Court sets aside Form No. 3 under Tax Dispute Resolution Act, directs revised form issuance within a week.

The court set aside Form No. 3 issued under the Direct Tax Vivad se Vishwas Act, 2020, and directed the issuance of a revised form within one week. The petitioner's challenge regarding the entitlement to interest under Section 244A of the Income Tax Act, 1961 was upheld, clarifying that the interest paid was not part of the disputed tax and therefore not payable by the petitioner. The court emphasized that the restriction on interest under Section 244A applies only when the tax paid exceeds the amount payable under the VSV Act.

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Issues Involved:
1. Validity of Form No. 3 issued under the Direct Tax Vivad se Vishwas Act, 2020.
2. Entitlement to interest under Section 244A of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Form No. 3 issued under the Direct Tax Vivad se Vishwas Act, 2020:

The petitioner challenged Form No. 3 dated 11th December 2020 issued by respondent No. 1 under the Direct Tax Vivad se Vishwas Act, 2020 (the "VSV Act") for the assessment year 2015-16. The petitioner sought a direction to the respondents to settle the dispute without withdrawing the interest already granted under Section 244A of the Income Tax Act, 1961 (the "Act"). The petitioner, a company incorporated in Cyprus, filed its return of income for the assessment year 2015-16, declaring a total income of Rs. 28,35,66,580 and claimed a refund of Rs. 5,67,13,320. Respondent No. 2 passed an assessment order on 6th February 2018, holding that the petitioner was not entitled to the benefit of the India-Cyprus DTAA and taxed the interest income at 20% under Section 115AD(1)(a)(i) of the Act. This resulted in a refund of Rs. 2,37,34,523 and interest of Rs. 42,72,210 under Section 244A of the Act. The petitioner applied for settlement under the VSV Act, computing the disputed tax at Rs. 3,29,78,793. However, respondent No. 1 issued Form No. 3, raising a demand of Rs. 42,72,203, stating that the interest under Section 244A was no longer available to the petitioner.

2. Entitlement to interest under Section 244A of the Income Tax Act, 1961:

Shri. Vyas argued that under the VSV Act, the petitioner was not entitled to any interest under Section 244A of the Act. He stated that the petitioner must return the interest paid on the undisputed component as per the revised assessment order dated 30th March 2018. Conversely, Shri. Pardiwalla contended that the restriction on payment of interest under Section 244A applies only when an assessee is eligible for a refund pursuant to making an application under the VSV Act. He argued that the interest of Rs. 42,72,210 was paid as per the assessment order before the VSV Act application and was not determined under the VSV Act.

The court noted that under the VSV Act, the amount payable is the disputed tax, which in this case was Rs. 3,29,78,793. The amount of Rs. 42,72,203 was not part of the disputed tax and thus not payable by the petitioner. The court found Shri Vyas’s reliance on the explanation to Section 7 of the VSV Act misplaced, as the restriction on interest under Section 244A applies only when the tax paid exceeds the amount payable under Section 3. The interest paid under Section 244A was on the undisputed part of the excess tax paid, not on the disputed tax.

Conclusion:

The court set aside Form No. 3 dated 11th December 2020 issued by respondent No. 1 and directed the issuance of a revised Form No. 3 within one week. The petition was disposed of with the direction to issue the revised form promptly.

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