INTERIM BOARD FOR SETTLEMENT UNDER INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Introduction

Chapter XIX – A of the Income Tax Act, 1961 (‘Act’ for short) provides the procedure for settlement of the cases through Settlement Commission.  This Chapter contains section 245A to section 245M which were inserted by the Taxation Laws (Amendment) Act, 1975 which came into effect from 01.04.1976.

The sections of Chapter XIX – A deals with the following matters-

• Section 245A – Definitions;
• Section 245 B – Income tax Settlement Commission;
• Section 245 BA – Jurisdiction and powers of Settlement Commission;
• Section 245BB – Vice Chairman to act as Chairman or to discharge his functions in certain circumstances;
• Section 245 BC- Power of Chairman to transfer cases from one Bench to another;
• Section 245 BD – Decision by majority;
• Section 245 C – Application for settlement of cases;
• Section 245 D – Procedure on receipt of application under Section 245C;
• Section 245 DD – Power of Settlement Commission to order provisional attachment to protect revenue;
• Section 245 E – Power of Settlement Commission to re-open completed proceedings;
• Section 245 F – Powers and procedure of Settlement Commission;
• Section 245G – Inspection etc. of records;
• Section 245 H – Powers of Settlement Commission to grant immunity from prosecution and penalty;
• Section 245 HA – Abatement of proceeding before Settlement Commission;
• Section 245 HAA  - Credit for tax paid in case of abatement proceedings;
• Section 245 I – Order of settlement to be conclusive;
• Section 245 J – Recovery of sums due under order of settlement;
• Section 245 K – Bar on subsequent application for settlement;
• Section 245 L – Proceedings before Settlement Commission to be judicial proceedings;
• Section 245 M – Certain persons who have filed appeals to the Appellate Tribunal entitled to make applications to the Settlement Commission. (This section was omitted by Finance Act, 1987, with effect from 01.06.1987.)

Definitions

Section 54 to section 65 of the Finance Bill, 2021 (‘Bill’ for short) amend the provisions relating to Settlement Commission.

Section 54 of the Bill inserted definitions for the expression ‘Interim board’, ‘Member of the Interim Board’ and ‘pending application’ in section 245A.  The amended section came into effect from 01.02.2021.

Section 245A (da) defines the expression ‘Interim Board’ as the Interim Board for Settlement constituted under section 245AA.

Section 245A (ea) defines the expression ‘Members of the Board’ as a Member of the Interim Board.

Section 245A (eb) defines the expression ‘pending application’ as an application which was filed under section 245C and which fulfils the following conditions, namely:-

•  it was not declared invalid under sub-section (2C) of section 245D; and
• no order under sub-section (4) of section 245D was issued on or before the 31.01.2021 with respect to such application.

Interim Board for Settlement

Section 55 of the Bill inserted section 245AA and shall be deemed to have been inserted with effect from the 01.02.2021.  The newly inserted section 245AA provides for the establishment of Interim Board for Settlement. 

According to section 245AA the Central Government shall constitute one or more Interim Boards for Settlement, as may be necessary, for the settlement of pending applications.  Every Interim Board shall consist of three members, each being an officer of the rank of Chief Commissioner, as may be nominated by the Board.   If the Members of the Interim Board differ in opinion on any point, the point shall be decided according to the opinion of the majority.

Ceasing to operate by Settlement Commission

Section 245B provides for the establishment of Income Tax Settlement Commission and also the members to be appointed for the said Commission.

Section 56 of the Bill inserted a proviso to section 245B (1) and shall be deemed to have been inserted with effect from the 01.02.2021.  The said section provides that the Income-tax Settlement Commission so constituted shall cease to operate on or after the 01.02.2021.

Transfer of cases

Section 245C  of the Act provides that On the application of the assessee or the   Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner and after notice to them, and after hearing such of them as he may desire to be heard, or on his own motion without such notice, the Chairman may transfer any case pending before one Bench, for disposal, to another Bench.

