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  • Tax Dispute Resolution Scheme

    Finance Minister Arun Jaitley stated during the Union Budget 2016 that in order to bring down the number of taxation cases under litigation in the country a new Dispute Resolution scheme would be introduced. Since litigation results in increased expenditure for taxpayers as well as the Income Tax Department, the introduction of this new scheme aims to reduce the compliance and administrative costs that both parties bear the brunt of.

    Features of the Tax Dispute Resolution Scheme:

    The main features of the Tax Dispute Resolution Scheme are as follows:

    • Any taxpayer with a pending case or appeal can make a payment towards the tax amount under dispute as well as the interest accumulated until the point of assessment. The payment made will be in settlement of the taxpayer’s case provided he or she has a pending appeal before the Commissioner on that particular date.
    • For any tax amount under dispute up to Rs 10 lakhs, no penalties shall be charged
    • Any case where the tax amount under dispute is over Rs 10 lakhs, a penalty equivalent to 25% of the lowest penalty amount that may be imposed for both types of taxes, either direct or indirect, shall be levied.
    • If a taxpayer pays 25% of the lowest penalty amount that may be imposed, then he or she can reach a settlement with regards to any appeal that is pending against an order of a penalty.

    Benefits of the Tax Dispute Resolution Scheme:

    The introduction of the Tax Dispute Resolution Scheme will benefit both taxpayers as well as the Income Tax authorities in the following ways:

    • As per the scheme, declarants can reach a settlement with regards to their pending appeals or cases via the sole payment of tax arrears. In such cases any liability with regards to interest will be written off and no penalties will be charged.
    • The new scheme will also ensure that various offences carried out by taxpayers are graded and categorised based on the penalties that they may incur. This in turn will relieve income tax officers of the burden of decision making based on the uniqueness of each case or appeal.
    • The new scheme also provides taxpayers a portal through which they can declare any income that they have failed to disclose in the past, which will benefit individuals as well as companies in a similar manner.
    • The new scheme aims to reduce the number of disputes caused by the levy of huge penalties, and also aims at the removal of penalty charges altogether in certain cases.

    Overview of the Direct Tax Resolution Scheme:

    The Direct Tax Resolution Scheme of 2016 will be introduced on June 1st 2016 following the insertion of a new Chapter X by clauses 197 through to 208 of the Finance Bill 2006. Under the Direct Tax Resolution Scheme, definitions of certain terms have been shaped in the following way:

    Specified Tax: As per Clause 198(g), specified tax has been defined as a type of tax that has come about via any retrospective amendment to either the IT Act or the Wealth Tax Act. This type of tax is one which has been given the President’s assent and is related specifically to a certain time before any amendments took place. It also refers to any dispute that has been long overdue as of February 29th 2016.

    Tax Arrear: Tax arrears is referred to as the amount or sum of penalty, taxation or interest that has been ascertained as per the Wealth Tax Act 1957 or the IT Act. It also refers to the any appeal in lieu of such amount that is due for consideration as on February 29th 2016 with the Commissioners of IT and Wealth Tax respectively.

    Clauses Contained Within The Direct Tax Dispute Resolution Scheme:

    There are a number of clauses relating to the Direct Tax Dispute Resolution Scheme, which can be detailed as follows:

    Clause 205:

    This clause of the Direct Tax Dispute Resolution Scheme outlines the instances under which the scheme will not be applicable. These instances are:

    • Tax arrears that are
      • Related to a particular assessment year wherein the assessments have taken place as per Section 153A or 153C under the IT Act, as a result of any search or requisitions conducted as per Section 37A or Section 37B respectively of the Wealth Tax Act
      • Related to any survey carried out as per Section 133A or Section 38A of the IT Act and the Wealth Tax Act respectively
      • Related to an amount of income that has not been declared, and which has originated from beyond the borders of India or through an asset that exists beyond the borders of India
      • Related to any year of assessment wherein the process of prosecution has already taken place at the time of or prior to the date of declaration.
      • Related to any data obtained as per Section 90 or 90A of the IT Act for the purpose of assessment
    • Persons detained as per the various provisions outlined in COFEPOSA
    • Persons who have been found guilty as per the IPC provisions with relation to the possession of narcotics or any other punishable offence as outlined by the Unlawful Activities Act, 1967
    • Persons who has been sent a notification as per Section 3 under the Special Court Act, 1992

    Clause 199:

    Clause 199 of the Direct Tax Dispute Resolution Scheme deals with the declaration of the amount of tax that has to be paid, wherein any particulars relating to this amount will be required to be mentioned in the declaration made by the taxpayer. Any person declaring the amount of tax payable in relation to either tax arrears or specified tax as on June 1st 2016 or any date after, the taxation amount that will be payable as per the Direct Tax Dispute Resolution Scheme will be as follows:

    • For any tax arrears appeals that are pending:
      • The amount of tax payable will be in its entirety if the tax amount in dispute as well as the interest accumulated is not more than Rs 10 lakhs
      • The amount of tax payable will be in its entirety plus any interest accumulated plus 25% of the least applicable penalty that can be levied
    • For specified tax, the taxation amount that will be payable will be the amount that has been ascertained or determined for this very purpose

    Clause 200:

