Court quashes tax clarification, allows declaration filing under Vivad se Vishwas Act

The court set aside and quashed the clarification in question No.73 of circular No.21/2020, directing that the petitioner's declaration should be decided in conformity with the Vivad se Vishwas Act without considering the impugned clarification. The court held that delayed payment of self-assessment tax does not constitute a tax arrear under the Act, allowing the petitioner to file a declaration despite pending prosecution. The court emphasized that the exclusion under the Act applies only to tax arrears related to the prosecution itself.

---

---

Issues Involved:
1. Validity of the clarification given by respondent No.2 to question No.73 in circular No.21/2020 dated 04.12.2020.
2. Whether the delayed payment of self-assessment tax constitutes a "tax arrear" under the Direct Tax Vivad se Vishwas Act, 2020.
3. Eligibility of the petitioner to file a declaration under the Direct Tax Vivad se Vishwas Act, 2020 despite pending prosecution.

Detailed Analysis:

1. Validity of the Clarification in Circular No.21/2020:
The petitioner challenged the clarification given by respondent No.2 in question No.73 of circular No.21/2020, which stated that if prosecution has been instituted for an assessment year, the taxpayer is ineligible to file a declaration for that year, even on issues not related to the prosecution. The court found this interpretation to be "illogical and irrational" and not in alignment with the legislative intent of section 9(a)(ii) of the Vivad se Vishwas Act. The court held that the exclusion should only apply to tax arrears related to the prosecution and not to unrelated issues. Consequently, the court set aside and quashed the clarification in question No.73, directing that the petitioner's declaration should be decided in conformity with the Vivad se Vishwas Act without considering the impugned clarification.

2. Delayed Payment of Self-Assessment Tax as "Tax Arrear":
The court examined whether the delayed payment of self-assessment tax could be construed as a "tax arrear" under section 2(1)(o) of the Vivad se Vishwas Act. The prosecution against the petitioner was initiated under section 276-C(2) of the Income Tax Act for delayed payment of self-assessment tax. The court concluded that such delayed payment does not constitute a tax arrear within the meaning of the Act. Therefore, the prosecution for delayed payment should not debar the petitioner from filing a declaration for settlement of tax arrears for the assessment year in question.

3. Eligibility to File Declaration Despite Pending Prosecution:
The petitioner sought to file a declaration under the Vivad se Vishwas Act to settle pending tax demands. The court analyzed section 9(a)(ii) of the Act, which excludes cases where prosecution has been instituted in respect of tax arrears for an assessment year before the date of filing the declaration. The court emphasized that the exclusion applies only if the prosecution is related to the tax arrear itself. Since the prosecution against the petitioner was for delayed payment of self-assessment tax and not for tax arrears, the petitioner should not be barred from filing the declaration. The court directed respondent No.1 to decide the petitioner's declaration in accordance with the Act, setting aside the impugned clarification.

Conclusion:
The court allowed the writ petition, quashing the clarification given in question No.73 of circular No.21/2020 and directing respondent No.1 to accept the petitioner's declaration without considering the invalidated clarification. The court emphasized that the legislative intent of the Vivad se Vishwas Act is to enable settlement of tax disputes and should not be narrowly interpreted to exclude unrelated issues.

---