TaxTMI 
TaxTMI 
2008 (3) TMI 21
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....ly not concerned with that. 4. The challenge has arisen out of amendments to the Act by the Finance Act, 2007. The effect of the amendments is that where a settlement application has been filed under Section 245-C of the Act in the Settlement Commission, before 1^st June, 2007 (as in all the writ petitions before us) the Settlement Commission "shall pass an order under sub-section (4)" on or before 31^st March, 2008 [Section 245-D (4A)]. In the event the Settlement Commission does not pass such an order, effectively deciding the settlement application on or before 31^st March, 2008, the settlement application "shall abate" by operation of law [Section 245-H(1)]. 5. On their part, the Petitioners were expected to pay the additional tax on the income disclosed in the settlement application filed before the Settlement Commission and also pay interest thereon on or before 31^st July, 2007 failing which the settlement application filed under Section 245-C of the Act "shall abate" by operation of law [Section 245-H(1)]. 6. Feeling aggrieved by this, some Petitioners approached this Court before 31^st July, 2007 and contended that even though they had paid the additional tax, it ....
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.... 31^st March, 2008 to some other date, or some such measure as may be deemed appropriate. 11. Since January, 2008 we have been receiving a very large number of writ petitions filed by several other persons raising the very same challenge as the Petitioners in this writ petition and other connected writ petitions. In fact, over a hundred writ petitions have been filed and following the earlier orders passed by this Court, directions were given to the Settlement Commission to comply with the mandate of the law and dispose of the settlement applications of the Petitioners before 31^st March, 2008 so that they do not abate. 12. The main difference between the earlier set of writ petitions and the later writ petitions is that the date of 31^st July, 2007 had passed and, therefore, the Petitioners in the later writ petitions are all those persons who had in fact not only paid the additional tax but had also paid interest thereon and their limited concern is that their settlement application should be disposed of on or before 31^st March, 2008 so that it does not abate and they are not required to face the consequences of abatement. 13. We are not inclined to go into the interloc....
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....d so there has to be room for compromise and settlement. 'A rigid attitude would not only inhibit a one-time tax-evader or an unintending defaulter from making a clean breast of his affairs, but would also unnecessarily strain the investigational resources of the Department in cases of doubtful benefit to revenue, while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in the law for a settlement with the taxpayer at any stage of the proceedings.' The Committee opined that such a settlement should be fair, prompt and independent. 17. The Wanchoo Committee recommended the setting up of a Direct Taxes Settlement Tribunal which would ensure impartial and quick decisions. That Tribunal would proceed with a settlement petition only if the Income Tax Department raised no objection to its being entertained otherwise that Tribunal might become an escape route for the tax evaders. In other words, the Wanchoo Committee gave adequate protection both to the tax payer in terms of ensuring an impartial and quick decision or settlement in his case and also to the Income Tax Department by enabling it to oppose a settlem....
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....ion is disposed of by 31^st March, 2008 but they have not even moved a little finger to do so leaving the Petitioners to their own devices. The Respondents have, through their complete inaction, virtually subverted the mandate of the law to the detriment of the Petitioners. This, according to learned counsel, is hopelessly arbitrary and unconstitutional. 21. Learned counsel for the Petitioners submitted that the consequence of a settlement application not being disposed of by 31^st March, 2008 is calamitous. Broadly, the adverse consequences are: The Petitioners would be required to face a regular assessment by the income tax authority (as defined in Section 116 of the Act) before whom the case of the Petitioner was pending when the settlement application was made. In most cases, the authority would be the Assessing Officer whose superior, the Commissioner, may have opposed the admission of the settlement application before the Settlement Commission [Section 245-D(1) before its amendment by the Finance Act, 2007]. Under such circumstances, the Petitioners cannot be expected to get a fair and just hearing or treatment from the Assessing Officer, who is, in a sense, a litigant ....
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....may require a prolonged investigation or cases that may require a cumbersome investigation etc. and it is these kind of cases that may be entertained by the Settlement Commission. 24. That the assumptions made by the Wanchoo Committee and the Supreme Court are valid even today and that they subsist is clear from the fact that the Wanchoo Committee Report has not been trashed by the Respondents and the fact that the Settlement Commission still exists and has not been wound up. After all, if all the assumptions and reasons were not correct, the Respondents would have wound up the Settlement Commission 'why keep an ineffectual or worthless body in place for no apparent reason' The fact that the Settlement Commission has been allowed to exist, and continues to exist and entertain fresh settlement applications, clearly suggests that it is needed, even if it is for a few cases. And, if it is needed for a few cases, why is it not needed for a greater number of cases' These are a few of the many doubts that the Respondents have not even cared to respond to or clear. 25. In this context, it is also important to note three other facts which suggest that the Settlement Commission ....
