Full Judgment Text
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CASE NO.:
Appeal (civil) 7966-67 of 1996
PETITIONER:
Commissioner of Income Tax
RESPONDENT:
M/s Hindustan bulk Carriers
DATE OF JUDGMENT: 17/12/2000
BENCH:
D.M. Dharmadhikari.
JUDGMENT:
J U D G M E N T
Dharmadhikari J.
I am in respectful agreement with the reasoning and conclusion
recorded by Brother Pasayat J. in his opinion prepared by him in these
appeals. I, however, consider it necessary to supplement his reasons for
the conclusion reached by us. Since in these appeals common
questions on interpretation and extent of application of the provisions of
Chapter XIX A of the Income Tax Act (for short the IT Act) 1961, are
involved, I propose to discuss the questions involved by this common
judgment.
Brother Pasayat J. has reproduced all the relevant provisions of
IT Act and the questions formulated and answered by the Special Bench
of the Settlement Commission constituted in accordance with the
provisions contained in Chapter XIX-A of the said Act.
Chapter XIX-A providing forum and procedure for "settlement of
cases" was introduced in the IT Act by Taxation Laws (Amendment) Act
1975 published in the Gazette of India Extraordinary Part II dated 9th
May, 1973 (Pages 443 to 530). The Statement of Objects and
Reasons for the Amendment reads thus:
"To unearth black-money and prevent its proliferation; to fight and
curb tax evasion; to check avoidance of tax through various legal
devises, including the formation of trusts and diversion of income or
wealth to members of family’ to reduce tax arrears and to ensure that in
future, tax arrears do not accumulate; to rationalise the exemptions and
deductions available under the relevant enactments, and to streamline
the administrative set-up and make it functionally efficient".
Clause 58 of the Bill introduced in Parliament to introduce
separate Chapter in the IT Act for "settlement of cases" reads thus :-
"Clause 58 : This clause seeks to insert a new Chapter
XIXA in the act, making provision for settlement of cases.
The provisions proposed in this Chapter are mainly intended
to give a statutory basis for settlements of cases which are
necessitated at times in the interests of the revenue.
However, settlement will not be allowed in cases where
concealment of income or fraud is established before the
making of an application for settlement.
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Settlements are to be made by a Committee of not
less than three members of the Central Board of direct
Taxes. An application for settlement once made will not be
allowed to be withdrawn.
The order of settlement shall provide for the terms of
settlement, including any demand by way of tax, penalty or
interest, the manner of payment of the sum due under the
settlement, etc. It shall also provide that the settlement shall
be void if it is subsequently found to have been obtained by
fraud or mis-representation of facts. The Committee may, if
it is satisfied that the applicant has co-operated with it in the
proceedings before it and has made full and true disclosure
of his income and the manner in which it has been derived,
grant to the applicant immunity from prosecution and
penalty. Such immunity can, however, be withdrawn later
under certain circumstances. The order of settlement will be
final. There will be a bar on subsequent applications for
settlement by a person if an order of settlement provides for
imposition of penalty for concealment of income or if the
person has, after the order of settlement, been convicted of
any offence under Chapter XXII of the Act in relation to that
case."
On the questions formulated by the Special Bench of the
Settlement Commission two main issues require consideration and
answer by this Court. The first main question is what is the efficacy of
the regular assessment proceedings which took place before and
after the admission of the case for consideration by the Settlement
Commission. The second question is what would be the extent of
liability towards payment of interest on the tax due as determined in a
’case’ by the Settlement Commission in the light of various situations of
no payment of tax or delayed payment of tax in the course of regular
assessment. The various situations contemplated in the IT Act have
been delineated in the order of the Special Bench of the Settlement
Commission and reproduced in the two separate opinions of Brother
Pasayat J.
For answering these two main questions, it is necessary to
examine the scheme of Chapter XIXA as reflected in its various
provisions and the other relevant provision in sections 234 A to 234 C on
the subject of interest chargeable in various specified circumstances on
tax due.
For taking a case for settlement before the Settlement
Commission, the word ’case’ in clause (b) of Section 245 A has been
comprehensively defined to include proceeding under the Act for
assessment or reassessment for any years and at any stage in original,
appellate or revisional proceeding. The definition of ’case’ excludes
appeals or revisions which have not been formally admitted by the
concerned authorities. This definition clause (b) of Section 245 A
indicates that the Settlement Commission can take up for settlement a
’case’ as defined which is pending at any stage of regular assessment
proceeding before any of the authorities under the IT Act.
