Madras High Court Directs Refund of Excess Tax Under Vivad Se Vishwas Scheme, Citing Departmental Appeal Benefit (S.3 Proviso, S.7 Explanation DTVSV Act) - 2025-02-05

Madras High Court Orders Refund Under Vivad Se Vishwas Scheme, Clarifying Benefit When Department is Appellant

Chennai, February 5, 2025 – The Madras High Court, in a significant ruling under the Direct Tax Vivad Se Vishwas Act, 2020 (VSVS Act), has directed the Principal Commissioner of Income Tax to refund over ₹19 lakh to a petitioner. The court held that the petitioner was entitled to pay only half of the disputed tax amount under the scheme because the Income Tax Department had filed appeals against prior court orders related to the assessment.

Justice C.Saravanan , presiding over the case of Shri. A.S.Manjunath Sadasivam vs. The Principal Commissioner of Income Tax (W.P.No.27379 of 2021) , pronounced the judgment on February 5, 2025, having reserved it on October 29, 2024.

The petitioner, the legal heir of a deceased assessee, challenged an assessment order from March 26, 2015, which raised a demand of ₹59,85,810/-, including tax of ₹28,47,653/- and interest of ₹31,38,157/- under various sections of the Income Tax Act, 1961. The petitioner's attempts to revise the order under Section 264 and seek interest waiver under Section 119(2)(a) were rejected.

Aggrieved, the petitioner filed writ petitions before the High Court (W.P.Nos.9146 to 9148 of 2017), which were partially allowed on August 9, 2019, remanding the matters back to the department for fresh consideration. The Income Tax Department subsequently filed writ appeals (W.A.Nos.4223 to 4225 of 2019) against these orders.

While the departmental appeals were pending, the petitioner opted for the VSVS scheme, filing declarations in Form-1 and Form-2. Consequently, the Department's writ appeals were disposed of on November 10, 2020, noting the petitioner's declaration under the VSVS Act and granting liberty to the department to seek restoration if the VSVS decision was not in their favour.

The respondent issued Form-3 on April 20, 2021, demanding a total of ₹74,92,270/- (or ₹82,41,497/- after the deadline), which the petitioner contended wrongly included the interest component. The petitioner sought rectification of Form-3, arguing that under the VSVS Act, only the disputed tax, or a reduced amount thereof, was payable, and the interest should be waived. This request was rejected by the respondent via an order dated October 27, 2021, prompting the present writ petition.

The petitioner's senior counsel argued that a significant portion (approx. 60%) of the amount in Form-3 was interest and that the correct amount payable under VSVS should only be the 'disputed tax'. Crucially, it was submitted that since the department had filed appeals (which were dismissed due to the VSVS declaration), the petitioner was entitled to the benefit of the first proviso to Section 3 of the VSVS Act, which reduces the amount payable to one-half of the disputed tax.

The court examined Section 3 of the VSVS Act, particularly the table outlining payable amounts and the first proviso. It noted that Section 2(o) defines "tax arrear" as the aggregate of disputed tax, interest, and penalty, but Section 3 specifies the "Amount payable under this Act". Serial No. (a) of the table under Section 3 states that where the tax arrear includes disputed tax, interest, and penalty, the amount payable is generally the "Amount of the disputed tax" (before the deadline).

However, the court highlighted the application of the first proviso to Section 3:

> "Provided that in a case where an appeal or writ petition or special leave petition is filed by the income-tax authority on any issue before the appellate forum, the amount payable shall be one-half of the amount in the Table above calculated on such issue, in such manner as may be prescribed."

Applying this proviso, Justice Saravanan reasoned that since the Income Tax Department had filed writ appeals against the High Court's earlier orders, the petitioner was entitled to pay only one-half of the "disputed tax". The disputed tax, in this case (related to a revision application under Section 264), was ₹28,47,653/- as per the original assessment. Therefore, the amount payable under VSVS was calculated as 50% of ₹28,47,653/-, which is ₹14,23,826.50/-.

The court further referenced the Explanation to Section 7 of the VSVS Act and CBDT Circular F.No.IT(A)/1/2020-TPL dated 22.04.2020, which clarify that if a declarant had paid an amount under the Income Tax Act before filing the VSVS declaration which exceeds the amount payable under Section 3, they are entitled to a refund of the excess amount, though without interest.

Finding that the petitioner had already paid ₹33,53,781/- towards the tax arrears before opting for VSVS, the court calculated the excess payment as ₹33,53,781/- minus the correctly calculated VSVS payable amount of ₹14,23,826.50/-, resulting in an excess of ₹19,29,955/-.

Setting aside the respondent's order dated October 27, 2021, which rejected the rectification request, the High Court directed the Principal Commissioner of Income Tax to refund the excess amount of ₹19,29,955/- to the petitioner within six weeks from the date of receiving the order copy. The court also allowed the alternative option of adjusting this amount against any other tax liability of the petitioner.

This judgment underscores the specific benefit available under the VSVS Act for assessees in cases where the revenue authorities were the ones pursuing litigation at a higher forum, clarifying the calculation methodology and the right to refund of pre-declaration excess payments.