Analysis Of The Direct Tax Vivad Se Vishwas Bill, 2020

CA Ashish Chadha has conducted an expert analysis of the The Direct Tax Vivad se Vishwas Bill, 2020 and explained all of its salient features. He has also highlighted potential controversial issues arising out of the scheme which need further deliberation

Conforming the declaration made by the Finance Minister, Smt. Nirmala Sitharaman in the budget speech, the Government has formally presented "The Direct Tax Vivad se Vishwas Bill, 2020" (‘Vivad se Vishwas Scheme’ or ‘the scheme’) on 5 February 2020 before the Parliament.The Vivad se Vishwas Scheme aims to provide resolution of pending direct tax disputes. The provisions of the Vivad se Vishwas Scheme are applicable in cases where appeals have been filed by the taxpayers or the income-tax authority, which are pending before the Commissioner of Income-tax (Appeals) [‘CIT(A)’], Income-tax Appellate Tribunal (‘ITAT’), High Court or Supreme Court as on the 31st day of January 2020, irrespective of whether the demand in such cases is pending or has been paid.

Some of the notable attributes of the Vivad se Vishwas Scheme are as under:

• A declaration shall be filed by the declarant before the designated authority, i.e. an officer not below the rank of Commissioner of Income-tax in the form and manner prescribed.

• The amount payable by the declarant as per the Vivad se Vishwas Scheme pursuant to his declaration and the order passed by the designated authority in this regard shall be as under:

• As per the provisions of the Vivad se Vishwas Scheme, the amount of disputed tax which must be paid by the declarant shall also include the imputed tax on the reduction of loss resulting from the dispute.

• All direct tax appeals pending as on 31st January 2020 (also including appeals in respect of interest and penalty) are eligible for resolution under this Vivad se Vishwas Scheme, subject to certain exceptions prescribed.

• As per the provisions of the Vivad se Vishwas Scheme, the benefit of the scheme shall not be applicable in the following cases:

(a) Tax arrears in relation to an Assessment Year (‘AY’) in respect of which assessment is made under Section 153A or 153C of the Income-tax Act 1961 (‘the Act’);

(b) Tax arrears in relation to an AY for which prosecution has been instituted before filing of declaration;

(c) Tax arrears in relation to undisclosed income from source outside India or undisclosed asset outside India;

(d) Tax arrears in relation to assessment/ reassessment made on basis of information received under agreement referred to in Section 90 or 90A of the Act;

(e) Tax arrears in relation to an appeal pending before CIT(A), wherein a notice for enhancement of income has been issued by the CIT(A) under Section 251 of the Act.

• The taxpayer is required to withdraw the appeal pending before the appellate forum and is required to file a proof of such withdrawal along with the declaration.

• The designated authority shall determine the amount payable by the declarant and grant a certificate to the declarant within 15 days from the date of receipt of declaration. The certificate should contain the nature of tax arrears and the amount payable by the declarant.

• The declarant shall pay the amount determined in the certificate within 15 days of the date of its receipt and shall intimate the details of payment to the designated authority in the prescribed form.

• The designated authority shall, thereafter, pass an order stating that the declarant has paid the amount.

Though the Vivad se Vishwas Scheme will benefit many taxpayers, however, there are certain issues arising out of the scheme which need further deliberation. Such issues are highlighted hereunder:

• Instances where an order has been passed and time period for filing an appeal against the same has not expired–As highlighted above, the benefit under the scheme is available only in cases where appeals filed by the taxpayers or the income-tax authority are pending with the CIT(A), ITAT, High Court or Supreme Court as on 31st January 2020. Cases where assessment has been framed by the assessing officer on or before 31st January 2020, however appeal has not been filed against the same as the time period in this regard is yet to expire, no appeal being pending before an appellate forum as on 31st January 2020, the taxpayer will not be eligible for the benefit of Vivad se Vishwas Scheme. Similarly, if the appeal has been disposed of by the appellate forum on or before 31st January 2020 and no further appeal has yet been filed before the higher appellate forum as time period in this regard is yet to expire, such taxpayer may also not be eligible for the benefit of Vivad se Vishwas Scheme. It may be relevant to mention here that time limit for filing an appeal before the CIT(A) is within 30 days, before ITAT is within 60 days, before High Court is within 120 days and before Supreme Court is within 90 days. Considering such time frames, it is not necessary that the taxpayers would have filed an appeal before the relevant forums on or before 31st January 2020. Not extending the benefit of the scheme to such cases would be unreasonable and prejudicial. Further, in cases where the delay in filing an appeal is attributable to the revenue authorities on account of non-serving of order, the taxpayers would have to suffer.It would have been prudent if the benefit of the scheme would have been extended to all the assessments framed on or before 31st January 2020, whether or not appeal in relation to the same have been filed.

