Vivad se Vishwas Scheme for Goan Spouses under Section 5A

Reference: Section 5A of the Income-tax Act, 1961 and the Direct Tax Vivad se Vishwas (VSV) Scheme, 2020

Status: In Favor of Assessee (Rejection Set Aside)

1. The Core Dispute: Statutory Fiction of “Community Income”

The petitioner and her husband, residing in Goa, are governed by the Portuguese Civil Code, specifically the system of Communion of Assets. Under Section 5A of the Income-tax Act, income (other than salary) earned by such spouses is apportioned equally between them.

The Conflict: After a survey and reassessment, both spouses were hit with additions and penalties. The husband appealed both the assessment and the penalty (covering the joint income). The wife filed an appeal only against the penalty order.
The Rejection: When both applied for the VSV Scheme, the department accepted the husband’s application but rejected the wife’s. The reason given was that she had no appeal pending against the assessment order—only against the penalty.

2. Legal Analysis: Dispute Resolution for Joint Income

The High Court addressed two critical points: the nature of income under Section 5A and the definition of a “dispute” under the VSV Scheme.

I. Indivisibility of the Dispute

The court held that Section 5A creates a statutory fiction where income is treated as a single community pool.

The Ruling: Once the assessment for the “community income” is challenged by one spouse and settled under a scheme, the dispute for the other spouse cannot survive independently. The department cannot split a single community income dispute into two separate items for settlement purposes.

II. Definition of “Dispute” under VSV Scheme

The VSV Scheme was designed to reduce litigation. The department argued that a pending appeal against an assessment was mandatory.

The Finding: Rule 2(b) of the Scheme defines “dispute” broadly. It includes any appeal, including those challenging only penalty orders. Since the wife had a pending penalty appeal, she met the statutory requirement of having a “pending appeal” as of the cut-off date.

3. Writ Jurisdiction and the COVID-19 Context

The Revenue raised procedural objections, claiming the writ was filed too late and the Scheme had already lapsed.

Delay & COVID-19: The court dismissed the Revenue’s objection regarding the delay, noting that the Forms were filed while the Scheme was active and that subsequent delays in filing the writ were covered by COVID-related limitation extensions.
Jurisdiction: Under Article 226, the court has the power to correct an “unsustainable” rejection by a designated authority, especially when the rejection ignores the fundamental statutory character of the taxpayer (Section 5A).

Final Verdict: Order Set Aside

The court quashed the online rejection and directed the Designated Authority to:

Treat the petitioner’s application as valid.
Pass a reasoned order on Forms 1 and 2.
Align the settlement with the husband’s already accepted VSV application.

Key Takeaways for Taxpayers

Section 5A Protection: If you are a Goan spouse, your tax disputes are often inextricably linked. A settlement by one spouse regarding joint community income should generally cover the other.
Penalty Appeals Count: You do not necessarily need a pending “tax” appeal to enter settlement schemes like VSV; an appeal against a “penalty” or “interest” is often sufficient to qualify as a “dispute.”
Forms vs. Scheme Lapse: As long as your initial application (Forms 1 and 2) was filed before the Scheme’s deadline, the subsequent lapse of the Scheme does not prevent the Court from granting you relief if your application was wrongly rejected.

HIGH COURT OF BOMBAY

Smt. Sharen Nitin Naik

Principal Commissioner of Income-tax^*

Suman Shyam and AMIT S. JAMSANDEKAR, JJ.

WRIT PETITION NO. 118 OF 2024

JANUARY 28, 2026

Purushottam Karpe for the Petitioner. Ms. Susan Linhares, Standing Counsel for the Respondent.

JUDGMENT

Amit S. Jamsandekar, J. – Heard.

2. Rule. Rule made returnable forthwith

3. Ms. Susan Linhares, the Learned Standing Counsel appearing for the Respondents, waives service.

4. Heard finally with the consent of the Learned Counsels appearing for the parties.

5. By the present Petition under Article 226 of the Constitution of India, the Petitioner has challenged the order passed by the 1^st Respondent. By an order dated 17.03.2021 (the impugned order, the 1^st Respondent rejected the Petitioner’s application under the “Vivad Se Vishwas Scheme” (the Scheme). The Petitioner challenges the impugned order on various grounds, including that it was passed without affording an opportunity of hearing, is arbitrary and perverse, and is contrary to the very object of the Scheme. It is further submitted that there are no reasons assigned to the impugned order, and the application of the Petitioner is rejected by passing an online order, which reads:


Activity / Status 17-Mar-2021 Submitted Form 1 & 2 17-Mar-2021 Date of Rejection of Form 1 & 2	Reason of Rejection X Assessee has not filed Appeal before CIT (A) against the order of A O. As there is no appeal pending, hence the application filed under DTVSV is hereby rejected. close

