"Tax arrear" under the DTVSV Act includes disputed tax, interest, and penalty.

“Tax arrear” under the DTVSV Act includes disputed tax, interest, and penalty.

Issue

Does the term “tax arrear,” as defined and used in the Direct Tax Vivad Se Vishwas (DTVSV) Act, 2020, include only the base disputed tax amount, or does it also comprehensively cover the interest and penalty that are related to that disputed tax?

Facts

An assessee opted to settle their long-pending tax dispute under the Vivad Se Vishwas Act.
A disagreement arose with the revenue department over the calculation of the “tax arrear” that formed the basis for the settlement amount.
The revenue department’s contention was that the term “tax arrear” for the purpose of the settlement scheme did not include the disputed interest that had been charged on the disputed tax. They sought to exclude it from the calculation.
The assessee argued that the scheme was intended to settle the entire dispute, which naturally includes all its components: the tax, the interest, and any related penalty.
A Single Judge of the High Court had already ruled in the assessee’s favour, and the revenue department had appealed this decision to a Division Bench.

Decision

The Division Bench of the High Court ruled in favour of the assessee, upholding the Single Judge’s order.

It held that a combined reading of Section 3 (which deals with the amount payable) and the definition of “tax arrear” in Section 2(1)(o) of the DTVSV Act makes the position completely clear.
The court found that the term “tax arrear” is “unambiguous” and evidently includes the disputed tax, the interest chargeable or charged on that tax, and the penalty leviable or levied on that tax.
It stated that the revenue’s argument to the contrary was “untenable” and ran directly counter to the plain language and the very object of the Act, which was to bring a comprehensive end to tax litigation. The department was directed to issue a fresh settlement certificate (Form-3) that correctly included the disputed interest in the “tax arrear.”

Key Takeways

“Tax Arrear” is a Comprehensive Term: The definition of “tax arrear” under the DTVSV Act is not limited to just the base tax amount. It’s a composite term that includes the full package of the disputed demand—the tax, the related interest, and the related penalty.
The Object of the Act is Important: The primary purpose of the Vivad Se Vishwas scheme was to reduce pending tax litigation. The court’s interpretation supports this objective. If interest or penalty were to be excluded from the settlement, those components could remain under dispute, which would defeat the very purpose of the scheme.
The Plain Language of the Law is Supreme: The court based its decision on the “plain language” of the statute. When the law is clear and unambiguous, there is no room for a contrary interpretation that goes against what is explicitly written, even if that interpretation is put forward by the tax department.
A Holistic and Final Settlement: This ruling confirms that when a taxpayer opts for the DTVSV scheme, they are settling the entire dispute for a particular issue. This includes all its components (tax, interest, and penalty), leading to a complete and final closure of that specific matter.

HIGH COURT OF KARNATAKA

Principal Commissioner of Income-tax

Govindachary, Bengaluru

S.G.PANDIT and K. V. Aravind, JJ.

WRIT APPEAL No. 1785 OF 2024 (T-RES)

SEPTEMBER 16, 2025

Sanmathi E. I., Sr. Standing Counsel for the Appellant. Shreehari Kutsa, Adv. for the Respondent.

ORDER

K. V. Aravind, J.- Heard Sri E.I. Sanmathi, learned Senior Standing Counsel for the appellants-Revenue, and Sri Shreehari Kutsa, learned counsel for the respondent-Assessee.

2. The Revenue has preferred this appeal under Section 4 of the High Court Act, assailing the order dated 18.09.2024 passed in W.P. No.19696/2024, Govindachary v. Pr. CIT 668 (Karnataka) whereby the Revenue was directed to issue a fresh certificate in Form-3.

3. Sri E.I. Sanmathi, learned Senior Standing Counsel for the Revenue, submits that only the disputed tax is covered under the Direct Tax Vivad Se Vishwas Act, 2020 (for short, ‘DTVSV Act’). It is submitted that the assessee included interest under Sections 234A, 234B, and 234C of the Income-tax Act, 1961 (for short, ‘the Act’) in the application filed under the DTVSV Act. The declaration was rejected to the extent of interest under Sections 234A, 234B, and 234C of the Act, as the same is not covered under the DTVSV Act. Learned Senior Standing Counsel further contends that the learned Single Judge, without examining the scope of disputes covered under the DTVSV Act, directed the issuance of a fresh certificate in Form-3.

4. Sri Shreehari Kutsa, learned counsel for the assessee, submits that all disputed items, including tax, interest and penalty are covered under the DTVSV Act. It is further submitted that the learned Single Judge, having regard to the benevolent nature of the scheme towards taxpayers, has rightly directed consideration of interest under the DTVSV Act.

