• What is direct tax arrears under Kar Vivad Samadhan Scheme ?
• How to calculate Direct Taxes payable under Kar Vivad Samadhan Scheme ?
• What to do after you sign the declaration under Kar Vivad Samadhan Scheme ?
• 3 easy steps to end your tax litigation
• Some Frequently asked questions on Kar Vivad Samadhan Scheme
• Who cannot avail Kar Vivad Samadhan Scheme ?
• Form of Declaration
• Circular to All the Chief Commissioner of Income Tax
• Press Release

What is direct tax arrears under Kar Vivad Samadhan Scheme ?

Direct Tax Arrears = Tax and / or Interest and/or penalty as determined on or before March 31, 1998.

How to calculate Direct Taxes payable under Kar Vivad Samadhan Scheme ?

(A) Tax arrears determined under the Income Tax Act, 1961.

(i) An individual tax payer has to pay at the rate of 30% of the disputed income . (ii) A company or a firm has to pay at the rate of 35% of the disputed income .
(iii)If tax arrears include Income Tax PLUS Interest and / or penalty levied - An individual tax payer has to pay at the rate of 30% of the disputed income . A company or a firm has to pay at the rate of 35% of the disputed income.
(iv) When Tax arrears (including interest and/or penalty) are determined on the basis of Search and Seizure proceedings under section 132 or section 132A of the Income Tax Act An individual tax payer has to pay at the rate of 40% of the disputed income . A company or a firm has to pay at the rate of 45% of the disputed income .
(v) If tax arrears comprise only interest and / or penalty levied, pay only at the rate of 50% of the total tax arrears.

(B) Tax arrears determined under the Wealth Tax Act, 1957

(i) A tax payer has to pay at the rate of 1% of the disputed wealth.
(ii)If tax arrears include Wealth Tax PLUS Interest and / or penalty , tax has to be paid at the rate of 1% of the disputed wealth.
(iii)When Tax arrears (including interest and/or penalty) are determined on the basis of Search and Seizure proceedings under section 37A or section 37B of the Wealth Tax Act, tax has to be paid at the rate of 1% of the disputed wealth.
(iv) If tax arrears comprise only interest and / or penalty , pay only at the rate of 50% of the total tax arrears.

(C) Tax arrears determined under the Gift Tax Act, 1958

(i) Tax has to be paid at the rate of 30% of the disputed value of the gift.
(ii) If tax arrears include gift tax PLUS Interest and/or penalty, pay at the rate of 30% of the disputed value of the gift.
(iii) If tax arrears comprise only interest and / or penalty , pay only at the rate of 50% of the total tax arrears

(D) Tax arrears determined under the Expenditure Tax Act, 1987

(i) Tax has to be paid at the rate of 10% of the disputed chargeable expenditure.
(ii) If tax arrears include disputed expenditure tax PLUS interest and/or penalty, a tax payer has to pay at the rate of 10% of the disputed chargeable expenditure.
(iii) If tax arrears comprise only interest and / or penalty , pay only 50% of the total tax arrears

What to do after you sign the declaration under Kar Vivad Samadhan Scheme ?

After you fill in Form 1A completely, please submitted it (in duplicate) to the Commissioner concerned (designated authority).

3 easy steps to end your tax litigation

Step 1

Within 60 days of your submitting the Declaration Form 1A to the Commissioner concerned, it will be screened. If it is in order the Commissioner will issue a certificate (Form 2A) stating the amount you have to pay under Kar Vivad Samadhan Scheme, 1998 for the final settlement of your tax dispute under the scheme.

Step 2

After receiving the certificate you must pay the amount determined and furnish proof of such payment to the Commissioner concerned within 30 days. *

Step 3

The Commissioner concerned will then issue a certificate (Form ¾) granting you immunity ** from penalty and / or prosecution this will be actioned on by the assessing officer.

*Your appeals pending before the Statutory Authorities will be deemed withdrawn after the acceptance of the declaration.
*In case your tax arrears are under dispute and an appeal or reference or writ petition is pending in the High Court or the Supreme Court - you must first file an application before the High Court or the Supreme Court withdrawing the appeal or reference or writ petition; then furnish proof of the withdrawal with the Court's permission and attach proof of payment of the amount determined by the Commissioner concerned.

