By TIOL News Service

MUMBAI, MAR 16, 2017: THE ISSUE IS - Whether benefit of TDS under Income tax Act can be availed for adjusting the tax payable under Voluntary Disclosure of Income Scheme. NO is the verdict.

Facts of the case:

The assessee though being incorporated in the year 1991, had not filed its return u/s 139 of the 1961 Act since its incorporation, despite having income by way of rent and interest chargeable to tax under the 1961 Act, during the A.Ys 1995-96, 1996-97 and 1997-98. Therefore, on promulgation of the Scheme of 1997 Act, the assessee made a declaration of its undisclosed income in the prescribed in terms of Sections 64 and 65 of the above Scheme by disclosing an income of Rs.5,00,63,885/- and the Income tax payable on it under the Scheme was aggregated to Rs.1,75,22,360/- at the rate of 35%. The assessee had also stated in its above declaration that no amount of income tax has been paid on or before the filing of declaration i.e. 31st December, 1997.The Petitioner had opted to pay the tax within three months of the filing of the declaration along with interest. Just before the last date of making the payment of tax along with interest under the Scheme of 1997 Act, the Petitioner addressed a letter to the Commissioner of Income Tax, inter alia, pointing out that it had filed a declaration under the Scheme of 1997 Act disclosing income on account of rent and interest. It was further pointed out that the aforesaid rent/ interest received by it had already suffered tax under the Act, 1961 as an amount was the tax deducted at source (on its behalf) by the payer. In the above view, the Petitioner contended 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. Commissioner of Income Tax rejected the Petitioner's request on the basis of Circular No. 755 dated 25th July, 1997 issued by the CBDT.This resulted in the Petitioner paying on 31st March, 1998 the entire amount of tax along with interest.

On appeal, the HC held that,

++ a person seeking to avail the benefit of the Scheme of 1997 Act must strictly satisfy its provisions as held by the Supreme Court in  HemalathaGargya v/s. CIT =  2002-TIOL-548-SC-IT . 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 subject matter and rate of tax in the case of Scheme of 1997 Act is different from that of the 1961 Act. The subject matter of tax in case of the above Scheme as evident from the charge of tax therein is on voluntarily disclosed income, which, though chargeable to tax under the 1961 Act, had not been disclosed earlier thereunder. The charge under the 1961 Act is on the total income of the previous year and the scope of the total income is income received/ deemed to be received/ accrued/ arisen during the previous year. As against the above, the charge under the Scheme of 1997 Act is the undisclosed income under the 1961 Act which is voluntarily disclosed. There is no obligation under the Scheme of 1997 Act that every person who has not disclosed his income under the 1961 Act is required to disclose and pay taxes. It is optional. This unlike the 1961 Act, which obliges every person by whom tax is payable to disclose and pay the tax payable on its income at the peril of penalty and prosecution, if income is not disclosed and taxes thereon not paid. Similarly, the rate of tax is also different under the 1961 Act from that under the Scheme of 197 Act. In fact, it is one flat rate and not at a progressive rate as under the 1961 Act. Therefore, as the tax payable under the Scheme is different and distinct from the tax payable under the 1961 Act, the benefit of tax paid on the undisclosed income as and by way of tax deduction at source under the 1961 Act, cannot be availed under the Scheme;

++ the charge of tax is different in the 1961 Act from the charge of tax on the Voluntary Disclosure of Income and Wealth Tax Act, 1976, even if the tax in both the cases is on Income. Consequently, tax paid under the Voluntary Disclosure of Income and Wealth Tax Act, 1976 is not a tax paid under 1961 Act. Therefore, the benefit of TDS under the 1961 Act cannot be availed to adjust the tax payable under the Voluntary Disclosure of Income and Wealth Tax, 1976. A tax payable under the Scheme of 1997 is not a tax under the Act,1961. The tax payable under the Scheme of 1997 Act is indeed a 'different animal' from the tax payable under the 1961 Act. 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. Thus, it is not permissible to adjust the tax deducted at source under the 1961 Act to discharge an obligation to pay tax under the Scheme of 1997 Act. In accordance with the declaration filed by the petitioner, the balance tax payable under the Scheme as on 31st December, 1997 was Rs.1,75,22,360/-. This on income voluntarily declared at Rs.5,00,63,885/- The basis of the petitioner availing the benefit of the Scheme is its above declaration dated 31st December, 1997 in terms of Sections 64 and 65 of the Scheme of 1997 Act. In fact, Section 65(3) of the above Scheme prohibits a person who has made one declaration from making any other declaration in respect of the same income. In fact, any further declaration, if made by the person on the same income would be deemed to be void. In this case, the petitioner has itself on 31st December, 1997 in its declaration stated that the balance amount of tax payable is Rs.1,75,22,360/- on the voluntarily disclosed income of Rs.5,00,63,885/-. At the time of filing of the declaration, the petitioner did not claim any credit for the tax deducted at source under the 1961 Act in respect of the tax payable on voluntarily disclosed income under the Scheme as is now being made;

++ in its application dated 16th March, 1998, addressed to the Commissioner of Income Tax, the petitioner had for the first time claimed that it is entitled to credit of tax deducted at source of Rs.1,59,74,149/- paid under the 1961 Act to determine the tax payable under the Scheme of 1997 Act. Any declaration filed after 31st December, 1997 cannot be entertained under the Scheme of 1997 Act as provided under Section 64 thereof. The facility of payment of tax during the extended time does not entitle a person to file a fresh declaration or modify a declaration which is filed on or before 31st December, 1997. In fact, filing of another declaration by a declarant is prohibited u/s 65(3) of the Scheme. This would be void as filing of another declaration under the above Scheme, is prohibited. The Petitioner is seeking to modify / amend its declaration resulting in a different amount of tax payable from that declared on or before 31st December, 1997. Therefore, it does not strictly satisfy the term of the Scheme of 1997 Act. The payment of the tax under the Scheme of 1997 Act was in terms of the declaration made by the petitioner on 31st December, 1997. In its declaration, no claim for the Tax Deducted at Source under the 1961 Act being treated as tax paid under the Scheme was made by the petitioner. The letter dated 31st March, 1998 has been filed by the petitioner with the Commissioner of Income Tax, not along with the proof of payment of tax under the Scheme but separately and only after the proof of payment had been submitted to the Revenue. Further, the communication does not in terms states that the petitioner reserves its rights to claim refund nor does it state that the right to refund is subject to the result of the petition. The payment could not have been made under protest as the payment had already been made prior to addressing the above letter dated 31st March, 1998. The Petitioners' who seek an equitable relief in Writ, should have been more forthright in its communication to the Revenue. This conduct on the part of the Petitioner is an attempt on the part of the Petitioner to secure the benefit of the Scheme i.e. Protection (insulation) from prosecution and penalty under the 1961 Act, and at the same time challenge the payment made under the Scheme of 1997 Act. The payment of tax under the Scheme of 1997 Act is not payment of tax under the 1961 Act. Thus, adjustment as sought of the tax paid as TDS under the 1961 Act to reduce the tax payable under the Scheme of 1997 Act is not permissible.

(See 2017-TIOL-499-HC-MUM-IT)