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TMI Blog1995 (3) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... passed under section 245D(1) of the said Act: (i)The income is determined under section 143(1) but no regular assessment under section 143(3) or 144 is made with or without there being a notice under section 143(2) and/or 142(1). (ii)A regular assessment is made under section 143(3)or 144 in addition to the determination of the income under section 143(1) and an appeal is pending before the first appellate authority. (iii)Only a return of income is furnished without or in pursuance of a notice under section 142(1) or section 148 and the income is neither determined under section 143(1) nor under section 143(3) or 144. (iv)The assessment made under section 143(3) or 144 is reopened under section 147 and neither any return of income is furnished in response to the notice under section 148 nor is the order of reassessment made by the Assessing Officer. (v)A reassessment is made under section 147 read with section 143(3) or 144 and an appeal is pending before the first appellate authority. 2. The genesis of the reference are two miscellaneous applications, one dated 7-7-1993 filed by Gulraj Engg. Construction Co., Bombay and the other dated 11-9-1993 filed by Sahitya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Shri Arun Sathe, advocate initiating the debate, submitted that the decision of the Special Bench of the Income-tax Settlement Commission in Ashwani Kumar Aggarwal, In re [1991] 195 ITR 861 holding that the Commission had no power of reduction or waiver of interest under section 234B has given rise to this problem and requires reconsideration. According to him, the Commission has the inherent power to reduce or waive such interest and in exercise of this power, to decide the period, if any, up to which the interest for defaults of advance tax should be charged. Alternatively, the Commission having been vested under section 245F(1) of the Act with the power of every income-tax authority including the Board, the Special Bench can, like the Board, prescribe guidelines regarding the charging of interest to be followed by various Benches in taking decisions in individual cases. 5. Coming to the specific issue, Shri Sathe contended that the liability to pay interest arises only if an assessee has not paid, during the relevant financial year, up to 90 per cent of the 'assessed tax' as defined in Explanation 1 to section 234B(1). If 90 per cent or more of the 'assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to section 234B(1) extends the definition of the expression 'regular assessment' to include such assessment as is made for the first time under section 147 only for the purpose of charging interest. Besides, section 234B(4) specifically treats an order of the Commission under section 245D(4) to be different from a regular assessment order by grouping it with the orders of other appellate authorities and the Courts. Shri Patel also made a reference to sub-sections (1)(c), (1A)(c ) and (2)(c) of section 155 of the Act to contend that the Parliament, by mentioning section 245D(4) there separately, has dearly treated it as an order of settlement distinct and different from an order of regular assessment or reassessment. In addition, the Settlement Commission, unlike the Assessing Officer, is a high powered body which performs so many functions like finally determining the income-tax liability of an assessee and laying down the terms of settlement which, inter alia, include immunity from penalty and prosecution. Such an order of a high-powered body, cannot be treated as that of regular assessment. Lastly, the High Courts have been unanimous that the interest could be charged o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income under section 143(1) as provided in section 234B(1). Even if a regular assessment is made, interest will be charged only up to the date of such computation under section 143(1) because in section 234B(1), while fixing the terminal date, the Parliament has not used the words 'whichever is later' after giving two alternative dates; namely, the date of computation of total income under section 143(1) or regular assessment. Where only a return of income is furnished and no order under section 143(1) or regular assessment is passed, no interest is chargeable at all because in this situation, there will be no 'assessed tax' nor does section 234B(1) mention the date of furnishing of the return as the terminal point for the charging of interest. If reassessment proceedings are pending on the date of admission of a settlement application under section 245D(1), the interest can be charged up to the date of regular assessment but if there also total income under section 143(1) was computed, the interest can be charged only up to that date. In a situation where reassessment under section 147 is made, the interest will be chargeable up to the date of reassessment in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted years is transferred and is substituted by the higher jurisdiction of the Settlement Commission. Thus, in each of the five situations, the interest will be chargeable up to the date of order of the Settlement Commission under section 245D(4). According to him, the concept of assessment would have to be elongated to conclude with the order under section 245D(4). Countering the arguments of Shri Sathe and Shri Patel, he distinguished the case of B.C. Srinivasa Setty (supra) and stated that it was clear from the reasons given on pages 