Settlement of dispute under DTVSV Scheme is Impossible in Stage of Issuance of Notice u/s 148 of Income Tax Act: Patna HC [Read Order]

The Patna High Court has held that settlement of dispute under DTVSV Scheme is Impossible in stage of issuance of notice under section 148 of Income Tax Act,1961.           

Domino Printing Sciences PLC, the petitioner is a company incorporated under the laws of the United Kingdom and is engaged in the business of manufacture and sale of coding and marking equipments; manufacture and sale of consumables; sale of spares; and rendering of after sales services.  The petitioner had incorporated a company in India named Domino Printech India Pvt. Ltd. [Domino India] on 16.05.1996 under the provisions of the Companies Act, 1956. Domino India was also engaged in the similar business that was carried out by the petitioner. 

Domino India had issued 40,80,000 equity shares.  The entire capital was subscribed by the petitioner (forty-seven thousand nine hundred and Ninety-eight) equity shares were held by the petitioner in its name and the balance 2 (Two) equity shares were held by Domino U.K. Ltd. as a nominee of the petitioner.  

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The petitioner filed an application with the Foreign Investment Promotion Board [FIPB] to obtain a requisite approval for conversion of Domino India, a private limited company, to Limited Liability Partnership [LLP] in accordance with the Indian Foreign Direct Investment Policy.  The FIPB granted its approval on 10.05.2012 subject to certain conditions.  The two shares, which were held by Domino U.K. Ltd. in Domino India were transferred to resident Indians – one share each –  who were to act as designated partners of the proposed LLP. 

Thereafter, on 28.11.2016, a certificate of registration was granted to Domino Printech India LLP [Domino LLP] on conversion of Domino India to an LLP under the Limited Liability Partnership Act, 2008 [LLP Act]. The petitioner’s dispute with the tax authorities relates to chargeability of capital gains in the hands of the shareholders of Domino India on account of the conversion of the equity shares of Domino India into partnership interest in Domino LLP constituted under the LLP Act.

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The petitioner filed an application under Section 245Q(1) of the Income Tax Act, 1961 [the Act] before the Authority for Advance Ruling [AAR] on 01.03.2012 seeking an advance ruling in respect of chargeability of tax on capital gains arising from conversion of Domino India to an LLP.  According to the petitioner, the said conversion did not give rise to any capital gains as it continued to hold the asset albeit in the different form.  

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The petitioner’s application for a favourable ruling was rejected by the AAR by an order dated 23.08.2019 rendered under Section 245R(4) of the Act.  The petitioner received a notice under Section 133(6) of the Act.  The petitioner being desirous to avoid an additional exposure to interest liability, filed an application being C.M. No.34098 of 2020 in W.P.(C) 1677 of 2020. On 13.01.2021, the Assessing Officer [AO] issued a notice under Section 148 of the Act in respect of Assessment Year [AY] 2017-18, inter alia, calling upon the petitioner to file its return of income for the relevant assessment year. 

The proceedings initiated pursuant to the notice dated 13.01.2021 issued under Section 148 of the Act culminated in an assessment order dated 23.05.2022 passed by the AO under Section 147 of the Act read with Section 144C(3) of the Act.  The AO assessed the petitioner’s income chargeable to tax as capital gains on account of conversion of equity shares of Domino India into partnership interest in Domino LLP, at ₹2,35,46,65,609/-.

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The petitioner being desirous of availing the benefit of the DTVSV Scheme filed the requisite declaration in the prescribed form (Form No.1) on  23.12.2024 for settlement of dispute, which was pending before the CIT(A).  The designated authority rejected the petitioner’s declaration and uploaded the reasons for the same on 20.02.2025. The same has led the petitioner to file the present petition. The counsel for the petitioner contends that the non-disclosure of the details of the pending writ petition before this court was neither essential nor material. He submitted that the writ petition would have been rendered infructuous on settlement of the appeal, which was pending before the learned CIT(A).

The assessee opted for DTVSV 2024, and filed Form-1. Upon verification, it was observed that the assessee did not disclose the details pertaining to the pending writ petition in Form-1. There was hence incorrect disclosure of information regard pending appeals in Form-1. As per section 91(5) of the DTVSV Act, a declaration shall be deemed invalid if any material particular furnished in the declaration is found to be false at any stage. 

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As per CBDT Circular No. 19/2024 (FAQ no. 50) dated 16.12.2024, the amount payable is linked to the date of filing the declaration. Circular No. 20/2024 dated 30.12.2024 extended the due date for filing declarations till 31.01.2025. Since the assessee's revised Form-1 was filed on 07.02.2025, after the due date, the applicable tax rate should be 110% of the disputed tax. The assessee, however, has not taken into consideration the additional 10% tax payable in its revised Form1. Given that the original Form-1 was deemed invalid and that the revised Form-1 is effectively a fresh application, the assessee is liable to pay 110% of disputed tax. In the absence of declaration of correct tax payable, the revised Form-1 is rejected.

The quantum of any such income and tax payable on the same is yet to be determined; the same is determined by the AO at the culmination of the proceedings. There is no determination of the “disputed income”, “disputed tax”, “tax arrear”, “disputed penalty” and “disputed interest” at the stage of issuance of notice under Section 148 or 148A of the Act. Consequently, it would be impossible to determine the amount payable for settlement of the dispute under DTVSV Scheme which in terms of Section 90 of Finance (No.2) Act, 2024 is based on the quantum of “disputed tax”, “disputed penalty”, “disputed interest” or “disputed fee.” 

A division bench of Justice  Vibhu Bakhru and Justice Tejas Karia found that  the FAQ No.26 of CBDT Circular No.12 of 2024 dated 15.10.2024 clarifies that in such cases DTVSV Scheme would be inapplicable. The FAQ 26 expressly indicates that it is in respect of writ petitions challenging notices issued under Section 148 or 148A of the Act. More importantly, the principle on the basis of which the clarification is rendered – that the disputed tax is not determined – is wholly inapplicable in the facts of the present case.  

The  court directed the Designated Authority  to process the petitioner’s declaration and determine the amount payable by the declarant in accordance with the provisions of the DTVSV Scheme by construing the date of declaration filed by the petitioner as 23.12.2024 and issue an appropriate certificate in the prescribed form within a period of fifteen days from the date.

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