Introduction: During the Union Budget 2020 presentation, Finance Minister Nirmala Sitharaman announced to provide the “Vivad se Vishwas” scheme to settle a dispute between Taxpayers and Taxman. The Act provides a lucrative opportunity to resolve Tax dispute by paying only Tax amount and waiving interest and penalty on their pending cases. The Scheme was introduced on 5th February 2020 whereas it was passed from Lok Sabha on 14th March 2020. Later, the Bill received Presidents Assent and was published in Official Gazette on 17th March 2020. The “Direct Tax: Vivad Se Vishwas Act, 2020” hereinafter referred to as the “Act”.
Objectives of the Act: The Act is similar to the previous scheme “Sabka Vishwas Scheme” introduced under the Income Tax Act. There is huge amount of finance that has been stuck in litigation. Indeed the litigation consumes a copious amount of resources as well as time and energy not only on the part of Government but on the part of taxpayers too. Therefore, to provide an urgent resolution for the pending litigation, the Act was enacted. The objectives of Act are as follows-
- To reduce the income tax pending litigations.
- To help Government to generate timely revenue.
- Helpful for taxpayers; as it provides an opportunity for Tax Payers to end their dispute by paying disputed tax amount and get a waiver from the payment of interest and penalty.
- The Act seems beneficial for the TaxPayers as they can deploy their time and resources in their business by opting for dispute resolution.
Important of Definitions: Section 2 of the Vivad se Vishwas Act provides important definitions under the Act-
- Declaration: The definition of the word “Declaration” is provided in the sub-clause (d) of Section 2 which means the declaration filed under section 4 of the Act. Basically, the declaration means the form filled by Declarant provided under the Act.
- Declarant: Section 2(c) of the Act provides a definition of the “declarant” means a person who files declaration. In a simple language, an assessee under the Income Tax Act is a declarant.
- Dispute Resolution Panel: Dispute Resolution Panel is not defined in the Vivad se Vishwas Act but it is an Alternative Dispute Resolution mechanism. This panel is relating to transfer pricing in International Transactions. The DRP is mentioned under this Act is related to Section 144C of the Income Tax Act which comes into picture when there is a dispute between Foreign Company and any person in whose case Assessing Officer proposes to make variation under the return filed by such person.
Significant Aspects of the Act: The significant points under the Act are as follows-
- The amount paid in pursuance of the declaration is not refundable under any circumstances. In case the declarant before filing the declaration had paid the amount in respect of his tax arrears. Then the exceeded amount payable under the Act shall be entitled to refund.
- The Appeal shall be withdrawn from the ITAT or CIT(A) under Form-3 after the certificate is issued by designated Authority.
- The Appeal shall be withdrawn from all the Appellate Forum such as High Court or Supreme Court or Arbitration or Conciliation or Mediation after issuance of the certificate in Form-4.
- If any false particular is furnished by the Declarant which violates any conditions or does not act according to the undertaking furnished in Form-2, it shall be presumed that declaration is never made and all the consequences under Income Tax Act, 1961 will be revived.
Eligibility under the Act: Section 2 of the Act provides definitions under which clause (a) defines “Appellant” as a person whose case is pending before any of the Appellate Tribunal. There are five further sub-clauses to define the term appellant. The clauses are as follows-
- Appellant is a person in whose case Writ Petition, Appeal or Special Leave Petition has been filed by the Tax Payer or by the Income Tax Authority before Appellate Forum and is pending as on 31st January 2020. The time duration to file an appeal has not expired as on the aforementioned date.
- A person whose case has been decided by Assessing Officer or the order has been passed by the Commissioner of Income Tax, Income Tax Appellant Tribunal or by the High Court.
- A person who has filed his objection before the Dispute Resolution Panel under Section 144C of Income Tax Act, 1961 and the Dispute Resolution Panel has not issued any direction or before the specified date.
- A person in who’s the Dispute Resolution panel has issued a direction under sub-section (5) of section 144C of the Income Tax Act and the Assessing Officer has not passed any order under sub-section (13) of that section on or before the specified date.
- A person who has filed an application for revision under Section 264 of Income Tax Act, 1961 and such application is pending on the specified date i.e., 31st January 2020.
Amount Payable under the Act: The payment of the amount is given under Section 3 of the Act. But before understanding the amount payable we shall understand the two types of cases covered under the aforementioned section. The two types of cases are Search Cases and Other Cases. Section 132 of the Income Tax Act, 1961, empowers the Principal Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner to authorize proceedings. Proceedings here mean to conduct a search under Section 132. The authorized officer has the power to search any building, bank lock up, search person, make note of inventory, seizure, etc. The second types of case are cases other than Search Cases. Section 3 deals with Appeals filed under Search Cases and appeal filed under other cases except for search cases. The amount payable is further divided into two broad categories-
- When the Appeal is filed by the Taxpayer.
