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CA Saroj Maniar

“Acche Din” was a term which was oft used during the election campaign of the world’s largest democracy. “Acche Din” for an Indian tax payer would mean a tax friendly regime and would perhaps include moderate rates of tax and clarity and certainty in the tax provisions – both in law and equally important, in administration.

Taking forward the commitment of a tax friendly regime by the present Shri Narendra Modi led Government, this budget has introduced two schemes with the twin objectives of curbing black money and reducing backlog of litigation backed by expeditious tax collection.

The intention of the Hon’ble Finance Minister Shri Arun Jaitley is evident from his Budget speech wherein he has stated that “Litigation is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the tax payers and administrative cost for the Government. There are about 3 lakh tax cases pending with the first appellate authority with disputed amount being Rs. 5.5 lakh crore. In order to reduce this number, I propose a new Dispute Resolution Scheme.

In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of Dispute Resolution for them, in which, subject to their agreeing to withdraw any pending case lying in any Court or Tribunal or any proceeding for arbitration, mediation etc. under BIPA, they can settle the case by paying only the Tax Arrears in which case liability of interest and penalty shall be waived”

The above intention has been given effect to by introducing the Direct Tax Dispute Resolution Scheme, 2016 (hereinafter referred to as the ‘Scheme’).

Prior to introduction of this Scheme, the present Government initiated steps to reduce the litigation undertaken by the tax department by significantly increasing the limits of tax effect, for the appeals to be filed by the tax department. The earlier monetary limits of tax effect were enhanced prospectively to Rs. 4,00,000, Rs. 10,00,000 and Rs. 25,00,000 for appeals before Appellate Tribunal, High Court and Supreme Court respectively by CBDTs Instruction No. 5/2014 dated 10th July 2014. Thereafter the CBDT issued another Circular No 21/2015 dated 10th December 2015 further enhancing the monetary limits for the tax effect to Rs. 10,00,000 and Rs. 20,00,000 for appeals before Appellate Tribunal and High Court respectively. This Instruction is also applicable to pending appeals and appeals having tax effect below the prescribed limits will be withdrawn by the Department. This Circular has reduced litigation by the tax department to a great extent since such matters are being disposed off on the grounds of low tax effect.

It is perhaps in this context that the Finance Minister thought it fit to provide an opportunity to the assessees to resolve their disputes and put an end to the tax litigation, subject to fulfilment of the applicable conditions, as we shall see going forward.

Finance Act, 2016 has introduced a scheme for resolution of disputes vide Chapter X called The Direct Tax Dispute Resolution Scheme, 2016. This Scheme is not a part of the Income Tax Act, 1961 (hereafter referred to as the IT Act). It is a part of the Finance Act, 2016 (hereinafter referred to as FA 2016). Though not specifically articulated in the Budget speech, the Scheme also seems to be one of the measures of revenue collection which is mentioned in the Memorandum explaining the provisions of the Finance Bill, 2016. As a percentage of the budgeted direct tax collection for FY 2016-17 which is Rs. 8.47 lakh crore, the disputed amount of Rs. 5.5 lakh crore at first appellate authority is a whopping 65% of annual direct tax collection.

This Scheme comprises of 12 sections starting with Section 200, upto Section 211 of the FA 2016. Section 200 states that this Scheme may be called the Direct Tax Dispute Resolution Scheme, 2016 and it shall come into force from 1st June 2016. Though the Scheme per se does not mention a closing date, it requires the Central Government to notify the same in the Official Gazette. Pursuant to the same, notification dated 26th May 2016 [Notification No 34/2016, F. No. 142/11/2016-TPL] has been issued, wherein 31st December 2016 has been appointed as the date on or before which a declaration can be made under this Scheme. The declaration can therefore be filed anytime between 1st June, 2016 and 31st December 2016.

The following are the salient features of the Scheme:

1. This Scheme provides an opportunity to a declarant for settlement of disputed tax, being the tax determined which is disputed, and which is covered under either of the two categories as below:

(i) ‘Tax Arrears’ in respect of which appeal is pending before the Commissioner of Income Tax (Appeals) as on 29th February 2016. ‘Tax Arrear’ has been defined to mean the tax, interest or penalty determined under the IT Act.

(ii) ‘Specified Tax’ in respect of which appeal, writ or any proceedings are pending as on 29th February 2016. ‘Specified Tax’ has been defined to mean the tax determined in consequence of or is validated by an amendment made with retrospective effect for a period prior to the date of enactment of the amendment.

2. Where an appeal relates to Tax Arrear being tax and interest, and the disputed tax does not exceed Rs. 10,00,000, the declarant is liable to pay the disputed tax and interest on the disputed tax till the date of assessment.

3. Where an appeal relates to Tax Arrear being tax and interest, and the disputed tax is more than Rs. 10,00,000, the declarant is liable to pay the disputed tax and interest on the disputed tax till the date of assessment along with 25% of minimum penalty leviable.

4. Where an appeal relates to penalty, the declarant is liable to pay 25% of minimum penalty leviable as well as tax and interest payable on the total income finally determined.

5. Where the case relates to Specified Tax, the declarant is liable to pay the amount of tax determined.

6. Declaration under the Scheme is to be made in the prescribed form to the designated authority, not below the rank of Commissioner of Income Tax.

7. The designated authority shall within sixty days from the date of receipt of the declaration, determine the amount payable by the declarant and issue a certificate giving the particulars of amount payable by the declarant.

8. The declarant shall pay the amount determined within thirty days of receipt of the certificate and intimate the same to the designated authority along with proof of such payment.

9. The designated authority shall pass an Order stating that the declarant has paid such sum and such Order shall be conclusive as to matters stated therein.

10. The amount paid in pursuance of the Scheme shall not be refundable under any circumstances.

This Scheme is applicable to disputes both under the Income Tax and the Wealth Tax Act. For convenience purpose, we have referred to the relevant provisions and the relevant authorities as per the Income Tax Act. The said references should be construed to include references to the corresponding provisions and the corresponding authorities as per the Wealth Tax Act.

One would remember the earlier Kar Vivad Samadhan Scheme (hereinafter referred to as the KVSS) introduced in the year 1998 with similar objectives. As we go forward, we shall compare the current Scheme with the earlier one, as well as have a brief overview of the effectiveness and success of the earlier scheme.

The applicability of this Scheme is restricted to disputes pending in appeal before the Commissioner of Income tax (Appeals). However, if the pending dispute has arisen as a consequence of any retrospective amendment to the IT Act, the Scheme is applicable if an appeal is pending before the Commissioner of Income Tax (Appeals) or Appellate Tribunal or an appeal or Writ Petition is pending before the High Court or Special Leave Petitions pending before Supreme Court or any proceedings have been initiated or notice given for any proceedings for arbitration, conciliation or mediation under any law or agreement.

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July 2024