WILL THE GOVERNMENT SUCCEED RECOVERING THE DISPUTED AMOUNT, UNLIKE PAST FAILURES?
Tax is voluntary fees levied on corporations or individuals enforced by the government body to finance government activities. Now when we speak about the direct tax it is levied on the income or profits of the individual or organizations. In the context of this direct tax comes the new scheme introduced by the government. The Direct Tax Vivad Se Vishwas Act 2020 is a simple dispute resolution scheme enacted as on 17th March 2020.
How does a tax dispute occur in our system?
There are some rudimentary principles where the major disputes arise they are:
- When the taxpayer computes the tax amount payable to be at some particular tax rate according to his views and assumptions and the tax administrator or the tax adjudicator says that the tax rate is higher than he assumed it to be.
- When the taxpayer claims for a deduction or allowance or exemption and the tax adjudicator says that he is not eligible to claim the exemption.
- When the taxpayer claims to earn something which is not chargeable to tax and the tax administrator says that it is chargeable to tax.
- When the taxpayer incurs some expenses while earning the income and asks for a deduction in the tax rate and the tax administrator denies to decrease the tax rate as it is not allowable under the provision of the Act.
- When the taxpayer is not willing to pay the tax and doesn’t mention the correct year of income.
Now the question is whether there is any difference between the pre-existing schemes and the present scheme, if yes how diverse are they?
There are different schemes one of them is the AMNESTY scheme which has its common strand to the current scheme which is offering an opportunity to the taxpayers to pay their outstanding taxes but what makes the new scheme different from the old one is that it was limited to a particular sector of the economy. Therefore, the new scheme Vivad Se Vishwas is a scheme to reduce one’s litigation overtime cost and ensure that there is an environment of much more inner litigation system. Thus, we can say that the government has come up with a more liberal and taxpayer-friendly scheme this time.
Some of the important aspects to be noted in this scheme is that this was announced during the budget session and a completely online portal was activated with central monitoring. The government has been very proactive before enacting the scheme as on 4th March 2020 55 FAQs were released which addressed several situations for the criteria that they wanted to look at and was subjected to the passing of the bill that was to be regularized by another circular. The government intends to decrease litigation. It is supposed to be much more beneficial than the Direct Tax Dispute Resolution Scheme (DTDRS) that was introduced in 2016 as that addressed the collective dispute resolution regarding the payable taxes and the excess tax paid.
With more than 4,83,000 cases pending before the various authorities significant amounts of tax amounts are locked up in disputes either appeal filed by the revenue department or the taxpayers. To understand more precisely about this scheme and the benefits of this scheme it is important to understand how the government is going to enforce this act furthermore. The commission of income tax appeal and the income tax appellate tribunal follow up the department to quickly introduce or implement rectifications and appeal affairs that are currently pending so that the correct amount is calculated and then decide to settle or not settle the dispute. Then, the designated
authority will calculate the amount payable and issue a certificate to the appellant. The appellant then has to pay the amount within 15 days from the date of issue of the certificate. The pending cases are withdrawn once the certificate is issued and if not paid there is will a penalty on the same. There is a difference between the amount payable percentage based on the approach speaking of which if the appeals made are departmental appeals then the tax amount to be payable is 50% of the disputed amount whereas in the case of taxpayers appeal it the tax amount to be payable is 100% of the disputed amount. But it was laid down by the government that if the disputed amount is paid prior 31st March 2020 then the amount payable is less if it was paid after that date the amount payable is 10% more. When we speak about the benefits of the scheme it is quite beneficial as it allows the taxpayers to pay the disputed amount with no penalty, litigation cost and further prosecution and in case if the litigation was going on for 3-5 years the taxpayer might have enjoyed good returns or interest if deposited in other sources on the amount that was to be paid as a tax to the government which in turn the payment is made on an amount that was earned and it is nothing from the pocket. For example: If a businessman makes a stock of 25cr and the tax levied previously was 8cr but from the guidelines the appeal being a departmental approach he has to pay only 4cr which quite profitable to the businessman. It also helps in the clearance of outstanding litigation by the efficient audit work and reduced reporting requirements. And it can be noted that no one like to go for a long-term litigation as it increases the litigation cost and uncertainties on accompaniments of penalty over the amount payable. It is better to avoid protracted litigation.
Eligibility criteria are the appeal or petition should be pending as on 31st January 2020 before any appellate forums which is one of form under supreme court, high court, income-tax appellate tribunal, commissioner (appeals). When the question arises about the scheme being applicable the approach is made as the matter pending before the dispute resolution panel or where DRP directions have been passed out final assessment year order is awaited. Cases where the disputed tax amount is less than INR 50 million. Matters included are involving arbitration, conciliation, or mediation are eligible.
Now that we know the eligibility criteria is quite narrow there are cases where this scheme might not be applicable which is:
- If the disputed amount exceeds INR 50 million this scheme is not applicable.
- If a prosecution in income tax has already been initiated before the filing of the declaration this scheme is not applicable.
- If there are any undisclosed foreign income or assets this scheme is not applicable.
Question of law:
The legal process has two parts one within the framework of the income tax department or the income tax tribunal and the next part is when it goes out of the framework and extends to the judiciary. The government effort in terms of legal view is to resolve the disputes within a short period and with this objective they bought various schemes first they bought the scheme of low tax effect to reduce the burden of the income tax tribunal as well as the judiciary. The appeals are further distributed to various tribunals depending upon the quantum of the amount. The present scheme is bought to the statute not only to decrease the pendency but also to collect the revenue.
What changed the overall perspective of the scheme Vivad Se Vishwas 2020
Before disclosing the reason behind the delay or change made there were certain dates released by the government following the implementation of the plan that is there we two phases of the plan:
First window: 17th march 2020- 31st march 202
Second window: 1st April 2020- 30th June 2020
The first window explains the appeals to considered by the court and the second window explains about resolution over the appeals made.
Now, what affected the implementation of the scheme Vivad Se Vishwas is the global pandemic Covid-19 also known as Coronavirus which is an ongoing pandemic which caused not only huge loss of human population by the widespread of the virus increasing the infection fatality rate but also made a huge impact on the economical, political and educational sectors of the economy. The government has figured out that it is not the right time to implement the scheme during such a scenario and decided to extend the dates of enforcement of the Act as the cashflow might be an issue during this period and if the taxpayers fail to pay it they might have to face the increase in the rate of the disputed amount as there will be penalty amount if paid after a given period of the previously stated dates and wanted to stabilize the economic structure. Thus, the plan had a shift to the end of the year i.e December 31st, 2020, and the first window is from June 30th 2020. Thus, this Act is still a standby to whether it is beneficial and appreciable than the pre-existing schemes of the government. If this Act on the Direct Tax Vivad Se Vishwas is enforced successfully then it will be a win-win situation to the taxpayers as well as to the tax authority.
IFIM Law School, pursuing 1st year BBA-LLB