New Delhi: The finance ministry has notified the winding up of the Settlement Commission, handling income tax and wealth tax disputes, effective 1 February 2021, to make way for a new dispute resolution system for small tax payers.

The ministry has scrapped the more than four-decade old Commission after compensating its chairman, vice-chairman and members. They will be entitled to compensation of three months’ pay and allowances for the premature termination of term of their office, according to a new rule issued on Thursday.

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The new dispute resolution system under a committee to be set up will replace the Commission and will be available to assessees with taxable income up to 50 lakh in cases where disputed income is up to 10 lakh. The new system to reduce litigation was announced in the union budget for FY22 but finer details of it are not available. It will function in a faceless manner to ensure transparency. The government will also make interim arrangements for cases pending in the Settlement Commission to be cleared.

The announcement of a new dispute resolution committee led to requests from businesses to raise the threshold for the cases that could be handled by it but the ministry has so far maintained that these requests will be examined after operationalising it as per the original plan.

New rules to be framed will show the extent of powers the committee will have. The Settlement Commission had wide powers to grant immunity from prosecution from any income tax or wealth tax related offence and also from imposition of penalty under any central law. The Commission’s orders were conclusive and not subject to appeal.

Reducing tax disputes is a priority for the government. It has already settled direct tax disputes of close to 1 trillion under the Vivad se Vishwas scheme, which fetched about 53,800 crore to the exchequer. In the case of Companies Act related offences, the government has introduced an in-house administrative mechanism to settle cases quickly.

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