2014 (5) TMI 16 - HC - Income Tax

Court upholds Settlement Commission's decision, petitioner must pay additional tax, no set-off. Section 245C ruling.

Unipon (India) Ltd. Versus Income Tax Settlement Commission & 1

The court upheld the Settlement Commission's decision, ruling that the petitioner must pay additional tax on the entire disclosed income without any ... Set off of unabsorbed depreciation from STCG or from other sources - Application before settlmetn commission - Failure to pay additional tax and interest – Permissibility to set off of brought forward losses or unabsorbed investment - Interpretation of sub-sections (1A) to (1D) of section 245C of the Act – Held that:- Sub section (1A) of Section 245C prescribes the manner in which the additional amount of income tax payable in terms of sub section (1) of Section 245C in respect of income disclosed in an application made under the sub section shall be computed by providing that the same shall be calculated in accordance with the provisions of sub sections (1B) to (1D) - the applicant had furnished return in respect of the total income of the assessment year under consideration, in such a case, the tax would be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income - In terms of Clause (ii) of said section (1B) therefore the tax would be calculated on the aggregate of the returned total income and the disclosed income, treating the aggregate thereof as the total income of the applicant - Sub section (1C) of Section 245C provides for the additional amount of income tax payable in respect of income disclosed - Clause (b) thereof which covers our situation provides that the amount of tax calculated under Section 245C(1B)(ii) shall be reduced by the amount of tax calculated in the total income returned for that year. The legislature has created a deeming fiction by providing that the tax of the applicant would be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income - This device is created for a special purpose and has a localized effect - It comes into existence only for the purpose of calculating the tax to be deposited by an applicant for settlement of a case - the aggregate of the total income returned and the income disclosed would be considered as total income - deeming fiction must be allowed its full effect - the very same clause uses the term 'total income returned in a different context and the aggregate of the total income returned and the income disclosed which would partake the character of a total income for this limited purpose - deeming fiction cannot be discarded by bringing into consideration such term used elsewhere by the legislature - legislature provides for definition of various terms frequently used in the statutes. At a stage where the Settlement Commission is required to ascertain where an assessee applicant has paid the additional tax with interest thereon only upon which application can be allowed to proceed further, no complex exercise or verification is envisaged - If the concept of total income contained in the Act is imported at such a stage, it can give rise to multiple disputes and lengthy debates with respect to the total income of an assessee and whether full tax on such income has been paid or not - the legislature does not envisage the Commission to go into a complex exercise of ascertaining the total income of the assessee and further ascertaining his tax liability on such income - The legislature has provided for a simple formula possible of a simple arithmatical application - the assessee may be entitled to a refund once the Settlement Commission passes its final order. The assessee's returned total income was nil - the assessee had filed nil return - In terms of Clause (ii) of sub section (1B) of Section 245C, thus, Rs. 72 lacs which the assessee declared in the application for settlement would be his total income for the purpose of computing the additional tax liability - the assessee had not deposited the tax with interest thereon calculated on amount of Rs. 72 lacs - The Commission correctly did not allow application to be proceeded further - The reasons adopted by the Commissioner are somewhat different – decided against Assessee. Issues Involved:1. Compliance with Section 245D(2A) of the Income Tax Act, 1961.2. Set-off of unabsorbed depreciation against additional disclosed income.3. Interpretation of Sections 32(2) and 72(1) of the Income Tax Act.4. Application of deeming fiction under Section 245C(1B) and (1C).5. Validity of the Settlement Commission's order.Detailed Analysis:1. Compliance with Section 245D(2A) of the Income Tax Act, 1961:The petitioner challenged the Settlement Commission's order dated 17.12.2007, which held that the petitioner failed to pay additional tax and interest on the income disclosed in the application for settlement as required under Section 245D(2A). The petitioner had disclosed an additional income of Rs.72,00,000/- and was required to pay additional tax and interest by 31.7.2007 but only deposited Rs.20 lakhs. The Settlement Commission, after verifying with the Commissioner of Income Tax, found that the petitioner was required to pay Rs.35,55,000/- and issued a show-cause notice for non-compliance.2. Set-off of Unabsorbed Depreciation Against Additional Disclosed Income:The petitioner argued that it had unabsorbed depreciation of Rs.34,29,183/- for the assessment year 2005-2006, which should be set off against the additional disclosed income of Rs.72,00,000/-, leaving a revised net total income of Rs.37,70,817/-. The petitioner contended that the tax was computed on this revised income and paid accordingly. However, the Settlement Commission rejected this argument, stating that sub-sections (1A) to (1D) of Section 245C do not permit the set-off of brought forward business losses or unabsorbed depreciation/investment allowance.3. Interpretation of Sections 32(2) and 72(1) of the Income Tax Act:The petitioner relied on the Supreme Court's decision in Commissioner of Income-tax, Calcutta v. Jaipuria China Clay Mines(P) Ltd, which held that unabsorbed depreciation can be set off against income from other sources. The petitioner argued that the Settlement Commission erred in not considering this legal position. The Revenue, however, maintained that for the purpose of Section 245D(2A), the special computation under sub-sections (1A) to (1D) of Section 245C must be applied, which does not allow such set-off.4. Application of Deeming Fiction Under Section 245C(1B) and (1C):The court analyzed the provisions of sub-sections (1A) to (1D) of Section 245C, which provide a special formula for calculating the additional amount of income tax payable. The formula includes a deeming fiction where the total income is considered as the aggregate of the total income returned and the income disclosed in the application. The court held that this special provision must be given full effect and cannot be overridden by the general provisions of the Act.5. Validity of the Settlement Commission's Order:The court upheld the Settlement Commission's decision, stating that the petitioner was required to pay additional tax on the entire disclosed income of Rs.72,00,000/- without any set-off for unabsorbed depreciation. The court emphasized that the deeming fiction under Section 245C(1B) and (1C) creates a special provision for calculating tax liability, which must be followed. The court dismissed the petition, stating that the Settlement Commission correctly did not allow the application to proceed further due to non-compliance with the tax payment requirement.Conclusion:The court concluded that the petitioner failed to comply with Section 245D(2A) by not paying the full additional tax and interest on the disclosed income. The special provisions under Section 245C(1B) and (1C) for calculating tax liability must be followed, and the set-off of unabsorbed depreciation is not permitted in this context. The Settlement Commission's order was upheld, and the petition was dismissed.