Whether tax arrears relatable to a company which has been merged with another company can be settled under the Vivad Se Vishwas Scheme, 2020 even though prosecution has been launched on a different issue in the case of the amalgamated company.
Forum-Bombay High Court
Date- 25th March 2021
Citation-Macrotech Developers Limited

The Bombay high court in this case was seized of an issue where Shreeniwas Cotton mills , a subsidiary of the appellant was merged with the appellant herein for AY 2015-16 for which year the appellant was facing prosecution due to delayed payment of self assessment tax and the appellant wanted to settle the dispute under the VSV Scheme relating to said Shreeniwas cotton mills which was though rejected by the department based on answer to Question No 73 of Circular No 21 dated 04/12/2020 issued by the CBDT as per which if prosecution was launched against an applicant for an assessment year then the applicant was barred from filing application under VSV for that year.

The question arose whether prosecution in respect of a tax arrear as referred to in the circular qualified only that particular portion of the liability to be in eligible for being settled or it even covered the liability of the said Shreeniwas Mills which had been merged with the appellant.

The Bombay high court however quashing the said Circular to the extent of Question No 73 and its answer held that 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.

On these facts the appeal was allowed.

This judgement will be helpful in dealing with similar cases where prosecution has been launched and the assessees are being made in eligible under the scheme

Ramesh Patodia
26-03-2021