Advocate Neelam Jadhav has conducted a meticulous comparison of the Direct Tax Vivad se Vishwas Scheme 2020 with the Kar Vivad Samadhan Scheme 1998 and explained the similarities and differences between the two. She has also prepared a compilation of all the important judgements which may answer questions and controversies arising under the new scheme
“Vivad Se Vishwas” Scheme – To implement the scheme in a proper perspective require holistic approach by tax administration.
The “Vivad Se Vishwas” scheme was announced by our honourable Union Finance Minister Mrs Nirmala Sitharaman during her budget speech on February 1, 2020. (2020) 420 ITR 115 (St.)(146). This scheme is brought in to reduce litigation in direct taxes. Vivad se Vishwas is a scheme, under which taxpayers whose tax demands are locked in dispute in multiple forums, can pay due to taxes by March 31, 2020, and get a complete waiver of interest and penalty. The “Vivad se Vishwas” scheme is similar to the ‘Indirect Tax, “Sabka Vishwas” scheme, which was introduced in July 2019 during Budget, 2019.
In the year 1998, the Finance Minister in the Finance Bill (No.2) has introduced a Scheme called “KAR VIVAD SAMADHAN” for settling tax arrears, locked litigations. This scheme provided that any Tax arrears under Direct Tax or Indirect Tax can be settled by declaring and paying the prescribed amount in respect of tax arrears, and also offers immunity from the penalty and prosecutions. Whereas in the in the year, 2016 another new scheme was introduced by the Finance Minister in the Finance Bill (No.18), 2016 called “Direct Tax Dispute Resolution Scheme, 2016” to reduce the huge backlog of cases pending before the first appellate authority i.e. Commissioner of Tax Appeals in Direct tax, by paying the disputed tax and interest up to the Assessment and settled the cases.
Government has taken several measures to reduce tax litigations, in last year budget, Sabka Vishwas scheme was brought in to reduce litigation in indirect taxes and it resulted in settling over 1,89,000 cases. Under direct taxes large number of appeals are pending before various appellate forums i.e. Commissioner (Appeals), ITAT, High Court and Supreme Court , hence the scheme namely “Vivad se Vishwas” is introduced for reduction of litigations . The scheme is also called as “No Disputes but Trust Scheme.”
To better understanding of the scheme following comparative chart and various case laws on the “KAR VIVAD SAMADHAN” may be relevant to interpret the provisions of the “Vivad se Vishwas” scheme ,which are referred herein in below:
KVSS, 1998 (Finance (No 2 of 1998 (Chapter IV [Ss. 86 to 98 ]
S. 89: Commencement – On 1-9-1998 and shall remain effective till 31-12-1998.
Finance Bill (No.2)(1998) 231 ITR 84(St)(136) (Chapter IV)
Memorandum Explaining the provisions in the Finance Bill (No.2) (1998) 231 ITR 228(St.)(262)
Notes on clauses (1998) 231 ITR 175 (St) (218)
Speech of Finance Minster when moving the Finance (No.2) Bill 1998 15-07-1998 (1998) 232 ITR 8 (St)
Speech of Finance Minister When moving the Finance (No.2) 1998 dtd.17-07-1998 (1998) 232 ITR 11 (St)(14)
Finance (No.2) Act,1998 (President Assent on 01-08 -1998 (1998) 232 ITR 31 (St)(79)
Circular No.772 dtd.13-12-1998 -Explanatory notes on provision relating to Direct taxes. (1999) 235 ITR 35 (St)
DTDRS, 2016, Finance Act, 2016 [Chapter X [Ss. 200 to 211]
S.200: Commencement – On 01-06-2016, the declaration can be made on or before 31stday of December,2016
Finance Bill (No.18)(2016) 381 ITR 51 (St)(134) (Chapter IX)
Memorandum Explaining the provisions in the Finance Bill (No.18) (2016) 381 ITR 241 (St.)(281)
Notes on clauses (2016) 281 ITR 169 (St) (381)
Speech of Finance Minster when moving the Finance (No.18) Bill 201629/02/2016 (2016) 381 ITR 9 (St) 35
Finance Act, 2016 (Act No.28 of 2016 (Assent of the President on 14-05-2016)(2016) 384 ITR 1 (St)(87)
Circular No. 16 of 2016 dtd.20/05/2016 -Explanatory notes on provision of the Income declaration Scheme, 2016 as provide in Chapter IX of the Finance Act,2016 (2016) 384 ITR 144 (St.)
DTVSV, 2020, Finance Bill, 2020 (2020) 420 ITR 146 (St) Para 126. No dispute but Trust Scheme – “Vivad Se Vishwas” Scheme
[Ss.1 to 12]
87(a). “Declarant” means a person making a declaration under section 88.
S. 201: Definitions
201(a). “Declarant” means a person making declaration under section 202.
S.2 : Definitions
2(1)(a). ‘appellant’ means the person or the income-tax authority or both who has filed appeal before the appellate forum and such appeal is pending on the specified date;
87(f). “Disputed tax” means total tax determined and payable, in respect of assessment year under any direct tax enactment but which remains unpaid as on the date of making declaration under section 88.
87(g). “Disputed wealth” in relation to an assessment year, means the whole or so much of the net wealth as is relatable to the disputed tax;
87(h). “Direct tax enactment” means the Wealth-tax Act, 1957 (27 of 1957), or the Gift-tax Act, 1958 (18 of 1958), or the Income-tax Act, 1961 (43 of 1961), or the Interest-tax Act, 1974 (45 of 1974) or the Expenditure-tax Act, 1987 (35 of 1986).
201(d). “Disputed tax” means the tax determined under the Income-tax Act, or the Wealth-tax Act, which is disputed by the assessee or the declarant, as the case may be;
201(e). “Disputed wealth” in relation to an assessment year, means the whole or so much of the net wealth as is relatable to the disputed tax.
