TaxTMI 
TaxTMI 
2010 (10) TMI 8
X X X X Extracts X X X X
X X X X Extracts X X X X
....rned counsel on both sides, we reframe the above questions. (I) Whether section 234B applies to proceedings of the Settlement Commission under Chapter XIX-A of the said Act? (II) If answer to the above question is in the affirmative, what is the terminal point for levy of such interest - 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 of the Commission under section 245D(4)? (III) Whether the Settlement Commission could reopen its concluded proceedings by invoking section 154 of the said Act so as to levy interest under section 234B, though it was not so done in the original proceedings? Relevant provisions of the Income Tax Act, 1961: 4. In order to answer the reframed questions, quoted above, it would be necessary for us to cite the relevant provisions of the Act and the Income Tax Rules, as they stood at the material time, which are as under: Definitions 2(40) "regular assessment" means the assessment made under sub-section (3) of section 143 or section 144 ; 2(45) "total income" means the total amount of income referred to in section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lier assessment year and passed subsequent to the filing of the return referred to in clause (a), there is any variation in the carry forward loss, deduction, allowance or relief claimed in the return, and as a result of which, - (i) if any tax or interest is found due, an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly, and (ii) if any refund is due, it shall be granted to the assessee: Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such order was passed. (4) Where a regular assessment under sub- section (3) of this section or section 144 is made, -- (a) any tax or interest paid by the assessee under sub-section (1) shall be deemed to have been paid towards such regular assessment ; Rectification of mistake. 154. (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ulated at the rates in force in the financial year; Payment of advance tax by the assessee of his own accord or in pursuance of order of Assessing Officer. 210. (1) Every person who is liable to pay advance tax under section 208 (whether or not he has been previously assessed by way of regular assessment) shall, of his own accord, pay, on or before each of the due dates specified in section 211, the appropriate percentage, specified in that section, of the advance tax on his current income, calculated in the manner laid down in section 209. (2) A person who pays any instalment or instalments of advance tax under sub-section (1), may increase or reduce the amount of advance tax payable in the remaining instalment or instalments to accord with his estimate of his current income and the advance tax payable thereon, and make payment of the said amount in the remaining instalment or instalments accordingly. Interest payable by assessee. 215. (1) Where, in any financial year, an assessee has paid advance tax under section 209A or section 212 on the basis of his own estimate (including revised estimate), and the advance tax so paid is less....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... relates to income subject to advance tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made. (6) Where, in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section and sections 216, 217 and 273. Interest for defaults in furnishing return of income. 234A. (1) Where the return of income for any assessment year under sub-section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,-- (a) where the return is furnished after the due date, ending on the date of furnishing of the return; or (b) where no return has been furnished, ending on the date of completion of the assessment under section 144, on the amount....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sp; 234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Explanation 1.--In this section, "assessed tax" means (a) for the purposes of computing the interest payable under section 140A the tax on the total income as declared in the return referred to in that section; (b) in any other case, the tax on the total income determined under sub-section (1) of section 143 or on regular assessment,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and-- (i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded. (5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years. Interest for deferment of advance tax. 234C. (1) Where in any financial year,-- (a) the company which is liable to pay advance tax under section 208 has failed to pay such tax or-- (i) the advance tax paid by the company on its current income on or before the 15th day of June is less than fifteen per cent of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s Act and which has not been admitted, such appeal or revision shall not be deemed to be a proceeding pending within the meaning of this clause; Application for settlement of cases. 245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided: Provided that no such application shall be made unless,-- (a) the assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act; and (b) the additional amount of income tax payable on the income disclosed in the application exceeds one hundred thousand rupees. (1A) For the purposes of sub-section (1) of this section and sub-section (2A) to (2D) of Section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6. Date of filing the return of income for assessment year(s) referred to in column 5 ........................ 7. Proceedings to which application for settlement relates, the date from which the proceedings are pending and the income-tax authority before whom the proceedings are pending [See Note 6] ........................ 8. Where any appeal or application for revision has been preferred after the expiry of the period specified for the filing of such appeal or application for revision, as the case may be, whether such appeal or revision has been admitted. ........................ 9. Date of seizure, if any, under section 132 of the Income-tax Act ........................ 10. Particulars of the issues to be settled, nature and circumstances of the case and complexities of the investigation involved [See Note 7] ........................ 11. Full and true disclosure of income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived and the additional amount of income-tax ........................ payable on such income [See Notes 9 and 10] ....................... S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commission has extended the time for payment of the amount which remains unpaid or has allowed payment thereof by instalments under sub-section (2B), the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-five days referred to in sub- section (2A). (4) After examination of the records and the report of the Commissioner, received under sub-section (1), and the report, if any, of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under sub-section (1) or sub-section (3). (6) Every order passed under sub-section (4) shall provide for the terms of settlem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement Commission shall, until an order is passed under sub- section (4) of section 245D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case : (3) Notwithstanding anything contained in sub-section (2) and in the absence of any express direction to the contrary by the Settlement Commission, nothing contained in this section shall affect the operation of any other provision of this Act requiring the applicant to pay tax on the basis of self- assessment in relation to the matters before the Settlement Commission. (4) For the removal of doubt, it is hereby declared that, in the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission. Order of settlement to be conclusive. 245-I. Every order of settlement passe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al year. It has to be in respect of the total income of the assessee which would be chargeable to tax under the Act. The said total income is not as understood in section 2(45) but it is equated to "current income" for the purposes of Chapter XVII. After the Amending Act of 1987, advance tax is to be paid on the current income which would be chargeable to tax for the assessment year immediately following the financial year. Section 210 casts the responsibility of payment of advance tax on the assessee without requiring the assessee to submit his estimate of advance tax payable. Provision for payment of advance tax is mode of quick collection of tax. Thus, section 207 defines liability to pay advance tax in respect of incomes referred to in section 208. However, advance tax paid is adjustable towards the tax due. Advance tax is collected even before the income tax becomes due and payable. By its very nature, advance tax is pre-assessment collection of taxes either by deduction of tax at source or by payment of advance tax which has to be adjusted towards income tax levied on the total income. The above two methods of realization even before any assessment is authorized by section 4(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taking into account the amount of tax paid under the Act; to calculate also interest payable under section 234A or under section 234B/234C for any default or delay in payment of advance tax; to pay such tax with interest before the assessee furnishes his return. The Explanation to section 140A(1) inter alia provides that where the amount paid by the assessee under section 140A(1) falls short of the aggregate of the tax and interest thereon the amount so paid is first adjusted towards interest payable and the balance, if any, is adjusted towards the tax payable. Thus, amount(s) paid under section 140A is deemed to have been paid towards regular assessment. 8. The liability to pay income tax is founded on sections 4 and 5 which are the charging sections. Sections 143, 144 and 147 are machinery sections to determine the amount of tax payable. Thus, whereas section 143(3) signifies computation of income, section 147 signifies computation of escaped income. As held in the case of C.A. Abraham v. Income-Tax Officer, Kottayam and Another [(1961) 41 ITR 425 (SC)], the expression "assessment" in a given provision must be determined on an examination of the relevant provisions in q....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rom sections 234A and 234C, in section F of Chapter XVII. Thus, levy of interest is incidental to the liability and computation of advance tax. It is interesting to note that section 234A(4) in turn refers to the increase or reduction of interest subsequent to the Order of the Commission under section 245D(4) increasing or reducing the amount of tax payable and so also section 234B(4). Under section 234B, where in any financial year an assessee who is liable to pay advance tax under section 208 fails to pay such tax or where the advance tax paid under section 210 is less than 90% of the assessed tax the assessee shall pay interest from the first day of April next following such financial year to the date of determination of total income under section 143(1) or to the date of regular assessment on the amount equal to the assessed tax which has been defined in Explanation 1 to mean tax on the total income as determined under section 143(1) as reduced by the amount of tax deducted at source in accordance with Chapter XVII on income which is subject to deduction and which is taken into account in computing total income. By Explanation 3, it is clarified that for default of short paymen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s within it the provisions of Chapters XVIIB, XVIIC and section 140A of the Act. It may be noted that section 245C(1B)(iii), as it stood before 1.6.1987, required income tax to be calculated on the aggregate of the total income as assessed plus the income disclosed in the application as if such aggregate was the total income. But after 1.6.1987, the tax is required to be worked out on the returned total income plus the income disclosed in the application as if the aggregate is the total income. Under section 245D(2A) the applicant is required to pay the additional amount of income tax payable on the income disclosed in the application within 35 days of the receipt of the copy of the order passed by the Settlement Commission under section 245D(1) allowing such application to be proceeded with. Under section 245D(2A) the applicant shall, within 35 days of the receipt of the order under section 245D(1) allowing the application to be proceeded with, pay the additional amount of income tax payable on the income disclosed. Under section 245D(4) on compliance of sections 245D(2A) and (2C) and on examination of relevant records and reports, the Settlement Commission may pass such orders as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he matters contained