297 to 300 that the ratio of the Supreme Court's decision was that no capital gain tax was chargeable on the sale of goodwill because it had no cost of acquisition. He also made out that the decision of the Bombay High Court in Carona Sahu Co. Ltd.'s case (supra) did not involve the question which is now before the Special Bench and as such, the same could not be relied upon to support the argument of capping the terminal date to conclude with the order under section 143(1). Shri Dada read out from pages 17 and 18 of the book Principles of Statutory Interpretation by G.P. Singh, 1975 edition, Bharat Law House, Allahabad, to contend that the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at all on the basis of the Settlement Commission's order. This is because, if no period is incorporated in sub-section (4) of section 234B, no interest at all can be charged. He relied upon the decisions of the Supreme Court in K.P. Varghese v. ITO [1981] 131 ITR 597 and of CIT v. Madho Pd. Jatia [1976] 105 ITR 179, 183, 184 to contend that even where two interpretations are possible, the one in favour of the taxpayer should be adopted. 15. Shri M.M. Patel, replying to Shri Dada's arguments, stated that sections 234A, 234B and 234C are penal in nature because they have also replaced the penalties which used to be earlier levied for advance tax defaults and the rate of interest has been increased from 15 per cent to 24 per cent per annum. Such provisions should, therefore, be interpreted strictly in view of the decision of the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, 195. He also relied upon the Board's Instruction No. 947 dated 23-4-1976 printed on pages 1.2725-26 of Taxman's Direct Taxes Circulars, Vol. 2, 1994 edition to contend that the Board itself has recognised in the context of a similar provision regarding interest payable by C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttlement effective . It shall also provide that the order shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts . Under section 245H, the Commission has the powers to grant immunity from prosecution and penalty. In terms of section 245-1, every order of settlement passed by the Commission is final and conclusive as to the matters covered therein. Apart from the powers specifically contained in Chapter XIX-A, the Commission has also been given, in view of section/245F(1), 'all the powers which are vested in an income-tax authority' under the Act. 17. Since the order of settlement under sub-section (4) of section 245D has to be in accordance with the provisions of the Act, a question was referred to the Special Bench of the Income-tax Settlement Commission in Ashwani Kumar Agganval's case (supra) if the Commission has the power to reduce or waive interest for defaults in furnishing the returns of income and those of advance tax under sections 234A, 234B and 234C which are applicable from the assessment year 1989-90 and onwards. It was held by the Special Bench that the Commission had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional income-tax, if any, payable under section 143. (2) Where, before the date of determination of total income under sub section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise,- (i)interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section; (ii)thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax. (3) Where, as a result of an order of reassessment or re-computation under section 147, the amount on which interest was payable under sub section (1) is increased, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period commencing on the day following the date of determination of total income under sub-section (1) of section 143 or regular assessment referred to in sub-section (1) and ending on the date of the reassessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in accordance with the provisions of Chapter XVII has to be reduced. Explanation 3 to sub-section (1) also excludes the additional income-tax payable under section 143(1) from the amount of 'assessed tax'. 22. The rate is simple interest of 2 per cent per month or part thereof. 23. The period for which the interest has to be charged is from the first April next following the financial year in which the advance tax is payable to the date of determination of total income under sub-section (1) of section 143 or on regular assessment. The expression 'regular assessment' has been defined in clause (40) of section 2 to mean, unless the context otherwise requires, the assessment made under sub-section (3) of section 143 or section 144 . Explanation 2 to sub-section (1) of section 234B has enlarged the meaning of the expression 'regular assessment' to include an assessment made for the first time under section 147 for the purposes of charging of interest under section 234B. 24. Sub-section (2) provides that any interest chargeable under section 234B, which has already been paid by an assessee on the basis of self- assessment under section 140A or otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any amount which may be found just and proper.... (p. 104) But a more important consideration is that sub-section (4) refers to the increase or reduction in the amount of tax on which interest is payable and the computation of assessed tax will need to be made when modification in income takes place as a result of the Settlement Commission's order, whether any interest was earlier payable or not. If the contention of the learned counsels for the assessees was to be accepted, the words 'amount on which' in