A number of controversies concerning the scheme still remain unresolved and this is clear from the fact that as late as on 9th December, 1998, the government accepted the recommendations of a committee of parliamentarians and has dropped the personal penalty clause in the KVSS stipulating that settlement in favour of a declarant company shall be deemed to be final in respect of other persons also like directors, etc, to whom show cause notices have been issued on the same matter, and therefore they would be also entitled to waiver of penalty and prosecution along with the company. This has been done in order to achieve a larger coverage within the objectives of the scheme in terms of reducing the litigation burden of the government as well as the corporate sector.

Earlier, by a press note dated26th November, 1998, the government has accepted the decision of the Delhi high court in the case of All India Federation of Tax Practitioners v UOI dated 17.11.98s published in (1998) 101 Taxman 401.

By this decision, the court while upholding the provisions of the KVSS has held that proviso to Clause 92 which provides that departmental appeal shall not be withdrawn is unconstitutional and therefore the relevant section has been modified by the court to cover tax, penalty or interest under dispute in departmental appeals will now also be eligible to be covered under KVSS provided the original demand has been determined on or before 31.3.98.

The government has accepted the decision of the high court vide press note dated 26th November, 1998 and hence the declarations can now be made in regard to matters under litigation on departmental appeals also.

Earlier, the government has issued two instructions dated 3.9.98 and 7.10.98 giving clarifications in the form of questions and answers on 34 queries.Another detailed clarification dated 28.10.1998 has been issued concerning indirect taxes. A circular dated 6.11.98 has been issued concerning the disputed income modifying answer to question No.18 in instruction dated 7th October, 1998. Still, there are a number of issues on which the position is unclear, and if clarifications are issued even at this late stage on these matters also, more tax payers may be motivated to avail of the scheme. The areas where clarifications are called for are:

Status of disputed income covered under the scheme is not clear. It needs to be said that in case the assessment is reopened in future, the income declared under the scheme as disputed income would not form part of the total income for calculation of tax on concealed income for which the assessment is reopened.

Similar clarification as has been done in regard to directors of the companies needs to be given concerning the partners of the firm. So far only one clarification concerning firm and partners has been issued inthe form of reply to question No.10 regarding assessments of firms and partners prior to assessment year 1993-94. It has been said that the appeal filed by firm shall be treated as appeal filed by the partners for filing KVSS. However, clarifications on the following issues for similar period may induce more persons to avail of the scheme. The issues are;

* If a firm files declaration and pays tax under the scheme, the demand related to disputed additions of the firm would be treated as automatically cancelled or modified in the case of the partners.

* If in cases where there are no arrears in the case of the firm because of disputed tax having been paid, the partners can file declarations individually concerning the income from the firm under the scheme.

* If the partners individually file declarations, the firm's appeal should be treated as withdrawn.

In cases where the taxpayers have won appeal in different appellate stages and department is in appeal, a slightly lower rate of tax can be prescribedas filing declaration in such cases implies foregoing their winning positions.

Since the scheme is applicable from 1st September, 1998, arrears found due up to 31.8.98 can be covered under the scheme instead of limiting these to 31.3.98.

It may be that in some cases, there may be delayed disposal of appeals say in the last week of December, 1998. Opportunity for declarations for such cases can be made open by saying that if they file the declaration up to 31st December 1998, payment can be made in the course of next 30 days. This would enable those in whose cases appeals have been decided late to avail of the scheme and file declarations.

Working of the scheme has shown that designated authorities have created problems in some cases by questioning the settled arrears saying that additional tax has been incorrectly charged. Similarly, there have been instances where proof that appeal has been admitted/has been asked for. The scheme does not permit such enquiries. It is assessee's task to ensure aboutthese matters at his risk before filing declaration. Such irksome dealing with the applications makes the smooth functioning of the scheme difficult.

Having introduced a scheme about whose desirability, there could be two opinions in favour and against, it is necessary for the government to make full use of the scheme to ensure utmost success. Clarifications on the above issues, it is expected, would make the coverage of the scheme more broad based within the parameters set in sections 86 to 98 of the Finance Act.