Over the years, the pendency of Appeals/Petitions presented by the taxpayers as well as the Government has increased due to the fact that the number of Appeals/Petitions that are filed is much higher than the number of Appeals/Petitions that are disposed. Tax disputes consume copious amount of time, energy and resources both on the part of the Government as well as the taxpayers. Thus, an urgent need was felt to provide for resolution of pending tax disputes. The Finance Ministry of the Government of India, has from time to time, introduced and implemented several Policies / Schemes in the country so as to boost the recovery of Direct Taxes, undeniably an important source of revenue for the economic and social development of the country, and also to minimise pending direct tax litigations. Perhaps inspired by the success of the Sabka Vishwas Scheme relating to Indirect Tax disputes and targeting to bring down more than 4.84 lakhs Direct Tax disputes pending in various appellate forums, including courts, whether High Courts or Supreme Court of India, involving more than Rs 9.32 lakhs crores, translating to about 5 percent of India's Gross Domestic Product (GDP) (based on 2018-2019 data), the Government of India introduced Direct Tax Vivad se Vishwas Bill, 2020 (hereinafter also referred to as "VSV Scheme" or "Scheme") and tabled it in the Parliament on 05.02.2020 with key objectives:
- to generate timely collection of taxes for the Government;
- to reduce pending income tax litigation; and
- to benefit taxpayers by providing them peace of mind, certainty and savings on account of time and resources that would otherwise be spent on the long-drawn and vexatious litigation process.
Later, to widen the scope of the Scheme, certain amendments to the Original Bill were proposed in the Parliament on 14.02.2020, inter alia with respect to expansion of the scope of cases in which a taxpayer can avail the benefits of the Scheme, rationalization of the amount of Disputed Tax to be paid under the Scheme as also timing of withdrawal of Appeals, clarification that making a declaration under the Scheme does not amount to acquiescing to a tax position, and provision for refund of excess taxes paid under the Income Tax Act.
The Direct Tax Vivad Se Vishwas Act, 2020 Amendment Bill was passed by the Lower House of the Parliament on 04.03.2020 and from Upper House on 13.03.2020, and the Direct Tax Vivad Se Vishwas Act, 2020 (hereinafter referred to as "Act of 2020") came into force after the assent of the President on 17.03.2020.
Eligibility for the Act
The Scheme under the Act of 2020 shall be applicable to:
- All the Appeals/Petitions filed by the taxpayers or the Income Tax Department before the Commissioner of Income-Tax (Appeals), Income-Tax Appellate Tribunal, High Courts or Supreme Court, and the same are pending as on 31.01.2020;
- Orders for which time limit for filing an Appeal has not expired;
- Cases are pending before the Dispute Resolution Panel (DRP) or where DRP directions have been passed on or before 31.01.2020 but final Assessment Order is awaited;
- Revision Petitions are pending before the Commissioner of Income-Tax under Section 264 of the Income Tax Act;
However, the said Scheme does not include:
- Search cases where the disputed demand is more than Rs. 5 crores;
- Where prosecution has been initiated by the Department under Income Tax Act or under Indian Penal Code (IPC);
- Cases involving undisclosed foreign income and assets;
- Cases which are completed on the basis of information received from foreign jurisdiction;
- Cases where person is notified under Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 or is detained under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974; and
- Cases which are covered under Narcotic Drugs and Psychotropic Substances Act, Unlawful Activities (Prevention) Act, Prevention of Corruption Act, Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, Prevention of Money Laundering Act, Prohibition of Benami Property Transactions Act.
It also clarifies that the disputes where the payment has already been made, shall also be eligible under the Scheme, as also the Appeals or Writs filed by taxpayers or the Department and cases in arbitration in India or abroad.
