2015 (7) TMI 1031 - HC - Income Tax

Validity of Settlement Commission order under subsection 2C of Section 245D challenged - respondent No.1 has paid tax only on the additional income offered before the Settlement Commission and the tax payable on the additional income offered in the returns of income has not been paid by the respondent No.1 on or before filing the settlement application - Held that - In simple terms, where an assessee has furnished return of income and applies for settlement of his case, one has to calculate his total income for the purpose of the said provision by aggregating the total income returned and the income disclosed in the application. Applicant s liability to pay additional tax would be the amount of tax calculated on such total income minus the amount of tax calculated on the total income returned for that year.Sub-section (1B) and (1C) of Section 245 C thus provide for a special formula for arriving at an applicant s liability to pay additional tax for maintaining an application for settlement. Such special formula contains a deeming fiction. Such deeming fiction for the purpose of calculating additional tax payable defines term total income in artificial manner. In the present case, legislature has created a deeming fiction by providing that the tax of the applicant would be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income. this device is created for a special purpose and has a localized effect. It comes into existence only for the purpose of calculating the tax to be deposited by an applicant for settlement of a case. In such a situation, the aggregate of the total income returned and the income disclosed would be considered as total income. Under the circumstances, the contention of the Counsel for the respondent No.1 that the term total income should be construed as defined under Section 5 of the Act for the purpose of calculating additional tax of an applicant for settlement of a case cannot be accepted. In the present case, formula which contains a special definition for a special purpose would, therefore, have its effect only for Section 245C. Being a special provision it would prevail over any other general term of a concept contained in the Act. Section 245 C (1) of the Act also requires the applicant to provide besides other details, true and full disclosure of his income which has not been disclosed before the Assessing Officer and amount of income tax payable on such income . Reference to such income thus is the income disclosed in the settlement application which was not disclosed before the Assessing Officer. We uphold the contentions of the Revenue by holding that the assessee had not paid the self-assessment tax in the return of income under Section 153-A and 143(2) of the Act for the assessment years 2007-08 to 2012-13, the application was not valid and quashed the order passed by the Settlement Commission, Mumbai - Decided in favour of revenue.

Issues Involved:
1. Validity of the Settlement Commission's order under Section 245D(2C) of the Income Tax Act, 1961.
2. Full and true disclosure of income by the respondent.
3. Payment of self-assessment tax on additional income declared under Section 153A.
4. Compliance with Section 245C(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Settlement Commission's Order:
The Commissioner of Income Tax (Central), Bhopal challenged the Settlement Commission's order dated 26.05.2014, which admitted the settlement application filed by the respondent under Section 245C(1) of the Income Tax Act. The Settlement Commission had concluded that the application did not suffer from any infirmity and allowed it to proceed further.

2. Full and True Disclosure of Income:
The respondent, a limited company engaged in infrastructure projects, had declared an undisclosed income of Rs. 1.58 crores in the settlement application. However, the department's investigation revealed an undisclosed income of Rs. 240,04,38,487/-. The petitioner argued that the respondent's disclosure was not full and true, as it was significantly lower than the department's estimate and the amount previously admitted under Section 132(4).

3. Payment of Self-Assessment Tax:
The respondent had filed returns under Section 153A for various assessment years, declaring additional income totaling Rs. 34,74,47,123/-. The petitioner contended that the respondent failed to pay self-assessment tax on this additional income, which was a prerequisite for a valid settlement application under Section 245C. The Settlement Commission, however, noted that there was no specific provision in the Act requiring payment of self-assessment tax on income declared under Section 153A for the application to be valid.

4. Compliance with Section 245C(1):
The petitioner argued that the respondent did not comply with Section 245C(1), which mandates full and true disclosure of income and payment of additional tax and interest. The respondent retracted the disclosure made during the search, claiming it was obtained under duress, and requested to treat the returns filed under Section 139(1) as returns filed in compliance with Section 153A notices. The Settlement Commission admitted the application, stating that the conditions regarding the threshold limit for tax on additional income, payment of additional tax and interest, and pendency of proceedings were fulfilled.

Judgment:
The High Court held that the respondent had not paid the self-assessment tax on the additional income declared in the returns filed under Section 153A. Consequently, the application was not valid under Section 245D(2C). The court quashed the Settlement Commission's order dated 26.05.2014 and allowed the writ petition filed by the Commissioner of Income Tax, with no order as to costs.

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