201(f). “Income-tax Act” means the Income –tax Act, 1961 (43 of 1961).
201(g) “Specified tax” means a tax – (i) the determination of which is in consequence of or validated by any amendment made to the Income-tax Act or 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
2(1)(f)."Disputed fee" means the fee determined under the provisions of the Income-tax Act, 1961 in respect of which appeal has been filed by the appellant;
2(1)(g) "Disputed income", in relation to an assessment year, means the whole or so much of the total income as is relatable to the disputed tax.
2(1)(h) "Disputed interest" means the interest determined in any case under theprovisions of the Income-tax Act, 1961, where—
2(1)(i)."Disputed penalty" means the penalty determined in any case under theprovisions of the Income-tax Act, 1961.
2(1)(j)(i)."Disputed tax", means – tax determined under the Income-tax Act, 1961 in accordance with the formula—
2(1)(l). “last date” means such date as may be notified by the Central Government in the Official gazette.
87(j) Deals with the “indirect tax enactment”
Separate Chapter for Indirect enactment.
87(m). “Tax arrears” means in relation to direct tax enactment, amount of tax, penalty or interest determined on or before 03/03/1998, under that enactment in respect of an assessment year modified in consequence of giving effect to an appellate order but remaining unpaid on the date of declaration.
87(h). “Direct tax enactment” means the Wealth Tax Act, 1957 (27 of 1957)
87(n). Undefined terms expression of Direct tax enactments will apply.
87(m). “Tax arrear” means-
201(h). “Tax arrear” means, the amount of tax, interest or penalty determined under the Income-tax Act or the Wealth-tax Act, in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals) as on the 29th day of February, 2016;
201(i): “Wealth-tax Act” means the Wealth-tax Act, 1957 (27 of 1957)
201(2): All other words and expressions which are not defined the provisions of the Income –tax Act, or the Wealth-tax Act will apply.
2(1)(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
88. Settlement of tax payable.
88(a) : Where tax arrear is payable under the Income-tax Act,1961 (43 of 1961) –
202. Declaration of tax payable.
202(i). In case of pending appeal related to tax arrear being
3. Declaration of Amount Payable with the provisions of S..4 in respect of tax arrears.
(i) In the case of a declarant being a company or firm at the rate of 35% of disputed income;
(ii) In the case of a declarant being a person other than the company or firm at the rate of 30% of disputed income.;
(iii) In case tax arrear includes the income-tax, interest payable or penalty levied at the rate of 35% of disputed income for the persons referred to in clause (i) or thirty per cent of the disputed income for the persons referred to in clause (ii); .
(iv) in case tax arrears comprises only interest payable or penalty levied, at the rate of fifty per cent of the tax arrear;.
(v) Where tax arrear includes tax interest or penalty determined on the basis of search and seizure u/ss. 132 & 132A, for company or firm at the rate of 45% of disputed income. Other than company or firm then at the rate of 40%,
Tax arrears include wealth tax, interest or penalty then at the rate of 1% of disputed wealth.
In case tax arrears includes only interest payable, or penalty levied then at the rate of 50% of tax arrears.
(a) Tax and interest –
(ii) in any other case, the whole of the disputed tax, twenty-five per cent of the minimum penalty leviable and the interest on disputed tax till the date of assessment or reassessment, as the case may be;
89: Particulars to be furnished in declaration: In Form and shall be verified in such a manner as may be prescribed.
203. Particulars to be furnished: Declaration is in respect of tax arrears, consequent to such declaration, appeal in respect of the disputed income, disputed wealth and tax arrears pending before the Commissioner of Income-tax (Appeals) or the Commissioner of Wealth-tax (Appeals), as the case may be, shall be deemed to have been withdrawn.
4(1).The declaration referred to in s. 3 shall be filed by the declarant before thedesignated authority in such form and verified in such manner as may be prescribed.
4(2).Upon the filing the declaration, any appeal pending before the Income Tax AppellateTribunal or Commissioner (Appeals), in respect of the disputed income or disputed interestor disputed penalty or disputed fee and tax arrear shall be deemed to have been withdrawnfrom the date on which certificate under sub-section (1) of section 5 is issued by the designated Authority.
4(3). Declarant has filed any appeal before the appellate forum or any writ petition before the High Court or the Supreme Court against any order in respect of tax arrear, he shall withdraw such appeal or writ petition with the leave of the Court and furnish proof of such withdrawal along with the declaration referred to in sub-section (1).
4(4).Declarant has initiated any proceeding for arbitration, conciliation or mediation, or has given any notice thereof under any law for the time being in force or underany agreement entered into by India with any other country or territory outside India whetherfor protection of investment or otherwise, he shall withdraw the claim, if any, in suchproceedings or notice prior to making the declaration and furnish proof thereof alongwiththe declaration referred to in sub-section (1)
4(7)No appellate forum or arbitrator, conciliator or mediator shall proceed to decide anyissue relating to the tax arrear mentioned.
90: Time and manner of payment of tax arrears:
204 : Time and manner of payment.-
5. Time and manner of payment
5(2) the declarant shall pay within 15 day of the receipts of the certificate and intimate the details of such payments to the designated authority in the prescribed form.
5(3).Every order passed under sub-section (1), determining the amount payable under this Act, shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceeding under the Income-tax Act or under any other law for the time being in force or under any agreement, whether for protection of investmentor otherwise, entered into by India with any other country or territory outside India.
91: Immunity from prosecution and imposition of penalty in certain cases: grant immunity from instituting prosecution for any offence under any direct tax enactment, or indirect tax enactments, or from the imposition of penalty under any of such enactment, in respect of matters covered in the declaration u/s. 88.