Section 245 C enables an assessee to approach the Commission
by disclosing his income which he had not earlier disclosed. On such
undisclosed income which is subsequently disclosed only before the
Settlement Commission, the assessee is required to submit the return
and pay additional tax along with the application in accordance with its
own assessment. Clauses (i), (ii) & (iii) of sub-section (b) of Section 245
C clearly indicate the ambit of the power of Settlement Commission and
provide that on such approach with disclosure of earlier concealed
income, the Commission shall redetermine the taxable income after
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clubbing the earlier disclosed income, if any, and subsequently
disclosed income before it. Such clubbing for consideration of the
aggregate income of the relevant year, based on earlier and
subsequently disclosed income has to be done in relation to the ’case’
pending before the regular assessment authorities at the original,
appellate or revisional stage as the case may be.
Clauses (a), (b) & (c) of sub-section (1C) of Section 245 C are
also indicative of the scope, power and jurisdiction of the Settlement
Commission. It has been provided therein that it is on the determination
of the ’aggregate income’ by the Settlement Commission, the tax
payable for the relevant assessment year shall be calculated by giving
adjustment to the tax, if any, already paid by the assessee when its case
was pending at whatever stage in the regular assessment proceeding.
Sub-section (1D) of Section 245 C also requires the Settlement
Commission to undertake the exercise of clubbing the disclosed income
,if any, of the assessee in the regular proceeding and subsequently
disclosed income before the Commission and treat it as an ’aggregate
income’ for the purpose of determining taxable income of a particular
year. The Settlement Commission, thus, is empowered to this limited
extent to reopen the assessment proceedings already undertaken, for
settlement of ’case’ before it on the basis of subsequently disclosed
income and pass a composite order determining the liability of assessee
towards tax, penalty and interest. This is clear from sub-section (6) of
Section 245 D which requires the Settlement Commission to make an
order providing for terms of settlement, indicating the demand towards
tax, penalty and interest and the manner in which it shall be paid. The
above discussed provisions make it clear that once a case is admitted
by the Settlement Commission for consideration, it shall have exclusive
jurisdiction to exercise all powers of regular authorities under the IT Act
for the purpose of effecting a settlement and for recovery of tax penalty
and interest. Sub-section (1) & (2) of Section 245 F are important for the
questions raised before us and they read thus :-
"245F.(1) In addition to the powers conferred on the
Settlement Commission under this Chapter, it shall have all
the powers which are vested in an income-tax authority
under this Act.
(2) Where an application made under Section 245 C has
been allowed to be proceeded with under Section 245 D, the
Settlement Commissioner shall, until an order is passed
under sub-section (4) of section 245 D, have, subject to the
provisions of sub-section (3) of that section, exclusive
jurisdiction to exercise the powers and perform the functions
of an income-tax authority under this Act in relation to the
case".
The exclusive jurisdiction which the Settlement
Commission derives for exercise of powers and functions of
regular income-tax authority in accordance with Sub-section
(1) & (2) of Section 245 F can be exercised only when the
Commission makes a formal order to admit or allow the
application to be proceeded with for the purpose of effecting a
settlement. This is clear from the language of Sub-section (1)
of Section 245 D which reads :-
"245 D.(1) On receipt of an application under Section 245
C, the Settlement Commission shall call for a report from
the Commissioner and on the basis of the materials
contained in such report and having regard to the nature
and circumstances of the case or the complexity of the
investigation involved therein, the Settlement Commission
may, by order, allow the application to be proceeded
with or reject the application."
[Underlining for emphasis]
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One of the questions that is posed before us in these appeals,
therefore, can be easily answered on the basis of the above quoted
portion as underlined of sub-section (1) of Section 245 D read with sub-
sections (1) & (2) of Section 245 F. It is only when the Settlement
Commission formally allows the application for being considered for
"settlement" the regular assessment proceedings and recoveries
initiated for tax penalty or interest pursuant thereto, shall become
subject to the powers of Commission and not prior to the same. In other
words, it means that mere filing of an application by the assessee for
settlement and before the same is formally allowed for consideration,
would have no adverse effect on the proceeding of assessment or
recovery pending or initiated against the assessee under the regular
procedure for assessment and recovery of dues under the IT Act.
