Macrotech Developers Limited vs. PCIT (Bombay High Court)

Macrotech Developers Limited v. PCIT WP No. 79 of 2021 dated March 25, 2021( Bom) (HC)

The Direct Tax Vivad se Vishwas Act, 2020 – Wilful attempt to evade tax -Tax deduction at source – Prosecution – Q. 73 of CBDT Circular 21 of 2020 dated 4/12/2020 would stand set aside and quashed.

Facts:
The petitioner sought a declaration that the clarification given by CBDT to question No.73 vide circular No.21 of 2020 dated December 04, 2020 is violative of Article 14 of the Constitution of India and thusis arbitrary and ultra vires to the provisions of the Direct Tax Vivad seVishwas Act, 2020 (VSVA) and the Direct Tax Vivad se Vishwas Rules, 2020.

For the assessment year 2015-16, petitioner/ its subsidiary (before merger) had filed return ofincome under section 139(1) of the Act. The balance of self-assessment tax after deduction of TDS was paid by the petitioner after the due date for filing of the return.

The department issued notice to the petitioner on toshow cause as to why prosecution should not be initiated against thepetitioner under section 276-C(2) of the Act for alleged wilful attempt toevade tax on account of delayed payment of the balance amount of theself-assessment tax. Subsequently After the due process of law, instituted a case in the 38thMetropolitan Magistrate’s Court at Ballard Pier.

The Ld. AO made certain disallowances towards workmen’s compensationand other related expenses for the AY 2015-16 vide order under section 143(3) of the Act. The disallowances were upheld by the CIT(A). The Petitioner preferred an appeal before the ITAT and the matter was pending before the ITAT.

The CBDT issued impugned circular No.21/2020 dated04.12.2020 giving further clarifications in respect of the VSVA. Question No.73 contained therein is when in the case of atax payer prosecution has been initiated for aparticular assessment year,with respect to an issue which is not in appeal, would he be eligible tofile declaration for issues which are in appeal for the said assessment.

The Petitioner is prosecuted for delay in payment of self-assessment tax however is ineligible to settle a matter under VSVA for another issue.

Held:
From a reading of the statement of objects and reasons what isdeducible is that the purpose for introduction of the Vivad se VishwasBill was to reduce tax disputes pertaining to direct taxes.

The exclusion referred to in section 9(a)(ii) of VSVA is inrespect of tax arrear relating to an assessment year in respect of whichprosecution has been instituted on or before the date of filing ofdeclaration. Thus, what section 9(a)(ii) postulates is that the provisionsof the Vivad se Vishwas Act would not apply in respect of tax arrearrelating to an assessment year in respect of which prosecution has beeninstituted on or before the date of filing of declaration. Therefore, theprosecution must be in respect of tax arrear relating to an assessmentyear.

The interpretation given by respondent No.2/CBDT inthe answer to question No.73 is not in alignment with the legislativeintent which has got manifested in the form of section 9(a)(ii) of VSVA.
To hold that an assesseewould not be eligible to file a declaration because there is a pendingprosecution for the assessment year in question on an issue unrelated totax arrear would defeat the very purport and object of the Vivad seVishwas Act. Such an interpretation which abridges the scope ofsettlement as contemplated under the Vivad se Vishwas Act cannottherefore be accepted.

Therefore, Q. 73 of CBDT Circular 21 of 2020 dated 4/12/2020 would stand set aside and quashed.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.79 OF 2021
WITH
INTERIM APPLICATION (L) NO.1060 OF 2021
Macrotech Developers Limited … Petitioner
Vs.
Principal Commissioner of Income Tax and others … Respondents
Mr. V. Sridharan, Senior Advocate a/w. Mr. Prakash Shah and Mr. Jas
Sanghavi i/b. PDS Legal for Petitioner.
Mr. Suresh Kumar for Respondents.
CORAM : UJJAL BHUYAN &
MILIND N. JADHAV, JJ.
Reserved on : FEBRUARY 1, 2021
Pronounced on: MARCH 25, 2021
Judgment and Order : (Per Ujjal Bhuyan, J.)
Heard Mr. V. Sridharan, learned senior counsel along with Mr.
Prakash Shah, learned counsel for the petitioner and Mr. Suresh Kumar,
learned standing counsel Revenue for the respondents.
2. By filing this petition under Article 226 of the Constitution of
India, petitioner seeks a declaration that the clarification given by
respondent No.2 to question No.73 vide circular No.21/2020 dated
04.12.2020 is violative of Article 14 of the Constitution of India and thus
is arbitrary and ultra vires to the provisions of the Direct Tax Vivad se
Vishwas Act, 2020 and the Direct Tax Vivad se Vishwas Rules, 2020.
Therefore, petitioner seeks quashing of the said clarification and further
seeks a direction to respondent No.1 to accept the declaration filed by
the petitioner on 23.09.2020 under the Direct Tax Vivad se Vishwas Act,
2020.
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3. Case of the petitioner as pleaded in the writ petition is that it is a
public limited company incorporated under the Companies Act, 1956
having its registered office at Mahalaxmi, Mumbai. It is engaged in the
business of land development and construction of real estate properties.
