2002 (12) TMI 10 - SC - Income Tax

Assessee must pay interest under sections 234A/234B/234C on tax fixed by Settlement Commission; no waiver allowed

Commissioner of Income-Tax Versus Hindustan Bulk Carriers

SC held that the assessee must pay interest on tax determined by the Settlement Commission under sections 234A/234B/234C, with interest computed from the ... Liability towards payment of interest on the tax - 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 - HELD THAT:- A note of caution is required to be recorded. If on the quantum of income and tax earlier disclosed in regular assessment proceedings, interest had been charged on tax due, till payment no further interest will be payable for the said period on the total quantum of tax determined by the Settlement Commission and necessary adjustments would be granted. Thus, in no case there would be charge of interest on interest. The interest chargeable in different circumstances in regular assessment proceedings will be calculated on the basis of the quantum of income and tax determined by the Settlement Commission and necessary recovery and adjustments will be granted so as to avoid demand of any interest on interest. 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. Appeals are disposed of accordingly. Issues Involved:1. Jurisdiction and powers of the Income-tax Settlement Commission.2. Requirements for filing an application under section 245C.3. Payment of additional tax and interest under sections 234A, 234B, and 234C.4. Immunity from prosecution and penalty under section 245H.5. Calculation and payment of interest on tax disclosed before the Settlement Commission.6. Efficacy of regular assessment proceedings after the application is admitted by the Settlement Commission.7. Extent of liability towards payment of interest on tax due as determined by the Settlement Commission.Detailed Analysis:1. Jurisdiction and Powers of the Income-tax Settlement CommissionAs per section 245B of the Income-tax Act, 1961, the Central Government constitutes the Income-tax Settlement Commission for the settlement of cases. The term 'case' is defined under section 245A(b) to include any proceeding under the Income-tax Act for assessment or reassessment, including appeals or revisions pending before an income-tax authority at the time of application under section 245C(1).2. Requirements for Filing an Application under Section 245CSection 245C(1) allows an assessee to file an application in a prescribed form with a full and true disclosure of income not previously disclosed before the Assessing Officer. The application can only be made if:- The assessee has furnished the return of income as required.- The additional amount of income-tax payable on the disclosed income exceeds one hundred thousand rupees.3. Payment of Additional Tax and Interest under Sections 234A, 234B, and 234CThe Settlement Commission can either reject or allow the application to proceed within a year from the end of the month in which the application was made. If allowed, the assessee must pay the additional tax within 35 days. If unable to pay within this period, the Commission may extend the time, but the assessee must pay simple interest at 15% per annum on the unpaid amount from the expiry of the 35-day period.The Supreme Court held that interest under sections 234A, 234B, and 234C is mandatory and cannot be waived or reduced by the Settlement Commission. The assessee must pay interest from the date the tax became due until the Settlement Commission entertains the application.4. Immunity from Prosecution and Penalty under Section 245HThe Settlement Commission can grant immunity from prosecution and penalty if the assessee cooperates and makes a full and true disclosure of income. However, no immunity can be granted if prosecution was already instituted before the application under section 245C was received. The Commission cannot waive statutory tax or reduce interest on tax payable on disclosed income.5. Calculation and Payment of Interest on Tax Disclosed Before the Settlement CommissionThe assessee must pay tax on the disclosed income and interest on the said tax. If the Commission extends the time for payment, the assessee must pay interest on the aggregate amount of tax and interest. The interest charged under section 245D(2C) is on the unpaid amount from the expiry of the 35-day period. The Settlement Commission can direct recovery of the unpaid amount with interest and penalty under Chapter XVII by the Assessing Officer.6. Efficacy of Regular Assessment Proceedings After the Application is Admitted by the Settlement CommissionThe Settlement Commission assumes exclusive jurisdiction over the case after deciding to proceed with the application. This jurisdiction continues until an order is passed under section 245D(4). The Commission's order is not termed as an original assessment or reassessment but is considered a plenary jurisdiction.7. Extent of Liability Towards Payment of Interest on Tax Due as Determined by the Settlement CommissionThe interest under sections 234A, 234B, and 234C must be paid on the consolidated amount of income disclosed before the Assessing Officer and the Settlement Commission, from the first day of April following the relevant financial year until the Commission's order under section 245D(4). The interest charged under section 245D is separate and not in terms of sections 234A, 234B, and 234C. The Settlement Commission cannot waive or reduce interest for non-payment or delayed payment of tax found due.The appeals were allowed to the extent that interest must be charged from the first day of April following the relevant financial year until the Commission's order under section 245D(4).Conclusion:The Supreme Court clarified that the Settlement Commission has no power to waive or reduce mandatory interest under sections 234A, 234B, and 234C. The Commission's jurisdiction begins when it decides to proceed with the application, and the assessee must pay interest on the tax due from the relevant financial year until the Commission's order. The Commission can grant immunity from prosecution and penalty but cannot waive statutory tax or interest. The appeals were allowed to the extent indicated, affirming the mandatory nature of interest payments.