Application Under Companies Act Against Order Rejecting Waiver Of Interest; Dispute Falls Within Scope Of VSV Act: Delhi High Court

The Delhi High Court has ruled that where an application under the Companies Act has been filed by a company in liquidation against the order of the revenue authorities rejecting the application for waiver of interest for delay in payment of tax dues, the said dispute would fall within the scope of Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act). The Bench consisting of Justices Mukta Gupta and Anish Dayal ruled that the VSV Act is not a taxing statute but one which provides a dispute resolution scheme for tax disputes and hence, it would be amenable to a purposive construction. The Court held that it was the intent of the legislature to include all sorts of disputes under the VSV Act, even if they were pending before the Commissioner of Income Tax or the courts. Before a winding up order was passed against the petitioner/ assessee - Kapri International Pvt. Ltd. by the Delhi High Court, the assessee was assessed for the relevant assessment year. The High Court directed the liquidator to release the amounts in favour of the revenue department with respect to the outstanding tax liability of the assessee under the Income Tax Act, 1961 and the Wealth Tax Act, 1957, while granting liberty to the assessee to approach the authorities to seek waiver of interest. The application of the assessee seeking waiver of interest was rejected by the Commissioner of Income Tax (CIT), against which the assessee filed a company application before the Delhi High Court. Subsequently, the assessee applied under the Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act), for resolution of the disputed interest liability. The assessee filed the declarations and provided the details of the amount payable under the VSV Act against the disputed interest liability. However, the said declarations were rejected by the Principal Commissioner of Income Tax (PCIT). Against this, the assessee filed a writ petition before the Delhi High Court. The revenue department submitted before the High Court that the company application filed by the assessee against the order of the CIT, rejecting the assessee's application for waiver of interest, was primarily a petition under the Companies Act and thus, it was not an "appeal" within the meaning of the VSV Act. The department averred that as per the Central Board of Direct Taxes (CBDT) Circular No.9/2020 issued under the VSV Act, only the disputes relating to Income Tax Act are covered under the VSV Act and that the interest waiver applications are not "appeals" under the VSV Act. The assessee Kapri International contended that the interest computed by the revenue authorities under Section 220 (2) of the Income Tax Act was contrary to Rule 156 of the Companies (Court) Rules, 1959, and hence the assessee filed an application for waiver of interest, which was rejected by the CIT. The assessee submitted that the company application filed by it before the Delhi High Court, against the order of the CIT, comes within the purview of "disputed interest" as defined in Section 2 (1) (h) of VSV Act. The Court rejected the contention of the revenue department that the company application filed by the assessee was not an "appeal" and therefore, was not within the scope of the VSV Act. Ruling that there is no definition of "appeal" in the VSV Act, the Court held that the term "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. The Court ruled that any proceeding challenging a decision by the revenue department in respect of tax, interest, penalty or fee would come within the purview of a "dispute", and thus the party would be eligible to approach the revenue department for resolution under the VSV Act. "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, fee as determined under provisions of the VSV Act. The restrictive scope that the CIT is providing for 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 contention of the revenue department that Section 2 (1) (h) of the VSV Act, which defines "disputed interest", relates to disputed interest on a disputed tax liability only and that the assessee was not eligible since there was only a disputed interest and no disputed tax liability involved. The Court ruled that Section 2 (1) (o) of the VSV Act, which defines "tax arrears", includes distinct...

Application Under Companies Act Against Order Rejecting Waiver Of Interest; Dispute Falls Within Scope Of VSV Act: Delhi High Court

Parina Katyal

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