Recently a contingent of 170 participants from AIFTP was on an
international tour to Tashkent from 29th May, 2016 to 3rd June,
2016. After inaugural of the conference in the evening of 31st May
by Charge-De-Affairs Shri. D. K. Sharma in Tashkent, technical
sessions as part of tax conference had began on 1st June and
continued up to 3rd June, 2016 at Tashkent Community Hall.

Since professionals in taxation or revenue laws in Uzbekistan
Republic were not involved in the Conference, as a matter of
interest and enthusiastic aptitude, a critical study has been
undertaken by us as to the source for survival for the Republic of
Uzbekistan, the erstwhile constituent of the Union of Soviet
Socialist Russia.

As a consequence of such exercise, some of the salient features
touching upon taxation and its administration are being given for
the benefit of the learned members of AIFTP family.

According to the available sources, it appears that there is a
very good scope for ample opportunities for Foreign Direct
Investment (FDI) to ensure sustainable economic growth and
modernisation through the influx of foreign capital, technology and
expertise.

There is very much stability of legislation as the foreign
investment law, inter alia provides protection against adverse
changes in investment, tax and customs law for the first 10 years
after investment.

Uzbekistan adopts the continental legal system under parliament (Oliy
majlis) is the only sole authority to establish laws. Therefore is
no court precedent doctrine in Uzbekistan and therefore court
decisions are normally and merely considered to be of recommendatory
nature.

New Tax Code from 1st January, 2008 has been entered in an
attempt to develop a fairer tax system, to ease the tax burden on
business, simplification of tax procedures, encourage, savings and
investments as also to promote economic development in the country.
The new tax code inter alia allowed the main taxes to be applicable
on the investor activity such as corporate income tax, individual
income tax, VAT, excise duties, property tax obligatory contribution
to non-budget funds, land tax, tax recovered at source from the
payments of non- resident income and other duties and payments.

Who is a resident in Uzbekistan ?

An entity is considered as a resident in Uzbekistan if such
entity has completed state registration procedures. The resident
companies are subject to profit tax (Income tax) on their local and
worldwide trading income and other taxable income such as interest,
royalties and rental income.

Profit tax also is levied on the Uzbekistan – source income of
non-residents operating through a permanent establishment.
Non-commercial organisations are generally exempt from profit tax,
except on profit (income) derived from commercial activities.

The gross income of micro-firms and small businesses is subject
to simplified (unified) taxation regulations, replacing profit tax,
VAT (voluntary), property tax, land tax, social infrastructure
development tax, and national road, school development and pension
fund contributions.

In Uzbekistan mining operations and related processing are
subject to mining tax and excess profits tax.

Taxable income inter alia comprises of business and investment
income and is calculated as the difference between aggregate income
and expenses, which in general incurred wholly and exclusively for
business purposes are deductible. For other income sources, expenses
shall be deducted provided they are specifically incurred in
generation of income.

Dividends paid to residents and non-residents with permanent
establishments in Uzbekistan from out of profit already subject to
Uzbekistan tax are exempt from profit tax. There is no profit tax on
income derived from State securities.

Capital gains are treated as ordinary income to be taxed at the
standard profit tax rate.

Losses based on financial year results will be allowed to be
carried forward for five years except for losses incurred while the
taxpayer was exempt from profit tax.

Rate of profit tax generally it is 7.5%, with a 15% rate
applicable to banks. In addition to general profit tax,
non-residents entertaining with permanent establishment was also
paid net profit tax @ 10% on their net income.

Unified tax rate is 6% subject to variance in the rate for a
number of industries to illustrate IT, construction, publishing
companies, and industrial enterprises will pay 5% tax while
entertainment companies and companies with lease income derived from
the rent of sales outlets will pay 30% tax.

There is no surtax (Surcharge). Similarly individual
entrepreneurs are subject to alternative minimum tax at lower rate.

Foreign profit tax paid by a Uzbekistan resident company will be
credited against Uzbekistan profit tax in terms of double tax
treaty.

Legal entities engaged in specific activities will be allowed
temporary exemption from profit tax, property tax, certain social
infrastructure taxes, unified tax payments and obligatory road fund
payments. Companies expanding general production capacity,
reconstructing industrial structures, modernising production
facilities and equipment, etc., will be eligible for incentives to
reduce their taxable base by deducting expenses incurred for five
years.

Interest paid to resident or non-resident shall be subject to 10%
withholding tax. Royalties and similar payments to non-resident are
subject to tax @ 20% subject to reduction under tax treaty. There is
no tax on technical service fee.

Branch and its head office are treated as independent entities,
so that any remittance from branch to the head office is subject to
10% net profit tax. There is no capital duties.

4% property tax is levied on legal entities, fixed assets.
Equipment not installed in due time is subjected to double property
tax rate. Stamp duty is levied on court claims, notary acts, the
State registration of legal entities and licences. On transfer of
properties, there is no tax. 8% social infrastructure development
tax is levied on an entities net profit (after corporate property
tax).

Tax authorities may apply market rates to revenue generated from
related party transactions.

Calendar year is the tax year.

While, the above is source of revenue, I would like to state in
brief how the tax is administered.

The new tax code adopted from 1-1-2008 defines certain principles
behind taxation in Uzbekistan namely tax law in the country.

Tax law in Uzbekistan is based on principles of the integrity,
legality, obligation, determinacy and fairness of taxation and the
tax system. All ambiguities and contradictions in any tax law of the
country shall be interpreted in favour of the taxpayer; Tax laws
increasing rates or introducing new taxes or sanctions on taxpayers
shall be prospectively but not retrospectively. The assumption in
the country is that taxpayers act or fail to act within the law and
are basically innocent of any infringement and burden of proof is on
the tax authorities; The tax authorities shall maintain the
confidentiality of taxpayer-related information. Thus the new Tax
Code has greatly increased taxpayer rights and defined the rights
and obligations of the tax authorities, while strengthening tax
officials’ responsibility for tax law violations.

Tax Code allows the tax authorities to carry out two main types
of audits in relation to individual and corporate taxpayers, and the
two audits are known as Desk tax audits and Field tax audits. Desk
tax audits is carried out by the tax authorities in his offices on
the basis of tax returns, financial statements and other relevant
documentation filed by taxpayers, while Field tax audit only is
carried out at a taxpayer’s office or business premises and the
Field tax audit shall not exceed 10 calendar days.

The Tax Code introduces provisions limiting the powers of the tax
authorities in relation to tax audit. Field tax audit is limited to
3 years ending on the audit starting date. The statute of limitation
for tax violations is five years. One tax audit shall be within a 12
months period.

Tax Code also sanctions for tax violations namely interest @
0.033% for each day payment in arrears on late payment with cap that
interest so leviable shall not exceed total unpaid tax. Tax payers
operating without registering with the tax authorities are subject
to a fine of up to 50% of the revenue for the period.

Resident companies shall file quarterly corporate profit tax
returns by the 25th of the month following the accounting quarter,
and an annual return on or before 15th February of the year
following the reporting year. Non-residents with a permanent
establishments should file annual returns by 25th March of the year
following the accounting year.

Consolidated returns are not permitted; generally speaking each
company should file its own return banks are required to file
consolidated returns. However bank branches should submit separate
returns.

Resident individuals who are taxable on worldwide income whereas
non-residents are taxed on income received in Uzbekistan only.
Individuals are residing permanently in Uzbekistan or physically
present in the country for at least 183 days in any consecutive
12-month period are treated as Uzbekistan residents.

Joint filing is not permitted to mean spouses are taxed
separately. Individuals required to file an income tax return should
do so by 1st April of the year following the tax year, while the
total tax due based on a tax return should be paid by 1st June of
the following tax year.

