2024 (9) TMI 1629 - HC - Income Tax

Validity of the order passed by the Income Tax Settlement Commission ITSC - restricting Applicability of interest u/s 234B on the total income which came to be disclosed in the Statement of Facts SOF up to the date of admission of that application u/s 245D (1) - HELD THAT - As a sine qua non for the consideration of the application, the ITSC must firstly be satisfied that the applicant has made a full and true disclosure with respect to all details pertaining to income and the amount at which a settlement is prayed to be entered. This becomes apparent from Section 245D (1) enabling the ITSC to issue a notice to the applicant to explain why the application so made be allowed to be proceeded with. ITSC is further enabled to call for reports and records from the Principal Commissioner with respect to the disclosures as made in such an application. It is only after the ITSC is convinced that a full, true and candid disclosure has been made by the applicant, that the same is admitted for further consideration. The amount which the applicant may ultimately be called upon to pay could hypothetically be more than that which may be disclosed in the SOF. This is by virtue of the exercise and inquiry which the ITSC is enabled to undertake in terms of sub-sections (3) and (4) thereof. It is only upon the conclusion of that inquiry that the ITSC proceeds to fame a formal order in terms contemplated under sub-section (4)(a) and frame consequential directions in accordance with sub-section (6). As in the case of Brij Lal 2010 (10) TMI 8 - SUPREME COURT makes a clear distinction between the admission of an application under Section 245D (1) and the determinative exercise which the ITSC ultimately takes under Section 245D (4). It has in unequivocal terms observed that the interest liability flowing from Section 234 B cannot go or travel beyond the date of admission of the application under Section 245D (1). We are, therefore, of the firm opinion that the ITSC clearly committed no error in restricting the interest liability to the date of admission of the application. We find no merit in the challenge which stands mounted. The writ petition fails.

Summary

Issues Involved:
1. Validity of the ITSC order restricting the applicability of interest under Section 234B of the Income Tax Act, 1961.
2. The statutory obligation of the respondent-assessee to pay interest on the disclosed income up to the date of ITSC's final determination.
3. The interpretation of Section 234B and its applicability to proceedings before the ITSC.
4. The impact of amendments introduced by the Finance Act, 2015, on the computation of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Validity of the ITSC Order Restricting the Applicability of Interest under Section 234B:

The Commissioner of Income Tax challenged the ITSC's decision to limit the interest liability under Section 234B to the date of admission of the application under Section 245D (1). The ITSC's decision was based on the Supreme Court's ruling in Brij Lal and Others v. Commissioner of Income Tax, Jalandhar, which held that interest liability under Section 234B would not extend beyond the date of admission of the application under Section 245D (1).

2. Statutory Obligation to Pay Interest on Disclosed Income:

The petitioner argued that the ITSC should have required the respondent-assessee to pay interest on the disclosed income up to the date of the ITSC's final determination under Section 245D (4). According to the petitioner, this obligation was embodied as a statutory requirement under Section 234B (4) at the relevant time, necessitating payment of interest up to the date of the final order.

3. Interpretation of Section 234B and Its Applicability to ITSC Proceedings:

The Supreme Court in Commissioner of Income Tax, Mumbai v. Anjum M.H. Ghaswala and Others addressed whether the ITSC had the jurisdiction to reduce or waive interest chargeable under Sections 234A, 234B, and 234C while passing settlement orders under Section 245D (4). The Court concluded that the ITSC did not have the power to waive or reduce statutory interest, as the settlement must be in conformity with the provisions of the Act.

In Brij Lal, the Supreme Court formulated key questions, including whether Section 234B applied to ITSC proceedings and the terminal point for levying such interest. The Court held that interest under Section 234B is applicable up to the date of the order under Section 245D (1) and not beyond.

4. Impact of Amendments by the Finance Act, 2015:

Ms. Jha, representing the respondent-assessee, highlighted the amendments introduced by the Finance Act, 2015, which added sub-section (2A) to Section 234B. This amendment clarified that interest would be payable on the additional amount of income tax disclosed in the settlement application from the 1st day of April of the assessment year to the date of making such application. The Memorandum explaining the Finance Bill, 2015, acknowledged the absence of provisions for charging interest on additional amounts determined by the ITSC beyond the disclosed amount.

Conclusion:

The Court concluded that the ITSC correctly restricted the interest liability to the date of admission of the application under Section 245D (1). The statutory provisions and the Supreme Court's rulings in Brij Lal and Anjum M.H. Ghaswala supported this interpretation. Consequently, the writ petition challenging the ITSC's order was dismissed.