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2024 (9) TMI 1629
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....rij Lal and Others v. Commissioner of Income Tax, Jalandhar (2011) 1 SCC 1. It is the correctness of the view so taken by the ITSC which is sought to be assailed in the present writ petition. 2. Before proceeding to analyse the submissions which were addressed by Mr. Ojha, learned counsel appearing for the writ petitioner, we deem it apposite to take note of the following facts. A search and seizure under Section 132 was carried out at the business and residential premises of the Radico Khaitan Group in which the respondent-assessee was the Chief Financial Officer. During the course of that search and seizure proceedings, according to the writ petitioner, a number of incriminating documents were found alongside a substantial amount of cash, jewellery and other valuables. Pursuant to the said search, a notice under Section 153A is stated to have been issued. 3. However, and before that assessment could be completed, the respondent filed a settlement application under Section 245C (1) before the ITSC. The aforesaid application was admitted on 08 February 2013. The income as declared in the SOF for Assessment Years [AY] 2010-11 and 2011-12 was ultimately determined by the ITSC i....
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....nstituted under Section 245-B of the Income Tax Act, 1961 (hereinafter referred to as "the Act") has the jurisdiction to reduce or waive the interest chargeable under Sections 234-A, 234-B and 234-C of the Act, while passing orders of settlement under Section 245-D (4) of the Act. xxxx xxxx xxxx 15. The moot question, therefore, for our consideration is: does sub-section (6) which contemplates providing for the terms of settlement of tax, penalty or interest empower the Commission, in any manner, either to waive or reduce interest payable under Section 234-A, 234-B or 234-C in any case that arises for settlement before the Commission? If so, would this waiver of interest be in accordance with the provisions of the Act as mandated in subsection (4) of the Act?" 6. Ultimately and while affirming the position that the ITSC does not have the power to reduce or waive interest statutorily payable the following pertinent observations came to be rendered: "23. The Commission in the impugned order placed strong reliance on the wording of Section 245-D (6) the language of which, according to the Commission, empowers it to waive or reduce statutory interest becau....
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.... has been conferred with the power of either reducing or waiving the tax due. We are aware that the Commission in the impugned order has not gone to the extent of holding that it has the power of either waiving or reducing the tax payable but then that would be the logical conclusion if we accept the interpretation given by the Commission in regard to the expression "interest" in Section 245-D (6) of the Act. A proper reading of sub-section (6) would show that all that it contemplates is that while the Commission makes an order of settlement under sub-section (4) it will also have to provide for the terms under which the amount payable by way of tax, penalty or interest shall be paid by the assessee. The expression "terms" used in that sub-section does not refer to the power of the Commission to waive or reduce tax, penalty or interest because quantification of amount payable under each of those expressions is dealt with under separate provisions of the Act like the payment of the tax is governed by various provisions of the Act as defined in Section 2(43) of the Act while penalty is covered by Section 245-H and interest under Sections 234-A, 234-B and 234-C of the Act. Therefore, ....
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....n. Therefore, the question of the Commission relying upon external aids, for the purpose of interpretation like Wanchoo Committee Report, Discussions of Select Committee of Parliament and introduction of Chapter XIX-A in the Act, press release of the Board dated 21-5-1996 etc. are purposeless because of the clear and unambiguous language used in Sections 234-A, 234-B and 234-C and Sections 245-D (4) and (6). We notice that if only the Commission were to follow the golden rule of interpretation by giving the words of the statute their natural and ordinary meaning without unnecessarily going into a forensic exercise of trying to find out the object of the introduction of Chapter XIX-A or Part F of Chapter XVII, the Commission would not have fallen in error. xxxx xxxx xxxx 35. For the reasons stated above, we hold that the Commission in exercise of its power under Sections 245-D (4) and (6) does not have the power to reduce or waive interest statutorily payable under Sections 234-A, 234-B and 234-C except to the extent of granting relief under the circulars issued by the Board under Section 119 of the Act." 7. We note that the issue of interest which would be paya....
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.... the Settlement Commission under Sections 245-C and 245-D in the matter of computation of undisclosed income; in the matter of computation of additional income tax payable on such income with interest thereon; the filing of settlement application indicating the amount of income returned in the return of income and the additional income tax payable on the undisclosed income to be aggregated as total income shows that Chapter XIX-A indicates aggregation of incomes so as to constitute total income which indicates that the special procedure under Chapter XIX-A has an in-built mechanism of computing total income which is nothing but assessment (computation of total income). 26. To elaborate, under Section 245-C (1-B), if the applicant has furnished a return in respect of his total income, tax shall be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate were total income. Under the Act, tax is payable on the total income as computed in accordance with the provisions of the Act. Thus, Section 143 (3) provision is sought to be incorporated in Section 245-C. When Parliament uses the words "as if such aggre....
