9911796707
TMI Blog2008 (3) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Sections 245D(2A), 245D(2D), 245D(4A) and 245HA(1) of the Income Tax Act, 1961 (the Act) as being arbitrary and unconstitutional. There is also a challenge to some provisions of the Finance Bill, 2008 but we are presently not concerned with that. 4. The challenge has arisen out of amendments to the Act by the Finance Act, 2007. The effect of the amendments is that where a settlement application has been filed under Section 245-C of the Act in the Settlement Commission, before 1st June, 2007 (as in all the writ petitions before us) the Settlement Commission "shall pass an order under sub-section (4)" on or before 31st March, 2008 [Section 245-D (4A)]. In the event the Settlement Commission does not pass such an order, effectively deciding the settlement application on or before 31st March, 2008, the settlement application "shall abate" by operation of law [Section 245-H(1)]. 5. On their part, the Petitioners were expected to pay the additional tax on the income disclosed in the settlement application filed before the Settlement Commission and also pay interest thereon on or before 31st July, 2007 failing which the settlement application filed under Section 245-C of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther on the disposal of the settlement applications or some other remedial measure as for example setting up additional benches of the Settlement Commission or extending the cut-off date from 31st March, 2008 to some other date, or some such measure as may be deemed appropriate. 11. Since January, 2008 we have been receiving a very large number of writ petitions filed by several other persons raising the very same challenge as the Petitioners in this writ petition and other connected writ petitions. In fact, over a hundred writ petitions have been filed and following the earlier orders passed by this Court, directions were given to the Settlement Commission to comply with the mandate of the law and dispose of the settlement applications of the Petitioners before 31st March, 2008 so that they do not abate. 12. The main difference between the earlier set of writ petitions and the later writ petitions is that the date of 31st July, 2007 had passed and, therefore, the Petitioners in the later writ petitions are all those persons who had in fact not only paid the additional tax but had also paid interest thereon and their limited concern is that their settlement application should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. The Wanchoo Committee recommended a settlement machinery since, in the administration of fiscal laws, the primary objective is to raise revenue and so there has to be room for compromise and settlement. 'A rigid attitude would not only inhibit a one-time tax-evader or an unintending defaulter from making a clean breast of his affairs, but would also unnecessarily strain the investigational resources of the Department in cases of doubtful benefit to revenue, while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in the law for a settlement with the taxpayer at any stage of the proceedings.' The Committee opined that such a settlement should be fair, prompt and independent. 17. The Wanchoo Committee recommended the setting up of a Direct Taxes Settlement Tribunal which would ensure impartial and quick decisions. That Tribunal would proceed with a settlement petition only if the Income Tax Department raised no objection to its being entertained otherwise that Tribunal might become an escape route for the tax evaders. In other words, the Wanchoo Committee gave adequate protection both to the tax payer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound the irony of the situation, the Respondents had (and still do) the power, resources and capacity to ensure that the settlement application is disposed of by 31st March, 2008 but they have not even moved a little finger to do so leaving the Petitioners to their own devices. The Respondents have, through their complete inaction, virtually subverted the mandate of the law to the detriment of the Petitioners. This, according to learned counsel, is hopelessly arbitrary and unconstitutional. 21. Learned counsel for the Petitioners submitted that the consequence of a settlement application not being disposed of by 31st March, 2008 is calamitous. Broadly, the adverse consequences are: The Petitioners would be required to face a regular assessment by the income tax authority (as defined in Section 116 of the Act) before whom the case of the Petitioner was pending when the settlement application was made. In most cases, the authority would be the Assessing Officer whose superior, the Commissioner, may have opposed the admission of the settlement application before the Settlement Commission [Section 245-D(1) before its amendment by the Finance Act, 2007]. Under such circumstances, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, and they should not be fought through the usual channels. For example, there may be cases that are complex or cases that may require a prolonged investigation or cases that may require a cumbersome investigation etc. and it is these kind of cases that may be entertained by the Settlement Commission. 24. That the assumptions made by the Wanchoo Committee and the Supreme Court are valid even today and that they subsist is clear from the fact that the Wanchoo Committee Report has not been trashed by the Respondents and the fact that the Settlement Commission still exists and has not been wound up. After all, if all the assumptions and reasons were not correct, the Respondents would have wound up the Settlement Commission 'why keep an ineffectual or worthless body in place for no apparent reason' The fact that the Settlement Commission has been allowed to exist, and continues to exist and entertain fresh settlement applications, clearly suggests that it is needed, even if it is for a few cases. And, if it is needed for a few cases, why is it not needed for a greater number of cases' These are a few of the many doubts that the Respondents have not even cared to respond to or clear. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxes (the CBDT). The Act requires that the members of the Settlement Commission must be 'persons of integrity and outstanding ability, having special knowledge of, and experience in, problems relating to direct taxes and business accounts.' [Section 245-B(3)]. In contrast, once the settlement application abates, the fate of the Petitioners will be in the hands of an Assessing Officer or a Commissioner of Income Tax (Appeals). Both these categories of officers are no doubt persons of integrity, but they certainly do not have the wide knowledge and experience that a member of the CBDT would have. The fate of the Petitioners would, therefore, be placed in the hands of far less experienced and knowledgeable persons, to their detriment and prejudice. This may not be objectionable, per se, but coupled with other factors, it would have an adverse impact on the Petitioners. Proceedings before the Settlement Commission are conducted by a Bench of independent persons and they are judicial proceedings for all intents and purposes but the proceedings before the Assessing Officer are conducted by only one person and they are only quasi judicial. The Assessing Officer is an officer of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Chapter XIX-A of the Act and a regular assessment through adjudication under the provisions of the Act. As far as the Petitioners are concerned, this has considerable relevance to the way in which the problem is viewed and addressed by the appropriate authority. The Assessing Officer to whose jurisdiction the Petitioners are relegated on the abatement of the settlement application, is himself a litigant before the Settlement Commission having a right to oppose (and in many cases having opposed) admission of a settlement application. If the assessment of the Petitioners income is to be made by someone who has opposed the case of the Petitioners, it is not possible or realistic for them to expect to get fair or even handed treatment from such an Assessing Officer. The Petitioners ask: how can a litigant expect a fair adjudication from a party opposing its case' In addition to the above, even if a Petitioner succeeds before the Assessing Officer, the Commissioner is entitled to use his powers under Section 263 of the Act to revise an assessment order on the ground that it is prejudicial to the interests of the Revenue. This is pointed out not only in the context of bias and a fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to a regular assessment by the Assessing Officer. Why should one Petitioner benefit or steal a march over another, when all things are equal' This would lead to a hostile discrimination and palpable arbitrariness in the selection criteria, completely violating the equality clause enshrined in Article 14 of the Constitution. 'While dealing with the validity of a classification, the rational nexus of the differentia on which the classification is based has to exist with the purpose or object of the legislation so determined.' [Shashikant Laxman Kale]. In so far as the Petitioners are concerned, there is no basis for a valid classification for disposing of or not disposing of a particular settlement application, and if there is a valid classification, it has no nexus with the object sought to be achieved, namely, expeditious disposal of all settlement applications within a time-bound period. In other words, similarly placed persons are being subjected to hostile discrimination. 30. Learned counsel for the Petitioners also raised the issue of an arbitrary cut-off date for disposal of a settlement application, namely, 31st March, 2008. It was submitted that all the Petitioners are si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances; while fixing a line, a point is necessary and there is no mathematical or logical way of fixing it; precisely, the decision of the legislature or its delegate must be accepted unless it is very wide off the reasonable mark.' 34. While it is true that in situations such as the present, some cut-off date has to be fixed, that date cannot be arbitrarily fixed without having any reasonable or real basis. Why the date for disposal of all pending settlement applications on or before 31st March, 2008 is unrealistic (if not illusory) is clear from the affidavit filed by the Settlement Commission on 29th January, 2008 and which we have adverted to above. Even in the order passed by this Court on 18th December, 2007 reference has been made to the Report submitted by the Comptroller and Auditor General of India to illustrate the sheer magnitude of the task of disposal of all pending settlement applications by 31st March, 2008 and the impossibility of achieving the goal without concrete steps being taken by the Respondents on a war footing. 35. The cut-off date of 31st March, 2008 appears to have been fixed without giving a thought to ground realities and it is so wide off the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues attached to the principles of natural justice. When there is substantive unreasonableness in a statute, it may have to be declared unconstitutional and the decision making process may suffer from an institutional bias. 38. Another issue that greatly agitated learned counsel for the Petitioners relates to a breach in the confidentiality of materials made available to the Settlement Commission. To appreciate the prejudice to the Petitioners after abatement of the settlement application, it is necessary to understand the procedure laid down by law that is binding on the Settlement Commission. 39. Rule 44C and Rule 44CA of the Income Tax Rules, 1962 prescribe the form of application (under Section 245-C of the Act) for settlement of cases. The application is required to be submitted in Form 34B in Appendix II to the Income Tax Rules. The annexure to Form 34B is of some importance and this requires the Assessee to state the following: - 1. Amount of income which has not been disclosed before the Assessing Officer. 2. Additional amount of income-tax payable on the said income. 3. Full and true statement of facts regarding the issues to be settled, including the terms of settleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Petitioner. This is in consonance with Rule 44CA of the Income Tax Rules. 