the expression in sub-section (4), namely, the amount on which interest was payable under sub-section (1) or subsection (3) has been increased or reduced , will become superfluous which is not permissible in interpreting any provision of a statute much less that of a taxing statute. In addition, the contention, if accepted, would lead to absurd results. If, let us say, the advance tax payable on the basis of tax assessed under section 143(1) was ₹ 50,000 against which the assessee paid ₹ 1 lakh, he will be entitled to refund of the excess with interest in view of section 244(1A). But if on the basis of the Settlement Commission's order the assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh assessment or modification of the assessment to give effect to the decision of the appellate or revisional authority. This view is supported, among others, by the decision of the Bombay High Court in Carona Sahu Co. Ltd.'s case (supra) holding that the same meaning should be placed on the expression 'regular assessment' used in both sub-sections (1) of section 214 and 215. The other view supported among others, by the decision of the Gujarat High Court in Bardolia Textile Mills' case ( supra) and, relied upon by the Additional Solicitor General is that the expression 'regular assessment' cannot be confined to the first original assessment but also includes an assessment made pursuant to the direction of the appellate or revisional authority. However, with regard to the payment of interest by an assessee on shortfall of advance tax under section 215 even the Gujarat High Court has observed on page 430 that 'such interest would be payable on the first assessment'. 28.2 The Board has also in the context of sub-section (1) of section 214 held in para 2 of its Instruction No. 947 dated 23-4-1976 printed on pages 1.2725-26 of Vol. 2 of TAXMAN's D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or waive the interest payable under section 215 or section 217 in the cases and under the circumstances mentioned below, namely: (1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee. 28.5 It will be noticed from the foregoing discussion that under similar provisions of sub-sections (1) and (3) of section 215, the period of charging of interest due to modification of the assessed tax as a result of rectification, appeals or settlement, was limited up to the date of regular assessment. And there also, it could be waived or reduced beyond one year from the date of furnishing of the return if the delay in completing the assessment could not be attributed to the assessee. The only changes that have been made from the assessment year 1989-90 and onwards are that: (i)rule 40 providing for waiver or reduction of interest has ceased to apply with effect from the assessment year 1989-90; (ii)the rate of interest has been revised to 2 per cent per month or part thereof; earlier it was 15 per cent per annum; and (iii)the penalty for defaults of advance tax leviable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed as the 'order of settlement' in various sections of Chapter XIX- A, even its nature and scope is different from that of regular assessment passed by the Assessing Officer. The order of the Commission is final unlike that of the Assessing Officer which is subject to appeal, revision, etc. It is to be normally passed by a Bench consisting of the Chairman or the Vice Chairman and two members [section 245BA(2)]. Only in exceptional circumstances it has to be passed by two members [section 245BA(5)]. The order of the Assessing Officer has to be of one person. The Commission's order is final not only in respect of income/wealth but also in respect of interest, penalty and prosecution. There is no time limit on the passing of an order of settlement whereas the regular assessment order has to be made by the Assessing Officer within the time limit prescribed in section 153 of the Act. 29.2 It can be argued that where an assessee's case is admitted by the Commission under sub-section (1) of section 245D before any regular assessment is made or before even an order under sub-section (1) of section 143 is passed, there will obviously be no assessment order of the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B from 1st April next following the financial year in which the advance tax was payable to the date of determination of total income under sub-section (1) of section 143. There does not appear to be any warrant to disregard the plain language and to read the expression to the date of determination of total income under sub-section (1) of section 143 or regular assessment used in sub-section (1) to read to the date up to which regular assessment could be made as canvassed in the alternative plea made by the Additional Solicitor General. 32. With regard to situation ( ii), the terminal date would clearly be the date of regular assessment. In this connection, the argument of Shri D.M. Harish, advocate that the interest should always be up to the date of the determination of total income under sub-section (1) of section 143 does not appear to us to be tenable. Simply because in the expression used in sub-section (1) of section 234B, namely, to the determination of total income in sub-section (1) of section 143 or regular assessment the words 'whichever is later' have not been used does not mean that the expression 'regular assessment' has to be given no meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Solicitor General to that urged by Shri Sathe and Shri Patel in their counter-replies. This is because the period for which interest should be charged is a machinery provision as was held by the Supreme Court in Gursahai Saigal's case (supra) in the context of a similar provision for charging of interest for non-payment of advance tax under sub-section (8) of section 18A of the Indian Income-tax Act, 1922. 