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....clared in the return minus the advance tax paid. Similarly, it is clarified vide sub-section (1-B) to Section 140-A that interest payable under Section 234-B for default in payment of advance tax shall be computed on an amount equal to the assessed tax [same words are used in Section 234-B(1)] or on the amount by which the advance tax falls short of the assessed tax. However, what is "assessed tax" for the purposes of Section 140-A is explained by Explanation. It says that assessed tax will be tax on the total income as declared in the return minus the amount of tax deducted at source or collected at source in accordance with the provisions of Chapter XVII (which covers Sections 207, 209 and 215 of the Act). 30. Now, Section 245-C (1) is voluntary disclosure by the assessee of his undisclosed income. Under Section 245-C (1), the assessee has to mention in his settlement application the additional amount of tax payable by him on such undisclosed income. Under proviso (a), the application for settlement shall not be entertained till the assessee has furnished the return of income which he was required to file under the Act to the extent of his income. Under proviso (b). the ....
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....on where before determination of the total income under Section 143 (1) or Section 143 (3) tax is paid under Section 140-A or otherwise interest shall be calculated in accordance with Section 234-B(1) up to the date on which tax is so paid. In that sense an application under Section 245-C (1) is a return. Section 245-C (1) deals with computation of total income. 34. There is one more way of looking at the Act. Chapter XIX-A refers to the procedure of settlement [see Section 245-D (1)]. As stated above, Section 245-D (1) provides for expeditious recovery of tax by way of pre-assessment collection. Interest on default in payment of advance tax comes under Sections 234-A, 234-B, 234-C, which fall in Chapter XVII which deals with collection and recovery of tax. It is important to note that interest follows computation of additional payment of income tax under Sections 245-C (1-B) and (1-C). This is how Sections 234-A, 234-B and 234-C get engrafted into Chapter XIX-A at the stage of Section 245-D (1). 35. As stated, till the Settlement Commission decides to admit the case under Section 245-D (1) the proceedings under the normal provisions remain open. But, once the Com....
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....nce tax paid falls short of the assessed tax as defined in the Explanation thereto. Thus, there is no provision under Chapter XIX-A or even under Section 140-A (dealing with self-assessment) to charge interest beyond the date of application for settlement after the same is admitted by the Commission under Section 245-D (1). 39. Moreover, as stated above, under the Act, there is a difference between assessment in law [regular assessment or assessment under Section 143 (1)] and assessment by settlement under Chapter XIX-A. The order under Section 245-D (4) is not an order of regular assessment. It is neither an order under Section 143 (1) or Section 143 (3) or Section 144. Under Sections 139 to 158, the process of assessment involves the filing of the return under Section 139 or under Section 142; inquiry by AO under Sections 142 and 143 and making of the order of assessment by AO under Section 143 (3) or under Section 144 and issuing of notice of demand under Section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapt....
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....ession "interest" in Section 245-D(6-A) fastens the liability to pay interest only when the tax payable in pursuance of an order under Section 245-D (4) is not paid within the specified time and which levy is different from liability to pay interest under Section 234-B or under Section 245-D (2-C)." 9. As would become evident from the aforesaid extracts of the opinion handed down by the Constitution Bench, it found that the liability of interest would be governed firstly by the provisions of Section 245C (1) and which speaks of aggregation of the income which may be disclosed in a return submitted in ordinary course and the declarations that may be made by virtue of an application of settlement made in terms thereof. The Supreme Court has explained the scheme of Section 245C (1) as thus dealing with the aggregation of the amounts as disclosed in the application for settlement together with that disclosed in the Return of Income to constitute total income. 10. It had also taken into consideration the statutory liability which stood placed upon the applicant to ensure that the amount of tax liability which would arise by virtue of a declaration made in such an application being....
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.... "Interest for defaults in payment of advance tax in case of re-assessment and where additional income is disclosed before the Settlement Commission under section 245C. The existing provisions contained in clause (3) of section 234B of the Income-tax Act provides that where the total income is increased on reassessment under section 147 or section 153A the assessee shall be liable for interest at the rate of 1 per cent on the amount of the increase in total income for the period commencing from date of determination of total income under sub-section (1) of section 143 or on regular assessment and ending on the date of reassessment under section 147 or section 153A. Interest is charged under section 234B on the principle that the amount of tax determined on the total income determined under section 143 (1) or on assessment or reassessment or total income declared in a settlement application was the taxpayer's true liability right from the beginning and it was with reference to that amount the advance tax should have been paid within the prescribed due date. Accordingly, it is proposed to amend clause (3) of section 234B of the Income-tax Act to provide th....
