2021 (3) TMI 1089 - HC - Income Tax

Direct Tax Vivad se Vishwas scheme - settlement in respect of tax arrear - ineligibility to file declaration - petitioner seeks a declaration that the clarification given by respondent No.2 to question No.73 vide circular No.21/2020 dated 04.12.2020 is violative of Article 14 of the Constitution of India and thus is arbitrary and ultra vires to the provisions of the Direct Tax Vivad se Vishwas Act, 2020 and the Direct Tax Vivad se Vishwas Rules, 2020 - debar to petitioner from filing a declaration for settlement of tax arrear - HELD THAT - As discussed in detail section 9(a)(ii) and we have no hesitation to hold that either on a literal interpretation or by adopting a purposive interpretation, the only exclusion visualized under the said provision is pendency of a prosecution in respect of tax arrear relatable to an assessment year as on the date of filing of declaration and not pendency of a prosecution in respect of an assessment year on any issue. The debarment must be in respect of the tax arrear as defined under section 2(1)(o) of the Vivad se Vishwas Act. To hold that an assessee would not be eligible to file a declaration because there is a pending prosecution for the assessment year in question on an issue unrelated to tax arrear would defeat the very purport and object of the Vivad se Vishwas Act. Such an interpretation which abridges the scope of settlement as contemplated under the Vivad se Vishwas Act cannot therefore be accepted. In so far the prosecution against the petitioner is concerned, the same has been initiated under section 276-C(2) of the Act because of the delayed payment of the balance amount of the self-assessment tax. 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. Because such a prosecution is pending which is relatable to the assessment year 2015-16, it would be in complete defiance of logic to debar the petitioner from filing a declaration for settlement of tax arrear for the said assessment year which is pending in appeal before the Tribunal. Considering the above, the clarification given by respondent No.2 by way of answer to question No.73 vide circular No.21/2020 dated 04.12.2020 is not in consonance with section 9(a)(ii) of the Vivad se Vishwas Act and, therefore, the same would stand set aside and quashed. Declaration of the petitioner dated 23.09.2020 would have to be decided by respondent No.1 in conformity with the provisions of the Vivad se Vishwas Act dehors the answer given to question No.73 which we have set aside and quashed.

Summary

Issues Involved:
1. Validity of the clarification given by respondent No.2 to question No.73 in circular No.21/2020 dated 04.12.2020.
2. Whether the delayed payment of self-assessment tax constitutes a "tax arrear" under the Direct Tax Vivad se Vishwas Act, 2020.
3. Eligibility of the petitioner to file a declaration under the Direct Tax Vivad se Vishwas Act, 2020 despite pending prosecution.

Detailed Analysis:

1. Validity of the Clarification in Circular No.21/2020:
The petitioner challenged the clarification given by respondent No.2 in question No.73 of circular No.21/2020, which stated that if prosecution has been instituted for an assessment year, the taxpayer is ineligible to file a declaration for that year, even on issues not related to the prosecution. The court found this interpretation to be "illogical and irrational" and not in alignment with the legislative intent of section 9(a)(ii) of the Vivad se Vishwas Act. The court held that the exclusion should only apply to tax arrears related to the prosecution and not to unrelated issues. Consequently, the court set aside and quashed the clarification in question No.73, directing that the petitioner's declaration should be decided in conformity with the Vivad se Vishwas Act without considering the impugned clarification.

2. Delayed Payment of Self-Assessment Tax as "Tax Arrear":
The court examined whether the delayed payment of self-assessment tax could be construed as a "tax arrear" under section 2(1)(o) of the Vivad se Vishwas Act. The prosecution against the petitioner was initiated under section 276-C(2) of the Income Tax Act for delayed payment of self-assessment tax. The court concluded that such delayed payment does not constitute a tax arrear within the meaning of the Act. Therefore, the prosecution for delayed payment should not debar the petitioner from filing a declaration for settlement of tax arrears for the assessment year in question.

3. Eligibility to File Declaration Despite Pending Prosecution:
The petitioner sought to file a declaration under the Vivad se Vishwas Act to settle pending tax demands. The court analyzed section 9(a)(ii) of the Act, which excludes cases where prosecution has been instituted in respect of tax arrears for an assessment year before the date of filing the declaration. The court emphasized that the exclusion applies only if the prosecution is related to the tax arrear itself. Since the prosecution against the petitioner was for delayed payment of self-assessment tax and not for tax arrears, the petitioner should not be barred from filing the declaration. The court directed respondent No.1 to decide the petitioner's declaration in accordance with the Act, setting aside the impugned clarification.

Conclusion:
The court allowed the writ petition, quashing the clarification given in question No.73 of circular No.21/2020 and directing respondent No.1 to accept the petitioner's declaration without considering the invalidated clarification. The court emphasized that the legislative intent of the Vivad se Vishwas Act is to enable settlement of tax disputes and should not be narrowly interpreted to exclude unrelated issues.