Making tax battles less taxing

Sibichen K Mathew | Updated on November 12, 2020

Avoiding tax wrangles   -  /iStockphoto

The Centre’s initiatives to bring speedy resolution to long-pending disputes are a win-win for both litigants and the taxman

Though most people would like to avoid litigation of any type, suits praying for relief and justice are mounting in various courts across the country.

Around 40 million cases are pending in various Indian courts (Source: Rajya Sabha website, Sept 2020). According to the National Judicial Data Grid, 85,292 cases are pending for more than 30 years in district and taluk courts. Over a thousand cases are pending in courts across the country for more than half a century!

An appellant’s costs and agony increase and uncertainty continue as long as a case is pending in a court. The counsel might be happy for getting paid for endless appearances, and presenting arguments. There is nothing illegal about this. However, delayed justice is indeed an injustice for any appellant.

Tax appeals are known to take years to reach a final settlement as there are various stages of appeal from the level of commissionerate to the Supreme Court. As of now, over 4.6 lakh direct tax appeals are pending at the first appellate authority. Taxpayers invariably feel that the first appellate authority, which they consider as part of the assessment brigade, tends to err on the side of revenue.

Long-winding cases

Therefore, most disputes invariably land in tribunals. Considerable number of cases are set aside back by tribunals to the tax authorities where the taxpayers have to get back and plead de novo.

In a number of cases decided by tribunals, either the appellant or the Tax Department goes in appeal to a High Court and then to the apex court. Thus, for a tax dispute to be finally settled, it can take a few years to decades even. Over 1.25 lakh direct tax appeal cases are pending in various tribunals and courts.

As a proactive step to reduce litigation, the Centre had in 2019 successfully rolled out the Sabka Vishwas Scheme for resolution of disputes related to indirect taxes. The scheme resulted in resolution of around 1.9 lakh cases far exceeding expectation.

This shows the desire of the business community to have a quick and amicable settlement of tax disputes. After the success of Sabka Vishwas Scheme, the government notified the Vivad se Vishwas scheme for settlement of direct taxes disputes.

According to the Act, a taxpayer needs to pay only the tax portion to get full waiver of interest, penalty and prosecution related to that tax incidence. If the dispute is exclusively on interest, penalty, or fee, the taxpayer needs to pay only 25 per cent of the demand.

If any lower authority or court has given a decision in favour of the taxpayer, only half of the tax demand needs to be paid. According to the scheme, the department will also withdraw the appeal if the taxpayer comes forward to pay as per the scheme.

However, the taxpayer does not have the option to pick and choose issues that are disputed in a particular appeal. The scheme is offered as a package to cover all issues disputed in a single appeal. As per the recent notification, the declaration under the Vivad se Vishwas Scheme shall be required to be furnished latest by December 31, 2020 and the payment can be made up to March 31, 2021. The scheme is godsend for most direct taxes litigants.

The two resolution schemes offer a big relief to the taxpayer, who faces multiple challenges pursuing an appeal. Some of them are: huge litigation costs, substantial interest burden if the appeal is decided against him, maintenance of records till such time the dispute is finally settled, effort to get an order giving effect to an appellate order by the tax authorities promptly, and not to say of the uncertainty, stress and strain during the litigation proceedings.

For tax authorities and government, too, every litigation involves huge manpower costs, counsel fees, and record management costs. In these circumstances, though litigation cannot be avoided totally, good use must be made of resolution schemes such as the Vivad se Vishwas scheme.

With close to 5 lakh appeals pending with various authorities and courts, more than ₹8-lakh crore is locked in such disputes. Even if half of these disputes are settled through the above schemes, the government would get substantial revenues at a time when it desperately needs funds.

It is said that a lean compromise is better than a fat lawsuit. Settling tax disputes outside the court saves much time and money and also ensures peace of mind for the parties involved. The time saved can be put to better use.

As French philosopher and moralist Jean de la Bruyere is supposed to have said: “Avoid lawsuits beyond all things; they pervert your conscience, impair your health, and dissipate your property.”

The writer is an author and a Commissioner of Income Tax. Views expressed are personal.

Published on November 12, 2020

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