2004 (4) TMI 639 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction and Powers of the Settlement Commission.
2. Applicability of Section 154 of the Income Tax Act to the Settlement Commission.
3. Finality and conclusiveness of the Settlement Commission's orders.
4. Qualifications and appointment of Members and Chairpersons of the Appellate Tribunal for Foreign Exchange.
5. Validity of rules under the Appellate Tribunal for Foreign Exchange (Recruitment, Salary and Allowances and Other Conditions of Service of Chairperson and Members) Rules, 2000.
6. Separation of powers between the judiciary and executive.

Detailed Analysis:

1. Jurisdiction and Powers of the Settlement Commission:
The judgment clarifies that the Settlement Commission has exclusive jurisdiction to exercise the power and perform the functions of an Income Tax authority under the Act in relation to cases pending before it until an order is passed under sub-section (4) of Section 245D. After such an order, the Commission ceases to have jurisdiction.

2. Applicability of Section 154 of the Income Tax Act to the Settlement Commission:
The court held that the Settlement Commission, after passing an order under Section 245D(4), becomes functus officio and cannot reopen the case under Section 154 of the Act for rectification of mistakes. The court referenced the Supreme Court's decision in Anjum M.H. Ghaswala, which stated that the Commission does not have the power to reduce or waive interest statutorily payable under Sections 243A, 243B, or 243C.

3. Finality and conclusiveness of the Settlement Commission's orders:
Section 245-I makes the order of settlement conclusive regarding the matters stated therein, and such orders cannot be reopened in any proceeding under the Act or any other law, except as provided in Chapter XIX-A. The court emphasized that the Settlement Commission's orders are final and conclusive and cannot be reopened, except in cases of fraud or misrepresentation.

4. Qualifications and appointment of Members and Chairpersons of the Appellate Tribunal for Foreign Exchange:
The court examined the qualifications for appointment under Section 21 of the Foreign Exchange Management Act, 1999. It was determined that a person qualified to be a District Judge can be appointed as a Member, while a member of the Indian Legal Service holding a Grade I post can only be appointed as a Special Director (Appeals) and not as a Member of the Tribunal.

5. Validity of rules under the Appellate Tribunal for Foreign Exchange (Recruitment, Salary and Allowances and Other Conditions of Service of Chairperson and Members) Rules, 2000:
The court found that Rule 5 of the Rules, which allows for part-time members, is ultra vires Section 21(1)(b) of the Act. The rule-making authority exceeded its powers by providing for full-time and part-time members, which is not contemplated by the Act. Consequently, the appointments of part-time members were quashed.

6. Separation of powers between the judiciary and executive:
The judgment stressed the importance of maintaining the independence of the judiciary from the executive. It was noted that appointments to judicial positions should not include individuals from executive services, as this undermines judicial independence. The court referenced historical practices and constitutional provisions to support this stance.

Relief Granted:
The court quashed the first and second provisos to Rule 5 of the Rules as ultra vires Section 21(1)(b) of the Act. Consequently, the appointments of the respondents as part-time members and the appointment of one of the respondents as Chairperson were quashed. The petitions were allowed to the extent of these findings, with costs awarded to the petitioners.