1992 (7) TMI 349 - HC - Income Tax

Summary

Issues Involved:
1. Maintainability of the petitions under Article 227 of the Constitution.
2. Jurisdiction and error in the Settlement Commission's summary rejection of applications under Section 245D(1) of the Income-tax Act, 1961.
3. Complexity of investigation and the Commission's reasoning for rejection.
4. Specific case of Kanubhai P. Patel, individual.

Issue-wise Detailed Analysis:

1. Maintainability of the petitions under Article 227 of the Constitution:
The respondents raised a preliminary objection against the maintainability of the petitions, arguing that the decision of the Settlement Commission, being a Tribunal, cannot be challenged under Article 227. They cited Section 245-I of the Income-tax Act and the availability of an appeal by special leave under Article 136 of the Constitution. The court rejected this objection, clarifying that Section 245-I's conclusiveness applies only to orders under Section 245D(4) and not to orders under Section 245D(1). Furthermore, the court held that constitutional remedies under Article 227 are not barred by statutory provisions and that the Supreme Court has not excluded the jurisdiction of the High Court under Article 227 in such cases.

2. Jurisdiction and error in the Settlement Commission's summary rejection of applications under Section 245D(1) of the Income-tax Act, 1961:
The court examined the Settlement Commission's summary rejection of the applications for settlement. The Commission's reasoning was that the applicants had switched their stand regarding their status, indicating a lack of sanctity about their claims. The Commission also agreed with the Department's view that the association of persons was an invention to escape penalties and prosecution. The court found this reasoning flawed, noting that even if the association of persons was an afterthought, it should not have impacted the maintainability of the applications by the six firms, which were legitimate assessees. The court held that the Commission committed a patent error of law and jurisdiction by summarily rejecting the applications based on this reasoning.

3. Complexity of investigation and the Commission's reasoning for rejection:
The Commission concluded that there was no complexity of investigation involved in these cases and that they did not deserve to be admitted. The court found this conclusion directly linked to the erroneous main conclusion regarding the association of persons. The Commission failed to provide specific reasons for its view on the complexity of the investigation, leading the court to determine that the Commission's decision was based on a misconception of the legal and factual position.

4. Specific case of Kanubhai P. Patel, individual:
The court noted that the Commission had not provided any reasoning for the summary rejection of Kanubhai P. Patel's individual application. This lack of reasoning further demonstrated the Commission's error in summarily rejecting the applications without proper consideration.

Conclusion:
The court allowed the petitions, quashed the Settlement Commission's orders, and directed the Commission to proceed beyond the stage of Section 245D(1) and treat the applications as admitted for settlement. The Commission was instructed to deal with the applications in accordance with law and pass appropriate orders on the merits as per Section 245D(4). The rules issued in the petitions were made absolute to the extent specified, with no order as to costs.