4. Initially, Shreeniwas Cotton Mills Private Limited (‘Cotton Mills’
for short) was a subsidiary of the petitioner. Subsequently it was merged
with the petitioner on the strength of the amalgamation scheme
sanctioned vide order dated 07.06.2019 passed by the National Company
Law Tribunal, Mumbai Bench. The merger had taken place with effect
from 01.04.2018. However, the pending tax demand against the cotton
mills under the Income Tax Act, 1961 (briefly ‘the Act’ hereinafter)
continued in the name of the cotton mills since migration of the
permanent account number of the cotton mills to the permanent account
number of the petitioner has not taken place. Therefore, it is pleaded that
the tax demand of the cotton mills should be construed to be that of the
petitioner and reference to the petitioner would mean and include the
petitioner as well as the cotton mills.
5. For the assessment year 2015-16, petitioner had filed return of
income under section 139(1) of the Act disclosing total income of
Rs.2,05,71,01,650.00. The self-assessment income tax payable on the
returned income as per section 115JB of the Act was
Rs.69,92,08,851.00. At the time of filing of the return, an amount of
Rs.27,34,77,755.00 was shown to have been paid by way of tax
deducted at source. Balance of self-assessment tax of
Rs.42,57,31,096.00 (Rs.69,92,08,851.00 less Rs.27,34,77,755.00) with
interest thereon under sections 234A, 234B and 234C of the Act
aggregating to Rs.12,36,74,855.00, totalling Rs.54,94,05,951.00 were
paid by the petitioner after the due date for filing of the return in the
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following manner:-
Sr. No. Date Amount Paid (Rs.)
1. 05 July 2016 2,00,00,000
2. 31 August 2016 52,94,05,951
TOTAL 54,94,05,951
6. Respondent No.1 issued notice to the petitioner on 19.09.2017 to
show cause as to why prosecution should not be initiated against the
petitioner under section 276-C(2) of the Act for alleged wilful attempt to
evade tax on account of delayed payment of the balance amount of the
self-assessment tax. Petitioner replied to the same on 05.10.2017
denying the allegations made. Petitioner stated there was only a delay in
payment of self-assessment tax that too on account of cash flow
pressures on the business which was promptly discharged within six
months and that there was no attempt made in any manner whatsoever to
evade payment of tax. Therefore, request was made to respondent No.1
to withdraw the show cause notice.
7. Petitioner was informed by respondent No.1 by letter dated
07.12.2018 that income tax department was actively considering the case
of the petitioner for alleged wilful attempt to evade payment of tax and
interest. However, an offer was given to the petitioner for compounding
of the offence under section 279(2) of the Act to which petitioner replied
that since there was no mala fide intent to evade payment of tax, the
proposed prosecution could be defended on merit. Therefore, petitioner
did not apply for compounding under section 279(2) of the Act.
8. Similar notices as issued to the petitioner were issued by
respondent No.1 to the directors of the cotton mills in their individual
capacity to which the respective directors replied by denying the
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allegations.
9. In the meanwhile, on 17.12.2017, the assessing officer passed the
assessment order for the assessment year 2015-16 under section 143(3)
of the Act. In the assessment order, assessing officer disallowed certain
expenses claimed by the petitioner towards workmen’s compensation
and other related expenses. After disallowing such claim, assessing
officer computed the tax liability of the petitioner at Rs.61.75 crores
which was inclusive of interest.
10. When the aforesaid assessment order dated 17.12.2017 was
challenged by the petitioner in appeal, the appellate authority i.e.,
Commissioner of Income Tax (Appeals) dismissed the appeal and
upheld the assessment order vide order dated 27.12.2018.
11. Aggrieved by the order of Commissioner of Income Tax
(Appeals) dated 27.12.2018, petitioner preferred further appeal before
the Income Tax Appellate Tribunal (briefly ‘the Tribunal’ hereinafter)
which was registered as ITA No.1538/Mum/2019. It is stated that the
aforesaid appeal is pending before the Tribunal for final hearing.
12. While the appeal of the petitioner was pending before the
Tribunal, central government enacted the Direct Tax Vivad se Vishwas
Act, 2020 which came into force on and from 17.03.2020. Primary
objective of the Direct Tax Vivad se Vishwas Act, 2020 (briefly ‘the
Vivad se Vishwas Act’ hereinafter) is to reduce pending tax litigations
pertaining to direct taxes and in the process, grant considerable relief to
the eligible declarants while at the same time generating substantial
revenue for the government.
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13. Circular No.9 of 2020 dated 22.04.2020 was issued by respondent
No.2 whereby certain clarifications were given in the form of question
and answer. Be it stated that the central government vide notification
dated 18.03.2020 has made the Direct Tax Vivad se Vishwas Rules 2020
(briefly ‘the Vivad se Vishwas Rules’ hereinafter).
14. With a view to settling the pending tax demand, petitioner
submitted a declaration in terms of Vivad se Vishwas Act on 23.09.2020
in the name of the cotton mills in respect of the tax dues for the
assessment year 2015-16 which is the subject matter of the appeal
pending before the Tribunal.
