Vivad Se Vishwas Scheme interpretation finds penalty appeal qualifies as dispute under scheme, relief granted to taxpayer

Vivad Se Vishwas Schemes definition of 'dispute' is to be interpreted broadly to include any appeal, including an appeal against a penalty order, and where such an appeal is pending the taxpayer qualifies for scheme benefits; this interpretation advances the schemes settlement object and renders the impugned denial contrary to the scheme. The apportionment rule applicable between spouses applies equally, obviating the need for a separate appeal against assessment where apportionment is acknowledged, and equal relief granted to both spouses. COVID-related delay in filings is accepted and the fact that requisite forms were filed while the scheme subsisted preserves entitlement; writ jurisdiction was exercised to grant relief.

---

---

Issues: (i) Whether the petitioner, governed by Section 5A (apportionment of community income), is entitled to avail benefit under the Direct Tax Vivad Se Vishwas Scheme, 2020 when an appeal challenging a penalty order is pending though no separate appeal against the assessment order was filed.

Analysis: The Scheme requires a pending dispute as defined in Rule 2(b), which includes appeals beyond only assessment challenges. Section 5A creates a statutory fiction treating disputed income as single community income apportioned between spouses; consequently, a dispute settled for one spouse operates on the community income and cannot be split for settlement purposes. The petitioner had a pending appeal against the penalty order and Forms 1 and 2 were filed while the Scheme was subsisting. The departmental rejection was based solely on absence of a separate appeal against the assessment order, without addressing the effect of Section 5A or the pending penalty appeal; the rejection lacked reasons and failed to apply the Scheme's definition of 'dispute' and the apportionment principle under Section 5A.

Conclusion: The impugned rejection is set aside; the petitioner is entitled to have Forms 1 and 2 considered under the Scheme and the matter remitted for appropriate orders including issuance of Form 3 and subsequent Form 5 upon payment as per the Scheme.

Ratio Decidendi: Where statutory apportionment under Section 5A treats disputed income as single community income, a pending appeal by one spouse (including against a penalty order) qualifies as a 'dispute' under the Vivad Se Vishwas Scheme and entitlement granted to one spouse cannot be denied to the other on the sole ground that no separate appeal against the assessment order was filed.

---