In the Finance Bill introduced by the Finance Minister in the Parliament, a Scheme called “The Direct Tax Dispute Resolution Scheme, 2016” has been introduced with the intention to reduce the litigation. Recently CBDT vide Circular dated 10-12-2015 had enhanced the limit of tax effect for which appeals have to be filed by the Government from
Rs. 4 lakh to Rs. 10 lakh in the case of Tribunal and from Rs. 10 lakh
Rs. 20 lakh in case of High Court. In the aforesaid Circular, it was also provided that the enhanced limits will apply to pending appeals and appeals having tax effect less than the prescribed limit will be withdrawn by the department. As a result, quite good number of appeals filed by the department have been disposed of by various benches of the Tribunal and High Courts on the ground of low tax effect. In continuation of the intention of the Government to reduce litigation, the proposed scheme has been brought in vide Sections 197 to 208 of the Finance Bill, 2016.Salient features of the proposed Scheme are as stated hereinafter.
Commencement and scope of the Scheme
– Declaration can be filed under the Scheme on or after 1-6-2016 but before the date to be notified before the Designated Authority, who has been defined to be the officer of the rank of Commissioner of Income-tax.
– The scheme is applicable to two category of cases i.e. relating to:-
(i) ‘Tax arrears’ in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or Commissioner of Wealth-tax (Appeals) as on 29-2-2016.
(ii) ‘Specified tax’ in respect of which appeal, writ or any other proceedings are pending as on 29-2-2016.
– ‘Tax arrears’ has been defined u/s. 198(1)(h) to mean the amount of tax, interest or penalty determined under the Income-tax Act or Wealth-tax Act, 1957.
– ‘Specified tax’ has been defined in Section 198(1)(g) to mean the tax determined consequent upon, validation or retrospective amendment of a provision of Income-tax Act or Wealth-tax Act relating to the period prior to the date of amendment.
Amount payable under the Scheme
– In the case where appeal is relating to tax arrear involving amount of tax and interest and disputed tax does not exceed
Rs. 10 lakh, the assessee is liable to pay the disputed tax and interest on the same till the date of assessment or re-assessment, as the case may be.
– In case appeal relating to tax arrears involves amount of disputed tax of
Rs. 10 lakh or more, the assessee has to pay disputed tax and interest thereon till the date of assessment or reassessment, as the case may be, and also 25% of minimum penalty leviable.
– In case appeal is relating to penalty, assessee is liable to pay 25% of the minimum penalty leviable apart from tax and interest payable on the total income finally determined.
– In a case relating to specified tax, the assessee is liable to pay the amount of tax determined.
Filing of Declaration, determination of amount payable and passing of order by Designated Authority
– As provided u/s. 200(1), a declaration is to be filed before the Designated Authority in such form and verified in such manner as may be prescribed. The Government has yet to prescribe the forms, etc.
– Section 201 provides that Designated Authority i.e., CIT shall within a period of sixty days from the date of receipt of the declaration will determine the amount payable by the declarant in accordance with the provisions of this scheme and grant a certificate in the prescribed form to the declarant setting forth therein the particulars of tax arrear or the specified tax as the case may be, and the sum payable after such determination.
– Sub-section (2) of Section 201 provides that the declarant shall pay the sum determined by the Designated Authority as per the certificate within 30 days of the date of the receipt of the certificate and shall intimate the fact of making the payment along with proof thereof to the Designated Authority.
– On receipt of such intimation the Designated Authority shall pass an order stating that the declarant has paid the sum as per the scheme.
– Order passed by the Designated Authority shall be conclusive as regards the settlement of dispute relating to disputed income covered by the order and such dispute shall not be reopened in any proceeding under the Income-tax Act or Wealth-tax Act or under any law for the time being in force.
Withdrawal of litigation
– In accordance with Section 200(2) where a declaration has been filed in respect of tax arrears appeal pending before CIT(A) or CWT(A), as the case may be, relating to disputed income or disputed wealth shall be deemed to have been withdrawn.
