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TMI Blog2014 (5) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment for the said assessment year under section 245C of the Act. In such application, the petitioner disclosed additional income of Rs.72,00,000/-which did not form part of the original return. In terms of amended subsection (2A) of section 245D of the Act with effect from 1.6.2007, the petitioner was required to pay the additional tax on the income disclosed in the application for settlement along with the interest thereon, on or before 31.7.2007 in order to proceed further with the application for settlement. The petitioner deposited a sum of Rs.20 lakhs by 31.7.2007. The Settlement Commission in order to verify the compliance of section 245D(2A) of the Act, called for a report from the Commissioner of Income tax, Ahmedabad. The Commissioner made a report suggesting that the petitioner was required to pay a total amount of Rs.35,55,000/-by way of tax and interest on the additional income disclosed for the assessment year 2005-2006 whereas the petitioner had paid only Rs.20 lakhs till 31.7.2007. The Settlement Commission therefore, issued a show cause notice to the petitioner why the proceedings before the Commission be declared as abated for the failure of the petitioner to com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.06. Having disclosed an additional income of Rs.72 lacs in the settlement application, the applicant was required to pay tax on a total income of Rs.72 lacs. The provisions of sub-sections 1A to 1D of section 245C clearly show that there is no room for allowing set off of brought forward business losses or unabsorbed depreciation/investment allowance. Further, the set off of unabsorbed depreciation/brought forward business loss against income from short term capital gain or from other sources in the normal computation of total income in itself is questionable. We, therefore, find that the applicant has failed to pay the additional tax and interest on the income disclosed in the application as was required u/s.245D(2A)." 2.5. It is this decision of the Settlement Commission which is challenged before us. 3. From such decision it can be seen that the Settlement Commission rejected the petitioner's contention, that the tax required to be paid under section 245D(2A) was fully paid, on two grounds. Firstly, that sub-sections (1A) to (1D) of section 245C do not permit the set off of brought forward business losses or unabsorbed depreciation/investment allowance and secondly, that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of liability of an assessee to pay additional tax while applying for settlement, the Court held that computation of such additional tax would have to be done after allowing set off of the unabsorbed depreciation against the income disclosed under the application for settlement. 5. On the other hand, Shri Manish Bhatt for the department opposed the petition contending that for the purpose of making deposit of additional tax in terms of section 245D(2A) of the Act, special computation is provided under sub-sections(1A) to (1D) of section 245C. These provisions do not permit set off of unabsorbed depreciation against the additional income disclosed in the application for settlement. When such special formula is provided by the legislature, general rules for computation of total income and tax liability of an assessee cannot be applied disregarding the formula so provided under the Act. Counsel further submitted that at the stage of verifying whether the additional tax as required under section 245D(2A) was deposited or not, complex exercise of ascertaining the ultimate possible tax liability of an assessee cannot be undertaken. These being summary proceedings, the legislature desired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and (i) It shall be set be off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year: (ii) If the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on" 10. Combined effect of section 32(2) and section 72(1) would be that the carried forward unabsorbed depreciation would be available for sett off against the business income or income from other sources of an assessee in a particular year. This is precisely what the Supreme Court held in case of Jaiupria China Clay Mines(P) Ltd (supra). Even before us the Revenue has not seriously contested this legal position. We would therefore, proceed on such basis. 11. It is also true that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. Indeed, it would be difficult to predicate the reasons and considerations which induce the commission to make a particular order, unless of course the commission itself chooses to, give reasons for its order. Even if it gives reasons in a given case, the scope of enquiry in the appeal remains the same as indicated above viz., whether it is,contrary to any of the provisions of the Act. In this context, it is relevant to note that the principle of natural justice (and alteram partem) has been incorporated in Section 245-D itself. The sole overall limitation upon tire Commission thus appears, to be that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by High Court under Article 226 or by this Court under Article 136 is also the same whether the order of the Commission is contrary to any of the provisions of the Act and if so, has it prejudiced the petitioner/appellant apart from ground of bias, fraud & malice which, of course, constitute a separate and independent category. Reference in this behalf may be had to the decision of this Court in Sri Ram Durga Prasad v. Settlement Commission 176 I.T.R. 169, which too was an appeal against the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the provisions contained in section 245C and 245D of the Act. 13. The question before us therefore, is of the interpretation of sub-sections (1A) to (1D) of section 245C of the Act, ofcourse, bearing in mind other provisions contained in Chapter XIXA of the Act. 16.04.2014 14. Chapter XIX-A of the Act pertains to settlement of cases. Section 245A contained in the said Chapter defines certain terms for the purpose of the said Chapter. Section 245B provides for the constitution of the Income Tax Settlement Commission. Section 245BA pertains to jurisdiction and powers of Settlement Commission. 