    Clause 200 of the Direct Tax Dispute Resolution Scheme deals with the particulars that are required to be provided or mentioned in the declaration made by the taxpayer. The particulars are to be submitted as follows:

    • With regards to tax arrears, a pending appeal before the Commissioner (Appeals) will be considered to be withdrawn if said pending appeal deals with any income or wealth that is under dispute.
    • With regards to specified tax
      • The person making the declaration can withdraw his or her appeal with the permission of the Court, and must provide evidence of this withdrawal when making the declaration
      • The person making the declaration can withdraw his or her appeal if he or she has commenced any procedure relation to mediation, arbitration or conciliation

    Clause 201:

    Clause 201 of the Direct Tax Dispute Resolution Scheme deals with the functions of the designated authority and the scope of the authority’s powers. As per this clause the designated authority shall carry out the following duties:

    • The designated authority shall ascertain the amount of tax to be paid by the person making the declaration with 60 days after it has obtained the declaration
    • The designated authority shall provide the declarant with a certificate, which will contain all particulars related to tax arrears or any other specified duties that the declarant may be required to carry out
    • Following the issuance of the certificate to the declarant, the declarant will be required to make a payment towards the amount that has been ascertained by the designated authority. The payment will be required to be made by the declarant within a duration of 30 days from the issuance of the certificate, and once made, the designated authority will be required to state unequivocally that the amount has been paid by the declarant.
    • Any order passed by the designated authority with regards to the amount that has been paid by the declarant shall be considered final, and under no circumstances shall be altered or re-contested.

    Clause 200(5):

    Clause 200(5) of the Direct Tax Dispute Resolution Scheme deals with false information that has been provided by the declarant. The provisions of this clause state the following:

    • As per the provisions outlined under this clause, if the declarant has submitted any information or particulars that have been proven to be false or fraudulent at any point in time, then the declaration furnished by him or her shall be deemed to have never been made and all pending actions that were previously taken against the declarant will be reinitiated.
    • If the declarant has violated or been found guilty of going against any of the terms and conditions outlined by the Direct Tax Dispute Resolution Scheme, then the declaration furnished by him or her shall be considered void
    • If the declarant has acted or behaved in a way that is not in keeping with the particulars of the declaration then the declaration furnished by him or her shall be deemed to have never been made and all pending actions that were previously taken against the declarant will be reinitiated.

    Clause 202:

    Clause 202 of the Direct Tax Dispute Resolution Scheme deals with immunity granted by the designated authority to the declarant. Immunity shall be given by the designated authority in the following cases, as it deems fit and in line with specified conditions:

    • The declarant shall be granted immunity from the levy of any penalty with regards to specified tax or tax arrears that have been mentioned in the declaration
    • The declarant shall be granted immunity in light of any procedures that have been initiated with regards to any offences outlined under the IT Act or the Weath Tax Act
    • The declarant shall be granted immunity with regards to the waiving of interest in relation to specified tax or tax arrears that have been mentioned in the declaration

    Clause 203:

    Clause 203 of the Direct Tax Dispute Resolution Scheme deals explicitly with refunds. Under the provisions of this clause, any amount or sum that has been paid by the declarant during the process of obtaining and submitting his or her declaration, shall not be liable for refund regardless of the circumstance.

    Clause 204:

    Clause 204 of the Direct Tax Dispute Resolution Scheme deals with the non applicability of benefits. The provisions contained in this clause state that nothing outlined in the scheme shall be deemed to provide any sort of immunity, rebate or benefits to the declarant during the course of any proceeding, except those towards whom the declaration was made.

    Clause 206, 207 and 208:

    Clauses 206 to 208 of the Direct Tax Dispute Resolution Scheme deal with the powers granted to the Central Government with regards to the administration and implementation of the scheme as it deems fit. The provisions outlined in the clauses are detailed as follows:

    Clause 206:

    Clause 206 of the Direct Tax Dispute Resolution Scheme states that:

    • The Central Government has the power to direct or roll out orders to any authorised body for administrative purposes with regards to the functioning of the scheme.
    • With regards to the disposal of a specific case or appeal in a specific way, no order will be given to the designated authority to carry out such disposal
    • The Central Government has the power to issue special as well as specific orders for appeals or cases of any type, wherein guidelines, instructions, procedures, directions and principles will be outlined for the authorised bodies to abide by. These orders can be issued by the Central Government as it deems fit, so as to ensure that the scheme is implemented in the proper manner, and proper accumulation of revenue is taking place.
    • The Central Government may also make public the issuance of any of the orders mentioned above if it is deemed to be in the general interest of the public at large

    Clause 207:

    Clause 207 of the Direct Tax Dispute Resolution Scheme states that the Central Government has the power to ensure that hindrances are removed in accordance with the provisions and guidelines laid out in the scheme. However, any order with regards to the removal or any hindrances or difficulties shall only take place following the completion of two years from the date of introduction and implementation of the provisions outlined in the scheme.

    Clause 208:

    Clause 207 of the Direct Tax Dispute Resolution Scheme grants the Central Government with powers to formulate rules and regulations in order to ensure that the provisions of the scheme are carried out effectively and efficiently with regards to the following:

    • The form or manner by which a declaration is made
    • The manner or way by which the verification of the declaration in question is to be made
    • The format of the certificate that may be issued to the declarant
    • The manner or way by which any orders issued by the Central Government are made public
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