2001 (10) TMI 4 - SC - Income Tax

Settlement Commission Cannot Waive Interest Beyond Board Circulars Under Section 245D(4) of Income-tax Act

The SC held that the Settlement Commission under section 245D(4) of the Income-tax Act does not have the statutory power to reduce or waive interest ... Settlement Commission's power to waive or reduce statutory interest - mandatory nature of interest under sections 234A, 234B and 234C - construction of section 245D(4) and section 245D(6) - distinction between substantive settlement power and procedural terms of settlement - limited application of Board circulars issued under section 119Settlement Commission's power to waive or reduce statutory interest - mandatory nature of interest under sections 234A, 234B and 234C - construction of section 245D(4) and section 245D(6) - distinction between substantive settlement power and procedural terms of settlement - limited application of Board circulars issued under section 119 - Whether the Settlement Commission can waive or reduce interest payable under sections 234A, 234B and 234C while passing a settlement order under section 245D(4). - HELD THAT: - The Court held that sections 234A, 234B and 234C impose mandatory obligations to levy interest and that section 245D(4) must operate 'in accordance with the provisions of this Act.' Section 245D(6) merely requires the Settlement Commission to provide terms for making the settlement effective (for example, mode or instalments of payment) and is procedural in character; it does not confer a substantive power to waive or reduce statutorily mandated interest. The Commission's reliance on earlier decisions and on equating itself with the Board for exercising administrative relaxations under section 119 was rejected: the Board's power under section 119 is an administrative power exercisable in the manner provided in that provision (by circulars/orders for classes of cases), whereas the Commission is a quasi judicial body empowered to settle individual cases and cannot assume the Board's administrative functions to override mandatory statutory provisions. The Court noted that where the statute expressly confers power to waive interest (or where corresponding provisions previously used 'may'), that would permit reduction or waiver, but the Finance Act amendments replacing 'may' with 'shall' show Parliament's intention to make interest mandatory. However, the Court accepted that benefits conferred by Board circulars issued under section 119 (i.e., relaxations applicable to specified classes of cases) may be applied by the Settlement Commission in settlements: the Commission may give effect to such circulars for the benefit of applicants but does not thereby acquire a general power to waive or reduce statutory interest independent of those circulars.The Settlement Commission does not have power to waive or reduce interest statutorily payable under sections 234A, 234B and 234C when passing orders under section 245D(4), except insofar as it may give effect to relaxations contained in Board circulars issued under section 119.Final Conclusion: The appeals decide that the Settlement Commission cannot independently waive or reduce the mandatory interest under sections 234A, 234B and 234C in settlement orders under section 245D(4), but may apply relaxations contained in Board circulars issued under section 119; other issues in the pending matters were not decided and the matters are to be placed before a Division Bench for disposal. Issues Involved:1. Jurisdiction of the Settlement Commission to reduce or waive interest under sections 234A, 234B, and 234C of the Income-tax Act, 1961.2. Interpretation of sections 245D(4) and 245D(6) of the Income-tax Act.3. Applicability of section 119(2) of the Income-tax Act to the Settlement Commission.4. Impact of statutory provisions and circulars issued by the Central Board of Direct Taxes (CBDT) on the powers of the Settlement Commission.Detailed Analysis:1. Jurisdiction of the Settlement Commission to Reduce or Waive Interest:The primary question was whether the Settlement Commission, constituted under section 245B of the Income-tax Act, 1961, has the jurisdiction to reduce or waive the interest chargeable under sections 234A, 234B, and 234C while passing orders of settlement under section 245D(4). The court examined the statutory framework and concluded that sections 234A, 234B, and 234C mandate the payment of interest for defaults in furnishing returns, payment of advance tax, and deferment of advance tax, respectively. The court emphasized that these provisions are mandatory and do not confer any discretion to waive or reduce the interest.2. Interpretation of Sections 245D(4) and 245D(6):The court analyzed the powers of the Settlement Commission under sections 245D(4) and 245D(6). Section 245D(4) allows the Commission to pass orders as it thinks fit on matters covered by the application, but it must do so 'in accordance with the provisions of this Act.' Section 245D(6) was interpreted as procedural, providing terms of settlement including tax, penalty, or interest, but not empowering the Commission to waive or reduce statutory interest. The court rejected the Commission's interpretation that section 245D(6) substantively allowed for such waivers or reductions.3. Applicability of Section 119(2):The court examined whether the Settlement Commission could exercise the powers of the Board under section 119(2) to relax the rigour of sections 234A, 234B, and 234C. It was determined that the Commission, being a quasi-judicial body, could not equate itself with the Board, which is an executive authority. The Board's powers under section 119(2) are administrative and involve issuing orders, instructions, and directions to other income-tax authorities, which the Commission cannot do. Therefore, the Commission cannot invoke section 119(2) to waive or reduce interest.4. Impact of Statutory Provisions and CBDT Circulars:The court acknowledged that the Central Board of Direct Taxes (CBDT) had issued circulars under section 119(2)(a) empowering Chief Commissioners and Directors-General to waive or reduce interest in specified cases. These circulars are binding on the Revenue and can be applied by the Settlement Commission to grant relief to assessees under the terms and conditions specified in the circulars. The court clarified that while exercising this power, the Commission does not act as a subordinate to the Board but enforces the relaxed provisions of the circulars for the benefit of the assessee.Conclusion:The court held that the Settlement Commission does not have the power to reduce or waive interest under sections 234A, 234B, and 234C except to the extent of granting relief under the circulars issued by the CBDT under section 119 of the Act. The matters were remitted to a Division Bench for disposal in accordance with the law, with no costs ordered.