The Hon’ble Finance Minister, in his budget speech, said that litigation is a scourge for a tax friendly regime and creates and environment of distrust in addition to increasing the compliance cost of the tax payers and administrative cost for the department. There are about 3 lakhs tax cases pending with the first appellate authority with disputed amount being 5.5 lakh crores. In order to reduce this number he proposed a new Dispute Resolution scheme for direct tax as well as indirect tax.
Under this scheme a taxpayer, who has an appeal pending as on date before the Commissioner (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment. No penalty for disputed tax up to ₹ 10 lakhs will be levied. Cases with disputed tax exceeding ₹ 10 lakh will be subject to 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.
The Direct Tax Resolution Scheme
Clause 197 to 208 of Finance Bill, 2006 seeks to insert a new Chapter X for the purpose of Direct Tax Dispute Resolution Scheme 2016. The scheme will come into effect from 01.06.2016 and be open for declaration made up to a date to be notified by the Central Government in the Official Gazette.
Before going into the provisions of this scheme the definition of two terms are highly to be referred to. The term ‘specified tax’ is defined under Clause 198 (g) of the Bill as a tax-
the determination of which is in consequence of or validated by any amendment made to the Income Tax Actor 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
a dispute in respect of such tax is pending as on 29.02.2016.
The term ‘tax arrear’ is defined under Clause 198 (h) as a the amount of tax, interest or penalty determined under the Income Tax Act or the Wealth Tax Act,1957 in respect of which appeal is pending before the Commissioner or Income Tax (Appeals) or the Commissioner of Wealth Tax (Appeals) as on 29.02.2016.
Non applicability of the scheme
Clause 205 gives the list for which the provisions of this scheme shall not apply, as detailed below:
in respect of tax arrear or specified tax-
relating to an assessment year in respect of which an assessment has been made under Section 153Aor 153C of the Income Tax Act or assessment or reassessment for any of the assessment years, in consequence of a search initiated under Section 37A or requisition made under Section 37B of theWealth Tax Act if it relates to any tax arrear;
relating to an assessment or reassessment in respect of which a survey conducted under Section 133A of the Income Tax Act or Section 38A of the Wealth Tax Act, has a bearing if it relates to any tax arrears;
relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration;
relating to an undisclosed income from a source located outside India or undisclosed asset located outside India;
relating to an assessment or reassessment made on the basis of 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;
to any person in respect of whom an order of detention has been made under the provisions of COFEPOSA-
such order of detention, being an order to which the provisions of Section 9 or Section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under Section 8 of the said Act or before the receipt of the report of the Authority Board; or
such order of detention, being an order to which the provisions of Section 9 of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under Section 9(3) or on the report of the Advisory Board under Section 8, read with Section 92) of the said Act; or
such order of detention, being an order to which the provisions of Section 12A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under Section 12A(3) or on the basis of the report of the Advisory Board under Section 8 read with Section 12A(6) of the said Act; or
such order of detention has not been set aside by a court of competent jurisdiction;
to any person in respect of whom prosecution from any offence punishable under the provisions of IPC, the Unlawful Activities (Prevention) Act,1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prevention of Corruption Act, 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;
to any person notified under Section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.
Declaration of tax payable
Clause 199 provides for the declaration of tax payable and Clause 200 provides for the particulars to be furnished in such declaration. Clause 199 provides that where a declarant on or after 01.06.2016 but on or before a date to be notified by the Central Government, a declaration to the designated authority in respect of tax arrear, or specified tax, the amount payable under this scheme as detailed below:
in case of pending appeal related to tax arrear being-
tax and interest,-
in a case where the disputed tax does not exceed ₹ 10 lakh the whole of the disputed tax and the interest on disputed tax till the date of assessment or reassessment, as the case may be; or
in any other case, the whole of disputed tax, 25% of the minimum penalty leviable and the interest on disputed tax till the date of assessment or reassessment, as the case may be;
penalty, 25% of 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.
