Full Judgment Text
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CASE NO.:
Appeal (civil) 7248 of 1999
Special Leave Petition (civil) 18012-18015 of 2000
PETITIONER:
COMMISSIONER OF INCOME TAX, MUMBAI CITY-XIII, MUMBAI
Vs.
RESPONDENT:
M/S DAMANI BROTHERS
DATE OF JUDGMENT: 11/02/2002
BENCH:
N. Santosh Hegde & Doraiswamy Raju
JUDGMENT:
D E R
RAJU, J.
Pursuant to the order dated 28.3.2001, these matters, which were directed
to be delinked from the other batch, have come up for hearing.
Civil Appeal No.7248 of 1999 :
This appeal has been filed against the decision dated 15.4.1999 of the
Income-Tax Settlement Commission, Additional Bench, Mumbai. The said
decision was rendered by the Special Bench of the Income-Tax Settlement
Commission constituted by the Chairman in exercise of his powers under Section
245BA (5A) of the Income-Tax Act (hereinafter referred to as "the Act"). The
Reference to the Special Bench was in respect of the following questions :-
1. Was the Special Bench of the Settlement Commission
right in holding in the case of Om Metals and Minerals
Pvt. Ltd. (193 ITR 57 - ITSC ) that the assessment order
passed by the assessing officer before the admission of
the settlement application subsisted and recovery
proceedings continued even after the admission of the
said application, especially after the judgment of the
Supreme Court in the case of CIT Vs. Express
Newspapers Ltd. (206 ITR 443) ?
(The Hon’ble Court, inter alia, made the following
observation:-
It is equally evident that once an application made under
Section 245C is admitted for consideration (after giving
notice to and considering the report of the Commissioner
of Income-tax as provided by Section 245D) the
Commission shall have to withdraw the case relating to
that assessment year (or years, as the case may be)
from the assessing/appellate/revising authority and deal
with the case, as a whole, by himself. In other words, the
proceedings before the Commission are not confined to
the income disclosed before it alone. Once the
application is allowed to be proceeded with by the
Commission, the proceedings pending before any
authority under the Act relating to that assessment year
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have to be transferred to the Commission and the entire
case for that assessment year will be dealt with by the
Commission itself.")
2. If the answer to question No.1 is in the affirmative,
would it be correct to say that once the Settlement
Commission determines a liability of the applicant for tax,
penalty and interest under Section 245D (4), the orders
of the lower authorities would automatically stand set
aside and consequently there will be no liability under
Section 220 (2) of the Act ?
3. If the answer to question No.1 is in the affirmative, the
question No.2 in the negative, has the Settlement
Commission powers to waive interest under Section 220
(2) of the Act ?"
The three questions were separately and individually considered and
answered. Thereupon, the answers given have been summed up as follows:-
"Para 37. In sum, our answers to the three questions
referred us are as follows:-
Question No.1
(i) That the Special Bench in the case of Om Metals &
Minerals Pvt. Ltd. (supra) was right in holding that the
assessment orders passed by the Assessing Officer
before the admission of the settlement application
subsisted only insofar as such finding applies to
assessment orders passed before the date of filing of
application under Section 245C(1).
(ii) The Special Bench of the Settlement Commission was
not right in holding that the orders passed by the
Assessing Officer insofar as the finding applies to orders
passed after the date of application but before the
application is allowed to be proceeded with.
(iii) The Special Bench was not right in holding that the
recovery proceedings based on the order of assessment
can be continued even after the admission of the said
application. In our view, recovery proceedings cannot be
continued after the application has been admitted except
in the matter of self-assessment tax and in the manner
laid down in section 245DD for safeguarding any likely
future demand.
Question No.2.
(i) The orders of lower authorities do not automatically stand
set aside by the Commission’s order u/s 245D(4). The
order of assessment stands modified to give effect to the
order u/s 245D(4) by the theory of merger applying to
such order.
(ii) In cases where assessment orders were passed before
filing of application, the liability of interest u/s 220(2), if
any, will be upto the date of order u/s 245D(1). There will
be no liability for interest u/s 220(2) thereafter. In cases
where assessment orders were passed after filing of
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application, there will be no liability of interest under
section 220 (2).
Question No.3.
Yes. The Commission has the power to reduce/waive
interest chargeable u/s 220 (2)."
Aggrieved, the Revenue has come up in appeal to this Court.
