India: The Direct Tax Vivad Se Vishwas Bill, 2020

The Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 was brought in to reduce pending indirect tax litigation. At the time of tabling the Finance Bill, 2020, the Hon’ble Finance Minister(FM) in her Budget Speech on 01 February 2020 proposed to bring a similar scheme for reducing pending direct tax litigations, which are to the tune of 483,000 cases. In line with her announcement, the FM tabled the Direct Tax Vivad Se Vishwas Bill, 2020¹  (‘the Bill’) before Lower House of the Parliament on 5 February 2020.

We, at BDO in India, have analyzed and summarized the key provisions of the Bill.

Applicability

• The Bill is applicable to the appeals (whether filed by the taxpayer or the Revenue Authority) pending as on 31 January 2020, before any of the following appellate forum:
  • Supreme Court; or
  • High Courts; or
  • Income Tax Appellant Tribunals (‘ITAT’); or
  • First Appellate Authority.
• The Bill is applicable to tax arrears. The tax arrears have been defined to mean:
  • The aggregate amount of disputed tax, interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax; or
  • Disputed interest; or
  • Disputed penalty; or
  • Disputed fee

as determined under the provisions of the Income-tax Act, 1961 (‘the IT Act’).

• The last date for availing the benefit under this Bill will be notified by the Central Government.

Dispute Resolution Procedure

• The Taxpayer, who wishes to opt to be governed by the Bill, should file a declaration before the Designated Authority (i.e. Commissioner of Income-tax) in the prescribed form as well as provide an undertaking waiving his right to seek or pursue any remedy or any claim in relation to the tax arrears.
• Upon filing of such declaration, any appeal pending before the ITAT / First Appellate Authority shall be deemed to have been withdrawn.
• Where the taxpayer has filed any appeal or writ petition before the higher appellate forum i.e. the High Court or the Supreme Court, such an appeal or writ petition should be withdrawn with leave of the Court and a proof of such withdrawal along with the declaration should be filed with the Designated Authority.
• If any proceeding for arbitration, conciliation or mediation has been initiated by the Taxpayer, or any notice thereof has been given by the Taxpayer under any law or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise, the Taxpayer shall withdraw the claim.
• No appellate forum or arbitrator, conciliator or mediator shall proceed to decide any issue relating to the tax arrear mentioned in the declaration in respect of which an order has been made by the Designated Authority or the payment of sum determined under that section.
• The Designated Authority shall, within 15 days from the date of receipt of the declaration, by order, determine the amount payable by the taxpayer and grant a certificate to the taxpayer containing the particulars of the tax arrear and the amount payable after such determination.
• The taxpayer shall pay the amount within 15 days from the date of receipt of the certificate and intimate the details of such payment to the Designated Authority.
• On receipt of the payment intimation from the taxpayer, the Designated Authority shall pass an order stating that the declarant has paid the amount.
• Every such order passed shall be conclusive and no matter covered by such order shall be reopened in any other proceedings under the IT Act or any other law.
• It is provided that the Designated Authority shall not institute any proceeding in respect of an offence or impose or levy any penalty or charge any interest under the IT Act in respect of tax arrears.

Tax demand to be paid

• Depending upon the nature of tax arrears, the amount payable by the taxpayer under the Bill is tabulated hereunder:

• The term disputed tax is defined to mean tax determined under the IT Act in accordance with the following formula:

(A – B) + (C – D) where,

A =  tax on the total assessed income under the normal provisions of the IT Act other than provisions of Minimum Alternate Tax (MAT) under section 115JB and Alternate Minimum Tax (AMT) under section 115JC;

B = tax on the total assessed income under the normal provisions of the IT Act less income in respect of which appeal has been filed by the Taxpayer;

C = Tax on total income under MAT and AMT  provisions;

D =  Tax on assessed income under MAT and AMT provisions less income in respect of which appeal has been filed by the Taxpayer;

It is also provided that,

• Where the amount of income in respect of which appeal has been filed by the Taxpayer is considered both under the normal provisions and MAT/AMT provisions, , such amount shall not be reduced from total income assessed while determining the amount under item D.
• Where the MAT/AMT provisions are not applicable, the item (C – D) in the formula shall be ignored.
• In case where income in respect of which appeal has been filed has the effect of reducing loss or converting loss into income, the above formula would apply with specified modifications.
• Disputed tax included tax determined on account of defaults in TDS and TCS provisions.
• Any amount paid in pursuance of a declaration made under this Bill shall not be refundable.

Withdrawal of the benefit

• The proceedings / claims withdrawn shall be deemed to have revived in case where:-
  • incorrect material particulars furnished in declaration;
  • taxpayer violates any of the conditions referred in this Act;
  • acts in manner not in accordance with the undertaking given by him. 

Cases where the benefit of Bill cannot be availed:

• In respect of tax arrear in relation to:
  • Which an assessment has been made under section 153A or section 153C of the IT Act, if it relates to any tax arrear;
  • Which prosecution has been initiated on or before the date of filing of declaration;
  • any undisclosed income from a source outside India or undisclosed asset located outside India;
  • an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the IT Act, if it relates to any tax arrear;
  • appeal before the first appellate authority in respect of which notice of enhancement under section 251 of the IT Act has been issued on or before the specified date.
• In respect of a person:
  • to whom an order of detention has been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 on or before the filing of declaration. Certain exceptions have been prescribed.
  • to 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, the Prevention of Money Laundering Act, 2002, the Prohibition of Benami Property Transactions 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;
  • notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 on or before the filing of declaration.

Procedural Rules to be framed

The Central Government shall make rules for carrying out the provisions of this Act, which shall provide:

• the form in which declaration may be made and the manner of verification
• the form and manner in which the Taxpayer shall furnish undertaking
• the form in which certificate shall be granted
• the form in which payment shall be intimated

BDO Comments

The Bill proposes to bring into its ambit all the pending proceedings (including the appeal preferred by the Revenue Authority), subject to certain exclusion. Indeed, it is a welcome move as it could help in bringing an end to huge pending litigations. This will also reduce the litigation cost spent by taxpayer and the Revenue Authorities alike. However, there are certain issues (as under) which need to be ironed out so that the Bill can achieve its desired purpose:

• Clarity on whether credit for taxes paid (say 20% of tax paid for getting stay on the demand) shall be available against the tax demand determined under the Bill.
• In the budget of 2009, the Government instituted a Dispute Resolution Panel (DRP) to fast-track resolution of cases involving non-residents or transfer pricing. DRP is an alternate dispute resolution to the First Appellate Authority. Further, its powers are co-terminus that of First Appellate Authority. While appeals before First Appellate Authority have been covered by the Bill, in cases where taxpayers have objections pending before the DRP are left out.
• Where there are two appeals filed for same year – one by the Taxpayer and one by the Revenue Authorities, whether the taxpayer can opt to for only one appeal? If yes, how would the disputed tax be computed?
• There is no time limit prescribed for the Designated Authority to pass order once the taxpayer intimates the payment of taxes.

Footnotes

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.