In a move to reduce the pending litigations, the Union Budget 2019 had proposed 'Sabka Vishwas'scheme under indirect taxes. The said scheme turned out to be a huge success. On similar lines, the Union Budget 2020 announced 'Vivad Se Vishwas' scheme to reduce 483,000 appeals which are pending before various appellate authorities under the direct taxes.
The bill to introduce 'Vivad Se Vishwas' scheme was moved to the Parliament on 5 February 2020, stating the objectives of reducing the litigations that consume a substantial amount of time, energy, and resources both in the form of loss of funds and others. It is believed that the scheme will provide resolution to the disputes, and also generate timely revenue for the government.
The highlights of The Direct Tax Vivad Se Vishwas Bill 2020 (Scheme) are as under:
What is covered under the scheme
The scheme is applicable with respect to certain appeals pending as on 31 January 2020 before various appellate authorities including CIT(A), ITAT, High Courts and Supreme Courts (Appellate Authority);
Amount payable under the scheme
A taxpayer opting for the resolution under the scheme is required to pay the amounts as per the table below:
Nature of tax arrears
Amount payable on or before 31 March 2020
Amount payable thereafter up to the last date as may be specified
Where tax arrears include disputed tax, disputed interest and disputed penalty
Amount of the disputed tax
Amount of disputed tax plus 10% thereof. The additional 10% will be restricted to the amount of interest and penalty
Where tax arrear relates to disputed interest or disputed penalty or disputed fee
25% of disputed interest or disputed penalty or disputed fee
30% of disputed interest or disputed penalty or disputed fee
Computation of tax arrears
- The scheme provides to extend resolution with respect to the tax arrears, which includes disputed tax, disputed interest, disputed penalty, and disputed fees for which an appeal is pending before the Appellate Authority.
- The computation of Disputed Tax has to be done in the following manner:
- In a situation where the income has been enhanced as a result of assessment by the tax officer, the difference between the tax payable on the assessed income as reduced by tax payable on returned income that is not the subject matter of the appeal.
- In a situation where the loss has either been reduced or converted into profit as a result of an assessment, the tax payable on the amount of variation.
- The above methodology has to be adopted for the computation of tax under the general provision of the act as well as MAT/ AMT.
- Disputed interest has been defined as the interest charged or chargeable on the disputed tax and will also include the interest against which an appeal has been filed;
- Disputed penalty means the penalty levied or leviable on the disputed income or disputed tax and will also include penalty against which an appeal is filed.
- As per the scheme, a taxpayer is required to file a declaration before the designated tax authority, who within 15 days of receipt of the declaration shall pass an order determining the amount payable by the taxpayer and issue a certificate.
- The taxpayer within 15 days from the date of receipt of the certificate will pay an amount to the designated authority. On receipt of the amount, the designated authority shall pass an order in writing, stating that the subject amount has been paid.
- The order passed by the designated authority shall be final, and as a result, the Appellate Authority or arbitrators or mediator shall be barred from proceeding with the appeal.
- It is worthwhile to note that upon the filing of the declaration, the concerned appeal pending before the CIT(A) or ITAT shall be deemed to have been withdrawn. Whereas, in cases where the dispute is pending before the High Court (in a writ or appeal) or in Supreme Court, the taxpayer will have to withdraw the said appeal/ writ and furnish the proof along with the declaration to be filed with designated authority.
- The taxpayer is also required to withdraw from arbitration/ MAP if any filed under any law or tax treaties and furnish the proof along with the declaration. Further, the taxpayer is also required to waive his right that may be available to him under any law or any tax treaty with respect to the tax arrears.
- The scheme also specifies that in case the taxpayer makes any false statement or violates any condition, the declaration filed by him will be deemed to have never been made and the pending dispute will get revived.
- The designated authority has also been barred from instituting any proceeding with respect to an offense or impose any penalty or charge interest under the Act, with respect to the tax arrears.
What is not covered under the scheme
- The tax arrears arising out of search or seizure proceedings;
- The years where the prosecution was launched prior to the filing of a declaration;
- Tax arrears in relation to undisclosed income from sources outside India;
- The cases where an addition is based on the information received from a foreign country as part of an exchange of information u/s 90 or 90A;
- Cases where enhancement proposed by the CIT(A);
- Any person who has been detained under COFEPOSA Act, 1974, before the filing of a declaration;
- A person, in whose case the prosecution has been instituted prior to the filing of a declaration under any of the specified acts; and
Any person notified under Special Court (Trial of Offences Relating to Securities) Act, 1992, before the filing of a declaration.
The scheme, however, has not covered litigations pending before Dispute Resolution Panel (DRP). Also, there is no clarity whether the credit for taxes already paid against the disputed income will be available against the tax computed by the designated authority. Similarly, if taxes become payable under MAT, whether the same will be available as MAT credit subsequently.
The introduction 'Vivad se Vishwas' is a welcome move and expected to bring down the pending appeals to some extent, and is likely to be availed by the taxpayer:
- in situations where the taxpayer believes that chances of success are bleak, basis the legal position existing as of date;
- where the cases are quite old and the interest burden is significantly high;
- cases not involving large amounts in dispute, but where the taxpayers opt for peace of mind.
If the scheme had offered some abatement on the tax arrears, similar to the 'Sabka Vishwas' scheme, introduced last year, then it would have brought down the pending litigations significantly besides bringing revenue to the exchequer.
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.