2002 (12) TMI 11 - SC - Income Tax

Whether the Settlement Commission gets a complete role in total substitution of other authorities under the Income-tax Act 1961 and if so for what purpose and to what extent - Whether the Commission is empowered to waive the interest under section 234A while exercising its jurisdiction under section 245D(4) - Whether the assessment order passed by the AO prior to the admission of settlement application u/s 245C will subsist and the recovery proceedings will continue or not

Summary

Issues Involved:
1. Whether the Settlement Commission is empowered to waive or reduce the interest under section 234A read with section 220(2) of the Income-tax Act while exercising its jurisdiction under section 245D(4) of the said Act.
2. Whether the assessment order passed by the Assessing Officer prior to the admission of settlement application under section 245C of the Act, will subsist and the recovery proceedings will continue or not.
3. Whether after determination of liability by the Settlement Commission, the orders of the lower authorities under the Act would automatically stand set aside.

Issue-wise Detailed Analysis:

1. Empowerment of the Settlement Commission to Waive or Reduce Interest:
The primary contention was whether the Settlement Commission has the authority to waive or reduce interest under section 234A read with section 220(2) while exercising its jurisdiction under section 245D(4). The court referred to the Constitution Bench decision in CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1 (SC), which concluded that the Commission does not have the power to reduce or waive interest statutorily payable under sections 234A, 234B, and 234C, except as provided under specific Board circulars. The court noted that wherever the Act explicitly provides for waiver or reduction of interest, such as in sections 139(8), 215(4), 216, and 220(2A), the Commission can exercise this power if the conditions are met. Therefore, the Commission must assess whether the assessee has made a case for waiver or reduction under these provisions.

2. Subsistence of Assessment Order and Continuation of Recovery Proceedings:
The court examined if the assessment order passed by the Assessing Officer before the admission of the settlement application under section 245C subsists and if recovery proceedings continue. It was held that the orders of the lower authorities are not automatically set aside by the Commission's order under section 245D(4); instead, they are modified to give effect to such order. The court emphasized that the income-tax authorities retain the power to proceed in the prescribed manner until the Commission decides to proceed with the petition. The liability for interest under section 220(2) persists up to the date of the order under section 245D(1), and thereafter, the Commission has the power to waive or reduce interest under section 220(2).

3. Automatic Setting Aside of Orders by Lower Authorities:
The court addressed whether the orders of the lower authorities under the Act automatically stand set aside after the Settlement Commission determines liability. It was clarified that the liability does not get automatically set aside. The court reiterated the conclusions from Anjum M. H. Ghaswala's case, stating that the Commission's power to waive or reduce interest is conditional and must be exercised within the framework provided by the Act. The court further noted that the interests charged under sections 234A, 234B, and 234C apply to the consolidated amount of both disclosed and undisclosed income until the Commission acts under section 245D. Post this, the interest charged under section 245D is a separate levy, not overlapping with sections 234A, 234B, and 234C.

Conclusion:
The court allowed the appeal to the extent indicated, affirming that the Settlement Commission does not have the blanket power to waive or reduce interest except as provided under specific conditions in the Act. The assessment orders and recovery proceedings continue until the Commission decides to proceed with the petition, and the orders of lower authorities do not automatically stand set aside post-determination of liability by the Commission. The court also clarified that there is no double levy of interest as the provisions operate in different fields.