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TMI Blog2021 (3) TMI 1089X X X X Extracts X X X X X X X X Extracts X X X X ..... fication and further seeks a direction to respondent No.1 to accept the declaration filed by the petitioner on 23.09.2020 under the Direct Tax Vivad se Vishwas Act, 2020. 3. Case of the petitioner as pleaded in the writ petition is that it is a public limited company incorporated under the Companies Act, 1956 having its registered office at Mahalaxmi, Mumbai. It is engaged in the business of land development and construction of real estate properties. 4. Initially, Shreeniwas Cotton Mills Private Limited ('Cotton Mills' for short) was a subsidiary of the petitioner. Subsequently it was merged with the petitioner on the strength of the amalgamation scheme sanctioned vide order dated 07.06.2019 passed by the National Company Law Tribunal, Mumbai Bench. The merger had taken place with effect from 01.04.2018. However, the pending tax demand against the cotton mills under the Income Tax Act, 1961 (briefly 'the Act' hereinafter) continued in the name of the cotton mills since migration of the permanent account number of the cotton mills to the permanent account number of the petitioner has not taken place. Therefore, it is pleaded that the tax demand of the cotton mills ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the cotton mills in their individual capacity to which the respective directors replied by denying the allegations. 9. In the meanwhile, on 17.12.2017, the assessing officer passed the assessment order for the assessment year 2015-16 under section 143(3) of the Act. In the assessment order, assessing officer disallowed certain expenses claimed by the petitioner towards workmen's compensation and other related expenses. After disallowing such claim, assessing officer computed the tax liability of the petitioner at Rs. 61.75 crores which was inclusive of interest. 10. When the aforesaid assessment order dated 17.12.2017 was challenged by the petitioner in appeal, the appellate authority i.e., Commissioner of Income Tax (Appeals) dismissed the appeal and upheld the assessment order vide order dated 27.12.2018. 11. Aggrieved by the order of Commissioner of Income Tax (Appeals) dated 27.12.2018, petitioner preferred further appeal before the Income Tax Appellate Tribunal (briefly 'the Tribunal' hereinafter) which was registered as ITA No.1538/Mum/2019. It is stated that the aforesaid appeal is pending before the Tribunal for final hearing. 12. While the appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility to file declaration relates to an assessment year in respect of which prosecution has been instituted on or before the date of declaration. Since for the assessment year 2012-13 prosecution has already been instituted, the tax payer would not be eligible to file declaration for the said assessment year even on issues not relating to prosecution. 17. It is the grievance of the petitioner that on the basis of the answer given to question No.73 as alluded to hereinabove its declaration would be rejected since the declaration pertains to the assessment year 2015-16 and prosecution has been launched against the petitioner for delayed payment of self-assessment tax for the assessment year 2015-16. 18. It is in this context that the present writ petition has been filed seeking the reliefs as indicated above. 19. Respondents have filed a common affidavit through Mr. Abhay Damle, Principal Commissioner of Income Tax, Central-4, Mumbai. Referring to section 9(a)(ii) of the Vivad se Vishwas Act, it is submitted that the same is an exclusionary clause. While clause (a) of section 9 excludes certain class of cases on the basis of tax arrears, clauses (b), (c) and (d) exclude certain cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act. In the circumstances, respondents seek dismissal of the writ petition. 20. Mr. Sridharan, learned senior counsel for the petitioner has referred to the statement of objects and reasons while introducing the Vivad se Vishwas Bill in the Parliament as well as the statement made by the Hon'ble Finance Minister in her Budget speech on 01.02.2020 and submits that the scheme introduced by way of the Vivad se Vishwas Act is to reduce litigation in direct taxes. A huge amount of disputed tax arrears is locked up in appeals at various stages and the amount of disputed direct tax arrears as on 30.11.2019 was Rs. 9.32 lakh crores which is roughly almost one year of direct tax collections; besides, tax disputes consume enormous amount of time, energy and resources of both the tax payers and of the government. Therefore, resolution of pending tax disputes is the need of the hour. This will not only benefit the government by generating timely revenue but also the tax payers who will be able to deploy the time, energy and resources saved by opting for such dispute resolution towards their business activities. Therefore, while examining or considering a declaration filed under the Viva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Smuggling Activities Act, 1974; in (c), it is Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, Prevention of Corruption Act, 1988, Prevention of Money Laundering Act, 2002 and Prohibition of Benami Property Transactions Act, 1988; in (d), prosecution should be initiated by an income tax authority for any offence punishable under the provisions of the Indian Penal Code; and under (e), Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992. He, therefore, submits that there is a fundamental distinction between the exclusionary provision of section 9(a) on the one hand and sections 9(b), (c), (d) and (e) on the other hand. While in the case of the former the exclusion is in respect of tax arrear relating to an assessment year, in the case of the later the exclusion pertains to a person who has suffered disability or prosecution under the mentioned statutes. If this is the position then the answer given to question No.73 contained in the circular No.21/2020 would be contrary to the statutory mandate. The answer given is only an interpretation. As per the said interpretation, the ineligibility to file decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 9(a)(ii) has to be construed strictly. Viewed in that context, the departmental interpretation given as answer to question No.73 reflects the correct position. He, therefore, seeks dismissal of the writ petition. 22. Submissions made by learned counsel for the parties have been duly considered. 