15. While the petitioner’s declaration dated 23.09.2020 was pending,
it came to know that respondent No.1 had passed an order on 03.05.2019
authorizing the Joint Commissioner of Tax (OSD) to initiate criminal
prosecution against the cotton mills and its directors by filing complaint
before the competent magistrate in respect of the delayed payment of
self-assessment tax for the assessment year 2015-16. On the basis of
such sanction order, income tax department has filed criminal complaint
under section 276-C(2) read with section 278B of the Act before the 38th
Metropolitan Magistrate’s Court at Ballard Pier which has been
registered as Criminal Case No.470/SW/2019. However, no progress has
taken place in the said criminal case.
16. Respondent No.2 issued impugned circular No.21/2020 dated
04.12.2020 giving further clarifications in respect of the Vivad se
Vishwas Act. Question No.73 contained therein is when in the case of a
tax payer prosecution has been initiated for the assessment year 2012-13,
with respect to an issue which is not in appeal, would he be eligible to
file declaration for issues which are in appeal for the said assessment
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year and in respect of which prosecution has not been launched? The
answer given to this is that ineligibility to file declaration relates to an
assessment year in respect of which prosecution has been instituted on or
before the date of declaration. Since for the assessment year 2012-13
prosecution has already been instituted, the tax payer would not be
eligible to file declaration for the said assessment year even on issues
not relating to prosecution.
17. It is the grievance of the petitioner that on the basis of the answer
given to question No.73 as alluded to hereinabove its declaration would
be rejected since the declaration pertains to the assessment year 2015-16
and prosecution has been launched against the petitioner for delayed
payment of self-assessment tax for the assessment year 2015-16.
18. It is in this context that the present writ petition has been filed
seeking the reliefs as indicated above.
19. Respondents have filed a common affidavit through Mr. Abhay
Damle, Principal Commissioner of Income Tax, Central-4, Mumbai.
Referring to section 9(a)(ii) of the Vivad se Vishwas Act, it is submitted
that the same is an exclusionary clause. While clause (a) of section 9
excludes certain class of cases on the basis of tax arrears, clauses (b), (c)
and (d) exclude certain class of persons on the basis of grave violation of
certain enactments from the ambit of the Vivad se Vishwas Act. On that
basis, it is contended that as per section 9(a)(ii), tax arrears relating to an
assessment year in respect of which prosecution has been instituted on or
before the date of filing of declaration are excluded from the ambit of
the Vivad se Vishwas Act. As per the said provision, once prosecution is
instituted in respect of an assessment year to which the tax arrears relate
then the appeal pertaining to such assessment year is not eligible for
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settlement under the Vivad se Vishwas Act. This is what has been
clarified by answer to question No.73 of circular No.21/2020 dated
04.12.2020.
19.1. It is submitted that the exclusion as per section 9(a)(ii) applies to
an assessment year and hence all the tax arrears of that assessment year.
Intention of the statute is not to bifurcate the tax liability of an
assessment year into parts that qualify for settlement under the Vivad se
Vishwas Act and those which do not qualify for such settlement.
Exclusion of such class of cases is reasonable. It is further clarified that
unlike the exclusion under clauses (b) to (d) of section 9 which debars a
person from filing declaration under the Vivad se Vishwas Act, the
exclusion under sub-clause (ii) of clause (a) of section 9 only excludes
an assessment year from settlement under the Vivad se Vishwas Act.
However, such person is not barred from seeking settlement under the
Vivad se Vishwas Act for assessment years that are not excluded. In this
connection, reference has been made to question No.74 of circular
No.21/2020 and the answer given thereto as per which prosecution in
one assessment year would not debar an assessee from filing declaration
for another assessment year, if it is otherwise eligible.
19.2. Respondents have contended that under the Act, there is a
provision for compounding of offences in respect of which prosecution
has been initiated. In the circular No.9/2020 dated 22.04.2020, it has
been clarified that an assessee would be eligible to file declaration under
the Vivad se Vishwas Act if he compounds his offence before filing of
declaration.
19.3. In view of above, it is contended that the answer given to question
No.73 of circular No.21/2020 is reasonable and rational having nexus to
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the object sought to be achieved by the Vivad se Vishwas Act. In the
circumstances, respondents seek dismissal of the writ petition.
20. Mr. Sridharan, learned senior counsel for the petitioner has
referred to the statement of objects and reasons while introducing the
Vivad se Vishwas Bill in the Parliament as well as the statement made by
the Hon’ble Finance Minister in her Budget speech on 01.02.2020 and
submits that the scheme introduced by way of the Vivad se Vishwas Act
is to reduce litigation in direct taxes. A huge amount of disputed tax
arrears is locked up in appeals at various stages and the amount of
disputed direct tax arrears as on 30.11.2019 was Rs.9.32 lakh crores
which is roughly almost one year of direct tax collections; besides, tax
disputes consume enormous amount of time, energy and resources of
both the tax payers and of the government. Therefore, resolution of
pending tax disputes is the need of the hour. This will not only benefit
the government by generating timely revenue but also the tax payers
who will be able to deploy the time, energy and resources saved by
opting for such dispute resolution towards their business activities.