205: Immunity from initiation of proceedings in respect of offence and imposition of penalty in certain cases:
6. Immunity from the initiation of proceedings in respect of offence and imposition of penalty in certain cases:
92 : Appellate Authority not to proceed in certain cases:
93. No refund of amount paid under the Scheme.
203(6): 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 had been made under sub-section (1) of section 204 by the designated authority or the payment of the sum determined under that section.
206. No refund of amount paid under Scheme.
7:No Refund of Amount paid
94. Removal of doubts.
207. No other benefit, concession or immunity to declarant.
8. No benefit, concession or immunity to declarant.
95 : Scheme not to apply in certain cases : tax arrear under any direct tax enactment, where prosecution for concealment has been instituted on or before the date of filing of the declaration under section 91 under any direct tax enactment in respect of any assessment year, to any tax arrear in respect of such assessment year under such direct tax enactment, where an order has been passed by the Settlement Commission under any direct tax enactment for any assessment year, to any tax arrear in respect of such assessment year under such direct tax enactment;, no appeal or reference or writ petition is pendingbefore any appellate authority or High Court or the Supreme Court or no application for revision is pending before the Commissioner;
(iii) To any person in respect of whom prosecution for any offence punishable under Chapter IX or Chapter XVII of the Indian Penal Code (45 of 1960), The Foreign Exchange Regulation Act, 1973 (46 of 1973), the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985), , the Terrorists and Disruptive Activities (Prevention) Act, 1987 (28 of 1987) the Prevention of Corruption Act, 1988 (49 of 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 beenconvicted of any such offence punishable under any such enactment;
208 : Scheme not to apply in certain cases : tax arrear or specified tax, relating to an assessment year in respect of which an assessment has been made under section 153A or 153C, assessment or reassessment for any of the assessment years, in consequence of search initiated u/s. 37A, requisition made under section 37B, prosecution has been instituted on or before the date of filing of declaration under section 202, any undisclosed income from a source located outside India or undisclosed asset located outside India, 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;
(b) Detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974),
9. Act Not applies to certain cases.
(a)(ii): In respect of which prosecution has
(a)(iv) : relating to an assessment or reassessment made on the basis ofinformation received under an agreement referred to in s. 90 or s. 90Aof the Income-tax Act, if it relates to any tax arrear.
(a)(v) : relating to an appeal before the Commissioner (Appeals) in respect ofwhich notice of enhancement u/s.251 of the Income-tax Act has beenissued on or before the specified date.
(b): to any person in respect of whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 on or before the filing of declaration.
(c ) : to any person in respect of whom prosecution for any offence punishableunder the provisions of the Indian Penal Code, the Unlawful Activities (Prevention)Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Preventionof Corruption Act, 1988, the Prevention of Money Laundering Act, 2002, the Prohibitionof Benami Property Transactions Act, 1988 or for the purpose of enforcement of anycivil liability has been instituted on or before the filing of the declaration or suchperson has been convicted of any such offence punishable under any of those Acts;
96. Power of Central Government to issue directions etc.
209. Power of Central Government to issue directions etc.
10(1) : Power of the Central Board Direct Taxes to issue directions :
97. Power to remove difficulties.
210. Power to remove difficulties.
11. Power to remove difficulties.
98. Power to make rules.
211. Power to make rules.
12. Power to make rules.
Kar VivadSamadhan Scheme – Finance Act, 1988 -Case laws .
Kar VivadSamadhan Scheme 1998 – Finance (No. 2) Act, 1998 – Discrimination – Article 14 of Constitution of India- Constitutional validity is up held – Scheme is held applicable to department appeals.
High court up held the constitutional validity of the Kar VivadSamadhan Scheme 1998, however directed that even in respect of departmental appeals be also be covered under the Scheme . Govt has accepted the judgement of the Delhi High Court ( 1998) 234 ITR 62 (St) (Note “Vivad Se Vishwas” Scheme covers departmental appeals .)
All India Federation of tax Practioners v .UOI (1999) 236 ITR 1 ( Delhi ) (HC)
Kar Vivad Samadhan Scheme 1998 – Finance (No. 2) Act, 1998 – Discrimination – Article 14 of Constitution of India.
S. 87(m), (ii)(b), which denies benefit of Kar VivadSamadhan Scheme to those who were in arrears of tax as on 31-3-1998 but to whom demand notices /show cause notices were issued after 31-3-1998 is based on a reasonable basis which is firstly amount to duties, cess, interest, fine or penalty must have been determined as on 31-3-1998 but not paid as on that date of declaration and secondly date of issuance of demand or show cause notice on or before 31-3-1998, which is not disputed but duties remain unpaid on date of filing of declaration. Therefore scheme 1998 does not violate equal protection clause where there is an essential difference and real basis for classification which is made.
UOI v. Nitdip Textile Processors (P) Ltd. (2011) 203 Taxman 1 / 245 CTR 241 / 63 DTR 145 (SC)
Discrimination – Validity of provision – Provision denying benefit to persons who had acquired income or property illegally or were under prosecution – Denial of benefit had nexus with the objective of Scheme – Classification is not violative of Article 14 – S. 95 valid.
While Article 14 of the Constitution forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. However, in order to pass the test of permissible classification two conditions must be fulfilled, namely:
(i) the classification must be founded on an intelligent differentia which distinguishes persons or things that are grouped together from others left out of the group, and (ii) the differentia must have a rational relation to the object sought to be achieved by the statute in question.
The benefit of the Scheme was to all those whose income/property were acquired through legally permissible process but not disclosed. However, the benefit of the Scheme was not extended to persons who had acquired income/property by illicit means and if the income/property was a subject of prosecution as listed out in section 95(iii) of the Finance (No. 2) Act, 1998. There is a policy underlying the exclusion u/s. 95(iii) of the Act. The classification made by Parliament has a nexus to the objective of the Act. This has nexus to the object of the Scheme to settle disputes with regard to those who are honest. Section 95 of the Act is valid.