Amount payable under the Act
As per the Scheme under the Amended Act, the taxpayers are required to pay the following:
- In case of Appeals filed by taxpayer:
Particulars Amount of tax payable if the Assessee opts for the Scheme on or before 31.03.2020 (now extended to 30.06.2020) Amount of tax payable if the Assessee opts for the Scheme post 31.03.2020 (now extended to 30.06.2020) Search cases 125 percent of Disputed Tax 135 percent of Disputed Tax Other than search cases 100 percent of Disputed Tax 110 percent of Disputed Tax Cases relating to only interest, penalty or levy 25 percent of disputed interest, penalty or fee 30 percent of disputed interest, penalty or fee
- In case of Appeals filed by Department or the
Department has lost an issue:
Particulars Amount of tax payable if the Assessee opts for the Scheme on or before 31.03.2020 (now extended to 30.06.2020) Amount of tax payable if the Assessee opts for the Scheme post 31.03.2020 (now extended to 30.06.2020) Search cases 62.5 percent of Disputed Tax 67.5 percent of Disputed Tax Other than search cases 50 percent of Disputed Tax 55 percent of Disputed Tax Cases relating to only interest, penalty or levy 12.5 percent of disputed interest, penalty or fee 15 percent of disputed interest, penalty or fee
It has been further clarified that if the taxpayer has already paid the disputed demand which is more than the amount payable under the Scheme, the taxpayer shall be entitled to refund. However, the said refund shall be granted without any interest.
What constitutes Disputed Tax?
The primary issue arising here is as to what constitutes "Disputed Tax" under the Amended Act of 2020. According to Section 2(j) of the said Act, "Disputed Tax", in relation to an assessment year or financial year, as the case may be, means the income-tax, including surcharge and cess (hereafter in this clause referred to as the amount of tax) payable by the appellant under the provisions of the Income-Tax Act, 1961, as computed hereunder:-
- In case of Appeals pending as on 31.01.2020
Amount of Tax payable if such Appeal was to be decided in favour of Revenue;
- In case where an order in Appeal has been passed on or before 31.01.2020, and time for filing further Appeal has not expired as on 31.01.2020 - Amount of tax payable after giving effect to the order so passed;
- In case where an order in original has been passed by
Assessing officer on or before 31.01.2020, and time for filing
Appeal has not expired as on 31.01.2020 –
Amount of tax payable in accordance with such order;
- In case where objection filed is pending before Dispute
Resolution Panel (DRP) u/s 144C as on 31.01.2020
Amount of tax payable if the DRP was to confirm the variations proposed in the draft order;
- In case where DRP has issued any direction u/s 144C(5)
and the AO has not passed final order as on 31.01.2020
Amount of tax payable as per the assessment order to be passed by the Assessing Officer; and
- In a case where an application for revision under
section 264 is pending as on the 31.01.2020 –
Amount of tax payable if such application for revision was not to be accepted.
It may be noted that as per Second Proviso to Section 2(j) of the Act of 2020, in a case where the dispute in relation to an assessment year relates to reduction of tax credit under Section 115JAA or Section 115D of the Income-tax Act or any loss or depreciation computed thereunder, the appellant shall have an option either to include the amount of tax related to such tax credit or loss or depreciation in the amount of Disputed Tax, or to carry forward the reduced tax credit or loss or depreciation, in such manner as may be prescribed.
Illustrations re. Disputed Tax
Tax payable as per the Return of Income of the Assessee Rs 2 crores Tax liability as computed by the Assessing officer in the Assessment order passed Rs. 2.50 crores Difference Rs. 50 lakhs
- The Assessee in the above case, files an Appeal with the Commissioner (Appeals) and the Commissioner (Appeals) determines the tax liability to be Rs. 2.75 crores instead of Rs. 2.50 crores. In such a situation, the Disputed Tax shall be Rs. 75 lakhs and not Rs. 50 lakhs.
- An assessment is made for an Assessment year and the Order
passed. The Assessee had filed his Return of Income showing a loss
of Rs. 2 crores. However, at the conclusion of the assessment, the
Assessing Officer opines that the loss is only Rs. 1 crore and not
Rs. 2 crores. Thus, there is a reduction in the amount of loss by
Rs. 1 crore. Aggrieved, the Assessee chooses to file an Appeal with
the Commissioner (Appeals). If the Assessee is in the tax bracket
of 30 percent, the tax on the amount reduced i.e. Rs. 1 crore, will
come to Rs. 30 lakhs. In such a scenario, the Disputed Tax shall be
Rs. 30 lakhs, with a cess of 4% equalling to Rs. 1.20 lakhs.