Therefore, while examining or considering a declaration filed under the
Vivad se Vishwas Act, the above aspects need to be borne in mind.
20.1. Mr. Sridharan has meticulously referred to various provisions of
the Vivad se Vishwas Act particularly the definition of ‘tax arrear’ as
appearing in section 2(1)(o) and submits that the entire scheme of
settlement centers around tax arrear. Referring to section 9(a) of the
Vivad se Vishwas Act, he submits that language of this section is very
clear in as much as this section provides that provisions of the Vivad se
Vishwas Act would not apply in respect of tax arrear as covered by the
four situations enumerated thereunder. As per sub-clause (i), provisions
of the Vivad se Vishwas Act would not apply in respect of tax arrear
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relating to an assessment year in respect of which an assessment has
been made under section 143(3) or section 144 or section 153A or
section 153C of the Act on the basis of search initiated under section 132
or section 132A of the Act if the amount of disputed tax exceeds Rs.5
crores. Sub-clause (ii) says that the tax arrear must relate to an
assessment year in respect of which prosecution has been instituted on or
before the date of filing of the declaration. Under sub-clause (iii), the tax
arrear must relate to any undisclosed income from a source located
outside India or undisclosed asset located outside India; and under subclause
(iv), the tax arrear must relate to an assessment or re-assessment
made on the basis of information received under an agreement referred
to in section 90 or section 90A of the Act if it relates to any tax arrear.
20.2. Mr. Sridharan submits that a careful reading of section 9(a)(ii)
would go to show that the thrust of the said provision is that provisions
of the Vivad se Vishwas Act would not apply in respect tax arrear
relating to an assessment year in respect of which prosecution has been
instituted on or before the date of filing of declaration. Therefore, the
prosecution must be relatable to the tax arrear of an assessment year and
if interpreted in this manner the word ‘of’ appearing in sub-clause (ii)
should be read as ‘for’.
20.3. In contradistinction to what is intended by section 9(a), under
sections 9(b), (c), (d) and (e), the exclusion pertains to any person who is
accused of infringing provisions of the related statutes. In (b), the
provisions are of Conservation of Foreign Exchange and Prevention of
Smuggling Activities Act, 1974; in (c), it is Unlawful Activities
(Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances
Act, 1985, Prevention of Corruption Act, 1988, Prevention of Money
Laundering Act, 2002 and Prohibition of Benami Property Transactions
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Act, 1988; in (d), prosecution should be initiated by an income tax
authority for any offence punishable under the provisions of the Indian
Penal Code; and under (e), Special Court (Trial of Offences relating to
Transactions in Securities) Act, 1992. He, therefore, submits that there is
a fundamental distinction between the exclusionary provision of section
9(a) on the one hand and sections 9(b), (c), (d) and (e) on the other hand.
While in the case of the former the exclusion is in respect of tax arrear
relating to an assessment year, in the case of the later the exclusion
pertains to a person who has suffered disability or prosecution under the
mentioned statutes. If this is the position then the answer given to
question No.73 contained in the circular No.21/2020 would be contrary
to the statutory mandate. The answer given is only an interpretation. As
per the said interpretation, the ineligibility to file declaration relates to
an assessment year in respect of which prosecution has been instituted
on or before the date of declaration. Since in question No.73 prosecution
was initiated against the tax payer for assessment year 2012-13, for the
said assessment year, the tax payer would not be eligible to file
declaration even on issues not relating to prosecution. Mr. Sridharan
submits that this interpretation is not only erroneous but is ultra vires the
mandate of section 9(a)(ii) of the Vivad se Vishwas Act. By way of a
circular or interpretation, the statutory requirement or intention of the
legislature cannot be curtailed or narrowed down.
20.4. In the circumstances, he submits that the answer given to question
No.73 is liable to be discarded and on the correct interpretation of
section 9(a)(ii) of the Vivad se Vishwas Act declaration of the petitioner
is liable to be accepted.
21. On the other hand, Mr. Suresh Kumar, learned counsel for the
respondents contends that a careful reading of section 9(a) of the Vivad
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se Vishwas Act would go to show that the disability to file declaration is
qua assessment year. If any prosecution is pending for any assessment
year then the tax payer would not be eligible to file declaration for the
said assessment year. To buttress his point, he has referred to question
No.74 in the circular No.21/2020 and the answer given thereto. The
question is that if there is a prosecution against an assessee for a
different assessment year and the pending appeal is for a different
assessment year, would it debar the assessee from the benefit of the
scheme? The answer given to this is that prosecution in one assessment
year would not debar an assessee from filing declaration for any other
assessment year if he is otherwise eligible.
