2002 (12) TMI 10 - SC - Income Tax

Interest under Sections 234A/234B/234C computed on tax determined by Settlement Commission; cannot be waived, accrues from due date

SC held that interest under sections 234A/234B/234C must be computed on the tax determined by the Settlement Commission and cannot be waived by it; ... Liability towards payment of interest on the tax - Scope of section 245H - examine the scheme of Chapter XIX-A as reflected in its various provisions and the other relevant provision in sections 234A to 234C on the subject of interest chargeable in various specified circumstances on tax due - power of Settlement Commission to waive tax or interest - Whether the assessee is required to pay any interest on the amount of tax on the income disclosed before the Settlement Commission as contemplated under sections 234A, 234B and 234C - M.B. SHAH J. - HELD THAT:- I have gone through the judgments rendered by Brother Pasayat J. and Brother Dharmadhikari J. I agree with the views expressed in those judgments. A decision rendered by the Constitution Bench of this court in CIT v. Anjum M.H. Ghaswala [2001 (10) TMI 4 - SUPREME COURT], where it was held that the interest contemplated under sections 234A, 234B and 234C is mandatory in nature and the power of waiver or reduction having not been expressly conferred on the Commission, waiver or reduction in payment of statutory interest is outside the purview of the settlement contemplated in Chapter XIX-A of the Act. Therefore, the assessee is required to pay interest at the prescribed rate from the date when the amount became due and payable on the undisclosed income which is disclosed before the Settlement Commission, till the date of the order of entertaining such application, passed by the Settlement Commission under section 245D. He is given 35 days' time for making such payment under sub-section (2A) of section 245D. Under section 245H, the Settlement Commission has jurisdiction to grant immunity from prosecution and penalty if the Settlement Commission is satisfied that the assessee has co-operated with it in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived. The immunity from prosecution is for any offence under the Income-tax Act or under the Indian Penal Code or under any Central Act. However, no such immunity can be granted if the prosecution is already instituted before the date of the receipt of the application under section 245C. It also empowers the Commission to reduce the penalty as provided under the Act wholly or partly with respect to the case covered by the settlement. From this section it can be easily inferred that the Commission has no power (a) to waive tax statutorily payable under the Act, or (b) to reduce the interest on the tax payable on the income disclosed. As per sub-section (2A) to section 245D the assessee would be required to pay the income-tax payable on the disclosed income plus the interest payable thereon as contemplated under section 234A, 234B or 234C. Whether the assessee is required to pay interest as contemplated under sub-section (2C) of section 245D? - The scheme of section 245D leaves no doubt that the assessee would be required to pay the amount with interest thereon. The amount at that stage would be the tax plus interest. In such cases, there is no question of paying interest on interest because the interest which the assessee is required to pay under sections 234A, 234B or 234C merges with the amount as provided under sub-section (2A). ARIJIT PASAYAT J. - HELD THAT:- The interests charged in terms of sections 234A, 234B and 234C become payable on the income already disclosed in the returns filed, together with the income disclosed before the Commission. The concerned interest as aforesaid shall be on the consolidated amount of income, i.e., both disclosed and undisclosed. As indicated above, such interests shall be charged till the Commission acts in terms of section 245D. Thereafter, the prescription relating to charging of interests, etc., becomes operative, after the Commission allows the application for settlement to be proceeded with. In such event, there is no further charge of interest in terms of sections 234A, 234B and 234C. The interest charged in terms of section 245D is a separate levy and not in terms of interest chargeable under sections 234A, 234B and 234C. Therefore, the apprehension that there is scope for charging of interest on interest is without any basis. To sum up, the inevitable conclusion is that interest has to be charged for the period beginning from the first day of April next following the relevant financial year up to the date of the Commission's order at the rate applicable, on interest chargeable under section 234B, when an order under section 245D(4) is passed, followed by quantification under section 245D(6). Appeals are allowed to the extent indicated above. D.M. DHARMADHIKARI J. - HELD THAT:- I am in respectful agreement with the reasoning and conclusion recorded by Brother Pasayat J. in his opinion prepared by him in these appeals. I, however, consider it necessary to supplement his reasons for the conclusion reached by us. Since in these appeals common questions on the interpretation and extent of application of the provisions of Chapter XIX-A of the Income-tax Act, 1961 ('the IT Act'), are involved- What is the efficacy of the regular assessment proceedings which took place before and after the admission of the case by the Settlement Commission for settlement under Chapter XIX-A of the Income-tax Act. - The answer is that it is only after a formal order of allowing or admitting the application for consideration of settlement is recorded by the Settlement Commission that all earlier assessment proceedings and recovery proceedings, if any, issued pursuant thereto, would become subject to the order of the Settlement Commission which will exercise all powers conferred on the income-tax authority under the Income-tax Act. What would be the extent of liability towards payment of interest on the tax as determined and found