Simplifying the Direct Tax Vivad Se Vishwas Act – The Amnesty Scheme of 2020

In the wake of giant quantum of disputes amounting to approximately Rs. 9.32 lakh crorepending adjudication before various levels of income tax adjudication fora ranging from Commissioner (Appeals), Income Tax Appellate Tribunal (ITAT), High Courts and Supreme Court has made the Government announce a dispute resolution scheme“Vivad se Vishwas” while presenting the Budget 2020.

The scheme received the assent of the President on 17-03-2020 and is now known as The Direct Tax Vivad Se Vishwas Act, 2020( “Act”or “Scheme”). The scheme offers a complete waiver of interest and penalty if the taxpayer makes a declaration and discharges the disputed tax liability within prescribed time limits. The scheme has been introduced as a bill that further turned into the Act after receiving the President’s assent and is a rare scenario to witness in terms of a tax benefit scheme introduced as a law in the form of an Act. The authors through this article aimat simplifying the law while covering all the important aspects of the Act to figure out how it targets to help the taxpayers at large, along withanalyzingthe technical aspects of the scheme.

THE DIRECT TAX VIVAD SE VISHWAS ACT, 2020 – A GLIMPSE OF THE LAW

Motivated with the success of Sabka Vishwas Legacy Dispute Resolution Scheme, the Finance Minister proposed its counterpart for the adjudication of pending disputes for the direct taxes to put a halt to the flooding litigation through the Direct Tax Vivad Se Vishwas Bill, 2020. The Act shall apply to the appeals pending before the Commissioner (Appeals), ITAT, High Courts and Supreme Court on or before 30-06-2020 in which the demand is pending or is paid under protest. The nature of pending appeals will cover the appeals filed against interest or penalty raised through assessment orders or against disputed interst or penalty where no disputed tax lies. The defaults in paying TDS and TCS are also covered.

The general scheme of the Act is kept broad to include a wide range of tax arrears to be included which are kept unpaid while pending adjudication. Likewise, the definition of Tax Arrear under section 2(1)(o) is also kept wide which serves a two-fold benefit, through generating timely revenues for the government while enhancing the larger good of the taxpayers by saving their resources and time.

ELIGIBILITY OF TAXPAYERS FOR THE VIVAD SE VISHWAS SCHEME

The scheme includes a variety of disputes which will be covered. Firstly, it will include cases where an appeal, writ petition or special leave petition is pending before the appellate forum as on the specified date. Secondly, cases where an order is passed by the Adjudicating Authority in an appeal/writ petition on or before 31-01-2020 which can be subjected to an Appeal under Article 136 of the Consitution of India. Thirdly, in cases where the appellant has chosen to file the objections under section 144C of the IT Act before the Dispute Resolution Panel, the amount of tax required to be paid will be the variation proposed in the draft order. Fourthly, in cases where after filing the objections, any directions have been issued by the DRP under section 144C (5) of the Income Tax Act, however, there lies no order passed by the AO under section 144C (13) of the IT Act. Lastly, in cases where an application for revision has been preferred by the taxpayer under section 264 of the Income Tax Act and is pending before the AA as of 31-01-2020.

DECIDING THE QUANTUM OF AMOUNT TO BE PAID BY THE DECLARANT

After furnishing declaration as to tax arrears, eligibility and tax dispute etc., there are several criteria which decide the amount to be paid by the declarant. One is the amount payable on the disputed tax and other disputes are kept under different heads while the second is the determination of amount payable on the date is decided to be paid. A simplified explanation to choose the quantum of amount payable under the referred conditions is provided below:

1. In cases of Appeals/Writs/SLP filed by the Assessee:

• In the cases of tax arrears as the aggregate amount of disputed tax, disputed interest or interest charged on disputed tax, and penalty: The amount payable on or before 30-06-2020 would be 100% of the disputed tax and 125% in search cases and the amount payable after the deadline would be 110% of the disputed tax and 135% in search cases.