43. Rule 6 and Rule 9 of the Procedure Rules read as follows: - '6. Commissioner's report, etc., under section 245D(1). On receipt of a settlement application, a copy of the said application (excluding the Annexure) shall be forwarded by the Commission to the Commissioner with the direction to furnish his report under sub-section (1) of section 245D within 45 days of the receipt of the said copy of the application by him. (Emphasis given) 9. Commissioner's further report. Where an order is passed by the Commission under sub-section (1) of section 245D allowing the settlement application to be proceeded with, a copy of the annexure to the said application together with a copy of each of the statements and other documents accompanying such annexure, shall be forwarded to the Commissioner along with a copy of the said order with the direction that the Commissioner shall furnish a further report within ninety days of the receipt of the said annexure (including the statements and other documents accompanying it) or within such further period as the Commission may specify. If the Commissioner fails ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the settlement application filed by that Petitioner as having abated under Section 245-HA of the Act for want of compliance with Section 245-D (2D) of the Act, as mandated by the Finance Act, 2007. 48. Reliance is also placed by learned counsel for the Petitioners on an order dated 12th March, 2008 passed by the Allahabad High Court in Writ Petition No. 454 of 2008 (R.B. Society Jewellers v. Union of India and ors), wherein it has been directed as follows: - 'After hearing learned counsel for the petitioner and Sri Bharat J. Agarwal, Senior Advocate assisted by Sri Shambhu Chopra, appearing for respondents no.1, 2, 3 and 4, we dispose of this writ petition with a direction to the respondent no.2 to decide the petitioner's application under Section 245-C which was moved on (illegible) 31.03.2008. If despite its best efforts, the Settlement Commission is unable to decide that application for any valid reasons, it would not entitle the petitioner to move an application in contempt but the petitioner's right to raise other challenges which have been made in this writ petition will revive to the petitioner. The writ petition is disposed of as above.' 49. Reliance has also been pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 SCC 917 and M/s. Pannalal Binjraj and others v. Union of India and others, 1957 SCR 233. 52. We are of the opinion that it is now too late in the day for the learned Additional Solicitor General to wish away or ignore the concept of procedural unfairness ' this is now ingrained in our Constitutional jurisprudence. Merely because the Petitioners have been conferred a statutory right does not mean that they can be discriminated against and arbitrarily treated in the exercise of that right. Nor can the Respondents be heard to say that they will arbitrarily decide which Petitioner or applicant before the Settlement Commission be given the benefit of that right. Similarly, that statutory right cannot be taken away and the Petitioners placed in a worse position than what they were in before. It may be another question if the status quo ante is restored, but that is not what has been legislated by the Finance Act, 2007 ' the Settlement Commission continues to exist and continues to deal with cases that are similar if not identical in law to those of the Petitioners. In that sense, the right available to the Petitioners has not been taken away, except by fixing the cut-off date of 31st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement of applications filed under Section 245-C(1) of the Act. The procedure having been set into motion by the Petitioners by filing settlement applications under Section 245-C of the Act, they are precluded from withdrawing that application and the Settlement Commission is obliged to settle or decide the matter one way or the other, as required by law. There is no half way house once the process is set into motion. Moreover, even after the matter is settled, it cannot be reopened by any authority under the Act for any other purpose and the decision of the Settlement Commission is final. In other words, there is a complete termination of all matters that are dealt with by the Settlement Commission as postulated by Section 245-I of the Act. 56. The trust that the Petitioners placed in the Settlement Commission is completely dashed by the amendments brought about by the Finance Act, 2007 and the entire confidential and undisclosed material can be used by any income tax authority for any purpose, prejudicial to the interests of the Petitioners. The confidential information disclosed by the Petitioners will be put into the hands of the Assessing Officer who is likely to have an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement filed by the Petitioners under Section 245-C of the Act would not abate on 31st March, 2008. (b) In keeping with the mandate of Parliament, the Settlement Commission shall endeavour to dispose of all pending applications as expeditiously as possible. (c) To enable the Settlement Commission to dispose of all pending applications as expeditiously as possible, the Central Government will render all assistance to the Settlement Commission including, if necessary, setting up additional Benches. (d) Any information disclosed by the Petitioners in the annexure to Form 34B in Appendix II to the Income Tax Rules,1962 will not be used against the Petitioners for any purpose whatsoever until the disposal of the settlement application of the Petitioners by the Settlement Commission. (e) All the writ petitions are admitted for final hearing. Since all the writ petitions are still at a preliminary stage and in many of them a counter affidavit has still not been filed by the Respondents, all the amendment applications are allowed. The Respondents will be at liberty to file counter affidavits to the amended writ petitions in accordance with the High Court Rules. (f) The interlocuto ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
