CA Nidhi Surana has pointed out that as a Covid-19 relief measure, the Government has granted an extension in the due dates and also directed issue of pending refunds to assessees. However, it has maintained a studied silence on the issue of stay of demand. She has argued that if the Department is permitted to exercise coercive measures to recover demands, businesses will collapse and there will be an economic calamity. She has pleaded that the CBDT should issue immediate instructions and stay recovery of outstanding demands
It is an undisputed fact that India Economically has entered unchartered waters.
We are clearly in unprecedented times. Running a business in such times is filled with challenges and hurdles on day-to-day basis. The basic of business management and economics revolves around the five parameters namely; – Manpower, Material, Money, Machinery and Method.
Due to Covid-19 the business world is in the midst of innumerable challenges including payment of tax liabilities. Though the sources of revenues have dried up in many industries yet expenses such as rent, wages, salaries, power bills etc. required to be paid.
► The shortage of manpower looming large because wageworkers are migrating back to their natives even arrangement of routine staff would be a problem. The Industries, which utilize large number of manpower, is left handicapped. Since most of the SMEs do not have technological infrastructure to work from home the desired work ethics in the given circumstances has taken a back seat.
► The thrice-extended lockdown has lead to a Supply chain Challenge, those in production do not have raw material to produce. The ready finished good barring the essential goods are gathering dust in their Storage Facilities since sales thereof has been prohibited for the time being.
► Money Crunch is seen all over the Nation. The first and second quarter is undisputedly in red. And third quarter will be spent trying to salvage the economic and financial stress generated by the first two quarters.
► The year of 2020, ought to be of prosperity and expansion, we were supposed to grow leaps and bounds, bring in high-tech equipment to enhance the productivity of our industry and pushing up the exports further. In absence of their best utilization this year the investment in the new machinery may not yield desired result and there is every fear that it may ultimately go in drain. Machinery invested in lying idle, unutilized, underutilized and unusable. Constant commercial production needs to start to help with the depreciation to be charged on the said machinery.
► The constant Crisis management has led to the focus shifting from how to grow to how to survive. Mid-Cap Company Promoters and Industrialist are constantly putting out fires. There will be no new innovations seen industry wide unless it is related to Health sector.
Several industries revenue income have gone for a toss such as aviation, hospitality, retail, real estate, auto, have been facing an unprecedented resource crunch.
Now the most critical predicament in such scenario, is the challenge for Taxpayers to meet Income Tax Department’s demands on payment of tax dues.
Obtaining stay of demand from Revenue authorities at a time when the government needs funds to support its machinery as well as to give stimulus packages to boost the economy is a pertinent issue. However a stay of demand is also imperatively needed, to survive in such unprecedent times. Or business will start collapsing, for economic survival a leniency is needed and expected from Income Tax Department.
The courts and judicial authorities have to consider the gravitas of the situation and consider the matters with regard to stay of demand coming before the courts with utmost earnestness.
The first judicial court able to recognize the gravity of the dire situations we are in due to Covid-19, was Hon’ble Allahabad High Court (‘HC’) who by passing an order on 18th March 2020 (Writ-C No. – 7014 of 2020) primarily for adjourning the hearings post 6 April 2020, and then later on directing to the adjudicating authorities to NOT MAKE ANY ADVERSE ORDER TILL DEFINITE TIME PERIOD.
Hon’ble Kerala HC W.P(C). No. 8231 of 2020 (Ker.) followed suit with a similar order dated 19 March 2020.
Unfortunately, Revenue was still fighting such pragmatic steps taken by the Above Judicial Courts and a petition was filed with the Hon’ble Supreme Court (‘SC’) against both the decisions. However the apex court on 20 March 2020, granted ad-interim stay SLP (CIVIL) Diary No(s). 10669/2020 on the both orders by Kerala HC as well as Allahabad HC.