** Subject to the conditions under section 90.

Some Frequently asked questions on Kar Vivad Samadhan Scheme

Q 1 Where only a part of taxes is outstanding, whether the waiver of interest or penalty is in the full ?
Ans. Yes

Q.2 If the order of assessment was made on 31.3.98 but the notice of demand was served af after 31.3.98, can the declaration be made under Samadhan Scheme ?
Ans. Yes. The demand is determined on the day the order of assessment is made.

Q.3 Where refund for an earlier year is adjusted against the demand of any year, will such an adjustment be regarded as the payament of tax ?
Ans, Yes. The adjustment of refund payable is one of the modes of payment of taxes.

Q.4 Where the tax arrear comprises tax and interest,how will the part payment be first appropriated- towards tax or interest
Ans. The part payment are appropriated first towards tax and then towards interest.

Q.5 In a case where taxes are outstanding on 32.3.98 and also on the date of declara- tion but the order of penalty is passed after 32.3.98, will the declarant be entitled to the waiver of penalty?
Ans. Section 91empowers the designated authority to grant immunity from the imposition of penalty in respect of income which is the subject matter of declaration. As the taxes outstanding on 31.3.98 will be covered under the declaration the designated authority can grant waiver of such penalty.

Q.6 Where in an assessment made u/s.143(1)(a), the Assessing Officer makes certain adjustments to the total income and levies additional tax, will such additional tgax be regarded as a tax or penalty ?
Ans. The additional tax is only a tax under the Income-tax Act

Q.7 The Scheme offers full waiver of interest and penalty where the tax arrear includes such interest or penalty alongwith tax. What kind of interest and penalty woule be open for waiver ?
Ans. All interest and penalties lthat are directly related to assessed income or arrears of taxes will be open for full waiver,if the taxes are outstanding on the specified dates, e.g., interest u/s.234A, 234B, 234C, 139(8), 215, 216, 217,158BFA, 220(2),or penalties u/s.271(1)(c), 221, 158BFA, 273etc. But where the interest or penalty is not directly related to assessed income/arrears or tax waiver of only 50% thereof is available, e.g., interest u/s.201(1A) penalties u/s.271(1)(b), 271A, 271B, 271BB, 271C, 271D, 271E, 271F, 272A, 272AA, 272BB etc.

Q.8 Where only certain items of addition are in dispute, can the assessee take advantage of the scheme for the entire demand of the year ?
Ans. Yes, the scheme is applicable to the entire demand of an assessment year.

Q.9. Whether the Scheme covers cases where taxes are outstanding on 31.3.98 but the appeal is filed after 31.3.98 ?
Ans. Yes, the pendency of appeal etc., should be on lthe date of declaration.

Q.10. In respect of assesssment related to assessment yerars prior to assessment year 1993-94, the appeal is filed against the order of assessment in the case of the firm and the consequential effect of orders is given in the hands of the partners. Will the appeal filed by the firm be treated as appeal filed by the partners. as far as tax arrears in their hands are concerned ?
Ans. Yes.

Q.11 Where the declarant fails to pay full amount determined as payable under Samadhan Scheme, would he get credit for the partly paid taxes in the subsequent years ?
Ans. If the declarant fails to pay full amount payable by him under the Scheme, he would not be entitled to the benefit of the Scheme. The amount paid can not be refunded to him either. He may,however, seek credit for the payment so made against the outstanding arrears.

Q.12 What is the time limit for the Designated Authaority to grant immunity from prosecution and penalty ?
Ans. The Designated Authority will grant immunity on fulfillment of all the conditions provided for in section 90 in cluding the withdrawal of appeal/writ/reference/etc. It shall be agranted as quickly as possible.

Q.13 Where the assessee has received order u/s264 but has moved a petition u/s.154 of the Act before the CIT, can he avail the Scheme ?
Ans. No. There would be no pendency of revision proceedings before the CIT in such cases.

