2017 (9) TMI 825 - HC - Income Tax

Application for settlement rejected - combined application for settlement of all cases - petitioner failed to pay the full tax and interest before the last date provided under the statute i.e. 31.7.2007 - constitutionality of sections 245D(2A), 245D(2D) and 245HA of the Income Tax Act, 1961 inserted by the Finance Act 2007 as ultra vires Article 14 of the Constitution - Held that - The combined effect of the statutory provisions prevailing before 1.6.2007 in our opinion did not prohibit filing of separate applications for settlement assessment year wise and the newly introduced requirement of payment of additional tax with interest by 31.7.2007, failing which, the proceedings before the Settlement Commission would abate, would persuade us to hold that it was open for the Settlement Commission to examine the requirement of payment of additional tax with interest as may be correlated to a particular assessment year. It may be that the assessee himself had filed one common application for settlement of all cases. In view of the statutory provisions prevailing before 1.6.2007 and in view of the noted changes after 1.6.2007, such application need not have to be seen as one composite application for settlement which may either in its entirety are allowed to be proceeded with or be declared as abated. One must look at the application in the background of such statutory provisions before and after 1.6.2007. Had the requirement of payment of additional tax with interest been existing in the statute when the petitioner applied for settlement surely, he would have applied only to the extent that he was able to muster up sufficient funds for additional tax and interest. Under the circumstances, the petitioner s request that entire application for settlement may not be declared as abated, would have to be accepted. The petitioner had paid additional tax and interest by 31.7.2007, his proceedings before the Settlement Commission, would not abate. The abatement would apply with respect to those assessment years for which such payment was not made. In the result, the petition is allowed in part. The impugned order of settlement dated 4.10.2007 is set aside to the limited extent. Declaration of abatement of assessment proceedings before the Settlement Commission in terms of subsection( 3) of section 245HA, would be limited to the assessment years 2004-2005 and 2006-2007. The application for rest of the assessment years would be revived and be placed before the Settlement Commission for disposal in accordance with law.

Summary

Issues Involved:
1. Constitutionality of sections 245D(2A), 245D(2D), and 245HA of the Income Tax Act, 1961.
2. Abatement of the petitioner’s application for settlement due to non-payment of additional tax and interest.

Issue-Wise Detailed Analysis:

1. Constitutionality of Sections 245D(2A), 245D(2D), and 245HA:
The petitioner challenged the constitutionality of sections 245D(2A), 245D(2D), and 245HA of the Income Tax Act, 1961, on the grounds that these amendments imposed onerous conditions with retrospective effect, violating Article 14 of the Constitution. The petitioner argued that:
- The amendments introduced a condition of payment of additional tax and interest before a specified date, which did not exist when the application was filed, thus taking away a vested right.
- The amendments did not allow for extensions or installments in cases of genuine hardship.
- The amendments allowed the use of materials produced before the Settlement Commission by the Assessing Officer if the application for settlement was rejected or abated.

The court noted that the amendments aimed to instill greater seriousness and promptness in pursuing settlement cases. The court referred to the judgment in "Star Television News Ltd. v. Union of India" where similar provisions were read down to prevent abatement due to reasons not attributable to the applicant. The court held that:
- The amendments did not take away any vested rights as the liability to pay additional tax on the disclosed income always existed.
- The provisions were not arbitrary as they aimed to ensure prompt payment of taxes on admitted income, which is a reasonable legislative objective.
- The use of materials produced before the Settlement Commission by the Assessing Officer was not arbitrary as it did not take away any vested right and was consistent with the duty of the assessee to make true and full disclosures.

2. Abatement of the Petitioner’s Application for Settlement:
The petitioner’s application for settlement was declared abated due to non-payment of additional tax and interest by the specified date (31.7.2007). The petitioner contended that:
- Due to financial difficulties, they could not make full payment and requested an extension.
- The application should not abate in its entirety but only for those assessment years for which payment was not made.

The court held that:
- The Settlement Commission correctly concluded that it did not have the power to extend the time for payment as per the amended provisions.
- The petitioner’s request to limit the abatement to specific assessment years was justified. The court observed that the statutory provisions did not prohibit filing separate applications for different assessment years and that the petitioner had paid the additional tax and interest for five out of seven assessment years.

Judgment:
The court allowed the petition in part. The impugned order declaring the entire application as abated was set aside to the extent that the abatement would apply only to the assessment years 2004-2005 and 2006-2007 for which payment was not made. The application for the remaining assessment years was revived and directed to be disposed of by the Settlement Commission in accordance with law.

Conclusion:
The court upheld the constitutionality of the challenged provisions and provided relief to the petitioner by limiting the abatement of the settlement application to specific assessment years. The petition was disposed of accordingly.