This article is written by Vinayak Gupta of Dr. Ram Manohar Lohia National Law University, Lucknow. This article tries to educate its reader about the nitty-gritty of Direct Tax Vivad se Vishwas Scheme.

Introduction

It is very common in India that you know someone who is fighting the case against the government relating to a tax dispute. It might be someone in your family, your friend or it might be you. Paying taxes to the government is a very complicated process in India and due to this fact, there arise many disputes regarding income tax. 

Direct taxes are a huge source of income for the government. For the fiscal year 2016-2017, direct taxes amounted to 51.3% of the total revenue of the government.  In order to increase the flow of revenue and to resolve disputes with taxpayers, the government introduced the ‘Vivad se Vishwas Scheme’.

The Direct Tax Vivad Se Vishwas Act, 2020 was introduced by Finance Minister, Nirmala Sitharaman during the budget session of the Parliament. This scheme was introduced to resolve direct taxpayer disputes and is somewhat on a similar pattern to that of the ‘Sabka Vishwas Scheme’ which was passed in the Parliament last year. ‘Sabka Vishwas Scheme’ was a huge success. It dealt with the disputes in indirect taxes that is Goods and Services Tax (GST) and exceeded its target collection of 35000 crores.

The government in order to generate revenue profit and to provide relief to taxpayers who have pending income tax disputes, launched ‘Vivad se Vishwas Scheme’ in hopes that it would be as successful as its previous scheme. Vivad se Vishwas Scheme deals with the direct taxes and direct taxes are the taxes that are directly levied on a person’s income. Direct tax includes- income tax, corporation tax, property tax, and stamp duty, etc. 

In this article, we will discuss the scheme and would try to explain the working of this scheme and to whom it is beneficial.

Highlights of the scheme

For the first time in two decades, direct tax collection of India went into the negative zone which means that for the fiscal year 2019-20 the direct tax collected was less than the collection of previous years. Considering this fact, the government introduced the scheme so as to give a boost to the direct tax collection and to resolve tax-related disputes in a speedy manner.

Currently, there are approx 4,83,000 direct tax cases pending in the various tribunals and courts and the amount of income tax locked up in these litigations amounts up to 4.96 lakh crore. The scheme aims at bringing down the amount and number of pending cases in the courts. The scheme includes all the pending cases in all appellate forums be it Hon’ble Supreme Court, High Court, or any other Income Tax Appellate tribunal up till 31st January 2020. 

The mechanism of the scheme is rather simple and surprisingly taxpayer-friendly. The scheme says that a taxpayer is required to pay the disputed amount which is locked up in litigation. If a taxpayer pays the disputed amount by 31st March 2020, they would be eligible for a complete waiver on interest and penalty, for e.g- If your tax case is pending in the court wherein the disputed amount is 10 lacs and penalty and interest amounts to 2 lacs on that disputed amount, under the scheme you would be eligible to get a waiver on the amount of penalty and interest which is 2 lacs and would only be liable to pay the principal amount of 10 lacs.

If the dispute is on tax arrears related to penalty and interest, the taxpayer could pay 25% of that amount and settle the dispute, for e.g- you have a tax case pending on the amount of the penalty or interest on the principal amount. Let’s suppose the interest or penalty amounts to 1 lac therein you would only have to pay 25 thousand to settle the dispute.

The second and last window of payment starts after 31st March 2020 and remains open until 30th June 2020. 

The scheme aims to generate revenue for the government as well as save time and resources of taxpayers deployed in dispute resolution. 

Eligibility criteria for a declaration under the scheme

There are certain criteria to avail the benefit of the scheme. The first and foremost is the pendency of cases in tribunals and courts. If your case is pending before 31st January 2020 in any of the courts or tribunal, you are eligible to avail benefit under the scheme. If the order has been passed in your case but the time limit for filing appeal has not expired under the Income Tax Act, 1961 voila! You are still eligible to avail the benefits under the scheme. You need not file an appeal to avail of the benefit of the scheme. In simple words, if the final order has not been passed by the competent authority and your case is still pending before the commissioner of income tax, income tax tribunal, High Court, or the Supreme Court you are eligible to avail the benefits under the scheme. 

