Special settlement scheme tax arrears must be computed under its own definition, not by re-appropriating prior payments.

A special settlement scheme for tax arrears under the Finance Act, 1998 governs the computation of the amount payable by defining "tax arrear" and excluding amounts already paid voluntarily or under protest, including deposits made pending appeal or proceedings. Prior payments made before the declaration are therefore not to be treated as unpaid arrears for reducing the scheme liability. The scheme-specific computation prevails over ordinary adjustment rules under the Income-tax Act, so advance tax or other earlier payments cannot be re-appropriated contrary to the scheme's definition.

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Issues: Whether, for determining the amount payable under the Kar Vivad Samadhan Scheme, 1998, payments made before the declaration, including advance tax and amounts paid under protest, could be adjusted so as to reduce the tax arrears and the sum payable under the Scheme.

Analysis: The Scheme defined "tax arrear" in Section 2(m) of the Finance Act (No.2) of 1998 and, by its Explanation, excluded from the computation any amount already paid voluntarily or under protest, including deposits made pending appeal or court proceedings, which were not to be treated as unpaid for determining tax arrears. The Court held that this specific scheme provision governed the computation and that the general adjustment rules under the Income-tax Act could not override it. The petitioners' reliance on Section 140A and the argument that advance tax had to be given credit first was rejected, since the Scheme treated pre-declaration payments as outside the unpaid arrears and the disputed amount had to be worked out on that basis.

Conclusion: The petitioners were not entitled to reduce the amount payable under the Scheme by re-appropriating prior payments against interest or by claiming credit inconsistent with the Scheme's definition of tax arrears.

Final Conclusion: The challenge to the demand under the settlement scheme failed, and the writ petitions were dismissed.

Ratio Decidendi: Where a special settlement scheme expressly defines tax arrears and excludes prior payments from being treated as unpaid for computation purposes, that scheme-specific mechanism prevails over the ordinary adjustment rules under the Income-tax Act.

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