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Analysis of Vivad se Vishwas Scheme


The Direct Taxes Vivad se Vishwas Bill, 2020, tabled in Parliament by finance minister Nirmala Sitharaman with an aim to reduce pending litigations on direct tax matters. The finance minister assured the house that the bill was aimed only to ease the taxpayer who was otherwise needed to go to court to defend his case, the government has brought a structured and formula-based solution to the dispute.

The Union Budget,2020 has proposed ‘Vivad Se Vishwas’ Scheme (No dispute but trust) which aims at reducing litigations in the direct taxes payments. While presenting the Union Budget 2020-21 in Parliament, the Union Minister for Finance & Corporate Affairs, Smt Nirmala Sitharaman said, “Taxpayers in whose cases appeals are pending at any level can benefit from this scheme.”

Under the proposed ‘Vivad Se Vishwas’ scheme, the Finance Minister said that a taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided he pays by 31st March, 2020. Those who avail this scheme after 31st March, 2020 will have to pay some additional amount. The scheme will remain open till 30th June, 2020. Smt Sitharaman said, “I hope that taxpayers will make use of this opportunity to get relief from vexatious litigation process.”

The Finance Minister said that there are 4,83,000 direct tax cases pending in various appellate forums i.e. Commissioner (Appeals), ITATs, High Courts and the Supreme Court.

The Direct Tax Vivad se Vishwas Bill, 2020 is now been introduced to reduce litigations related to direct taxes. It provides for the followings, namely:—

1. The objective of the Bill is to provide for the resolution of disputed tax and for matters connected therewith or incidental thereto. The scheme is valid only for direct taxes matters.

2. The scheme shall be available only for those appeals which are pending before the Supreme Court or the High Court or the Income Tax Appellate Tribunal or the Commissioner (Appeals). It is irrelevant whether the demand amount is paid or not and any stay is granted or not.

3. The appeals must be pending on or before 31st January 2020. In other words, the appeals must have been filed on or before the said date.

4. The scheme is applicable to appeals filed by the taxpayers or the income-tax authority. To avail this scheme, no minimum threshold limit of disputed tax is prescribed in the Bill. Hence, the disputed tax may be of any amount.

5. The provisions of this bill shall come into force from on the date it receives the assent of the President. The last date of the scheme has not been provided in the Bill and will be notified later. Although in the Budget Speech, the Finance Minister said that the scheme will remain open till 30th June 2020. However, the bill has no such ending date of the scheme.

6. The pending appeal may be against disputed tax, interest or penalty in relation to an assessment or reassessment order or against disputed interest, disputed fees where there is no disputed tax. Further, the appeal may also be against the tax determined on defaults in respect of tax deducted at source or tax collected at source;

7. The provisions of this bill will apply for an appeal filed against the disputed tax, disputed interest and/or disputed penalty.

8. To avail this scheme, the taxpayer has to file a declaration in the prescribed form to verified in the prescribed manner. The government will notify the forms for making a declaration under this scheme. The person who files a declaration in the prescribed form under this scheme is termed as 'declarant' in this scheme. the declarant shall also furnish an undertaking that he will not avail any other alternative remedy under any other law or agreement.

9. Thereafter, the income tax authority will issue a certificate to this effect and from that date, the pending appeal shall be deemed to have been withdrawn.

10. This scheme can also be availed by those taxpayers who have filed any appeal or writ petition before a High Court or the Supreme Court in respect of tax arrear and shall withdraw such writ petition. The proof of withdrawal of such appeals or writ petitions in such cases shall be filed along with the declaration.

11. This scheme can also be availed by any taxpayer who has initiated any arbitration, conciliation, or mediation, or has given any notice thereof but has to withdraw such claim in the proceedings and shall submit proof thereof along with the declaration.

12. As per the provisions of the Bill, in appeals related to disputed tax, the declarant shall only pay the whole of the disputed tax if the payment is made before the 31st day of March, 2020 and for the payments made after the 31st day of March, 2020 but on or before the last date notified by Central Government, the amount payable shall be 110 percent of disputed tax.

13. In appeals related to disputed penalty, disputed interest or disputed fee, the amount payable by the declarant shall be 25 percent. of the disputed penalty, disputed interest or disputed fee, as the case may be, if the payment is made on or before the 31st day of March, 2020. 

