FM for 'Dispute Resolution Scheme' to end Vodafone/Cairn type rows

In a bid to provide a stable and predictable taxation regime in the wake of controversial cases, including Vodafone and Cairn following retrospective tax amendments made in 2012, Finance Minister Arun Jaitley announced a ‘Direct Tax Dispute Resolution Scheme’ to resolve cases pending in any Court, Tribunal, Arbitration or mediation under the Bilateral Investment Protection Agreement (BIPA).

Penalty rates

But the penalty rates will now be 50 per cent of tax in case of under reporting of income and 200 per cent of the tax where there is misreporting of facts.

Remission of penalty is also proposed where taxes are paid and appeal is not filed.

Jaitley said that litigation is a scourge for tax friendly regime and creates an environment of distrust. There are three lakh tax cases pending with the 1st Appellate Authority with disputed amount being Rs 5.5 lakh crores. In order to reduce this number new dispute Resolution Scheme (DRS) is launched.

Quantification of disallowance of expenditure relatable to exempt income in terms of Section 14A of the Income Tax Act is another issue led to number of disputes.

Hence, it has been proposed to rationalize formula in Rule 8D governing such quantification.

Revenue Secretary Hasmukh Adhia told reporters that “as per the existing law, these companies (Vodafone and Cairn Energy) are liable to pay everything, including principal tax, interest and penalty.... now they can simply pay off principal amount and entire interest and penalty can be waived off. As you know we have few cases of this nature. I think and hope that they will take advantage of the scheme. The government has gone step forward and said this is the best we can do for you. You can take advantage.”