In the cases where search and seizure action have been initiated, the taxpayer could only avail the benefit of the scheme if the disputed amount does not exceed 5 crore rupees. Taxpayers whose cases are pending before the dispute resolution panel or where directions have been passed by dispute resolution panel but final assessment order is awaited can also be eligible to avail benefit of this scheme. 

Important clarifications as issued by CBDT

Central Board of Direct Taxes issued an exhaustive list of frequently asked questions doing away with the general query of the taxpayers. Some of the important clarifications regarding the scheme would be put in light here in this article.

• Is there any upper limit on the disputed amount to avail the benefit?

There is no upper limit of an amount that is restricted to be brought in under the scheme. Cases in which the disputed amount is as high as 100 crores could avail the benefit under this scheme.

The only limit is on the search cases wherein the benefit of this scheme could only be availed if the disputed amount is less than 5 crore in an assessment year.

• What is meant by search cases?

Income Tax Act, 1961 grants power to its officers to enter, break into, or search any premises and to seize any document or assets. These powers are used to assess the undisclosed income and assets. The assessment made during these expeditions is termed as ‘search cases’.

• What if the court or tribunal referred the matter back to income tax officers? Will these matters be covered under the scheme?

Yes, the taxpayer could avail the benefit of this scheme if the matter is referred back to the tax officer. The application would be filed considering that the tax officer has decided the issue against the taxpayer.

The taxpayer could not avail the benefit of the scheme if the assessment is to be framed de novo which means if the officer ordered an assessment of the disputed tax starting from the beginning.

• Can the cases in which prosecution has been executed avail the benefit of this scheme?

No, cases, where the prosecution has been executed and is already pending in the court, could not avail the benefit of this scheme but CBDT has made it clear that cases where initiation for prosecution has been made but the prosecution has not been instituted, in that case, the taxpayer could avail the benefit of this scheme.

These are some of the most sought after clarifications given by CBDT in its FAQ issued on March 4. 

Amount payable under the scheme

The amount payable under the scheme may be against-

1. Disputed tax.
2. Disputed interest.
3. Disputed penalty.
4. Disputed fee.
5. Disputed TDS/TCS.

There are two cases for the amount payable under the scheme. We will discuss both of them.

If the appeal is filed by the taxpayers 

In case the payment is made before 31st March 2020 under Vivad se Vishwas scheme, the taxpayer will have to pay 100% of the disputed tax amount without paying any pending penalty, interest, or fees. This is a huge benefit given under the scheme because most of the time the taxpayer is not worried about paying the taxes but worried about paying heavy penalties. 

If for some reason you could not make payment of the taxes before 31st March 2020 you will still be eligible to avail the benefit of the scheme but you will have to shell out a higher amount of money to settle the dispute. You will have to pay 110% of the total disputed amount and if your penalties and interest amounts lower to that 10% of total amount then you will have to pay penalty and interest so as to settle the dispute. For e.g- the disputed amount of tax is 1 lac rupee you will have to shell out Rs. 1,10,000 to settle the dispute and in case the interest and penalties are less than Rs. 10,000 then you don’t need to shell out rs. 1,10,000 you could pay the disputed amount and penalties and do away with the dispute.

In case no income tax amount is involved in your dispute and your dispute is solely on interest, penalty or on fees, you can pay 25% of the disputed amount till 31st March 2020 and avail the waiver of 75% and end the dispute. If for any reason you could not avail the benefit of the scheme till 31st March 2020 you are still eligible for the scheme but you’ll have to shell out 30% of the disputed amount to settle the case once and for all.

In the case of the search cases, the taxpayer would have to deposit 125% of the total disputed amount till 31st March 2020 and after that, the amount would be 135% of the disputed amount.