The Settlement Commission has no power to waive tax or interest
because as laid down in sub-section (4) of Section 245 D, it has to pass
orders on the matter of determining the quantum of income and tax in
accordance with the other relevant provisions of the Act applicable to the
revelant assessment year or years. There is no power with the
Settlement Commission to settle the ’case’ de hors the provisions of IT
Act applicable to regular assessment because the provisions contained
in scheme of settlement under Chapter XIX A as examined above, do
not envisage and allow the Commission to settle a ’case’ based on
disclosure of income before it in any other manner. As has been found
from the Statement of Objects and Reasons for introducing Chapter
XIX A, which can be taken aid of for construing various provisions of the
Act, the forum of Settlement Commission is constituted for ’early
recovery of tax and to unearth black money’. The only impetus given to
the assessee to avail the forum is to allow him to make a request to the
Settlement Commission to grant immunity from prosecution and penalty
in exercise of its powers under Section 245 H. In all other respects, on
the question of tax and interest, the Settlement Commission has to settle
a ’case’ in accordance with the other provisions of the Act as are
applicable to regular assessment proceedings. The Act does not make
distinction or differentiation in treatment between the assessees who
honestly disclose income and are willing to pay the tax and the other
assessees who do not fully or partly disclose the income to avoid
payment of tax in due time and approach the Commission for disclosure
of their earlier concealed income. Such distinction or differentiation
between the above mentioned two classes of assessees is not permitted
by the provisions contained in Chapter XIX A, it being neither legally
valid nor just. The Chapter XIX A providing settlement of cases is not
intended to benefit the assessees who had not earlier honestly disclosed
their income and paid the tax in due time. The settlement procedure
aims to bring such assessees at par with the assessees who had
honestly disclosed their income and paid the tax. The provisions of
Chapter XIX A, therefore, have to be read harmoniously with other
provisions of the Act and thus applied to give full effect to other relevant
provisions of the IT Act which confer all powers of income-tax authority
under the Act on the Settlement Commission for assessing the income
and determining the tax.
On the second question with regard to liability towards interest in
various statutorily contemplated contingencies of a ’case’ brought for
settlement under Chapter XIX A of the Act, it is to be noticed that after
insertion of the said Chapter for Settlement of Cases, corresponding
legislative changes have been effected by insertion of sections 234 A
and 234 C in IT Act to redetermine quantum of interest payable in
various contemplated contingencies under the Act. Section 234 A
creates liability of interest for defaults in furnishing return of income.
Such interest can be charged from the assessee whose ’case’ has been
’settled’ by the Commission even though no return of income was filed
by him for regular assessment. Sub-section (4) of Section 234 A
requires necessary adjustments to be given for the interest earlier
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charged in regular assessment and the interest chargeable after re-
determination of the taxable income and the quantum of tax. Sub-section
(4) of Section 234 A reads thus :-
"234A.(4) Where as a result of an order under Section 154 or
Section 155 or Section 250 or Section 254 or Section 260 or
Section 262 or Section 263 or Section 264 or an order of
the Settlement Commission under sub-section (4) of
Section 245 D, the amount of tax on which interest was
payable under sub-section (1) or sub-section (3) of this
section has been increased or reduced, as the case may be,
the interest shall be increased or reduced accordingly, and
(i) in a case where the interest is increased, the
Assessing Officer shall serve on the assessee a
notice of demand in the prescribed form specifying
the sum payable, and such notice of demand shall be
deemed to be a notice under Section 156 and the
provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess
interest paid, if any, shall be refunded".
Similarly, necessary adjustment to be made towards interest
payable on the tax due after settlement of case in case of default in
payment of advance tax can be found in sub-section (4) of Section 234B
which reads thus :-
"234B.(4) Where, as a result of an order under Section 154
or Section 155 or Section 250 or Section 254 or Section 260
or Section 262 or Section 263 or Section 264 or an order of
the Settlement Commission under sub-section (4) of
Section 245 D, the amount on which interest was payable
under sub-section (1) or sub-section (3) has been increased
or reduced, as the case may be, the interest shall be
increased or reduced accordingly, and
(i) in a case where the interest is increased, the
Assessing Officer shall serve on the assessee a
notice of demand in the prescribed form specifying
the sum payable, and such notice of demand shall be
deemed to be a notice under Section 156 and the
provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess
interest paid, if any, shall be refunded".