Ql4. Is the Scheme open to cases where order of assessment have been set aside before 31.3.98 but reassessments are still pending.?
Ans. No. There is no tax arrear on 31.3.98 or on the date of declaration.

Q.15. Whether the Scheme covers cases of Estate Duty?
Ans. No.

Q.16. Whether settlement of outstanding interest alone is possible when the declarant does not want to give up his right of appeal against the quantum of income or tax ?
Ans. No. The Samadhan Scheme is package for settlement of tax arrears of a particular assessment year in entirety. Settlement of any part of arrears is not possible. If,however, arrears relating to only interest and penalty outstanding, whether relating to any particular assessment year or otherwise these can be settled at 50% of the arrear.

Q.17 In pursuance of demand raised, the asserssees pay certain parts of demand in consequence of order of stay/instalments, etc. Will the amount so paid be treated as outstanding on the date of declaration ?
Ans. No. The tax arrears means the taxes outstanding on the date of declaration.

Q.18. Section 90(1) of lthe Scheme refers to the sum payable that may be determined by the Designated Authority. How is the sum payable to be worked out ?
Ans.The sum payable is to be determined with reference to disputed income as defined in section 87(e) to mean the whole or so much of the total income as is relatable to the disputed tax. The term,"disputed income "as used in the scheme does not refer to the income in dispute by way of appeal, etc. but it revers to the income which is relatable to the disputed tax. The term, "disputed tax" has been defined to mean the tax determined and payable but remaining unpaid on the date of declaration. The Designated Authority will work out the disputed income relatable to disputed tax by applying the marginal rate applicable for the relevant assessment year for that assessee and thereafter determine the sum payable in accordance with section 88 of the Scheme.

Q.19 The block assessments in search casers are not for any particulart assessment year. Will the block assessments be covered under the Scheme and if so,how?
Ans. Block assessments will be regarded as separate assessments without reference to any particular assessment year. The declarant will be required to make declaration for the block as one unit of assessment without being assessment year specific. The demands relating to block assessment is to be indicated under separate column in the declaration form as per the notes to the declaration form.

Q.20 Definition of tax arrears as given in Section 87(m) refers to tax as modified inconsequence of giving effect to an appellate order but remaining unpaid on the date of declaration. Does it mean that those cases where first appeals are pending the assessees are not entitled to come under Samadhan Scheme?
Ans. No. The cases where first appeals are pending are also eligible to come under the Scheme subject to the satisfaction of other conditions regarding existence of tax arrears, etc.

Q.21 By filling declaration under Samadhan Scheme for one assessment year, does the tax payer forego his right of appeal on the same issue in other assessment years?
Ans. No. The order under the Samadhan Scheme does not decide any judicial issue. It only determines the sum payable under the Scheme with reference to tax arrears.

Q.22 Whether the Samadhan Scheme is applicable to orders under section 132(5) of Income- Tax Act?
Ans. No. The order under section 132(5) was required to be passed, prior to the introduction of block assessment, only for the purpose of retaining the seized assets. The tax determined thereunder does not constitute tax arrear.

Q.23 In a particular case, tax is determined before 31.3.1998. After the assessment, the assessee gets relief in appeal and the demand is reduced. Subsequently, on departmental appeal, the order of the Assessing officer is restored and demand is also revived. In such a case, can it be said that there was an arrear of tax determined on or before 31.3.1998?
Ans. Yes. The tax is determined on or before 31.3.1998 and if the same remains unpaid on the date of declaration, the assessee is entitled to come under the Samadhan Scheme provided the appeal, etc. is pending on the date of declaration. It will not make any difference if the first appellate authority had passed the order before 31.3.1998 and the order of the second appellate authority is received after 31.3.1998.

Q.24 Could there be multiple declarations under the Scheme?
Ans. Yes. As long as the conditions relating to the determination of tax arrear on or before 31.3.1998 and the existence of such arrear as also the pendency of appeal, etc. on the date of declaration are satisfied, declaration can be filed.

Q.25 Section 90(4) refers to the appeal, reference, etc., as deemed to have been withdrawn. From what point of time does this provision become operative?
Ans. As indicated in the provision itself, it is operative from the day on which order under section 90(2) will be passed after payment of the sum payable by the declarant as determined by the Designated Authority and after receipt of intimation to that effect.