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.... integrity and outstanding ability, having special knowledge of, and experience in, problems relating to direct taxes and business accounts.' [Section 245-B(3)]. In contrast, once the settlement application abates, the fate of the Petitioners will be in the hands of an Assessing Officer or a Commissioner of Income Tax (Appeals). Both these categories of officers are no doubt persons of integrity, but they certainly do not have the wide knowledge and experience that a member of the CBDT would have. The fate of the Petitioners would, therefore, be placed in the hands of far less experienced and knowledgeable persons, to their detriment and prejudice. This may not be objectionable, per se, but coupled with other factors, it would have an adverse impact on the Petitioners. Proceedings before the Settlement Commission are conducted by a Bench of independent persons and they are judicial proceedings for all intents and purposes but the proceedings before the Assessing Officer are conducted by only one person and they are only quasi judicial. The Assessing Officer is an officer of the Income Tax Department, having loyalty to his department (not that there is anything wrong in it ....
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....rovisions of the Act. As far as the Petitioners are concerned, this has considerable relevance to the way in which the problem is viewed and addressed by the appropriate authority. The Assessing Officer to whose jurisdiction the Petitioners are relegated on the abatement of the settlement application, is himself a litigant before the Settlement Commission having a right to oppose (and in many cases having opposed) admission of a settlement application. If the assessment of the Petitioners income is to be made by someone who has opposed the case of the Petitioners, it is not possible or realistic for them to expect to get fair or even handed treatment from such an Assessing Officer. The Petitioners ask: how can a litigant expect a fair adjudication from a party opposing its case' In addition to the above, even if a Petitioner succeeds before the Assessing Officer, the Commissioner is entitled to use his powers under Section 263 of the Act to revise an assessment order on the ground that it is prejudicial to the interests of the Revenue. This is pointed out not only in the context of bias and a fair hearing but also in the context of the Petitioners having to go through a multipli....
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....titioner benefit or steal a march over another, when all things are equal' This would lead to a hostile discrimination and palpable arbitrariness in the selection criteria, completely violating the equality clause enshrined in Article 14 of the Constitution. 'While dealing with the validity of a classification, the rational nexus of the differentia on which the classification is based has to exist with the purpose or object of the legislation so determined.' [Shashikant Laxman Kale]. In so far as the Petitioners are concerned, there is no basis for a valid classification for disposing of or not disposing of a particular settlement application, and if there is a valid classification, it has no nexus with the object sought to be achieved, namely, expeditious disposal of all settlement applications within a time-bound period. In other words, similarly placed persons are being subjected to hostile discrimination. 30. Learned counsel for the Petitioners also raised the issue of an arbitrary cut-off date for disposal of a settlement application, namely, 31^st March, 2008. It was submitted that all the Petitioners are similarly circumstanced and simi....
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....r reason is forthcoming for the choice unless it is shown to be capricious or whimsical in the circumstances; while fixing a line, a point is necessary and there is no mathematical or logical way of fixing it; precisely, the decision of the legislature or its delegate must be accepted unless it is very wide off the reasonable mark.' 34. While it is true that in situations such as the present, some cut-off date has to be fixed, that date cannot be arbitrarily fixed without having any reasonable or real basis. Why the date for disposal of all pending settlement applications on or before 31^st March, 2008 is unrealistic (if not illusory) is clear from the affidavit filed by the Settlement Commission on 29^th January, 2008 and which we have adverted to above. Even in the order passed by this Court on 18^th December, 2007 reference has been made to the Report submitted by the Comptroller and Auditor General of India to illustrate the sheer magnitude of the task of disposal of all pending settlement applications by 31^st March, 2008 and the impossibility of achieving the goal without concrete steps being taken by the Respondents on a war footing. ....
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....n independent authority, which has unlimited and plenary powers, and statutorily conferred on persons who are not independent or are otherwise interested in the matter, then such provisions of law are per se unreasonable and the provisions per se contravene the values attached to the principles of natural justice. When there is substantive unreasonableness in a statute, it may have to be declared unconstitutional and the decision making process may suffer from an institutional bias. 38. Another issue that greatly agitated learned counsel for the Petitioners relates to a breach in the confidentiality of materials made available to the Settlement Commission. To appreciate the prejudice to the Petitioners after abatement of the settlement application, it is necessary to understand the procedure laid down by law that is binding on the Settlement Commission. 39. Rule 44C and Rule 44CA of the Income Tax Rules, 1962 prescribe the form of application (under Section 245-C of the Act) for settlement of cases. The application is required to be submitted in Form 34B in Appendix II to the Income Tax Rules. The a....