– In a case relating to specified tax, the assessee is required to firstly withdraw such appeal or writ pending before any appellate authority or the court and has to furnish proof of such withdrawal along with the declaration to be filed. In a case where the assessee has initiated any proceedings for arbitration, conciliation or mediation or has given any notice thereof under any law, he has to withdraw such proceedings or notice or claim, and proof of such withdrawal has to be submitted along with the declaration to be made. The assessee has also to make a declaration waiving his right to seek or pursue any remedy or any claim in relation to the specified tax which may be available to him under any law for the time being in force.
– It has also been provided in sub-section (6) of Section 200 that no Appellate Authority or Arbitrator, conciliator or mediator shall proceed to decide any issue relating to specified tax mentioned in the declaration and in respect of which an order has been passed by the Designated Authority or the sum payable under the scheme has been determined.
– It has been provided u/s. 202 of the Finance Bill that on filing the declaration the Designated Authority shall grant immunity from institution of any proceeding in respect of offence under the Income-tax Act or Wealth-tax Act, meaning thereby, immunity will be granted from initiating prosecution proceedings in a case where declaration has been filed and tax payable as per the scheme has been paid.
– Immunity shall also be granted from levy of penalty in excess of penalty payable under the scheme.
– Immunity will also be granted from payment of interest, except the amount of interest payable in accordance with the scheme.
– Section 204 of the Finance Bill also provides that except the waiver of liability and immunity granted from penalty or prosecution as provided in the scheme, no other benefit, concession or immunity shall be construed to have been granted.
Amount paid not refundable
– It has been provided in Section 203 that any amount paid in pursuance to declaration shall not be refundable under any circumstances.
Effect of false declaration
– Sub-section (5) of Section 200 provides that where any material particular furnished in the declaration is found to be false or the declarant violates any of the conditions of the scheme or the declarant acts in a manner which is not in accordance with the undertaking given by him under sub-section (4) of Section 200, it shall be presumed that as if the declaration was never made under the scheme and all the consequences under the Income-tax Act or Wealth-tax Act, as the case may be, will follow and appeal or other proceedings shall be deemed to have been revived.
Scheme not applicable
Section 205 of the Finance Bill provides that the scheme shall not be applicable in the cases relating to:-
– Assessment made pursuant to search.
– Assessment made pursuant to survey conducted by the department.
– Assessment in respect of which prosecution proceedings have been instituted on or before the date of filing the declaration.
– Tax liability relating to undisclosed income from a source located outside India or undisclosed asset located outside India.
– Assessment or reassessment made on the basis of information received by the Government of India under the agreement for exchange of information with any other country.
– In the case of a person in respect of whom an order of detention has been passed under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 and the order has not been revoked or set aside by the competent Court.
– In case of a person in respect of whom prosecution has been instituted on or before filing of declaration or such person has been convicted of any offence punishable under the provisions of Indian Penal Code, The Unlawful Activities (Prevention) Act, 1967, The Narcotic Drugs and Psychotropic Substances Act, 1985, The Prevention of Corruption Act, 1988 or for enforcement of any civil liability.
– In case of a person notified u/s. 3 of The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.
Powers of Central Government to issue directions/orders to authorities and frame rules for implementation of scheme
– Sections 206 to 208 of the Finance Bill provides powers to Central Government to issue such directions or orders to the authorities as may be deemed fit for proper administration of the scheme and also frame required rules for the purpose of effecting the scheme.
Analysis of the Scheme
The scheme proposed by the Government is a welcome step and it will definitely have an impact on reduction of litigation. There are, however, certain issues in regard to the scheme which are being discussed hereunder:
Whether declaration can be made where tax demand stands full or partly paid?
