2002 (2) TMI 8 - SC - Income Tax

Whether the Settlement Commission is not empowered to waive the interest u/s 234A while exercising its jurisdiction u/s 245D (4) that the assessment order passed by the AO prior to the admission of the settlement application will subsist so as to enable the Revenue to continue the recovery proceedings and that on the determination of liability by the Commission the orders passed by the lower authorities would not automatically stand set aside in view of amendment in section 245C - Held no

Issues Involved:
1. Validity of assessment orders before and after the admission of the settlement application.
2. Effect of Settlement Commission's determination on lower authorities' orders and liability under section 220(2).
3. Powers of the Settlement Commission to waive interest under section 220(2).

Detailed Analysis:

Issue 1: Validity of Assessment Orders Before and After the Admission of the Settlement Application

The court examined whether the assessment orders passed by the Assessing Officer before the admission of the settlement application subsisted and whether recovery proceedings could continue post-admission. The Special Bench of the Settlement Commission had previously held that such orders subsisted even after the application was admitted. However, the court clarified:

- The assessment orders passed before the filing of the application under section 245C(1) subsist.
- Orders passed after the filing but before the application is allowed to proceed do not subsist.
- Recovery proceedings cannot continue after the admission of the application, except for self-assessment tax and as per section 245DD for safeguarding future demands.

Issue 2: Effect of Settlement Commission's Determination on Lower Authorities' Orders and Liability Under Section 220(2)

The court addressed whether the orders of lower authorities automatically stand set aside once the Settlement Commission determines the liability for tax, penalty, and interest under section 245D(4). It was concluded that:

- Orders of lower authorities do not automatically stand set aside by the Commission's order under section 245D(4). Instead, the assessment order is modified to reflect the Commission's order, applying the theory of merger.
- For assessment orders passed before the filing of the application, interest liability under section 220(2) exists up to the date of the order under section 245D(1). No liability for interest under section 220(2) exists thereafter.
- For assessment orders passed after the filing of the application, there is no liability for interest under section 220(2).

Issue 3: Powers of the Settlement Commission to Waive Interest Under Section 220(2)

The court considered whether the Settlement Commission has the power to waive interest under section 220(2). The conclusion was affirmative:

- The Settlement Commission possesses the authority to reduce or waive interest chargeable under section 220(2).

Additional Considerations:

Special Leave Petitions (SLP) Nos. 18012-18015 of 2000

The court also reviewed special leave petitions against an order of the Income-tax Settlement Commission, Additional Bench, Calcutta, which allowed full waiver of interest under section 234B for certain assessment years. The court noted that its earlier decision in CIT v. Anjum M. H. Ghaswala [2001] 252 ITR 1 (SC) held that the Settlement Commission could not reduce or waive interest statutorily payable under sections 234A, 234B, and 234C, except as per CBDT circulars.

Conclusion:

The court found that the issues raised involve significant questions about the extent of the Settlement Commission's powers under section 245C. Given the conflicting stands and the recurring nature of these questions, the court deemed it appropriate to refer the matter to a larger Bench for a comprehensive resolution. The Chief Justice was directed to take appropriate actions for this referral.

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