Amit Hemendra Jhaveri v. UOI (2015) 281 CTR 245 / 64 taxmann.com 28 (2016) 380 ITR 60 (Bom.)(HC)
S.86 (m): Tax arrears – Computation of tax arrears – Advance tax paid prior to application – Cannot be adjusted while determining balance.
Once the statute clarified that amounts paid towards tax were not to be deemed "unpaid" for any reason, the normal provisions which had applied, when they did during the course of assessment, could not have been reversed or given a go by, as sought by the assessees. Doing so would be contrary to law. The assessees’ grievance was limited to the scheme for reduction of the demand for finalisation of its request for settlement under the Kar VivadSamadhan Scheme, 1998. The normal operation of law was predicated upon treatment of amounts paid and their appropriation as required by the provisions of the Act. In the assessees’ cases, the demands had been made much after the advance tax payments were due. Furthermore, the amounts were to be adjusted towards the outstanding arrears for the previous years. Therefore, the assessees were not correct in contending that the amounts of advance tax paid had to be necessarily adjusted while determining the balance.
Inter Craft Ltd v. CIT (2017) 390 ITR 409 /147 DTR 95 /295 CTR 360 (Delhi) (HC)
Old Village Industries Ltd. v. CIT (2017) 390 ITR 409 /147 DTR 95/295 CTR 360 (Delhi) (HC)
S.87 : Kar VivadSamadhan Scheme – Condition Precedent – Tax Arrears – Rectification of Order – Not communicated to the Assessee – Vitiates order of rectification
When the declaration was filed there was tax arrears, however, subsequently due to rectification order there was no tax arrears. Benefit of scheme cannot be denied. Relevant date is date of declaration. Order passed suffered from malice in law.
CIT v. Shaily Engineering Plastic Ltd. (2002) 258 ITR 437 / 179 CTR 14 / (2003) 126 Taxman 177 / 179 CTR 14 (SC)
S. 87 : Kar VivadSamadhan Scheme – Excise Duty – Penalty .
Declarations were filed by the company and also by the officers but tax already paid independently by directors against due from them. The Court held that settlement of company meant settlement of officers. Since directors having paid tax independently and nothing due from them, they have not to be allowed refund of tax paid.
UOI v. Onkar S. Kunwar & Others (2003) 174 Taxation 213 / (2002) 258 ITR 761 / 125 Taxman 121 / 177 CTR 281 (SC)
S. 87 : Kar VivadSamadan Scheme – Declaration – Reassessment – Immunity
Upon declaration being made tax arrears being determined, paid and certificate issued under KVSS, there is no jurisdiction for the Assessing Officer to reopen the assessment by a notice under section 148 except where case falls under the proviso (2) of sub-section (1) of section 90 of the scheme and it is found that any particular material furnished in the declaration is found to be false.
Killick Nixon Ltd. v. Dy. CIT (2002) 258 ITR 627 / 125 Taxman 1055 / (2003) 172 Taxation 373 / 178 CTR 387 (SC)
S. 87 : Kar VivadSamadan Scheme – Tax Arrears – Pendency of Appeal .
The determination of the “tax arrears” under section 87(m) of the Finance Act (No. 2) Act, 1998 for Kar VivadSamadhan Scheme is that which was modified and not the modification itself. There is no requirement under section 87(m)(i) for the modification to have been completed on or before March 31, 1998. Designated Authority had no power to question the possible outcome of appeal. No power to hold that appeal etc. is sham, ineffective or infructuous. Supreme Court directed the designated authority to consider the application.
Renuka Datla (Dr.) (Mrs.) and Others v. CIT (2003) 259 ITR 258 / 173 Taxation 51 / 179 CTR 218 / 126 Taxman 427 (SC) / AIR 2003 SC 839
S.87 : Arrears of tax – Scope of expression – Additional tax imposed is not a tax but a penalty – Revenue prohibited from adding the element of additional tax for purposes of Scheme.
The assessee, for the assessment years 1994-95 and 1995-96, submitted a declaration under the Kar VivadSamadhan Scheme, 1998, promulgated by the Finance (No. 2) Act, 1998. The Assessing Officer added additional tax levied under section 143(1)(a) of the Act to the declaration made by the assessee. On a Writ Petition, the single judge held that additional tax was also part of the tax as payable and imposed under section 147 and, therefore, no error had been committed by the Revenue in adding the additional tax while assessing the income of the assessee for the assessment years 1994-95 and 1995-96 under the 1998 Scheme. On appeal, held, the imposition of additional tax in the facts and circumstances of the case as done was not permissible. The additional tax levied under the 1998 Scheme was to be deleted and the matter was remanded to the Assessing Officer for proceeding to assess the matter afresh. ( CIT v. Hindustan Electro Graphites Ltd.  243 ITR 48 (SC) followed. Decision of the single judge in H.L. Taneja v. CIT  300 ITR 384 (MP) reversed.)
Namrita Choudhary (Mrs.) v. CIT (2015) 372 ITR 418 / 128 DTR 6 (MP)(HC)