6. Further it is submitted that the 1^st Respondent has failed to consider the that:- (i) the Appeal filed by the Petitioner, challenging the order of penalty, is pending and (ii) the peculiar situation contemplated under Section 5A of the Income Tax Act, 1961 (the Act) by which a provision is made in respect of apportionment of income between spouses governed by Portuguese Civil Code. Therefore, Mr. P. Karpe, the Learned Counsel for the Petitioner submitted that merely because the Petitioner has not filed any Appeal against the Assessment Order in her individual capacity, that does not mean that the Petitioner is not entitled to avail the benefit of the Scheme.

6.1 Ms. Susan Linhares, the Learned Standing Counsel appearing on behalf of the Revenue, submitted that the order passed by the 1^st Respondent is justified because the Petitioner has not challenged the Assessment Order. Therefore, the Petitioner cannot avail the benefit of the Scheme. She relies upon the affidavit in reply filed on behalf of the Revenue to oppose the present Petition, primarily on the statements therein that the Petitioner did not file any Appeal against the Assessment Order dated 30.12.2016 passed under Section 143(3) read with Section 147 of the Act.

7. In a nutshell, the objections of the Revenue are that there is no appeal preferred by the Petitioner against the Assessment Order passed under Section 143(3) of the Act, and therefore, she is not entitled to get the benefit of the Scheme. Further, it is submitted that there has been a delay in filing the present Petition and that the Scheme has now lapsed, and therefore, no relief ought to be granted to the Petitioner.

8. The challenge of the Petitioner and the objections of the Revenue will have to be considered in the factual background, which are as follows:-

(i)

The Petitioner filed her return of income on 15.03.2014. On the same day the Petitioner’s husband also filed his return of income. The Petitioner and her husband are governed by the provisions of Section 5 A of the Act. Both the returns of income were processed under Section 143(1) of the Act. On 05.03.2015, the survey under Section 133(A)(1) was conducted in the business premises of the Petitioner’s husband. Thereafter, on 27.03.2015, the 2^nd Respondent passed an Assessment Order in the assessment of the Petitioner’s husband. The 2^nd Respondent did not pass an Assessment Order in the assessment of the Petitioner. Subsequently, on 19.06.2015 the Assessment of the Petitioner’s husband was reopened under Section 147 of the Act. In this background, consequent to the survey under Section 133(A)(1), the Petitioner’s Assessment was also reopened under Section 147 of the Act, and thus an Order under Section 143(3) read with Section 147 of the Act was passed in the case of the Petitioner and her husband on 30.12.2016. On 16.06.2017, the 2^nd Respondent passed an order under Section 271 (1)(C) read with Section 274 of the Act imposing the penalty on the Petitioner and her husband. (facts as mentioned in the Assessment Order dated 30.12.2016 passed u/ s 143(3) read with Section 147 of the Act).

(ii)

The Petitioner’s husband filed an Appeal against the order of Assessment passed under Section 143(3) as well as the order under Section 271(1) (C) read with Section 274 of the Act. During the Pendency of the Appeal filed by the Petitioner’s husband, the Scheme was introduced. Therefore, the Petitioner’s husband applied for availing the benefit of the Scheme by filing Form 1 and Form 2. These forms were filed by the Petitioner’s husband on 17.03.2021.

(iii)

The Appeal filed by the Petitioner’s husband on 10.09.2015 was in respect of the entire additions made in the return of income of the Petitioner’s husband and the Petitioner. Therefore, the Petitioner did not prefer to file a separate appeal against the order passed under Section 143(3) read with Section 147 of the Act. Consequently, the Petitioner only filed an Appeal against the penalty order which was passed under Section 271(1) (C) read with Section 274 of the Act.

(iv)

The Petitioner also filed Forms 1 and 2 on 17.03.2021 to avail of the benefit of the Scheme.

(v)

The Application filed by the Petitioner’s husband under the Scheme was accepted, and the 1^st Respondent issued Form 3 to the Petitioner’s husband on 28.08.2021. Subsequently, on 29.10.2021, the 1^st Respondent issued Form 5 to the Petitioner’s husband. The 3^rd Respondent, by orders dated 08.09.2022 and 26.10.2022, dismissed the Appeals filed by the Petitioner’s husband as infructuous.

(vi)

On 17.03.2021, the Application filed by the Petitioner under the Scheme came to be dismissed by the abovequoted impugned order, which is the subject matter of the present Writ Petition.