23. Before adverting to the Vivad se Vishwas Act, we may usefully extract the relevant portion of the budget speech of the Hon'ble Finance Minister made on 01.02.2020 which reads thus:- " Sir, in the past our government has taken several measures to reduce tax litigations. In the last budget, Sabka Vishwas Scheme was brought in to reduce litigation in indirect taxes. It resulted in settling over 1,89,000 cases. Currently, there are 4,83,000 direct tax cases pending in various appellate forums i.e. Commissioner (Appeals), ITAT, High Court and Supreme Court. This year, I propose to bring a scheme similar to the indirect tax Sabka Vishwas for reducing litigations even in the direct taxes. Under the proposed 'Vivad se Vishwas' scheme, a taxpayer would be required to pay only the amount of the disputed taxes and will get complete waiver of interest and penalty provided he pays by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. It is, therefore, proposed to introduce the Direct Tax Vivad se Vishwas Bill, 2020 for dispute resolution related to direct taxes, which, inter alia, provides for the following, namely:- (a) the provisions of the Bill shall be applicable to appeals filed by taxpayers or the Government, which are pending with the Commissioner (Appeals), Income tax Appellate Tribunal, High Court or Supreme Court as on the 31st day of January, 2020 irrespective of whether demand in such cases is pending or has been paid; (b) the pending appeal may be against disputed tax, interest or penalty in relation to an assessment or reassessment order or against disputed interest, disputed fees where there is no disputed tax. Further, the appeal may also be against the tax determined on defaults in respect of tax deducted at source or tax collected at source; (c) in appeals related to disputed tax, the declarant shall only pay the whole of the disputed tax if the payment is made before the 31st day of March, 2020 and for the payments made after the 31st day of March, 2020 but on or before the date notified by Central Government, the amount payable shall be increased by 10 per cent. of disputed tax; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n income tax including surcharge and cess in relation to an assessment year or financial year as the case may be payable by the appellant under the provisions of the Act in the manner computed under the said provision. Similarly, 'disputed fee', 'disputed interest' and 'disputed penalty' have also been defined under sections 2(f), 2(h) and 2(i). Under section 2(1)(h), 'disputed interest' has been defined to mean the interest determined in any case under the provisions of the Act where such interest is not charged or chargeable on disputed tax; and an appeal has been filed by the appellant in respect of such interest. Finally, 'tax arrear' has been defined in section 2(1)(o) in the following manner:- "(o) 'tax arrear' means,- (i) the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax, and penalty leviable or levied on such disputed tax; or (ii) disputed interest; or (iii) disputed penalty; or (iv) disputed fee, as determined under the provisions of the Income Tax Act." 25.1. Thus, 'tax arrear' would mean the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax and penalty leviable or le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable. Section 9(a) reads as under:- "9. The provisions of this Act shall not apply- (a) in respect of tax arrear,-- (i) relating to an assessment year in respect of which an assessment has been made under sub-section (3) of section 143 or section 144 or section 153A or section 153C of the Income-tax Act on the basis of search initiated under section 132 or section 132A of the Income-tax Act, if the amount of disputed tax exceeds five crore rupees; (ii) relating to an assessment year in respect of which prosecution has been instituted on or before the date of filing of declaration; (iii) relating to any undisclosed income from a source located outside India or undisclosed asset located outside India; (iv) relating to an assessment or reassessment made on the basis of information received under an agreement referred to in section 90 or section 90A of the Income-tax Act, if it relates to any tax arrear;" 27.1. As per sub-clause (i), provisions of the Vivad se Vishwas Act would not apply in respect of tax arrear relating to an assessment year in respect of which an assessment has been made including on the basis of search and seizure. In so far sub-clause (ii) is concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 9 in as much as the exclusions provided under clause (a) is in respect of tax arrear whereas in clauses (b) to (e), the thrust is on the person who is either in detention or facing prosecution under the special enactments mentioned therein. Therefore, if we read clauses (b) to (e) of section 9, it would be apparent that such categories of persons would not be eligible to file declaration under the Vivad se Vishwas Act in view of their exclusion in terms of section 9(b) to (e). 28. While section 10 empowers respondent No.2 to issue directions or orders to the income tax authorities from time to time, section 12 is the rule making provision. 29. In exercise of the powers conferred by sub-section (2) of section 12 read with sub-sections (1) and (5) of section 4 and sub-sections (1) and (2) of section 5 of the Vivad se Vishwas Act, central government has made the Direct Tax Vivad se Vishwas Rules, 2020 (already referred to as the 'Vivad se Vishwas Rules'). Rule 7 says that order by the designated authority under sub-section (2) of section 5 in respect of payment of amount payable by the declarant as per certificate granted under subsection (1) of section 5 shall be in Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the above, what is discernible is that where only notice for initiation of prosecution has been issued, assessee would be eligible to file declaration. However, once prosecution is instituted with respect to an assessment year, the assessee would not be eligible to file declaration for that assessment year unless the prosecution is compounded before filing the declaration. 31. In the circular No.20 / 2020 dated 04.12.2020, respondent No.2 issued further clarifications in respect of Vivad se Vishwas Act. In the circular dated 22.04.2020, the clarifications were upto question No.55. In the circular dated 04.12.2020 further clarifications have been given from question No.56 onwards upto question No.89. Question No.73 and the answer given thereto has been impugned by the petitioner by contending that on the basis of such interpretation declaration of the petitioner is liable to be rejected. Question No.73 and the answer given thereto are as under:- "73. In the case of a taxpayer, prosecution has been instituted for assessment year 2012-13 with respect of an issue which is not in appeal. Will he be eligible to file declaration for issues which are in appeal for this assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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. 33. 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. 34. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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