S. 87 : Tax arrears – Disputed tax – Amount of tax was payable at 30% and not 50% – Petition was allowed.
The Writ Petition involves the interpretation of some of the provisions of KVSS, 1998. The Petitioner was an individual assesee working in construction for Indian Railways. He submitted IT return declaring certain income which AO made certain addition. On appeal before CIT (A), the taxable income was marginally reduced .Aggrieved by the relief; the Petitioner approached the ITAT by filing a further appeal. The scheme came into operation when the appeal was pending before ITAT. Therefore the Petitioner submitted an application in prescribed form claiming benefit thereunder. The contention of the Petitioner in writ Petition was that though an application was filed in the prescribed form and the stipulated amount was paid, the 1st Respondent passed the impugned order, contrary to the provisions of the scheme. Revenues’ contention was that Petitioner was under an obligation to pay the amount at 50% of the arrears of tax, under Cl.(a)(iv) of S.88 of the Finance Act 1998. It was further stated that when doubt arose in this behalf, clarification was given, and the impugned order was passed in accordance with the same. The HC allowed the Writ Petition and held that that once the case falls under cla(a)(iii) of S.88 , the amount is payable at 30% of the disputed income. To determine this, one has to fall back upon the disputed tax, which in the instinct case is Rs 1,05,977. If this figure is multiplied by 100/40, the figure representing the disputed income would emerge, being Rs. 2,64,940. Assesee rightly deposited 30% thereof at Rs . 79,483. CIT(A) was not justified in holding that the assessee was liable to pay 50% of all the three components of tax, interest and penalty. (AY.1996-97)
R. Damodar Reddy v. CIT (2015) 273 CTR 99 (AP)(HC)
S. 87 : Tax arrears – Disputed tax – unpaid tax on date of filling and not on already paid tax.
In terms of s.87(e) and (f) of Samadhan Scheme, 1998 disputed income has to be arrived at on basis of tax unpaid on date of filing declaration under Samadhan Scheme and not on basis of taxes already paid by assessee.
Nimesh Indravadan Shah vs. H.C. Parekh (2018) 93 taxmann.com 186 (Bom)(HC)
S. 87 : Kar Vivad Samadhan Scheme – amount paid as per S.88(a)(iii), not liable to 50% for all 3 components.
Amount paid in accordance with s. 88(a)(iii), competent authority was not justified in holding that petitioner was liable to pay 50 per cent of all three components of tax, interest and penalty. (r.w.s. 88)
R. Damodar Reddy vs. CIT (2015) 273 CTR 99 (AP)(MAG)(HC)
S. 88. Settlement of tax payable
S. 88 : Kar Vivad Samadhan Scheme – Time limit for payment – Relaxation
Time limit for payment of amount payable under KVSS under section 88 of the Finance (No.2) Act, 1998 cannot be relaxed.
Mangilal S. Jain v. CIT (2004) 267 ITR 693 / 136 Taxman 267 / 187 CTR 315 (Karn.)(HC)
S. 88 : Pendency of proceedings-Revision petition – Designated authority – Pending – No power to reject the application if the conditions are satisfied.
The assessees filed declarations in terms of the Kar VivadSamadhan Scheme introduced by the Finance (No. 2) Act, 1998, before the due date as prescribed under the Scheme, as the application under section 264 was pending. CIT rejected the application stating that the subject matter of the relief sought for was not within the scope of the revisionary jurisdiction under section 264. On writ the Court held that designated authority is required to consider is whether the assessees are eligible to file such declarations in terms of the Scheme, and if so, the designated authority is left with no option but to process the declaration. Further, since the assessees had paid the disputed arrears of tax in terms of the Scheme, the designated authority was to consider the fact of the payment of arrears of tax and give appropriate credit. Order of CIT was seta-side.
Y. V. Chander v. UOI (2014) 364 ITR 190 (AP.)(HC)
K. Mahesh Kumar Raj (Dr.) v. UOI(2014) 364 ITR 190 (AP)(HC)
Rajwant Singh Gulati v. UOI(2014) 364 ITR 190 (AP)(HC)
Twin Cities Steel Re-Rolling Mills P. Ltd. v. CIT (2014) 364 ITR 190 (AP)(HC)
S.88 : Kar VivadSamadhan Scheme, 1998-Finance (No.2) Act, 1998. – Pendency of proceedings – Appeal addressed to wrong officer – Assessee was not informed – Rejection of application was held to be not justified. Assessee filed an appeal addressed to wrong officer who has not disposed of on technical grounds. The assessee has filed the application under Kar VivadSamadhan Scheme on the ground that the appeal is pending before the competent authority. Designated authority refused to grant benefit under Scheme on ground appeal not filed before competent authority on the ground that appeal was not filed before competent authority. On Writ allowing the petition, the Court held that, the designated authority ought to have intimated officer to return papers to enable assessee to file appeal before appropriate authority. Assessee was not informed of its appeal not being accepted. Refusal to grant benefit under scheme on ground appeal not filed before competent authority was held to be not justified. Authorities were directed to consider declaration filed by assessee on merits.
Radha Vinyl P. Ltd. v. CIT (2014) 364 ITR 199 (AP)(HC)
S. 88: Instructions issued by Ministry of Finance cannot modify Scheme having statutory character – Instructions regarding applicability of marginal rate to unpaid tax for determining disputed income – Not applicable to taxable income arising from capital gains for which uniform rate applies – Assessing Officer to determine disputed income in relation to unpaid tax by applying rate of 33.6% and to calculate tax at 35% of disputed income .
The instructions issued by the Ministry of Finance cannot modify a scheme which is statutory in character. The instructions of the Ministry of Finance regarding applicability of a marginal rate to the unpaid tax for determining the disputed income cannot apply where the taxable income arises only from capital gains and to which a uniform rate of 33.6% applies.
Held, that the instructions issued were not consistent with the provisions of the Finance (No. 2) Act, 1998, which did not deal with the marginal rate, particularly when computing the disputed income arising out of the capital gains. The Act would stipulate the rate of tax where the tax was in arrears. For the assessee, the rate was 35% of the disputed income. Therefore, the first step was to determine the unpaid tax which undisputedly was ` 81,58,392. The next step was to determine the disputed income in relation to the unpaid tax applying the rate of 33.6% Thirdly, the tax payable would be calculated at 35% of the disputed income so computed. The Department was directed to re-compute the disputed income and thereafter calculate the tax payable by the assessee in terms of the Scheme.
B.P. Jain and Associates v. CIT (2016) 381 ITR 423 / 67 taxmann.com 332 / 137 DTR 288 / 287 CTR 334 (Delhi)(HC)
S. 88 : Declaration and prescribed rates of amounts payable – No tax arrears on the date of filing of declaration – Arrears was adjusted without giving an notice of hearing-Rejection of application was held to be valid.
