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Answers By Expert: CA Rajan Vora
Query

What is the time limit for granting refund due under VSV to declarant? Whether such refund can be adjusted against outstanding demands under ITA?
Answer

The time limit has not been prescribed under the Act/ Rules.  CBDT may issue necessary directions to CIT’s for timely grant of refund.  Further, this aspect may be prescribed in Rules. If any outstanding demand is existing, then it is likely that refund due under VSV can be adjusted against such outstanding demand after giving notice to the taxpayer regarding the same.
Query

Whether taxpayer will be permitted to file second declaration where first declaration gets disqualified due to any reason-say, non-payment of disputed tax under s. 5(2) due to financial difficulty?
Answer

We believe, taxpayer should be eligible to file declaration again. This issue though has not been clarified earlier, is likely to be clarified in coming FAQs.
Query

Whether non-resident taxpayers will be allowed to make payments under VSV through foreign bank account? Presently, such is not permissible mode. NR taxpayers to get payment through Indian bank account of associates or authorised person. Such process may involve time and hence may be a cause for delay in payment.
Answer

No separate challan has been introduced for payment under VSV. Accordingly, same challan which was earlier used for payment of regular demand by non-resident, can be used by non-resident also for payment of amount payable under VSV.  Since, the time-limit of VSV has been extended upto 30 June 2020, NRs have enough time to decide and arrange payments.
Query

Suppose there is patent error in the certificate issued under s. 5(1) by DA and is later on rectified by DA, whether period of 15 days for making payment shall be reckoned from date of rectified order?
Answer

Technically rectification corrects certain mistake in original order and hence, 15days period is to be counted from the original order.  This needs to be clarified by the CBDT.

 
Query

In case of a declarant who is a company, will benefit of immunity from penalty and prosecution be extended to directors and principal officer of the company as well – say, in case of settlement of TDS dispute? Similarly, whether such immunity extends to partner of LLP/firm where declaration is filed by LLP/firm?
Answer

Ideally, where appeal of company is settled, immunity from prosecution should be granted to the principal officers as well. Suitable clarification should be issued by the CBDT.  

 
Query

Consider a case – Assessee was a US resident which had invested in Indian company through a Mauritia’s based company (SPV). The SPV sold shares of Indian company and claimed treaty benefit. In assessment, treaty benefit was denied on the grounds that SPV is not the beneficial owner and income is to be taxed in the hands of principal investor ie US resident.
A) If the Mauritius company settles under the scheme, whether the US resident investor will get protection under the scheme ie will the proceedings in case of US investor be dropped? Will the the treatment be on similar lines as protective assessessment – Refer Q35 of the FAQ dt 4 March 2020?
Answer

 Q35 of the FAQ dt 4 March 2020 states that if substantive additions are covered under VSV , then on settlement of disputes related to substantive addition, the AO shall pass rectification order deleting the protective additions made on same issue in case of assessee or in case of another assessee.

 

Accordingly, in the given case, where the Mauritius company settles under the scheme, then proceedings in hands of US resident investor should be dropped.  Since this issue is fact specific, the case should be discussed with the jurisdictional AO/CIT to get clarifications from CBDT.

 
Query

If 201 order is settled under VSV and taxes are paid by the deductor, then while computing disputed tax liability for 143(3) order, no disallowance u/s 40(a)(ia) is to be taken into account. As clarified, benefit of payment under VSV will be available to the deductor in the same year in which section 40(a)(ia) additions are made. However, as per clarifications issued, deductee will get credit of taxes paid by deductor on the date of settlement of dispute and consequentially interest u/s 234A/B/C will be applicable i.e. where 201 order for FY 2015-16 is settled by in FY 2019-20 by the deductor, then deductee will be required to pay interest u/s 234A/B/C till FY 19-20. Is this not a hardship caused to deductee, without being at fault?
Answer

Payers case

 

Where payer makes a payment to the payee without deduction of TDS, then he will be liable to payment along with interest u/s 201(1)/201(1A).  Further, payer will be liable to disallowance under section 40(a)(i)/ 40(a)(ia).