therein and that the same shall not be re-opened except in the case of fraud and misrepresentation. Under section 245F(1), in addition to the powers conferred on the Settlement Commission under Chapter XIX-A, it shall also have all the powers which are vested in the income tax authority under the Act. In this connection, however, 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provides for deductions from the total income computed in terms of section 245C(1B). Thus, the special procedure under sections 245C and 245D in Chapter XIX-A shows that a special type of computation of total income is engrafted in the said provisions which is nothing but assessment which takes place at section 245D(1) stage. However, in that computation, one finds that provisions dealing with a regular assessment, self-assessment and levy and computation of interest for default in payment of advance tax, etc. are engrafted. [See sections 245C(1B), 245C(1C), 245D(6), 245F(3) in addition to sections 215(3), 234A(4) and 234B(4)] (II) Terminal point for the levy of interest - Whether interest is payable under Chapter XIX-A up to the date of the order under section 245D(1) or up to the date of the order under section 245D(4)? 12. In our view the answer to the above question lies in the provisions of the proviso to Sections 245C(1), 245C(1B) and 245C(1C), 245D(4) and 245F(3) which bring in the concepts of returned income, self-assessment, aggregation of income returned and income disclosed as if it is total income; levy of interest under section 215(3) read with section 245D(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er sections 143(3)/144 and re-assessment under section 147 lose their existence as under sections 245C(1A) and (1B) it is only the income disclosed in the return of income before the A.O. alone which survives for consideration by the Settlement Commission for settling the amount of income which is not disclosed in the return. Under section 245C(1B)(ii), if the applicant has furnished a return in respect of the total income, whether or not assessment is made in pursuance of the return, the additional amount of income tax payable in respect of the total income disclosed shall be on the aggregate of the total income returned and the income disclosed in his application for settlement as if such aggregate was his total income. This is pre-assessment collection of tax. Such pre- assessment is based on the estimation of the current income and tax thereon by the applicant himself. Now, when the Settlement Commission accepts the Voluntary Disclosure vide the application for settlement, section 234B(2) steps in. It is important to remember that the assessee is liable to pay advance tax, he commits default in payment to the extent of the undisclosed income but he offers to pay additional inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; 13. The question is - what happens in cases where 90% of the assessed tax is paid but on the basis of the Commission's order under section 245D(4) the advance tax paid turns out to be less than 90% of the assessed tax as defined in the Explanation to Section 234B(1)? 14. As held hereinabove, under section 245C(1) read with section 245C(1B)(ii) and section 245C(1C)(b), the additional amount of income tax payable is to be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate is the total income. Thus, the scheme of the said sections is based on computation of total income and in that sense we have stated that such application for settlement is akin to a return of income. The said provision deals with "total income". Thus, as stated above, sections 234A, B and C are applicable up to the stage of section 245D(1) order passed by the Settlement Commission. However, Parliament has not extended the provisions and the liability to pay interest beyond the date of application for settlement. This is the position even after Finance Act of 2007. Once this position is taken, section 140A is attracted. When ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atory in nature and that Settlement Commission, therefore, had no authority to waive it. Further, as stated above, the jurisdiction of the A.O. is not fettered merely because the applicant has filed the Settlement Application. The Act does not contemplate stay of the proceedings during that period, i.e., when the Settlement Commission is deciding whether to proceed or reject the settlement application. The jurisdiction of the Settlement Commission to proceed commences only after an order is passed under section 245D(1). That, after making an application for settlement the applicant is not allowed to withdraw it [see section 245C(3)]. Once the case stands admitted, the Settlement Commission shall have exclusive jurisdiction to exercise the powers of the Income Tax Authority. The order of Settlement Commission under section 245D(4) shall be final and conclusive under section 245I subject to two qualifications under which it can be recalled, viz., fraud and misrepresentation but even here it is important to note that under section 245D(7) where the settlement becomes void on account of fraud and misrepresentation the proceedings with respect to the matters covered by the settlement sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble, viz., if the applicant has not filed his returns, if he has filed but orders of assessment are not passed or if the proceedings are pending for re-assessment under section 147 (again in Chapter XIV) or by way of appeal or revision in connection with such re-assessment and the applicant has not furnished his return of total income in which case tax has to be calculated on the aggregate of total income as assessed in the earlier proceedings for assessment under section 143 or under section 144 or under section 147 [see section 245C(1B)]. The point to be noted is that in computation of additional income tax payable by the assessee, there is no mention of section 154. On the contrary, under section 245I the order of the Settlement Commission is made final and conclusive on matters mentioned in the application for settlement except in the two cases of fraud and misrepresentation in which case the matter could be re- opened by way of review or recall. Like ITAT, the Settlement Commission is a quasi-judicial body. Under section 254(2), the ITAT is given the power to rectify but no such power is given to the Settlement Commission. Thus, we hold that Settlement Commission cannot reopen....