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The Direct Tax Dispute Resolution Scheme 2016.

01-Jun-2016

  1. Why the central government has announced such scheme?
  • Now a days litigation has been a major area of concern in direct tax era. To reduce the huge backlog of cases, to minimize the illogical disputed dues and to enable the government to realize the genuine dues expeditiously, for this purpose it is proposed to being the direct tax dispute resolution scheme 2016 in relation to tax arrears and specified taxes. Even the TARK(Tax Administration reform committee) had pointed out from time to time, since, Sept 2014 to reduce the exorbitant tax assessment and thereby disputed tax demand because of this the government is bound to introduce such scheme.    

  1. Whether such scheme had been announced earlier? When? What was the result?
  • There is no such scheme announced by the central government prior to the scheme. In other words this is the 1st ime when the central government had offered an opportunity to the concerned assessee to come out of the tax litigations & sleep well. However KAR VIVAD SAMADHAN Scheme 1998 was introduced with a memorandum explaining provisions of the scheme state that the said scheme seek to provide a quick and voluntary settlement of tax dues outstanding as on 31/3/1998, by offering waiver of a part of the arrear taxes and interest and providing immunity against institution of prosecution & imposition of penalty. The scheme had a moderate success.        

  1. What is the purpose behind announcement of such scheme?
  •  As mentioned earlier & it is experienced by the government from time to time, various unwarranted tax dispute and tax demand had been arisen both from tax payers and tax assessment authorities. To reduce such unwarranted tax disputes and to concentrate on realization of rational tax demand, the government had proposed the above mentioned scheme. Hon. Finance minister in his budget speech 2016 pointed out that, litigation is scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the tax payers and administrative cost for the government.      

  1. How much period is covered by the scheme?
  • In fact the finance minister had announced this scheme in his budget but it had not been notified. Whereas, it is defined that the scheme shall come into force from 1st June 2016.

  1. Who is eligible to opt the scheme?
  • All such assesses who’s cases are in appeal at 1st appellate level that is the commissioner appeal are required to be covered under the scheme. The scheme defines, inter alia, two terms, viz.”Specified tax” and tax arrears”. “Specified tax” pertains to a tax dispute which is pending as on 29th Feb, 2016, as a result of retrospective amendment. Whereas, “tax arrears” means tax, interest or penalty determined under the Income-tax Act or the Wealth-tax Act, 1957 in respect of which appeal is pending before the Commissioner of Income-tax (Appeals) or the Commissioner of wealth-tax (Appeals) as on the 29th day of February 2016.      

  1. Under the scheme who has to pay tax? How to pay tax and what about interest & penalty?
  • Notwithstanding anything contained in the income tax act or any law for the time being in force amount payable under the scheme IS

Sr No.

Particulars

Tax and interest

Penalty

1.

  1. Being Tax and interest (against an assessment order)

(i) where Disputed tax < 10 lacs  

Whole of Disputed tax and interest thereon till the date of assessment/reassessment

NIL

        (ii) in any other case

Whole of Disputed tax and interest thereon till the date of assessment/reassessment

25% of the minimum penalty leviable  

  1. Pending appeal relates to penalty order

The tax and interest payable on the total income finally determined

25% of the minimum penalty leviable  

2.

  1. In case of Specified Tax (tax dispute on account of retrospective amendment)  

Amount of such tax so determined

NIL

  1. What are the benefits to the assessee if this scheme is opted?
  • Immunity from initiation of proceedings in respect of offence and imposition of penalty in certain cases
  1. The designated authority shall grant –
  1. Immunity from instituting any proceedings in respect of an offence under the income-tax act or wealth tax act
  2. Immunity from imposition or waiver of penalty under the income-tax act or wealth-tax act in respect of specified tax or tax arrears covered in declaration to the extent the penalty exceeds the amount of penalty referred as per the scheme (difference between the penalty leviable and penalty as per scheme)
  3. Waiver of interest under the income tax act or wealth tax act in respect of specified tax covered in declaration or tax arrears covered in declaration to the extent the interest exceeds the amount of interest referred in the scheme i.e.(interest on leviable and interest till the date of assessment or reassessment)

