High Court reverses Settlement Commission's interest waiver order, upholds tax law guidelines

The High Court set aside the Settlement Commission's order granting waiver of interest on tax payable, citing Supreme Court judgments limiting the Commission's power to waive interest. The Court allowed department's petitions challenging the order, emphasizing that interest could only be levied until the stage of passing the order under the Income Tax Act. The original order was modified to reverse the interest waiver, ensuring interest collection in accordance with Supreme Court rulings. The Court clarified guidelines for interest levy post the specified stage under Section 245D(1) as determined by the Supreme Court.

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Issues:
Challenge to Settlement Commission's order of waiver of interest; Power of Settlement Commission to waive interest; Rectification application by department; Jurisdiction of Settlement Commission for rectification; Delay in filing petitions challenging the order; Validity of rectification by Settlement Commission; Applicability of Supreme Court judgments on interest waiver.

Analysis:

1. The petitioner, an Income Tax Officer, challenged the Settlement Commission's order dated 11.08.2000 granting waiver of interest on tax payable by the assessee. Both the department and the assessee filed rectification applications disputing the interest waiver. The Settlement Commission partially allowed the department's application and rejected the assessee's request for further waiver. The Commission cited the Supreme Court judgment in Commissioner of Income Tax v. Anjum M.H. Ghaswala and ors, stating that waiver of interest was circumscribed by CBDT's notification dated 23.05.1996.

2. The assessees challenged the Commission's order through petitions, arguing that the Settlement Commission had no power of rectification based on the Supreme Court ruling in Brij Lal and ors vs. Commissioner of Income Tax. The High Court allowed the petitions, setting aside the Commission's rectification order and leaving the Revenue to pursue remedies against the original Settlement Commission order.

3. The department subsequently filed petitions challenging the original Settlement Commission order dated 11.08.2000 regarding the waiver of interest. The Court acknowledged the improper waiver of interest in the original order, citing the judgments in Anjum M.H. Ghaswala and Brij Lal cases. The department's delay in filing the petitions was contested by the respondent, but the Court found no delay as the department acted promptly after the High Court's judgment in 2014.

4. The Court clarified that the department had no cause for grievance against the rectified order until the High Court's judgment in 2014, which led to the filing of the present petitions. It was emphasized that the Settlement Commission could only levy interest up to the stage of passing the order under Section 245D(1) of the Income Tax Act, as per the Brij Lal case. The Court directed the modification of the original order to reverse the interest waiver and ensure interest collection only as permitted by the Supreme Court rulings.

5. In conclusion, the petitions were disposed of by adopting the directions for modification of the Settlement Commission's original order and clarifying the guidelines for interest levy post the specified stage under Section 245D(1) as determined by the Supreme Court.

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