VAT is levied @ 20% on the supply of goods, services and imports.
The standard VAT rate is 20%. However certain services such as
passenger transportation including taxi services, medical,
educational, tourist and excursion services, and financial and
insurance services are not subject to VAT. Reporting period for the
VAT is the calendar year.

Micro-firms and small businesses report and pay VAT, of course
voluntarily quarterly before 25th day of the following month,
whereas other legal entities report on monthly basis and pay VAT
monthly before the 25th day of the following month. Micro-firms and
small businesses are subjected to tax @ 6% and they do not generally
pay VAT although they can opt to register and pay VAT voluntarily
other legal entities shall register with the local tax authorities
within 10 days of State Registration.

For Tax code–presidential and cabinet of ministers decrees are
the main source of tax legislation.

Uzbekistan Nation had already entered into 50 tax treaties with
various countries involving FDI in Uzbekistan.

State Tax Committee, State Customs Committee and the Ministry of
Finance are the tax authorities.

The above in nutshell is in relation to administration of tax in
Republic of Uzbekistan.

The team of AIFTP have visited places of importance and have
enjoyed the nature and beauty of Tashkent city which is a very
planned and clean and green city. We have a privileged opportunity
to visit Sastrys Street, where Lalbahadur Sastry Ji the Former
Premier of India is seen in a statue. We have, of course paid a
respectful and dedicated floral tribute to the world’s greatest
martyr who scarified his life while serving the great nation. A man
of unquestionable and unimpeachable integrity, dedication, honesty
and simplicity and above a noble person without a own house and a
bank balance which the nation shall feel proud of.

||
JAI HIND ||

Sr. No.

KVSS, 1998 (Finance (No 2 of 1998 (Chapter IV [Ss. 86 to 98 ]

S. 86: Commencement – On 1-9-1998 and shall remain effective till 31-12-1998.

DTDRS, 2016, Finance Act, 2016 [Chapter X [Ss. 200 to 211]

S.200: Commencement – 1st June, 2016, the declaration can be made on or before 31 st day of December, 2016

1.

S.87: Definitions

87(a). “Declarant” means a person making a declaration under section 88.

87(b). “Designated authority” means – (i) where the tax arrear is under any direct enactment an officer, not below the rank of Commissioner of Income-tax and notified by the Chief Commissioner for the purposes of this scheme.

87(e). “Disputed income” , in relation to an assessment year, means the whole or so much of the total income as is relatable to the disputed tax.

S. 201: Definitions.

201(a). “Declarant” means a person making declaration under section 202.

S.201(b). “Designated authority” means an officer not below the rank of Commissioner of Income-tax and notified by the Principal Commissioner for the purposes of this Scheme.

201(c). “Disputed income” in relation to an assessment year, means the whole or so much of the total income as is relatable to the disputed tax.

87(f). “Disputed tax” means total tax determined and payable, in respect of assessment year under any direct tax enactment but which remains unpaid as on the date of making declaration under section 88.

87(g). “Disputed wealth” in relation to an assessment year, means the whole or so much of the net wealth as is relatable to the disputed tax;

201(d). “Disputed tax” means the tax determined under the Income-tax Act, or the Wealth-tax Act, which is disputed by the assessee or the declarant, as the case may be;

201( e ). “Disputed wealth” in relation to an assessment year, means the whole or so much of the net wealth as is relatable to the disputed tax.

87(h). “Direct tax enactment” means the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Income-tax Act, 1961 (43 of 1961), or the Interest-tax Act, 1974 (45 of 1974) or the Expenditure-tax Act, 1987 (35 of 1986).

201(f). “Income-tax Act” means the Income –tax Act, 1961 (43 of 1961).

“87(h). ”direct tax enactment” means the Wealth Tax Act, 1957 (27 of 1957) or the Git Tax Act, 1958 (18 of 1958), or the Income – tax Act, 1961(43 of 1961) or the Interest-tax Act,1974 (45 of 1974), or the Expenditure – tax Act, 1987 (35 of 1987)

201(g) “Specified tax” means a tax – (i) the determination of which is in consequence of or validated by any amendment made to the Income-tax Act or the Wealth-tax Act with retrospective effect and relates to a period prior to the date on which the Act amending the Income-tax Act or the Wealth-tax Act , as the case may be, received the assent of the President; and

(ii) A dispute in respect of such tax is pending as on the 29th of February, 2016

87(j) Deals with the “indirect tax enactment”

Separate Chapter for Indirect enactment.

87(m). “Tax arrears” means in relation to direct tax enactment, amount of tax, penalty or interest determined on or before 03/03/1998, under that enactment in respect of an assessment year modified in consequence of giving effect to an appellate order but remaining unpaid on the date of declaration.

87(h). “Direct tax enactment” means the Wealth Tax Act, 1957 (27 of 1957)

87(n). Undefined terms expression of Direct tax enactments will apply.

87(m). “Tax arrear” means-

(i) In relation to direct tax enactment, the amount of tax, penalty or interest determined on or before the 31 st day of March, 1998 under the enactment in respect to an appellate order but reaming unpaid on the date of declaration:.

201(h). “Tax arrear” means, the amount of tax, interest or penalty determined under the Income-tax Act or the Wealth-tax Act, in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals) as on the 29th day of February, 2016;

201(i): “Wealth-tax Act” means the Wealth-tax Act, 1957 (27 of 1957)

201(2): All other words and expressions which are not defined the provisions of the Income –tax Act, or the Wealth-tax Act will apply.

2.

88. Settlement of tax payable.

88(a) : Where tax arrear is payable under the Income-tax Act,1961 (43 of 1961) –

202. Declaration of tax payable.

202(i). In case of pending appeal related to tax arrear being

(i) In the case of a declarant being a company or firm at the rate of 35% of disputed income;

(ii) In the case of a declarant being a person other than the company or firm at the rate of 30% of disputed income.;

(iii) In case tax arrear includes the income-tax, interest payable or penalty levied at the rate of 35% of disputed income for the persons referred to in clause (i) or thirty per cent of the disputed income for the persons referred to in clause (ii); .

(iv) in case tax arrears comprises only interest payable or penalty levied, at the rate of fifty per cent of the tax arrear;.

(v) Where tax arrear includes tax interest or penalty determined on the basis of search and seizure u/ss. 132 & 132A, for company or firm at the rate of 45% of disputed income. Other than company or firm then at the rate of 40%,

Tax arrears payable under Wealth Tax Act, then 1% of the disputed wealth.

Tax arrears include wealth tax, interest or penalty then at the rate of 1% of disputed wealth.

In case tax arrears includes only interest payable, or penalty levied then at the rate of 50% of tax arrears.

(a) Tax and interest –

(i) In a case where the disputed tax does not exceed ten lakh rupees, the whole of the disputed tax and interest on disputed tax till the date of assessment or reassessment, as the case may be ; or

(ii) in any other case, the whole of the disputed tax, twenty-five per cent of the minimum penalty leviable and the interest on disputed tax till the date of assessment or reassessment, as the case may be;

(b) Penalty, twenty-five per cent of the minimum penalty leviable and the tax and interest payable on the total income finally determined.

In case of specified tax, the amount of such tax so determined.

3.

89: Particulars to be furnished in declaration: In Form and shall be verified in such a manner as may be prescribed.

203. Particulars to be furnished : Declaration is in respect of tax arrears, consequent to such declaration, appeal in respect of the disputed income, disputed wealth and tax arrears pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals), as the case may be, shall be deemed to have been withdrawn.

