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An Outlook Of Vivad Se Vishwas Bill

Finance Minister Nirmala Sitharaman on Wednesday presented a bill in Lok Sabha which seeks to provide for resolution of disputed tax including Rs 9.32 lakh crore. Presenting the Direct Tax Vivad Se Vishwas Bill, 2020, the minister said this bill underlines on trust building.

The scheme, she stated, won't be an open-ended scheme and can be availed for a limited time. The bill looks to give a formula-based solution without any discrimination, she said. Giving the basis behind the plan, Ms Sitharaman said it will decrease the litigation expenditure for the government and at the same may help in generating some revenue.

Restricting the introduction of the bill, Congress leader Adhir Ranjan Chowdhury said the bill's name is drafted in Hindi and the government is trying to impose one specific language on the country. Simultaneously it will hurt the government's tax collection, he said.

Resounding comparative sentiments, his party colleague Shashi Tharoor said this bill violates principle of equality by equally treating honest and dishonest tax payers.

In her budget speech on February 1, Ms Sitharaman had declared Vivad se Vishwas plan to resolve 483,000 direct tax disputes pending in different tribunals. Under the scheme, taxpayers whose tax demands are locked in dispute in multiple forums can pay due assessments by March 31, 2020, and get total waiver of interest and penalty.

Inspired by the accomplishment of the Sabka Vishwas Scheme, which decreased several indirect tax disputes, the Finance Minister presented The Direct Tax Vivad se Vishwas Bill, 2020 in Parliament on February 5, 2020. Its key target is to collect taxes and at the same time reduce litigation. It offers a total waiver on interest and penalty to the taxpayers who pay their disputed taxes on or before March 31, 2020.

To extend the scope of the scheme, certain amendments to the Bill were proposed to the Parliament on February 14, 2020. The amended Bill was passed by the lower house of the Parliament on March 04, 2020 and from Upper house on March 13, 2020. Further, the legislature likewise gave FAQs to explain the provisions of the Bill and some practical perspectives. So as to become an Act it will require a further approval of President's consent.

Who is qualified to opt on the scheme?

The scheme shall be applicable to all the appeals/petitions filed by taxpayers or the income tax department, which are pending on January 31, 2020 with the accompanying discussions:
  • Commissioner of Income-tax (Appeals);
  • Income-tax Appellate Tribunal;
  • High Court; or
  • Supreme Court

Further, the scheme is additionally applicable to the following situations where, as on January 31, 2020:
  • Time limit for filing an appeal has not terminated;
  • Cases are pending before the Dispute Resolution Panel (DRP) or where DRP dealings have been passed but final assessment order is anticipated;
  • Revision petitions are pending before the Commissioner of Income-tax; and
  • Search cases where the disputed demand is not more than Rs 5 crore.

On the practical aspects, the FAQs issued by the government has explained that there are no provisions in the scheme to settle some portion of a pending dispute in relation to an appeal / petitions. The FAQs gave clarity on extent of the scheme, procedural perspectives, computational angles and consequential factors also.

On the practical aspects, the FAQs issued by the government has clarified that there are no provisions in the scheme to settle part of a pending dispute in relation to an appeal / petitions. The FAQs provide clarity on scope of the scheme, procedural aspects, computational aspects and consequential factors as well.

What is the amount payable in the scheme?

Under the scheme, taxpayers will be required to pay the following:

Appeals filed by the taxpayer:

  • Search cases
    On or before 31st march 2020 – 125% of disputed tax
    Post 31st march 2020 – 135% of disputed tax
     
  • Other than search cases
    On or before 31st march 2020 – 100% of disputed tax
    Post 31st march 2020 – 110% of disputed tax
     
  • Cases related to interest, penalty and levy
    On or before 31st march 2020 – 100% of disputed tax
    Post 31st march 2020 – 110% of disputed tax

Appeals filed by Department or the Department has lost an issue

  • Search cases
    On or before 31st march 2020 – 62.5% of disputed tax
    Post 31st march 2020 – 67.5% of disputed tax
     
  • Other than search cases
    On or before 31st march 2020 – 50% of disputed tax
    Post 31st march 2020 – 55% of disputed tax
     
  • Cases related to interest, penalty and levy
    On or before 31st march 2020 – 12.5% of disputed tax
    Post 31st march 2020 – 15% of disputed tax

Disputed tax, in relation to an assessment year, is essentially tax on disputed income.

