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Rashmin Sanghvi & Associates

Chartered Accountants

220, 2nd Floor, Arun Chambers,
Tardeo Road,
Mumbai - 400 034,
Maharashtra, India.

Tel. Nos.: (+91 22) 2351 1878, 2352 5694.

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Home Articles Taxation         Share :

Budget 2016Chapter M

Chapter M. Dispute Revolution Scheme:

32. Dispute resolution for disputes pending as on 29th February 2016: [Chapter X of Finance Bill 2016, Clauses 197 to 208]

32.1 The Government of India aims to create a tax friendly regime (this phrase has come at many places. We can remove these and keep it in the forwarding letter) and make India a better place to do business in. However, prolonged litigations has led to environment of distrust. Further litigation leads to increase in compliance and administrative costs. The Finance Minister in his Budget Speech has stated that there are about 3 lakhs cases pending before 1st Appellate Authority – i.e. Commissioner of Income-tax (Appeals). The disputed amount is Rs. 5.5 lakh crores.

To clear the backlog of cases, the Finance Bill 2016 has proposed a Dispute Resolution Scheme.

32.2 The scheme is applicable to amount of tax, interest and penalty which is under appeal with the first level appellate authority – Commissioner of Income-tax (Appeals). The appeal should be pending as on 29th February 2016.

The appeal can be pending for income-tax or wealth-tax.

The scheme will commence on 1st June 2016 and will remain in force till the date which will be notified by the Government. The person is required to file a declaration to opt for the scheme.

32.3 The amount payable under this scheme will be as under:

i) If the disputed tax is upto Rs. 10 lakhs, the person will have to pay tax and interest upto the date of assessment. There will be no penalty.

ii) If the disputed tax is more than Rs. 10 lakhs, the person will have to pay tax and interest upto the date of assessment. Further he will have to pay 25% of the minimum penalty payable.

iii) If the appeal is for penalty, the person will have to pay 25% of the minimum penalty payable. Further tax and interest upto the date of assessment will be payable on the income finally determined.


32.4 Dispute due to restrospective amendment in law:

The restrospective amendment in 2012 was made to tax capital gain earned by Hutchison on sale of Cayman Island company to Vodafone. The Cayman Island company’s value was derived substantially from Indian mobile phone service business. Hutchison transferred its Indian mobile phone service business by transferring the Cayman Island company. As the Cayman Island company, transferor and transferee were outside India, Hutch claimed that it was not liable to tax. The department argued that what Hutch sold was essentially Indian business. The department lost the matter in Supreme Court. Hence Government carried out retrospective amendment to tax capital gain. This restrospective amendment had caused anxiety within the foreign investors. Vodafone has gone for arbitration under the Bilateral Investment treaty.

Our detailed analysis is available on our website - http://www.rashminsanghvi.com/articles/taxation/vodafone/vodafone-case-its-consequences.html.

The Government has come forward with a resolution for such disputes which have arisen due to retrospective amendment. At the same time, it has reiterated that the Government has the power to bring in retrospective amendment. However it will not exercise the same indiscriminately.

32.5If the tax payer opts for the scheme and pays the amount, the Government will provide immunity from prosecution and penalty which could otherwise have been undertaken.

The tax payer’s appeal with the Commissioner (Appeals) will be considered as withdrawn.

In case of settlement of dispute for tax due to restrospective amendment, the tax payer will have to withdraw the appeal with the leave of the court if the appeal is lying with the court. If the tax payer has gone for arbitration, he will have to withdraw the proceedings from arbitration. He will also have to give an undertaking that he will waive his right to seek any remedy at any other forum.

The order for payment of amount will be given by the Commissioner of Income-tax within 60 days. The amount has to be paid within 30 days of the order.

32.6 This scheme is not available to following situations:

i) where assessment has been made in pursuance of search.

ii) where a search / survey has been conducted.

iii) where prosecution has been instituted before filing the declaration under the scheme.

iv) where it pertains to undisclosed income from a source located outside India or undisclosed asset located outside India.

v) where matter pertains to information received under a DTA.

vi) where certain detention orders have been made under the provisions of the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

vii) for some offences under Indian Penal Code, the Unlawful Activities (Prevention) Act, 1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Prevention of Corruption Act, 1988 or for the purpose of enforcement of any civil liability has been instituted on or before the filing of the declaration or such person has been convicted of any such offence punishable under any of those Acts.

viii) to a person notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992.