TaxTMI 
TaxTMI 
2002 (12) TMI 10
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....as "the Act") the Central Government has constituted the Income-tax Settlement Commission for the settlement of cases. The word "case" has been defined under section 245A(b) of the Act to mean any proceeding under the Income-tax Act for the assessment or reassessment of any person in respect of any year or years and includes appeal or revision in connection with such assessment or reassessment, which may be pending before an income-tax authority on the date on which an application under sub-section (1) of section 245C is made. Section 245C(1) provides for an application by an assessee in a prescribed form containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer and such other prescribed particulars for settlement of his case by the Settlement Commission. Other requirements are that no such application could 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 (at present) one hundred thousand rupees. 2. Th....
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....h 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. 6. 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 p....
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.... the time specified under that sub-section or the time to pay is extended under sub-section (2B) the Settlement Commission is empowered to direct recovery of the said amount with interest payable thereon under sub-section (2C) and penalty for default in making payment of such additional amount in accordance with the provisions of Chapter XVII, by the Assessing Officer having jurisdiction over the assessee. The aforesaid 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. 1. A question of seminal importance relating to the period for which interest in terms of section 234B of the Income-tax Act, 1961 (in short "the Act") can be levied when the Settlement Commission (in short "the Commission") passes an order under section 245D of the Act, is the subject matter of adjudication in these appeals. These appeals are directed again....
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....tion, the Commission gets jurisdiction if prescribed conditions are fulfilled. When an assessee files a petition under section 245C, there is a liability to pay the additional tax in respect of the undisclosed income. An exclusive jurisdiction is conferred on the Commission and its order is conclusive. The expressions "regular assessment" or "reassessment" as appearing in sections 234A, 234B and 234C relate to income which was earlier disclosed before the income-tax authorities. For all practical purposes, the Commission exercises original jurisdiction and the orders passed under section 245D(4) and consequentially under sub-section (6) are in the nature of original orders determining liability of tax, penalty and interest and quantification thereof. It has to be borne in mind that the provisions relating to settlement as appearing in Chapter XIX-A constitute a complete code. Therefore, the view of the Special Bench with reference to regular assessment as defined under section 2(40), or reassessment under section 147 has no relevance. The liability to pay interest under sections 234A, 234B and 234C, as the case may be, is of mandatory nature as was observed by a Constitution Bench ....
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....ollowing 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, as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. Explanation 2.--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. ....
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....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." 6. The levy is attracted where subject to other provisions in the section in any financial year an assessee who is liable to pay the advance tax under section 208, has failed to pay such tax or where advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent. of the assessed tax. The beginning point is the first day of April next following the relevant financial year. Different end points are prescribed. They are: (i) up to the date of determination of total income under sub-section (1) of section 143; (ii) the date of regular assessment when a regular assessment is made; and (iii) where there is an order of reassessment or recomputation under section 147, or the difference of assessed income on reassessment or recomputation and originally assessed inco....
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....plicant has not furnished a return in respect of the total income of that year (whether or not an assessment has been made in respect of the total income of that year), then, except in a case covered by clause (iii), tax shall be calculated on the income disclosed in the application as if such income were the total income; (ii) if the applicant has furnished a return in respect of the total income of that year (whether or not an assessment has been made in pursuance of such return), tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income; (iii) if the proceeding pending before the income-tax authority is in the nature of a proceeding for reassessment of the applicant under section 147 or by way of appeal or revision in connection with such reassessment, and the applicant has not furnished a return in respect of the total income of that year in the course of such proceeding for reassessment, tax shall be calculated on the aggregate of the total income as assessed in the earlier proceeding for assessment under section 143 or section 144 or section 147 and the income ....
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....r that the Commissioner shall furnish the report within a period of forty-five days of the receipt of communication from the Settlement Commission in case of all applications made under section 245C on or after the 1st day of July, 1995 and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report.... (2A) Subject to the provisions of sub-section (2B), the assessee shall within thirty-five days of the receipt of a copy of the order under sub-section (1) allowing the application to be proceeded with, pay the additional amount of income-tax payable on the income disclosed in the application and shall furnish proof of such payment to the Settlement Commission. (2B) If the Settlement Commission is satisfied, on an application made in this behalf by the assessee, that he is unable for good and sufficient reasons to pay the additional amount of income-tax referred to in sub-section (2A) within the time specified in that sub-section, it may extend the time for payment of the amount which remains unpaid or allow payment thereof by instalments if the assessee furnishes adequate security for the ....