All the aforesaid changes incorporated in Section 234 A to
Section 234 B clearly indicate that interest payable on the tax due, has
to be determined by the Commission after settlement of case and the
starting point for charging interest would be the due date under the
regular assessment proceedings and end point the date of order of the
Settlement Commission. The aforesaid provisions clearly indicate that
interest, if any, already paid on the tax earlier due and demanded,
would be adjusted from the interest found due on the tax, as determined
and quantified by the Settlement Commission. Starting point for
calculating the interest has to be the due date in accordance with the
procedure indicated in regular assessment and the terminal date would
be the date of the order of the Settlement Commission. The assessee
would have right of claiming adjustment of tax and interest paid in the
intervening period. This appears to be the scheme of the Chapter XIX A
as harmoniously construed with the other provisions of the Act in the
light of aims and objectives for introduction of Chapter XIX A. The
forum of Commission for ’Settlement of Cases’ is not created to put a
premium on fraud or misrepresentation of tax evaders. The provisions
contained in Chapter XIX A merely aim at encouraging tax payers to
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approach the Settlement Commission with full disclosure of their income
which they had not earlier disclosed in the course of regular
assessment. Such assessee who co-operate with the assessing
authorities in making proper assessment of tax can be granted immunity
from prosecution and penalty. There is no provision that they can be
granted immunity from payment of interest on the tax assessed. Brother
Pasayat J. in his two opinions separately rendered in the appeals has
taken note of the decision in the case of Commissioner of Income Tax
vs. Express Newspapers Limited [1994 (2) SCC 374] and Commissioner
of Income Tax, Mumbai vs. Anjum Ghaswala [2002 (1) SCC 633] which
authoritatively construe some of the provisions in Chapter XIXA and
records its conclusions on some aspects of the question raised before
us for answer.
In the case of Express Newspapers (supra) it was found that in
regular assessment for the years 1985-86, 1986-87 and 1987-1988 the
assessee had fraudulently claimed certain losses and when they were
being enquired into and investigated by the assessing authorities for
reaching to a finality, the assessee approached the Settlement
Commission for settlement of the cases. The Supreme Court was of the
view that it was a case of fraud in claiming certain losses where there
were none for the assessment years in question and it was not a case
of any subsequent disclosure of income by the assessee. It was,
therefore, held that it was not open to the assessee to avail the
procedure of settlement of cases before the Forum of the Settlement
Commission. While construing sub-section (4) of Section 245D, it was
observed that the Commission is empowered to direct the waiver of
penalty as well as interest and to direct that the tax payable in question
shall be paid in prescribed instalments.
The decision of three Judge Bench of this Court in the case of
Express Newspapers Limited (supra) came up for consideration before
the five Judges Bench of this Court in the case of Anjum Ghaswala
(supra) and the former case was distinguished by observing thus:
"In our opinion, this observation in Express Newspapers
case does not help the Commission in support of its
conclusion in regard to its power under Sections 245-D(4)
and (6). It is to be noted that in that case the settlement
sought was with regard to Assessment Years 1985-86,
1986-87 and 1987-88. It is an admitted fact that during
those assessment years, Sections 234-A, 234-B and 234-
C were not in the statute book. On the contrary, the
corresponding provisions existing in the statute,
namely, Sections 139(8), 215(4) and 216 in terms
empowered the income tax authorities to waive or
reduce interest. It is in that context that this Court
observed, in the paragraph extracted hereinabove, that
under Section 245-D(4), the Commission has the power to
direct the waiver of penalty as well as interest because that
was within the scope of the provisions of the Act, as then
existing, whereas at present and for the assessment years
involved in this case, Sections 234-A, 234-B and 234-C
being applicable, that observation does not apply to the
cases in hand. The sentence "except to mention that the
Commission is empowered to direct the waiver of
penalty as well as interest" is used in that judgment
on the basis of the then existing law and to apply the
same to the facts of the present case with the
mandatory change in law would amount to applying
those principles in Express newspapers case out of
context."
