2010 (5) TMI 598 - HC - Income Tax

Imposition and demand of interest under section 158BFA(1). - Held that - The case that has been moulded in exhibit P6 petition filed before the second respondent and also in this writ petition is that, the direction/permission to realise interest as given in the post script is subject to the terms as specified in the order and since exhibit P4 order specified payment of tax alone within the specified time (lest it should attract interest u/s 245D(6A)), no such liability to satisfy interest u/s 158BFA is there. - Decided against Assessee.

Issues Involved:
1. Sustainability of the imposition and demand of interest under section 158BFA(1) of the Income-tax Act, 1961.
2. Scope of the Settlement Commission's order under section 245D(4) and its binding nature under section 245-I of the Income-tax Act.
3. Jurisdiction and power of the Settlement Commission to waive statutory interest.
4. Validity of the consequential orders (exhibits P5 and P7) issued by the respondents.
5. Interpretation of the word "shall" in section 158BFA(1) as "may".

Issue-wise Detailed Analysis:

1. Sustainability of the Imposition and Demand of Interest under Section 158BFA(1):
The petitioner challenged the imposition and demand of interest under section 158BFA(1) of the Income-tax Act, arguing that the Settlement Commission's order did not provide for any such interest. The court noted that the liability to pay interest under section 158BFA(1) is mandatory and that the Settlement Commission did not have the jurisdiction to waive it. The court referenced the decision in CIT v. Anjum M.H. Ghaswala, which held that statutory interest cannot be waived by the Settlement Commission.

2. Scope of the Settlement Commission's Order under Section 245D(4) and Its Binding Nature under Section 245-I:
The petitioner contended that the Settlement Commission's order under section 245D(4) is conclusive and binding, and since it did not mention interest under section 158BFA(1), no such interest could be demanded. The court clarified that the finality conferred by section 245-I applies only to matters explicitly stated in the order. Since the Settlement Commission's order did not address the liability to pay interest under section 158BFA(1), it was not covered by the finality provision of section 245-I.

3. Jurisdiction and Power of the Settlement Commission to Waive Statutory Interest:
The court emphasized that the Settlement Commission does not have the power to waive statutory interest under section 158BFA(1). The legislative intent was clear in making the payment of interest obligatory, as indicated by the use of the word "shall" in section 158BFA(1), in contrast to the discretionary nature of penalties under section 158BFA(2), where the word "may" is used.

4. Validity of the Consequential Orders (Exhibits P5 and P7) Issued by the Respondents:
The petitioner challenged the consequential orders (exhibits P5 and P7) that demanded interest under section 158BFA(1). The court found that these orders were valid and in accordance with the law. The first respondent's order (exhibit P5) correctly calculated the tax, surcharge, and interest, and the second respondent's order (exhibit P7) upheld this calculation. The court noted that the petitioner's application for rectification (under section 154) and the revision petition (under section 264) did not successfully challenge the imposition of interest.

5. Interpretation of the Word "Shall" in Section 158BFA(1) as "May":
The petitioner argued that the word "shall" in section 158BFA(1) should be interpreted as "may," making the imposition of interest discretionary. The court rejected this argument, stating that the legislative intent was clear in making the payment of interest mandatory. The court highlighted the deliberate use of different terms ("shall" for interest and "may" for penalties) in section 158BFA to indicate the obligatory nature of interest and the discretionary nature of penalties.

Conclusion:
The court dismissed the writ petition, upholding the imposition and demand of interest under section 158BFA(1) as mandatory and beyond the scope of the Settlement Commission's waiver powers. The court also validated the consequential orders issued by the respondents, confirming that the Settlement Commission's order did not cover the liability to pay interest under section 158BFA(1). The interpretation of "shall" as mandatory was affirmed, and the petitioner's contentions were found to be without merit.

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