• In cases of tax arrears relating to disputed interest or disputed penalty or disputed fees: The amount payable on or before 30-06-2020 would be 25% of the disputed interest, penalty or fees and the amount payable after the deadline would be 30% of the disputed interest, penalty or fees.

2. In cases of Appeals/Writs/SLP filed by the Department:

• In cases of Tax, arrears is the aggregate amount of disputed tax, disputed interest or interest charged on disputed tax, and penalty on such disputed tax: The amount payable on or before 30-06-2020 would be 50% of disputed tax and 62.5% in search cases and the amount payable on or after 01-07-2020 would be 55% of disputed tax and 67.5% in search cases.

• In cases of Tax arrears relating to disputed interest or disputed penalty or disputed fees: The amount payable on or before 30-06-2020 would be 12.5% of disputed interest, penalty or fees and the amount payable on or after 01-07-2020 would be 15% of disputed interest, penalty or fees.

In addition to this, there are certain cases which are expressly kept outside the purview of the scheme such as cases of search and seizure where the demand is more than Rs. 5 crores, and specified under Section 9 of the Act.However the scheme leaves a room for lacunae as it aims to settle the disputed interest without settling the original tax liability and makes it unclear and doubtful in terms of the spirit of the legislation which endeavors to lower down the pending litigation.

However, VSV is exclusively a voluntary scheme but if opted for, the appeal/petition filed by either the department or the individual shall stand to be withdrawn. Filing of the declaration will not act as precedence and neither the taxpayer nor the department can claim that the taxpayer or department has conceded its tax position by settling the dispute. Additionally, Section 6 of the Act grants immunity to the taxpayer against initiation of proceedings for the dispute settled through the scheme.

Keeping aside some of the technical glitches it serves, the history of such an amnesty scheme proves that it will become a success for the interests of the taxpayers.

VIVAD SE VISHWAS – CLARIFICATIONS AND FAQs DATED 04-03-2020

As the scheme gained popularity and support after being floated in the public domain for the stakeholders,the CBDT received ample of queries regarding various provisions of the Act and released a series of Frequently Asked Questions (FAQs) on 04-03-2020. The FAQs clarifies that the Act provides for no provision for partial settlement of dispute for an assessment year. It is made clear that all the issues arising out an appeal are required to be settled and no partial settlement can occur.The taxpayer while filling the declaration form has the option for multiple filings arising for the same year as the form is to be filled assessment year-wise. For every assessment year, a separate declaration has to be filed.Whereas, touching the subjects of refund under the scheme it states that if the amount of tax paid by the taxpayer is higher than the amount payable under the scheme, the same shall be refunded without interest under section 244A of the IT Act. However, in cases where department had filed an appeal against the order of HC or SC where they have decided in favour of the taxpayer, the amount payable shall be NIL. Needless to say, releasing of clarifications by the government has proved out to be helpful and the stakeholders are optimistic regarding the scheme seeing it as a measure of good governance for honest taxpayers.

CONCLUDING REMARKS

With the evidential increase in tax litigation every year, a huge amount of disputed tax is locked. The VSV scheme can be considered to be awelcoming move and is expected to reduce the long-overdue tax litigation. Moreover, 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. There are still some major discrepancies with the time limit as to how much time the taxpayers will get to pay the amount after availing the scheme by leaving it on the wide discretionary power of the Designated Authority.Further, despite the clarifications, there are still many unanswered questions such as, pending miscellaneous applications, appeals filed with condonation of delay, disputed of transfer pricing, orders received for appeals which were heard as on 31 January 2020, rules relating to set-off and carry forward of losses and MAT Credit, etc.

ABOUT THE AUTHOR(S)

Mr. Aishwarya Anand is an advocate involved in the litigation pertaining to taxation and allied civil laws and is a graduate of National Law University, Jodhpur.

Ms. Kritika Singh is a third-year student at Maharashtra National Law University, Aurangabad and holds her interest in the field of taxation.

In content Picture credits: taxscan.in