Income Tax 02 Mar,2020
Budget 2020: Vivad se Vishwas- Issues ahead!
Kashif AliChartered Accountant

History of Direct Tax Amnesty Scheme in India

Over the period of time, the Government of India has introduced various amnesty scheme. The rationale behind these amnesty schemes was to settle dispute and litigation which are pending for a long time.

In 1998, the Government introduced "Kar Vivad Samadhan Scheme (KVSS)" which was available if there was an outstanding demand as on 31 March 1998 and appeal was pending at any level. The amount payable under the scheme was 35% of disputed income in case of company/firm and 30% of disputed income in the case of any other assessee.

In 2016, the Government introduced "Direct Tax Dispute Resolution Scheme" which was available if appeal was pending before Commissioner of Income Tax Appeal CIT(A) or Commissioner of Wealth Tax Appeal CWT(A) on 29 February 2016. The amount payable under this scheme was disputed tax and interest till the date of assessment in case the disputed tax was up to Rs.10 lakh, if disputed tax exceeded Rs.10 lakh, then apart from disputed tax and interest, minimum penalty of 25% was also imposable.

Now, the Government in the Budget 2020 has proposed a new Direct Tax amnesty scheme 'Vivad Se Vishwas' with a view to reduce litigation. The Finance Minister (FM) in her budget speech stated the need of the scheme as below:

"Currently, there are 4,83,000 direct tax cases pending in various appellate forums i.e. Commissioner (Appeals), ITAT, High Court and Supreme Court. This year, I propose to bring a scheme similar to the indirect tax Sabka Vishwas for reducing litigations even in the direct taxes."

In line with the above proposal, the Government has laid down the Vivad Se Vishwas Bill, 2020 (The Scheme) before the Parliament on 5th February, 2020.

Background of the Scheme

The scheme has proposed to cover the cases pending before the Supreme Court (SC), High Court (HC), Income Tax Appellate Tribunal (ITAT) or CIT (A) wherein the appeal is pending on 31 January 2020. The scheme covers all the cases except the cases of search, prosecution, cases which involve tax arrear relating to foreign asset and cases which are based upon the information received under an agreement referred to in section 90 or section 90A of the Income Tax Act, 1961 (The Act).

Further, as per the media report, the cabinet has approved certain amendments in the scheme. The amended scheme amongst other things covers orders where time limit for filing appeal has not expired as on 31.01.2020, cases pending before Dispute Resolution Panel (DRP) as on 31.01.2020 as well as cases where DRP had issued directions on or before 31.01.2020 but no order has been passed, revision petitions pending before commissioner under section 264 on 31.01.2020 and search cases where the disputed demand is less than Rs. 5 Crore.

As per the amended scheme, the payment of disputed tax will be as below:

Particulars Where payment made up to 31.03.20 Where payment made after 31.03.20
Appeals filed by the assessee
Search cases involving dispute relating to tax, interest, penalty, etc. 125% of the disputed tax. 135% of disputed tax.
Other than search cases where dispute involves tax, interest, penalty, etc. 100% of the disputed tax. 110% of disputed tax.
Where dispute relates to only interest, penalty or levy 25% of disputed interest, penalty or fee. 30% of disputed interest, penalty or fee.
Appeals filed by Department or the Department has lost an issue.    
Search cases involving dispute relating to tax, interest, penalty, etc. 62.5% of the disputed tax. 67.5% of disputed tax/
Other than search cases where dispute involves tax, interest, penalty, etc. 50% of the disputed tax. 55% of disputed tax.
Where dispute relates to only interest, penalty or levy 12.5% of disputed interest, penalty or fee. 15% of disputed interest, penalty or fee.

Analysis of the scheme

 1.  Currently, there are around 4,83,000 direct tax cases which are pending at different forums. This includes 3,41,000 pending before CIT(A), while 92,205 cases were pending before ITAT as on March 31, 2019. Besides, 43,224 and 6,188 direct taxes-related cases were pending before High Court and Supreme Court as on December 31, 2018, respectively. (Source-Economic Times)

Above number shows that around 89% (approximately) of the cases are pending before lower authorities i.e CIT(A) and ITAT.

These taxpayers are still having the remedy before High Court and Supreme Court if they consider their cases to be strong. So this amnesty scheme may not attract those taxpayers.

 2.  The scheme covers appeal pending as on 31 January and orders for which time limit of appeal has not expired, however, it is silent on cases wherein appeal has been admitted with condonation of delay. Will the appeal accepted with condonation of delay be termed as appeal pending on 31 January is a question?

Hon'ble Supreme Court had addressed a similar issue under Kar Vivad Samadhan Scheme, in the case of Computwel Systems (P.) Ltd. v. W. Hasan [2003] 129 Taxman 67 (SC) and held that 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.

The present amnesty scheme does not cover such revision petition for which time limit of petition has not expired. However, an analogy can be drawn from this case that, the cases of condonation was also admissible under the Kar Vivad Samadhan Scheme so it may be covered under the present scheme as well.

 3.  Before assessment year (AY) 2017-18, section 115BBE which provides for rate of tax for income referred to in section 68 to section 69D, had prescribed 30% rate of tax. The section was amended by Taxation Laws (Second Amendment) Act, 2016, w.e.f. 1-4-2017 whereby the rate was extended to 60% which would effectively amount to 78% due to surcharge and cess of 25% and 4% respectively.

This would result in different amount of disputed tax under the scheme for assessees who have committed same act.

For example, if two assessees Mr. A and Mr. B had not disclosed income by way of cash receipt of 50 lakh each in the AY 2016-17 and 2017-18. Mr. A's disputed tax under the scheme would be based upon 30% rate plus cess and surcharge (if applicable) while Mr. B's disputed tax would be based upon 78% rate.

 4.  Bombay High Court in the case of D'souza Motors v. ITSC [(2005) 154 Taxman 25 (Bom.)(HC)] under KVSS had dealt with a situation 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 KVSS. The High Court held, "pendency of application before Settlement Commission would not make KVSS inapplicable and assessee was entitled to withdraw cases pending before Settlement Commission".

The principle laid down by Bombay High Court would be relevant in the present scheme as well because withdrawal of appeal is also condition under the present scheme as well.

 5.  Article 14 of the Constitution of India (COI) "Equality before the Law" provides that the state shall not deny to any person equality before the law or the equal protection of the laws within the territory of India. The Budget 2020 provides for payment of 50% and 55% of disputed tax in case of departmental appeal while the same is 100% and 110% in case, the assessee has filed appeal.

Kar Vivad Samadhan Scheme 1998 did not cover departmental appeal so the constitutional validity of this scheme was challenged before the Delhi High Court in the case of All India Federation of Tax Practitioners v. Union of India [1998] 101 TAXMAN 401 (DELHI), wherein the High Court held that there should not be any discrimination between revenue and assessee as it will be against Article 14 of COI so, the scope of Kar Vivad Samadhan Scheme 1998 should be extended to departmental appeal as well.

Although, the present scheme covers departmental appeal, however, the difference in payment terms (100% and 110% in case assessee is in appeal and 50 and 55% in case of departmental appeal) may be a question.

The author is a Chartered Accountant. Views expressed are personal.