Declaration is in respect of specified tax and the declarant has filed any appeal before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court or any writ petition before the High Court or the Supreme Court against any order in respect of the specified tax, he shall withdraw such appeal or writ petition with the leave of the court wherever required and furnish proof of such withdrawal along with the declaration referred to in sub-section (1).

4.

90: Time and manner of payment of tax arrears:

Within sixty days from the date of receipts of declaration, the designated authority shall, by order, determine the amount payable by the declarant in accordance with the provisions of scheme and grant certificate of tax arrears and sum payable after such determination towards full and final settlement of tax arrears. The declarant shall pay sum determined by the designated authority within thirty days of the passing of an order by designated authority.

204 : Time and manner of payment.-

Within a period of sixty days from the date of receipt of the declaration, determine the amount payable by the declarant in accordance with the provisions of this Scheme and grant a certificate in such form as may be prescribed, to the declarant setting forth therein the particulars of the tax arrear or the specified tax, as the case may be, and the sum payable after such determination. The declarant shall pay the sum determined by the designated authority as per the certificate granted under clause (a) of sub-section (1) within thirty days of the date of receipt of the certificate and intimate the fact of such payment to the designated authority along with proof thereof and the designated authority shall thereupon pass an order stating that the declarant has paid the sum.

5.

91: Immunity from prosecution and imposition of penalty in certain cases: grant immunity from instituting prosecution for any offence under any direct tax enactment, or indirect tax enactments, or from the imposition of penalty under any of such enactment, in respect of matters covered in the declaration u/s. 88.

205: Immunity from initiation of proceedings in respect of offence and imposition of penalty in certain cases:

(a) Immunity from instituting any proceedings in respect of an offence under the Income-tax Act or the Wealth-tax Act, as the case may be; or

(b) Immunity from imposition or waiver, as the case may be, of penalty under the Income-tax Act or the Wealth-tax Act, as the case may be, in respect of,— specified tax covered, tax arrear covered in the declaration to the extent the penalty exceeds the amount of penalty.

(c) Waiver of interest – specified tax covered, tax arrear covered in the declaration to the extent the penalty exceeds the amount of penalty.

6.

92 : Appellate Authority not to proceed in certain cases:

Relating to disputed chargeable expenditure, disputed chargeable interest, disputed income, disputed wealth, disputed value of gift or tax arrears specified in section. In case appeal is filed by the department of Central Government in respect of issue relating to same issue except where tax arrears comprises only penalty, fines or interest)

93. No refund of amount paid under the Scheme.

Any amount paid in pursuance of a declaration made under section 88 shall not be refundable under any circumstances.

203(6): No appellate authority or arbitrator, conciliator or mediator shall proceed to decide any issue relating to the specified tax mentioned in the declaration and in respect of which an order had been made under sub-section (1) of section 204 by the designated authority or the payment of the sum determined under that section.

206. No refund of amount paid under Scheme.

Any amount paid in pursuance of a declaration made under section 202 shall not be refundable under any circumstances.

7.

94. Removal of doubts.

For the removal of doubts, it is hereby declared that, save as otherwise expressly provided in sub-section (3) of section 90, nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in which the declaration has been made .

207. No other benefit, concession or immunity to declarant.

Save as otherwise expressly provided in sub-section (3) of section 204 and section 205, nothing contained in this Scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in which the declaration has been made.

8.

95 : Scheme not to apply in certain cases : tax arrear under any direct tax enactment, where prosecution for concealment has been instituted on or before the date of filing of the declaration under section 91 under any direct tax enactment in respect of any assessment year, to any tax arrear in respect of such assessment year under such direct tax enactment, where an order has been passed by the Settlement Commission under any direct tax enactment for any assessment year, to any tax arrear in respect of such assessment year under such direct tax enactment;, no appeal or reference or writ petition is pending

208 : Scheme not to apply in certain cases : tax arrear or specified tax, relating to an assessment year in respect of which an assessment has been made under section 153A or 153C, assessment or reassessment for any of the assessment years, in consequence of search initiated u/s. 37A, requisition made under section 37B, prosecution has been instituted on or before the date of filing of declaration under section 202, any undisclosed income from a source located outside India or undisclosed asset located outside India, information received under an agreement referred to in section 90 or section 90A, of the Income-tax Act , if it relates to any tax arrear;

before any appellate authority or High Court or the Supreme Court or no application for revision is pending before the Commissioner;

(iii) To any person in respect of whom prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code (45 of 1960), The Foreign Exchange Regulation Act, 1973 (46 of 1973), the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985), , the Terrorists and Disruptive Activities (Prevention) Act, 1987 (28 of 1987) the Prevention of Corruption Act, 1988 (49 of 1988) or for the purpose of enforcement of any civil liability has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any such enactment;

(iv) Detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974),

(v) Any person notified under sub-section (2) of section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 ( 27 of 1992)

(b) Detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974),

(c) To any person in respect of whom prosecution for any offence punishable under the provisions of the Indian Penal Code (45 of 1960), the Unlawful Activities (Prevention) Act, 1967 (37 of 1967), the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985), the Prevention of Corruption Act, 1988 (49 of 1988) or for the purpose of enforcement of any civil liability has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any of those Acts.

(d) Any person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 (27 of 1992).

9.

96. Power of Central Government to issue directions etc.

209. Power of Central Government to issue directions etc.

10.

97. Power to remove difficulties.

210. Power to remove difficulties.

11.

98. Power to make rules.

211. Power to make rules.

All differences in this world are of degree, and not of kind, because oneness is the secret of everything.

— Swami Vivekananda

Answers to 16 questions by N.M. Ranka Sr. Advocate, Dr. K. Shivaram Sr. Advocate, S.R. Wadhwa Advocate, CA. Harish N. Motiwalla, CA. Pradip N. Kapasi and CA. Chetan A. Karia

S. 201 : Appeal – Partial basis

Q.1 My query is whether an assessee can go to Direct Tax Dispute Resolution Scheme on partial basis? Viz. if appeal is pending before CIT(A), wherein assessee has pressed four grounds. Out of those four grounds, he wants to sort out two grounds through Direct Tax Dispute Resolution Scheme, 2016, and for remaining two he wants continue his appeal as per statutory provision, Can he go “Direct Tax Dispute Resolution Scheme” on partially basis?. It is seen that many assessment orders are framed with multiple addition/disallowance, wherein, some of addition/disallowances are purely on guess work or on surmises, on which no one lie would like to pay tax forget about the penalty?

Ans. No. The assessee cannot go and apply for the Direct Tax Dispute Resolution Scheme on partial basis. The declarant shall be required to close all disputes in appeal for the relevant year, otherwise the object is not achieved and there would be problem for computation of tax and other sum payable. Section 201(1)(c) defines “disputed income”, to mean the whole or so much of the total income as is relatable to the disputed tax. “Disputed tax” has been defined in Section 201(1)(d). “Tax arrear” has been defined in 201(1)(h). Section 202 also supports the above view. [NMR ]

Ss. 201, 202 : Appeal set aside by Tribunal

Q.2 My case in quantum addition was decided ex-parte by CIT(A) which was restored back to CIT(A) by ITAT in the month of February, 2016. My question is whether the case restored will be treated as pending before CIT(A) for the purpose of DTDR Scheme.

Ans. Yes. you are eligible since technically the ITAT has restored the appeal in the hands of CIT(A) [HNM]

S. 201, 203 : Department appeal

Q.3 Whether a respondent in the case of a Departmental Appeal can take advantage of the Direct Tax Dispute Resolution Scheme, 2016?