Further, it has been clarified that if the taxpayer has already paid the disputed demand which is more than the amount payable under the scheme, the taxpayer shall be entitled to refund (but without interest on the refund due).

What is the process to settle the tax dispute under the scheme?

Under the tax dispute resolution scheme, an individual taxpayer has to complete the following steps by March 31, 2020 to avail the benefit of complete waiver of interest and penalty:
  1. Step 1: Taxpayer has to file a declaration in a specified Form (which is yet to be notified) to the designated authority (Principal Chief Commissioner shall designate an officer, not below the rank of a Commissioner of Income-tax as the designated authority) to initiate resolution of pending direct tax disputes. Along with the declaration, the taxpayer has to also furnish an undertaking in a specified format (which is also yet to be notified) waiving his right to pursue any other remedy.
     
  2. Step 2: Based on the declaration, within 15 days, the designated authority will determine the amount payable by the Applicant and grant a certificate, containing particulars of the amount payable. It has been clarified that the applicant will not be able to file any appeal in case it does not agree to the amount determined by designated authority.
     
  3. Step 3: The Applicant has to make the payment of the said amount within the next 15 days and submit the proof of withdrawal of appeal. The proof of appeal could either be an order dismissing the appeal due to withdrawal or can be the application filed to withdraw the appeal.
     
  4. Step 4: The designated tax authority will then pass an order, which shall be conclusive as to the matters stated therein.
However, in case the above four steps are not completed by March 31, 2020, then there will be an additional payment as discussed in the table above.

What is the last date for “Vivad se Vishwas” scheme?

While the Bill passed in the lower house of the Parliament says that the last date will be later notified, however, the Finance Minister in her budget speech had mentioned that the same shall be open until June 30, 2020. Further, an advertisement on the income tax website also suggests that the last date of the scheme is June 30, 2020. An appropriate clarification in this regard is still needed from the government.

What advantage the taxpayer gets, when the case is settled under the scheme?

Aside from waiver of interest and penalty, the taxpayer will likewise get the accompanying immunities once the case is settled under the scheme:
  • Such cases can't be reopened in any other proceeding by any tax authority or designated authority;
  • Once the dispute has been settled, an appellate forum cannot issue an order in relation to the issue; and
  • Opting for the scheme shall not amount to conceding the tax position and tax authority cannot claim that taxpayer has acquiesced to the decision on the disputed issue.

What are the factors that a taxpayer should consider while opting for the scheme?

Though the scheme prima-facie seems to be attractive as it waives interest and penalty, an individual taxpayer has to analyse various aspects before opting to settle in the scheme. Some of the aspects to be looked at include how strong are merits of the case, expected cost of litigating the matter, implications of carried forward losses, cash flow considerations etc.

It is also a burden for an individual to litigate a tax matter and therefore, if the merits of the case are weak and there is lack of adequate documentary evidences to substantiate ones claim, it is better to settle by paying taxes rather than unforeseen fate of litigation.

Conclusion
Fundamentally, the scheme is the government's initiative to reduce disputes and furthermore collect the revenues clogged in long pending litigations. Every steps of government means show the eagerness of the government in contacting the taxpayer to empower settlement of long pending disputes.

The Central Board of Direct Taxes (CBDT) has already stated advertising the scheme in leading newspapers and furthermore inside directed all revenue officials to take appropriate steps to ensure that taxpayers take the benefits available under the scheme and settle disputes.

In spite of the fact that these are steps in the right direction towards building taxpayers "Vishwas", implementation of the scheme may pose certain practical challenges given the cut off of March 31, 2020 is fast approaching. Remembering this, the government ought to consider extending this date with the goal that taxpayer have adequate time to avail the benefits of the scheme.

It may not be inappropriate to say that this is indeed a golden opportunity for taxpayers to resolve the disputes if they believe the litigation are not worth their time and efforts, and start evaluating their cases.   

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