The Apex court commented that “In the meantime, there shall be ex-parte ad interim stay of the impugned judgment and order(s) passed in the aforesaid writ petitions and of further proceedings before the High Court(s), in view of the stand taken by the Government of India through learned Solicitor General, before us, that the Government is fully conscious of the prevailing situation and would itself evolve a proper mechanism to assuage concerns and hardships of every one”
► Subsequently, on 24 March 2020, the Hon’ble Finance Minister announced several relief measures relating to statutory and regulatory compliance matters. Among other announcements, for income tax, the Finance Minister announced
1. Extension for furnishing tax returns for tax year 2019-20 – From 31 July 2020/31 October 2020 –> 30 November 2020
2. Extension for furnishing tax audit report for tax year 2019-20 – From 30 September 2020 –> 31 October 2020
3. Extension for benefit of settlement under the Direct Tax Vivad se Vishwas Act 2020 (VSV Act) without payment of additional tax – From 30 June 2020 –> 31 December 2020 – No requirement for payment of additional 10% of the tax amount.
4. Extension for period of limitation for completion of assessments:
Getting time barred
30 September 2020 (i.e., for tax year
31 December 2020
on 31 March 2021
30 September 2021.
5. Grant of immediate refunds of all pending refunds One can notice that all these extensions though bring some relief by giving more time to the Taxpayers, however the government as well as the department has conveniently been silent on the issue of stay of demand. In the western region of the country, the Mumbai ITAT in the case of Pandhes Infracon (P.) Ltd.  116 taxmann.com 376 (Mumbai – Trib.), where an assesse, a builder had paid entire tax liability, in view of Covid-19 pandemic, a stay on collection/recovery of outstanding demands relating to interest and penalty was granted, subject to fulfillment of prescribed conditions.
On 8 May 2020, Central Board of Direct Taxes has issued direction – ‘It is to be highlighted here that no communication with the assesses having adverse effect on him/her is to be done during his period till fresh guidelines in this regard are issued by the board‘ vide interim action plan for the first quarter of financial year 2020-21.
There is a concept called “force majeure”, a French term which literally means "greater force." It is related to the concept of an act of God, an event for which no party can be held accountable.
The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled. It is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.’
While force majeure has neither been defined nor specifically dealt with in Indian Income Tax. The courts in India have held that the word ‘impossibility’ used in Section 56 of the Contract Act must be interpreted in a practical form and not in its literal sense. The situation of Covid-19 specifically befalls under this phrase.
Thus, a contract would come under the purview of Section 56 of the Contract Act even if it is not an absolute impossibility, but the contract has fundamentally changed, which the parties had not contemplated at the time of the agreement.
This principal has been upheld in Satyabrata Ghose versus Mugneeram Bangur & Co Anr (AIR 1954 SC 44)
Tax dues in a broader sense are nothing but contractual obligation, towards the government where the tax payers is solemnly asked to pay taxes on all the income so earned by the said tax payer.
Thus, an incapability to pay it tax dues, due to the current Covid-19 Fiasco brings the concept of “force majeure” into play. Thus a moratorium where the department halts for the time being any rash recoveries as well giving any adverse view for litigated issues along with a lenient approach while providing stay of demand seems rationale and humane.
Covid-19 Pandemic cannot be eradicated or stopped by wave of a wand.
Controlled and systematic attempts have to be taken to lessen the scope of effect it is playing on the economic situation of the country. The numbers are not lying, a constant increase in the number of cases compared to the earlier month means there will be economic effects on multiple businesses. The financial state of the industry at large is quite dire. In these times one expects the Tax department to not only be pragmatic but also be empathetic towards the flight of the taxpayers, for whom sustaining in such environment has become a constant fight.
And in order to see to it that business don’t collapse and continue to Survive, the tax officers consider lenient approach in respect of recovery and stay of demands as well especially with regard to taxpayers belonging to sectors badly hit by the lockdown. If business survives, they will eventually pay their dues, bankruptcy of business will not help either the revenue or a tax payer. A moratorium period is need of the hour -where unless until there is voluntary payment of tax dues.
Harsh recoveries have to be halted as well as stay of demand on tax dues have to be issued till the Covid-19 Situation is under control.
Therefore in there are compelling circumstances under which it is imperative for the CBDT to issue appropriate instructions for recovery of arrear demand with human face.
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