In a recent ruling, a division bench of the Gujarat High Court held that the definition of “tax arrear” under the Direct Tax Dispute Resolution Scheme, 2016 includes penalty also.
However, Justices Akil Khureshi and Biren Vaishnav has dismissed the petitions wherein the petitioners strenuously argued that they are entitled to the benefit of the said scheme.
In the instant case, re-assessment was completed against the petitioner on the basis of materials found during the course of search. Though the petitioner admitted tax demand according to the re-assessment, the penalty order issued against the same was challenged before the first appellate authority. During the pendency of the same, the Direct Tax Dispute Resolution Scheme, 2016 was announced by the Central Government.
Assessee’s application for the above amnesty scheme was rejected by the department for the reason that the additions made for the concerned assessment year were having bearing on the materials impounded during search and therefore, the benefit of the scheme cannot be made available to the petitioners.
Before the High Court, the petitioners raised two contentions. Firstly, s.208(a)(ii) would not cover a person other than one who was searched under section 133A of the Act. Secondly, the term “tax arrear” used in sub clause (ii) would not include penalty and this exclusion clause therefore, would not apply.
The department, on the other hand, submitted that the term “tax arrear” does not include penalty for the purpose of he scheme.
The bench noted that the term ‘tax arrear” has been defined under clause(h) as to mean the amount of tax, interest or penalty determined under the Income Tax Act or the Wealth Tax Act, in respect of which appeal is pending before the Commissioner (Appeals) or the Commissioner of Wealth tax (Appeals) as on 29th February, 2016.
“The term “tax arrear” for the purpose of the said Scheme therefore, had a definite meaning as provided in the said definition. It would include the amount of tax, interest or penalty and would be treated as a tax arrear if against such determination, appeal is pending before the appellate Commissioner on the specified date. The expression used “if it relates to any tax arrear” in sub clause (ii) of clause(a) of section 208 therefore, would include penalty also. In view of such clear definition, we are unable to accept the contention of Shri Soparkar that for the limited purpose of sub-clause (ii), the term “tax arrear” must exclude the penalty.”
However, the bench rejected the second contention that sub-clause (ii) would not include a situation as in case of the present assessee where he himself was not subjected to survey operation, also cannot be accepted.
“The language used is “has a bearing if it relates to any tax arrear” and not “if it relates to any tax arrear” or some similar expression. The term “has a bearing” is much wider and must be understood in its plain grammatical meaning as to include assessment or reassessment of which a survey conducted under section 133A of the Income Tax Act has a bearing.
The bench, dismissing the petition, said that the very genesis of the reassessment proceedings in case of the petitioner assessee was the documents found and seized during the survey operation and therefore, the Commissioner had rightly rejected the application.
Read the full text of the Judgment below.