   

  1. Who are not eligible for the scheme?
  • The provisions of the Scheme would not apply:
  1. In respect of tax Scheme would not apply,-
  1. Relating to an assessment year in respect of which an assessment has been made under section 153A or 153C of the Income-Tax act or assessment or reassessment for any of the assessment years, in consequence of a search initiated under section 37A or requisition made under section 37B of the Wealth tax act if it relates to any tax arrears (i.e. search assessment);
  2. Relating to an assessment or reassessment in respect of which a survey conducted under section 133A of the Income-Tax act or section 38A of the Wealth-tax act, has a bearing if it relates to any tax arrears;
  3.  Relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration;
  4. Relating to any undisclosed income from a source located outside India or undisclosed asset located outside India;
  5. Relating to an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the income-tax act, if it relates to any tax arrears;
  1. To any person in respect of whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974; if
  1. Such order of detention, being an order to which the provisions of section 9 or section 12A of the said Act do not apply, has not been revoked on the report of the Advisory Board under section 8 of the said act  or before the receipt of the report of the Advisory board; or
  2. Such order of detention, being an order to which the provisions of section 9 of the said act apply, has not been revoked before the expiry of the time for, or on the basis of, the review under sub-section (3) of section 9, or on the report of the Advisory Board under section 8, read with sub-section(2) of section 9, of the said Act; or
  3. Such order of detention, being an order to which the provisions of section 12A of the said Act apply, has not been revoked before the expiry of the time for, or on the basis of, the first review under sub-section (3) of that section, r on the basis of the report of the Advisory Board under section 8, read with sub-section (6) of section 12A, of the said Act: or
  4. Such order of detention has not been set aside by a court of competent jurisdiction;
  1. To any person in respect of whom prosecution for any offence punishable under the provisions of the Indian Penal Code, the Unlawful Activities(prevention) Act, 1967, the narcotic Drugs and Psychotropic  Substances Act, 1985, the prevention of Corruption Act, 1988 or for the purpose of enforcement of any civil liability has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any of those Acts;
  2. To any person notified under section 3 of the Special Court (Trial of Offences Relating to transactions in securities)Act, 1992

  1. Whether the scheme can be partially opted? how?
  • Unless the detail procedure of the scheme is notified under relevant acts such as income tax or wealth tax as it cannot be said now that the scheme can be opted for partially. The scheme as announced by the finance minister in his speech does not allow partial application and the litigation beyond 1st appellate authority that is commissioner appeals. this questions really can be only answered after it is defined in the relevant direct tax act.  

  1. Whether the scheme is applicable for any undisputed tax, interest or penalty?
  • No.  As per the scheme announced by hon finance minister in his budget on 29th Feb 2016 and the basic purpose of the scheme to reduce the tax litigation, it seems that the scheme is restricted to disputed tax arrears and specified tax. The scheme carves too different classes for settlement of dispute
  1. Arising on account of retrospective amendment pending before any forum
  2. Arising on account of any other dispute and pending before CIT Appeal.

In fact the picture will be more clear when the actual scheme is notified in the act.  

  1. What is the period covered under the scheme?
  •  As per the announcement made in the finance budget the scheme will be applicable for the tax arrears and specified tax litigated upto 29th Feb 2016. However the actual picture will be clear only when the scheme is notified under relevant act.

  1. Whether the scheme will be successful? how?
  • Primafacie the scheme since to be positive and beneficiary. However it is pertinent to note that under the direct tax regime he quantum appeal & penalty appeal are separately assessed. If a particular assessee is under litigation for quantum appeal comprising of tax & interest and penalty had not been levied in that case what benefit such assessee is going to get is a matter of fact. We have already raised this question before hon. CBDT as per the press release of Hon. CBDT dtd 12 May 2016 . the clarification is awaited. In our opinion if the assessee is under dispute with CIT Appeal for tax and interest he could not be benefited of the scheme because penalty proceedings have not been initiated. However the picture will be more clear after notification of the scheme of the relevant act.      

