2004 (3) TMI 10 - SC - Income Tax

High Court declined to quash the proceedings on the ground that proceedings were pending before the Commission. The view of the High Court is on terra firma - as after High Court s judgment final orders have been passed by the Commission according immunity on an application presented, apparently before the institution of the proceedings for prosecution - HC was not right in declining to quash the proceedings on the ground that proceedings were pending before the Commission

Summary

Issues:
Prosecution for alleged concealment of income and tax evasion, applicability of immunity granted by Settlement Commission, quashing of proceedings before the special court.

Analysis:
The judgment delivered by the Supreme Court pertained to a case where the appellants were facing prosecution for alleged concealment of income and tax evasion, along with making false statements in verification under section 276C of the Income-tax Act, 1961. The Special Court in Bihar had taken cognizance based on a complaint filed by the income-tax authorities. The appellants had filed petitions under section 482 of the Code of Criminal Procedure before the High Court, claiming that proceedings should be stayed due to pending applications for settlement before the Settlement Commission. However, the High Court rejected this argument, stating that no immunity order had been issued by the Commission, and there was no basis for interference at that stage.

The Settlement Commission had indeed passed necessary orders during the proceedings. The respondents argued that the immunity granted by the Commission was conditional, subject to fulfilling specified conditions. They contended that unless these conditions were met, the prosecution should continue, and the appellants could bring relevant orders before the trial court for consideration. The court analyzed section 245H of the Income-tax Act, which empowers the Settlement Commission to grant immunity from prosecution and penalty under certain conditions. The proviso to subsection (1) excludes immunity if prosecution proceedings were initiated before the application for settlement.

In this case, the Commission had granted immunity based on the appellants' full disclosure of income and cooperation. The application for settlement was filed before the prosecution was initiated, meeting the conditions for immunity. The Commission's order explicitly mentioned granting immunity from penalty and prosecution for the relevant assessment years. Consequently, the Supreme Court quashed the proceedings before the special court due to the immunity granted by the Commission.

However, the judgment highlighted the consequences of non-compliance with the Commission's order. Section 245H(1A) addresses such situations, stating that non-compliance would render the appellants liable as if no immunity was granted. The income-tax authorities could seek restoration of proceedings before the special court in case of non-compliance or withdrawal of immunity under section 245H(2). The court emphasized that the High Court's decision not to quash proceedings while settlement applications were pending was valid, but the final orders granting immunity changed the circumstances in this case.

Ultimately, the appeals were allowed, and the proceedings were disposed of in accordance with the terms outlined in the judgment, emphasizing the importance of complying with the Settlement Commission's orders to maintain immunity from prosecution and penalties under the Income-tax Act.