Case Note & Summary
The writ petition before the Bombay High Court arose from a challenge to Form No. 3 dated 11 December 2020 issued under the Direct Tax Vivad se Vishwas Act, 2020 for assessment year 2015-16. The petitioner, a company incorporated in Cyprus on 17 December 2008 as a private limited liability company under Cyprus Company Law CAP-113, filed its return of income for assessment year 2015-16 on 30 September 2015 declaring total income of Rs. 28,35,66,580. The income consisted of interest income from subscribing to interest-bearing securities from Indian entities, which the petitioner offered at 10% as per Article 11 of the India-Cyprus Double Taxation Avoidance Agreement. Tax of Rs. 8,50,69,973 was deducted at source and claimed as credit. The petitioner computed total tax liability of Rs. 2,83,56,658 and claimed refund of Rs. 5,67,13,320. The assessing officer passed an assessment order on 6 February 2018 under Section 143(3) read with Section 144C(13) and a rectification order on 30 March 2018 under Section 154, holding that the petitioner was not the beneficial owner of the interest income and therefore not entitled to the India-Cyprus DTAA benefit. The interest income was taxed at 20% under Section 115AD(1)(a)(i), resulting in a total refund of Rs. 2,37,34,523 and interest under Section 244A of Rs. 42,72,210, totaling Rs. 2,80,06,730. A refund of Rs. 2,62,11,376 was received by cheque dated 11 April 2018, and the balance Rs. 17,95,354 was later granted as TDS credit via rectification order dated 28 December 2020. The petitioner filed an appeal before the Commissioner of Income Tax (Appeals) on 5 March 2018, which was pending. The Direct Tax Vivad se Vishwas Act, 2020 was promulgated on 17 March 2020 to resolve pending tax disputes. On 25 November 2020, the petitioner filed Form No. 1 under the VSV Act, computing disputed tax of Rs. 3,29,78,793 (revised tax liability of Rs. 6,13,35,450 minus returned tax liability of Rs. 2,83,56,658). Respondent No. 1 issued the impugned Form No. 3 dated 11 December 2020 raising a demand of Rs. 42,72,203, which represented the interest under Section 244A previously granted. The respondents contended that under a combined reading of Section 3 and Explanation to Section 7(a) of the VSV Act, an assessee is not entitled to any interest under Section 244A, and the interest paid on the undisputed component must be returned; otherwise it would discriminate among assessees. The petitioner argued that the restriction on interest under Section 244A applies only when a refund is determined under the VSV Act, not when interest was already paid as per the assessment order before the VSV application. The court recorded the rival contentions and noted that respondent's counsel admitted that under Section 2(1)(j)(A) of the VSV Act, disputed tax is the amount payable if the appeal is decided against the assessee, and under Section 3(a) the amount payable under the VSV Act is the amount of disputed tax. The provided text does not include the final operative order.
Headnote
A) Taxation - Direct Tax Vivad se Vishwas Act, 2020 - Interest under Section 244A of Income-tax Act, 1961 - Applicability of Explanation to Section 7(a) - Direct Tax Vivad se Vishwas Act, 2020, Sections 3, 7; Income-tax Act, 1961, Section 244A - Petitioner challenged Form No. 3 dated 11.12.2020 which raised demand of Rs. 42,72,203 on basis that interest under Section 244A granted earlier was no longer available after VSV application. Respondents argued combined reading of Section 3 and Section 7 VSV Act disallows any interest under Section 244A and such interest must be returned; petitioner contended interest was paid as per assessment order before VSV application, not determined under VSV Act, hence Explanation does not apply. The court recorded these rival interpretations and noted the definition of disputed tax and amount payable under VSV Act. (Paras 1-6) B) Taxation - Income Tax Assessment - Beneficial Ownership and Rate of Tax Under DTAA - Income-tax Act, 1961, Sections 143(3), 144C(13), 154, 115AD(1)(a)(i); India-Cyprus Double Taxation Avoidance Agreement, Article 11 - Assessment order dated 06.02.2018 read with rectification dated 30.03.2018 held petitioner not beneficial owner of interest income, taxed at 20% under Section 115AD instead of 10% under DTAA, resulting in refund of Rs. 2,37,34,523 plus interest Rs.42,72,210 under Section 244A. Petitioner filed appeal before CIT(A) on 05.03.2018 which was pending. Subsequently petitioner applied under VSV Act computing disputed tax at Rs.3,29,78,793. The issue of whether the pre-existing interest could be recovered in Form No.3 arose from the assessment background. (Paras 2, 7)
Issue of Consideration
Whether interest granted under Section 244A of the Income Tax Act, 1961 at the time of assessment can be withdrawn while issuing Form No. 3 under the Direct Tax Vivad se Vishwas Act, 2020; applicability of Explanation to Section 7(a) of the VSV Act.
Law Points
- Explanation to Section 7(a) of VSV Act
- Section 3 and Section 7 of VSV Act
- Section 244A of Income Tax Act
- 1961
- Disputed tax definition Section 2(1)(j)(A) VSV Act