21.1. Mr. Suresh Kumar submits that there is a distinction between the
stage of finding out of eligibility to seek exemption and stage of
applying the nature of exemption. Referring to the decision of the
Supreme Court in the case of Commissioner of Customs (Import),
Mumbai Vs. Dilip Kumar and Company, (2018) 9 SCC 1, he submits
that in the case of exemption notifications a strict interpretation has to be
applied at the stage of eligibility; but once that stage is crossed, the
benefits available to a declarant is to be construed liberally. Adverting to
the facts of the present case, he submits that provisions of section 9(a)(ii)
has to be construed strictly. Viewed in that context, the departmental
interpretation given as answer to question No.73 reflects the correct
position. He, therefore, seeks dismissal of the writ petition.
22. Submissions made by learned counsel for the parties have been
duly considered.
23. Before adverting to the Vivad se Vishwas Act, we may usefully
extract the relevant portion of the budget speech of the Hon’ble Finance
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Minister made on 01.02.2020 which reads thus:-
“ Sir, in the past our government has taken several
measures to reduce tax litigations. In the last budget, Sabka
Vishwas Scheme was brought in to reduce litigation in indirect
taxes. It resulted in settling over 1,89,000 cases. Currently,
there are 4,83,000 direct tax cases pending in various appellate
forums i.e. Commissioner (Appeals), ITAT, High Court and
Supreme Court. This year, I propose to bring a scheme similar
to the indirect tax Sabka Vishwas for reducing litigations even
in the direct taxes.
Under the proposed ‘Vivad se Vishwas’ scheme, a
taxpayer would be required to pay only the amount of the
disputed taxes and will get complete waiver of interest and
penalty provided he pays by 31st March, 2020. Those who avail
this scheme after 31st March, 2020 will have to pay some
additional amount. The scheme will remain open till 30th June,
2020.
Taxpayers in whose cases appeals are pending at any
level can benefit from this scheme.
I hope that taxpayers will make use of this opportunity to
get relief from vexatious litigation process.”
23.1. Thus, what was intended by the Hon’ble Finance Minister was to
bring a scheme similar to the Sabka Vishwas (Legacy Dispute
Resolution) Scheme, 2019 which pertained to indirect taxes. The object
of the Vivad se Vishwas scheme is to reduce litigations in direct taxes. It
was pointed out that under the scheme, a tax payer would be required to
pay only the amount of disputed taxes and would get complete waiver of
interest and penalty subject to payment by the specified date. In case of
payment made after the specified date, the tax payer would have to pay
some additional amount. As per her speech, tax payers in whose cases
appeals were pending at any level could avail the benefit from the
scheme.
24. Let us now read the statement of objects and reasons of the Vivad
se Vishwas Bill when introduced in the Parliament which later on
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became the Vivad se Vishwas Act. The statement of objects and reasons
reads as under:-
“ Over the years, the pendency of appeals filed by
taxpayers as well as Government has increased due to the fact
that the number of appeals that are filed is much higher than the
number of appeals that are disposed. As a result, a huge amount
of disputed tax arrears is locked-up in these appeals. As on the
30th November, 2019, the amount of disputed direct tax arrears
is Rs. 9.32 lakh crores. Considering that the actual direct tax
collection in the financial year 2018-19 was Rs.11.37 lakh
crores, the disputed tax arrears constitute nearly one year direct
tax collection.
2. Tax disputes consume copious amount of time, energy
and resources both on the part of the Government as well as
taxpayers. Moreover, they also deprive the Government of the
timely collection of revenue. Therefore, there is an urgent need
to provide for resolution of pending tax disputes. This will not
only benefit the Government by generating timely revenue but
also the taxpayers who will be able to deploy the time, energy
and resources saved by opting for such dispute resolution
towards their business activities.
3. It is, therefore, proposed to introduce the Direct Tax
Vivad se Vishwas Bill, 2020 for dispute resolution related to
direct taxes, which, inter alia, provides for the following,
namely:—
(a) the provisions of the Bill shall be applicable to appeals
filed by taxpayers or the Government, which are
pending with the Commissioner (Appeals), Income tax
Appellate Tribunal, High Court or Supreme Court as
on the 31st day of January, 2020 irrespective of
whether demand in such cases is pending or has been
paid;
(b) the pending appeal may be against disputed tax,
interest or penalty in relation to an assessment or
reassessment order or against disputed interest,
disputed fees where there is no disputed tax. Further,
the appeal may also be against the tax determined on
defaults in respect of tax deducted at source or tax
collected at source;
(c) in appeals related to disputed tax, the declarant shall
only pay the whole of the disputed tax if the payment
is made before the 31st day of March, 2020 and for the
payments made after the 31st day of March, 2020 but
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on or before the date notified by Central Government,
the amount payable shall be increased by 10 per cent.
of disputed tax;
(d) in appeals related to disputed penalty, disputed interest
or disputed fee, the amount payable by the declarant
shall be 25 per cent. of the disputed penalty, disputed
interest or disputed fee, as the case may be, if the
payment is made on or before the 31st day of March,
2020. If payment is made after the 31st day of March,
2020 but on or before the date notified by Central
Government, the amount payable shall be increased to
30 per cent. of the disputed penalty, disputed interest
or disputed fee, as the case may be.