Ans. The Hon’ble Delhi High Court in the case of All India Federation of Tax Practitioners v. UOI [1991] 236 ITR 1 (Delhi) while upholding the constitutional validity of the ‘Kar Vivad Samadhan Scheme’ proceeded to read down the proviso to Sec. 92 of the Finance (No. 2) Act, 1998 holding that there is no reason for denying the benefit of the scheme to the assessee who has succeeded at one stage of litigation if the revenue has chosen to continue with the said litigation. The Hon’ble Delhi High Court struck down the proviso to Sec. 92 of the Finance (No. 2) Act, 1998 as being violative of Article 14 while holding that the rest of the scheme was intra vires the Constitution subject to reading down the definition of ‘tax arrears’ as made by it. However, Sec. 203 (2) provides for declaration in respect of tax arrears only before Commissioner of Income-tax (Appeals) or Commissioner of Wealth-tax (Appeals) and hence limits the scope of the scheme. Explanation may be sought from the CBDT or a writ petition may be filed in the Jurisdictional High Court by any such respondent in a Departmental Appeal desirous of taking advantage of this scheme. [KS]

S. 201 : Settlement Commission

Q.4 Matter was pending before the Settlement Commission, the matter was Abated for no payment of tax and the matter was set aside . The matter has gone back to the CIT(A). Can the assessee avail the benefit.

Ans. Irrespective of how the appeal is pending before CIT(A) and the past history of litigation, once appeal is pending before CIT(A) on 29-2-2016 and the proceedings is not the one barred by section 208 of Finance Act, 2016, an application can be filed under Direct Tax Dispute Resolution Scheme. [CAK]

S. 201 : Appeal – Fee for furnishing statements u/s 234E

Q.5 Whether appeal against fee under section 234E is eligible for Dispute Resolution Scheme?

Ans. As per definitions under DTDRS S. 201(1)(d) read as under :

“(d) “disputed tax” means the tax determined under the Income-tax Act, or the Wealth-tax Act, which is disputed by the assessee or the declarant, as the case may be.”

The Hon’ble Bombay High Court in Rashmikant Kundalia v. UOI (2015) 373 ITR 268 – while dealing with the Constitutional validity of the Provision of S. 234E as held that the fee levied u/s. 234E is neither punitive nor in the nature of tax. Fees charged for extra services by the revenue.

Therefore the assessee may not be able to get the advantages of the DTRS.

S. 201 : Appeal – Penalty u/s. 271D for failure to comply with the provisions of section 269 SS

Q.6 A penalty order u/s. 271D has been imposed on the assessee against which appeal is pending. Can the assessee apply for resolution under the direct tax dispute scheme ?

Ans. Penalty has been imposed u/s. 271D for default u/s. 269SS, is in arrear and appeal is pending before the Commissioner of Income-tax (Appeals). The querist can avail of the Direct Tax Dispute Resolution Scheme, 2016 and make a declaration on or after 1-6-2016 u/s. 202 to the designated authority. The declarant would be required to pay 25% of the minimum penalty leviable u/s. 271D of the Act. It is a condition precedent that he has paid tax and interest payable on the total income finally determined. (NMR)

S. 201 : Appeal – Penalty was paid and appeal is pending.

Q.7 Can an assessee who has paid penalty amount in full and filed appeal before CIT(A) can file application under DTDRS and claim refund?

Ans. As per S. 201(1)(d) of DTDRS “disputed tax” means the tax determined under the Income-tax Act, or the Wealth-tax Act, which is disputed by the assessee or the declarant, as the case may be;

Whereas S. 87(f) KVSS 1998 reads as under:

“disputed tax” means the total tax determined and payable, in respect of an assessment year under any direct tax enactment but which remains unpaid as on the date of making the declaration under section 88.

Therefore the assessee can avail the benefit of the Scheme. He may have to make application to the Assessing Officer to refund the amount paid under protest when the appeal is pending. [KS]

S. 202, 203 : Delayed appeal

Q.8 Can an appellant in the case of a Delayed Appeal take advantage of the Direct Tax Dispute Resolution Scheme, 2016?

Ans. The language of S. 203 in case of ‘Specified tax’ explicitly states that “Where the declaration is in respect of specified tax and the declarant has filed any appeal…”. This wording of the Section clearly implies that the appeal needs to be filed. However, there is no express requirement of such an appeal to be admitted. Therefore, in the case of an Appeal (or other relevant proceedings as per the scheme) the appeal merely needs to be filed. Hence, even an appeal with a condonation of delay application that is pending can be said to be eligible for this scheme.

However, in the case of pending arrears, the S. 202(1) states “in case of pending appeal related to tax arrear being…”. The department as per Circular Samadhan: 4/98, dated 28-10-1998 in the In the ‘Kar Vivad Samadhan Scheme’ (which as per Sec. 98(i) (c) restricted the application of that scheme to cases where an appeal, reference or writ petition was pending ) had clarified that in cases involving delay in appeals filed before the CIT(A) or CEGAT, the proof of condonation of delay must be furnished. However, the Hon’ble Gujarat High Court in the case of
Shatrushailya Digvijayasingh Jadeja v. CIT [2003] 259 ITR 149 (Guj.)
as affirmed by the Hon’ble Supreme Court in Shatrushailya Digvijayasingh Jadeja v. CIT [2005] 277 ITR 435 (SC)
while referring to the case of Raja Kulkarni v. State of Bombay AIR 1954 SC 73 held that the word ‘appeal pending’ would mean that an appeal should be pending and that there was no need to introduce qualifications that it should be valid or competent. The Hon’ble Gujarat High Court went on to hold that the revision applications were to be held as ‘pending’ even before condonation of delay. Hence, though it is good law as per the Hon’ble Supreme Court that condonation of delay would not be necessary to show an appeal as ‘pending’; it would be in the assessees best interest to get delay in filing of appeal condoned right at the outset before the CIT(A). [KS]

Ss. 202, 203 : Appeal against, protective assessment

Q.9 The assessment was made on protective basis and the appeal is pending, can the assessee take advantages of DTDRS ?

Ans. Interpreting the provisions relating to KVSS, 1998, in S. Jaganathan v. ACIT (2014) 266 ITR 305(Karn.)(HC), the Court held that there should be factual arrears that could be demanded legally; where there was only protective assessment and protective demand the assessee’s declaration / application was rightly rejected. According to me the same interpretation will be applicable in respect of DTDRS. [KS]

Ss. 202, 203, 208 : Appeal against undisclosed income of any other person, u/s. 158BD

Q.10 Appeal against the order u/s 158BD is pending before the First Appellate Authority. Can the appellant avail the scheme since only orders u/s. 153/153A are beyond the scope of the scheme.

Ans. Query is not clear. However, if appeal is pending, the Income Declaration Scheme would be inapplicable. If action has been taken u/s. 158BD, the assessment order has to be passed u/s. 158BC. Section 208(a)(i) prohibits applicability of the Dispute Resolution Scheme relating to an assessment year in respect of which an assessment has been made u/s. 153A or 153C of the Act. It does not prohibit in respect of appeal against Order u/s. 158BC. (NMR)

S. 202, 203 : Appeal – Enhancement

Q.11 I have filed DRS application. However, the CIT(A) has now issued a notice post filing the application under DRS to enhance the income. While the enhancement proceedings and the outcome stand abated once the DRS is accepted by way of order by designated authority ?

Ans. Once Scheme became operative on 1-6-2016; valid declaration having been filed & pending, the CIT(A) would be unjustified in issuing enhancement notice. The declarant should approach the Principal Chief Commissioner of Income-tax/Central Board of Direct Taxes to intervene. Once the DRS is accepted and order is issued by the designated authority, the notice should abate and would be inoperative and void. Such an act of the Commissioner of Income-Tax (Appeals) is not in accord with fairness and good conscience. It is against law, justice and equity. [NMR ]

S. 202 : Appeal – Penalty.

Q.12 In case of dispute relating to penalty, the scheme requires payment of 25% of the amount of penalty. If a person has already paid 50% of penalty after filing appeal, the issue is:

– Does he get refund of excess paid or

– Does he need to pay 25% in addition to what is paid or

– He neither gets refund nor required to pay anything ?