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....essee within thirty-five days of the receipt of a copy of the order by him, then, whether or not the Settlement Commission has extended the time for payment of such tax or has allowed payment thereof by instalments, 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 aforesaid." The principles indicated by the Constitution Bench in Anjum's case [2001] 252 ITR 1 (SC) are as follows: "1. The Commission in exercise of its power under section 245D(4) and (6), does not have the power to reduce or waive interest statutorily payable under sections 234A, 234B and 234C, except to the extent of granting relief under the circulars dated 23rd May, 1996, issued by the Board under section 119 of the Act. While exercising the power derived under the circulars of the Board, the Commission does not act as a subordinate to the Board but will be enforcing the relaxed provisions of the circulars for the benefit of the assessee in the process of settlement. 2. Interest due under the mandatory provisions like sections 234A, 234B and 234C has to be included in th....
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....iginal assessment or regular assessment or reassessment. In that sense, the Commission exercises a plenary jurisdiction. The assessee's stand before the Special Bench of the Commission was that there is no charging section for levy of interest. Such a plea did not find acceptance by the Constitution Bench in Anjum's case [2001] 252 ITR 1 (SC). The further plea that there is no requirement to pay interest as no points of terminus have been fixed is equally untenable because the Constitution Bench held that the levy is mandatory. Equally without substance is the plea taken that the terminus has to be as provided in relation to disclosed income. It cannot be even countenanced that no interest is chargeable for that portion of the income forming part of the total income as determined by the Commission which was not earlier disclosed before the Assessing Officer. 13. The Commission's power of settlement has to be exercised in accordance with the provisions of the Act. Though the Commission has sufficient elbow room in assessing the income of the applicant it cannot make any order with a term of settlement which would be in conflict with the mandatory provisions of the Act....
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.... which reduces the statute to a futility has to be avoided. A statute or any enacting provision therein must be so construed as to make it effective and operative on the principle expressed in the maximum res magis valeat quam pereat, i.e., a liberal construction should be put upon written instruments, so as to uphold them, if possible, and carry into effect the intention of the parties. 16. A statute is designed to be workable and the interpretation thereof by a court should be to secure that object unless crucial omission or clear direction makes that end unattainable, referred to in CIT v. S. Teja Singh [1959] 35 ITR 408 (SC); AIR 1959 SC 352, Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1; AIR 1963 SC 1062). 17. The courts will have to reject that construction which will defeat the plain intention of the Legislature even though there may be some inexactitude in the language used. 18. If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation we should avoid a construction which would reduce the legislation to futility, and should rather accept the bolder construction, based on the view that Parliament ....
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....mmission. By analogy and harmony, the period has to be till the date of the Commission's order. 25. To put it differently, 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. 26. To sum up, the inevitable conclusion is that interest has to be charged for the period beginning from the first day of April next follo....
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....owed in cases where concealment of income or fraud is established before the making of an application for settlement. Settlements are to be made by a Committee of not less than three members of the Central Board of Direct Taxes. An application for settlement once made will not be allowed to be withdrawn. The order of settlement shall provide for the terms of settlement, including any demand by way of tax, penalty or interest, the manner of payment of the sum due under the settlement, etc. It shall also provide that the settlement shall be void if it is subsequently found to have been obtained by fraud or misrepresentation of facts. The Committee may, if it is satisfied that the applicant has co-operated with it in the proceedings before it and has made full and true disclosure of his income and the manner in which it has been derived, grant to the applicant immunity from prosecution and penalty. Such immunity can, however, be withdrawn later under certain circumstances. The order of settlement will be final. There will be a bar on subsequent applications for settlement by a person if an order of settlement provides for imposition of penalty for concealment of inco....
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.... Settlement Commission and provide that on such approach with disclosure of earlier concealed income, the Commission shall redetermine the taxable income after clubbing the earlier disclosed income, if any, and subsequently disclosed income before it. Such clubbing for consideration of the aggregate income of the relevant year, based on earlier and subsequently disclosed income has to be done in relation to the "case" pending before the regular assessment authorities at the original, appellate or revisional stage as the case may be. 37. Clauses (a), (b) and (c) of sub-section (1C) of section 245C are also indicative of the scope, power and jurisdiction of the Settlement Commission. It has been provided therein that it is on the determination of the "aggregate income" by the Settlement Commission, the tax payable for the relevant assessment year shall be calculated by giving adjustment to the tax, if any, already paid by the assessee when its case was pending-at whatever stage in the regular assessment proceeding. Sub-section (1D) of section 245C also requires the Settlement Commission to undertake the exercise of clubbing the disclosed income, if any, of the assessee in the regu....