4. The proposed Bill shall come into force on the date it
receives the assent of the President and declaration may be
made thereafter up to the date to be notified by the
Government.”
24.1. From a reading of the statement of objects and reasons what is
deducible is that the purpose for introduction of the Vivad se Vishwas
Bill was to reduce tax disputes pertaining to direct taxes. It was noted
that amount of disputed direct tax arrears as on 30th November, 2019 was
Rs.9.32 lakh crores bottled up in appeals across the spectrum which is
almost a year’s direct tax collection. Not only that a good amount of
time, energy and resources are consumed in such tax disputes, both on
the part of the government as well as on the part of the tax payers.
Settlement of such tax disputes will, therefore, not only benefit the
government by generating timely revenue but also the tax payers who
would then be able to deploy the time, energy and resources saved by
opting for such dispute resolution towards their business activities. The
provisions of the Bill were made applicable to appeals filed by the
assessees or by the revenue pending before the Commissioner (Appeals),
Income Tax Appellate Tribunal, High Court or Supreme Court and that
such pending appeals may be against disputed tax, interest or penalty in
relation to an assessment or re-assessment.
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25. Preamble of the Vivad se Vishwas Act describes the same as an act
to provide for resolution of disputed tax and for matters connected
therewith or incidental thereto. Section 2 thereof provides for definitions
of various expressions used in the Vivad se Vishwas Act. As per section
2(1)(g), ‘disputed income’ in relation to an assessment year has been
defined to mean the whole or so much of the total income as is relatable
to the disputed tax. ‘Disputed tax’ is defined in section 2(1)(j) to mean
income tax including surcharge and cess in relation to an assessment
year or financial year as the case may be payable by the appellant under
the provisions of the Act in the manner computed under the said
provision. Similarly, ‘disputed fee’, ‘disputed interest’ and ‘disputed
penalty’ have also been defined under sections 2(f), 2(h) and 2(i). Under
section 2(1)(h), ‘disputed interest’ has been defined to mean the interest
determined in any case under the provisions of the Act where such
interest is not charged or chargeable on disputed tax; and an appeal has
been filed by the appellant in respect of such interest. Finally, ‘tax arrear’
has been defined in section 2(1)(o) in the following manner:-
“(o) ‘tax arrear’ means,-
(i) the aggregate amount of disputed tax, interest
chargeable or charged on such disputed tax, and
penalty leviable or levied on such disputed tax; or
(ii) disputed interest; or
(iii) disputed penalty; or
(iv) disputed fee,
as determined under the provisions of the Income Tax
Act.”
25.1. Thus, ‘tax arrear’ would mean the aggregate amount of disputed
tax, interest chargeable or charged on such disputed tax and penalty
leviable or levied on such disputed tax or disputed interest or disputed
penalty or disputed fee as determined under the provisions of the Act.
26. Section 3 deals with the amount payable by a declarant. A reading
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of section 3 makes it clear that where a declarant files a declaration
under the Vivad se Vishwas Act, the same is in respect of tax arrear. A
statement is provided thereunder determining the amount payable
depending upon the nature of tax arrear.
26.1. Filing of declaration and particulars to be furnished are dealt with
in section 4. Sub-section (1) says that the declaration shall be filed by
the declarant before the designated authority in the prescribed format. As
per sub-section (2), upon filing of such declaration any appeal pending
before the Income Tax Appellate Tribunal or Commissioner (Appeals) in
respect of the disputed income or disputed interest or disputed penalty or
disputed fee and the tax arrear shall be deemed to have been withdrawn
from the date on which certificate is issued under section 5(1). As per
sub-section (3), where the appeal or writ petition is pending in the High
Court or in the Supreme Court, the declarant is required to withdraw
such appeal or writ petition with the leave of the Court after issuance of
certificate under sub-section (1) of section 5.
26.2. Section 5 provides for the time and manner of payment. As per
sub-section (1), the designated authority shall within a period of fifteen
days from the date of receipt of the declaration by order determine the
amount payable by the declarant in accordance with the provisions of the
Vivad se Vishwas Act and grant a certificate to the declarant containing
particulars of the tax arrear and the amount payable after such
determination. While under sub-section (2), the declarant is required to
pay the amount determined under sub-section (1) within fifteen days,
sub-section (3) makes it clear that once an order is passed under subsection
(1) that would be conclusive as to the matters stated therein,
which cannot be re-opened.
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26.3. Section 6 provides for immunity from prosecution or imposition
of penalty or levy of interest in respect of tax arrear once section 5
comes into play.