5. Having considered the submissions advanced by learned counsel for the parties and the relevant provisions of the DTVSV Act, we note that Section 3 enables a taxpayer to make a declaration before the designated authority in accordance with Section 4, notwithstanding anything contained in the Income-tax Act or any other law for the time being in force.

Section 3 further contemplates computation of the amount payable under the Act by the declarant.

“3. Amount payable by declarant. —Subject to the provisions of this Act, where a declarant files [under the provisions of this Act on or before such date as may be notified,] a declaration to the designated authority in accordance with the provisions of Section 4 in respect of tax arrear, then, notwithstanding anything contained in the Income-tax Act or any other law for the time being in force, the amount payable by the declarant under this Act shall be as under, namely: —

Sl. No.	Nature of tax arrear.	Amount payable under this Act on or before the [31^st day of December, 2020 or such later date as may be notified].	Amount payable under this Act on or after the [1^st day of January, 2021 or such later date as may be notified] but on or before the last date.
(a)	where the tax arrear is the aggregate amount of disputed tax, interest chargeable or	amount of the disputed tax.	the aggregate of the amount of disputed tax and ten per cent of disputed tax:
	charged on such disputed tax and penalty leviable or levied on such disputed tax.		provided that where the ten per cent of disputed tax exceeds the aggregate amount of interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax, the excess shall be ignored for the purpose of computation of amount payable under this Act.
(b)	where the tax arrear includes the tax, interest or penalty determined in any assessment on the basis of search under Section 132 or Section 132-A of the Incometax Act.	the aggregate of the amount of disputed tax and twenty-five per cent of the disputed tax: provided that where the twenty-five per cent of disputed tax exceeds the aggregate amount of interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax, the excess shall be ignored for the purpose of computation of amount payable under this Act.	the aggregate of the amount of disputed tax and thirty-five per cent of disputed tax: provided that where the thirty-five per cent of disputed tax exceeds the aggregate amount of interest chargeable or charged on such disputed tax and penalty leviable or levied on such disputed tax, the excess shall be ignored for the purpose of computation of amount payable.
(c)	where the tax arrear relates to disputed interest or disputed penalty or disputed fee.	twenty-five per cent of disputed interest or disputed penalty or disputed fee.	thirty per cent of disputed interest or disputed penalty or disputed fee:

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:

Provided further that in a case where an appeal is filed before the Commissioner (Appeals) or objections is filed before the Dispute Resolution Panel by the appellant on any issue on which he has already got a decision in his favour from the Income Tax Appellate Tribunal (where the decision on such issue is not reversed by the High Court or the Supreme Court) or the High Court (where the decision on such issue is not reversed by the Supreme Court), 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:

Provided also that in a case where an appeal is filed by the appellant on any issue before the Income Tax Appellate Tribunal on which he has already got a decision in his favour from the High Court (where the decision on such issue is not reversed by the Supreme Court), 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.

6. Section 3 provides for filing of a declaration under the DTVSV Act in respect of tax arrears under Section 2(1)(o) of the DTVSV Act defines ‘tax arrear’ as:

tax arrear” means-

(i) the aggregate amount of disputed tax, interest chargeable or charged on such disputed tax, and penalty leviable or levied on such disputed tax; or

(ii) disputed interest; or

(iii) disputed penalty; or

(iv) disputed fee,

as determined under the provisions of the Income-tax Act.

[Explanation – for the removal of doubts, it is hereby clarified that the expression “tax arrear” shall not include and shall be deemed never to have been included any sum payable either by way of tax, penalty or interest pursuant to an order passed by the Settlement Commission under Chapter XIX-A of the Income Tax Act.]”

7. On a combined reading of Section 3 and the definition of ‘tax arrear’, it is evident that the same includes disputed tax, interest chargeable or charged on such disputed tax, and penalty leviable or levied on such disputed tax. The definition of ‘tax arrear’ is unambiguous in including the corresponding interest and penalty relatable to the disputed tax. Furthermore, Section 3, which provides for quantification of the amount payable by the declarant, also contemplates inclusion of the prescribed tax, interest chargeable or charged on the disputed tax, and penalty leviable or levied on the disputed tax. In view of the plain language of Section 3, the contention of the Revenue that interest cannot be included under the Act is untenable and runs counter to the very object with which the Act was enacted. The object of the Act, as stated at its commencement, is as under:

” An Act to provide for resolution of disputed tax and for matters connected therewith or incidental thereto.”

The Act, at its very inception, sets out the purpose and object sought to be achieved.

8. The learned Single Judge, having considered the scheme and object of the Act, was justified in issuing the directions impugned. We find ourselves in agreement with the findings recorded in the impugned order. No ground has been made out by the Revenue to warrant interference in this writ appeal. Accordingly, the writ appeal stands dismissed.