Fighting pile-up: Govt to move Supreme Court for bulk disposal of tax disputes

Revenue secretary Ajay Bhushan Pandey says apex court rulings will be sought on 20 identified issues that are central to 80% of tax litigation

Also, the assessee could pay just half the tax amount sans penalty and interest if she had won the case at a particular forum and the taxman's appeal is being heard at the higher forum.
Also, the assessee could pay just half the tax amount sans penalty and interest if she had won the case at a particular forum and the taxman's appeal is being heard at the higher forum.

About 70-80% of the direct tax disputes – nearly 5 lakh involving tax demands of Rs 9.5 lakh crore at last count and piling up – may get resolved in one stroke, as the government has decided to move the Supreme Court, pleading for definitive rulings on 20 issues identified by the tax department as being at the heart of these disputes, revenue secretary Ajay Bhushan Pandey said on Monday. He also said that even though the lenient 15% corporate tax rate for new manufacturing units was for a limited window (till FY23-end), the government was taking efficient steps to widen the tax base, which could facilitate further pruning of various tax rates including those for corporate and dividend incomes, in the coming years.

The idea is the apex court rulings would accord finality to who is in the right in the intractably fractious disputes between the taxman and taxpayers, helping mass disposal of about 4 lakh cases lingering on, at various fora – from the commissioner (appeal) level to the tax tribunals to courts and arbitration panels.

“We have identified 20 issues on which maximum number of disputes occur every year and till Supreme Court takes a decision, additions (to tax amount) keeps happening. We will request the Supreme Court to give us final verdicts on these issues,” Pandey said at the Indian Express Group’s Idea Exchange programme.

The move comes close on the heels of the launch of the Vivad Se Vishwas scheme, under which if the tax department has won a case in a lower forum and the assessee has appealed, the assessee has to pay only the disputed tax amount (125% of such amount in case of search cases) as penalty and interest are waived off. If the dispute is only about penalty and interest, then only 25% of the disputed penalty and interest is payable. Also, the assessee could pay just half the tax amount sans penalty and interest if she had won the case at a particular forum and the taxman’s appeal is being heard at the higher forum.

A senior tax official told FE that even though the tax department barely manages to win 10% of cases in higher forums, the assessing official often files appeals in higher forum against cases lost at the CIT (appeals) level due to complex legal positions on various issues. If Supreme Court can bring clarity on some of these common issues, such appeals could be avoided, he said.

Pandey said that the Vivad Se Vishwas scheme could help resolve even big corporate tax cases as in many such disputes the interest and penalty amounts had risen to multiple times the original tax demand. “We are saying here that we will waive off penalty and interest even if these are in many multiples of tax demand. Because tomorrow, in the court, a decision can go either way and then penalty and interest can’t be waived off. It is going to be attractive to a large class of taxpayers,” he said, but refused to comment on individual cases like Vodafone and Cairn.

Responding to whether the move to appraising income-tax officials on their performance vis-a-vis the scheme could lead to overzealous approach and harassment of taxpayers, Pandey said that the department was only preparing proactively before the scheme is launched so that taxpayers can be facilitated fully. “We have 10,000 assessing officials so each one would have 50 cases in their charge. They have been asked to prepare a list of cases and proactively facilitate the taxpayers so that they don’t have to go to the officials. To that extent, certain objective and performance parameters have be defined for the assessing officers but that can’t be termed as putting pressure on the officials or that they will resort to harassment,” Pandey said.

Defending increasing use of TCS/TDS mechanism – the Budget has imposed a 5% TDS on foreign remittances and 0.1% TCS on sale of merchandise above certain thresholds – Pandey said that the mechanism was not only tax-neutral but also provided the department with useful information. Citing irreconcilably large information asymmetry concerning the income profiles of sections of assessees (as between cash withdrawals by a business and the income shown in returns), the revenue secretary said such information could be more efficiently used via mechanisms like TDS/TCS rather than by resorting to issuing notices to lakhs of entities.

“We brought a 2% TCS on cash withdrawal of Rs 1 crore or above in a year in the (FY20) budget. This time, we have extended the concept to foreign remittance. This is based on scientific taxation principle under which we presume a level of income based on transactions and levy some tax on it, which can be used as credit to offset overall tax liability.”

Stating that he gross tax collection growth target of 12% for next fiscal was not unreasonable, he said the target assumed a tax buoyancy of 1.2. In FY20, the tax buoyancy was, however, just 0.5.

In September, the government cut the headline corporate tax rate to 22% from 30%; giving further relief to companies, in the recent Budget, it proposed abolition of dividend distribution tax and brought back the classical system of taxing dividends in the hands of recipients.

On whether the flurry of customs duty hikes in recent months including in the Budget smacked of protectionism, Pandey said these were part of a ‘balancing exercise’ to ensure that domestic manufacturing was encouraged and at the same time interest of final consumers were protected. “Our general principle is if its raw material or inputs that are not available in the country, there should be a minimum value of customs duty. So far as the finished products are concerned, we have to take a balanced view, which is that we want manufacturing in our country (to thrive) but that doesn’t mean that if there is an inefficient industry it should be protected.”

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