Case Title: Kapri International Pvt. Ltd. versus Commissioner of Income Tax
The Delhi High Court has ruled that the Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act) will apply in cases where a company in liquidation files an application under the Companies Act challenging a decision by the revenue authorities to deny a request for a waiver of interest for late payment of tax obligations.
The Mukta Gupta and Anish Dayal-led bench determined that the VSV Act would be open to a purposeful construction since it does not act as taxing legislation but rather one that offers a system for resolving tax disputes. The Court determined that all types of disputes, regardless of whether they were pending before the Commissioner of Income Tax or the courts, were intended to be covered by the VSV Act.
The assessee, Kapri International Pvt. Ltd., was assessed for the pertinent assessment year prior to the Delhi High Court issuing a winding-up order against the petitioner/assessee. The High Court allowed the assessee to contact the authorities to request an interest waiver while directing the liquidator to transfer the funds in the revenue department's favour with regard to the assessee's unpaid tax obligations under the Wealth Tax Act of 1957 and the Income Tax Act of 1961. After the Commissioner of Income Tax (CIT) denied the assessee's request for an interest waiver, the assessee filed a corporate appeal with the Delhi High Court to challenge the CIT's decision. The assessee then filed a request under the Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act), asking for the disputed interest liability to be resolved. The assessee submitted the declarations and detailed the amount due in accordance with the VSV Act in relation to the contested interest liability. However, the Principal Commissioner of Income Tax rejected the aforementioned declarations (PCIT). The assessee filed a writ suit with the Delhi High Court in opposition to this.
The revenue department argued before the High Court that the assessee's company application, which was filed in opposition to the CIT's order rejecting the assessee's request for an interest waiver, was primarily a petition under the Companies Act and was not, therefore, an "appeal" as defined by the VSV Act. The agency asserted that, in accordance with the Central Board of Direct Taxes (CBDT) Circular published under the VSV Act, only issues pertaining to the Income Tax Act are covered by the VSV Act and that interest waiver requests are not considered "appeals" under the VSV Act.
Kapri International, the assessee, argued that the interest calculated by the revenue authorities in accordance with Section 220(2) of the Income Tax Act was in violation of Rule 156 of the Companies (Court) Rules, 1959. As a result, the assessee filed an application for the waiver of interest, which the CIT rejected. The assessee claimed that the corporate application it filed before the Delhi High Court in opposition to the CIT's decision falls under the definition of "disputed interest", as defined in Section 2 (1) (h) of the VSV Act.
The Revenue Department's argument that the Assessee's business application was not an "appeal" and therefore did not fall under the purview of the VSV Act was rejected by the Court.
The Court concluded that the word "dispute," as defined in Rule 2(b) of the Direct Tax Vivad se Vishwas Rules, 2020, includes an appeal, writ, special leave petition, arbitration, conciliation, and mediation despite the fact that the VSV Act does not define "appeal." As a result, the party would be qualified to approach the revenue department for resolution under the VSV Act in any case against a decision made by the revenue department regarding tax, interest, penalty, or charge. According to the court's ruling, this would constitute a "conflict."
"The definition of dispute in Rules does not deviate or is ultra vires the scope and intent of the VSV Act itself since the preamble to the VSV Act itself provides for resolution of disputed tax and most importantly for "matters connected therewith and incidental thereto". It is therefore obvious that the intent of the VSV Act was to provide resolution of all nature of disputes relating to tax, penalty, interest, and fee as determined under provisions of the VSV Act. The restrictive scope that the CIT is providing for the definition of "dispute" or even of an "appeal" is not in synchronicity with the letter and spirit of the VSV Act that propounds an ameliorative scheme for resolution.", the Court said.
The Bench rejected the revenue department's argument that the term "disputed interest" as defined in Section 2 (1) (h) of the VSV Act only refers to disputed interest on disputed tax liability and that the assessee was ineligible because there was only a disputed interest and no disputed tax liability at issue. The Court determined that separate kinds of arrears that are not cumulative but rather alternative, i.e., disputed tax, disputed interest, disputed fee, and disputed penalty, are included in Section 2 (1) (o) of the VSV Act, which defines "tax arrears."
"Provisions have to read purposively and in harmony with the scheme of the VSV Act and its intent. It is a well-settled principle of law that a statute should be given a purposive construction in order to give effect to its legislative purpose. This, not being a taxing statute but one which propounds a dispute resolution scheme for tax disputes would be amenable to a purposive construction.", the Court said.
The Bench ruled that all types of disputes, regardless of whether they were pending before the Commissioner of Income Tax or the courts, were intended to be covered by the VSV Act. The Court further stated that a broad inclusion rather than a narrow exclusion was the legislature's intention. The Court granted the writ petition and overturned the PCIT's decision to reject the assessee's VSV Act declarations, concluding that the revenue department's attempt to exclude the assessee's case from a potential settlement was exceedingly hyper-technical. The Court instructed the PCIT to reconsider and review the declaration submitted by the assessee before making a merits-based decision.