Q.26 Where the appeal has been filed belatedly with an application for condonation of delay, will it be taken under the Samadhan Scheme that the appeal is pending?
Ans. No. only when such an appeal is admitted by the appellate authority, it can be said that the appeal is pending.

Q.27 The tax payer, has on his part, filed reference application before the Tribunal. The ITAT has not yet passed order on such reference application. Can it be said that a reference is pending for the purposes of declaration under the Scheme?
Ans. Yes. If the tax payer has filed within the statutory time a legally valid reference application under section 256(1) or 256(2), the condition of pendency of reference could be said to have been satisfied.

Q.28 The tax payer has not paid the tax payable under the Scheme within 30 days of the order under section 90(1) for any reason including the non-realisation of the cheque presented to the bank. Will the tax payer be eligible for relief under the Samadhan Scheme?
Ans. No. The tax payable under the scheme should be paid to the credit of the Government on or before the due date. The tax payers are advised to pay the tax well in time.

Q.29 Interest under section 220 is determined only after final payment of tax demanded. This may, therefore, not form part of the tax arrear determined on or before 31.3.1998. Will such interest be open for waiver?
Ans. Yes. The designated authority has been given power to waive interest and penalty where the tax arrear comprises tax, interest and penalty and determine the sum payable in full and final settlement of tax arrears.

Q.30 What would happen if the appeal is decided in favour of the declarant after filing of the declaration and before the order under section 90(2) is passed?
Ans. The declarant is advised to file a petition before the appellate authority intimating the fact of his having made the declaration and making a request that the appeal may be kept in abeyance.

Q.31 What happens to the amount of tax arrear if the same is modified by an order under section 154 passed after 31.3.1998?
Ans. The order under section 154 would rectify the apparent mistake in the order passed on or before 31.3.1998 and hence it would relate back to that order. The tax arrear would accordingly stand modified and in such cases the modified tax arrear will constitute the tax arrear for the purposes of declaration under the Scheme.

Q.32 Where certain income has been charged to tax in the hands of two difference persons or where it has been charged to tax in the case of same person in two difference assessment years, one on substantive basis and the other on the protective basis, will the declarant or the other person get advantage in respect of additions made both substantively and protectively?
Ans. The assessees are advised to make declarations in cases or for assessment years where the additions are made on substantive basis. The protective demand is not subjected to recovery unless it is finally upheld. Once the declaration in a substantive case or year is accepted, the tax arrear in protective case/year would no longer be valid and will be rectified by suitable orders in the normal course. This position is not peculiar to Samadhan scheme.

Q.33 Where prosecution has been launched for any particular year but the assessee has since been discharged by the competent court, can the declaration be made under this Scheme?
Ans. Yes.

Q.34 If the sum payable under the scheme is not paid or is partly paid, what are the consequences?
Ans. The consequences may be as under:

1. if the tax is not paid fully, the tax payer would not be entitled to the benefits of the scheme.
2. when a number of assessment years are involved in a particular tax payers' case, the condition of tax payments will be considered for each year separately as a unit.
3. when the tax is paid only partly, the tax payer loses the benefit of this scheme. However, the tax paid will be adjusted against the normal arrears of tax.

Please note:
For the removal of doubts, it is hereby declared that, save as otherwise expressly provided in subsection (3) of section 90, nothing contained in this scheme shall be construed as conferring any benefit, concession or immunity on the declarant in any assessment or proceedings other than those in relation to which the declaration has been made.

If you do not pay the amount determined under the scheme within 30 days, you are not eligible to avail of the benefits and amnesty provided under the Kar Vivad Samadhan Scheme, 1998.

Under NO circumstances will there be a refund of the amount paid under the scheme.

Who cannot avail Kar Vivad Samadhan Scheme ?