Ans. Declarant having paid 50% of the penalty would not be entitled for refund of excess paid. However, the declarant need not pay further amount of 25% of minimum penalty as he has already paid in excess. He should not be penalised for being a good citizen paying in excess then specified in the Scheme. Section 202(1)(b) requires payment of 25% of the minimum penalty leviable only. Form No. 1 Part A-3(d), (e), (f) and (g) also supports this view. (NMR)

S. 202 : Appeal pending before ITAT

Q.13 As an Appellant, have an appeal pending before ITAT. Can I use this scheme to settle the case finally to buy peace?

Ans. As per section 202 of the Finance Act provide that the assessee who wants to settle the tax dispute pending before the concerned appellate authority as on 29-2-2016, can make a declaration in the prescribed Form on or after 1-6-2016 but before 31-12-2016. In the case of an assessee in whose case the assessment or reassessment is made in the normal course and not due to any retrospective amendment, and the appeal is pending before CIT(A) as on 29-2-2016, the tax dispute can be settled.

Similarly in a case where the disputed tax demand relates to addition made in the assessment or reassessment order made as a result of any retrospective amendment in the Income-tax or Wealth-tax Act, the dispute can be settled at the level of any appellate proceedings (i.e. CIT(A), ITA Tribunal, High Court etc.) by payment of disputed tax. No interest or penalty will be payable in such a case. Hence, if the appeal before the Tribunal is not of the specified tax as define u/s. 201(1)(g) the assessee may not be able to take advantages of the DTDRS. [KS.)

S. 205 : Immunity under Sales-tax Act

Q.14 Can an assessee claim immunity under Sales-tax Act in respect of dispute settled under DTDRS?

Ans. In Master Cables Pvt Ltd v. State of Kerala (2007) 296 ITR 8 (SC), interpreting the provisions of KVSS the Apex Court held that the finality of order under section 90(3) and immunity under section 91 thereof cannot be availed in proceedings under Sales Tax law of the State. The same interpretation will also hold good for DTDRS. [KS]

S. 208 : Survey – Penalty

Q.15 Assessee has made disclosure in the course of survey. On this AO levied the penalty u/s. 271(1)(c) which is pending before CIT(A) on 28-2-2016. Can assessee withdraw the appeal and submit the application under Dispute Resolution Scheme, 2016?

Ans. As tax arrear, being penalty, arises out of assessment made in pursuant of survey u/s. 133A, the applicant is barred by section 208(a)(ii) from making a declaration.(CAK)

S. 208 : Discharge by competent court

Q.16 Where the prosecution is launched against and subsequently the accused is discharged by the Competent Court, can he take advantage of IDIS or DTDR, 2016?

Ans. Dealing with FAQ on KVSS Q. No. 33 of circular Samadhan 3 /98 dated 7-10-1998 (1998) 233 ITR 121 (ST) (125), clarifies that where the prosecution has been launched for any particular year but the assessee has been since then discharged by the competent court, declaration can be made under the Scheme. If the same interpretation of the language of the statute is to be taken given the similarities of the wording in the case 208(c) of DTDR and 95(iii) of KVSS, 1998, if the assessee is discharged by the competent court he can take advantages of the DTDR.

S. 227 of the CrPC states that upon consideration of the record of the case and the documents submitted therewith and after hearing the submissions of the accused and prosecution, if the Judge considers that there is not sufficient ground for proceedings against the accused, he shall discharge the accused. If the accused is discharged, there is no prosecution pending against the accused and hence it follows that he may take advantage of both IDIS & DTDR, 2016. [KS]

The Finance Minister explained the Direct Tax Dispute Resolution Scheme, 2016 in the Notes on Clauses on Finance Bill, 2016. (2016) 381 ITR 169 (St.)(236) Clauses 197 to 208 of the Bill seeks to insert a new Chapter X in the Finance Bill, 2016 which deals with the Direct Tax Dispute Resolution Scheme, 2016.

The Scheme is proposed to come in force from 1st June, 2016 and be open for declaration made up to a date to be notified by the Central Government in the Official Gazette.

The new Chapter, inter alia, provides––

(a) The definition of certain expressions relating to “declarant”, “designated authority”, “disputed income”, “disputed tax”, “disputed wealth”, “specified tax” and “tax arrear”;

(b) The proviso relating to the declaration of tax payable under this Scheme by the declarant;

(c) The provisions relating to the particulars to be furnished in the form of declaration;

(d) The provisions relating to the time and manner of payment;

(e) The provisions relating to granting of immunity from initiation of proceedings in respect of an offence and imposition of penalty in certain cases;

(f) The provisions relating to no refund of amount paid under the Scheme;

(g) The provisions relating to other benefit, concession or immunity not to apply in other proceedings;

(h) The provisions relating to non-applicability of the Tax Dispute Resolution Scheme, 2016 in certain cases;

(i) The provisions relating to the power of the Central Government to issue directions; and

(j) The provisions relating to the power to remove difficulties in giving effect to the provisions of the Direct Tax Dispute Resolution Scheme, 2016.

The Finance Minister explained the Direct Tax Dispute Resolution Scheme, 2016 in his budget speech for 2016-17 in specific section for Reducing litigation and providing certainty in taxation. (2016) 381 ITR 9 (St.)(36-37)

162. Litigation is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the taxpayers and administrative cost for the Government. There are about 3 lakh tax cases pending with the first Appellate Authority with disputed amount being 5.5 lakh crores. In order to reduce this number, I propose a new Dispute Resolution Scheme (DRS).

163. A taxpayer who has an appeal pending as of today before the Commissioner (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment. No penalty in respect of Income-tax cases with disputed tax up to ₹ 10 lakh will be levied. Cases with disputed tax exceeding ₹ 10 lakh will be subjected to only 25% of the minimum of the imposable penalty for both direct and indirect taxes. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty. Certain categories of persons including those who are charged with criminal offences under specific Acts are proposed to be barred from availing this scheme.

164. I had in my Budget speech of July, 2014 assured that this Government would not retrospectively create a fresh tax liability. I had also hoped then that the cases pending in various courts and other legal fora relating to certain retrospective amendments undertaken to the Income-tax Act, 1961, through the Finance Act, 2012 will soon reach their logical conclusion. I would like to reiterate that we are committed to provide a stable and predictable taxation regime. We will not resort to such amendments in future. I had also announced constitution of a High Level Committee which would oversee any fresh case where the Assessing Officer proposes to assess or reassess the income in respect of indirect transfers by applying the retrospective amendment. In order to allay any fears of tax adventurism, this Committee will now be chaired by the Revenue Secretary and consist of Chairman, CBDT and an expert from outside. This Committee will effectively oversee the implementation of the assurances.

165. In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of Dispute Resolution for them, in which, subject to their agreeing to withdraw any pending case lying in any Court or Tribunal or any proceeding for arbitration, mediation etc. under BIPA, they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived.

Levy of heavy penalty for concealment of income has over the years resulted in large number of disputes despite a number of decisions of the Apex Court on interpretation of statutory provisions and principles guiding imposition of penalty. At present the Income Tax Officer has discretion to levy penalty at the rate of 100% to 300% of tax sought to be evaded. I propose to modify the entire scheme of penalty by providing different categories of misdemeanour with graded penalty and thereby substantially reducing the discretionary power of the tax officers. The penalty rates will now be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts. Remission of penalty is also proposed in certain circumstances where taxes are paid and appeal is not filed.

