Direct Tax Dispute Resolution Scheme Gathers Only Rs 1,200 Crore

The government's ambitious tax dispute resolution scheme has ended with just Rs 1,200 crore being collected, and none of the high-profile retrospective tax cases involving firms like Vodafone and Cairn Energy opting to settle.

Finance Minister Arun Jaitley, in his budget for 2016-17, announced the Direct Tax Dispute Resolution Scheme that sought not just to settle disputes in retrospective taxes, but end nearly 2.6 lakh pending tax cases where Rs 5.16 lakh crore are locked in.

The scheme, which provided for waiving interest and penalties if the principal amount involved in tax cases is paid, opened on June 1, 2016, and closed on January 31 this year after one extension was given.

None of the firms involved in retrospective tax cases came forward to settle the dispute by paying the principal amount.

Through the scheme, the government was hoping to settle major retrospective tax cases facing Vodafone Group and Cairn Energy of UK. It also expected a third of other tax disputes to be settled.

The scheme provided for waiver of interest and penalty for retrospective tax cases only if the company in question withdraws all appeals against the government at all judicial forums.

UK oil explorer Cairn Energy is facing a tax demand of Rs 10,247 crore on alleged capital gains made in a 2006 business re-organisation it carried out in its India unit before getting it listed. The total tax due after including interest comes to over Rs 29,000 crore.

British telecom giant Vodafone is facing a total demand of Rs 14,200 crore in tax, interest and penalty with regard to its $11 billion acquisition of 67 per cent stake in the mobile phone business owned by Hutchison Whampoa in 2007.

Both firms raised their concerns over the tax demands and challenged the matter by initiating international arbitration.

For disputes other than retrospective tax cases, taxpayers whose appeals are pending as on February 29, 2016 before the Commissioner of Income Tax (Appeals) could have settled cases by paying the disputed tax and interest up to the date of assessment.

As per Income Tax Department data, there were 73,402 appeals with tax effect above Rs 10 lakh and 1,85,858 appeals with tax effect below Rs 10 lakh which are pending before CIT (Appeal) as on February 29, 2016. Thus, 2,59,260 appellants were eligible for the benefit of this scheme.

As per the scheme, a taxpayer who had an appeal pending before the CIT (Appeals) could have settled his/her case by paying the disputed tax and interest up to the date of assessment. No penalty in respect of cases with disputed tax up to Rs 10 lakh will be levied.

For cases exceeding Rs 10 lakh, 25 per cent of penalty was offered to be levied and any pending appeal against a penalty order could have been settled by paying 25 per cent of the minimum of the imposable penalty.