2016 (12) TMI 1086 - HC - Income Tax

Court upholds revenue's interpretation of Kar Vivad Samadhan Scheme, dismisses petitions challenging tax demands

The court dismissed the petitions challenging demands under the Kar Vivad Samadhan Scheme, 1998, emphasizing adherence to statutory provisions. It upheld ... Amounts of advance tax paid adjustment while determining the balance - settlement of tax payable - Held that:- The major bulk of the demands appear to have been made on 30.03.1995, i.e. much after the advance tax payments were due. Furthermore, these amounts were to be adjusted towards outstanding arrears for previous years. That such interest arrears existed is not in dispute. Therefore, the petitioners are not correct in contending that the amounts of advance tax paid had to be necessarily adjusted while determining the balance. The dispute which has remained pending for long does not show that any substantial injustice was done warranting exercise of discretion. Concededly, the petitioner Inter Craft appears to have deposited the modified amount of ₹ 68,61,775/- during the pendency of these proceedings. In its case the claim would, therefore, undoubtedly not only involve interpretation of provisions of the Income Tax Act at the risk of doing violence to them but would also include an intricate exercise and mathematical calculation. Likewise in the case of Old Village, too, the argument is not tenable. The propositions that the petitioners advance are unsound in law and have no basis under the Scheme. Once the statute clarified that amounts paid towards tax are not to be deemed 'unpaid' for any reason, the normal provisions which had applied, when they did- during the course of assessment, could not have been reversed or given a go bye, which is what is asked by these petitioners. Doing so would be contrary to law. For the foregoing reasons, this Court holds that the petitions are bereft of merit and are accordingly dismissed. Issues:1. Challenge to demand under Kar Vivad Samadhan Scheme, 1998.2. Interpretation of tax arrear under Finance Act (No.2) of 1998.3. Calculation of disputed income and tax arrears under the Scheme.4. Adjustment of amounts paid under Section 140A.5. Compliance with Scheme provisions and legal implications.6. Discretionary power of the court in settling tax disputes.Issue 1: Challenge to demand under Kar Vivad Samadhan Scheme, 1998The petitioners challenge the demands made by the revenue under the Kar Vivad Samadhan Scheme, 1998, seeking a declaration that their liability under the Scheme is limited to specific amounts. The petitioners argue that the tax authorities have not considered the credit that should be given under Section 140A, and the amounts paid should be set-off against the tax arrears to determine the actual liability under the Scheme.Issue 2: Interpretation of tax arrear under Finance Act (No.2) of 1998The Finance Act (No.2) of 1998 defines 'tax arrear' under Section 2(m) for direct and indirect tax enactments. The Scheme allows for settlement of tax payable by declarants at specified rates based on disputed income. The designated authority determines the sum payable by applying marginal rates applicable for the relevant assessment year. The petitioners rely on judicial precedents and instructions issued by the Central Government to support their interpretation of the Scheme.Issue 3: Calculation of disputed income and tax arrears under the SchemeThe petitioners' disputed income and tax arrears are based on their assessment documents and returns filed. They argue that the tax authorities have incorrectly calculated the amounts payable under the Scheme and that the amounts paid, including advance tax, should be considered in determining the final liability. The revenue, however, contends that the petitioners must set-off amounts paid first against interest and unpaid amounts before adjusting towards tax liability.Issue 4: Adjustment of amounts paid under Section 140AThe petitioners assert that the amounts paid, including TDS and advance tax, should be adjusted against the tax arrears as per Section 140A. However, the revenue argues that the Scheme and the Explanation under Section 2(m) of the Finance Act (No.2) exclude amounts paid prior to the declaration from being deemed as unpaid, and thus, the entire unpaid amounts constitute tax arrears.Issue 5: Compliance with Scheme provisions and legal implicationsThe court examines the petitioners' contentions in light of the Scheme's provisions and the legal implications of interpreting the tax arrears and disputed income. It emphasizes that the petitioners' arguments lack a legal basis under the Scheme and that the amounts paid prior to the declaration cannot be set-off against the tax liability as claimed by the petitioners.Issue 6: Discretionary power of the court in settling tax disputesThe court, after detailed analysis, concludes that the petitions lack merit and dismisses them. It highlights that reversing the normal provisions of tax payment and adjustment as required by law would be contrary to the Scheme and legal principles. The court asserts that no substantial injustice warrants the exercise of discretion in favor of the petitioners, and their claims are unsound in law.In conclusion, the court dismisses the petitions, stating that the petitioners' contentions do not align with the provisions of the Scheme and the legal framework governing tax arrears and settlements. The court upholds the revenue's calculations and interpretation of the Scheme, emphasizing the importance of adhering to the statutory provisions in settling tax disputes.