The Bombay High Court (Goa Bench) has held that the eligibility for the Vivad Se Vishwas Scheme should be interpreted broadly to promote dispute settlement, and hence, the term ‘dispute’ under the Scheme is not restricted to appeals against assessment orders but includes any pending appeal, such as an appeal against a penalty order. Therefore, a pending appeal against a penalty order is sufficient to meet the Scheme’s requirement of a pending dispute.
Furthermore, the Court pointed out that in cases governed by Section 5A of the Income Tax Act, where income is treated as a single community income, the settlement of a tax dispute for one spouse should extend to the other spouse for the same disputed income. Hence, denying the benefit to one spouse while granting it to the other for the same income is unjustifiable.
Accordingly, the Court quashed the impugned order and directed the Department to consider the Petitioner’s Forms 1 and 2 under the Scheme within four weeks and to pass an appropriate order, including the issuance of Form 3, within two weeks thereafter. The Petitioner (taxpayer) was also directed to pay the determined tax amount within two weeks of the issuance of Form 3, following which the 1st Respondent must issue Form 5 within two weeks.
The division Bench comprising Justice Suman Shyam and Justice Amit S. Jamsandekar observed that the impugned order rejecting the Petitioner’s application was passed without providing an opportunity for a hearing and lacked any detailed reasoning. It was noted that the Petitioner and her husband are governed by Section 5A, which creates a statutory fiction treating their income as a single community income that is mechanically apportioned.
The Bench opined that once the assessment itself is challenged and settled for one spouse, the dispute cannot independently survive for the other, and the department cannot split a single community income dispute for settlement purposes. The Bench highlighted the Revenue’s admission that the Petitioner did have a pending appeal against the penalty order.
Further, the Bench observed that a beneficial settlement legislation, like the Scheme, must be interpreted to advance its purpose of dispute settlement, not to defeat it. It also rejected the Revenue’s objections regarding the delay in filing the petition, accepting the Petitioner’s explanation related to COVID-19, and dismissed the argument that the Scheme had lapsed, as the application was filed while the Scheme was still active.
Briefly, the Petitioner and her husband are governed by the Portuguese Civil Code, making Section 5A of the Income Tax Act, applicable to them for the apportionment of income. Following a survey under Section 133(A)(1) at the business premises of the Petitioner’s husband, assessment orders under Section 143(3) read with Section 147 were passed for both the Petitioner and her husband. Subsequently, penalty orders under Section 271(1)(C) were also imposed on both individuals.
The Petitioner’s husband filed an appeal against both the assessment and penalty orders. The Petitioner, however, only filed an appeal against the penalty order, as the appeal filed by her husband covered the entire additions made in their joint income. When the Direct Tax Vivad Se Vishwas Act, 2020 was introduced, both the Petitioner and her husband applied for its benefits.
The application of the Petitioner’s husband was accepted, and Form 3 and Form 5 were issued to him. However, the Petitioner’s application was rejected via an online order, stating that she had not filed an appeal against the assessment order and thus had no pending appeal.
Appearances:
Advocate Purushottam Karpe, for the Petitioner/ Taxpayer
Advocate Susan Linhares, for the Respondent/ Revenue
