Facts of the Case

The petitioner, Kapri International Pvt. Ltd. (in liquidation), challenged the rejection of its declarations filed under the Direct Tax Vivad Se Vishwas Act, 2020 (VSV Act) for Assessment Years 1984–85 and 1985–86.

  • The company was ordered to be wound up in 1995.
  • Outstanding tax liabilities (including income tax and wealth tax) were communicated in 2015.
  • The petitioner paid the principal dues and sought waiver of interest and penalty.
  • While penalty was waived under Section 273A(4), waiver of interest under Section 220(2A) was rejected.
  • The petitioner challenged this rejection through Company Application No. 577/2019 (pending).
  • Subsequently, the petitioner filed declarations under the VSV Act to settle disputed interest.
  • The declarations were rejected by the tax department on 5 January 2021 without proper reasons.

Issues Involved

  1. Whether a proceeding challenging rejection of interest waiver qualifies as an “appeal” or “dispute” under the VSV Act.
  2. Whether disputed interest alone, without disputed tax, falls within the scope of the VSV Act.
  3. Whether rejection of declarations based on FAQ-13 of CBDT Circular No. 9/2020 was legally valid.

Petitioner’s Arguments

  • The term “appeal” is not defined under the VSV Act and must be interpreted broadly.
  • The pending Company Application challenging rejection of waiver is effectively an appeal-like proceeding.
  • The VSV Act intends to cover all forms of tax disputes, including interest disputes.
  • FAQ-13 applies only to pending waiver applications, not to proceedings challenging rejection of such applications.
  • The object of the VSV Act is dispute resolution, requiring liberal interpretation.

Respondent’s Arguments

  • The petitioner is not an “appellant” under Section 2(1)(a) of the VSV Act.
  • The case does not involve “disputed interest” as defined under Section 2(1)(h).
  • As per CBDT Circular No. 9/2020 (FAQ-13), waiver applications are not considered appeals.
  • Therefore, the petitioner is ineligible to seek relief under the VSV scheme.

Court’s Findings / Judgment

The Delhi High Court set aside the rejection and ruled in favour of the petitioner.

  • The VSV Act must be given a purposive and liberal interpretation.
  • The term “dispute” under Rule 2(b) includes writs, appeals, and other proceedings.
  • A challenge to rejection of waiver qualifies as a dispute under the scheme.
  • Disputed interest is an independent category, not necessarily linked to disputed tax.
  • FAQ-13 was misapplied by the department.
  • The rejection was termed hyper-technical and contrary to legislative intent.

Final Order:

  • The rejection dated 5 January 2021 was quashed.
  • The matter was remanded to the CIT to reconsider the declaration on merits under the VSV Act.

Important Clarifications

  • Disputed interest alone is sufficient to invoke the VSV Act.
  • The definition of “dispute” under VSV Rules is broad and inclusive.
  • FAQ-based interpretations cannot override statutory intent.
  • Proceedings arising from rejection of waiver applications can qualify as disputes.

Sections Involved

  • Income Tax Act, 1961
    • Section 220(2) – Interest on delayed payment
    • Section 220(2A) – Waiver/reduction of interest
    • Section 273A(4) – Waiver of penalty
  • Direct Tax Vivad Se Vishwas Act, 2020
    • Section 2(1)(h) – Disputed Interest
    • Section 2(1)(o) – Tax Arrears
    • Section 3 – Amount payable
    • Section 4 – Filing of declaration
  • Direct Tax Vivad Se Vishwas Rules, 2020
    • Rule 2(b) – Definition of “dispute”
  • Companies (Court) Rules, 1959
    • Rule 156 – Interest in liquidation

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3086-DB/59705082022CW11632021_141040.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.