S.L.P. [C] Nos. 18012-18015 of 2000 :
The above Special Leave Petitions have been filed against the order
dated 20.9.1999 passed by the Income-Tax Settlement Commissioner (IT & WT),
Additional Bench, Calcutta. The said order came to be passed on the
applications seeking for rectification of the earlier order dated 16.2.1999 placing
reliance upon the decision of the Settlement Commission, Special Bench, in
Anjum Mohammed Hussein Ghaswala Vs. C.I.T. [1998] 230 ITR (AT) 1. The
Special Bench felt obliged to apply the decision in 230 ITR (AT) 1 and allowed
full waiver of interest charged under Section 234B of the Act for the Assessment
Years 1991-92, 1992-93, and for the Assessment Year 1993-94 allowed waiver
of interest restricting to 50% of the interest charged under Section 234B of the
Act. Aggrieved, the Revenue has filed these petitions.
It may be noticed even at this stage that on appeal filed by the Revenue
against the decision reported in [1998] 230 ITR (AT) 1, this Court in the decision
reported in C.I.T. Vs. Anjum M.H. Ghaswala & Ors. [2001] 252 ITR 1, varied the
order of the Commission holding that in exercise of its power under Section 245D
(4) and (6) of the Act, the Settlement Commission had no power to reduce or
waive interest statutorily payable under Sections 234A, 234B and 234C of the
Act, except to the extent of granting relief in accordance with Circulars issued by
the Central Board of Direct Taxes under Section 119, e.g. Circular
No.400/234/95-IT(B) dated May 23, 1996.
We have heard arguments in the appeal made by Shri R.P. Bhatt, Senior
Advocate, for the appellant and Ms. Shobha Jagtiani, Advocate, for the
respondent. In the other appeal, the respondent sought time, but having regard
to the decision taken by us to have the matter placed before a larger Bench, both
are dealt with together by this order.
Serious issue has been raised in the matter before us with directly
conflicting stands on either side as to the extent of powers that could be
exercised by the Settlement Commission, pursuant to the applications filed under
Section 245C of the Act. Whereas it was vehemently contended for the Revenue
that the Settlement Commission is not empowered to waive or reduce the
interest under Section 234A read with Section 220 (2) of the Act while exercising
its jurisdiction under Section 245D (4) of the said Act, that the assessment order
passed by the Assessing Officer prior to the admission of Settlement Application
under Section 245C will subsist so as to enable the Revenue to continue the
recovery proceedings and that on the determination of liability by the Settlement
Commission on the application filed before it, the orders passed by the lower
authorities would not automatically stand set aside, revoked or cancelled, on
behalf of the assessee, a contrary position and stand has been asserted with
equal vehemence. Both parties sought to place strong reliance upon the earlier
decision of this Court in C.I.T. Vs. Express Newspapers Ltd. [1994] 206 ITR
443.
We have carefully considered the matter in the light of the relevant
provisions of the Act and decisions to which a reference will be made hereafter.
The decision in Express Newspapers Ltd. (supra) has been rendered by a Bench
of three learned Judges. That was a case where in a question of the nature now
sought to be raised was not directly in issue or under detailed consideration and
the judgment also specifically clarifies that the order therein was confined only to
the question of jurisdiction of the Settlement Commission and the validity of its
order taking seisin of the case. On the conclusion arrived at that the application
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filed before the Settlement Commission in that case was not in compliance with
the first and foremost requirement of Section 245C(1) the very application was
held to be not maintainable and ought to have been rejected in limine. In the
course of dealing with the said case, a conspectus of the relevant provisions of
law came to be incidentally considered and there has been an observation at
page 451 of the Report that "it is equally evident that once an application made
under Section 245C is admitted for consideration (after giving notice to and
considering report of the CIT as provided by Section 245D) the Commission shall
have to withdraw the case relating to that assessment year (or years, as the case
may be) from the assessing/appellate/revising authority and deal with the case,
as a whole, by itself. In other words, the proceedings before the Commission are
not confined to the income disclosed before it alone. Once the application is
allowed to be proceeded with by the Commission, the proceedings pending
before any authority under the Act relating to that assessment year have to be
transferred to the Commission and the entire case for that assessment year will
be dealt with by the Commission itself".
Yet the said decision did not specifically and clearly spell out to what
extent it can grant relief or deal with the case and could such consideration be to
the extent of over-reaching an earlier order passed and concluded or even if
proceedings were pending, to what extent the consideration by the Commission
can expand.
