10 minute read 8 Jun 2020
Vivad Se Vishwas Bill

Vivad Se Vishwas Bill, 2020: settling the unsettled

EY India
By EY India

Multidisciplinary professional services organization

10 minute read 8 Jun 2020
Related topics Tax
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The scheme offers direct taxpayers an opportunity to settle their income tax disputes without litigation.

The central government’s focus on providing a business-friendly environment in the country has helped enhance ease of doing business, promote a non-adversarial tax regime and maintain a tax-friendly atmosphere.

Over the past few years, Central Board of Direct Taxes (CBDT), too, has taken several measures. The authority has rolled out press releases on the interpretation issues and has been proactive towards releasing circulars/instructions to make the tax administration's view clearer and to avoid possible litigation due to interpretation issues. The Ministry of Finance has also come up with the Advance Pricing Agreement (APA) process with a view to provide certainty to multinationals doing business in India.

The government has also substantially increased the monetary tax limit for tax departments to file appeals before the appellate authorities such as the Income Tax Appellate Tribunal (ITAT), High Courts (HCs) and the Supreme Court (SC), which has helped reduce the number of disputes/litigations.

In wake of the motto of the government and looking at the success of the Sabka Vishwas Scheme announced earlier for indirect tax laws, the  Finance Minister  announced the Vivad Se Vishwas Scheme (VSV Scheme), which literally translates into ‘No Dispute but Trust’ scheme, for resolving pending litigations under the Income Tax Act, 1961 before Appellate Forums (viz. Commissioner of Income Tax (Appeals) {CIT(A)} and ITAT), as well as High Courts and the Supreme Court. The Direct Tax Vivad Se Vishwas Bill, 2020 was announced on 5 February 2020. 

To make VSV scheme a success, the government has been undertaking continuous conversations with stakeholders and taxpayers after the bill was introduced. Based on the suggestions and representation received from the stakeholders and taxpayers, the government introduced the amended bill in Lok Sabha on 4 March 2020, which was later approved by both the houses of Parliament and became an Act on 17 March 2020.

CBDT, on 4 March 2020, issued 55 FAQs on the scheme through Circular no 7/2020 to clarify open concerns pertaining to the scheme. Further, procedural rules, including the forms for making declaration under the VSV Scheme and the format of certificate to be issued by the Designated Authority (DA), were released on 18 March 2020. Also, CBDT on 22 April 2020 re-clarified the 55 FAQs announced in Circular no 7/2020 through Circular no 9/2020 to align the same with the approved ‘The Direct-tax Vivad Se Vishwas Act, 2020’.

  • Key features of the scheme

    • It can be availed by taxpayers to settle the appeals relating to tax arrears (including interest and penalty levied in respect, thereof), that are pending as on 31 January 2020.
    • It grants complete immunity from prosecution and substantial relief from payment of interest and penalty.
    • It can be availed to settle appeal filed by taxpayers or tax departments. 
    • The entire appeal will need to be settled if the taxpayer wishes to avail the scheme for any issue which is a related to the appeal and cherry-picking of issues would not be allowed.
    • The FAQs issued by CBDT also clarified that where an appeal involves various issues, and some are ineligible, the scheme cannot be applied.
    • Taxpayer to withdraw appeal pending before CIT(A), ITAT, HC and SC (with leave of the court), or any arbitration, conciliation, mediation claim and submit its proof with the DA before a certificate is issued
    • The scheme is applicable whether the tax is payable or not.  Excess amount paid over the disputed tax will be refunded without consequential interest on refund.
    • In case of loss returns, where losses have been reduced due to addition made by the tax department, the taxpayer will have the option to either accept the reduced loss (and not pay any amount) or pay notional tax on amount by which loss has been reduced and carry forward the full loss. The same principle is also applied for MAT credit as well as depreciation and to carry forward the losses.
    • Filing of declaration will not set any precedence. Neither the department nor the taxpayer can claim in any other proceedings that the taxpayer or department has conceded its tax position by settling the dispute.
    • The settling of issue containing transfer pricing adjustment would not have any effect on secondary adjustments and taxpayer would be required to bring the amount in India in respect of settled transfer pricing adjustment.
    • VSV scheme will be completely web-based, and thereby, is likely to be easily accessible to the taxpayers as well as the department. There will not be any physical interaction between the taxpayers and the DA.

