2024 (12) TMI 774 - HC - Income Tax

Statutory interest payment u/s 244A survival on settlement under the Direct Tax Vivad Se Vishwas Act, 2020 - whether the statutory interest payable under Section 244A and which right, according to the writ petitioner, had accrued and crystallized prior to the submission of the requisite forms in terms of Sections 3 and 4 of the VSV, would survive notwithstanding the determination of the settlement amount under Section 4 thereof? - HELD THAT - A conjoint reading of the definition of the words appellant and disputed tax thus leads us to the irresistible conclusion that once an appeal preferred by the Revenue also comes to be included in the application submitted for settlement, all disputes forming the subject matter of that appeal as well as the potential outcome of such a challenge would become the subject of closure and discontinuance. The tax liability arising from such appeal sets would thus be governed exclusively by the VSV. As is manifest from the record, the application for settlement that the petitioner chose to submit under the VSV was not confined to the issues that emanated from its appeal alone. That application sought closure and settlement of all disputes which could be said to form the subject matter of the competing cross-appeals. The closure that was sought, therefore, was in respect of the entire gamut of disputes that formed the subject matter of those appeal sets. We note that in terms of Section 4 (2) of the IT Act, upon the filing of a declaration and the issuance of a certificate as contemplated under Section 5(1), any appeal pending before any authority in respect of disputed income, interest, or penalty is by way of a legal fiction deemed to be withdrawn from the date of issuance of such a certificate. The issuance of the certificate under Section 5 thus would have led to both the appeals being rendered a closure and all aspects of disputation being rendered a quietus. Firstly, and at the outset, it is manifest that clause (B) would not apply to the facts of the present case since admittedly both sets of appeals were pending on the specified date. In any event, we find ourselves unable to interpret the phrase giving effect to the order so passed; as relieving an appellant of the obligations that would flow when a composite application is preferred under the VSV, and which is intended to terminate a pending challenge raised at the behest of the Revenue and thus seeking to avoid a potential adverse decision thereon. The phrase giving effect to the order so passed would thus have to be construed accordingly. From the disclosures which are made in the rejoinder affidavit, we find that a total amount of INR 39,85,83,552/- was ultimately computed by the respondents as payable for AYs 2001-02 to 2004-05. The Form 5 s for AYs 2001-02, 2002-03 and 2004-05 came to be issued on 12 February 2021. For AY 2003-04, Form 5 was drawn and communicated to the writ petitioner on 10 November 2021. The amount as computed and noted above was ultimately released and refunded to the petitioner only on 13 February 2023. No plausible explanation has been proffered for the delay between February and November 2021 up to February 2023 and why the amount as determined as refundable was not released with due expedition. Thus, while we negate the claim for interest under Section 244A of the IT Act, we dispose of the writ petition by providing that the respondents would be obligated to pay interest @ 5% p.a. on account of the delay caused in the release of the amount as determined under the VSV. They would consequently be liable to pay interest for the period between February and November 2021 up to February 2023 on the amounts as determined to be payable to the petitioner.

Summary

Issues Involved:

1. Whether the statutory interest under Section 244A of the Income Tax Act, 1961, survives post-settlement under the Direct Tax Vivad Se Vishwas Act, 2020.
2. The interpretation of "disputed tax" and "tax arrears" under the VSV.
3. The applicability of interest for delayed refund under the VSV.

Detailed Analysis:

1. Interest under Section 244A:

The petitioner argued that the statutory interest under Section 244A of the Income Tax Act, 1961, accrued before the submission of forms under the Direct Tax Vivad Se Vishwas Act, 2020 (VSV), should survive despite the settlement. The petitioner contended that the interest was due because the Assessing Officer failed to pass an appeal effect order by the statutory deadline, thus violating Section 153(2)(a) of the IT Act. The petitioner asserted that the Explanation to Section 7 of the VSV should be limited to determinations under the VSV and not affect interest accrued prior. However, the court concluded that once the petitioner opted for settlement under the VSV, which included both its appeal and the Revenue's appeal, the claim for interest under Section 244A was eclipsed by the settlement, as the VSV aimed to close all disputes comprehensively.

2. Interpretation of "Disputed Tax" and "Tax Arrears":

The court examined the definitions of "disputed tax" and "tax arrears" under the VSV. It noted that the VSV allowed an appellant to seek closure of disputes from both its own appeal and the Revenue's appeal. The court emphasized that the VSV enabled an applicant to avoid the potential adverse outcomes of both its appeal being dismissed and the Revenue's appeal succeeding. The court rejected the petitioner's argument that relief granted by the CIT (A) should not form part of "disputed tax" since the VSV entitles an applicant to seek a comprehensive settlement of all disputes, including those arising from cross-appeals.

3. Interest for Delayed Refund:

The petitioner sought interest for the delay in the refund of INR 39,85,83,552/- determined under the VSV. The court acknowledged the delay in refunding the amount, which was ultimately released on 13 February 2023, despite Form 5 being issued much earlier. The court referred to previous judgments, including Mrs. Anjul vs Office of Principal Commissioner of Income Tax-12, where interest was awarded for delayed refunds under the VSV. The court ruled that the respondents were obligated to pay interest at 5% per annum for the delay in releasing the refund from February 2021 to February 2023.

Conclusion:

The court dismissed the claim for interest under Section 244A of the IT Act, as the VSV settlement covered all disputes. However, it directed the respondents to pay interest at 5% per annum for the delay in refunding the amount determined under the VSV. The writ petitions were disposed of on these terms.