The Finance Minister has, in his Budget Speech on 29th February 2016, stated that the tax litigation in our country is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the taxpayer and administrative cost of the Government. He has also stated that there are over 3 lakh tax cases pending with the commissioner of Income- tax (Appeals) with disputed amount of tax of about 5.5 lakh crores. In order to reduce these appeals before the first Appellate Authority he has announced a new scheme called “Direct Tax Dispute Resolution Scheme – 2016” Two separate Schemes are announced in this Budget, one for settlement of disputed taxes under Income-tax and wealth tax Act and the other for disputed taxes under Indirect Tax Laws.

1.1 In paras 163 to 165 of his Budget Speech, the Finance Minister has given the outline of Dispute Resolution Schemes and stated as under:

“163. A taxpayer who has an appeal pending as of today before the Commissioner (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment. No penalty in respect of Income-tax cases with disputed tax up to ₹ 10 lakh will be levied. Cases with disputed tax exceeding ₹ 10 lakh will be subjected to only 25% of the minimum of the imposable penalty for both direct and indirect taxes. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty. Certain categories of persons including those who are charged with criminal offences under specific Acts are proposed to be barred from availing this scheme.

164. I had in my Budget speech of July, 2014 assured that this Government would not retrospectively create a fresh tax liability. I had also hoped then that the cases pending in various Courts and other legal fora relating to certain retrospective amendments undertaken to the Income tax Act, 1961, through the Finance Act, 2012 will soon reach their logical conclusion. I would like to reiterate that we are committed to provide a stable and predictable taxation regime. We will not resort to such amendments in future. I had also announced constitution of a High Level Committee which would oversee any fresh case where the assessing officer proposes to assess or reassess the income in respect of indirect transfers by applying the retrospective amendment. In order to allay any fears of tax adventurism, this Committee will now be chaired by the Revenue Secretary and consist of Chairman, CBDT and an expert from outside. This Committee will effectively oversee the implementation of the assurances.

165. In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of Dispute Resolution for them, in which, subject to their agreeing to withdraw any pending case lying in any Court or Tribunal or any proceeding for arbitration, mediation etc., under BIPA, they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived”.

1.2 In chapter X of the Finance Act, 2016 (Act), Sections 200 to 211 provide for “The Direct Tax Dispute Resolution Scheme – 2016”. Similarly, Chapter XI (Sections 212 to 218) of the Act provides for “The Indirect Tax Dispute Resolution Scheme – 2016”. In this article the provisions of the Direct Tax Dispute Resolution Scheme are discussed.

2. The Scheme

2.1 The Direct Tax Dispute Resolution Scheme 2016 (Scheme) has come into force on 1st June, 2016. This scheme enables all assessees whose assessments under the Income-tax Act or the Wealth-tax Act have been completed for any assessment year and whose appeals are pending before the Commissioners of Income tax (Appeals) as on 29-2-2016 to settle the tax dispute. The scheme also applies to those assessees in whose cases any disputed additions are made as a result of retrospective amendments made in the Income-tax or Wealth- tax Act and whose appeals are pending before the CIT(A), ITA Tribunal, High Court, Supreme Court or before any other authority.

2.2 Section 202 of the Act provides that the assessee who wants to settle the tax dispute pending before the concerned appellate authority as on 29-2-2016, can make a declaration in the prescribed Form No. 1 (in duplicate) on or after 1-6-2016 but before 31-12-2016. In the case of an assessee in whose case the assessment or reassessment is made in the normal course and not due to any retrospective amendment, and the appeal is pending before CIT(A) as on 29-2-2016, the tax dispute can be settled as under:

(i) If the disputed tax does not exceed ₹ 10 lakh for the relevant assessment year, the assessee can settle the same on payment of such tax and interest due up to the date of assessment or reassessment.

(ii) If the disputed tax exceeds ₹ 10 lakh for the relevant assessment year, the dispute can be settled on payment of such tax with penalty leviable of 25% leviable and interest up to the date of assessment or reassessment. It is difficult to understand why minimum penalty is required to be paid when the disputed addition may not be for concealment or inaccurate furnishing of particulars of income.

(iii) In the case of appeal against the levy of penalty, the assessee can settle the dispute by payment of 25% of minimum penalty leviable on the income as finally determined.

2.3 In a case where the disputed tax demand relates to addition made in the assessment or reassessment order made as a result of any retrospective amendment in the Income-tax or Wealth-tax Acts, the dispute can be settled at the level of any appellate proceedings (i.e. CIT(A), ITA Tribunal, High Court, Supreme Court or any other Authority) by payment of disputed tax. No interest or penalty will be payable in such a case.

3. Procedure for declaration

3.1 The declaration for settlement of disputed tax for which appeal is pending before CIT(A) is to be filed in Form No. 1 in duplicate. Once this declaration is filed for settlement of a tax dispute for a particular year, the appeal pending before the CIT(A) for that year will be treated as withdrawn.

3.2 In a case where the tax dispute is in respect of any addition made as a result of retrospective amendment, the assessee can file the declaration in Form No. 1 in duplicate with the designated authority. The assessee will have to withdraw the pending appeal for that year before CIT(A), ITA Tribunal, High Court, Supreme Court or other Authority after obtaining leave of the Court or Authority whereever required. If any proceedings for the disputed tax are initiated for arbitration, conciliation or mediation or under an agreement entered into by India with any other country for protection of Investment or otherwise, the assessee will have to withdraw the same. Proof of withdrawal of such appeal or such other proceedings will have to be furnished by the assessee with the declaration in Form No. 1. Further, the declarant will have to furnish an undertaking in Form No. 2 waiving his right to seek or pursue any remedy or any claim for the disputed tax under any agreement.

3.3 It is also provided that if (i) any material particulars furnished by the declarant are found to be false at any stage, (ii) the declarant violates any of the conditions of the scheme or (iii) the declarant acts in a manner which is not in accordance with the undertaking given by him as stated above, the declaration made under the scheme will be considered as void. In this event all proceedings including appeals, will be deemed to be revived.

4. Payment of Disputed Tax

4.1 On receipt of the declaration from the assessee the Designated Authority will determine the amount payable by the declarant under the scheme within 60 days. He will have to issue a certificate in Form No. 3 giving particulars of tax, interest, penalty etc., payable by the declarant.

4.2 The declarant will have to pay the amount determined by the Designated Authority within 30 days of the receipt of the Certificate. It may be noted that there is no provision whereby the Designated Authority can extend the date for payment of tax, interest or penalty. He will have to send the intimation in Form No. 4 about the payment and produce proof of payment of the above amount. Upon receipt of this intimation and proof of payment, the Designated Authority will have to pass an order in Form No. 5 that the declarant has paid the disputed tax under the scheme. Once this order is passed it will be conclusive about the settlement of disputed tax and such matter cannot be re-opened in any proceedings under the Income-tax or Wealth-tax Acts or under any other law or agreement.

4.3 Once this order is passed, the Designated Authority shall grant immunity to the declarant as under:

(i) Immunity from instituting any proceedings for offence under the Income-tax or Wealth tax Acts.

(ii) Immunity from imposition or waiver of any penalty or interest under the Income -tax or Wealth-tax Acts. In other words, the difference between interest or penalty chargeable under the normal provisions of the Income-tax or Wealth-tax Act and the interest or penalty charged under the scheme cannot be recovered from the declarant.

4.4 It is also provided that any amount of tax, interest or penalty paid under the scheme will not be refundable under any circumstances.

5. Who cannot make declaration

5.1 Section 208 of the Act provides that in the following cases declaration under the Scheme for settlement of disputed taxes cannot be made.

