Amidst this scramble to stock up on food and other essentials as the country goes into lockdown mode, there is another panic among taxpayers who want to meet the March 31 deadline for availing the Vivad se Vishwas scheme introduced in the Budget. The scheme received the President’s assent only on March 17.
Under the scheme, designed for settlement of tax disputes pending in appeal as of January 31, 2020 or where the time for filing appeal has not expired, an assessee can make a declaration electronically under the prescribed form, and within 15 days the government will verify the tax payable and raise demand. By paying the disputed tax on the disputed income, the assessee gets a waiver of interest and of any penalty that has been levied or which would be leviable on the disputed amount of income. But if the payment is made after March 31, there is an additional tax burden.
We asked eminent tax lawyer Anil Harish about implications of the scheme. Excerpts
How is the scheme going to work with offices on lockdown till March 31? Even if people file the form before March 31, they may not receive an order from the assessing officer in time, what will happen then?
In view of the delay in enactment of this scheme by Parliament and the impact of coronavirus, the government must extend the deadline to make it fair and viable. If the payment is made after March 31 there is an additional tax payable of 10 per cent. This just doesn’t give enough time to assessees, as the declaration form was released only on March 18. The government should give a full month at the least and should extend the deadline to April 30 for the initial beneficial rate. They have anyway not announced the last day for closure of the scheme.
Have you received many inquiries and what is the level of interest?
We had received many inquiries right from the day the Finance Minister announced the scheme. People certainly are interested and should avail the scheme, specially in a case when it’s a one off matter. Suppose it’s a matter that’s going to come up recurrently in future years, then while a person may settle for the past, the future litigation will still have to be fought on merits. Then it’s not necessarily the best way to go about it. Settlements under this scheme do not constitute a precedent for the future one way or the other. The fact that an assessee goes under this scheme doesn’t mean that the assessee admits that he has a losing case. So, going under this scheme for one year does not mean that one is prevented from contesting it in future. However in the case of a recurring dispute while some will file under this scheme, others will not.
Could you give an example of such recurring disputes?
One particular assessee occupied premises owned by his own company. The ITO said there should be a notional tax on this because this is a perquisite given to him by the company so he should pay tax on this notional income. His appeal is for one year but the agreement will be for several years. If he settles it for one year he will save on interest and possible penalty for those years but he will not eliminate the issue because it will keep arising. But the scheme won’t be there forever and cannot help for future years.
What is the nature of the disputes that the scheme covers?
Initially the Finance Minister refereed to the mass of penny stock fraudulent cases where the allegation is that some people buy stocks at a very low price, manipulate the stock prices to rise artificially and then sell and make huge capital gains which are either exempt or taxable at a low rate. This amounts to money laundering disguised as capital gains. It was expected that people who make big capital gains on penny stock sales will go under this scheme but in reality the scheme has a much wider scope and applies to all disputes where appeals are pending whether by the assessee of the department. It is necessary to clarify here that if the assessee has succeeded and the department has dragged the matter by filing a further appeal and if the assessee wishes to avoid a reversal of the favorable order then he can opt to settle the dispute by paying 50 per cent of the tax.
Are there any exclusions under this scheme?
Yes, there are. Disputes relating to foreign assets or foreign income and search and seizure cases where the disputed tax is above Rs 5 crore and cases where prosecution has been instituted, cannot be settled under this scheme.
What according to you should have been done differently?
It’s in the interest of the country, the tax dept, the economy and assessees that protracted litigation should be settled. In any given case of pending appeals it is possible that the government could lose the matter and the revenue. Therefore it’s better that even controversial cases such as those involving foreign discretionary trusts, black money and cases where prosecution have been instituted are also settled under the scheme, maybe at higher rates of tax. There’s no need to have an arbitrary ceiling of Rs 5 crore in search and seizure matters. Currently there are 4,83,000 appeals pending and the objective should be to provide a window of settlement for most of these so as to start on a clean state.
What is your final world of advice?
Although time is short, the filing can be achieved as it is to be done electronically. We don’t have to go personally in these days of covid 19. The department is likely to give a very swift electronic response even though they have 15 days time under this Act. Some matters will be completed before March 31. The form has many schedules but is actually fairly simple to fill out. Consider each matter on a case by case basis and If it results in waiver of interest, penalty and prosecution, then it’s worthwhile availing of this window of opportunity.
Mumbai based Anushka Jagtiani is a former TV correspondent and anchor with an MSc from the London School of Economics. She has reported on a wide range of business and legal issues since 2004
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