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 payable under sections 234A, 234B, and 234C, except to the extent permitted by the Board's circulars issued under section 119. The Commission may grant relief by enforcing the relaxed provisions of these circulars, which are binding on the Revenue and beneficial to assessees. The Commission acts independently in applying these circulars for settlement purposes but cannot go beyond them to waive or reduce interest. The Court limited its decision to this issue and directed that related matters be placed before a Division Bench for further disposal. No costs were awarded.

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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.

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