1995 (12) TMI 391 - Commission - Income Tax

Summary

Issues Involved:
1. Validity of the Settlement Commission's summary rejection of the settlement application under Section 245D(1) of the Income-tax Act, 1961.
2. Requirements for a valid application under Section 245C(1) of the Income-tax Act, 1961.
3. The scope and ambit of Section 245D(1) and the role of the Commissioner's report.
4. Judicial review of the Settlement Commission's decision by the High Court under Article 226 of the Constitution.

Detailed Analysis:

1. Validity of the Settlement Commission's Summary Rejection:
The writ petition challenges the Settlement Commission's order dated 26-5-1994, which summarily rejected the petitioner's application for settlement of income-tax assessment for the years 1988-89 to 1990-91 under Section 245D(1). The Commission's decision was based on the material in the Commissioner's report and the nature and circumstances of the case. The Settlement Commission exercised its quasi-judicial power judicially in rejecting the application, considering the complexity and nature of the case.

2. Requirements for a Valid Application under Section 245C(1):
Section 245C(1) necessitates that an application for settlement must include a full and true disclosure of the applicant's income not previously disclosed to the Assessing Officer, the manner in which such income was derived, and the additional amount of income-tax payable. The proviso to Section 245C(1) mandates that the assessee must have filed the required return of income, and the additional tax payable must exceed Rs. 50,000. These conditions are sine qua non for a valid application, and their absence renders the settlement petition invalid.

3. Scope and Ambit of Section 245D(1) and the Role of the Commissioner's Report:
Upon receiving a settlement application, Section 245D(1) requires the Settlement Commission to call for a report from the Commissioner and decide whether to proceed with or reject the application based on the report's material and the case's complexity. The Commission's discretion must be exercised judicially. In this case, the Commission received the report, considered the material, and rejected the application, citing established concealment of income and various fraudulent methods employed by the petitioner.

The Supreme Court's decision in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443 clarified that disclosure under Section 245C must be of income not previously disclosed to the Assessing Officer. If the Assessing Officer has already discovered the income or is likely to establish it, the assessee cannot use the Settlement Commission to forestall the investigation. The disclosure must be voluntary and in good faith, not after the discovery of income particulars by the department.

4. Judicial Review by the High Court under Article 226:
The High Court's writ jurisdiction under Article 226 is limited to reviewing the decision-making process, not the decision itself. The Court cannot substitute its view for the Settlement Commission's decision if it is within the legal parameters and based on relevant material. The Settlement Commission's order was within its jurisdiction under Section 245D(1) and did not exhibit any error of law, arbitrariness, or lack of nexus between the reasons and the decision.

Conclusion:
The Settlement Commission's summary rejection of the settlement application was upheld. The application did not meet the requirements of Section 245C(1), and the Commission exercised its discretion judicially based on the Commissioner's report and the case's circumstances. The High Court found no grounds for interference under its writ jurisdiction and rejected the petition summarily. The request for leave to appeal to the Supreme Court was also denied as the case did not involve a substantial question of law of general importance.