due in a case settled by the Settlement Commission in various situations contemplated in the Income-tax Act like non-payment of tax or delayed payment of tax in the course of regular assessment. - As has been settled by the five-judge Bench in the case of Anjum M.H. Ghaswala [2001 (10) TMI 4 - SUPREME COURT], the Settlement Commission has no power to waive interest on the tax determined and found due while considering the case under Chapter XIX-A in various statutory eventualities as delineated in the impugned orders of the Special Bench of the Settlement Commission. The interest on the 'aggregate income' based on earlier disclosed and subsequently disclosed income, is to be determined by the Settlement Commission and on the tax found due on such income, interest will be charged in accordance with the provisions applicable in the regular assessment proceedings. The starting point of charging interest would be the due date of payment of advance tax or tax assessed and demanded as applicable to regular assessment proceedings and the end point the date of the order of the Settlement Commission. The tax and interest already paid, if any, on the basis of regular assessment would be adjusted from the quantum of interest and tax found due and as determined by the Settlement Commission. It is clear that the provisions do not allow charging of any interest on interest found due. With the aforesaid additional reasons, I respectfully concur with the opinion expressed by Pasayat J. The questions are answered accordingly. Appeals are disposed of accordingly. Issues: (i) Period for which interest under section 234B is chargeable where income is disclosed before the Settlement Commission and an order under section 245D(4) is passed; (ii) Whether the Settlement Commission has power to waive or reduce statutory interest under sections 234A, 234B and 234C; (iii) Effect of admission/allowance of an application by the Settlement Commission on prior regular assessment and recovery proceedings.Issue (i): Period for which interest under section 234B is chargeable when the Settlement Commission passes an order under section 245D(4).Analysis: Sections 234A234C fix the commencement and potential terminus points for interest on defaults in return filing, advance tax payment and deferment of advance tax. Chapter XIX-A (sections 245C, 245D and related provisions) deals with voluntary disclosure of undisclosed income before the Settlement Commission and mandates computation of the additional tax on the aggregate of disclosed and previously undisclosed income. Section 245D(4) is the operative order by which the Commission determines tax, penalty and interest; section 245D(6) quantifies terms of settlement and section 245D(2A)/(2C)/(6A) regulate payment and interest on unpaid amounts. Harmonising these provisions, the interest under sections 234A234C applicable to the consolidated tax liability (aggregate income) must be computed from the statutory starting point up to the date of the Settlement Commission's order under section 245D(4), after which the Commissions own provisions govern any further liability.Conclusion: Interest under section 234B (and similarly under sections 234A and 234C) is chargeable from the statutory commencement date up to the date of the Settlement Commission's order under section 245D(4) on the consolidated (aggregate) income.Issue (ii): Whether the Settlement Commission can waive or reduce statutory interest payable under sections 234A, 234B and 234C.Analysis: Chapter XIX-A must be read in harmony with mandatory interest provisions. The legislative change making interest provisions mandatory (use of 'shall') and the scheme of sections 234A234C indicate no general power in the Commission to waive or reduce statutorily mandated interest, except as specifically permitted (e.g., limited relief under Board circulars where applicable). Section 245D(4) must operate 'in accordance with the provisions of this Act,' constraining any settlement term that would conflict with statutory interest obligations.Conclusion: The Settlement Commission has no power to waive or reduce statutory interest payable under sections 234A, 234B and 234C; such interest must be included in the settlement and determined in accordance with the Act.Issue (iii): Effect of the Commission's allowance/admission of an application on prior regular assessment and recovery proceedings.Analysis: Section 245F(1)(2) grants the Commission the powers of income-tax authorities in relation to a case only after the Commission formally allows the application to be proceeded with under section 245D(1). Until such formal admission, regular assessment and recovery proceedings continue unaffected. Once the application is admitted, the Commission has exclusive jurisdiction until it passes its order under section 245D(4), and must determine tax, penalty and interest in accordance with the Act, with adjustments for amounts already paid or demanded.Conclusion: Regular assessment and recovery proceedings become subject to the Commission's powers only after the Commission formally allows the application to be proceeded with; prior proceedings remain operative until such admission.Final Conclusion: The Settlement Commission must determine tax and include mandatory statutory interest (under sections 234A234C) on the aggregate income up to the date of its order under section 245D(4); the Commission cannot waive or reduce such statutory interest; regular assessment proceedings are subsumed only upon formal allowance of the Commission to proceed with the application.Ratio Decidendi: Where undisclosed income is disclosed before the Settlement Commission and the Commission admits the application and passes an order under section 245D(4), statutory interest under sections 234A234C is mandatorily chargeable on the aggregate income up to the date of that order, the Commission lacks power to waive such statutory interest, and earlier assessment/recovery proceedings are displaced only from the date the Commission formally assumes jurisdiction.