Dismissing the petition the Court held that; there was no tax arrears on the date of filing of the application as once the assessment was set aside demand gets cancelled. Accordingly rejection of application was held t be valid. As regards the voluntary deposit of the amount the same was directed to be refunded on furnishing of evidence of deposit of tax.
Kapurchand Jethaji & Co. v. CIT (2018) 164 DTR 98 (Bom.)(HC)
S.88 : Kar Vivad Samadhan Scheme – Advance tax adjustments – amounts paid earlier towards advance tax were liable to be adjusted first towards interest arrears
Assessee challenged demand contended that, in calculating demand, amounts paid earlier as advance tax were to be set off against tax arrears. While deciding the issue Court held that, amounts paid earlier towards advance tax were liable to be adjusted first towards interest arrears.(r.w.s. 2(m) of Finance (No. 2) Act, 1998)
Inter Craft Ltd. vs. CIT (2017) 390 ITR 409 (Delhi)(HC)
S.88 : Settlement of tax payable – Appeal pending for 5 years being not informed to be invalid, declaration made by assessee under KVSS was to be considered for settlement
Gift tax appeal of petitioner was pending before Department since 1993. When assessee filed declaration under KVS Scheme, Commissioner informed that petitioner had wrongly addressed its appeal to Dy. Commissioner and, hence, said appeal was not valid and consequently, petitioner was not entitled to make a declaration under KVSS. The petitioner having never been informed for 5 years of its appeal not being valid, and there being no lapse in filing declaration on its part, the authorities ought to have considered declaration on merits. (AY 1989 – 90)
Radha Vinyl (P.) Ltd. vs. CIT (2014) 364 ITR 199 (AP)(HC)
S. 89 : Kar VivadSamadhan Scheme – Arrears – Excise Duty – Appeal Pending
Assessee made application under Samadhan Scheme, when the appeal was pending before the Commissioner of Income Tax (Appeals). The Commissioner of (Appeals) holding that appeal to be barred by time. Designated authority dismissing application as out of time. Appellate Tribunal holding that appeal before the Commissioner of (Appeals) with in time. Application under Samadhan Scheme, filed pending appeal, not barred.
Swan Mills Ltd. v. UOI (2008) 296 ITR 1 / (2007) 211 CTR 78 / 165 Taxman 621 (SC) / 7 SCC 29
S.90 : Kar VivadSamadhan Scheme – Appellate Tribunal – Appeals – Certificate determining tax arrears – [Finance (No 2) Act, 1988]
Certificate determining tax arrears and payment by assessee of arrears and allowing the immunity. Appeals relating to years covered under Kar Vivad Samadhan Scheme 1988 were not maintainable. Revenue cannot prosecute appeals covered under the Kar Vivad Samadhan Scheme 1988. (AY. 1993-94, 1994-95)
CIT v. SPR Group Holdings (P.) Ltd. (2013) 355 ITR 169 (Karn.)(HC)
S. 90 : Kar Vivad Samadhan Scheme – Immunity – Sales Tax laws .
The provisions of Kar Vivad Samadhan Scheme, 1998, such as finality of order under section 90(3) and immunity under section 91 thereof cannot be availed in proceedings under the Sales-tax laws of the State.
Master Cables Pvt. Ltd. v. State of Kerala (2007) 296 ITR 8 / 210 CTR 86 / 162 Taxman 479 / 200 Taxation 246 (SC) / 5 SCC 416
S. 90 : Kar Vivad Samadhan Scheme – Appeal – Revision – Tax arrears – Interest.
If appeal or revision is pending on date of filing of declaration under section 88, it is not for department to hold that appeal / revision was sham, ineffective or infructuous.
Where assessee’s declarations filed under scheme were rejected by department and, on writ, High Court directed department to entertain declarations, and to determine payment of tax arrear under section 90(1) with an additional direction to make assessee liable to pay interest on amount so determined, High Court’s direction was not justified as assessee was not liable to pay interest as his liability would accrue only after ascertainment of disputed tax under section 90. (A.Ys. 1984-85 to 1991-92)
CIT v. Shatrusailya Digvijaysingh Jadeja (2006) 190 Taxation 3 / (2005) 277 ITR 435 / 147 Taxman 566 / 197 CTR 590 (SC) / 7 SCC 294
S. 90 : Kar Vivad Samadhan Scheme – Reference application – Application for condonation of delay – Maintainability .
Pendency of application for condoning delay in filing petition under section 264 of the Income Tax Act, 1961, at the time of filing of petition under Scheme, would not make declaration under the scheme maintainable.
Computwel Systems (P.) Ltd. v. W. Hasan (2003) 260 ITR 86 / 129 Taxman 67 / 184 CTR 92 / (2000) 10 SCC 403 (SC)
S. 90 : Kar Vivad Samadhan Scheme – Indirect Taxes – Custom Duty – Prosecution – Criminal Law – Cheating.
If an assessee takes the option under the Kar Vivad Samadhan Scheme, 1998, he obtains immediate immunity under any proceedings under any law and all laws in force. The true fact and import of the Kar VivadSamadhan Scheme, 1998, is that the Scheme is availed of and the formalities complied with including the payment of duty, the immunity granted under the provisions of the Customs Act 1962, also extends to such offences that may prima facie be made out on identical obligations, i.e., of evasion of customs duty and violation of any notification under the Act. If the disputed demand is settled by the Authority and the pending proceedings are withdrawn by the importer, the balance demand against the importer shall be dropped and the importer shall be immune from penal proceedings under any law on force.