 

If the payer pays the TDS liability later on, he pays the same along with interest.  

 

Payees case

 

After amendment in Finance Act 2012 in section 209, the payee will get credit of TDS only when the same is paid by the payer only in that year and not in prior years.

 

In case payee pays on his own (since no TDS has been deducted), then payer is absolved from the liability and need to pay only interest on delayed payments.

 

Anamoly

 

As per the proviso to section 40(a)(i)/ section 40(a)(ia), payer will get deduction in the Financial year in which TDS has been paid.  The VSV scheme allows deduction in the year to which the addition pertains ie as per VSV scheme, where TDS pertaining to FY 2015-16 is paid in 2020 by the deductor, then deductor will get allowance in FY 2015-16 instead of 2020. Accordingly, the VSV scheme is overriding the Act and is beneficial for the payer.

 

In contrast, the payee will get credit of TDS only in the year in which deductor has made payment, without any fault of the payee.  This is genuine hardship to the deductee. In our view, the FAQ should be amended to give credit to the deductee in the FY in which the deductor gets the 40(a)(ia) disallowance deletion – maintaining the equity between deductee and deductor.

 
Query

As per section 3 of the amended bill, where the disputed tax liability is computed by the DA and the amount is payable before 30 June 2020, then 100% of the disputed tax is to be paid and if however, the same is determined by the DA and the amount is paid after 30 June 2020, then 110% of the disputed liability is to be paid.

A) In a case, where the disputed tax liability is determined by the DA on 25 June 2020, taxpayer has time of 15 days ie till 10 July 2020 to pay the disputed tax, then will it be eligible for 100% of disputed tax payment (even though payment is made after 30 June 2020) since the amount is payable before 30 June 2020– Section 3 does not mention that the amount is to be paid before 31 March 2020 (now 30 June 2020) to be eligible for 100% disputed tax liability but FAQ 28 dated 4 March 2020 states that the payment has to be made before 31 March 2020 (now 30 June 2020) to be eligible to pay 100% of disputed tax?

B) If the answer to the above is no, where taxpayer makes partial payment (say 80%) before 30 June 2020in relation to declaration filed, and balance payment (say 20%) is made after 30 June 2020 but within outer limit of 15 days, whether 10% additional amount under s. 3 of VSV can be restricted to unpaid amount (say on 20% of the disputed tax liability)?
Answer
  • Technically it can be argued that since the amount is determined before 30 June 2020 by DA and the full payment is made within 15 days ie till 10 July 2020 (as provided under the Act), then taxpayer will be eligible for 100% disputed tax payment.  This stand will however be litigative. 
  • However, considering the intent of the legislature (ie to settle litigation and collect taxes), and as further clarified by FAQ 28 that payment needs to be made 31 March 2020 (now 30 June 2020) to be eligible for 100% disputed tax payment.  In a case where part payment is made after 30 June 2020, view appears to be that additional 10% will be payable on pro rata basis (only on 20% of the disputed tax liability).

 

If department levies additional 10% on the entire amount of disputed tax, then tax may have to be paid to settle the appeal under VSV and matter should be litigated before the HC/ SC.
Query

The assessment order/intimation contains certain issues which are rectifiable under section 154 of the Act. A rectification application is filed before the AO but pending to be disposed off. In such a case, whether the tax liability can be rectified by the AO/ DA before computing the final amount payable under the scheme? Or the taxpayer will be required to pay whole amount computed as per the assessment order passed since rectification application is pending to be disposed?
Answer

FAQ 25 dt 4 March 2020 states that disputed tax liability be computed after taking into consideration the rectification order passed.  We believe that CBDT has given instructions to all the field officers to dispose of the rectification applications pending in case where VSV is opted.  In such situation, the disputed tax will be computed by DA, after giving effect to rectification order passed.  If no rectification order is passed, the taxpayer will be required to pay the whole amount.  The Appellant can follow up with the tax authority to get rectifications disposed off. 

 
Query

If quantum is settled and penalty is levied but no appeal is filed and time limit to file such appeal has not expired, whether in such case, the penalty would also be waived?
Answer

Yes