Therefore, the Disputed Tax shall be Rs. 31.20 lakhs.
In such a situation, the Assessee may have two options: -
- Either to pay Disputed Tax of Rs. 31.20 lakhs and the entire amount of loss of Rs. 2 crores may be carried forward; or
- The reduced loss of Rs. 1 crore may be carried forward for the next year.
Let's take the income the income of the Assessee for the next Assessment Year at Rs. 4 crores.
Particulars Option 1
(Amount in Rs.)
(Amount in Rs.)
Income 4,00,00,000 4,00,00,000 Loss carried forward 2,00,00,000 1,00,00,000 Taxable income 2,00,00,000 3,00,00,000 Tax on taxable income @ 30% 60,00,000 90,00,000 Surcharge @ 7% if income is more than Rs. 1 crore 4,20,000 6,30,000 Total tax plus surcharge 64,20,000 96,30,000 Cess @ 4% 2,56,800 3,85,200 Total tax payable 66,76,800 1,00,15,200 Amount paid as per the scheme 31,20,000 NIL Total Outflow 97,96,800 1,00,15,200
Tax on income as per normal provision Rs 50 lakhs Tax on income as per MAT* provision Rs. 65 lakhs MAT credit Rs. 15 lakhs
An assessment is made for an Assessment year and the Order passed to the effect that the tax as per normal provisions is Rs. 55 lakhs, and consequently the MAT credit is only Rs. 10 lakhs. Aggrieved, the Assessee chooses to file an Appeal with the Commissioner (Appeals). In such a situation, the Disputed Tax shall be Rs. 5 lakhs being the difference between Rs. 15 lakhs and Rs. 10 lakhs.
In such a situation, the Assessee may again have two options: -
- Either to pay Disputed Tax of Rs. 5 lakhs and the entire amount of MAT credit of Rs. 15 lakhs may be carried forward; or
- The reduced MAT credit of Rs. 10 lakhs may be carried forward for the next year.
Benefits under the Scheme
The Scheme under the Act of 2020 is intended to provide the following, besides others, benefits: -
- Firstly, the Scheme offers a complete waiver on interest and penalty to the taxpayers who pay their Disputed Taxes on or before 31.03.2020 (now extended to 30.06.2020);
- Secondly, all Appeals, Writs, SLPs, Arbitrations, both by Assessee and the Department shall be withdrawn;
- Thirdly, excess payment made before declaration under the Scheme shall be refunded without interest; and
- Nextly, the Assessee will also get the following immunities
once the case is settled under the Scheme:
- Such cases cannot be reopened in any other proceeding by any tax authority or designated authority;
- Once the dispute has been resolved, an appellate forum cannot issue an order in relation to the matter; and
- Opting for the Scheme shall not amount to conceding the tax position and tax authority cannot claim that taxpayer has acquiesced to the decision on the disputed issue.
Clarifications by CBDT:
In terms of Circular No. 7/2020 dated 04.03.2020, as reissued with modifications vide Circular No. 9/2020 dated 22.04.2020 issued by Central Board of Direct Taxes (CBDT), certain clarifications on provisions of Direct Tax Vivad se Vishwas Bill, 2020 were issued. They include:
- An Assessee whose case is pending in arbitration is eligible to apply for settlement under Vivad se Vishwas even if no Appeal is pending. In such case Assessee should fill the relevant details applicable in his case in the declaration form.
- Vivad se Vishwas is not available for disputes pending before Authority of Advance Ruling (AAR). However, if the order passed by AAR has determined the total income of an assessment year and writ against such order is pending in High Court, the appellant would be eligible to apply for the Vivad se Vishwas.
- Appeals in which appellant has already paid the disputed demand either partly or fully are also covered. If the amount of tax paid is more than amount payable under Vivad se Vishwas, the appellant will be entitled to refund without interest under section 244A of the Act.
- If an appellate authority has set aside an order (except where assessment is cancelled with a direction that assessment is to be framed de novo) to the file of the AO for giving proper opportunity or to carry out fresh examination of the issue with specific direction, the Assessee would be eligible to avail the benefit of the Scheme.