(i) In relation to assessment year for which assessment or reassessment under Section 153A or 153C of the Income-tax Act or Section 37A or 37B of the Wealth-tax Act is made.

(ii) In relation to assessment year for which assessment or reassessment has been made after a survey has been conducted under Section 133A of the Income-tax Act or 38A of the Wealth-tax Act and the disputed tax has a bearing to findings in such survey.

(iii) In relation to assessment year in respect to which prosecution has been instituted on or before the date of making the declaration under the scheme.

(iv) If the disputed tax relates to undisclosed income from any source located outside India or undisclosed asset located outside India.

(v) In relation to assessment year where assessment or reassessment is made on the basis of information received by the Government under the Agreements under Section 90 or 90A of the Income-tax Act.

(vi) Declaration cannot be made by following persons.

(a) If an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

(b) If prosecution has been initiated under the 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 purposes of enforcement of any civil liability.

(vii) Declaration cannot be made by a person who is notified under Section 3 of the Special Court (Trial or Offences Relating to Transactions in Securities) Act, 1992.

6. To Sum Up

6.1 The Act authorises the Central Government to issue directions or orders to the authorities for the proper administration of the scheme. The Act also provides that if any difficulty arises in giving effect to any of the provisions of the scheme, the Central Government can pass an order to remove such difficulty. Such order cannot be passed after expiry of 2 years i.e., after 31-5-2018. Central Government is also authorised to notify the Rules for carrying out the provisions of the scheme and also prescribe the Forms for making declaration, for certificate to be granted by the Designated Authority and for such other matters for which the rules are required to be made under the scheme. Accordingly, the Government has notified “The Direct Tax Dispute Resolution Scheme Rules, 2016” on 26-5-2016.

6.2 This is probably for the first time when such a unique scheme has been introduced for reducing litigation. The only objection that can be raised is with regard to levy of penalty when the disputed tax is more than ₹ 10 lakh. There is no logic in levying such a penalty. Even if the assessee is not successful in the appeal before CIT(A), his liability will be for payment of disputed tax and interest. Penalty is not automatic. The disputed addition or disallowance may be due to interpretation of some provision in the tax law for which no penalty is leviable. Therefore, in case where disputed tax is more than ₹ 10 lakh, the assessee will not like to take benefit of the scheme and to that extent litigation will not be reduced. It may be noted that u/s. 214 of the Act, in the scheme for resolution of Disputes under Indirect Taxes, the provision is that the declarant has to pay tax due along with interest due and “penalty equivalent to 25% of penalty imposed in the impugned order”. Under the Income-tax Act or the Wealth-tax Act Penalty proceedings are separate and separate order is passed for levy of penalty. Therefore, it is suggested that the provision for levy of minimum notional penalty at 25% in a case where disputed tax is more than ₹ 10 lakh should be deleted.

6.3 As stated earlier, section 202 of the Act provides that declaration can be filed for settlement of disputed taxes only in respect of an appeal pending before CIT(A). There is no reason for restricting this benefit to appeal pending before the first appellate authority. It is suggested that the scheme should have been made applicable to appeals filed by the assessee before ITA Tribunal, High Court or the Supreme Court which are pending on 29-2-2016. If this provision had been extended to all such appeals, pending litigation before all such judicial authorities will get reduced.

6.4 Further, Section 208 provides that an assessee in whose case assessment order is passed u/s. 153A/153C of the Income-tax Act or 37A / 37B of the Wealth-tax Act or order is passed after survey u/s. 133A of the Income-tax Act or 38A of the Wealth-tax Act cannot make a declaration under the scheme. This provision will also be an impediment for the success of the scheme.

6.5 The provision in Section 202 of the Act relating to settlement of disputed taxes levied due to retrospective amendment in the Income-tax and Wealth-tax Acts is very fair and reasonable. In such cases only tax is payable and no interest or penalty is payable. This provision is made with a view to settle the disputed taxes levied due to retrospective amendment made in section 9 by the Finance Act, 2012. This related to taxation as a result of acquisition of interest by a non-resident in a company owning assets in India. (Cases like VODAFONE, CAIRN and others). However, there are some other sections such as sections 14A, 37, 40 etc., where retrospective amendments have been made. It will be possible to take advantage of the scheme if appeals on these issues are pending before any Appellate Authority or Court as on 29-2-2016.

6.6 It may be noted that last year the CBDT had made one attempt to reduce the tax litigation by issue of Circular No. 21/2015 dated 10-12-2015 whereby appeals filed by the Income tax Department where disputed tax was below certain level were withdrawn with retrospective effect. This year the Government has issued this scheme whereby assessees can settle the demand for disputed taxes and thus reduce the tax litigation. From these efforts, one can conclude that the efforts on the part of the Government to settle tax disputes and reduce tax litigation to that extent are commendable.

Sr. No.

VDS, 1976

VDIS, 1997 as compared to VDS, 1976

IDS 2016 as compared to VDIS, 1997

1.

General: The Scheme can be divided into three parts: Search cases, Income disclosure and wealth disclosure and separate immunities and procedures were prescribed for each of the three class of declarations.

General: The VDIS, 1997 only provides for declaration of Income. Though in the original Finance Bill, 1997 as proposed and moved in the Parliament on 28-12-1997, clause 63 of the Finance Bill, 1997 provided for disclosure of Wealth, the same was dropped at the time of passing of Finance Act, 1997. Also, there is no provision for declaration in search cases.

General: IDS, 2016 is the same as VDIS,1997 in most aspects.

2.

Section 3: Provisions are similar except for following points:

a) Flat rates of tax are prescribed only for companies. For all other persons, progressive tax rate on the basis of income disclosed is prescribed.

b) 5% of income declared had to be invested in specified securities.

c) All persons whose books, etc. seized during search u/s. 132 disqualified from making declaration in previous year in which seizure took place and all earlier years. There was no necessity that search must have been initiated against such person. If some books, etc. of such person seized even in search against some other person, the relevant years were denied immunity.

d) No such disqualification.

e) No such disqualification.

Section 64: It provides for declaration to be made and taxes to be paid and also the income which can be disclosed and assessment years for which disclosure can be made. The provisions are similar except for the following points:

a) Flat rates of tax on income disclosed is prescribed.

b) No provision for investment in any securities.

c) Only persons against whom search initiated u/s. 132 barred from immunity in respect of previous year in which search initiated and all earlier years. Even persons against whom notice u/s. 158BC r. w. s. 158BD issued not disqualified from making declaration.

d) A person disqualified from making declaration in respect of previous years in which requisition u/s. 132A made and all earlier previous years.

e) A person disqualified from making declaration in respect of previous year in which survey u/s. 133A carried out.

Sections 183, 184 & 185: Provisions relating to declaration of income. As compared to VDIS, 1997 following changes have been made:

a) If declaration of income is in form of assets, market value of such asset as on date of commencement of scheme being 1-6-2016 to be declared as income.

b) In addition to flat rate of tax @ 30%, cess @ 25% of tax is to be paid.

c) Also penalty @ 25% of tax is also levied.

d) Effectively amount payable would be 45% of income declared.

e) On issue of disqualification, scheme is different as discussed in context of section 196. Under VDIS, 1997 disqualification relating to search and seizure cases was provided in section 64 and disqualifications relating to Prevention of Corruption Act etc. were provided u/s. 78. Under IDS all types of disqualification is provided under section 196.

3.

Section 4: The provisions are similar.

Section 65: It provides for form in which declaration to be furnished and the authority to whom it is to be filed. It also provides for the person who has to sign the declaration. Sub-section (3) provides that a person shall be entitled to make only one declaration.

Section 186: The provisions are the same.

