2024 (12) TMI 1352 - HC - Income Tax

Condition of eligibility to file application for settlement Commission - whether paragraph 4(i) of the circular dated 28.09.2021 is bad in law in as much as it imposes a condition of liability to file application for settlement as on 31.01.2021 along with the issue as to whether the Finance Act, 2021 is unconstitutional in as much as by giving retrospective application with effect from 01.02.2021? - HELD THAT - Question no. (i) was answered in Jain Metal 2023 (11) TMI 1111 - MADRAS HIGH COURT by holding that when the Income Tax Settlement Commission itself has been made inoperative with effect from 01.02.2021, it cannot be said that Clause 4 (i) of the circular runs counter or imposes an additional condition to the statute. Question no. (ii) was answered by the Hon'ble Division Bench by observing that it is just necessary to read down the last date mentioned for filing application in Section 245C (5) as 31.03.2021 and consequently the last date mentioned in paragraph 4(i) of the circular should be read as 31.03.2021. In the case on hand the petitioners applied before the Settlement Commission on 17.03.2021 i.e., prior to the date when the assent of the Hon'ble President of India has been received. The decision in the case of Jain Metal (supra) shall squarely apply to the case on hand. Thus the learned Single Judge as well as the order impugned in the writ petition passed by the Income Tax Settlement Commission are set aside and quashed. The application of the petitioner filed before the Income Tax Settlement Commission stands restored to the file of the Settlement Commission. The Interim Board is directed to consider the said application in accordance with the scheme that may be framed by the Central Government as in respect of the cases which arose prior to 31.01.2021 and to decide the same in accordance with law and on merits.

Issues Involved:

1. Constitutionality of the retrospective application of the Finance Act, 2021.
2. Validity of paragraph 4(i) of the circular dated 28.09.2021.
3. Impact of retrospective legislation on vested rights.
4. Legality of the order passed by the Income Tax Settlement Commission.

Detailed Analysis:

1. Constitutionality of the Retrospective Application of the Finance Act, 2021:

The appellants challenged the retrospective application of the Finance Act, 2021, which abolished the Income Tax Settlement Commission and established an Interim Board. The Finance Act was made effective from 01.02.2021, although it was notified on 01.04.2021. The appellants argued that this retrospective application deprived them of their vested right to approach the Settlement Commission. The court referenced the decision of the Madras High Court in Jain Metal Rolling Mills, which held that while the Finance Act, 2021, was retrospective, it should be read down to extend the last date for filing applications to 31.03.2021. This interpretation was aimed at preserving the rights of those who had pending cases or had filed applications before the Finance Act came into effect.

2. Validity of Paragraph 4(i) of the Circular Dated 28.09.2021:

The appellants contended that paragraph 4(i) of the circular, which imposed a condition of eligibility to file an application for settlement as of 31.01.2021, was bad in law. The court, aligning with the Madras High Court's judgment, held that the circular did not impose any additional condition beyond the statute. The circular was intended to provide administrative relief and ensure uniform application of the Income Tax Act. The court concluded that the circular did not introduce new eligibility criteria but merely extended the deadline for filing applications to mitigate the retrospective effect of the Finance Act.

3. Impact of Retrospective Legislation on Vested Rights:

The court examined whether the retrospective legislation affected vested rights. Citing the Bombay High Court's decision in Sar Senapati Santaji Ghorpade Sugar Factory Ltd., the court noted that retrospective legislation cannot deprive individuals of accrued rights. The court emphasized that applications filed before the Finance Act's assent were valid and should not be invalidated by the retrospective provision. The court reinforced that the right to approach the Settlement Commission was preserved for applications made before the Finance Act was enacted.

4. Legality of the Order Passed by the Income Tax Settlement Commission:

The appellants challenged the order of the Settlement Commission dated 14.01.2022, which declared their application invalid. The court, referencing the precedent set by the Madras High Court, held that applications filed before 31.03.2021 should be considered pending and valid. Consequently, the court quashed the order of the Settlement Commission and directed the Interim Board to consider the appellants' application in accordance with the scheme applicable to cases prior to 31.01.2021.

Conclusion:

The court set aside the order of the learned Single Judge and the Settlement Commission's order, restoring the appellants' application to the file of the Settlement Commission. The Interim Board was directed to decide the application on its merits, following the scheme for cases prior to 31.01.2021. The appeals were allowed without any order as to costs.

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