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....knowledgement reinforces the stand of the respondent-assessee that the interest on the amount as disclosed in the Section 245C (1) application would run only up to the date when the same comes to be admitted by the ITSC. 15. For the purposes of evaluating the rival submissions which were addressed, we deem it apposite to extract Section 234B as it presently stands hereunder: "Interest for defaults in payment of advance tax. 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 [one] 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 ....
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....he tax so paid together with the advance tax paid falls short of the assessed tax. [(2-A)(a) where an application under sub-section (1) of section 245-C for any assessment year has been made, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of making such application, on the additional amount of income tax referred to in that sub-section; (b) where as a result of an order of the Settlement Commission under sub-section (4) of section 245-D for any assessment year, the amount of total income disclosed in the application under sub-section (1) of section 245-C is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under sub-section (1) of section 245-....
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....ub-section (4) of Section 245D" by Finance Act, 2015 had contemplated interest being payable under sub-sections (1) and (3) and on the variation that may occur by virtue of an order of the ITSC. 17. However, as we read sub-section (4) it becomes apparent that it stands confined to the computation of interest which would have been leviable by virtue of sub-sections (1) and (3) of Section 234B and was clearly not concerned with the computation of interest for purposes of an application referable to Section 245C (1) being entertained. 18. An applicant desirous of seeking closure of disputes and settlement was obliged to move an application in terms of Section 245C (1). That provision is extracted hereinbelow: "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....
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.... income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application.]" 21. The Proviso prior to 2010 as well as the provision as it stands presently on the statute book clearly establish that the applicant was liable to pay tax and interest on the entire amount of total income as disclosed in an application under Section 245C (1), and that, by way of a fiction being extended to the entire tax liability which it would have been ordinarily liable to pay under the provisions of the Act. The fusion of the income which may have been ordinarily declared together with that which came to be disclosed in the application for settlement becomes apparent from the Proviso using the expression ".......had the income disclosed in the application been declared in the Return of Income before the Assessing Officer on the date of application.........". 22. The statute placed a positive and unerring obligation upon the applicant to ensure that the entire amount of tax along with interest in accordance with the disclosures made in the application had been paid on or before the....
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.... 2007 shall be deemed to be the date of the order of rejection or allowing the application to be proceeded with under sub-section (1). (2B) The Settlement Commission shall,- (i) in respect of an application which is allowed to be proceeded with under sub-section (1), within thirty days from the date on which the application was made; or (ii) in respect of an application referred to in sub-section (2A) which is deemed to have been allowed to be proceeded with under that sub-section, on or before the 7th day of August, 2007, call for a report from the [Principal Commissioner or Commissioner], and the [Principal Commissioner or Commissioner] shall furnish the report within a period of thirty days of the receipt of communication from the Settlement Commission. (2C) Where a report of the [Principal Commissioner or Commissioner] called for under sub-section (2B) has been furnished within the period specified therein, the Settlement Commission may, on the basis of the report and within a period of fifteen days of the receipt of the report, by an order in writing, declare the application in question as invalid, and shall send the copy of such or....
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.... furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission: Provided that where the [Principal Commissioner or Commissioner] does not furnish the report within the aforesaid period, the Settlement Commission may proceed to pass an order under subsection (4) without such report. (4) After examination of the records and the report of the [Principal Commissioner or Commissioner], if any, received under- (i) sub-section (2B) or sub-section (3), or (ii) the provisions of sub-section (1) as they stood immediately before their amendment by the Finance Act, 2007, and after giving an opportunity to the applicant and to the [Principal Commissioner or 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....
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....l Commissioner or the Commissioner or the applicant, as the case may be: Provided that no application for rectification shall be made by the Principal Commissioner or the Commissioner or the applicant after the expiry of six months from the end of the month in which an order under sub-section (4) is passed by the Settlement Commission: Provided further that an amendment which has the effect of modifying the liability of the applicant shall not be made under this sub-section unless the Settlement Commission has given notice to the applicant and the Principal Commissioner or Commissioner of its intention to do so and has allowed the applicant and the Principal Commissioner or Commissioner an opportunity of being heard.] (7) Where a settlement becomes void as provided under sub-section (6), the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income tax authority concerned, may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the ....
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....e Central Government may, for the purposes of giving effect to the scheme made under sub-section (11), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification: Provided that no such direction shall be issued after the 31st day of March, 2023. (13) Every notification issued under sub-section (11) and sub-section (12) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.]" 24. As a sine qua non for the consideration of the application, the ITSC must firstly be satisfied that the applicant has made a full and true disclosure with respect to all details pertaining to income and the amount at which a settlement is prayed to be entered. This becomes apparent from Section 245D (1) enabling the ITSC to issue a notice to the applicant to explain why the application so made be allowed to be proceeded with. The ITSC is further enabled to call for reports and records from the Principal Commissioner with respect to the disclosures as made in such an application. It is only....