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TMI Blog2024 (12) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... 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before any authority in respect of disputed income, interest, or penalty is by way of a legal fiction deemed to be withdrawn from the date of issuance of such a certificate.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amus, or any other appropriate Writ, Order or Direction under Article 226 227 of the Constitution of India directing the Respondents to determine and grant interest u/s 244A of the Act till the date of adjustment against liability under the Vs V Scheme or actual grant of refund, whichever is later; c. Writ of Mandamus or Writ, Order or Direction in the nature of Mandamus, or any other appropriate Writ, Order or Direction under Article 226/227 of the Constitution of India directing the Respondents to issue/grant refund of Rs. 39,85,83,552/- which are legitimately due to the Petitioner for AYs 2001-02 to 2004-05 in terms of FORM 5 issued under the Vs V Act, along with applicable interest for delay in grant of refund. d. Pass such further and other reliefs, as this Hon'ble Court may deem fit, proper and appropriate in the nature and circumstances of this case 2. The petitioner has undoubtedly obtained a declaration of settlement under the Direct Tax Vivad Se Vishwas Act, 2020 [VSV]. The solitary question which stands raised for our consideration is whether the statutory interest payable under Section 244A of the Income Tax Act, 1961 [IT Act] , and which right, according to the wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NR 18,38,67,400/- AY 2003-04 INR 19,05,21,564/- YA 2004-05 INR 29,75,18,691/- 8. It is admitted before us that the petitioner made all deposits in terms of those tax demands. Aggrieved by the orders of assessment as framed, the petitioner is stated to have approached the Commissioner of Income Tax (Appeals) [CIT (A)] which passed a common order pertaining to AYs 2001-02 to 2004-05 on 08 August 2013. In terms of that order framed by the CIT (A), only 50% of the profits were held to be attributable to the alleged Permanent Establishment of the petitioner in India as opposed to a 100% profit attribution which constituted the basis of the original assessment order. 9. Aggrieved by the order of the CIT (A), both the petitioner as well as the Revenue instituted appeals before the Income Tax Appellate Tribunal [Tribunal]. It was during the pendency of those appeals that the petitioner filed an application on 16 December 2020 calling upon the AO to give effect to the order passed by the CIT (A) insofar as that authority had ruled in its favour. Close on the heels of the said application, the petitioner proceeded to file its application under the VSV on 23 December 2020. 10. The record woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in greater detail hereinafter. 14. The aforenoted submissions were addressed in light of the stand of the respondents that since the tax disputes that formed the subject matter of contestation of both the appeals were submitted for settlement, it would be clause (A) that would apply and the expression after giving effect to the order so passed as appearing in clause (B) would have no application. Mr. Jolly on the other hand contended that in cases that fall within the ambit of clause (B) of Section 2 (1) (j), the application which is tendered under the VSV would compute the disputed tax after giving effect to the order of the appellate order already passed. This benefit, according to learned counsel, cannot be denied to an applicant who may choose to prefer an application during the pendency of an appeal and thus fall within the scope of clause (A). 15. Mr. Rai, learned counsel who appeared for the respondents, however, controverted the aforenoted submissions and contended that it would be apparent upon a conjoint reading of the expressions appellant , disputed tax as well as tax arrears as defined, that an applicant under the VSV is conferred the choice of seeking a settlement wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year. For different assessment years separate declarations have to be filed. So the declarant needs to specify in the declaration Form No. 1 whether he wants to settle his appeal, or department s appeal in his case or both for a particular assessment year. The computation of tax payable would be carried out accordingly. 19. Having set out the rival submissions that were addressed, we at the outset note that insofar as the appeal preferred by the petitioner was concerned, the same pertained to the order of the CIT (A) and to the extent that it had stopped short of granting relief in entirety to the petitioner. As was noticed hereinabove, the CIT (A) had modified and partly allowed the appeals of the petitioner by providing that only 50% of the profits would be attributable to the alleged PE of the petitioner in India instead of 100% of those profits as was provided for in the assessment orders. 