4.

Sections 5,6 and 7: They provide for time for payment of tax, extension of time, payment of interest, investment in securities and recovery in case of non- payment.

a) Sub-section (1) of section 5: Taxes shall be paid before furnishing declaration.

b) Sub-sections (2) and (3) of section 5: On application by declarant, the Commissioner of Income Tax may, if satisfied that declarant cannot pay due to reasonable and sufficient cause, extend time for payment of taxes or grant instalments.

c) Sub-section (4) of section 5: Time within which investment to be made in specified securities.

d) Section 6: Interest prescribed @ 12% p.a. for delay in payment along with procedure for payment.

e) Section 7: A declarant who has not paid or invested specified securities shall be deemed to be in default and all provisions for recovery proceedings under I.T. Act to apply accordingly.

f) Though no such specific provisions, courts have held that declarant shall not be entitled to immunity if taxes or interest not paid.

Section 66 and section 67: It provides for payment of tax on income declared and interest payable if payment delayed.

a) Section 66: Taxes shall be paid before furnishing declaration.

b) Sub-section (1) of section 67: If tax not paid before furnishing declaration, it can be paid any time before expiry of 3 months from the date of filing declaration. No application nor permission required.

c) No investment in securities required.

d) Sub-section (1) of section 67: Interest at 2% p.m. payable along with payment of tax if paid subsequent to filing of declaration. Interest mandatory and to be paid suo motu by the declarant.

e) No procedure prescribed for recovery of unpaid tax or interest.

f) Sub-section (2) of section 67: Declaration shall be deemed to be never filed under the scheme if taxes not paid.

Section 187: It provides that amount payable under the scheme shall be paid on or before the specified date and proof of payment shall be furnished to the CIT. Following are the difference as compared to the earlier scheme:

a) Unlike earlier scheme, amount is not payable before filing the declaration and therefore no interest is provided for delay in payment of amount due beyond the date of filing of declaration.

b) Under sub-section 3, it has been provided that in case of failure to pay the amount by due date, the declaration shall be deemed to have been never filed.

5.

Section 8: Provisions are similar except that income not includible in total income in assessment of any of the following Acts:

a) Indian Income-tax Act, 1922

b) Income-tax Act, 1961

c) Excess Profits Tax, 1940.

d) Business Profits Tax, 1947

e) Super Profits Tax Act, 1963 or

f) Companies (Profits) Surtax Act, 1964

Section 68: Income declared cannot be included in total income of the any year under I.T. Act, 1961 subject to credit of income in books and payment of taxes. Also, Commissioner of Income-tax will issue certificate on application being made.

Section 188: Provisions are same except that there is no specific provision for passing entry in books of account.

6.

Section 9: Provisions are similar.

Section 69: Declarant not entitled to claim relief or set off in respect of completed assessments.

Section 189: Provisions are the same.

7.

Section 10: Provisions are similar.

Section 70: Taxes paid in pursuance of declaration not refundable.

Section 191: Provisions are the same.

8.

Section 11: Declaration not admissible as evidence against declarant in penalty or prosecution proceedings under:

a) All Acts mentioned in section 8(1)

b) W.T. Act, 1957

Section 71: Declaration not admissible as evidence against declarant in penalty or prosecution proceedings under:

a) I.T. Act, 1961

b) W.T. Act, 1957

c) FERA, 1973

d) Companies Act, 1956

Section 192: Same immunity but only in respect of Income- tax Act, 1961 and Wealth-tax Act 1957.

9.

Section 12: Provisions are similar except that details of investment in specified securities also to be treated as confidential.

Section 72: The declaration to be treated as confidential except to officers employed in execution of specified Acts.

No similar provision in the Act.

10.

Section 13: Provisions are similar except clause (iii) of section 73(1) of VDIS, 1997 regarding jewellery and bullion is newly inserted.

Section 73: Assets acquired out of income declared is exempt from Wealth tax subject to certain conditions.

Section 194: Provisions are the same.

11.

Section 14: A person disqualified u/s. 3 from making declaration due to seizure of books, etc. u/s. 132 could make declaration u/s. 14 under which limited immunities were provided.

No such provision.

No such provision.

12.

Section 15: A person could make declaration in respect of wealth underassessed or escaped assessment.

The scheme primarly related to declaration of wealth acquired out of income disclosed in regular course. Limited immunities were provided.

No such provision though in Finance Bill, 1997 as proposed originally, clause 63 provided for similar wealth declaration.

No such provision.

13.

Section 16: Immunity was provided from certain provisions of Gold Control Act and Customs Act, 1962 if income declared u/s. 3 or wealth declared u/s. 15 represented gold subject to certain conditions.

No such provision.

No such provision.

14.

Section 17: Provisions are similar.

Section 74: Provisions of Ch. XV and section 189 of I.T. Act and Chapter 5 of W.T. Act to apply.

Section 195: Provisions are the same.

15.

Section 18: Provisions are similar.

Section 75: Immunity under the scheme not available to person other than declarant.

Clause (a) of section 197: Provisions are the same.

16.

Section 19 : Provisions are similar.

Section 76 : Power to Central Government to remove difficulties.

Section 198: Provisions are the same.

17.

Section 20: Provisions are similar.

Section 77: Power to make rules given to Central Board of Direct Taxes.

Section 199: Provisions are the same.

18.

Section 21: Similar provisions except that only persons against whom COFEPOSA detention order made denied the benefit of the scheme.

Section 78 : It provides that provision of scheme shall not be available to certain persons and in respect of prosecution of certain offences.

Section 196: Clauses (a), (b) and (c) of section 196 are same as in earlier scheme. a) Clause (d) provides that scheme shall not apply to undisclosed foreign income or asset liable to tax under Black Money (Undisclosed Foreign Income Assets) and Imposition of Tax Act, 2015.

b) Clause (e) provides for disqualification similar to, but broader than, disqualification provided by section 64(2) of VDIS, 1997. Declaration cannot be made for year for which notice u/s. 142 or 143(2) or 148 or 153A or 153C has been issued. Declaration cannot be made where search u/s. 132 or requisition u/s. 132A or survey u/s. 133A has been carried out for assessment which notice u/s. 143(2) or 153A or 153C though not issued but time to issue such notice has not expired.

19

No such immunity

No such immunity

Section 190: Immunity has been provided from provisions of Benami Transactions (Prohibition) Act, 1988 in case investment in asset is declared and asset is transferred in name of the declarant.

20

No similar provision

No similar provision

Section 193: Where a declaration is made by representation or suppression of facts, the declaration shall be void and deemed to be never made.

21

No similar provision

No similar provision

Section 197: Three clauses to section 197 provide as follows:

a) Clause (a) provides that benefit of the scheme shall not be available to person other than the declarant.

b) Clause (b) provides that where amount due under the scheme is not paid than income disclosed shall be treated as income of the previous year in which declaration is filed.

c) Where any undisclosed income or asset has accrued or arisen prior to commencement of the scheme and declaration is not made, then it shall be treated as income of the year in which notice u/ss. 142, 143(2) or 148 or 153A or 153C is issued and provisions of Income -tax Act 1961 shall apply accordingly.

The above note is merely intended to provide a comparison between provisions of three different schemes and should not be read as a treatise on any specific scheme. It is for academic discussion only.

“Give up the idea that by ruling over others you can do any good to them. But you can do just as much as you can in the case of the plant: you can supply the growing seed with the materials for the making up of its body, bringing to it the earth, the water, the air, that it wants. It will take all that it wants by its own nature, it will assimilate and grow by its own nature.”

— Swami Vivekananda

“The greatest truths are the simplest things in the world, simple as your own existence.”

— Swami Vivekananda