TDS cannot be Adjusted against Tax payable under VDIS, 1997

A person seeking to avail the benefit of the Scheme of 1997 Act must strictly satisfy its provisions as held by the  Supreme Court in Hemalatha Gargya v/s. CIT 259 ITR 1. The Apex Court held that the person seeking the benefit of the  Scheme of 1997 Act is bound to strictly comply with its conditions like any fiscal legislation and equitable considerations  can have no place in construing it.

15. Before dealing with the other contentions, it would be appropriate at the very outset to decide/examine whether the  tax payable under the Scheme of 1997 Act is the same tax that is payable under the 1961 Act i.e. is the charge/ subject matter of tax the same or different. For, if the charge is different, then the tax paid under the Scheme of 1997 Act is not tax under the 1961 Act. Consequently, the TDS i.e. the tax deducted at source of income tax under the 1961 Act is not the  tax payable under the Scheme of 1997 Act. Therefore, it cannot be taken into account to determine the tax payable under the Scheme.

EXTRACT OF THE JUDGMENT

This Petition under Article 226 of the Constitution of India challenges a communication dated 18th March, 1998 of the  Commissioner of Income Tax, Mumbai CityIII and the Circular dated 25th July, 1997 of the Central Board of Direct Tax  (CBDT). The impugned communication dated 18th March, 1998, rejected the Petitioner’s claim that the tax deducted at source under the Income Tax Act, 1961 (1961 Act) be adjusted against the tax payable on the undisclosed income declared  by it under the Voluntary Disclosure of Income Scheme under the Finance Act, 1997 (the Scheme of 1997 Act). The basis of the impugned communication dated 18th March, 1998, disallowing adjustment of tax deducted at source, was Circular No. 755 dated 25th July, 1997 issued by the CBDT.

2. This petition was admitted on 23rd March, 1998. However, interim relief was refused. This resulted in the petitioner  making the payment of tax on the undisclosed income declared by it on 31st December, 1997 under the Scheme on 31st March, 1998, without taking  the benefit of the Income tax deducted at source under 1961 Act the on it svoluntarily disclosed income under the Scheme of 1997 Act.

3. The Scheme was introduced as a part of the Finance Act, 1997, i.e. Chapter IV titled as “The Voluntary Disclosure of Income Scheme 1997” commencing from Section 62 upto Section 78 thereof. This Scheme of Finance Act, 1977 (1977 Act) came into force w.e.f. 1st July, 1997. It is a part of Act 1997 and not a part of the 1961 Act. Undisputedly, the Scheme of 1997 Act, is distinct and different from the 1961 Act. However, it, inter alia, provided an opportunity to a person who had not paid full taxes under the 1961 Act, in the past as a consequence of nondisclosure of its income under the Act, to voluntarily disclose the same and pay the tax thereon at the rates specified in Scheme of 1997 Act.

4. To appreciate the controversy arising in this petition, it would be appropriate to take an overview of the provisions of  the Scheme of Act, 1997 as under:

(a) Section 63 of the Scheme being the definition section inter alia provides that the words and expressions used but not defined in the Scheme will have the meaning assigned to them under the 1961 Act, or the Wealth Tax Act, 1957;

(b) Section 64 is the charging section of the Scheme of 1997 Act and it provides that it would apply to any person who  makes a declaration of undisclosed income chargeable to tax under the 1961 Act. This declaration is to be made on or after 1st July, 1997 but on or before 31st December, 1997. The declarant would be required to pay tax at the flat rate of 35% in case of a company and/or a firm and at the flat rate of 30% in case of others;

(c) The disclosed income chargeable to tax under the Scheme of 1997 Act would be the income on which the tax is  payable under the 1961 Act but which income had not been disclosed under the 1961 Act, by reason of any of the  following:

(i) By failing to furnish a return of income under the 1961 Act;

or

(ii) By failing to disclose income in its return of income filed under the 1961 Act, before the commencement of the Voluntary Scheme; or