Section 57 of the Bill inserted a proviso to section 245C which shall be deemed to have been inserted with effect from the 01.02.2021.  The newly inserted proviso provides that the provisions of this section 245C shall not apply on or after the 01.02.2021.

Decision by majority

Section 245BD provides that the Members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the Members are equally divided, they shall state the point or points on which they differ, and make a reference to the Chairman who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other Members of the Settlement Commission and such point or points shall be decided according to the opinion of the majority of the Members of the Settlement Commission who have heard the case, including those who first heard it.

Section 58 of the Bill inserted a proviso to section 245BD which shall be deemed to have been inserted, with effect from the 01.02.2021.  The newly inserted proviso provides that the provisions of this section 245BD shall not apply on or after the 01.02.2021.

Application for Settlement Commission

Section 245C provides the procedure for filing application before the Settlement Commission.  Section 59 of the Bill inserted a new sub section 245C (5) which shall be inserted and shall be deemed to have been inserted with effect from the 01.02.2021.  The newly inserted section 245C (5) provides that no application shall be made under this section on or after the 01.02.2021.

Procedure

Section 245D of the Act provides the procedure to be adopted on receipt of the application for settlement. 

Section 60 of the Bill inserted Section 245D (2C) and section 245D(9), (10), (11), (12) and (13) with effect from the 01.02.2021.

The newly inserted section 245D(2C) provides that where in respect of an application, an order, which was required to be passed under this subsection on or before the 31st day of January, 2021, has not been passed on or before the 31.01.2021, such application shall deemed to be valid.

The newly inserted section 245(9) provides that On and from the 01.02.2021, the provisions of sub-sections (1), (2), (2B), (2C), (3), (4), (4A), (5), (6) and (6B) shall apply to pending applications allotted to Interim Board with the following modifications,-

• for the words ‘Settlement Commission’, wherever they occur, the words ‘Interim Board’ shall be substituted;
• for the word ‘Bench’, the words ‘Interim Board’ shall be substituted;
•  for the purposes of this section, the date referred to in sub-section (2) of section 245M shall be deemed to be date on which the application was made under section 245C and received by the Interim Board.

Limitation

• where the time-limit for amending any order or filing of rectification application as per sub-section (6B) expires on or after the 01.02.2021, in computing the period of limitation, the period commencing from the 01.02.2021 and ending on the end of the month in which the Interim Board is constituted shall be excluded and where immediately after exclusion of such period, the remaining period available to the Interim Board for amending the order or to the Principal Commissioner or Commissioner or the applicant for filing of application is less than sixty days, such remaining period shall be extended to sixty days and the period of limitation shall be deemed to have been extended accordingly.

Section 245(10) provides that on and from the 01.02.2021, the provisions of sub-sections (6A) and (7) shall have effect as if for the words ‘Settlement Commission’, the words ‘Settlement Commission or Interim Board of Settlement’ had been substituted.

Scheme

Section 245(11) provides that The Central Government may by notification in the Official Gazette, make a scheme, for the purposes of settlement in respect of pending applications by the Interim Board, so as to impart greater efficiency, transparency and accountability by-

•  eliminating the interface between the Interim Board and the assessee in the course of proceedings to the extent technologically feasible;
•  optimizing utilization of the resources through economies of scale and functional specialization;
•  introducing a mechanism with dynamic jurisdiction.

Non applicability

Section 245 (12) provides that  the Central Government may, for the purposes of giving effect to the scheme made under sub-section (11), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the said notification.  No such direction shall be issued after the 31.03.2023.

Notification to be placed before Parliament

Section 245(13) provides that every notification issued under sub-section (11) and sub-section (12) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.

Provisional attachment

Section 245 DD of the Act gives powers to the Settlement Commission to order provisional attachment to protect the interest of the Revenue.

Section 61 of the Bill inserted a new section 245 DD (3) which shall be inserted and shall be deemed to have been inserted with effect from the 01.02.2021.

The newly inserted Section 245DD (3) provides that on and from the 01.02.2021, the power of the Settlement Commission under this section shall be exercised by the Interim Board and the provisions of this section shall mutatis mutandis apply to the Interim Board as they apply to the Settlement Commission.

