By TIOL News Service

NEW DELHI, DEC 23, 2016: THE ISSUE IS - Whether the amounts of advance tax paid prior to the declaration under Kar Vivad Samadhan Scheme, can be adjusted while determining the tax arrears. NO IS THE VERDICT.

Facts of the case:

The Finance Act (No.2) of 1998 introduced a Scheme known as the Kar Vivad Samadhan Scheme which came into force on 01.09.1998. This enabled the applicants to settle their tax disputes after making appropriate declaration to the designated authority. A demand was raised by the revenue demanding a sum of Rs.72,17,068/- under the provisions of the Scheme. According to the declaration filed by Inter Craft, the total disputed income - on the basis of which tax arrears had to be computed was Rs.1,37,95,937/- as against the total assessed income of Rs.2,11,76,055/- for AY 1995-96. The petitioner relies upon the assessment documents, including the returns filed and the balance sheet indicating that substantial amounts of Rs.33,94,854/- (including TDS) were paid as advance tax. This, according to it, is the basis for the claim in the proceedings. According to Old Village, the tax @35% of disputed income of Rs.47,96,187/- was Rs.16,78,665/-.

On appeal, the HC held that,

++ Explanation to Section 2(m) of the Finance Act (No.2) ipso facto excludes amounts paid prior to the declaration and that the entire unpaid amounts are to be treated as tax arrears. The second aspect is that the normal operation of law is predicated upon treatment of amounts paid and their appropriation as required by the provisions of the Income Tax Act. Here, the major bulk of the demands appear to have been made on 30.03.1995, i.e. much after the advance tax payments were due. Furthermore, these amounts were to be adjusted towards outstanding arrears for previous years. That such interest arrears existed is not in dispute. Therefore, the petitioners are not correct in contending that the amounts of advance tax paid had to be necessarily adjusted while determining the balance.

++ The dispute which has remained pending for long does not show that any substantial injustice was done warranting exercise of discretion. Petitioner Inter Craft appears to have deposited the modified amount of Rs.68,61,775/- during the pendency of these proceedings. Once the statute clarified that amounts paid towards tax are not to be deemed "unpaid" for any reason, the normal provisions which had applied, when they did- during the course of assessment, could not have been reversed or given a go bye, which is what is asked by these petitioners.

(See 2016-TIOL-3086-HC-DEL-IT)