India: Changing Litigation Landscape In India From Pending Litigation To Speedy Resolutions

Last Updated: 15 February 2017
Article by Maulik P. Doshi

India is moving at a rapid pace on the path of economic growth, and its litigation landscape is keeping up. Over the years, taxpayers from different sectors have experienced various reactions on matters under litigation with the Indian Tax Authorities. However, this scenario could soon change as the government is making sincere efforts to bring in efficiency and speed in the disposal of matters under litigation.

The government is working towards a 'litigation-by exception' tax regime, and has taken some landmark steps towards reducing tax litigation. Two specific examples of this approach are the introduction of Limited Scrutiny Assessment (Revenue Audit) and a substantial modification in the criteria for the initiation of transfer pricing assessment.

Under a Limited Scrutiny Assessment, as the name suggests, the scope of the Tax Authorities' enquiry is limited to the 'reason for selection' of scrutiny and does not involve calling for extremely detailed information and making fishing enquiries about different items in the financial statements. During the first round of litigation under the Limited Scrutiny Assessment regime, it was disheartening to see that the Limited Scrutiny Assessments have remained 'Limited' in it's spirit.

Similarly, the criteria for initiating a transfer pricing assessment were revised with a specific focus on a risk based approach as against a blanket monetary threshold approach. Under the revised criteria, only those cases which have apparent transfer pricing risks (as identified by a computer system) or where transfer pricing adjustments of more than INR 100 million have been made in the past, will be selected for a transfer pricing scrutiny in isolation. In all other cases, transfer pricing scrutiny shall not be initiated. In such cases, the government, perhaps pre-empting the approach of the tax officers, has expressly prohibited the tax officers to look at transfer pricing matters even if the case is selected for a scrutiny assessment due to any other reason. Another encouraging trend is a substantial reduction in the number of cases being selected for scrutiny. The tax departments have also made suitable changes to the monetary limits below which appeals shall not be filed by the tax authorities. Further, the government has now proposed to reduce the time limit for completing scrutiny assessments to 12 months in a phased manner. This approach has not only reduced the taxpayers' burden particularly for those who are involved in assessment proceedings all round the year, thus entailing substantial time and costs, but this approach has also allowed the tax officials to conduct a more qualitative scrutiny of items of greater impact

The Advance Pricing Agreement (APA) programme introduced in 2012 has invoked a considerable positive response from taxpayers. The APA is considered to be an effective controversy management tool, which helps reduce time and monetary costs of litigation for taxpayers. The on-ground feedback from taxpayers and tax professionals is that the APA authorities are fair and transparent in their dealing and make an active effort to understand the business dynamics of the taxpayers. In the current financial year (with 2 months still to go), India has signed 53 APAs, which work out to more than 1 APA per week! Comparing this to global standards, the speed of completion of an APA in India is fascinating.

Prime Minister Modi's mantra of 'Good Governance' is also taking shape on the ground with a remarkable shift in the approach of the tax officials who are now more courteous and inclusive in their approach from the Tax Authorities. The tax officials are seen adopting more rational positions rather than following a singular approach of basing their acts on their predecessors. The Revenue Boards have also issued letters to their staff underlying the expectation of the government that the Tax Officers should be sensitive in discharging their duties based on the sound principles of law which can stand the scrutiny of a higher forum rather than passing pro-revenue and frivolous orders, to avoid unnecessary litigation. There has also been a relatively quick disposal of rectification and refund applications involving a substantially large amount.

The government has issued numerous circulars and answers to Frequently Asked Questions (FAQ) over the past few months to clarify interpretations of different provisions of the tax laws. FAQs were issued from time to time to clarify the application of the Income Declaration Schemes. The Place of Effective Management (POEM) regulations were also supported by detailed guiding principles with express clarification on the government's intentions. A similar approach was taken for the issuance of FAQs dealing with General Anti-Avoidance Rules (GAAR).

The government is trying increase the use of technology thereby reducing the touch-points between the taxpayer and tax authorities. Some cases in point are an introduction of the electronic assessment system by the Income-tax Department as a Pilot Project and 'Computerised Desk Audit' by the Maharashtra VAT department. Under these initiatives, the entire assessment proceeding is conducted electronically without having to make multiple rounds of the tax offices and demonstrates the changing outlook of tax administrators.

Another remarkable development, aided largely by a dynamic judiciary, is the speed of the disposal of cases before the appellate authorities. While litigation remains inevitable in any tax environment, the pace of the disposal of cases before the judicial forums also contributes towards providing the necessary guidance to the taxpayers and tax administrators. Contemporary issues such as marketing intangibles and advertising marketing and promotion spend, location savings, selection of tested party, etc. have reached the higher courts and we are expecting to see these issues nearing a settlement at least at judicial levels in the near future.

At the international forum, India is making rapid advancements in resolving tax disputes. Almost 100 plus Mutual Agreement Procedures (MAP) cases (42 cases on treaty interpretation issues and 66 cases on transfer pricing issues) were recently resolved between India and the USA. Similarly, the revised double taxation avoidance agreement (DTAA) between India and Singapore facilitates negotiation of Bilateral APA and also opens a window to resolve tax issues through MAP.

While there are numerous positives basis the developments in the last one year, certain old issues remain. The effectiveness of the Dispute Resolution Panel (DRP) remains a concern with many taxpayers viewing the DRP to be the 'faster route to the tribunal'. The pendency of cases before the first appellate authority (CIT (appeals)) and the time of disposal of appeals does not show signs of improvement. The cases relating to capital gains tax on the indirect transfer of shares issue led by Vodafone continue to remain open without any amicable resolution in sight. It almost seems to have become a point-of-no-return for the parties involved with Vodafone declining to apply under the settlement scheme initiated by the government.

While the government has clarified its intent of developing a stable tax regime, the results of many of the government's initiatives will require a mindset change on the part of the tax administrators and as well as taxpayers. If the mindset of the people in the tax environment keeps pace with the government's initiatives, the proverbial 'acche din' (good days) will not be far away. Ultimately, a responsive and fair tax administration encourages tax compliances far more than any incentives or penalties that the law may bring about!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.