Powers and procedure of Settlement Commission

Section 245F provides the powers given to the Settlement Commission and the procedure to dispose the application filed before it.

Section 62 of the Bill inserted a new section 245F(8) which shall be inserted and shall be deemed to have been inserted with effect from the 01.02.2021.

The newly inserted section 245F (8) provides that on and from the 01.02.2021 the powers and functions of the Settlement Commission under this section shall be exercised or performed, by the Interim Board and all the provisions of this section shall mutatis mutandis apply to the Interim Board as they apply to the Settlement Commission.

Inspection etc. of reports

Section 245G of the Act gives the powers to Settlement Commission to furnish copies thereof to any such person on an application made to it in this behalf and on payment of the prescribed fee.

Section 63 of the Bill inserted the second proviso to section 245G which shall be inserted and shall be deemed to have been inserted with effect from the 1st day of February, 2021.

The newly inserted second proviso to section 245G provides that on or after the 01.02.2021, functions of the Settlement Commission under this section shall be performed by the Interim Board and the provisions of this section shall mutatis mutandis apply to Interim Board as they apply to the Settlement Commission.

Immunity from prosecution

Section 245H gives powers to the Settlement Commission to grant immunity from prosecution and penalty.

Section 64 of the Bill provides that Section 245H (3) which shall be inserted and shall be deemed to have been inserted with effect from the 01.02.2021.

The newly inserted section 245H (3) provides that on and from the 01.02.2021 the power of the Settlement Commission under this section shall be exercised by the Interim Board and the provisions of this section shall mutatis mutandis apply to the Interim Board as they apply to the Settlement Commission.

Withdrawal of application

Section 65 of the Bill introduced a new section 245M which was omitted earlier, which    shall be inserted and shall be deemed to have been inserted with effect from the 01.02.2021.  The newly introduced section 245 provides for the option to withdraw the application.

Section 245M provides the following-

• With respect to a pending application, the assessee who had filed such application may, at his option, withdraw such application within a period of three months from the date of commencement of the Finance Act, 2021 and intimate the Assessing Officer, in the prescribed manner, about such withdrawal.
• Where the option is not exercised by the assessee within the time allowed, the pending application shall be deemed to have been received by the Interim Board on the date on which such application is allotted or transferred to the Interim Board 
• The Board may, by an order, allot any pending application to any Interim Board and may also transfer, by an order, any pending application from one Interim Board to another Interim Board.
• Where the pending application is allotted to an Interim Board or transferred to another Interim Board subsequently, all the records, documents or evidences, by whatever name called, with the Settlement Commission shall be transferred to such Interim Board and shall be deemed to be the records before it for all purposes.
• Where the assessee exercises the option to withdraw his application, the proceedings with respect to the application shall abate on the date on which such application is withdrawn and the Assessing Officer, or, as the case may be, any other income-tax authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 245C had been made.

Exclusion for time limit

The time-limit under sections 149, 153, 153B, 154 and 155 and for the purposes of payment of interest under section 243 or 244 or, as the case may be, section 244A, for making the assessment or reassessment under this sub-section, the period commencing on and from the date of the application to the Settlement Commission under section 245C and ending with the date referred to in this sub-section shall be excluded.

The above shall not apply in relation to the material and other information collected, or results of the inquiry held or evidence recorded by the Assessing Officer, or as the case may be, other income tax authority during the course of any other proceeding under this Act irrespective of whether such material or other information or results of the inquiry or evidence were also produced by the assessee or the Assessing Officer before the Settlement Commission.

Bar on Income Tax Authority

 The income-tax authority shall not be entitled to use the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of proceedings before it.

Discussions to this article

[DR.MARIAPPAN GOVINDARAJAN]

The Central Government, vide Notification No. 91/2021, dated 10.08.2021 established Interim Establishment Boards at Delhi ( Board I, II and III), Kolkata (IV), Mumbai (V and VI) and Chennai (VII)