Arm’s Length Price (ALP) or the method of determination of ALP. The advantages of this agreement are : it provides certainty, mitigate the possibility of disputes and reduce incidence of double taxation. The process of APA has four distinct phases: Pre-filing meeting; APA application ; Preliminary processing of the APA application ; and Negotiation and finalization. The Indian tax law allows for three types of APAs : unilateral, bilateral or multilateral APA. The outcome of a signed APA is that it is binding on both the tax payer and the revenue authorities.

Key constrains in efficient functioning:

1. The APA regime does not provide for confidentiality of taxpayer’s information and details. This has been a significant concern for MNCs. The Indian regime in unclear on the rules regarding sharing of sensitive taxpayer’s information.

Key Recommendations:

1. The fundamental concerns such as confidentiality should be addressed by releasing detailed guidelines

2. India should review its tax treaties with other countries to facilitate seamless bilateral APA framework. Article 9(2) of OECD should contain an enabling provision for corresponding adjustments.

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April 2024