Overview of Tax Litigation
Tax can be defined as a mandatory fee or financial charge levied by the government on an individual or entity. The Indian Tax Laws are governed under the Income Tax Act 1961.
Tax Litigation refers to the initiation of legal proceedings regarding disputes arising due to the non-compliance of tax laws. Tax litigation can be a time-consuming process due to the complexities of the taxation procedure and the delays in the appellate process. There has been a rise in the number of tax litigation cases due to the increasing aggression amongst the tax authorities.
Issues that Lead to Tax Litigation
The major issues that lead to tax litigation are given below
- Individual and Partnership matters
- Charitable and non-profit making institutions
- Cross-border transactions on permanent establishment and ascription
- Transfer Pricing Matters such as marketing intangibles, management expenses across the border, compensation for captive service, royalty payments, transfer pricing methods and comparable.
- Matters concerning the withholding of taxes
- Corporate Restructuring
- Tax Liability related to Royalty Income
- Valuation issues under the Customs Act,1962
Categories of Tax Litigation
The various categories of tax litigation are
- Civil Tax litigation
- Criminal Tax Litigation
- Civil Tax Litigation are regulated and handled by following legislation:
- Income Tax Act 1961 (Chapters XIX-A, XIX-B and XX).
- Income Tax Rules 1962.
- The Constitution of India 1950.
- Double taxation avoidance agreements.
- Income Tax (Dispute Resolution Panel) Rules 2009.
- Income Tax (Appellate Tribunal) Rules 1963.
- Authority for Advance Rulings (Procedure) Rules 1993.
- Income Tax Settlement Commission (Procedure) Rules 1997.
- Imposition of Tax Act 2015
- Black Money (Undisclosed Foreign Income and Assets) and
- Code of Civil Procedure 1908.
- Central Excise Act 1944.
- Customs Act 1962.
- Finance Act 1994 (Service Tax).
- State-level value added tax, sales tax, entry tax, luxury tax and advertisement tax legislation.
- Goods and Services Tax Act, 2016 (likely to be implemented from 1 July 2017).
It is important to conduct a judicial cost-benefit analysis to decide whether it is worthwhile to initiate tax litigation or if the issue is more viable to compromise.
Procedure of Tax Litigation
The detailed procedure of tax litigation is explained below –
Return Filing by the Taxpayer
The taxpayer must complete the Return Filing Process before the due date to avoid any penalties.
Passing of Assessment Order
Once the taxpayer has filed the return, it will be assessed and scrutinised by the assessment officer, followed by passing the assessment order.
Filing of Appeal by the Taxpayer
If the taxpayer is not satisfied with the assessment order passed by the assessment officer, the taxpayer can file an appeal according to the hierarchy mentioned below –
- Commissioner of Income Tax (CIT)
- Income Tax Appellate Tribunal
- High court
- Supreme Court
Time Limit of Filing Appeals and Appeal Hierarchy
- Appeal before the Commissioner of Income Tax (Appeal) can be filed within a period of 30 days
- Appeal to Income Tax Appellate Tribunal within a period of 60 days.
- Appeal to High Court within 60 days.
- Appeal before Supreme Court within 90 days.
Key Services Offered by Enterslice
- Helping in strategizing tax litigation
- Exploring alternative tax dispute resolution mechanisms
- Assistance in representation before Commissioner of Income tax (Appeals), Dispute Resolution Panel, Income Tax Appellate Tribunal
- Assistance in preparation of advance ruling application and representation before AAR
- Assisting, counselling, preparing, and representing appeals and petitions before High Courts and Supreme Court