• Instances where objections have been filed before Dispute Resolution Panel (‘DRP’)–In cases where objections have been filed by a taxpayer before the DRP against the draft assessment order passed in accordance with the provision of Section 144C of the Act and the same are pending for disposal, the taxpayer will not be eligible for the benefit of the Vivad se Vishwas Scheme. This is because DRP has not been specifically covered under the provisions of the scheme and also considering the fact that objections filed before DRP are not considered as an appeal. The Government should ideally have considered such cases as well which are pending before the DRP to be eligible for the benefit under the Vivad se Vishwas Scheme.

• Benefit of scheme not available in cases where notice of enhancement has been issued by the CIT(A) under Section 251 of the Act on or before 31st January 2020–As per the provisions of Section 251 of the Act, while disposing off a pending appeal, the CIT(A) has the power to enhance the assessment after providing reasonable opportunity to the taxpayer by show-causing the taxpayer against such enhancement. Cases where such notice of enhancement has been issued by the CIT(A) on or before 31st January 2020 are not eligible for claiming the benefit under this scheme. The idea in excluding such matters may be that as the tax demand has not been ascertained yet and the taxpayer might escape by paying an amount which may bemuch less than the tax demand that would have arisen pursuant to the completion of enhancement proceedings. Ideally, an option should have been given to such taxpayers as well to claim the benefit of the Vivad se VishwasScheme, by computing the tax demand after taking into consideration the income proposed to be enhanced by the CIT(A) in the notice of enhancement issued as per the provisions of Section 251.

• Time gap of 15 days between the date of receipt of declaration and issuing of certificate by the designated authority ascertaining the amount payable – As per the provisions of the Vivad se Vishwas Scheme, a declarant is required to pay the amount of disputed tax if the payment is made on or before 31st March 2020 and in case the payment is made on or after 1st April 2020, the declarant shall pay additional 10% of the disputed tax (restricted to the aggregate amount of disputed interest and penalty on such tax, if such aggregate is less than 10% of disputed tax). In case of tax arrears in relation to disputed interest/ penalty/ fee, the declarant is required to pay 25% of such disputed interest/ penalty/ fee if the payment is made on or before 31st March 2020 and in case the payment is made on or after 1st April 2020, the declarant shall pay 30% of the disputed interest/ penalty/ fee. It may be noted that the benefit of reduced payment is not available on the basis of the date of filing the declaration but is based on the date on which the payment is made. As per the provisions of this scheme, the designated authority is required to provide a certificate to the declarant within 15 days of receipt of its declaration and the declarant is thereafter required to make the payment within 15 days of receipt of such certificate. Accordingly, in cases where declaration is filed in the month of March itself, the certificate determining the tax payable may not be granted to the declarant before 31st March 2020, and in view of this the declarant might have to pay additional amount if the payment is made on or after 1st April 2020.Thus, it would have been judicious if the last date for filing the declaration would have either been restricted to 15th March 2020 or if the benefit of this scheme would have been linked to the date of filing of the declaration (subject to grant of certificate) and not the date of payment.

• Instances where claiming benefit under this scheme would result in grant of refund to the declarant -There may be instances where the declarant would have already made a payment of disputed tax along with interest and penalty thereon. In such cases, on availing the benefit under this scheme the declarant shall be required to pay only the disputed tax (assuming that the payment is made on or before 31st March 2020). Accordingly, while computing the amount payable under the Vivad se Vishwas Scheme, there will be a refund as the amount already paid in such cases will be more than the amount payable as per this scheme. The provisions of the scheme nowhere provide any clarity whether the declarant will be entitled to the refund in such cases or not. It is pertinent to highlight that the scheme specifically provides that the amount paid in pursuance of a declaration shall not be refundable under any circumstances. Thus, the restriction of no refund being granted is in respect of cases where the amount has been paid in pursuance of a declaration made under the scheme. Where the amount has already been paid before filing the declaration, the declarant should ideally be entitled to the refund of excess amount paid.