If the appeal is filed by the department

In case the appeal is filed by the department, the position of the taxpayer is assumed to be stronger. That is why the taxpayer only needs to pay 50% of the disputed tax amount if paid before 31st March 2020. If for some reason you could not make payment before 31st March 2020 you could still take advantage of the scheme but you will have to shell out 55% of the disputed amount to settle the case. 

In case the disputed amount is solely the penalties, interest, and fees the taxpayer has to pay 12.5% of that amount before 31st March 2020 to settle the disputes and avail benefit of the scheme. The taxpayer will have to shell out 15% of the disputed amount if he/she makes payment after 31st March 2020.

In search cases, the amount payable before 31st March 2020 is 62.5% of the disputed amount and after 31st March 2020 the taxpayer will have to shell out 67.5% of the disputed amount in order to settle the case. 

Meaning of “disputed tax”

The term ‘disputed tax’ forms a formidable amount of this scheme on which the whole foundation of this dispute resolution scheme rests. Under the scheme, the taxpayer is liable to pay only ‘disputed tax’ and will get immunity from paying penalties, interest, and fees on the disputed tax.

The definition of ‘disputed tax’ is given under Section 2(1)(j) of the direct tax Vivad se Vishwas Scheme Act, 2020. Under the definition ‘disputed tax’ is an income tax which includes surcharge and cess payable by the appellant under Income Tax Act, 1961 and is pending before any court. 

Cases where the provisions of this scheme shall not applied

There are certain special cases where taxpayers are not eligible to avail the benefits under this scheme. The cases where taxpayers are not eligible for applying and getting benefit under this scheme are-

1. Where search cases are initiated against taxpayers amounting to Rs. 5 crores and above of disputed tax are not eligible to apply for this scheme.
2. Taxpayers against whom the prosecution cases have been initiated under the Income Tax Act,1961, or India Penal Code,1860 (IPC) are excluded under the scheme.
3. The scheme will not benefit persons who have cases related to undisclosed foreign income and assets as a disputed tax.
4. The scheme will also not benefit persons whose cases are deemed to be completed on the information received from foreign countries.
5. Cases covered under the offence of IPC, Unlawful Activities (Prevention) Act, 1967, Narcotic Drugs and Psychotropic Substances Act, 1985, Prevention of Corruption Act, 1988, Prevention of Money Laundering Act, 2002, Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, Prohibition of Benami Property Transaction Act, 1988 and Special Court Trial in Securities Act, 1992 will not be covered under this scheme.

Filing of declaration, time and manner of payment

To avail the benefit of this scheme the taxpayer will have to file a declaration before the commissioner of income tax because the commissioner of income tax is the notified authority for this purpose. Along with the declaration form that is to be submitted in the commissioner office you would also be required to submit an undertaking.

In that undertaking, you would be declaring that you are letting go of all the remedies (for e.g- remedy to file an appeal against any order) available under the Income Tax Act, 1961. The second thing that you need to declare under the undertaking is that if any fact or figure is found to be wrong then you will not be deemed to avail the benefit of the scheme and the entire provisions of Income Tax Act,1961 would be revived on you. 

After filing the declaration before the commissioner of income tax, it is the duty of the commissioner to issue you a certificate within 15 days of the filing of the declaration. In the certificate, the amount should be mentioned that you ought to pay in order to avail the benefit. 

After the issuing of that certificate by the commissioner of income tax you are required to pay that amount which is mentioned in the certificate within 15 days. The proof of the payment needs to be brought before the commissioner office and then the office will issue an order stating the fact that the amount has been deposited and the taxpayer now has no right to file a case regarding this particular issue.

The amount that you pay under this scheme is completely non-refundable under any circumstances. 

Conclusion

The scheme brought by the government has been introduced keeping in mind the heavy burden on the judiciary regarding the tax disputes which tend to go on for years. This scheme is a great way to generate revenue for the government by ending the dispute of locked up money in litigation and also saving time and resources of taxpayers.

This is yet to be seen how successful this scheme proves for the government and how many taxpayers avail the benefit of this scheme which has been brought for their convenience. If this scheme is availed by a large number of taxpayers, it will give our economy a great boost as well as ease the burden of the judiciary.

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