27. Section 9 is relevant. This section provides for instances where
Vivad se Vishwas Act would not apply. Section 9(a) mentions four
instances where provisions of the Vivad se Vishwas Act would not be
applicable. Section 9(a) reads as under:-
“9. The provisions of this Act shall not apply-
(a) in respect of tax arrear,–
(i) relating to an assessment year in respect of which an
assessment has been made under sub-section (3) of section 143
or section 144 or section 153A or section 153C of the Incometax
Act on the basis of search initiated under section 132 or
section 132A of the Income-tax Act, if the amount of disputed
tax exceeds five crore rupees;
(ii) relating to an assessment year in respect of which
prosecution has been instituted on or before the date of filing
of declaration;
(iii) relating to any undisclosed income from a source
located outside India or undisclosed asset located outside
India;
(iv) 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;”
27.1. As per sub-clause (i), provisions of the Vivad se Vishwas Act
would not apply in respect of tax arrear relating to an assessment year in
respect of which an assessment has been made including on the basis of
search and seizure. In so far sub-clause (ii) is concerned, provisions of
the Vivad se Vishwas Act would not apply in respect of tax arrear
relating to an assessment year in respect of which prosecution has been
instituted on or before the date of filing of declaration. Likewise in subclause
(iii), provisions of the said Act would not be applicable in respect
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of tax arrear relating to any undisclosed income from a source located
outside India or undisclosed asset located outside India. Finally, under
sub-clause (iv), the exclusion would be in respect of tax arrear relating to
an assessment or re-assessment made on the basis of information
received under an agreement referred to in section 90 or section 90A of
the Act.
27.2. Therefore, from a careful and conjoint reading of the various subclauses
comprised in section 9(a), we find that the thrust of the said
provision is in respect of tax arrear which appears to be the common
thread running through all the sub-clauses. Extricating clause (ii) from
the above, we find that the exclusion referred to in section 9(a)(ii) is in
respect of tax arrear relating to an assessment year in respect of which
prosecution has been instituted on or before the date of filing of
declaration. Thus, what section 9(a)(ii) postulates is that the provisions
of the Vivad se Vishwas Act would not apply in respect of tax arrear
relating to an assessment year in respect of which prosecution has been
instituted on or before the date of filing of declaration. Therefore, the
prosecution must be in respect of tax arrear relating to an assessment
year. We are of the view that there is no ambiguity in so far the intent of
this provision is concerned and as pointed out by the Supreme Court in
Dilip Kumar and Company (supra), a statute must be construed
according to the intention of the Legislature and that the courts should
act upon the true intention of the Legislature while applying and
interpreting the law. Therefore, what section 9(a)(ii) stipulates is that the
provisions of the Vivad se Vishwas Act shall not apply in the case of a
declarant in whose case a prosecution has been instituted in respect of
tax arrear relating to an assessment year on or before the date of filing of
declaration. The prosecution has to be in respect of tax arrear which
naturally is relatable to an assessment year.
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27.3. If we look at clauses (b) to (e) of section (9), we find that there is
a clear demarcation in section 9 in as much as the exclusions provided
under clause (a) is in respect of tax arrear whereas in clauses (b) to (e),
the thrust is on the person who is either in detention or facing
prosecution under the special enactments mentioned therein. Therefore,
if we read clauses (b) to (e) of section 9, it would be apparent that such
categories of persons would not be eligible to file declaration under the
Vivad se Vishwas Act in view of their exclusion in terms of section 9(b)
to (e).
28. While section 10 empowers respondent No.2 to issue directions or
orders to the income tax authorities from time to time, section 12 is the
rule making provision.
29. In exercise of the powers conferred by sub-section (2) of section
12 read with sub-sections (1) and (5) of section 4 and sub-sections (1)
and (2) of section 5 of the Vivad se Vishwas Act, central government has
made the Direct Tax Vivad se Vishwas Rules, 2020 (already referred to
as the ‘Vivad se Vishwas Rules’). Rule 7 says that order by the designated
authority under sub-section (2) of section 5 in respect of payment of
amount payable by the declarant as per certificate granted under subsection
(1) of section 5 shall be in Form No.5. A perusal of Form No.5
which is appended to the Vivad se Vishwas Rules would show that it is
an order for full and final settlement of tax arrear under section 5(2) read
with section 6 of the Vivad se Vishwas Act. Here also, if we analyze
clause (b) it is seen that immunity is granted to the declarant from
prosecution or from imposition of penalty in respect of the tax arrear.
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29.1. Therefore, if we look at the scheme of the Act and the Rules as a
whole we find that the basic thrust is settlement in respect of tax arrear.
Under section 9 certain categories of assessees are excluded from
availing the benefit of the Vivad se Vishwas Act. While those persons
who are facing prosecution under serious charges or those who are in
detention as mentioned in clauses (b) to (e) are excluded, the exclusion
under clause (a) is in respect of tax arrear which is further circumscribed
by sub-clause (ii) to the extent that if prosecution has been instituted in
respect of tax arrear of the declarant relating to an assessment year on or
before the date of filing of declaration, he would not be entitled to apply
under the Vivad se Vishwas Act. Now tax arrear has a definite
connotation under the Vivad se Vishwas Act in terms of section 2(1)(o)
which has to be read together with sections 2(f) to 2(j).
30. Having noticed the above, we may mention that respondent No.2
had issued Circular No.9 / 2020 dated 22.04.2020 issuing certain
clarifications in respect of the Vivad se Vishwas Act. The clarifications
have been issued in the form of question and answer upto question
No.55. Question No.22 and the answer given thereto is relevant, which
is extracted hereunder:-
“22. In the case of an assessee prosecution has been instituted
and is pending in court. Is assessee eligible for the Vivad se
Vishwas? Further, where the prosecution has not been instituted
but the notice has been issued, whether the assessee is eligible
for Vivad se Vishwas?