• Tax arrears pertain to an assessment year in respect of which prosecution proceedings for concealment of income have begun on or before the date of declaration under section 88 or the person has been convicted for concealment on or before the date the declaration is filed.
• Orders have been passed by the Settlement Commissioner under sub-section (4) of Section 245D of Income Tax Act or sub-section (4) of Section 22D of Wealth Tax Act.
• No appeal or reference or writ petition is pending before any appellate authority or is in the High Court or the Supreme Court where the declaration is made.
• No application for revision is pending before the Commissioner on the date the declaration is filed.
• The person has been prosecuted for any offence punishable under section IX or XVII of the Indian Penal Code (IPC) or the Foreign Exchange Regulation Act, 1973 (FERA) or the Narcotics Drugs and Psychotropic Substances Act, 1985 (NDPS) or the Terrorists and Disruptive Activities (Prevention) Act, 1987 (TADA) or the Prevention of Corruption Act, 1988 (PCA) or has been notified under sub-section (2) of Section 3 of the Special Court (Trial of Offences Relating to Transaction in Security) Act, 1992.
• Order of detention has been passed under the Conservation of Foreign Exchange and Prevention of Smuggling Activity Act, 1974 (COFEPOSA)

Form of Declaratio Form 1A

[ See rule 3(1)9a)]

To

The Designated Authority

.....................................................................,

Sir/Madam,

I hereby make a declaration under section 88 of the Finance (No.2) Act, 1998.

I give below the following particulars :-

1. Name of the declarant(in block letters).....................................................................................

2. Address : Office.....................................................................................

...............................................................................................

.......................................Telephone No...................................

Residence................................................................................

...............................................................................................

........................................Telephone No..................................

3. Status of the declarant.....................................................................................

(State whether individual,Hindu undivided family,firm, company etc.)

4. (a) Name of Income-tax Range/Circle/ ..................................................

Ward where last assessed ..................................................

..................................................

(b) Permanent Account Number (if allotted)/ .................................................

General Index Register Number (if any) ..................................................

5. Details of tax arrears being offered for settlement :

VERIFICATION

I ..................................................................(name in block letters) son/daughter/ of Shri............................................... solemnly declare that to the best of my knowledge and belief :-

(a) the information given in this declaration, statements and annexures accompanying it is correct and complete and amount of tax arrears and other particulars shown therein truly stated and relate to the previous years relevant to the assessment years indicated in this declaration :

(b) I am not disqualified in any manner from making a declaration under the Scheme with reference to the provisions of section 95 of Finance (No.2) Act, 1998.

I further declare that I am making this declaration in my capacity as ................................[(designation) (please specify if you are making a declaration on behalf of declarant)] and that I am competent to make this declaration and verify it.

Name and signature of the Declarant

Place........................................

Date........................................

Instruction for filling the Form :

1. This Form should be submitted to the Commissioner of Income Tax notified as designated authority under section 87(b)(i) of the Finance (No2) Act, 1998.
2. Separate Form may be used for each direct tax enactment. More sheets may be used wherever necessary to give complete details.
3. In case of variation between the amounts mentioned in column 5.c and 5.d and those in column 5.e, please attach necessary details separately.
4. Attach necessary details in respect of variation between column 5.e and column 5.f.
5. The demand relating to block assessment should be indicated under separate columns.
6. Delete whichever is not applicable.
7. No. column shall be left blank. Wherever the entry is not relevant the column shall be filled in as ‘Not Applicable
8. Any other relevant information may be briefly indicated in a separate sheet, if required

Circular to All the Chief Commissioner of Income Tax

F.NO. 149/145/98-TPL(Pt.)
Central Board of Direct Taxes
Department of Revenue, Ministry of Finance
Government of India
North Block
New Delhi-110001

New Delhi,
the 5th January, 1999

To

All the Chief Commissioner of Income Tax.

Sub: KVSS,1998-Question of levy of interest u/s 220 and its treatment under the Scheme-Clarification.

A number of references have been received raising doubts about the charging oof interest u/s 220(2) in respect of tax arrears declared under KVSS,1998.

