2024 (9) TMI 528 - HC - Income Tax

Settlement Commission power of rectification - levy interest under sections 234A, 234B and 234C - order passed in terms of Section 245F(1) r.w.s. 154 by Settlement Commission as rectified the component of interest levied u/s 245F(1) - HELD THAT - As the Settlement Commission has been vested with the power of rectification only with effect from 01.06.2011 by insertion of sub-section 6B in Section 245D of the Act, the impugned rectification could not have been effected on 21.03.2003 when such a power did not enure to the Settlement Commission. The provision is extracted below for clarity and completeness. The above position is fortified by a judgment of the Hon'ble Apex Court in Brij Lal and others 2010 (10) TMI 8 - SUPREME COURT as held that terminal point for the levy of interest under section 234B would be up to the date of the order under section 245D(1) and not up to the date of the Order of Settlement under section 245D(4).The Settlement Commission cannot re-open its concluded proceedings by invoking section 154 of the Act so as to levy interest under section 234B, particularly, in view of section 245I. WP allowed.

Summary

Issues:
1. Rectification of interest component by Settlement Commission under Income-tax Act, 1961.
2. Applicability of sections 234A, 234B, and 234C to Settlement Commission proceedings.
3. Power of Settlement Commission to reopen concluded proceedings for levying interest under section 234B by invoking section 154 of the Act.

Analysis:
1. The judgment concerns the rectification of interest component by the Settlement Commission under the Income-tax Act, 1961. The impugned order rectified the interest levied under Section 245F(1) on 21.03.2003, which was beyond the Commission's power before 01.06.2011. The Court referred to Section 245D(6B) and held that the rectification was not valid due to the lack of power vested in the Commission at that time. The judgment was supported by the decision in Brij Lal v. Commissioner of Income tax, emphasizing the importance of procedural distinctions between settlement proceedings and regular assessments under the Act.

2. The Court addressed the applicability of sections 234A, 234B, and 234C to Settlement Commission proceedings. It highlighted that the Settlement Commission operates under Chapter XIX-A, distinct from the assessment procedures outlined in Chapter XIV. The judgment clarified that interest under section 234B is incidental to the liability to pay advance tax and is not within the purview of settlement proceedings. It emphasized that the Settlement Commission, akin to the ITAT, lacks the power to rectify orders under Section 154, ensuring finality to settlement assessments.

3. The judgment delved into the power of the Settlement Commission to reopen concluded proceedings for levying interest under section 234B by invoking section 154 of the Act. It underscored that the Settlement Commission cannot reopen settled matters through section 154, as the objective of Chapter XIX-A is to settle liabilities, not determine them. The Court discussed conflicting decisions on the terminus of interest under section 234B and concluded that invoking section 154 in settlement proceedings is unwarranted. The judgment clarified the terminal point for interest levy under section 234B as the date of the order under section 245D(1), not the settlement order under section 245D(4).

4. Ultimately, the Court allowed the writ petitions, emphasizing that the Settlement Commission cannot reopen concluded proceedings using section 154 to levy interest under section 234B. The judgment highlighted the distinct nature of settlement proceedings and the limitations on the Commission's powers regarding interest rectification.