Ans: Where only notice for initiation of prosecution has been
issued without prosecution being instituted, the assessee is
eligible to file declaration under Vivad se Vishwas. However,
where the prosecution has been instituted with respect to an
assessment year, the assessee is not eligible to file declaration
for that assessment year under Vivad se Vishwas, unless the
prosecution is compounded before filing the declaration.”
30.1. From the above, what is discernible is that where only notice for
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initiation of prosecution has been issued, assessee would be eligible to
file declaration. However, once prosecution is instituted with respect to
an assessment year, the assessee would not be eligible to file declaration
for that assessment year unless the prosecution is compounded before
filing the declaration.
31. In the circular No.20 / 2020 dated 04.12.2020, respondent No.2
issued further clarifications in respect of Vivad se Vishwas Act. In the
circular dated 22.04.2020, the clarifications were upto question No.55.
In the circular dated 04.12.2020 further clarifications have been given
from question No.56 onwards upto question No.89. Question No.73 and
the answer given thereto has been impugned by the petitioner by
contending that on the basis of such interpretation declaration of the
petitioner is liable to be rejected. Question No.73 and the answer given
thereto are as under:-
“73. In the case of a taxpayer, prosecution has been instituted
for assessment year 2012-13 with respect of an issue which is
not in appeal. Will he be eligible to file declaration for issues
which are in appeal for this assessment year and in respect of
which prosecution has not been launched?
Ans. The ineligibility to file declaration relates to an
assessment year in respect of which prosecution has been
instituted on or before the date of declaration. Since in this
example, for the same assessment year (2012-13) prosecution
has already been instituted, the taxpayer is not eligible to file
declaration for this assessment year even on issues not relating
to prosecution.”
31.1. From the above, it is seen that the answer given to question No.73
is an improvement over the answer given to question No.22. Here it is
asserted that the ineligibility to file declaration relates to an assessment
year in respect of which prosecution has been instituted on or before the
date of declaration. If prosecution has already been instituted for a
particular assessment year, the tax payer would not be eligible to file
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declaration for the said assessment year even on issues not relating to
prosecution.
32. We are afraid such an interpretation given by respondent No.2 in
the answer to question No.73 is not in alignment with the legislative
intent which has got manifested in the form of section 9(a)(ii). The
ineligibility to file declaration is in respect of tax arrear relating to an
assessment year in respect of which prosecution has been instituted.
Therefore, to say that the ineligibility under section 9(a)(ii) relates to an
assessment year and if for that assessment year a prosecution has been
instituted, then the tax payer would not be eligible to file declaration for
the said assessment year even on issues not relating to prosecution
would not only be illogical and irrational but would be in complete
deviation from section 9(a)(ii). Such an interpretation would do violence
to the plain language of the statute and, therefore, cannot be accepted.
We have already discussed in detail section 9(a)(ii) and we have no
hesitation to hold that either on a literal interpretation or by adopting a
purposive interpretation, the only exclusion visualized under the said
provision is pendency of a prosecution in respect of tax arrear relatable
to an assessment year as on the date of filing of declaration and not
pendency of a prosecution in respect of an assessment year on any issue.
The debarment must be in respect of the tax arrear as defined under
section 2(1)(o) of the Vivad se Vishwas Act. To hold that an assessee
would not be eligible to file a declaration because there is a pending
prosecution for the assessment year in question on an issue unrelated to
tax arrear would defeat the very purport and object of the Vivad se
Vishwas Act. Such an interpretation which abridges the scope of
settlement as contemplated under the Vivad se Vishwas Act cannot
therefore be accepted.
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33. In so far the prosecution against the petitioner is concerned, the
same has been initiated under section 276-C(2) of the Act because of the
delayed payment of the balance amount of the self-assessment tax. Such
delayed payment cannot be construed to be a tax arrear within the
meaning of section 2(1)(o) of the Act. Therefore such a prosecution
cannot be said to be in respect of tax arrear. Because such a prosecution
is pending which is relatable to the assessment year 2015-16, it would be
in complete defiance of logic to debar the petitioner from filing a
declaration for settlement of tax arrear for the said assessment year
which is pending in appeal before the Tribunal.
34. Considering the above, the clarification given by respondent No.2
by way of answer to question No.73 vide circular No.21/2020 dated
04.12.2020 is not in consonance with section 9(a)(ii) of the Vivad se
Vishwas Act and, therefore, the same would stand set aside and quashed.
Declaration of the petitioner dated 23.09.2020 would have to be decided
by respondent No.1 in conformity with the provisions of the Vivad se
Vishwas Act dehors the answer given to question No.73 which we have
set aside and quashed.
35. Writ petition is accordingly allowed to the extent indicated above.
However, there shall be no order as to cost.
36. In view of the above order passed in the writ petition, no further
order is called for in Interim Application (L) No.1060 of 2021, which is
accordingly disposed of.
(MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.)
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