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....ned in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission may, by order, allow the application to be proceeded with or reject the application." 39. One of the questions that is posed before us in these appeals, therefore, can be easily answered on the basis of the above quoted portion as underlined of sub-section (1) of section 245D read with sub-sections (1) and (2) of section 245F. It is only when the Settlement Commission formally allows the application for being considered for "settlement" that the regular assessment proceedings and recoveries initiated for tax, penalty or interest pursuant thereto, shall become subject to the powers of the Commission and not prior to the same. In other words, it means that mere filing of an application by the assessee for settlement and before the same is formally allowed for consideration, would have no adverse effect on the proceeding of assessment or recovery pending or initiated against the assessee under the regular procedure for assessment and recovery of dues under the Income-tax Act. 40. The Settlement Commission has no power....
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....of the income-tax authority under the Act on the Settlement Commission for assessing the income and determining the tax. 41. On the second question with regard to liability towards interest in various statutorily contemplated contingencies of a "case" brought for settlement under Chapter XIX-A of the Act, it is to be noticed that after insertion of the said Chapter for settlement of cases, corresponding legislative changes have been effected by insertion of sections 234A and 234C in Income-tax Act to redetermine the quantum of interest payable in various contemplated contingencies under the Act. Section 234A creates liability of interest for defaults in furnishing return of income. Such interest can be charged from the assessee whose "case" has been "settled" by the Commission even though no return of income was filed by him for regular assessment. Sub-section (4) of section 234A requires necessary adjustments to be given for the interest earlier charged in regular assessment and the interest chargeable after redetermination of the taxable income and the quantum of tax. Sub-section (4) of section 234A reads thus: "234A. (4) Where as a result of an order under section 15....
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....ed, would be adjusted from the interest found due on the tax, as determined and quantified by the Settlement Commission. The starting point for calculating the interest has to be the due date in accordance with the procedure indicated in regular assessment and the terminal date would be the date of the order of the Settlement Commission. The assessee would have the right of claiming adjustment of tax and interest paid in the intervening period. This appears to be the scheme of Chapter XIX-A as harmoniously construed with the other provisions of the Act in the light of the aims and objectives for introduction of Chapter XIX-A. The forum of a Commission for "Settlement of Cases" is not created to put a premium on fraud or misrepresentation of tax evaders. The provisions contained in Chapter XIX-A merely aim at encouraging taxpayers to approach the Settlement Commission with full disclosure of their income which they had not earlier disclosed in the course of regular assessment. Such assessees who co-operate with the assessing authorities in making proper assessment of tax can be granted immunity from prosecution and penalty. There is no provision that they can be granted immunity fro....
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....or reduce interest. It is in that context that this court observed, in the paragraph extracted hereinabove, that under section 245D(4), the Commission has the power to direct the waiver of penalty as well as interest because that was within the scope of the provisions of the Act, as then existing, whereas at present and for the assessment years involved in this case, sections 234A, 234B and 234C being applicable, that observation does not apply to the cases in hand. The sentence 'except to mention that the Commission is empowered to direct the waiver of penalty as well as interest' is used in that judgment on the basis of the then existing law and to apply the same to the facts of the present case with the mandatory change in law would amount to applying those principles in Express Newspapers Ltd. [1994] 206 ITR 443 (SC) out of context." 46. In the case of Anjum M.H. Ghaswala [2001] 252 ITR 1 (SC) the main question that fell for consideration before the Supreme Court was whether the Settlement Commission has power to waive interest for non-payment or delayed payment of tax found due. The Supreme Court answered the question holding that the scheme contained in Chapter XIX....
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....est on tax not paid or paid after delay is governed by different provisions on the basis of the starting point of levy of interest and the date of payment of tax, the interest will have to be demanded and recovered in accordance with the provisions applicable to regular assessment may be that the tax is redetermined by the Settlement Commission under special Chapter XIX-A of the Income-tax Act. 48. 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. 49. In conclusion, the two main questions formulated by me are answered thus: ....