2. It is obvious from Sub-clause (iii) of Section 88(a) that where tax arrears comprises tax, interest or penalty, the entire amount of interest u/s 220 will get waived off. However, where the tax arrear comprises only interest payable or penalty levied, the interest u/s 220 may be worked out till 31-3-98 and the declarant would be entitled to a waiver of 50% thereof. In view of the provisions contained in Clause (iv) of Section 88(a) and the definition of "tax arrear" appearing in clause (m) of Section 87, no interest u/s 220(2) can be charged in such cases beyond 31-3-98.

( A. Balasubramanian )
Member (Legislation )

F.No.149/152/98-TPL
Government of India
Ministry of Finance
Department of Revenue
( Central Board of Direct Taxes )

Dated: 17.12.98

To

All Chief Commissioners of Income Tax/Director Generals of Income Tax

Subject: Judgement dated 17.11.98 by Hon ble Delhi High Court in C.W.P.4086 of 1998 filed by All India Federation of Tax Practitioners onKar Vivad Samadhan Scheme, 1998- issue of instruction to CCIT/DGIT

Sir,

Your attention is invited to the judgement dated 17.11.98 by Hon ble Delhi High Court in the above case and the Press release issued by the Government conveying the acceptance of the judgement by Central Government. A copy of the above Press Release has already been sent to you along with DO letter No. 142/44/98-TPL dated 1.12.98 from Member(L).

2. Following the above judgement of Delhi High Court, the Government has decided that the assessees who want to make declaration under KVSS in respect of taxes involved in the appeals filed by the Department can do so. Such declarations shall be regulated as under:-

(i) The assessee has the option of filing declaration either in respect of arrears disputed in his appeal or of taxes involved in departmental appeal or for both independently of each other.
(ii) For declarations relating to departmental appeals also the existing Form No.1A can be used. In such cases, there are no outstanding taxes and hence the process of working out "disputed income" from outstanding taxes is not involved. The entire income under dispute in various grounds of appeal may constitute "disputed income" on which the sum payable can be determined. In respect of departmental appeals, the declaration has to be for the entire income disputed in such appeals.
(iii) where the declaration in respect of departmental appeals are accepted by the designated authority, the CIT may proceed to withdraw such appeals on passing of the order under section 90(2).
(iv) In the event oof cross appeals on same issue, if the assessee does not opt to declare in respect of taxes involved in departmental appeals, the provisions of section 92 would not apply as these place bar only in respect of issue covered in the declaration in respect of which order under section 90 has been passed. This will also be the position, if the assessee does not opt for declaration in respect of other departmental appeals. The appeals in all such cases should not be withdrawn.

3. The designated authorities working under your region may kindly be informed accordingly.

Yours faithfully,

( D.Karunakaran Rao )
Under Secretary to the Govt. of India

Press Release

PRESS RELEASE

KAR VIVAD SAMADHAN SCHEME - CLARIFICATION REGARDING APPLICABILITY OF PROVISIONS OF THE SCHEME TO REGISTERED FIRMS FOR ASSESSMENT YEARS PRIOR TO 1993-94.

KVSS provides for payment of tax at the current rate of 35% of the disputed income in the case of the firms. Under the existing provisions, the firm is required to pay normal taxes at 35% and the partners are not required to pay any further tax on their share income. However, prior to assessment year 1993-94, the firm was paying taxes at concessional rate varying from 4% to 24% and the partners paid tax on their share income at the rates applicable.

As a result of the above, firms assessed to tax for assessment year 1992-93 and earlier years who want to avail of KVSS, are at a disadvantage vis-a-vis other assessees. A number of representations have been received pointing out the above anomalous position. To enable such firms avail of benefit of KVSS, the Government has decided that,-

1. where registered firms and all their partners file declarations in respect of assessment years up to assessment year 1992-93, the arrears of the firm and partners would be considered together and they may pay taxes at the current rate of 35% of the disputed income of the firm. The partners would not than be required to pay any further tax on their share income from the firm. However, the partners  declarations have to be filed along with that of the firm;
2. where the partners are otherwise eligible for Kar Vivad Samadhan Scheme in respect of their other disputed income  they may also file declaration for such income along with that of the firm;
3. they will have to pay taxes separately at the current rate of 30% of such other disputed income as provided in the scheme;
4. those partners who have separately filed declarations already may now file revised declaration along with the firm. )