While presenting the Union Budget 2020, Finance Minister Ms. Nirmala Sitaraman announced Vivaad se Vishwas scheme (‘VSV Scheme’ or ‘the Scheme’) as a part of GOI’s direct tax relief measures, in line with Sabka Vishwas Scheme, which aims at resolution of legacy disputes in Indirect Taxes.  The Scheme aims at bridging the dispute-trust divide between the government and the taxpayer and provides a short window for taxpayers to settle their tax disputes by partly paying their tax arrears and thus in turn minimising the Tax-related Litigation. The Scheme will also benefit the government by bringing a major chunk of revenue, timely

WHAT IS THE SCHEME?

Before moving to the scheme, let’s take a brief tour to the historical background of the Scheme:

As on November 30,2019 there were around 483,000 pending income tax cases before appellate authorities. The disputed tax in these appeals is nearly ₹9.32 trillion, nearly equivalent to, a year’s direct tax collection, for the government.

These staggering numbers prompted the Finance Minister to introduce a direct tax dispute resolution scheme while tabling Union Budget 2020 before the Parliament on 1 February 2020. ‘The Direct Tax Vivad se Vishwas Bill, 2020’ is intended for reducing litigation and for settling matters that have been pending for several years.

The scheme was tabled on 5 February 2020, in the Lok Sabha, and was almost immediately called back for making amendments for accommodating various representations from key stakeholders. Thereafter a revised scheme was cleared by the Cabinet, and subsequently passed by the Lok Sabha on 4 March 2020. Various aspects of the amended scheme required clarifications, which have been addressed by way of a circular issued by the Central Board of Direct Taxes (CBDT). The circular provides clarity on the scope of the Scheme, procedural and computational aspects, and also consequential issues.

The scheme was enacted into law on 17 March 2020 and the relevant rules were prescribed on 18 March 2020.

The Scheme provides a golden opportunity for the taxpayers to settle their tax disputes under the Indian Income Tax Act, 1961 (IT Act) by paying a portion of tax arrears.

Thus, the two main components of the Scheme are dispute resolution and amnesty.

√ The dispute resolution component is for liquidating the pending cases of Direct Taxes, which are pending in litigation at various forums.

√ The amnesty component of the Scheme offers an opportunity to the taxpayers to pay the disputed tax and be free from any other consequence under the law. There is also a complete Immunity from initiation of proceedings in respect of offence in respect of tax arrears.

APPLICABILITY:

  • All the appeals/petitions (whether filed by the taxpayer or the Revenue Authority) pending as on 31st January 2020, with either:
    • Supreme Court; or
    • High Courts; or
    • Income Tax Appellant Tribunals (ITAT); or
    • Commissioner of Income Tax (Appeals) i.e. CIT (Appeals)
  • Order(s) passed by tax officer or appellate authorities or the High court but the time limit for filing appeal or SLP against such order(s) has not expired as on 31 January 2020;
  • Cases pending before the Dispute Resolution Panel (DRP) as on 31st January 2020; or where the DRP has issued direction(s) but the tax officer has not passed final order as on 31st January 2020;
  • Revision petition filed before the Commissioner under section 264 of the IT Act which is pending as on 31st January 2020;

A wide range of appeals are eligible for settlement under the scheme. Illustratively,

  • Cases where an appellate authority has remanded a case back to the Assessing Officer (AO) with specific directions;
  • In case multiple appeals are pending for a given year, either of them, or all of them;
  • Appeals where there are no tax arrears (e.g.: loss to loss cases);
  • Cases where prosecution has been initiated (but not taken by a civil court yet), may be settled by compounding the offence;
  • Cases pending in arbitration, despite no pending appeal.
  • Cases which shall not be eligible to claim benefits under the scheme include cases pending before the AAR, cases remanded back for fresh assessment, penalty appeals where quantum is pending, writ petitions where there is no assessment order, applications for waiving interest and disputes under wealth tax, STT, CTT and equalisation levy.