- When the Appeal is filed by the Tax Department.
|APPEAL IS FILED BY TAXPAYER|
|DISPUTED AMOUNT||IN SEARCH CASES||IN OTHER CASES|
|TAX||100% + 25 % = 125% of Disputed Tax Amount||100 % of Disputed Tax|
|APPEAL FILED BY TAX DEPARTMENT|
|DISPUTED AMOUNT||IN SEARCH CASES||IN OTHER CASES|
|TAX||50% + 12.5% = 62.5% of Disputed Tax Amount||50% of Disputed Tax Amount|
The procedure of the Act: The procedure of the Act is given under Section 4 and 5. There are five forms provided by the Act which have to be filed during a different time. The Assessee who is Declarant in the Act shall furnish a declaration in ‘Form-1″ which consists of details of eligibility, tax, disputes, tax arrears, etc. along with an undertaking is to be submitted in “Form-2” regarding waiving his/her right to seek or pursue any remedy. Thereafter, Form-3 is granted by the authority after payment done by Declarant and in Form-4 Declarant shall intimate the authority about the payment. Thereupon, the designated Authority shall pass an order in “Form-5” stating that declarant has paid the Amount. The step-wise procedure is given as follows-
Step 1: The first step is to file a declaration in “Form-1” under section 4(1) before the designated authority. The ?Form-1? is accompanied by undertaking in “Form-2′ regarding waving his/her right, to seek or pursue any remedy, etc.
Step 2: Within 15 days of filing declaration in previous steps the Authority will grant a certificate in “Form-3” under section 5(1) containing particulars of tax arrears and the amount payable.
Step 3: Within 15 days of the above procedure the Declarant shall pay the amount and after payment shall intimate the authority through “Form-4”. The payment is done under Section 5(2) and Declarant shall withdraw appeal and proceedings under Section 4(3) and (4) of the Act. The proof of withdrawal along with intimation of payment is submitted to Designated Authority.
Step 4: Thereupon, the designated authority shall pass an order in “Form 5” stating that Declarant has paid the amount under Section 5 of the Act.
Exceptions: The Act does not apply under certain conditions which are mentioned under Section 9 of the Vivad se Vishwas Act. The cases where Act does not apply are as follows-
- Search Cases where the disputed tax is more than Rs. 5 Crore.
- Cases wherein the prosecution has been initiated under the Income Tax Act with the Indian Penal Code.
- Cases wherein foreign income and assets are undisclosed.
- Cases where the information is received from the Foreign Jurisdiction.
- Cases wherein the person is involved under the Foreign Exchange and Prevention of Smuggling Activities Act, 1974 or under Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992 or detained under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.
- Cases where the following Acts are invoked –
- Narcotic Drugs and Psychotropic Substances Act
- Unlawful Activities (Prevention) Act
- Prevention of Corruption Act
- Conservation of Foreign Exchange and Prevention of Smuggling Activities Act
- Prevention of Money Laundering Act
- Prohibition of Benami Property Transactions Act.
Conclusion: The Hon’ble Finance Minister Nirmala Sitharaman in a press conference on 24th March 2020 announced the deadline for settling disputes under Vivad se Vishwas Act has been extended to 30th June 2020. Previously the last date was 31st March 2020 and thereafter the scheme was scheduled to close on 30th June 2020 for which interest and penalty were to be charged. But due to Novel Corona Virus Pandemic, the date has been extended to 30th June 2020 and will not attract any interest or penalty. Before going to the scheme it shall be noted by Tax Payer that dispute settled cannot be reopened in any other proceeding as per the scheme.
- THE DIRECT TAX VIVAD SE VISHWAS BILL, 2020.
- Analysis of Direct Tax Vivad se Vishwas Bill 2020; ?06 Feb 2020; https://taxguru.in/income-tax/analysis-direct-tax-vivad-se-vishwas-bill-2020.html
- Direct Tax Vivad Se Vishwas Bill,2020 “Brief Study; “16 Mar 2020; https://taxguru.in/income-tax/direct-tax-vivad-se-vishwas-bill-2020-brief-study.html
- Vivad se Vishwas scheme: Interest, penalty waived for entire scheme period; Mar 24, 2020; The Economic Times; https://economictimes.indiatimes.com/wealth/tax/vivad-se-vishwas-scheme-interest-penalty-waived-for-entire-scheme-period/articleshow/74794883.cms
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