  1. What are the demerits of the scheme? how?
  •  The scheme is not applicable to all types of disputes, all types of assessee or undisputed tax, interest & penalty arrears. The determination of specified tax & tax arrears itself is a task of dispute to decide. Even the slight mistake in compliance of formalities can deprive such assessee to take benefit. It is a prime condition of the scheme about the unconditional withdrawal of appeal before CIT Appeals & if the assessee is deprived of the benefits of the scheme because of any technical reason, in this situation, such assessee will be nowhere. Even the issues discuss in our earlier point about tax, interest & penalty is also not beneficial Primafacie to such assesses.

  1. What are the formalities to be completed to get successful benefit of the scheme?
  • Person may make declaration in prescribed form in respect of tax arrears and specified tax on or after the date of commencement of the scheme i.e. 01.06.2016 but before date to be notified, to a designated authority i.e. Commissioner of Income Tax.

Where declaration is w.r.t. tax arrears consequent to such declaration, appeal in respect of the disputed income and disputed wealth and tax arrears pending before the Commissioner (Appeals) shall be deemed to have been withdrawn.

Where declaration is in respect of specified tax, such declarant shall be required to withdraw any appeal/ or writ petition (wherever applicable) filed against such specified tax before the Commissioner (Appeals) or the Tribunal or High Court or Supreme Court, before making the declaration and shall also be required to furnish a proof of such withdrawal.

Further if any proceeding for arbitration conciliation or mediation has been initiated by the declarant or he has given any notice under any law or agreement unto by India, whether for protection of investment or otherwise, he shall be required to withdraw such notice or claim for availing benefits under this scheme.

It is proposed that person making declaration in respect of specified tax shall be required to furnish an undertaking in the prescribed form and verified in the prescribed manner, waiving the right, whether direct or Indirect, to seek or pursue any remedy or claim in relation to the specified tax which otherwise be available to them under any law, in equity, by statute or under an agreement, whether for protection of investment or otherwise, entered into by India with a country or territory outside India.

It is proposed that no Appellate authority or Arbitrator or Conciliator or Mediator shall proceed to decide an issue relating to the specified tax mentioned in the declaration in respect of which an order is made by the designated authority or in respect of the payment of the sum determined to be payable.

It is proposed that where the declarant violates any of the conditions referred to in the scheme or any material particular furnished I the declaration in found to be false at any stage, it shall be presumed as if the declaration was never made under this scheme and all the consequences under the income-tax act or wealth tax act under which the proceedings against declarant were pending, shall be deemed to have been revived.

Time and manner of payment:    

  1. The designated authority within 60 days from the date of receipt of declaration determine the amount payable by declarant and grant a certificate stating the particulars of the tax arrears or specified tax and the sum payable.
  2. The declarant shall pay the amount stated the certificate within 30 days of its receipt and intimate the same to the designated authority along with proof and the designated authority shall thereupon pass an order stating that the declarant ha paid the sum
  3. The order passed shall be conclusive as to matters stated therein and no matter covered by such order shall be re-opened in any other proceeding under  income-tax act, wealth-tax act or any other law or agreement entered into by India with any other country or territory outside India.  

The scheme is optional

Any amount paid under the scheme at any time will not be refunded in any case.  

The hon CBDT had issued a notification No. SO1903 (E) dtd 26th may 2016 and notified all the rules & prescribed forms about the direct tax dispute resolution scheme.

 

  1.  Whether the scheme is not a curse to the genuine tax payers?  How?
  • Primafacie the scheme may could be a curse to the genuine tax payers. According to article 14 of the constitution of India it is violation of the said article. Meanwhile the hon supreme court had also remarked on the scheme. In case of All India Federation Of Tax Practitioners V UOI (1998) (101 taxman 401) (Delhi) it has been held that classification between litigants who are in arrears of tax and those who are not in arrears of tax irrespective of whether tax was paid voluntarily by assessee or realized involuntarily by department resorting to coercive means of recovery or by making adjustment could not be held arbitrary or unreasonable in view of two-fold objectives sought to be achieved by scheme.

       

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