20. The submission of Mr. Jolly proceeds on the premise that to the extent of relief which already stood granted to the petitioner and flowed from the order of the CIT (A) would be deemed to have attained finality and could not be said to form part of disputed tax . It was in the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing surcharge and cess (hereafter in this clause referred to as the amount of tax) payable by the appellant under the provisions of the Income-tax Act, 1961 (43 of 1961), as computed hereunder: -- (A) in a case where any appeal , writ petition or special leave petition is pending before the appellate forum as on the specified date, the amount of tax that is payable by the appellant if such appeal or writ petition or special leave petition was to be decided against him. (B) in a case where an order in an appeal or in writ petition has been passed by the appellate forum on or before the specified date, and the time for filing appeal or special leave petition against such order has not expired as on that date , the amount of tax payable by the appellant after giving effect to the order so passed. (C) in a case where the order has been passed by the Assessing Officer on or before the specified date, and the time for filing appeal against such order has not expired as on that date, the amount of tax payable by the appellant in accordance with such order. (D) in a case where objection filed by the appellant is pending before the Dispute Resolution Panel under section 144C of the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be deemed never to have been included any sum payable either by way of tax, penalty or interest pursuant to an order passed by the Settlement Commission under Chapter XIX-A of the Income-tax Act.] (2) The words and expressions used herein and not defined but defined in the Income-tax Act shall have the meanings respectively assigned to them in that Act.] 22. As is manifest from the manner in which the word appellant stands defined in the VSV, it envisages an applicant to be one in whose case an appeal has been filed either by it, the income tax authority or by both. Section 2 (1) (a) thus clearly contemplates a situation where cross-appeals preferred by both the assessee as well as the Revenue may be pending on the specified date and an applicant thus seeking closure of all disputes forming the subject matter of those appeals. An applicant thus stands enabled under the VSV to seek closure of not just its own challenge, and which may possibly be limited to findings and conclusions operating adversely, but also a challenge raised by the Revenue and seek a final termination of those proceedings as well. The resultant effect of such an application thus does not stand confined to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication to its own appeal or include the appeal of the Revenue also for the purposes of settlement and conclusion. This clearly flows from a reading of the FAQs extracted hereinabove. This aspect assumes added significance when one bears in mind the phrase disputed tax indubitably bringing within its fold all tax demands that would arise either from a dismissal of the appeal of the assessee or the Revenue succeeding in its challenge in respect of the relief accorded to the assessee as also both of the above. 26. 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. 27. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase 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. 31. That only leaves us to deal with a prayer which is made for the respondents being commanded to pay interest for the period of delay that was caused in the release of the amount as computed under the VSV. 32. 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 No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moneys wrongly withheld or refunded with unreasonable delay and notwithstanding the statute not placing an explicit obligation with respect to interest observed as under: 19. We note that interest has been duly recognized as being a necessary corollary to a wrongful retention of capital. We deem it apposite to extract the following passages from the decision of a Division Bench of the Allahabad High Court in Wig Brother (Builder Engineers) v. Union of India. 27. It may be mentioned that money doubles in six years (because of interest). In this case, the petitioner has avoided payment of cess for about 12 years, counting from the date of the demand notice dated 20.7.1991. Thus, even though we are dismissing this petition, the petitioner has really won the case, because he did not have to pay interest from 20.7.1991 till today. 28. It may be mentioned that there is misconception about interest. Interest is not a penalty or punishment at all but is the normal accretion on capital. Had the petitioner paid the amount in question in July, 1991, when it was due, the respondents would have invested the same somewhere and earned interest thereon. Instead, the petitioner has kept the money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are conscious of the correctness of the decision in Sandvik Asia having been doubted by the Supreme Court and the matter presently stands referred for the consideration of a Larger Bench in light of the order passed in Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals , we note that while framing that reference the Supreme Court has not doubted the compensatory character of interest that may be imposed in case of unjustified retention of monies of an assessee. Their Lordships doubted the view taken on the facts of Sandvik Asia bearing in mind that advance tax or tax deducted at source loses its identity once it gets subsumed in a demand of tax created in terms of an assessment. 23. A more lucid explanation of the liability to pay interest is found in the decision of the Supreme Court in Union of India v. Tata Chemicals Ltd. Highlighting the compensatory element of such interest being provided by courts, the Supreme Court had held as follows: 37. A tax refund is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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