– The pre-condition for filing the declaration is that there should be ‘tax arrears’ or ‘specified tax’ and dispute should be pending as on 29-2-2016. The term ‘tax arrears’ as defined in Section 198(1)(h) refers to the amount of tax, interest or penalty determined under the Income-tax Act or Wealth-tax Act. It does not provide that there should be tax outstanding either on 29-2-2016 or on the date of declaration. Similarly, ‘specified tax’ defined u/s. 198(1)(g) refers to determination of tax consequent upon retrospective amendment relating to period prior to the date of amendment. There is no condition provided that there should be outstanding tax payable as on the date of declaration. In this connection reference can also be made to provisions of sub-section (1) of Section 201 of the Finance Bill, which provides that Designated Authority on receipt of the declaration shall determine the amount payable by the declarant in accordance with the scheme setting forth therein the particulars of tax arrears or specified tax, as the case may be, and the sum payable after such determination. In other words in the certificate to be issued by the Designated Authority, after determining the amount payable under the scheme and giving particulars of tax arrears and specified tax, shall also determine the amount payable after such determination. It would mean that it is not necessary that always there should be a positive sum payable after determination, there may be nil amount payable after such determination on account of tax had already been paid by the declarant.
– Similar is the position in regard to filing of declaration in a case where appeal pending relates to penalty. In such a case the assessee is liable to pay penalty to the extent of 25% of minimum penalty leviable whereas the declarant might have already made payment against demand of penalty more than 25% of the amount.
– It is well-known that after raising demand the department pressurises for the payment of the same and stay is granted very reluctantly or for a part of the demand. As a result in large number of cases amount of demand stands paid notwithstanding that assessee is disputing the liability in appeal.
– The important question for consideration is that if for any reason the Government’s intention is to allow benefit of scheme only in the cases where demand is outstanding it would be unfair to the assessees who have already made payment of tax either under the pressure of the department or otherwise. Therefore, the benefit of the scheme should be available to all the assessees irrespective of the fact whether the demand has been paid by the assessee or not.
– If reference is made to Kar Vivad Samadhan Scheme, 1998, there it was specifically provided that the scheme was applicable with reference to unpaid tax as on the date of declaration and on that basis disputed income was to be determined on which the amount payable under the scheme was to be determined. Under the above scheme benefit was granted not only in respect of penalty and interest but also in regard to part of the tax payable. Therefore, it was restricted to the disputed income determined with reference to unpaid tax. In the present scheme basically the waiver is being granted in respect of penalty, partly or fully. Therefore, benefit should be available to all the assessees where disputes are pending, which will reduce the litigation at the cost of waiver of penalty.
– If declaration can be filed even in a case where either there is no demand or the assessee has made payment which is more than the amount payable as per the scheme, the assessee will be entitled to refund of the excess amount paid by the assessee.
How the amount payable under the scheme is to be determined where the disputed tax is less than the tax payable as per assessment?
– Section 199 of the Finance Bill provides that in a case where disputed tax does not exceed
Rs. 10 lakh, the assessee has to pay whole of the disputed tax and interest on disputed tax and where disputed tax is more than
Rs.10 lakh, he has to pay disputed tax, interest thereon and also the penalty to the extent of 25%. There may be cases where the AO has made certain disallowances in the assessment order in respect of which tax demand has been raised but the assessee might not have challenged all the additions / disallowances in appeal. Accordingly, there can be cases where tax arrears might be more than
Rs. 10 lakh but disputed tax does not exceed Rs. 10 lakh. The issue will arise in such a case, how the liability for tax, interest or penalty is to be determined. It may be that declaration will be effective only in respect of disputed income and disputed tax, which is a subject matter of appeal and liability with reference to other additions is to be dealt with separately. Position, however, needs to be clarified in this regard.
Liability for penalty payable in a case where penalty proceedings have not been initiated?
– In the assessment order the AO might not have initiated penalty proceedings. In such a case no penalty will be leviable under the law and therefore, the assessee will not be liable to pay any amount of penalty. The position needs to be clarified by the Govt.
Whether the amount paid under the scheme will be refundable in case declaration is presumed to be non-est?
– Section 200(5) provides for certain circumstances in which it will be presumed that as if the declaration was never made under the scheme and consequently all proceedings will revive. Section 203 of the Finance Bill provides that any amount paid pursuant to any declaration shall not be refundable under any circumstances. Though it goes without saying that once it has been presumed that as if no declaration has been filed the amount paid by the assessee is to be considered as payment against the outstanding tax liability, the position, however, needs to be clarified.
