SETTLEMENT COMMISSION UNDER INCOME TAX ACT, 1961 –PROCEDURE

[Mr. M. GOVINDARAJAN]

Chapter XIX A of the Income Tax Act, 1961 (‘Act’ for short) deals with the establishment of Settlement Commission, its procedure, powers etc.,  According to Section 245C of the Act an assessee is entitled to make an application for settlement.  The application has to be made in such form and such manner as may be prescribed.   The application must contain-

• A full and true disclosure of the assessee’s income which has not been disclosed before the Assessing Officer;
• The manner in which such income has been derived;
• The additional amount of income tax payable on such income; and
• Such other particulars as may be prescribed.

The assessee is also required to pay the additional amount of income tax and interest on or before the date of making the application before the Settlement Commission and the proof of such payment should be attached. 

Section 245D prescribes the procedure to be adopted by the Settlement Commission on receipt of an application under Section 245C.

• On receipt of the application the Settlement Commission is required to issue a notice to the applicant requiring him to explain as to why the application made by him is allowed to be proceeded with, within seven days from the date of receipt of the application;
•  On hearing the application the Commission is required to allow or reject the application within a period of 14 days from the date of the application by an order in writing.  Where no order is passed the application shall be deemed to have been allowed to be proceeded with;
• The Commission shall call for a report from the Commissioner, if the application is allowed;
• The Commissioner shall furnish the required report within 30 days of the receipt of the communication from the Commission;
• The Commissioner shall furnish 7 copies of the Report to the Commission and one copy to the applicant;
• Where a report of the report has been furnished within the specified period, the Commission may, on the basis of the report and within a period of 15 days from the date of the receipt of report, by an order in writing declare the application in question as invalid after giving an opportunity to the applicant of being heard;
• Such an order is to be sent to the applicant and the Commissioner;
• Where such report has not been furnished with the specified period the Commission is to proceed further in the matter without the report of the Commissioner;
• In respect of an application which has not been declared invalid the Commission may call for the records from the Commissioner and after examination, if the Commission is of the opinion that any further enquiry or investigation is necessary, it may director the Commissioner to make or cause to be made such further enquiry or investigation and to furnish a report;
• The Commissioner is required to furnish the report within a period of 90 days of the receipt of the communication from the Commission;
• Where the Commissioner does not furnish a report within the said period, the Commission may proceed to pass order without such report;
• The Commission, after examination of the records and the report of the Commissioner, if any received and after giving an opportunity to the application and to the Commissioner to be heard, pass such order as it thinks, in accordance with the provisions of the Act on the matters covered by the application and any other matter relating to the case not covered by the application but referred to in the report of the Commissioner;
• Every order passed is to provide for the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement is to be paid and all other matters to make toe settlement effective;
• The terms of settlement are to indicate that the settlement would be void if it was subsequently found by the Commission that it had been obtained by fraud or misrepresentation of the facts;
• Where a settlement becomes void the proceedings shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Commission and the Income Tax Authority concerned may complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement becomes void.

Provisional attachment

Section 245DD gives powers to the Commission to attach property.  The said section provides that where, during the pendency of any proceeding before it, the Settlement Commission is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, it may, by order, attach provisionally any property belonging to the applicant.  Such provisional attachment is only for six months.   The Commission may extend the attachment by such further period or periods as it thinks fit for the reasons recorded in writing.

Reopening of completed proceedings

Section 245E provides that if the Commission is of the opinion that it is necessary to reopen any proceedings connected with the case but which has been completed with the concurrence of the applicant may reopen the proceedings and pass such order as it thinks fit.  If the period between the end of the assessment year to which such a proceeding relates and the date of application for settlement under section 245C exceeds nine years no proceedings shall be reopened. No proceeding shall be reopened where application is filed on or after 01.06.2007.

Additional powers

Section 245F provides that in addition to the powers conferred on the Commission, it shall have the powers which are vested in an Income Tax Authority under this Act.  The Commission is having power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers or of the discharge of its functions, including the places at which the Benches shall hold their sittings.

Immunity from prosecution and penalty

Section 245H provides that the Commission may, if it is satisfied that any person who made the application for settlement  under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose, for the reasons to be recorded in writing immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also (either wholly or in part) from the imposition of any penalty under this Act, with respect to the case covered by the settlement.

Abatement of proceedings

Section 245HA provides that where-

• an application made under section 245C on or after the 1st day of June, 2007 has been rejected under section 245D(1); or
• an application made under section 245C has not been allowed to be proceeded with under sub-section (2A) or further proceeded with under sub-section (2D) of section 245D; or
• an application made under section 245C has been declared as invalid under sub-section (2C) of section 245D; or
• in respect of any application made under section 245C, an order under sub-section (4) of section 245D has been passed not providing for the terms of settlement; or
•  in respect of any other application made under section 245C, an order under sub-section (4) of section 245D has not been passed within the time or period specified under sub-section (4A) of section 245D,

the proceedings before the Settlement Commission shall abate on the specified date.

Settlement order conclusive

Section 245 I provides that every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force.

Recovery of sum due under order

Section 245 J provides that any sum specified in an order of settlement passed under sub-section (4) of section 245D may, subject to such conditions, if any, as may be specified therein, be recovered, and any penalty for default in making payment of such sum may be imposed and recovered in accordance with the provisions of Chapter XVII, by the Assessing Officer having jurisdiction over the person who made the application for settlement under section 245C.

Judicial proceeding

Section 245L provides that any proceeding under this Chapter before the Settlement Commission shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purposes of section 196, of the Indian Penal Code (45 of 1860).