By TIOL News Service

ERNAKULAM, SEPT 04, 2017: THE ISSUE BEFORE THE COURT IS - Whether Amnesty scheme cannot be interpreted in a restrictive manner, so as to provide benefit of dispute resolution only on penalties linked to assessment proceedings. YES is the verdict.

Facts of the case:

The assessee is engaged in the production and distribution of cinematographic films and other allied activities. For the assessment years 2007-2008, the Assessee had declared a net loss and the assessment was completed by accepting the returns filed by the Assessee. The CIT however, noticed that the Assessee had made a violation of the provisions of Sections 269SS, 269T and 285B of the Act by accepting loans/deposits otherwise than by way of account payee cheques and/or draft as well as by repaying loans/deposits, otherwise than by way of account payee cheques and/or draft and by not filing statements as required by Section 285B regarding the film production carried on by them and accordingly imposed penalty u/s 271D, 271E and 272A(2)(C) of the Act. During the pendency of appeal, 'Direct Tax Dispute Resolution Scheme (Amnesty Scheme) was launched by the Department to settle the disputed penalty amount by paying 25% of the minimum penalty levied, along with the tax and interest payable on the total income finally determined. The Assessee preferred an application for obtaining benefit of the Amnesty Scheme which was rejected by the Pr. CIT.

High Court held that,

++ the Amnesty Scheme contemplates the making of a declaration of tax arrears, which phrase is defined as meaning an amount of tax, interest or penalty determined under the Income Tax Act, and in respect of which an appeal is pending before the appellate authority. The Scheme also envisages that, in the case of a pending appeal related only to penalty, the amount payable by an eligible declarant would be 25% of the minimum penalty leviable, along with the tax and interest payable on the total income finally determined. It is not in dispute that, in the instant case, the declarations submitted by the assessees were in respect of penalties that were imposed on them by the authorities concerned. It is also not in dispute that in the declaration, the assessees had offered to pay 25% of the mandatory penalties that were imposed on them. The contention of the Department is essentially that, inasmuch as there is a reference to a payment of tax and interest payable on the total income finally determined, along with 25% of the minimum penalty leviable, the Scheme must be intended to cover only such penalties as have been imposed on an assessee along with the assessment order;

++ the clarification of the CBDT in the context of a penalty order u/s 271(C) or 271(C)(A) of Income Tax Act also suggests that, such penalties, as are not linked to assessment proceedings, would not be covered under the Scheme. On an overall consideration of the Scheme, however, there is no scope for such a restrictive interpretation of the ambit of the Amnesty Scheme, in the manner suggested by the Revenue. Firstly, the definition of tax arrears does not exclude a situation where the dispute of an assessee is only in respect of a penalty that has been determined against him under the Income Tax Act. Secondly, while the procedure envisaged includes the filing of a declaration solely in respect of penalty, the Scheme suggests that the obligation of the declarant is to pay 25% of the minimum penalty levied, and also to pay the tax and interest payable on the total income finally determined for the assessment year in question;

++ the object of the Scheme appears to be to ensure that, while a person seeking an Amnesty Scheme only in respect of the penalty that is imposed on him, avails the benefit of the Scheme to that extent, it should also be ensured that the said declarant discharges the tax and interest liability under the Income Tax Act for the assessment year in question. In other words, a person, who defaults on the tax and interest liability under the Income Tax Act for the assessment year, cannot claim the benefit of amnesty in respect of the penalty alone. It is also significant to note that the exclusions from the Scheme, that are enumerated in Section 208 of the Finance Act, 2016, also do not expressly provide for the exclusion of a declaration, such as those filed in the instant writ petition, where the amnesty is sought only in respect of a penalty that is imposed under the Income tax Act. Thus, the reasons stated in Exts.P8, P9 and P10 intimations served on the petitioners cannot be legally sustained to deny the petitioners the benefit of Amnesty Scheme.

(See 2017-TIOL-1727-HC-KERALA-IT)