2016 (10) TMI 401 - HC - Income Tax

Settlement commission procedure - Settlement of tax payable - Can the Settlement Commission proceed with the petitioner s application made under Section 245C(1) of the Act, after issuance of certificate under Section 90(2) of the KVSS,1998, which had till then only reached the stage of being admitted for further hearing in terms of Section 245D(1) of the Act ? - Held that - Whatever doubt one may have, would disappear when we look at the relevant portion of Section 95 of the KVSS,1998. To make the matters abundantly clear, this section provides that the provision of the section would not apply in case where an order was passed by the Settlement Commission under sub-section (4) of Section 245D of the Act or similar such provision for settlement under the Wealth Tax Act to any tax arrear in respect of such assessment year. In plain terms therefore, the provisions of the KVSS,1998 would be ousted in a case where the Settlement Commission has passed an order under sub-section (4) of Section 245D, to any tax arrear in respect of such assessment year. This provision would have two purposes; first, it makes it abundantly clear that if other conditions are satisfied, a person can make a declaration in terms of Section 88 of the KVSS,1998 so long as the order has not been passed by the Settlement Commission under sub-section (4) of Section 245D of the Act and secondly, this provision also puts the controversy beyond any debate, whether if a tax assessed by the Commissioner had remained unpaid, for the purpose of KVSS,1998 could it take a shape of the tax arrear and in respect of which an offer for settlement could be made under the KVSS,1998. Once therefore the Settlement Commission passes an order under sub-section (4) of Section 245D of the Act, it would not be open for an assessee to then approach the designated authority under the KVSS,1998 and seek any adjustment in the tax arrear. Till then, however, the issue would be wide open and the assessee, as in the present case, could approach the designated authority under the KVSS,1998. The Settlement Commission therefore, committed a serious error in holding to the contrary. The Supreme Court in case of Smt. Sushila Rani (2002 (2) TMI 7 - SUPREME Court ) observed that the certificate issued under Section 90(1) of the KVSS,1998 making a determination as to the sum payable under KVSS,1998 is conclusive as to the matters stated therein and cannot be reopened in any proceedings under law for the time being in force, except on the ground that false declaration by a declarant. In the result, the impugned order dated 25.6.1999 passed by the Settlement Commission under Section 245D(4) of the Act is set aside

Summary

Issues Involved:
1. Validity of the Settlement Commission's order under Section 245D(1) of the Income-Tax Act, 1961.
2. Impact of the Kar Vivad Samadhan Scheme, 1998 (KVSS, 1998) on ongoing settlement proceedings.
3. Jurisdiction of the Settlement Commission post issuance of a certificate under Section 90(2) of KVSS, 1998.
4. Authority of the Settlement Commission to proceed with settlement applications after the issuance of KVSS, 1998 certificate.
5. Finality of issues upon issuance of a certificate under Section 90(2) of KVSS, 1998.

Detailed Analysis:

1. Validity of the Settlement Commission's order under Section 245D(1) of the Income-Tax Act, 1961:
The petitioner challenged the Settlement Commission's order dated 25.6.1999 under Section 245D(1) of the Act, which determined the petitioner's liability. The petitioner argued that once the KVSS, 1998 certificate was issued, the Settlement Commission should not have continued with the settlement proceedings. The court noted that the Settlement Commission had jurisdiction to pass orders under Section 245D(1); however, this jurisdiction was questioned once the KVSS, 1998 certificate was issued.

2. Impact of the Kar Vivad Samadhan Scheme, 1998 (KVSS, 1998) on ongoing settlement proceedings:
The petitioner applied under KVSS, 1998, offering to pay tax for the disputed income for the assessment years 1987-88, 1988-89, and 1989-90. The Commissioner of Income-Tax issued a certificate under Section 90(2) of KVSS, 1998, which the petitioner argued should have halted the Settlement Commission's proceedings. The court emphasized that KVSS, 1998 provided a comprehensive mechanism for settling tax arrears, which should take precedence over ongoing settlement proceedings.

3. Jurisdiction of the Settlement Commission post issuance of a certificate under Section 90(2) of KVSS, 1998:
The court examined whether the Settlement Commission could continue its proceedings after the issuance of the KVSS, 1998 certificate. It referred to Section 95 of KVSS, 1998, which excludes the scheme's application if an order under Section 245D(4) of the Act has been passed. Since no such order was passed before the issuance of the KVSS, 1998 certificate, the court concluded that the Settlement Commission lost jurisdiction over the matter once the certificate was issued.

4. Authority of the Settlement Commission to proceed with settlement applications after the issuance of KVSS, 1998 certificate:
The court held that the Settlement Commission should not have proceeded with the settlement application after the KVSS, 1998 certificate was issued. It reasoned that allowing parallel proceedings under the Act and KVSS, 1998 could lead to conflicting outcomes. The court highlighted that the issuance of a certificate under Section 90(2) of KVSS, 1998 marked the finality of the settlement, precluding further proceedings by the Settlement Commission.

5. Finality of issues upon issuance of a certificate under Section 90(2) of KVSS, 1998:
The court underscored that the issuance of a certificate under Section 90(2) of KVSS, 1998 conferred finality on the matters stated therein, as per Section 90(3) of KVSS, 1998. It cited the Supreme Court's decision in Smt. Sushila Rani, which affirmed that such a certificate is conclusive and cannot be reopened in any other proceedings. Consequently, the court set aside the Settlement Commission's orders dated 25.6.1999 and subsequent rectification orders, reinforcing the finality conferred by the KVSS, 1998 certificate.

Conclusion:
The court concluded that the Settlement Commission erred in continuing with the settlement proceedings after the issuance of the KVSS, 1998 certificate. It set aside the Commission's orders, affirming that the KVSS, 1998 certificate provided finality to the settlement of tax arrears, thereby precluding further proceedings by the Settlement Commission. The petitions were disposed of accordingly.