Hira Lal Hari Lal Bhagwati v. CBI (2003) 262 ITR 466 / 176 Taxation 231 / 182 CTR 1 / 129 Taxman 989 / 5 SCC 257 / (2003) 182 CTR 1 (SC)
S. 90 : Kar Vivad Samadhan Scheme – Revision petition .
Mere fact that assessee had filed revision petition under section 264 and declaration under scheme simultaneously on eve of closure of scheme, would not disentitle him from getting benefit of scheme.
E.J. Thomas v. ACIT (2006) 281 ITR 40 / (2005) 149 Taxman 37 / 199 CTR 83 (Ker.)(High Court)
S.90 : Kar Vivad Samadhan scheme – Pendency of application before settlement commission – Validity of Samadhan.
Where no order had been passed by Settlement Commission under S. 254D(4) on assessee’s application till the time designated authority granted certificate to assessee under S. 90(2) of Finance (No. 2) Act, 1998 under Kar Vivad Samadhan Scheme, pendency of application before Settlement Commission would not make KVSS inapplicable and assessee was entitled to withdraw cases pending before Settlement Commission.
D’souza Motors v. ITSC (2005) 277 ITR 517 / 200 CTR 163 / 154 Taxman 25 (Bom.)(HC)
S. 90 : Settlement of tax arrears – Pendency of revenue’s appeal – Once final determination is made, hearing of any pending appeal before the appellate forum for passing order on merit is not possible .
The assessee opted for the benefit of Kar VivadSamadhan Scheme. The Authority has passed the order final tax arrear. When the application was filed the assessee was not aware whether the department has filed an appeal before the Tribunal. On appeal before the Tribunal, the revenue contended that the benefit of Kar VivadSamadhan Scheme is not available to the appellant in respect of the Departmental appeal. The Tribunal accepted the argument of revenue and held that the assessee is not eligible for benefit of Kar Vivad Scheme in respect of departmental appeal. On appeal to the High Court, the Court held that once determination is made under section 90 of Finance (No. 2) Act, 1998, towards full and final settlement of tax arrears, there is nothing to be treated as pending for final consideration before any authority, including an appeal at the instance of the Revenue before the Tribunal. Accordingly the order of Tribunal set aside and appeal was decided in favour of assessee.
S. Jagtrakshagan (Dr) v. Dy. CIT (2012) 73 DTR 214 (Mad.)(HC)
S.90 : Kar Vivad Samadhan Scheme, 1998-Finance (No.2) Act, 1998. – Designated authority – Power to levy interest though not quantified at earlier point of time – Levy of interest is terminable up to date of payment, which in case of Scheme is 31-3-1998.
While processing the declaration filed by the assessee under the Kar Vivad Samadhan Scheme, 1998, the designated authority levied interest under section 220(2) of the Act, for the assessment years 1988-89, 1989-90 and 1991-92 though not quantified at earlier point of time. On a writ petition:
Held, dismissing the petition that the designated authority is within his powers in adding up the interest as the levy of interest is terminable to the date of payment, which date in the case of the Scheme is March 31, 1998. He added the interest only up to March 31, 1998, for the purpose of computation and thereafter given necessary deduction as envisaged in the Act. There was no legal infirmity in the order passed by the designated authority.
Punjab Crockery House v. CIT (2014) 367 ITR 614 / 52 taxmann.com 71(AP)(HC)
S.90 : Kar Vivad Samadhan Scheme, 1998-Finance (No.2) Act, 1998. – Pendency of proceedings – Revision petitions filed by assessees before Commissioner pending by time Scheme made available – Commissioner denying benefit of Scheme on ground he had no power to waive interest and no power to cancel penalty – Reasons outside scope of Scheme – Commissioner directed to extend benefit of Scheme.
Revision petitions filed by the assessees under section 264 of the Income-tax Act, 1961, in relation to the assessment year 1995-96 were pending by the time the Kar Vivad Samadhan Scheme, 1998, was made operational. The Commissioner, however, declined to extend the benefit of the Scheme observing that he did not have the power to waive the interest leviable under sections 234A, 234B and 234C and that the notice issued to the assessees under section 271(1)(c) proposing to levy penalty was also outside his powers. On writ petitions :
Held, that the reasons for refusing to extend the benefit under the Scheme were outside the scope of the Scheme. The Commissioner was directed to extend the benefit of the Scheme to the assessees, after ensuring due compliance, as to payment of the stipulated amount.
(S. Prasad Reddy v. CIT (2014) 368 ITR 430/226 Taxman 265 (T&AP)(HC)
S.90 : Time and manner of payment of tax arrears-Certificate issued under the scheme is conclusive-Settlement Commission has no jurisdiction to pass the order after issue of certificate by competent authority
Allowing the petition the Court held that; The certificate issued under section 90 (1) of the Scheme making a determination as to the sum payable under Scheme is conclusive as to the matters stated therein and cannot be reopened in any proceedings under law for the time being in force, except on the ground that false declaration by a declarant. Subsequently the Settlement Commission passed orders. Court held that the order dated June 25, 1999 passed by the Settlement Commission under section 245D (4) of the Act was void and liable to be set aside.
Hasmukhlal Thakordas Dalwala v. CIT (2016) 75 taxmann.com 186 /(2017) 393 ITR 280 (Guj.) (HC)
S. 91 : Kar Vivad Samadhan Scheme – Immunity – Offences under Prevention of Corruption Act .
Immunity under Kar Vivad Scheme is not available in respect of offences under Prevention of Corruption Act. Public servants who can never file declaration would not come within the purview thereof. Section 95 Clause (iii) would be attracted, if inter alia, any prosecution for any offence enumerated there under has been initiated on or before filing of declaration.
State, CBI v. Shashi Balasubramanian (2006) 157 Taxman 261 / 206 CTR 587 / 289 ITR 8 (SC)
S.91: Immunity from prosecution and imposition of penalty in certain cases – Circulars are binding on the department – Protective assessment – Designated authority was justified granting the immunity from prosecution and penalty.
