The Direct Tax Vivad Se Vishwas Bill, 2020 [“Bill”] was introduced in Lok Sabha on Dec 5th 2020 to reduce pending litigation related to Direct Taxes. The Bill will be enacted as law once it is approved by both houses of the Indian Parliament. Author V P GUPTA , Advocate examines the proposals introduced in Bill to settle long pending appeals before all forums [SC, HC, ITAT & CIT(A)] and seeks clarification to avoid any risk of Tax Calculation in terms of Section 3. The author opines that the scheme should provide for adjustment in the amount of loss to be carried forward to avoid double payment of tax.  He further opines that the periods mentioned in Section 5 of the scheme are not linked with the dates for payment mentioned in section 3 of the Bill i.e. 31.03.2020 or thereafter and states that this position needs to be clarified and dates have to be co-related. 

Vivad Se Vishwas Scheme- Broad Features and Clarifications required

The Direct Tax Vivad Se Vishwas Bill, 2020 has been introduced in the Lok Sabha providing for a scheme for settlement of appeals pending in respect of direct tax matters before all the Appellant Authorities on payment of an amount provided under the Bill. Broad features of the scheme as provided in the Bill are as under:-

a) Declaration can be filed by an assessee in respect of disputes pending in appeal either filed by the assessee or by the Department before any appellant authority i.e. CIT(A), ITAT, High Court or Supreme Court.

b) Declaration is to be filed in respect of tax arrears and the amount payable under the scheme before 31.03.2020 will be the disputed tax and thereafter up to 30.06.2020 amount of disputed tax plus 10 %, thereof. Amount of 10%, however, shall not exceed the amount of interest and penalty charged or chargeable. In case the tax arrears relates to amount of disputed interest or disputed penalty amount payable under the scheme by 30.03.2020 shall be 25% thereof and thereafter up to 30.06.2020, 30% of the disputed interest or disputed penalty.

c) “Tax arrear” has been defined to mean aggregate amount of disputed tax and interest/penalty charged and chargeable thereon or disputed interest or disputed penalty as determined on the amount of disputed income.

d) “Disputed income” has been defined to mean the amount of income as is relatable to disputed tax.

e) “Disputed tax” means tax payable with reference to the amount which is subject matter of appeal, to be calculated as per general provisions of Income Tax Act as well as on book profit u/s 115JB of the Act. In case same addition is subject matter of addition in total income and also in book profit, tax is to be considered only in respect of addition under the normal provisions of the Act. In case of reduction in loss or loss being converted in income, disputed  tax is to be determined on notional basis.

f) Declaration is to be filed before the designated authority, who shall be the Commissioner or the Principal Commissioner in the form to be prescribed.

g) Designated authority shall determine the amount payable within 15 days from receipt of declaration. The payment is to be made by the assessee in further period of 15 days. Thereafter, certificate will be issued by the designated authority.

h) On filing the declaration any appeal pending before CIT(A) and ITAT shall be deemed to have been withdrawn. In case the appeal or writ is pending before High Court or Supreme Court the assessee shall withdraw such appeal or writ petition and proof of such withdrawal is to be submitted along with declaration. In case the assessee has initiated any arbitration, conciliation proceedings etc. he has to withdraw the same and furnish proof thereof along with declaration. An undertaking is also to be submitted waiving right to pursue any remedy or claim.

i) Declaration will be considered invalid and never to have been filed in case any information is found to be wrong or the assessee has violated the conditions of the scheme. In such a case appeals etc. shall be deemed to have been revived.

j) Declaration cannot be filed in the cases and also in case of assesses specified in the scheme  such as in the cases of search and in the cases of assesses against whom prosecution proceedings etc. have been launched under the provisions of Income Tax Act or in other specified Acts.

k) After the declaration has been filed and accepted on payment of the amount as per the scheme no further action shall be taken against the assessee in respect of an offence or no penalty or interest shall be levied in respect of tax arrear. Accordingly, the assessee shall get immunity from prosecution proceedings as well as from payment of any penalty and interest.

Clarifications required:-

Declaration in terms of Section 3 of the scheme is to be filed in respect of tax arrear. The definition of tax arrear refers to aggregate amount of disputed tax which is to be calculated with reference to income disputed in appeal. On the date of filing the declaration a part or whole of the amount of disputed tax would have been paid by the assessee. It is not clear whether an assessee who has already made payment partly or whole of the disputed tax is entitled to file the declaration in terms of Section 3 of the Act. It has, however, been mentioned in the Statement of Objects and Reasons that purpose is to resolve the pending tax disputes and declaration can be filed irrespective of the fact that demand is pending or has been paid. Position, therefore, needs to be clarified.

1. The amount payable as per the scheme is “amount of disputed tax”. The amount of disputed tax means the tax determined with reference to amount disputed in appeal. It is not clear from the scheme whether amount already paid partly or wholly by the assessee will be adjusted against the amount payable as per the scheme. This needs to be clarified.

2. In case the amount already paid by the assessee against the demand is more than the amount payable under the scheme, whether the excess amount will be refundable or not?

3. In case of loss amount of disputed tax is to be calculated on notional basis. On making the addition amount of loss to be carried over is reduced by the Assessing Officer. Therefore, the scheme should provide for adjustment in the amount of loss to be carried forward, once the payment has been made by the assessee under the scheme, otherwise it will result in double payment of tax on the same amount, once under the scheme and again in the subsequent year by way of adjustment of lower amount of loss.

4. As per the provisions of Section 5 of the Act Commissioner has to determine the amount payable within a period of 15 days from the date of receipt of the declaration and thereafter, the assessee has to make payment within a period of 15 days. The periods mentioned in Section 5 are not linked with the dates for payment mentioned in section 3 of the Bill i.e. 31.03.2020 or thereafter. Position needs to be clarified and dates have to be co-related.

5. In respect of cases where appeal has already been decided in favour of the assessee and the department is in appeal before higher appellate authority, there will not be any tax arrear. Total income assessed after the appeal shall also be after giving effect to the order of appellate authority. The manner of determination of disputed income and disputed tax needs to be clarified.

6. The condition of withdrawing the appeal and the writ petition from High Court and Supreme Court before filing the declaration will pose practical difficulty. Only the undertaking should be sufficient and appeal / writ should be withdrawn after the certificate has been issued by the Designated Authority.