Whether the assessee can file a declaration in respect of disputed tax as per the assessment made other than pursuant to search for the same year?
– Clause (i) of sub-section (a) of Section 205 of the Finance Bill provides that the scheme shall not apply in respect of tax arrears or specified tax “relating to an assessment year in respect of which assessment has been made u/s. 153A or 153C”. As per provisions of Income-tax Act an assessment might have been made in case of an assessee in the normal way and certain additions might have been made. Thereafter, search would have taken place resulting in another assessment order passed u/ss. 153A and 153C of the Act. Since the word used in the clause is “assessment year” as per the reading of the clause the assessee will be totally excluded from availing the scheme for that particular year notwithstanding that there may be two orders of assessment, one in the normal course and another pursuant to the search. The position in this regard needs to be clarified.
Stage of withdrawal of litigation
– In terms of Section 200(2) appeal pending before CIT(A) shall be deemed to be withdrawn on filing declaration in case of tax arrears. In a case of specified tax litigation has to be withdrawn before filing declaration. Principally appeal etc. should be deemed to be withdrawn only on passing the order by the Designated Authority on payment of tax as per the scheme. This is what has been provided in the scheme for Indirect Tax also in Section 213(1). An undertaking can be taken in declaration form that the declarant will withdraw the appeal etc. non acceptance of declaration.
Whether the assessee will not be able to claim immunity from penalty and prosecution in respect of assessment orders passed henceforth till AY 2016-17?
– Though this particular issue is not directly related to the scheme under reference, the issue, however, is arising for the reason that a new Section 270AA is proposed to be inserted in Income-tax Act providing an option to the assessee that he can make payment of tax and interest liability and can file an application before the AO to grant immunity from imposition of penalty and initiation of prosecution proceedings and the AO will grant the immunity and the assessee will not file the appeal in such a case before the CIT(A). The aforesaid section is in line with the scheme being inserted to reduce the litigation. The important issue, however, in this regard is that present scheme is applicable in respect of appeals pending before CIT(A) as on 29-2-2016. New Section 270AA will come into force w.e.f. 1-4-2017 and will apply to AY 2017-18 onwards. Provisions of old section 271(1)(c) will be applicable up to AY 2016-17. Accordingly, there is a gap, which appears to be unintentional. The Govt. has, accordingly, to clarify the position and if need be necessary amendment should be made in the Finance Bill.
Comparison of scheme for direct tax with scheme for indirect tax.
– It is quite interesting in going through the similar scheme introduced in respect of indirect tax disputes vide sections 209 to 215 of the Finance Bill and make comparison of language of the two schemes. Though the purpose and effect of both the schemes is the same but there is wide difference between the language used in two schemes and time span provided. Scheme for indirect tax disputes is having quite simple language and easy process. The Designated Authority under the scheme of Indirect tax is the Asst. Commissioner whereas in the scheme for direct tax the Commissioner is the Designated Authority. The scheme for indirect tax specifically provides the end date also i.e., 31-12-2016. As per the scheme for indirect tax the declarant has to file the declaration and on the receipt of the acknowledgement for the same he is required to make payment within 15 days and intimation of making payment is to be given within 7 days. Thereafter, the order is required to be passed by the Designated Authority within 15 days from receipt of the proof of payment. The scheme for direct tax provides that after declaration has been filed the Designated Authority shall within 60 days will determine the sum payable under the scheme and will issue a certificate. Thereafter the assessee has to make payment within 30 days. Intimation about the payment to the Designated Authority has to be given thereafter for which no time limit has been provided. Then an order will be issued by the Designated Authority, again for the same no time limit is provided as against 15 days in the scheme for Indirect Tax. There is also a wide difference in the language of Section 205 of the direct tax scheme as compared to language of Section 212 of indirect tax scheme which sections provide exclusion of similar category of assessees.
– This point is being made only to bring out an issue that the drafting and the procedure in relation to direct tax scheme has been made quite cumbersome whereas same purpose is being served by the simpler language used in scheme for indirect tax.