2015 (12) TMI 629 - HC - Income Tax

Prosecution under Section 276C(1) - willful attempt to evade tax by the petitioners by the Income Tax Department before the Special Court Economic Offence, Jaipur be stayed/suspended during the pendency of the present petition - Held that - The order dated 28.06.2013 passed by the Settlement Commission is indeed under challenge before this Court. The petitioners appear to have made out a prima facie case with regard to lack of jurisdiction of the Settlement Commission for the reason that vide order dated 17.10.2014 on proceedings commencing with an interim order in the present writ petition, the Hon ble Supreme Court has required the petitioners to deposit only ₹ 3 crores of ₹ 30 crores of the due tax assessed by the Settlement Commission. It also prima facie appears that in view of the state of law prior to the amendment of the Act of 1961, effective 1st June, 2007 as reflected in the judgment of the Hon ble Apex Court in the case of Ajmera Housing Corporation (2010 (8) TMI 35 - SUPREME COURT OF INDIA), the Settlement Commission had no jurisdiction to make a regular assessment qua an applicant who approached it for a settlement under Section 245C(1) of the Act of 1961. No clearly enunciated amendment altering this state of law has been brought to my notice. That no change of a substantive nature was made appears to be an admitted fact as reflected in the judgment of the Delhi High Court in the case of Commissioner of Income Tax Vs. Income Tax Settlement Commission & Ors. 2013 (7) TMI 95 - DELHI HIGH COURT where even after the amendment of the Act of 1961, effective 1st June, 2007, the Income Tax Department itself relied upon the Ajmera Housing Corporation (supra) decided by the Apex Court prior to the amendment, to put forth its contention on the limitations of the jurisdiction of the Settlement Commission and for it not to exceed its brief beyond the application for settlement filed before it. The issue before this Court regarding the power of the Settlement Commission, despite finding lack of true and full disclosure, to make a regular assessment qua the applicant before it, is in the circumstances a seriously contested one in respect of which no definitive opinion can be formed at the interim stage, as it would require an extended hearing. Consequently, in the overall facts of the case, would direct that even though the prosecution against the petitioners initiated by the Income Tax Department may continue during the pendency of the petition, no final order thereon be passed till further direction of this Court. During their prosecution, the petitioners shall be free to take their remedies in accordance with law.

Summary

Issues:
1. Jurisdiction of the Settlement Commission to pass an order for prosecution under Section 276C(1) of the Income Tax Act, 1961.
2. Applicability of judgments pre and post the amendment to Section 245D of the Act in 2007.
3. Prima facie case of lack of jurisdiction of the Settlement Commission.
4. Power of the Settlement Commission to make a regular assessment despite lack of true and full disclosure by the applicant.

Analysis:
1. The petitioners sought an interim order to stay the prosecution under Section 276C(1) of the Income Tax Act before the Special Court Economic Offence, Jaipur. The petitioner argued that the Settlement Commission had no jurisdiction to pass the impugned order dated 28.06.2013 due to lack of full disclosure and cooperation by the petitioners. Citing precedents, the petitioners contended that the Settlement Commission should dismiss applications without true and full disclosure. The court noted the challenge to the Settlement Commission's order and the Supreme Court's directive to deposit only a portion of the assessed tax, indicating a prima facie case of lack of jurisdiction.

2. The respondent, Income Tax Department, argued that post the 2007 amendment to Section 245D, the Settlement Commission could make a regular assessment even without full disclosure. Referring to judgments like Brij Lal & Ors. Vs. Commissioner of Income Tax, Jalandhar, the respondent contended that the Settlement Commission had the power to assess undisclosed income post the amendment. The court acknowledged the conflicting interpretations and the need for further examination due to the contested nature of the issue.

3. Considering the unsettled nature of the jurisdiction issue, the court refrained from passing a final order on the prosecution against the petitioners. While allowing the prosecution to continue, the court directed that no final decision be made until further directions. The petitioners were granted the freedom to pursue legal remedies during the prosecution.

4. The court highlighted the complexity of the issue regarding the Settlement Commission's power to conduct a regular assessment despite a lack of full disclosure. Recognizing the need for a detailed hearing to form a definitive opinion, the court refrained from making a conclusive decision at the interim stage. The court emphasized the need for extended deliberation on the contested issue to reach a final conclusion.