Supreme Court Upholds Rajasthan High Court's Differential Treatment of KVSS Refund Claims: Hindustan Zinc Ltd. vs CIT

Case Overview

The Supreme Court of India declined to interfere with the Rajasthan High Court's ruling in the matter of Hindustan Zinc Ltd. Vs CIT, dismissing the Special Leave Petition filed by the assessee. The underlying dispute revolved around the treatment of refund claims arising from tax settlements made under the Kar Vivad Samadhan Scheme, 1998 (KVSS), with the High Court arriving at contrasting conclusions for two separate assessment years based on the specific nature of demands covered by the respective KVSS certificates.

Background: The Kar Vivad Samadhan Scheme, 1998

The Kar Vivad Samadhan Scheme, 1998 (KVSS), introduced under the Finance (No.2) Act, 1998, was a one-time tax dispute resolution mechanism that allowed assessees to settle pending tax demands by making payments on specified terms. Once a settlement was concluded and a certificate was issued, Section 90(3) of the Finance (No.2) Act, 1998 rendered the settled matters conclusive and barred their reopening.

The crux of the present dispute before the Supreme Court concerned whether, following such KVSS settlements, the assessee could still claim set-off of subsequently computed brought-forward losses and the consequential tax refunds — or whether such claims would necessarily disturb the finality of the KVSS settlement.

Factual Matrix: Two Assessment Years, Two Different Outcomes

The Rajasthan High Court had adjudicated two connected Revenue appeals arising from a common order of the Income Tax Appellate Tribunal (ITAT). Despite their common origin, the High Court reached different conclusions for AY 1993-94 and AY 1995-96, based on the materially distinct contents of the KVSS certificates issued for each year.

Assessment Year 1993-94: Refund Claim Upheld

For AY 1993-94, the relevant KVSS certificate dated 02.02.1999 recorded an outstanding demand of Rs.20,30,04,511/-, which was entirely attributable to interest — with no component of income tax included. Against this demand, the assessee paid Rs.10,15,02,255/- in settlement.

Subsequently, during the course of giving effect to ITAT orders relating to AY 1992-93, the Assessing Officer passed an order dated 30.12.2002 determining a brought-forward loss of Rs.5,53,13,531/- that was available for set-off against the income of AY 1993-94.