2008 (3) TMI 21 - HC - Income Tax

Constitutional validity of amendment with regard to settlement commission made by Finance Act 2007 (sections 245D to 245HA) - While providing the interim relief HC has directed the central govt. and settlement commission to dispose of all pending application as soon as possible

Issues Involved:
1. Constitutionality of Sections 245D(2A), 245D(2D), 245D(4A), and 245HA(1) of the Income Tax Act, 1961.
2. Impact of the Finance Act, 2007 amendments on pending settlement applications.
3. Procedural fairness and arbitrariness in the abatement of settlement applications.
4. Confidentiality of information disclosed to the Settlement Commission.
5. Bias and fairness in regular assessments post-abatement.

Issue-Wise Detailed Analysis:

1. Constitutionality of Sections 245D(2A), 245D(2D), 245D(4A), and 245HA(1) of the Income Tax Act, 1961:
The Petitioners challenged these sections as being arbitrary and unconstitutional. The amendments mandated that settlement applications filed before 1st June 2007 must be decided by 31st March 2008, failing which they would abate. The Court noted that the amendments were introduced to expedite the settlement process but found the provisions to be unfair and arbitrary since the Respondents did not take necessary steps to comply with the law, leading to a situation where applications would abate due to no fault of the Petitioners.

2. Impact of the Finance Act, 2007 Amendments on Pending Settlement Applications:
The amendments reduced the period for disposing of settlement applications from four years to eight months. The Petitioners argued that they approached the Settlement Commission in good faith and were ready for an early settlement. However, due to the Respondents' inaction, their applications were at risk of abatement. The Court found that the Respondents had the power to prevent abatement but failed to act, making the amendments arbitrary and unjust.

3. Procedural Fairness and Arbitrariness in the Abatement of Settlement Applications:
The Court emphasized the importance of procedural fairness, noting that the Petitioners could not be discriminated against or arbitrarily treated. The arbitrary cut-off date of 31st March 2008 was criticized as it did not consider the ground realities and was incapable of being adhered to. The Court highlighted that similarly placed persons were being subjected to hostile discrimination, violating Article 14 of the Constitution.

4. Confidentiality of Information Disclosed to the Settlement Commission:
The Petitioners expressed concern over the breach of confidentiality of information disclosed to the Settlement Commission. The Court noted that under the amended provisions, confidential information could be used by the Assessing Officer against the Petitioners, which was previously protected. This breach of confidentiality was deemed arbitrary and prejudicial to the Petitioners.

5. Bias and Fairness in Regular Assessments Post-Abatement:
The Court acknowledged the Petitioners' concerns about bias in regular assessments post-abatement. The Assessing Officer, who opposed the settlement application, would now assess the Petitioners' cases, leading to a real likelihood of bias. The Court found that this situation was unfair and compromised the Petitioners' right to a fair hearing.

Conclusion:
The Court issued several directions to address the issues raised by the Petitioners:
- The settlement applications would not abate on 31st March 2008.
- The Settlement Commission should expedite the disposal of pending applications.
- The Central Government should assist the Settlement Commission, including setting up additional benches if necessary.
- Confidential information disclosed by the Petitioners would not be used against them until the settlement applications were disposed of.
- The writ petitions were admitted for final hearing, and the interim relief applications were disposed of accordingly.

The Court's observations in this order would not bind the final disposal of the writ petitions.

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