2010 (10) TMI 8 - SC - Income Tax

Interest under sections 234A, 234B, 234C limited in settlements; no section 154 rectification to enhance 234B

SC held that interest under sections 234A, 234B and 234C applies to proceedings under Chapter XIX-A, with interest under section 234B payable only up to ... Power of settlement commission to impose interest u/s 234A, 234B and 234C - applicability of section 154 before settlement commission - period for calculation of interest - Whether the Settlement Commission can re-open its concluded proceedings by having recourse to Section 154 of the Act so as to levy interest u/s 234B, if it was not done in the original proceedings? - Whether Sections 234A, 234B and 234C are applicable to Chapter XIX-A proceedings? Held that:- We need to keep in mind the difference between 'procedure for assessment' under Chapter XIV and 'procedure for settlement' under Chapter XIX-A (see section 245D). Under section 245F(4), it is clarified that nothing in Chapter XIX-A shall affect the operation of any other provision of the Act requiring the applicant to pay tax on the basis of self-assessment in relation to matters before the Settlement Commission. The point to be noted on the basis of the above analysis is that several provisions of the Act like section 140A; furnishing of the return of income by the applicant as indicated in the proviso (a) to section 245C(1); provisions of the Act governing liability and computation to pay additional income tax as indicated by proviso (b) to section 245C(1); aggregation of total income inter alia in terms of sections 143, 144 or 147 as indicated by section 245C(1B)(iii); aggregation of total income as returned plus income disclosed in the application for settlement as indicated in section 245C(1B)(ii); the deductions in section 245C(1C); increase of interest under section 215(3) pursuant to the orders of the Settlement Commission and the levy of interest under sections 234A(4) and 234B(4) all bring into Chapter XIX-A various provisions o the Act. Thus, when we read the provisions of Sections 245C and 245D one has to keep in mind various above provisions of the Act and the concepts of self-assessment, assessment, regular assessment and computation of total income which have been engrafted in Chapter XIX-A. Once the Commission admits the case after being satisfied that the disclosure is full and true then the proceedings commence with the Settlement Commission. In the meantime, applicant has to pay the additional amount of tax with interest without which the application for settlement would not be maintainable. Thus, interest under section 234B would be payable up to the stage of section 245D(1). Our view is supported by the amendment made by Finance Act of 2007 w.e.f. 1.6.2007 in which interest is required to be paid for maintainability of the Application for Settlement. We hold that Settlement Commission cannot reopen its concluded proceedings by invoking section 154 of the Act. Lastly, one must keep in mind the difference between review/ recall of the order and rectification under section 154. The Schedule of Chapter XIX-A does not contemplate invocation of section 154 otherwise there would be no finality to the assessment by settlement which is different from assessment under Chapter XIV where there is an appeal, revision, etc. Settlement of liability and not determination of liability is the object of Chapter XIX-A. Even otherwise, invocation of section 154 on facts of this batch of cases is not justified. In this batch of cases, the situation which prevailed when the Settlement Commission waived or reduced interest chargeable under sections 234A and 234B was that a debate was on as to whether the Settlement Commission has the power to reduce or waive interest. It is only after Ghaswala's case [2001 (10) TMI 4 - SUPREME COURT] that the law got settled that the nature and the character of the interest was compensatory and mandatory and that the Commission had no such power. But even in Ghaswala, the question as to whether such interest under section 234B should run up to the order under section 245D(1) or up to the date of the order under section 234D(4) was not decided. In fact, that was the reason for the Orders of Reference to the Constitution Bench of this Court vide orders dated 14.12.2004 and 20.1.2005. There is one more reason for this Reference. In the case of CIT v. Hindustan Bulk Carrier [2002 (12) TMI 10 - SUPREME COURT (LB)], a 3- Judge Bench of this Court, by majority, held that where, upon the Order of the Settlement Commission under section 245D(4), there arises a deficit in the payment of advance tax under section 208, the end point or the terminus of the period for which interest has to be paid under section 234B on the deficit is the date on which the Settlement Commission passes the order under section 245D(4). This decision was delivered on 17.12.2002 after the judgment of this Court in Ghaswala (supra). On the same day, the same Bench in the case of Damani Brothers [2002 (12) TMI 11 - SUPREME COURT], held that interest charged u/s 234B becomes payable on the income disclosed in the return and the income disclosed before the Settlement Commission; that, such interest is chargeable till the Commission acts in terms of section 245D(1) and that after the Settlement Commission allows the application for settlement to be proceeded with there will be no further charge of interest under section 234B. Thus, even on the question of terminus there was lot of controversy and in the circumstances, we are of the view that invocation of section 154 (held to be inapplicable to Chapter XIX-A proceedings) cannot be justified. Issues Involved:1. Applicability of Sections 234A, 234B, and 234C of the Income Tax Act, 1961 to proceedings of the Settlement Commission under Chapter XIX-A.2. Terminal point for the levy of interest under Section 234B.3. Authority of the Settlement Commission to reopen its concluded proceedings by invoking Section 154 to levy interest under Section 234B.Issue-wise Detailed Analysis:(I) Applicability of Sections 234A, 234B, and 234C to Chapter XIX-A Proceedings:The judgment analyzes whether Sections 234A, 234B, and 234C, which pertain to interest for default in furnishing return of income, payment of advance tax, and deferment of advance tax respectively, apply to proceedings under Chapter XIX-A of the Income Tax Act, which deals with the Settlement Commission. The court concludes that Chapter XIX-A, though a self-contained code, incorporates various provisions of the Act, including those related to the computation of total income and the levy of interest for defaults. Specifically, the court notes that the special procedure under Chapter XIX-A has an inbuilt mechanism for computing total income, which is akin to assessment, thus making Sections 234A, 234B, and 234C applicable to the proceedings of the Settlement Commission.(II) Terminal Point for the Levy of Interest:The court delves into the terminal point for the levy of interest under Section 234B, determining whether such interest should be computed up to the date of the order under Section 245D(1) or up to the date of the order under Section 245D(4). The court concludes that the interest under Section 234B is payable up to the stage of the order under Section 245D(1), which is the stage when the Settlement Commission decides to proceed with the application. The court reasons that this stage involves a pre-assessment collection of tax based on the estimation of current income by the applicant, and once the Settlement Commission admits the case, the proceedings under the normal provisions remain open only until this point.(III) Authority to Reopen Concluded Proceedings under Section 154:The court examines whether the Settlement Commission can reopen its concluded proceedings by invoking Section 154 to levy interest under Section 234B if it was not done in the original proceedings. The court holds that the Settlement Commission cannot reopen its concluded proceedings by invoking Section 154. The court emphasizes that the proceedings before the Settlement Commission are akin to arbitration proceedings and are distinct from regular assessment procedures. The court notes that Section 154, which falls under Chapter XIV dealing with procedure for assessment, does not apply to the special procedure for settlement under Chapter XIX-A. The court also highlights that the order of the Settlement Commission is final and conclusive under Section 245I, except in cases of fraud or misrepresentation, and does not contemplate the invocation of Section 154.Conclusions:1. Sections 234A, 234B, and 234C are applicable to the proceedings of the Settlement Commission under Chapter XIX-A to the extent indicated in the judgment.2. The terminal point for the levy of interest under Section 234B is up to the date of the order under Section 245D(1) and not up to the date of the order under Section 245D(4).3. The Settlement Commission cannot reopen its concluded proceedings by invoking Section 154 to levy interest under Section 234B, particularly in view of Section 245I.The reference to the Constitution Bench is accordingly answered and the matters are disposed of.