In C.I.T. Vs. Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618] the
powers of the Settlement Commission came to be considered by a Bench of two
learned Judges and Jeevan Reddy, J., who spoke for the earlier Bench, speaking
for the Bench in this case also, while dealing with the Scheme of the provisions
contained in Chapter XIX-A, has categorically held that not only an application
envisaged under Section 245C can be made only in respect of a pending case
and the Commission take over all the proceedings relating to that case which
may be pending before any authority under the Act, such power is confined to
"the case before the Commission, which means the case relating to the
assessment year for which the application for settlement is filed and admitted for
settlement". It has also been stated that while Section 245E empowers the
Commission to reopen any completed proceedings connected with the case
before it, such power is circumscribed by the requirement expressly stated in that
Section that such reopening of completed proceedings should be "necessary or
expedient for the proper disposal of the case pending before it". It was also
observed therein as follows :-
"There are two other limitations upon this power, viz., that
this reopening of the completed proceedings can be
done, even for the aforesaid limited purpose, only with
the concurrence of the assessee and secondly that this
power cannot extend to a period beyond eight years from
the end of the assessment year to which such
proceeding relates. These two features make it
abundantly clear that the section contemplates reopening
of the completed proceedings not for the benefit of the
assessee but in the interests of the Revenue. It
contemplates a situation where the case before the
Commission cannot be satisfactorily settled unless some
previously concluded proceedings are reopened which
would normally be to the prejudice of the assessee. It is
precisely for this reason that the section says that it can
be done only with the concurrence of the assessee and
that too for a period within eight years. This section
cannot be read as empowering the Commission to do
indirectly what cannot be done directly."
At page 631 of the Report, it is further observed as follows:-
"Lastly, we may refer to Sri Poddar’s submission based
upon section 245F(1). According to him, sub-section (1)
confers the powers of an income-tax authority upon the
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Settlement Commission including the power to reopen
the assessments as contemplated by section 147. We
do not know whether the power under section 147 can
also be claimed by the commission. But assuming it can,
the said power has to be exercised in accordance with
the provisions contained in sections 147 to 150 including
sections 148 and 149. Admittedly, they were not
complied with in this case."
In the decision reported in 252 ITR 1 (supra) also, a Constitution Bench of
this Court observed that the object of Chapter-XIX-A is not to give an amnesty to
a tax evader from paying the tax due and that it would be preposterous to hold
that the Commission has been conferred with the power for either reducing or
waiving the tax due.
We find that Section 245C has undergone a specific amendment of
considerable significance with effect from 1.10.1984 under the Taxation Laws
(Amendment) Act, 1984 (Act 67 of 84) making it imperative that an application to
be filed is not only to be in such form and in such manner as has been
prescribed, but it should contain full disclosure of an income "which has not been
disclosed before the assessing officer and the manner in which such income has
been derived, with the additional amount of income tax payable "on such income"
and with such further and other particulars as may be prescribed. Sub-section
(4) of Section 245D enables the Commission to pass, in accordance with the
provisions of the Act, orders on "matters covered by the application and any
other matter relating to the case not covered by the application, but referred to in
the report of the Commissioner under Sub-section (1) or Sub-section (3)."
Reference has been earlier made to Section 245E and the powers thereunder.
The scope and impact of Section 245F (4) are also required to be considered.
We further find that nowhere in any of the provisions contained in the said
Chapter XIX-A, any specific provision or stipulation is made that once the
application is taken up for consideration after notice to the Commissioner and
after receipt of the Report from the Commissioner, the proceedings pending on
the file of the income-tax authority at various stages shall stand transferred
automatically to the Commission to be dealt with as a whole, nor is there any
specific indication as to the extent or manner in or upto which the Settlement
Commission can deal with the claims other than those covered by the application
made by an applicant. Does the Settlement Commission get a complete role in
total substitution of the other authorities under the Act and, if so, far what
purpose and to what extent. An answer to the questions thus raised before us
may call for a detailed consideration of the views expressed in the earlier
decisions in order either to further elaborate or to confine them in a manner that
is desirable or permissible in terms of the Scheme, the language used and the
purpose underlying the various statutory provisions. Therefore, we would
consider it more appropriate as well as proper to have the matter referred for the
consideration of a larger Bench than merely a Bench of two Judges as we are.
Such questions, being recurring in nature, deserve to be decided at an early
date.
We direct that the papers may be placed before the Hon’ble the Chief
Justice for appropriate orders as the matter may deserve.
.J.
[N. Santosh Hegde]
J.
[Doraiswamy Raju]
February 11, 2002.