In Earnest Business Services Pvt. Ltd & Anr v. CIT & Ors, the Bombay High Court held that TDS paid under the Income Tax Act cannot be adjusted against the payment made under Voluntary Disclosure of Income Scheme, 1997.
The division bench comprising of Justice M.S Sanklecha and Justice A.K. Menon clarified that a tax payable under the Scheme of 1997 is not a tax under the Act, 1961. It was opined that a tax payable under the Scheme of 1997 Act is indeed a ‘different animal’ from the tax payable under the 1961 Act and therefore, the tax deducted at source and/or any other mode of payment of tax under the 1961 Act cannot be used to discharge the obligation to pay tax under the Scheme of 1997 Act on the disclosure of undisclosed income.
The petitioner-Company approached the High Court challenging the vires of communication dated 18.03.1998 and Circular No. 755 dated 25.07.1997 issued by the Cenral Board of Direct Taxes disallowing adjustment of tax deducted at source against the tax payable on the undisclosed income declared by it under the Voluntary Disclosure of Income Scheme under the Finance Act, 1997.
The petitioner claimed that the tax deducted at source being also a payment of tax, should be given credit so as to determine the tax payable on the declared undisclosed income under the Scheme of 1997 Act. According to them, the tax payable under the Scheme of 1997 Act is the income tax payable under the 1961 Act. It is the ‘same animal’ and, therefore, the benefit of TDS i.e. tax deducted at source under the 1961 Act is available to the petitioners. The petitioner urged that both the communication and circular were contrary to the clear provisions of the Scheme of 1997 Act.
The bench relied upon the decision of the Apex Court in Hemalatha Gargya v/s. CIT wherein the Court held that the person seeking the benefit of the Scheme of 1997 Act is bound to strictly comply with its conditions like any fiscal legislation and equitable considerations can have no place in construing it.
The bench noted that the Scheme is a part of the Finance Act, 1997 and it is self contained. “The Scheme of 1997 Act is a different and distinct statute from the 1961 Act. The subject matter of tax and rate of tax are different under the Scheme of 1997 Act and under the 1961 Act. Therefore, even though the tax which is payable under the Scheme of 1997 Act, is a tax on Income, it is not a charge to tax under Section 4 of the 1961 Act, but an Income tax charged to tax under Section 64 of the Scheme of 1997 Act.”
The bench found that the definition of Section 63 of the Scheme of 1997 Act itself is qualified by the phrase ‘unless the context otherwise requires’ and therefore, it cannot apply while dealing with charging Section i.e. Section 64 of Scheme of 1997 Act. “This is evident from Section 64 of the Scheme of 1997 Act itself providing that the tax payable hereunder is payable notwithstanding anything contained in the Income Tax Act i.e. 1961 Act. In any case, subsection (d) of Section 63 of the Scheme of 1997 Act only provides that words and expressions used herein will have the meaning assigned to it under the 1961 Act. However, the aforesaid meaning to be provided to the words used in the Scheme of 1997 Act does not bring about any change in the charging provisions viz: Section 64 of the Scheme of 1997 Act. As pointed out above, the charge of tax under the Voluntary Scheme of 1997 Act is a declaration made of any undisclosed income chargeable to tax under the 1961 Act then such undisclosed income when declared (called voluntarily disclosed income) is charged to tax at the flat rate @ 35% in case of firms/companies and 30% in case of individuals. Thus, the definition Section of the Scheme of 1997 Act on which reliance is placed by the Petitioner is of no avail, as the charge of tax does not undergo any change in view thereof.”
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