[Underlining by court to supply emphasis]
In the case of Anjum Ghaswala (supra) the main question that fell
for consideration before the Supreme Court was whether the Settlement
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Commission has power to waive interest for non-payment or delayed
payment of tax found due. The Supreme Court answered the question
holding that the scheme contained in Chapter XIXA does not empower
the Commission to waive interest payable for non-payment or delayed
payment of tax found due. Brother Pasayat J. has also reached the
same conclusion and I am in respectful agreement with the same that
such waiver of interest by the Settlement Commission is neither
intended in the scheme of Chapter XIX-A nor such a power can be
inferred because conceding such power to Settlement Commission to
waive interest would help the tax evaders who did not disclose full
income at the relevant time and made a disclosure subsequently. Such
interpretation would also be discouragement to an honest tax payer who
fully discloses his income and on the basis of regular assessment makes
payment of tax and interest. In the case of Anjum Ghaswala (supra), the
five judges bench of this Court came to the conclusion that Settlement
Commission has to complete the asesssment proceedings and
determine quantum of tax as also interest payable in accordance with
the provisions applicable to regular assessment. The observations in
that case pertinent for this case read as under :-
"It is no doubt true that the terminology "settlement" has a
very wide dictionary meaning and in the absence of a
statutory definition generally the word "settlement" in sub-
section (4) of Section 245-D would give the Commission
sufficient power to arrive at a settlement which it deems fit,
but when the statue qualifies such expression like
"settlement" with mandatory words like "in accordance with
the provisions of this Act" the width of the term ’settlement’
becomes subject to the mandate found in that section, which
would mean that while a Commission has sufficient elbow
room in assessing the income of the applicant under Section
245-D(4) it cannot make any order with a term of the
settlement which would be in conflict with the mandatory
provisions of the section, like in the quantum and payment of
tax and/or interest. In this view of the matter, we are of
the opinion that assuming that there is any room for
interpretation of the provisions of Part F of Chapter XVII
and Chapter XIX-A, we would hold that it would not in
any manner empower the Commission to either waive
or reduce interest which is statutorily payable under the
provisions of Part F of Chapter XVII."
Brother Pasayat J. has also rightly observed that if interest on tax
not paid or paid after delay is governed by different provisions on the
basis of the starting point of levy of interest and the date of payment of
tax, the interest will have to be demanded and recovered in accordance
with the provisions applicable to regular assessment may be that the tax
is redetermined by the Settlement Commission under special Chapter
XIX A of the IT Act.
A note of caution is required to be recorded. If on quantum of
income and tax earlier disclosed in regular assessment proceedings,
interest had been charged on tax due, till payment no further interest will
be payable for the said period on the total quantum of tax determined by
the Settlement Commission and necessary adjustments would be
granted. Thus, in no case there would be charge of interest on interest.
The interest chargeable in different circumstances in regular assessment
proceedings will be calculated on the basis of the quantum of income
and tax determined by Settlement Commission and necessary recovery
and adjustments will be granted so as to avoid demand of any interest
on interest.
In conclusion, two main questions formulated by me are
answered thus :-
The first question formulated is what is the efficacy of the regular
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assessment proceedings which took place before and after the
admission of the case by the Settlement Commission for settlement
under Chapter XIX A of IT Act.
The answer is that it is only after a formal order of allowing or
admitting the application for consideration of settlement is recorded by
the Settlement Commission that all earlier assessment proceedings and
recovery proceedings, if any, issued pursuant thereto, would become
subject to the order of the Settlement Commission which will exercise all
powers conferred on the income-tax authority under the IT Act.
The second question is what would be the extent of liability
towards payment of interest on the tax as determined and found due in a
case settled by the Settlement Commission in various situations
contemplated in the IT Act like non-payment of tax or delayed payment
of tax in the course of regular assessment.
As has been settled by five Judges Bench in the case of Anjum
Ghaswala (supra), the Settlement Commission has no power to waive
interest on the tax determined and found due while considering the case
under Chapter XIX A in various statutory eventualities as delineated in
the impugned orders of the Special Bench of the Settlement
Commission. The interest on the "aggregate income" based on earlier
disclosed and subsequently disclosed income, is to be determined by
the Settlement Commission and on the tax found due on such income,
interest will be charged in accordance with the provisions applicable in
the regular assessment proceedings. The starting point of charging
interest would be the due date of payment of advance tax or tax
assessed and demanded as applicable to regular assessment
proceedings and the end point the date of the order of the Settlement
Commission. The tax and interest already paid, if any, on the basis of
regular assessment would be adjusted from the quantum of interest and
tax found due and as determined by the Settlement Commission. It is
clear that the provisions do not allow charging of any interest on interest
found due.
With the aforesaid additional reasons, I respectfully concur with
the opinion expressed by Pasayat J. The questions are answered
accordingly.
The appeals are disposed of accordingly.