  • Eligibility to avail VSV Scheme

    The following matters/cases pending as on 31 January 2020 shall be eligible for admission under the scheme:

    • Appeals before the SC, HC, ITAT or CIT(A)[1]
    • Writ petitions pending before HC/SC
    • Special Leave Petitions (SLPs) pending before the SC
    • Cases where the time limit for filing appeal against an order has not expired as on 31 January 2020
    • Cases where objections filed by the taxpayer against draft order are pending with Dispute Resolution Panel (DRP)
    • Cases where DRP has given the directions but the assessing officer (AO) has not yet passed the final order
    • Cases where the taxpayer decides not to file an application before DRP but is waiting for a final assessment order to be passed by the AO against which the taxpayer can appeal before the CIT(A)
    • Search assessments where dispute tax is up to INR5 crores for each year
    • Cases where revision application is pending before the principal CIT
    • Disputes pertaining to Tax Deducted at Source (TDS)/Tax collected at Source (TCS)

CBDT also clarified on certain eligibility scenarios in the FAQs issued under the scheme. These include:

Payments to be made under the Vivad Se Vishwas Bill, 2020

Cases that fall short of eligibility criteria:

  • Cases where prosecution has been initiated under the prescribed laws or where tax arrears include undisclosed income from source located outside India or asset located outside India or where assessment is initiated based on information received under Double Taxation Avoidance Agreement.
  • Taxpayers against whom detention order is made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (subject to specified conditions) or if taxpayers are notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, prosecution can be launched under various laws (including initiation of prosecution by income tax authority for offences punishable under India Penal Code or for the purposes of enforcement of civil liability or where taxpayer is convicted by such offence consequent to prosecution initiated by income tax authority).

Payments to be made under the scheme as under:

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Vivad Se Vishwas Bill, 2020 scheme payments
  • If the tax department has filed an appeal or where the issue has been decided in favor of the taxpayer by the ITAT/HC/SC then in any year and the same has not been reversed by a higher forum, the amount payable under VSV Scheme shall be 50% of the above mentioned amounts. The FAQ further clarifies that 50% will be available even if there is a favorable order of earlier years in the same forum.
  • Where CIT(A) has issued a notice for enhancement, the disputed tax shall be increased by the amount of tax pertaining to issues covered in the enhancement notice

Impending matters

  • The closure date is not yet notified. The original date of closure was 30 June 2020 as proposed in the budget speech. But it is likely that this date may be altered depending upon the current COVID 19 situation.

Our thoughts

The announcement of VSV Scheme is a welcome move aimed at settling direct tax disputes. Certainly, this would help in reducing pending litigations, and to some extent, may help in ease of doing business in India. Such a move is likely to help the taxpayers focus their time, efforts and resources in doing business rather than fighting tax disputes. The scheme is also a one-time opportunity for taxpayers to clean up their balance sheets and to prepare themselves for the right cases. 

Though there are some areas and issues on which taxpayers are keen to get further clarity, the CBDT is likely to issue another set of clarifications shortly.

Way forward

All cases where appeals are pending need to be examined to decide whether they require further litigation or settlement under the scheme. Issues which are in the HCs/SC, in favor and cases where the taxpayer is reasonably certain to win, may not be opted for.

The department is welcoming the taxpayers to avail the scheme. In case where the taxpayer has any apprehensions, or fact-specific issues, the taxpayer can approach the jurisdictional tax authorities proactively to seek clarifications.  

In view of the amendments pertaining to the settlement of appeals and issues covered by order of the same forum or higher forums at 50% of the disputed tax, taxpayers facing doubts about the scheme (since they may have to forego full tax on certain favorable issues), will now have more comfort to avail the scheme. 

However, in cases where there are recurring issues or where there is enough precedence/support available, the scheme may not be opted for. Given the above, calculation of disputed tax becomes crucial to decide whether to avail the scheme or not.

VSV is a revolutionary and forward-looking step from the government. It will bring closure of the tax disputes from taxpayers’ point of view and will also help the government to achieve tax collection targets. It is expected that government shall expand the coverage and proactively issue clarifications on various nuances of the scheme. Officers are also likely to support the taxpayers to avail maximum benefits of the scheme. The government shall consider the payment of settlement amount in instalments keeping the current economic scenario and liquidity stress in mind.
Rakesh Gupta
Senior Vice President, RPG Group

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(This article is written by Rajan Vora, Partner, Tax Litigation Advisory Group, Indian member firm of EY Global. Pranay Gandhi, Senior Manager, Business Tax Advisory, Indian member firm of EY Global and Jinal Shah, Manager, Business Tax Advisory, Indian member firm of EY Global also contributed to the article.)

Summary

The scheme is expected to enhance ease of doing business in India and is likely to be even more relevant due to disruption caused by the COVID-19 disease.

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EY India
By EY India

Multidisciplinary professional services organization

Related topics Tax
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