15. Section 245C pertains to the application for settlement of cases. Sub section (1) of Section 245C provides inter alia that an assessee may, at any stage of a case relating to him, make an application in prescribed form and manner containing a full and true disclosure of his income which has not been disclosed, the manner in which such income has been derived, the additional amount of income tax payable on such income to the Settlement Commission to have the case settled. Proviso to sub section (1) of Section 245C inter alia requires the applicant to pay such tax and interest thereon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than one previous year, the additional amount of income tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub sections (1B) and (1C) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made under sub section (1) shall be the additional amount of income tax payable in respect of the income disclosed in the application. 16. Section 245D of the Act pertains to procedure on receipt of an application under Section 245C. Under sub section (1) of Section 245D on receipt of an application under Section 245C, the settlement commission, within seven days from the receipt of the application, would issue a notice to the applicant requiring him to explain why the application made by him be allowed to be proceeded with. On hearing the applicant, the Settlement Commission, within 14 days from the date of the application, pass an order in writing either rejecting the application or allowing the application to be proceeded with. Proviso to sub section (1) of Section 245D provides that where no order has been passed within the aforesaid period by the Settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not been passed within the time or period specified under sub section (4A) of Section 245D of the Act, the proceedings before the Settlement Commission shall abate on the specified date. 20. Some of these provisions were referred to in order to appreciate that the proceedings before the Settlement Commission under Chapter XIXA of the Act are special proceedings aimed at simplifying the procedure for bringing within the taxnet otherwise undisclosed income by an assessee with the temptation to avoid prosecution and penalty. These special provisions, therefore, have been made in the said Chapter in order to bring about an early end to such settlement proceedings. Different stages envisaged after an assessee makes an application for settlement of his case come with time limits. For example, as we saw, on receipt of an application under Section 245C of the Act, the Settlement Commission would, within 7 days from the date of the receipt of the application, issue a notice to the applicant. Within 14 days from the date of the application, the Settlement Commission would pass an order in writing either rejecting or allowing the application to be proceeded with. If no such order is pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income of the applicant. Sub section (1C) of Section 245C provides for the additional amount of income tax payable in respect of income disclosed. Clause (b) thereof which covers our situation provides that the amount of tax calculated under Section 245C(1B)(ii) shall be reduced by the amount of tax calculated in the total income returned for that year. 22. In simple terms, therefore, 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. 23. Sub section (1B) and (1C) of Section 245C 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 containes a deeming fiction. Such deeming fiction for the purpose of calculating additional tax payable defines term "total income in artificial manner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed would be the total income. Such deeming fiction must be allowed its full effect. Secondly, the very same clause uses the term "total income returned in a different context and the aggregate of the total income returned and the income disclosed which would partake the character of a total income for this limited purpose. Thirdly, such deeming fiction cannot be discarded by bringing into consideration such term used elsewhere by the legislature. It is well known that legislature provides for definition of various terms frequently used in the statutes. The definition section usually comes with the expression "unless the context otherwise provides or "unless there is anything repugnant to. Such definition section defines various terms repeatedly used in a statute which would carry the meaning as contained in the definition. It is also well known that the statute defines often times terms for the special purpose of a section or even for a subsection. Examples are replete in the Act itself where the definitions are provided only for the purposes of a particular section or even a sub-section. In the present case, this formula which contains a special definition for a special purpose w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings multiple claims, of deductions and exemptions give rise to often times complex considerations. Often the liability itself is fluctuating due to court pronouncements. Sometimes a legal question or interpretation of a provision may be in the virgin field not covered by any Court judgement. The legislature never intended that at the stage of ascertaining whether the assessee has deposited the additional tax on an application made for settlement of the case, such complex exercise should be undertaken by the Settlement Commission. Further, in our opinion, accepting any such interpretation would defeat the very purpose of introducing the simplicity of computation of "total income of an assessee for the purpose of the said provision and his liability to pay additional tax with interest thereon. 28. The Bombay High Court in case of Gobind Builders Developers vs. Income Tax Settlement Commission and ors. (supra) has adopted somewhat different approach. The court has held that what is payable under sub section (1) of Section 245C is the tax on total income which would mean whatever allowance or disallowance that the assessee was entitled to the same would also be available. We are un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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