Allowing the petition the Court held that, according to section 91 of theFinance (No. 2) Act, 1998, a designated authority was empowered to grant waiver from the imposition of penalty and interest in respect of the income, which was the subject matter of the declaration under the Scheme. In the assessee’s case since the penalty and interest was levied on the tax arrears, as on March 31, 1998, the declaration issued by the designated authority, according to the circular issued by the Central Board of Direct Taxes, would cover the penalty and interest, determined at a later point in time. Th Board’s circular was binding on the Department, especially, in the circumstances that sought to explain as to how the Scheme was to operate.Designated authority was justified granting the immunity from prosecution and penalty.
S. Narayanan v. CIT (2017) 395 ITR 271/299 CTR 285 /159 DTR 387(Mad.) (HC)
S.93 : Refund of Amount
S.93 :Amount paid in terms of KVSS, 1998 is not refundable under any circumstance
Assessee had voluntarily invoked ‘KVSS’ and had paid tax liability in terms of provision of KVSS, he was not entitled to resile from such determination and seek refund.
Lakshmi Mills Co. Ltd. v. Jt. CIT (2015) 53 taxmann.com 282 (Mad)(HC)
S. 95. Scheme not to apply in certain cases
S. 95 : Kar VivadSamadhan Scheme – No appeal – Reference – Writ
No appeal, reference, writ petition or application was pending hence, the rejection of declaration was proper.
Lajya Dyeing & Bleaching Works v. UOI (2003) 263 ITR 763 / 185 CTR 329 / (2004) 178 Taxation 120 / 134 Taxman 345 (SC)
S. 95 : Kar VivadSamadhan Scheme – Finance Act, 1998 – Pending appeal
For the purpose of admissibility of a declaration under the KVSS, it is enough that an appeal is pending, even if it is irregular or incomplete.
Better Label Manufacturing Co. Ltd. v. Commissioner of Customs (2008) 11 DTR 338 / 219 CTR 205 (Mad.)(HC)
S. 95 : Kar VivadSamadhan Scheme – Appeal Pendency – Admission
Where appeal filed by assessee before Tribunal was not an admitted appeal on date of submission of declaration but it was only pending appeal, declaration was hit by section 95(1)(c) of the Finance Act, 1988 warranting its rejection.
Shree Amarlal Kirana Stores v. CIT (2004) 267 ITR 48 / 138 Taxman 263 (MP)(HC)
S. 95 : Kar Vivad Samadhan Scheme,1998 – Discharged by criminal court – entitled to avail benefit of scheme.
Assessee had been discharged by Criminal Court before it filed its application under Kar VivadSamadhan Scheme, he was entitled to avail benefit of scheme.
Tigrania Steel Corporation v. CIT  291 CTR 496 (Bom)(HC)
Metropolitan Magistrate passed order discharging assessee and its partners from prosecution and penalty imposed u/s. 271(1)(c) was reduced. Assessee filed declaration under Samadhan Scheme, seeking to settle outstanding penalty and interest. Designated Authority rejected assessee’s declaration, this on ground that prosecution for concealment of income had already been instituted before date of filing of declaration, therefore, benefit of the Samadhan Scheme could not be extended in view of clear mandate of Section 95(i)(a) of the Finance No. 2 Act, 1988. On writ allowing the petition the Court held that as clarified by Circular issued under Section 96 of Samadhan Scheme, mere initiation of criminal proceedings would by itself not be bar, if assessee concerned had been discharged. Only exclusion was of pending proceedings for conviction or conviction prior to filing of declaration. Circular clarified that where assessee had been discharged before filing of declaration, then, he was entitled to avail of Samadhan Scheme. Asssessee was discharged before it filed its application of settlement, thus, Designated Authority was bound to accept application made for settlement under Samadhan Scheme. Criminal Revision Petition filed by Income Tax Department was rejected for non-removal of office objection and Revenue had taken no steps till date to have matter restored – It appeared that Revenue itself was not serious about prosecuting Criminal Revision Petition filed by it to High Court. Accordingly Court set aside order passed by designated Authority under Samadhan Scheme and restore issue for fresh consideration, to include satisfaction of all other requirements.
Tigrania Steel Corporation v. CIT (2016) 143 DTR 310 / (2017) 496 (Bom.)(HC)
Kar Vivad Samadhan Scheme – Writ – Pendency – Admission
Mere pendency of the writ petition is not enough for maintaining a declaration, under KVSS; it should be admitted and pending.
Yuvraj Tukoji Rao Puar v. UOI (2004) 271 ITR 153 / 193 CTR 142 / 143 Taxman 167 (MP)(HC)
Kar Vivad Samadhan Scheme – Excess tax paid – Refund
Excess amount paid by petitioner under protest under KVSS because of mistake by commissioner in computing amount payable by petitioner, had to be refunded.
Marigold Engineers P. Ltd. v. UOI (2004) 141 Taxman 4 / 191 CTR 103 / 274 CTR 17 (P&H) (HC)
Kar Vivad Samadhan Scheme – Certificate – Delayed challenge
Highly belated challenge to certificate if intimation determining amount of tax payable by petitioner, would have to be dismissed on ground of laches.
Raj Kumar Jain (HUF) v. Designated Authority (as CIT) (2004) 265 ITR 175 / 136 Taxman 514 (P&H)(HC)
Kar Vivad Samadhan Scheme – Arrears – Protective assessment
For purpose of settlement under KVSS, there should be factual arrears that could be demanded legally; where there was only protective assessment and protective demand assessee’s declaration/application was rightly rejected.
S. Jaganathan v. ACIT (2004) 266 ITR 305 / 135 Taxman 356 / 187 CTR 410 (Karn.)(HC)
Conclusion: For successful implementation of the scheme, in a proper perspective require holistic approach by tax administration and early clarifications on various issues arising from the interpretation of the scheme .
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