2023 (9) TMI 894 - HC - Income Tax

Validity of rejection of the declarations filed by petitioner under the DTVSV Act - prosecution u/s. 276C(2) of the Income Tax Act - whether the provisions of DTVSV Act shall apply to petitioner? - HELD THAT - Petitioner s case would come under sub-clause (ii) of Section 9(a) which says provisions of the DTVSV Act would not apply in respect of tax arrear relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration. Therefore, the prosecution must be in respect of tax arrear relating to an assessment year. As held in Macrotech 2021 (3) TMI 1089 - BOMBAY HIGH COURT the intention of the legislature was that the provisions of DTVSV Act shall not, in view of Section 9(a)(ii), apply in the case of a declarant in whose case a prosecution has been instituted in respect of tax arrear relating to an assessment year on or before the date of filing of declaration. The prosecution has to be in respect of tax arrear which naturally is relatable to an assessment year. In Macrotech (Supra) also the facts were that the prosecution had been initiated against petitioner therein under Section 276C(2)of the Act because of the delayed payment of the balance amount of the self assessment tax. The Court held that such delayed payment cannot be construed to be a tax arrear within the meaning of Section 2(1)(o) of the Act. Therefore, such a prosecution cannot be said to be in respect of tax arrear and hence, petitioner in that case was declared to be entitled to file a declaration under the DTVSV Act. As permissible under Office Memorandum F. No.404/72/93-ITCC dated 31st July 2017, petitioner had even deposited 20% of the demand and hence, is not an assessee in default. Later, Mr. Sridharan stated that the entire amount has been paid. We must also note that under Section 9(a)(ii) of DTVSV Act, the only exclusion visualised is a pendency of prosecution in respect of tax arrear relatable to an assessment year as on the date of filing the declaration and not pendency of a prosecution in respect of an assessment year on any issue. In the petition before us also prosecution has been instituted against petitioner under Section 276C(2) of the Act. Therefore, in our view, Macrotech (Supra) will squarely apply to the facts and circumstances of this case. The declaration of petitioner filed on 31st January 2021 for Assessment Years 2010-2011 and 2011-2012 would have to be decided by respondent no. 1 in conformity with the provisions of DTVSV Act.

Summary

Issues Involved:
1. Legality of rejection of declaration under the Direct Tax Vivad Se Vishwas Act 2020 (DTVSV Act).
2. Validity of the clarification issued by respondent no. 2 in Circular No. 21/2020.

Summary:

Issue 1: Legality of rejection of declaration under the DTVSV Act

The petitioner challenged the rejection by respondent no. 1 of the declaration filed on 31st January 2021 under the DTVSV Act for Assessment Years 2010-2011 and 2011-2012. The rejection was based on the initiation of prosecution under Section 276C(2) of the Income Tax Act. The petitioner argued that the bar against the applicability of the DTVSV Act is only when the prosecution relates to tax arrear. The court noted that the purpose of the DTVSV Act is to reduce litigations in direct taxes by allowing taxpayers to settle pending disputes. The court referred to the judgment in Macrotech Developers Ltd. v. Principal Commissioner of Income Tax, which clarified that the DTVSV Act does not apply if prosecution is related to tax arrear. The court concluded that the prosecution in the petitioner's case was not related to tax arrear and thus, the rejection of the declaration was invalid.

Issue 2: Validity of the clarification issued by respondent no. 2 in Circular No. 21/2020

The petitioner also challenged the validity of the clarification issued by respondent no. 2 in reply to question no. 73 in Circular No. 21/2020, which stated that any pending prosecution disqualifies a taxpayer from the DTVSV Act. The court found that this clarification was not in alignment with the legislative intent as held in Macrotech Developers Ltd. The court reiterated that the ineligibility under Section 9(a)(ii) of the DTVSV Act is only in respect of tax arrear related to an assessment year and not any prosecution for that assessment year. The court set aside and quashed the clarification in question no. 73 of Circular No. 21/2020.

Conclusion:

The court allowed the petition, directing respondent no. 1 to decide the petitioner's declaration in conformity with the provisions of the DTVSV Act. The petition was disposed of with no order as to costs.