2021 (10) TMI 30 - HC - Income Tax

Direct Tax Vivad se Vishwas Act - VSV Act - settlement of the dispute of petitioner for assessment year 2015-16 without withdrawing the interest already granted under Section 244A - HELD THAT - Assessee would be entitled to refund but without interest. In the case at hand, interest of ₹ 42,72,210/- paid under Section 244A of the Act was not determined as payable under the VSV Act but was paid as per the assessment order passed for the Assessment Year which was more than 2 1/2 years before the declaration under the VSV Act was filed by petitioner. Therefore, the explanation is not applicable to the case at hand. Petitioner has not asked for interest under Section 244A of the Act on the amount of refund claimed in form no.1. In the explanation to Section 7 of the VSV Act, the term specifically used is any amount paid in respect of tax arrear. The term tax arrear , is defined to mean aggregate amount of disputed tax and the term disputed tax is defined to mean the tax payable by petitioner as if the appeal is decided against petitioner. So, the explanation only refers to the amount paid in respect of tax arrear which is refunded under the VSV Act and not any other refund amount. This implies that the reference in which the restriction of interest under section 244A of the Act is made is towards any excess payment of tax in respect of the tax arrears which is the disputed tax - VSV Act clearly envisages that no interest under section 244A of the Act is payable on the amount of tax paid towards the disputed tax which is in excess of the amount determined payable as per Section 3 of the VSV Act. The amount payable towards disputed tax will only arise post the assessment order is passed. In the case at hand, petitioner has not made any payment post the assessment order, in fact, respondent no.2 has determined a refund to petitioner in the revised assessment order after adjusting all the disputed tax. The refund determined by respondent no.2 in the assessment order is out of tax deducted at source and taxes paid prior to filing of the return of income and not on account of any amount paid towards tax arrear prior to applying under the VSV Act which has resulted in excess payment of the tax arrear (disputed tax) determined as per Section 3 of the VSV Act. The interest on refund that was paid was on the undisputed part of the excess tax paid and not on the disputed tax. In the circumstances, Form - 3 dated 11 th December 2020 issued by respondent No. 1 is hereby set aside. Respondent No. 1 is directed to issue revised Form -3/fresh Form No. 3 in terms of the order mentioned above.

Summary

Issues Involved:
1. Validity of Form No. 3 issued under the Direct Tax Vivad se Vishwas Act, 2020.
2. Entitlement to interest under Section 244A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Form No. 3 issued under the Direct Tax Vivad se Vishwas Act, 2020:

The petitioner challenged Form No. 3 dated 11th December 2020 issued by respondent No. 1 under the Direct Tax Vivad se Vishwas Act, 2020 (the "VSV Act") for the assessment year 2015-16. The petitioner sought a direction to the respondents to settle the dispute without withdrawing the interest already granted under Section 244A of the Income Tax Act, 1961 (the "Act"). The petitioner, a company incorporated in Cyprus, filed its return of income for the assessment year 2015-16, declaring a total income of ?28,35,66,580 and claimed a refund of ?5,67,13,320. Respondent No. 2 passed an assessment order on 6th February 2018, holding that the petitioner was not entitled to the benefit of the India-Cyprus DTAA and taxed the interest income at 20% under Section 115AD(1)(a)(i) of the Act. This resulted in a refund of ?2,37,34,523 and interest of ?42,72,210 under Section 244A of the Act. The petitioner applied for settlement under the VSV Act, computing the disputed tax at ?3,29,78,793. However, respondent No. 1 issued Form No. 3, raising a demand of ?42,72,203, stating that the interest under Section 244A was no longer available to the petitioner.

2. Entitlement to interest under Section 244A of the Income Tax Act, 1961:

Shri. Vyas argued that under the VSV Act, the petitioner was not entitled to any interest under Section 244A of the Act. He stated that the petitioner must return the interest paid on the undisputed component as per the revised assessment order dated 30th March 2018. Conversely, Shri. Pardiwalla contended that the restriction on payment of interest under Section 244A applies only when an assessee is eligible for a refund pursuant to making an application under the VSV Act. He argued that the interest of ?42,72,210 was paid as per the assessment order before the VSV Act application and was not determined under the VSV Act.

The court noted that under the VSV Act, the amount payable is the disputed tax, which in this case was ?3,29,78,793. The amount of ?42,72,203 was not part of the disputed tax and thus not payable by the petitioner. The court found Shri Vyas’s reliance on the explanation to Section 7 of the VSV Act misplaced, as the restriction on interest under Section 244A applies only when the tax paid exceeds the amount payable under Section 3. The interest paid under Section 244A was on the undisputed part of the excess tax paid, not on the disputed tax.

Conclusion:

The court set aside Form No. 3 dated 11th December 2020 issued by respondent No. 1 and directed the issuance of a revised Form No. 3 within one week. The petition was disposed of with the direction to issue the revised form promptly.