2001 (10) TMI 4 - SC - Income Tax

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

Commissioner of Income Tax Versus Anjum MH Ghaswala And Others

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 ... Jurisdiction of the Settlement Commission to reduce or waive interest under sections 234A, 234B, and 234C - 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) - HELD THAT:- The learned Solicitor General has pointed out that by virtue of the power vested in the Board under section 119(2)(a) of the Act, the Board has issued circulars by Notification No. F. No.400/234/95-IT(B), dated May 23, 1996. As per this circular, it has empowered that the Chief Commissioner of Income-tax and Director-General of Income-tax may waive or reduce interest charged under sections 234A, 234B and 234C of the Act in the class of cases or class of incomes specified in paragraph 2 of the said order for the period and on conditions which are enumerated therein. He submitted that in view of the said circular, the same authority can be exercised by the Commission since the said circular would amount to relaxation of the rigour of sections 234A, 234B and 234C of the Act. This court in a catena of cases has held that the circulars of the Central Board of Direct Taxes are legally binding on the Revenue: see UCO Bank v. CIT [1999 (5) TMI 3 - SUPREME COURT]. Since these circulars are beneficial to assessees, such benefit can be conferred also on assessees who have approached the Settlement Commission under section 245C of the Act on such terms and conditions as contained in the circular. In our opinion, it is for this purpose that section 245F of the Act has empowered the Settlement Commission to exercise the power of an income-tax authority under the Act. We must clarify here that while exercising the power derived under the circulars of the Board, the Commission does not act as a subordinate to the Board but will be enforcing the relaxed provisions of the circulars for the benefit of the assessee in the process of settlement. For the reasons stated above, we hold that the Commission in exercise of its power under section 245D(4) and (6) does not have the power to reduce or waive interest statutorily payable under sections 234A, 234B and 234C except to the extent of granting relief under the circulars issued by the Board under section 119 of the Act. In conclusion, we must note that we have taken up for consideration Civil Appeals Nos. 4126 to 4150 of 2000 and have decided the issue pertaining to the power of the Commission to waive or reduce the interest chargeable under sections 234A, 234B and 234C of the Act while passing orders of settlement under section 245D(4) of the Act. We have not decided any other issue that might arise in all the appeals/petitions. Having decided the abovesaid question of law, we think it proper that all these matters be placed before a Division Bench of this court for disposal in accordance with law. It is ordered accordingly. No costs. 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.