Lok Sabha Clears Bill To Reduce Direct Tax Litigation [Read Bill]

The Bill, aimed to reduce direct tax litigation, was introduced in the lower house by Finance Minister Nirmala Sitharaman, on February 5, 2020. The Bill provides a mechanism for resolution of disputes related to income tax and corporation tax, pending before any appellate forum as on January 31, 2020.

Talking about the need to resolve these pending tax disputes, Sitharaman read out the Statement of Objects and Reasons annexed to the Bill, while introducing it. She said,

"Over the years, the pendency of appeals filed by taxpayers as well as Government has increased due to the fact that the number of appeals that are filed is much higher than the number of appeals that are disposed. As a result, a huge amount of disputed tax arrears is locked-up in these appeals. As on the 30th November, 2019, the amount of disputed direct tax arrears is Rs. 9.32 lakh crores. Considering that the actual direct tax collection in the financial year 2018-19 was Rs.11.37 lakh crores, the disputed tax arrears constitute nearly one year direct tax collection.

…there is an urgent need to provide for resolution of pending tax disputes. This will not only benefit the Government by generating timely revenue but also the taxpayers who will be able to deploy the time, energy and resources saved by opting for such dispute resolution towards their business activities."

Resolution mechanism

The resolution mechanism may be set at motion by an individual/ corporation, as the case may be, by filing of a declaration before the designated authority to initiate resolution of pending direct tax disputes.

Before filing the declaration, the appellant will be required to furnish an undertaking waiving his rights to seek any remedy in relation to the tax dispute under any law; and all such claims already filed in relation to the dispute must be withdrawn.

Within 15 days of the receipt of the declaration, the authority will grant a certificate containing the particulars of the amount payable by the appellant. The appellant must pay this amount within 15 days of the receipt of the certificate and inform the designated authority of such payment.

Once the designated authority issues the certificate, appeals pending before the ITAT and the Commissioner (Appeals) will be deemed to be withdrawn. In case of appeals or petitions pending before the Supreme Court and High Courts, the appellant is required to withdraw the appeal or petition.

Amount payable for resolution

The Bill provides that the determination of amount payable by the appellant for resolution of disputes will be based on whether the dispute relates to payment of tax, or payment of interest, penalty, or fee.

During her budget speech, Finance Minister had clarified that, tax payers who pay the disputed tax amount by March 31, 2020, will be entitled to absolute waiver of any interest or penalty associated with such tax. However, those making the payments after the cut-off date will be required to pay an additional amount.

Immunity to appellant

The Bill provides absolute immunity to the appellant, once the dispute is resolved. Such matters cannot be reopened in any proceeding under any law, including the IT Act.

Disputes not covered

The resolution mechanism does not cover certain disputes, viz. (i) disputes where prosecution has been initiated before the declaration is filed, (ii) disputes which involve persons who have been convicted or are being prosecuted for offences under certain laws, such as IPC or for enforcement of civil liabilities, and (iii) disputes involving undisclosed foreign income or assets.

[With Inputs from PRS Legislative Research]

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