As the Voluntary Disclosure of Income Scheme (VDIS) comes to a close, it is creating considerable confusion among tax payers, with umpteen clarifications and interpretations being given time and again. Much of this could have been avoided if the government and the income tax department had refrained from issuing clarifications ever so often.
The problem started right from the time the scheme was launched. The finance minister had announced that even the current years income could be declared under the VDIS. As a result, all those who had avoided paying income tax in the past, along with those who continued to do so in the current year, came forward to avail of the scheme. This in spite of the fact that the Budget speech clearly states that the VDIS is offered to those who have shied away from paying legitimate taxes in the past.
While giving this extra legal concession, the finance minister seems to have overlooked the fact that returns for the current year would become due only after 31 March 1998. Thus a person can show his entire income in the return to be filed after this date and there is no need to declare the current years income under the VDIS. And why should an evader do so when the tax rates under VDIS and the maximum marginal rate of tax for the current year are the same.
Also Read
Saying that the scheme can be availed of for the assessment year 1997-98 essentially negates the provisions of Section 64 which states: a declaration can be made in accordance with the provisions of Section 65 with respect to any income chargeable to tax under the IT Act for any assessment year:
(a) for which he has failed to furnish a return under Section 139 of the Income Tax Act;
(b) which he has failed to disclose in a return of income furnished by him before the date of commencement of this scheme;
Thus, in case the date of filing the return of income has not expired on 1 July 1997, then the person is not eligible for filing a declaration. Yet, CBDT took the view that both categories of people i.e those who have defaulted in filing their return before 1 July 1997 and those whose time for filing returns has not expired can file declarations under VDIS. Thus the coverage of the scheme has been extended beyond the provisions of Section 64(1). As a result, a peculiar situation for the year 1997-98 may arise due to the following reason:
CBDT has clarified that no credit would be given in regard to tax deducted at source or paid in advance against the tax due under the VDIS. However, nothing prevents a person from filing a declaration under the VDIS for the assessment year 1997-98 for a part of the income, and then filing a return for incomes (from property and other sources) on or before due date, which in his case say may be October 31. The tax department would not be able to deny the credit for advance tax/TDS during the course of making the assessment for the year 1997-98 on the basis of return filed, which an assessee is legally bound to file for this assessment year. This position arises because of extending the scheme to the assessment year 1997-98.
Some other contradictions concerning VDIS are:
At the stage when the Bill was passed and became a law, there were two major amendments. The first major amendment was dropping amnesty for disclosure of wealth for wealth-tax purpose. Consequential changes, therefore, had to be made to the Scheme. The second major change was that the bar which operated for searched person was extended to persons surveyed as well.
In spite of the above change, in circular no. 753 it was said that wealth tax will not be payable only in respect of the assessment year for which the disclosure is made. It shall be payable only for the assessment years subsequent to this assessment year. This position, in contradiction to section 73(1) of the Finance Act 1997, was again reiterated in circular no. 754 and created considerable uncertainty concerning VDIS. The correct view that upto the assessment year 1997-98 no wealth tax would be payable was clarified only in the reply to question no. XI in ASSOCHAMs meeting.
The issue of clarifications by the Chief Commissioners (CCs) has further created confusion in regard to some matters viz,
(a) In clarification dated 29.08.97 (1997) 95 Taxman 24 (St), the CC Mumbai said that silver/gold utensils will also be covered within the definition of jewellery. However, in CBDTs clarification contained in D.O. No. 3760/M/Inv-VDIS on 3 October concerning silver utensils, the view expressed is that silver utensils or other assets are not covered by the definition of jewellery.
(b) In replies to question Nos (4)(b), 6(iii) & (iii) & 9(a) as contained in clarifications dated 12.09.97 from the CC Mumbai, it has been said that persons who have been issued notices after 30 June 1997 under section 148 of the IT Act and have filed returns after receipt of such notices or have not filed any returns, can avail of the VDIS. From a very legalistic interpretation of section 64(1) of the Finance Act 1997, this view may be supportable, but it amounts to undue discrimination between persons to whom notices u/s 148 have been issued upto 30 June 1997 and those to whom such notices have been issued after this date!
(c) Section 64(1) (b) permits declarations concerning incomes which have not been declared in the returns filed before the date of commencement of the VDIS. It implies that for getting benefits of VDIS, the returns should have been furnished by 30 June 1997. The CC Mumbai has said that even non-filers of returns by this date can avail of VDIS.
There are some other inconsistencies of this nature in the replies. There is also the point whether CCs are authorised to issue such clarifications, and if so, what is the legal sanction behind them. It is high time the government stopped IT authorities from issuing numerous clarifications which are likely to confuse the taxpayers, proliferate litigation after the scheme closes, and affect its success.There is also the point whether Chief Commissioners are authorised to issue such sweeping clarifications, and if so, what is the legal sanction behind them.