TAX ARREARS THAT CAN BE SETTLED:

The following tax arrears as determined under the provisions of the IT Act could be settled under the Scheme:

  • The aggregate amount of
    • Disputed tax,
    • Interest chargeable or charged on such disputed tax and
    • Penalty leviable or levied on such disputed tax; or
  • Disputed Interest; or
  • Disputed Penalty; or
  • TDS or TCS Defaults

A taxpayer if chooses to settle these disputed amounts has to pay the following amounts:

Particulars Payable up to 31 March 2020** Payable from 1 April 2020 up to the last date to be notified **
Cases involving disputed tax, interest and penalty
1. All eligible cases (except search cases) 100 % of the disputed tax 110% of the disputed tax
2. Search cases 125 % of the disputed tax 135 % of the disputed tax
Cases involving disputed penalty or interest or fee 25% of disputed penalty or interest or fee 30% of disputed penalty or interest or fee

** In the following cases, only 50% of the disputed tax/interest/penalty/fine as calculated above would be payable:

  • Where the taxpayer has filed objection / appeal before the DRP / First Appellate Authority / Tax Tribunal, as the case may be, and the issue is already covered in favour of the taxpayer in its own case by a decision of Tax Tribunal / High Court / Supreme Court, as the case may be; or
  • The appeal or writ petition or SLP is filed by the Revenue Authority.

MODUS OPERANDI

  • A taxpayer eligible and desirous to settle tax arrears under the Scheme, is required to file a declaration before the Designated Authority (i.e. Commissioner of Income-tax).
  • Upon filing of such declaration, the taxpayer should withdraw the relevant appeal filed before the appellate forum. If the same pertains to appeal filed by the Tax Department, the same shall be deemed to have been withdrawn.
  • Within 15 days of receipt of the declaration, the Designated Authority shall compute tax arrears payable and grant a certificate containing the particulars of the tax arrears and the amount payable.
  • The taxpayer shall pay the amount within 15 days from the date of receipt of the certificate and intimate the details of such payment to the Designated Authority.
  • Once the taxpayer has paid the above tax arrears, the Designated Authority shall pass an order confirming the payment of tax arrears.
  • No further tax, interest or penalty is payable by the taxpayer on the tax disputes so settled.
  • If any proceeding for arbitration, conciliation or mediation have been initiated by the Taxpayer, or any notice thereof has been given by the Taxpayer under any law or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise, the Taxpayer shall withdraw the claim. The proof of such withdrawal shall be submitted along with intimation of payment i.e. after issuance of certificate by the Designated Authority containing particulars of the tax arrears and the amount payable.
  • No appellate forum or arbitrator, conciliator or mediator shall proceed to decide any issue relating to the tax arrears mentioned in the declaration in respect of which an order has been made by the Designated Authority or the payment of sum determined under that section.
  • Every such order passed shall be conclusive and no matter covered by such order shall be reopened in any other proceedings under the IT Act or any other law.
  • The Designated Authority shall not institute any proceeding in respect of an offence or impose or levy any penalty or charge any interest under the IT Act in respect of tax arrears.

NON-APPLICABILITY:

  • Disputes not covered above;
  • Search cases where disputed tax amount exceeds INR 5 crore;
  • Cases where prosecution has been initiated on or before the date of filling of declaration;
  • Cases involving undisclosed income from a source outside India or undisclosed asset located outside India;
  • Cases of tax disputes pursuant to assessment or reassessment made on the basis of information received under tax treaties or information exchange agreements;

PERSONS EXCLUDED:

  • Persons against whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (certain exceptions prescribed);
  • Persons prosecuted or convicted for any offence punishable under the provisions of the Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prevention of Corruption Act, 1988, the Prevention of Money Laundering Act, 2002, the Prohibition of Benami Property Transactions Act, 1988;
  • Persons against whom prosecution has been initiated by revenue authorities for any offence punishable under the provisions of the Indian Penal Code, or for the purpose of enforcement of any civil liability under any law;
  • Persons notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.