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....F(7) of the Act, the Settlement Commission is entitled to regulate its own procedure. In exercise of this power the Income Tax Settlement Commission (Procedure) Rules, 1997 have been framed (for short the Procedure Rules). Rule 6 of the Procedure Rules prescribes that the Settlement Commission shall forward a copy of the settlement application, excluding the annexure to the Commissioner for furnishing a report and Rule 9 of the Procedure Rules prescribes that where the settlement application is allowed to be proceeded with or admitted by the Settlement Commission, only then would the Commissioner be entitled to receipt of the annexure to Form 34B in Appendix II to the Income Tax Rules furnished by the Petitioner. This is in consonance with Rule 44CA of the Income Tax Rules. 43. Rule 6 and Rule 9 of the Procedure Rules read as follows: - '6. Commissioner's report, etc., under section 245D(1). On receipt of a settlement application, a copy of the said application (excluding the Annexure) shall be forwarded by the Commission to the Commissioner with the direction to furnish his report under sub-section (1) of section 245D within 45 days of ....
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....even use it in proceedings before him against the Petitioners. The result of this is that the confidentiality of the settlement proceedings, earlier guaranteed by the Act and the Rules framed there under, has now been taken away and materials that were strictly within the domain of the Settlement Commission prior to the Finance Act, 2007 can now be used against the Petitioners for all purposes including for assessment proceedings, penalty proceedings and for prosecution purposes also. This appears to us to be clearly arbitrary. 47. For the purposes of grant of interim relief, learned counsel for the Petitioners have also relied upon a very brief order passed by the Bombay High Court on 4^th March, 2008 in Writ Petition No. 525/2008 (M/s. Sunita Textiles Ltd. v. Commissioner of Income Tax) wherein it has been directed that the Settlement Commission will not consider the settlement application filed by that Petitioner as having abated under Section 245-HA of the Act for want of compliance with Section 245-D (2D) of the Act, as mandated by the Finance Act, 2007. 48. Reliance is also placed by learned counsel....
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....nbsp; The learned Additional Solicitor General reiterated his submissions that were made and noted in the order passed on 18^th December, 2007. It was submitted that the Settlement Commission is a creature of the statute and only a procedural change has been brought about by the Finance Act, 2007 and the Petitioners have no vested right to have a certain procedure being followed. Parliament in its wisdom has decided to change the procedure and no fault can be found with this. Moreover, it was submitted that the Petitioners have only a statutory right to have their case processed by the Settlement Commission and not a constitutional right. A statutory right can be taken away by the Legislature and that is what has been done. Reliance was placed upon Dharam Dutt and others v. Union of India and others, (2004) 1 SCC 712, Kuldip Nayar and others v. Union of India and others, (2006) 7 SCC 1, Anukul Chandra Pradhan, Advocate Supreme Court v. Union of India and others, (1997) 6 SCC 1, Jose Da Costa and another v. Bascora Sadasiva Sinai Narcornim and others, (1976) 2 SCC 917 and M/s. Pannalal Binjraj and others v. Union of India and others, 1957 SCR 233. 52. &n....
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....citor General submitted that as of now the information ceases to be confidential because all the settlement applications have either been admitted or are deemed to have been admitted and, therefore, all the confidential information is already known to the Income Tax Department. Consequently, the information revealed by the Petitioners in the annexure to Form 34B in Appendix II to the Income Tax Rules is no longer confidential and there is no harm if it is used against the Petitioners who are in any case tax evaders. 55. In our opinion, the learned Additional Solicitor General has overlooked that the confidential information was and continues to remain within the exclusive domain of the Settlement Commission during the pendency of the settlement application in the Settlement Commission, even after it is disclosed to the Commissioner. Whatever information is disclosed by the Petitioners before the Settlement Commission can be used and will be used only by persons of integrity and experience and exclusively for the purpose of settling the dispute raised by the Petitioners before the Settlement Commission. The confidential information cannot....
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....s and incorporated in the Act by the Finance Act, 2007 are permitted to operate. This is particularly so since the provisions (despite the presumption) appear to be discriminatory and arbitrary. No rational basis that has been shown to us by the learned Additional Solicitor General for providing for abatement or for fixing the cut-off date of 31^st March, 2008 despite knowing full well that it is not possible for the Settlement Commission to dispose of all the pending applications before that date, particularly in the face of an affidavit having been filed by the Settlement Commission on 29^th January, 2008. The learned Additional Solicitor General has also not been able to show us any reason whatsoever why the impugned provisions of the Finance Act, 2007 were incorporated ' there is no Statement of Objects and Reasons for the amendment brought about and there is absolutely no reason given whatsoever why the period of four years that was earlier in existence for the disposal of settlement applications by the Settlement Commission in the statute prior to the Finance Act, 2007 has been unreasonably curtailed, in the case of the Petitioners, to a maximum period of eight months. 59.....