2001 (6) TMI 13 - HC - Income Tax

Summary

Issues Involved:
1. Immunity from prosecution granted by the Settlement Commission.
2. Applicability of the bar under proviso to section 245H(1) of the Income-tax Act.
3. Jurisdiction of the Settlement Commission to grant immunity.
4. Relevance of the Supreme Court decision in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443.
5. Conditional nature of the immunity granted.

Detailed Analysis:

1. Immunity from Prosecution Granted by the Settlement Commission:
The petitioners, accused Nos. 7 to 10, sought to quash the private complaint filed by the Deputy Commissioner of Income-tax, arguing that the Settlement Commission had granted them immunity from penalty and prosecution. The applications for settlement were filed before the complaint and were admitted by the Settlement Commission, which later granted immunity. The petitioners contended that this immunity should lead to quashing the prosecution.

2. Applicability of the Bar under Proviso to Section 245H(1) of the Income-tax Act:
The proviso to section 245H(1) bars the Settlement Commission from granting immunity if prosecution proceedings were initiated before the application under section 245C was filed. The court found that the applications were filed and admitted before the complaint was lodged, making the bar under the proviso inapplicable. Thus, the Settlement Commission's grant of immunity was not barred by this proviso.

3. Jurisdiction of the Settlement Commission to Grant Immunity:
The respondent argued that the Settlement Commission had no jurisdiction to grant immunity concerning the subject matter of the complaint, as the claim regarding dealings in potatoes was withdrawn by the petitioners before the Settlement Commission. The court agreed, noting that the Settlement Commission's order did not cover the assessment year 1985-86, which was the subject of the complaint. Therefore, the Settlement Commission could not grant immunity for the subject matter of the complaint.

4. Relevance of the Supreme Court Decision in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443:
The Supreme Court had set aside the Settlement Commission's order granting immunity to Express Newspapers Ltd., finding that the application did not comply with section 245C's requirements. This decision was relevant because it established that the Settlement Commission lacked jurisdiction to entertain applications where income had already been discovered by the tax authorities. The court found that this reasoning applied to the petitioners' case as well, making the Settlement Commission's order a nullity.

5. Conditional Nature of the Immunity Granted:
The immunity granted by the Settlement Commission was conditional, requiring the petitioners to cooperate with the Department in any proceedings related to Express Newspapers Ltd. The court noted that whether these conditions were met could not be determined at this stage and should be decided by the trial court based on the evidence presented during the trial.

Conclusion:
The court dismissed the petitions for quashing the prosecution, holding that the immunity granted by the Settlement Commission did not apply to the subject matter of the complaint and that the Settlement Commission lacked jurisdiction to grant such immunity. The trial court was directed to decide the issues based on the evidence presented during the trial, uninfluenced by the observations made in this judgment. Consequently, related miscellaneous petitions were also dismissed.