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I had thought of taking up KVSS a little later on. However, some interesting issues came up and they deserve discussion. So here they are.
We saw that partnership firms can settle their disputes like companies by paying 35% as tax on disputed income. This works fine when the firms have disputed incomes relating to assessment years 1993-94 and afterward. However, if the firms have had disputes for years before that, it can become a problem.
Suppose your firm has tax arrears for assessment year 1987-88. The assessment was made with several additions to the income which you are disputing in appeal. Consequently, assessments were made of partners by adopting the share income as assessed in the firm's assessment. You don't file appeals against the partners' assessments since they are merely consequential and if you win in the firm's appeal the partners' assessments would get automatically modified. Now you wish to settle the disputes of the firm under KVSS.
Those years, firms were assessed separately from partners. So firms were taxed at progressive rates, the maximum going up to 24%. The partners paid taxes separately on their incomes.
When you pay taxes at 35% on the firm's income, it will necessarily be more than the maximum payable by the firm, ie, 24%. That would be fine with you, if the partners did not have to pay any tax separately. However, they have paid the taxes. So?
When you pay 35% of the disputed income as tax under KVSS, you are paying more than the firm's normal taxes (and not less as intended by the Scheme). The Scheme does not provide for any changes to the partners' assessments. The partners' assessments will remain as they were. If taxes have already been paid by them, you can forget them. If not, there is nothing that will stop the department from collecting them.
Settling tax disputes in such situations can leave you quite worse off than now. There is an urgent need for the department to come out with an immediate remedy.
However, if there is time you can consider filing a revision petition before the Commissioner in partners' cases and ask them to be revised. Whether this will happen or not is anybody's guess.
When you settle disputes under the Scheme, your appeals pending before the Commissioner(Appeals) or the Tribunal automatically get withdrawn. These appeals may have substantial issues which may have a bearing on other years' assessments. What are the implications on other years' assessments and your claims on the same issues when you settle the case for a given year? None. When you settle a case under KVSS and the appeal gets withdrawn, you are not considered to have given up your contentions on the issues, nor are you considered to have lost in appeal with regard to your claims. You are free to contest the issues in other years which are not settled. Even the appellate authorities will not consider your withdrawal as a weakness in your cases in subsequent years or your having conceded the points. The department has clarified this issue by way of a question and answer thus:
Ans. No. The order under the Samadhan Scheme does not decide any judicial issue. It only determines the sum payable under the Scheme with reference to tax arrears.
220 Interest
One interest burden which is rather heavy is under section 220 which is levied for default in payment of taxes. This interest is often ignored by taxpayers as a real burden. An issue raised is whether this interest is also liable to be waived when a case is settled under KVSS. The department has clarified that it would be waived. The relevant question and answer are as under:
Ans. Yes. The designated authority has been given power to waive interest and penalty where the tax arrears comprises tax, interest and penalty and determine the sum payable in full and final settlement of tax arrears.
There have been taxpayers who had made declarations under VDIS and failed to pay the taxes consequent to their declarations. This was because of changed financial circumstances post-declaration. A similar situation can arise under the Samadhan Scheme. However, the consequences of non-payment are not as disturbing as they were under VDIS.
The department has clarified this again with a question and an answer, thus:
Ans. The consequences may be as under :-
(a) if the tax is not paid fully, the tax payer would not be entitled to the benefits of the scheme,
(b) when a number of assessment years are involved in a particular tax-payer's case, the condition of tax payment will be considered for each year separately as a unit,
(c) when the tax is paid only partly, the tax payer loses the benefit of this scheme. However, the tax paid will be adjusted against the normal arrears of tax.
Thus, if you fail to pay the taxes entirely, you will have virtually backed out from the Scheme and the situation will revert to the one which existed before the declaration. Neither will the appeal be withdrawn nor will you get the benefit of the Scheme.
If you pay taxes partly, then if one or more years in the declaration can get covered, such years will get covered by the Scheme and not the rest.
If, however, you have paid only a part of the taxes which cannot cover any year, then you lose the benefit of the Scheme and the taxes paid will be adjusted against the normal tax. This last thing, the adjustment of the tax against normal tax, is what makes this Scheme different from VDIS.
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