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Tax Litigation: Meaning, Factors & Process

Tax litigation refers to legal measures concerning issues brought about by taxpayers’ non-payment or deferred payment of taxes, the government’s unauthorized or undesired tax collection, etc.

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Tax Litigation

In order to comprehend the meaning of tax Litigation, it is first important to understand the meaning of taxes. Tax is an obligatory fee imposed by the government of India that individuals and entities are subjected to pay under a specific tax category. 

tax litigation

Citizens are subject to taxes in order to yield funds for business endeavors, advance the national economy, and elevate the living standard. The beginning of legal procedures addressing problems resulting from the disregard of tax regulations is referred to as tax litigation.

A quick overview of tax litigation in India is provided in this article. The definition, relevant factors, process, and governing body for tax litigation in India are laid out in this article.

About Tax Litigation

The Income Tax Act of 1961 sets down the rules governing the tax laws in India. The beginning of legal procedures addressing problems resulting from the disregard of tax regulations is referred to as tax litigation.  

Tax litigation refers to legal measures concerning issues brought about by taxpayers’ non-payment or deferred payment of taxes, the government’s unauthorized or undesired tax collection, etc. When legal action is taken to resolve problems brought about by violations of tax laws, this is referred to as tax litigation.

Meaning of direct and indirect tax Litigation

Legal disputes involving direct taxation fall under the category of direct tax litigation. Direct taxes are those taxes paid directly by the individual or entity. An individual or entity will not be able to transfer the tax that the Indian government imposes to another individual or entity in case of a direct tax. The Central Board of Direct Taxes (CBDT) is the only entity in charge of governing or approving decisions regarding direct taxes. 

Legal disputes involving indirect taxation fall under the category of indirect tax litigation. Indirect taxes are imposed on products and services that the consumer purchases. The consumer finally pays the indirect tax as a component of the market cost of the goods and services they have purchased. Excise duty, Sales tax are a few examples of indirect taxes.

Several indirect taxes were merged under a single taxation system called the ‘One Nation One Tax’ system in 2017. This ‘One Nation One Tax’ system centralized the administration of all taxes under one authority. The Goods and Service Tax (GST) took the place of several tax structures. Therefore, every legal dispute involving the GST falls into this category.

Causing Factors for Tax Litigation

The following factors give rise to tax litigations are mentioned below:

  • When it comes to partnership or individual concerns.
  • Corporate entities that are non-profitable and charitable.
  • Cross-border business dealings, including regular operation and ascription.
  • Tax liability for earnings from royalties.
  • Issues pertaining to tax withholding.
  • Reorganization of Corporate.
  • Concerns pertaining to Valuation, according to the 1962 Customs Act.
  • Factors related to transfer pricing, including promotional intangibles, cross-border administration costs, captive service remuneration, royalties, transfer pricing approaches, and similar.

Process for Tax Litigation

The details of the process for Tax Litigation are given below:

  1. Filing of Returns– To prevent paying any sort of fines, the taxpayer must finish the return filing procedure prior to the deadline.
  2. Assessment Order Passing– Following the return filing procedure, the assessment assessor will carefully review the return, and after that, the assessment assessor will issue an assessment order.
  3. Appeal Submission– The following hierarchy listed may be used to make an appeal if the customer is not content with the evaluation order made by the assessment assessor.
  • The Tax Authority
  • Income Tax Appellate Tribunal
  • The High Court
  • The Supreme Court

Authority to consider tax litigation

  • Tax Authority, which functions in a quasi-judicial capacity, is where the tax complaint is initially brought up. It serves as an examiner and a judge. 
  • The Income Tax Appellate Tribunal (ITAT), the next administrative body, is also quasi-judicial and hears appeals similar to that of a civil court.
  • The High Court and the Supreme Court, the other two appellate bodies, are formal civil courts that deal with cases having significant legal issues.
  • The Tribunal renders decisions on cases involving either legal, factual, or a combination of both issues. Taxpayers are not constrained in any way in their ability to appeal to the Tribunal. Although, in the case of tax authorities, the CBIC occasionally establishes financial thresholds for tax demands that can no longer be challenged in court.
  • If the parties who appealed are dissatisfied with the Tribunal’s decision, they may file an appeal in the jurisdictional High Court. However, this type of appeal can only be sought if the dispute includes a legal problem. If the dispute relates to a question of fact, then the Tribunal’s decision is binding on all parties. 
  • The judgment of the High Court may also be appealed by submitting a case to the Supreme Court of India.
  • Since Supreme Court is the country’s superior court, the Supreme Court’s ruling is irrevocable and enforceable against the parties, and no additional appeals may be made against its decisions.

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Conclusion

The essential subject regarding tax litigation in India is covered in the following article. 

You can speak with Odint Consultancy if you have questions about matters concerning the tax litigation system in India. We’ll be glad to answer your questions.

FAQ’s

The beginning of legal procedures addressing problems resulting from the disregard of tax regulations is referred to as tax litigation.

Legal disputes involving direct taxation fall under the category of direct tax litigation and legal disputes involving indirect taxation fall under the category of indirect tax litigation.

  • The Tax Authority
  • Income Tax Appellate Tribunal
  • The High Court
  • The Supreme Court

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