If payment is made after the 31st day of March, 2020 but on or before the last date notified by Central Government, the amount payable shall be increased to 30 percent of the disputed penalty, disputed interest or disputed fee, as the case may be.

14. The Bill has provided a formula to compute the disputed tax. In simpler terms, the formula refers to the tax amount demanded in the assessment order.

15. After the receipt of the declaration, the Commissioner of the Income Tax will pass an order to pay the amount under this scheme which shall be final and conclusive only in respect of the matters stated therein. The Commissioner shall also issue a certificate to the declarant in the prescribed form.

The matters not covered by the order are out of the scope of this scheme and other provisions of the Income Tax Act or any other law or agreement shall apply on the left matters.

16. The declarant must pay the amount specified in the order within fifteen days and shall intimate the Commissioner about the payment of the amount.

17. The Commissioner shall pass an order that the declarant has paid the amount in the prescribed form.

18. No interest or penalty proceedings shall be initiated against the declarant in respect of the amount paid under this scheme.

19. Any amount so paid shall not be refundable even if the declaration is found to be void at a later stage. The 'no refund' rule is applicable for disputed tax paid under this scheme only. Any tax or interest paid under the normal provisions of the Act shall always be refundable.

20. A declaration filed by a person under the provisions of this Bill shall be void if he-
(i) furnishes any false material particulars,
(ii) violates any of the conditions of this Bill,
(iii) acts in violation of his undertaking given

Under such circumstances, it shall be deemed that no relief or immunity has been given under this scheme and all the provisions of the Act shall apply.

21. The following persons cannot avail any of the provisions of this Bill-
(i) Where the assessment is framed under a search and seizure proceedings,
(ii) Where prosecution has been initiated before the declaration,
(iii) In the case of foreign assets or foreign income,
(iv) Where an assessment or reassessment is framed under receipt of information from a foreign country,
(v) Where CIT(A) has issued an enhancement of tax demand notice,
(vi) Where a detention order is issued against a person under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

The bill is very simple to understand. Apart from certain procedural provisions, the thrust of the bill is only to pay the disputed tax or interest or penalty or fees as the case may be as determined in the assessment or relevant order.

However, the following points are worthy to note about the provisions of the Bill:

1. In case any part of the disputed tax was paid earlier then the Bill does not contain any provision to adjust the same now with the demand amount of tax raised in the assessment order. It is not clear whether the entire tax arrear is required to be deposited now and then claim the taxes paid earlier as a refund.

2. Please note appeal withdrawn under this scheme is not an adjudication of the issues involved in the appeal. Hence, similar additions or disallowances may be done in the assessment in the future period.

This is a golden opportunity for assessees to clear long pending disputes not only in low demand cases but also in high demand cases.

As the explanatory statement says, "Tax disputes consume copious amount of time, energy and resources both on the part of the Government as well as taxpayers. Moreover, they also deprive the Government of the timely collection of revenue. Therefore, there is an urgent need to provide for resolution of pending tax disputes. This will not only benefit the Government by generating timely revenue but also the taxpayers who will be able to deploy the time, energy and resources saved by opting for such dispute resolution towards their business activities."

The statement further provides certain statistical figures.

Over the years, the pendency of appeals filed by taxpayers as well as Government has increased due to the fact that the number of appeals that are filed is much higher than the number of appeals that are disposed. As a result, a huge amount of disputed tax arrears is locked-up in these appeals. As on the 30th November, 2019, the amount of disputed direct tax arrears is Rs. 9.32 lakh crores. Considering that the actual direct tax collection in the financial year 2018-19 was Rs.11.37 lakh crores, the disputed tax arrears constitute nearly one year direct tax collection.

It is, therefore, proposed to introduce The Direct Tax Vivad se Vishwas Bill, 2020 for dispute resolution related to direct taxes.

Since the cut-off date of pending appeals is set as 31st January 2020, those who are assessed for undisclosed high ash deposit during the demonetization period must have filed the appeal by that date. In order to penalize those tax evaders, even changes were made in the Income Tax Act by Ordinance. Now with this scheme, they may easily escape simply by paying the taxes, though at a higher rate but saves the interest and the penalty thereon.

This appears to be unfair to honest taxpayers. This sends a signal that an honest taxpayer is stupid to have been paying his taxes all these years.

Suggested Readings:
Direct  Tax  Vivad  Se  Vishwas  Bill, 2020
Vivad se Vishwas Scheme Union Budget 2020

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