Tax under VDIS 1997 cannot offset TDS under IT Act 1961: Court ruling clarifies tax payment distinctions

The court held that the tax payable under the Voluntary Disclosure of Income Scheme (VDIS) of 1997 is distinct from the tax payable under the Income Tax Act, 1961. Therefore, the adjustment of tax deducted at source (TDS) under the 1961 Act against the tax payable under the VDIS of 1997 is not permitted. The court dismissed the petition, emphasizing that the obligations to pay taxes under these two schemes are separate and cannot be offset against each other.

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Issues Involved:
1. Legality of the impugned communication dated 18th March, 1998, and the Circular dated 25th July, 1997, issued by the CBDT.
2. Whether tax deducted at source (TDS) under the Income Tax Act, 1961, can be adjusted against the tax payable on undisclosed income declared under the Voluntary Disclosure of Income Scheme (VDIS) of 1997.

Detailed Analysis:

1. Legality of the Impugned Communication and Circular:
The petitioner challenged the communication dated 18th March, 1998, issued by the Commissioner of Income Tax, Mumbai, which rejected the petitioner’s request to adjust TDS against the tax payable on undisclosed income declared under the VDIS of 1997. The rejection was based on CBDT Circular No. 755 dated 25th July, 1997, which explicitly stated that tax payable in respect of disclosed income would not be adjusted by the tax deducted at source earlier in respect of that income. The court noted that the impugned communication did not consider the provisions under Sections 64 and 66 of the VDIS of 1997 and merely relied on the CBDT Circulars.

2. Adjustment of TDS Against Tax Payable Under VDIS:
The court examined whether the tax payable under the VDIS of 1997 could be considered the same as the tax payable under the Income Tax Act, 1961. It was determined that the VDIS of 1997 is a distinct and separate statute from the 1961 Act, with different subject matters and rates of tax. The VDIS of 1997 charges tax on voluntarily disclosed income, which had not been disclosed under the 1961 Act, at a flat rate, whereas the 1961 Act charges tax on the total income of the previous year at progressive rates. Therefore, the court concluded that the tax payable under the VDIS of 1997 is not the same as the tax payable under the 1961 Act, and thus, the benefit of TDS under the 1961 Act cannot be availed to pay the tax under the VDIS of 1997.

The court also referred to Section 66 of the VDIS of 1997, which requires the declarant to provide proof of payment of tax payable under the scheme, not under the 1961 Act. Additionally, the court noted that the declaration filed by the petitioner on 31st December, 1997, did not claim any credit for TDS under the 1961 Act.

The court further examined the decision of the Calcutta High Court in Sushila Devi Mohata v/s. CIT, which allowed the adjustment of TDS against the tax payable under a similar voluntary disclosure scheme. However, the court found that the Calcutta High Court had not considered the difference in the charging provisions of the two Acts and rendered its decision sub silentio.

Conclusion:
The court held that the tax payable under the VDIS of 1997 is not the same as the tax payable under the Income Tax Act, 1961. Therefore, the adjustment of TDS under the 1961 Act to discharge the tax payable under the VDIS of 1997 is not permissible. The court dismissed the petition, stating that the payment of tax under the VDIS of 1997 is indeed a different obligation from the tax payable under the 1961 Act, and no adjustment of TDS could be allowed.

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