- The Disputed Tax includes tax related to tax deducted at source (TDS) and tax collection at source (TCS) which are disputed and pending in Appeal. However, if there is no dispute related to TDS or TCS and there is delay in depositing such TDS/TCS, then the dispute pending in Appeal related to interest levied due to such delay will be covered under Vivad se Vishwas.
- Where only notice for initiation of prosecution has been issued without prosecution being instituted, the Assessee is eligible to file declaration under Vivad se Vishwas Scheme. However, where the prosecution has been instituted with respect to an assessment year, the Assessee is not eligible to file declaration for that assessment year under Vivad se Vishwas Scheme, unless the prosecution is compounded before filing the declaration.
The Direct Tax Vivad Se Vishwas Rules, 2020
In exercise of the powers conferred by Sub-section (2) of Section 12 read with Sub-sections (1) and (5) of Section 4 and Sub-sections (1) and (2) of Section 5 of the Direct Tax Vivad se Vishwas Act, 2020, the Central Government has made The Direct Tax Vivad Se Vishwas Rules, 2020. The said Rules, inter alia, provide for forms of declarations and undertakings, certification by Designated Authority, and manner of computing Disputed Tax.
To Opt or Not – Aspects to Consider
Though the Scheme prima facie seems to be attractive as it waives interest and penalty, besides other advantages, an individual Assessee has to analyse various aspects before opting to settle in the said Scheme.
Some of the factors / aspects to be considered include:
- Strength of the merits of the case;
- Expected total cost of litigation as also the time to be consumed therein; and
- Implications of carried forward losses, cash flow considerations etc.
Some Other Salient Features of the Act
The Act provides that the disqualification as envisaged under the Original Scheme will apply to a taxpayer only if prosecution under the IPC or enforcement of civil liability has been initiated by the tax authority or who has been convicted of an offence under the IPC consequent to prosecution initiated by the Tax Department.
Under the Amended Act, Order passed by High Court in a Writ Petition and where time for filing Special Leave Petition has not expired, has been included but, may be by oversight, Order passed by High Court in an Appeal is not included. Thus, where an Order has been passed by the High Court in an Appeal and the time limit to file the Appeal by the taxpayer or the Department has not expired, such taxpayer or the Department will not be eligible for the benefit of the Scheme. It is required to be looked into and clarified by the Department.
Further, in a case where an Appeal or Writ Petition has been decided in favour of the Assessee or Department and the time for filing Appeal or Special Leave Petition against such Order by the Assessee or the Department has not expired, the Disputed Tax shall be the amount of tax payable by the Assessee on the income after giving effect to the Order so passed by the Appellate Forum.
It is also pertinent to mention that in case an Appeal has been decided in favour of the Assessee and the time limit to file the Appeal by the Department is pending on 31.01.2020, in view of such amended definition of Disputed Tax, the Disputed Tax will be Nil.
Announcement on 24.03.2020
During the lockdown due to COVID-19 pandemic, the Finance Ministry on 24.03.2020 announced several relief measures with respect to Statutory and Regulatory compliance matters across the sectors. In relation to the Vivad se Vishwas Scheme, an announcement was made that Assessee is not required to pay any additional amount, if the payment of the tax amount is made by 30.06.2020 instead of 31.03.2020 as originally provided.
In essence, the Act of 2020 is the Government's initiative to reduce disputes and also collect the revenues clogged in long pending litigations. All such steps also show the eagerness of the Government in reaching out to the Assessees to enable settlement of long pending disputes. The Central Board of Direct Taxes (CBDT) has internally directed all Revenue Officers to take appropriate steps to ensure that taxpayers take the benefits available under the Scheme and settle their pending disputes, and elect for Vishwas over Vivad.
Author's views are personal only.
(Mr. Achal Gupta is an Advocate and a qualified Chartered Accountant. He is currently a Senior Associate in the Dispute Resolution Practice at L&L Partners Law Offices, New Delhi).
- Direct Tax Vivad Se Vishwas Amendment Bill, 2020
- Direct Tax Vivad Se Vishwas Amendment Act, 2020
- Direct Tax Vivad Se Vishwas Rules, 2020
- CBDT Circulars No. 7/2020 dated 04.03.2020 and 9/2020 dated 22.04.2020
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.