MANNER OF DETERMINING THE DISPUTED TAX (IN SOME SPECIAL CASES)

Status of case as on 31 January 2020 Disputed tax*
Order has been passed by the Tax Officer on or before 31 January 2020 and the time limit for filing appeal against such order has not expired Tax payable in accordance with such order
Order in an appeal or in writ petition has been passed by the appellate forum and the time limit for filing appeal or SLP has not expired Tax payable after giving effect to the order so passed
Objections filed before the DRP but are yet to be disposed off Tax payable, if DRP was to confirm the proposed variation in the draft order
DRP has issued directions but the Tax Officer is yet to pass final order Tax payable as per the final order to be passed by the tax officer
Pending revision petition filed under section 264 of the IT Act Tax payable if such revision application was not to be accepted
Appeal, writ petition or special leave petition (SLP) pending before the appellate forum Tax payable if such appeal / writ / SLP is decided against the taxpayer
Where First Appellate Authority has issued enhancement notice under section 251 of the IT Act Disputed tax computed is to be increased by the amount of tax pertaining to issues for which such notice has been issued

*Tax is inclusive of surcharge and education cess

SPECIAL TRAETMENT IN CASE OF MINIMUM ALTERNATE TAX (MAT) CREDIT AND LOSS OR DEPRECIATION CARRIED FORWARD

Where the dispute pertains to either reduction of MAT credit or any loss or depreciation, the taxpayer has an option to either:

  • include the amount of tax related to such tax credit or loss or depreciation in the amount of disputed tax; or
  • carry forward the reduced tax credit or loss or depreciation in prescribed manner.

CLARIFICATION ON PAYMENT OF DISPUTED TAX

The CBDT has provided the following clarifications in connection with payment of disputed taxes:

– Credit of all taxes paid for the year shall be available against the payment of disputed taxes;

– In case the deductor settles appeals relating to TDS:

  • consequential effect shall be provided in appeals where a disallowance under section 40(a)(i)/(ia) has been made; and
  • credit shall be allowed to the deductee (as of the date of settlement of dispute).

CAN THE BENEFITS UNDER THIS SCHEME BE WITHDRAWN?

The proceedings / claims withdrawn shall be deemed to have revived in case where:

  • incorrect material particulars furnished in declaration;
  • taxpayer violates any of the conditions referred in this Act;
  • acts in manner not in accordance with the undertaking given by him.

LAST DATE FOR AVAILING SETTLING DISPUTES UNDER THE SCHEME:

The due date to pay the above-mentioned amounts of disputed tax has been extended to 30 June 2020 without any additional payment (earlier, 10% additional was payable if paid after 31 March 2020). However, there is no clarity on the additional taxes which would be due if a taxpayer opted for this scheme post 30 June 2020.

Some other key points to note are:

-If the tax payable in the scheme is lower than the amount already paid in the course of litigation, the scheme also provides that the excess will be refunded (but without interest due on such refunds).

-Declaration made under the scheme will not be considered as setting any precedence for the taxpayer or the tax authority, in relation to the issues covered under the declaration. 

In conclusion, the revised scheme and the CBDT circular have cleared several doubts of taxpayers, enabling them to take a practical call for settling disputes and thus, seek finality of outcomes in those cases. Taxpayers can avail significant leverage on the waiver of interest and penalty being offered under the scheme. The scheme not only provides an opportunity for taxpayers to evaluate all open litigations, but also a way to minimise final payout. It may be beneficial for taxpayers to settle certain litigation matters such as one-time litigation cases, or cases where documentary evidence is lacking, cases where interest liability would be higher than the disputed tax, or cases where having duplicating tax impact (e.g.: litigation under section 40(a)(i) of the Act and litigation under section 201 of the Act) or cases pertaining to loss making companies where the losses are lapsing.

Moreover, it is heartening to note that settlement under the scheme does not set a precedence for either party and taxpayers keep a side of the bargain with themselves for cases, where they would like to pursue such cases on merit with their right to litigate.

A major dampener for taxpayers is the requirement to settle all disputes in a proceeding i.e. there is no option for the taxpayer to settle only limited issues and continue to litigate on the remaining.

Further, it would be pertinent to note that despite the clarifications, there are still many unanswered questions such as, pending miscellaneous applications, appeals filed with condonation of delay, orders received for appeals which were heard as on 31 January 2020, etc. In light of the scheme introduced as a measure to reduce litigation, it would be beneficial if the government also works towards and implements measures to streamline issue of refunds, credits for TDS, advance taxes etc. and process rectification applications quicker to reduce compliance burden and litigation on such issues.

Disclaimer: Absolute Care is taken in compilation of this article however inadvertently if any errors occurs then the Author shall not be held responsible for any such cause. The Content provided is only for educational purpose and shall not be construed as rendering of any Professional Advice in any manner whatsoever. The Readers must exercise their own Judgement and refer the original source before any implementation.

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