Particulars to be furnished in the declaration
Clause 200 provides the particulars to be furnished in the declaration. The declaration shall be in such form and verified in such manner as may be prescribed. If the declaration is in respect of tax arrear, appeal in respect of the disputed income/wealth and tax arrear pending before the Commissioner (Appeals) shall be deemed to be withdrawn.
If the declaration is in respect of specified tax and the declarant has-
filed any appeal before the Commissioner (Appeals) or Tribunal or the High Court or the Supreme Court or any writ petition against any order of the specified tax, the declarant 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;
initiated any proceeding for arbitration, conciliation or mediation or has given any notice thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India whether for protection of investment or otherwise, he shall withdraw such notice or the claim, if any, in such proceedings prior to making the declaration and furnish the proof thereof along with the declaration.
If the declaration is in respect of specified tax, the declarant shall furnish an undertaking in such form and verified in such manner as may be prescribed waiving his right, whether direct or indirect, to seek or pursue any remedy or any claim in relation to the specified tax which may otherwise be available to him under any law for the time being in force, in equity, by statute or under an agreement or otherwise;
Clause 201 provides that the designated authority shall, within a period of 60 days from the date of receipt of the declaration, determine the amount payable by the declarant 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 tasks, as the case may be, and the sum payable after such determination.
Order of designated authority
The declarant shall pay the sum determined by the designated authority within 30 days of the receipt of the certificate and intimate the fact of such payment to the designated authority with proof thereof. The designated authority shall pass an order stating that the declarant has paid the sum.
Every order passed shall be conclusive as to the matters stated therein and no matter covered by such order shall be re-opened in any other proceedings or as the case may be, under any agreement, whether the protection of investment or otherwise, entered into by India with any other country or territory outside India.
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 has been made by the designated authority or the payment of sum determined.
Revival of case
Clause 200 (5) provides that where any material particular furnished in the declaration is found to be false at any stage or the declarant violates any conditions of the scheme or the declarant acts in a manner which is not in accordance with the undertaking given by him shall be presumed as if the declaration was never made under the scheme. The proceedings against the declarant are or were pending shall be deemed to have been revived.
Clause 202 gives immunity from initiation of proceedings in respect of offence and imposition of penalty in certain cases. The designated authority shall grant, subject to the conditions-
Immunity from instituting any proceedings in respect of an offence under the Income tax act or wealth tax act;
Immunity from imposition or waiver of penalty under both the Acts in respect of-
Specified tax covered in the declaration; or
Tax arrear covered in the declaration to the extent the penalty exceeds the amount of penalty;
Waiver of interest in respect of-
Specified tax covered in the declaration; or
Tax arrear covered in the declaration to the extent the interest exceeds the amount of interest.
Clause 203 of the Bill provides that any amount paid in pursuance of a declaration shall not be refundable under any circumstances. Clause 204 provides that 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 relation to which the declaration has been made.
Powers of Central Government
Clause 206 gives powers to Central Government to issue directions or order to the authorities as it may deem fit for the proper administration of this scheme. No direction or order shall be issued so as to require any designated authority to dispose of a particular case in a particular manner.
The Central Government may, if it considers necessary or expedient so to do, for the purpose of proper and efficient administration of the scheme and collection of revenue, issue general or special orders in respect of any class of cases, setting forth directions or instructions as to the guidelines, principles or procedures to be followed by the authorities in the work relating to administration of the scheme and collection of revenue. Such order may, if the Central Government is of the opinion that it is necessary in the public interest so to do, be published in the Official Gazette in such manner as may be prescribed.
Clause 207 gives powers to the Central Government to remove difficulties by order which is not inconsistent with the provisions of this scheme. No such order shall be made after the expiry of a period of 2 years from the date on which the provisions of this scheme come into force.
Clause 208 gives powers to the Central Government to make rules for carrying out the provisions of this Rule in the following matters-
The form in which a declaration may be made and the manner in which such declaration may be verified;
The form of certificate which may be granted;
The manner in which orders may be published;
Any other matter which by this scheme is to be, or may be, prescribed, or in respect of which provision is to be made, by rules.