9. We have heard Mr. Karpe, the Learned Counsel for the Petitioner and Ms Susan Linhares, the Learned Standing Counsel appearing on behalf of the Revenue. Perused the record and the written submissions filed on record.

10. The Petitioner and her husband are married under the communion of assets and are governed by the Portuguese Civil Code applicable to the State of Goa. In view thereof, Section 5A of the Act is applicable to the Petitioner and her husband. Therefore, the income of the Petitioner’s husband is apportioned (50%) to the Petitioner. The husband of the Petitioner is having a proprietary concern i. e. Bombi & Sons. Therefore, the entire income was earned by the husband of the Petitioner. There is no dispute that the Petitioner and her husband are governed by the provisions of Section 5A of the Act. In fact, Petitioner’s husband was assessed under the same Assessment Order and on the same disputed income, which is governed by the provisions of Section 5A of the Act. Admittedly, the Petitioner’s husband has been granted the benefit of the Scheme, and the Application of the Petitioner is rejected by the impugned order.

11. Section 5A of the Act creates a statutory fiction. It treats income as a single community income. The income belongs to the material community, and the assessment is mechanically apportioned. Once the assessment itself is challenged and settled for one spouse, the dispute cannot survive independently for the other. The department cannot split a single community income dispute into two for settlement purposes.

12. In paragraph 9 of the affidavit in reply filed on behalf of the Revenue, it is expressly stated that :-

“The petitioner filed appeal only against the penalty order passed u/s 271(1)(c) r.w.s 274 dated 16/06/2017, before the CIT(A), Panaji-1 vide appeal filing acknowledgement no 901864001210717 of the Form 35″

13. Therefore, it is an admitted position that the Appeal filed by the Petitioner against the Penalty Order is pending.

14. The scheme, being a beneficial settlement legislation, the Courts have repeatedly adopted an approach that interprets it to advance the cause of settlement of disputes. It cannot be interpreted to defeat the very object and purpose of the scheme. (See Marcrotech Developers Limited v. Pr. CIT ITR 131 (Bombay); Dongfang Electric Corporation Ltd v. Designated Authority [2021] 438 ITR 660 (Telangana); MUFG Bank Limited v. CIT ITR 597 (Delhi). To avail of the scheme’s benefits, there must be a pending dispute. The definition of ‘dispute’ provided under Rule 2 (b) of the Direct Tax “Vivad Se Vishwas Scheme”, 2020 includes an Appeal. The definition of ‘dispute’ ought to be interpreted widely. It is not restricted to Appeals against Assessment Orders, as sought to be argued on behalf of the Revenue. The definition includes any Appeal, including the Appeal challenging the penalty order. In the present case, admittedly, the Appeal filed by the Petitioner challenging the Penalty Order is pending. Therefore, the Petitioner meets the first requirement of a pending Appeal. There is a pending dispute pertaining to the penalty in respect of the Petitioner which undoubtedly bring her within the ambit of the scheme.

15. Therefore, the impugned order is factually wrong and contrary to the provisions of the scheme itself. Further, when the benefit of the scheme was granted to the Petitioner’s husband, the department could not have denied the same to the Petitioner when, admittedly, the provisions of section 5A of the Act are equally applicable to both. We agree with the submission of Mr. Karpe, the Learned Counsel for the Petitioner, that when the provisions of Section 5A are admittedly applicable, there was no need for the Petitioner to file a separate Appeal challenging the Assessment Order.

16. The Petitioner has also pleaded that due to COVID, there was a delay in the proceedings. We accept the statements made by the Petitioner and therefore reject the objection raised by the Revenue about the delay in the proceedings. The Revenue’s objection that the Scheme has now lapsed is also not a good ground because Forms 1 and 2 were filed by the Petitioner when the Scheme was in subsistence. Therefore, we agree with the submission of the Learned Counsel for the Petitioner that this is a fit case to exercise jurisdiction under Article 226 of the Constitution of India.

17. In view of the facts and circumstances of the case, we pass the following:-

ORDER

(i)

The impugned order dated 17^th March 2021, being Exhibit B hereto, is hereby set aside.

(ii)

The 1^st Respondent is ordered and directed to consider Forms 1 and 2 filed by the Petitioner within the framework of the Scheme for the Assessment Year 2012—13, within a period of four weeks from today; and pass appropriate order within a period of two weeks thereafter including issuing of Form 3 in her favour.

(iii)

The Petitioner shall pay the determined amount of the tax arrears, as mentioned in Form 3, within a period of two weeks from the date of issuance of Form 3, and the 1^st Respondent shall issue Form 5 within a period of two weeks thereafter.

18. The Rule is made absolute in the above terms, and the Writ Petition is disposed of. However, there shall be no order as to costs.