35.1 A machinery section has to be so interpreted as to make the machinery workable. In quoting from pp. 17-18 of the book Principles of Statutory Interpretation by G.P. Singh, 1975 edition, Shri Dada relied on the following observations of the Supreme Court in State of West Bengal v. Union of India AIR [1963] SC 1241 : . The Court must ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clause with the other parts of the law, and the setting in which the clause to be interpreted occurs.... (p. 1265) 35.2 In answering the question raised in situation (iii) of the issue, we also seek support from the observations of the Supreme Court in K.P. Varghese ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequent upon the order of settlement and it will not be permissible to take the view that such a modification is only intended where total income is determined under sub-section (1) of section 143 or on regular assessment. 35.5 Regarding the second possibility, we have already held in para 29.4 above that in no case the interest can be charged up tp the date of the order of settlement because an order of settlement cannot be equated to a regular assessment. 35.6 As regards the third possibility, namely, that the interest could be charged up to the date of the order admitting the settlement application under sub-section (1) of section 245D, we are unable to persuade ourselves to accept this view for the following main reasons : (i)sub-section (1) of section 245D does not provide any time limit for admission of the settlement application. The assessee will be exposed to interest liability for an indefinite period without any fault on his part. (ii)It will discourage the Assessing Officer from performing his statutory duty of computing the total income under sub-section (1) of section 143 or making a regular assessment within a reasonable time after the return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the settlement provisions of encouraging the recalcitrant assessees to make a true and full disclosure of their incomes not disclosed before the Assessing Officer and to get their tax liabilities settled expeditiously will be defeated. There will also be the possibility of double charge of interest as pointed out by Dr. Shah where tax is not paid on the basis of an order under sub-section (1) of section 245D. In such a case, the assessee will be charged interest at the rate of 15 per cent per annum in view of sub-section (2D) of section 245D and also interest for default of advance tax up to the last date up to which the total income under sub-section (1) of section 143 could be computed or regular assessment could be made. There is no direct or indirect support for this view in any of the legal provisions. We, therefore, regret, we are unable to persuade ourselves to adopt this view. 35.8 Coming to the fifth and the last possibility, i.e., charging of interest up to the date of furnishing the return of income, we notice that the interest for defaults of advance tax is payable till the date of furnishing of the return in view of sub-section (1) of section 140A read with claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative intent to make a machinery provision workable for which we have the authority of the Supreme Court in Gursahai Saigal's case (supra) and K.P. Varghese's case (supra) at pp. 605, 606 referred to above in paras 35 and 35.2, respectively. 36. To sum up, the question decided by the Special Bench of the Income-tax Settlement Commission in Ashwani Kumar Aggarwal' case (supra) that the Commission has no power to reduce or waive the interest chargeable under sections 234A, 234B, and 234C cannot, in the absence of any reference to this effect, be reviewed by this Bench. The period up to which the interest can be charged for defaults of advance tax under section 234B in respect of the assessment years 1989-90 and onwards is laid down in sub-section (1) and sub-section (3) thereof. Sub-section (4) of section 234B provides for the automatic revision of the amount of interest where the amount of tax is varied as a result of an order of rectification, appeal, revision or settlement. The terminus period for the charging of interest is to be as laid down in sub-section (1) or sub-section (3) of section 234B, as the case may be. It can, under none of the five situations mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nings and the approach advocated in the order. However, I would agree with the replies given to formulations (ii) and (v) though on a different reasoning. 2.1 entirely agree with the views expressed in paragraph 27 of the order to dismiss the unmaintainable contention that if no interest was chargeable under section 234B on the basis of either the order passed under section 143(1) or under section 143(3)/144, the question of charging any interest after the Settlement Commission's order has been finalised cannot arise. 3. My basic reservation is on the construction of the scope of the order passed by the Settlement Commission. This has been dealt with elaborately in paras 29.1 to 29.4 of the order. I have a fundamental divergence of views on this portion of the order and, therefore, it is necessary to set down my views in some detail. 3.1 It will be necessary to compare the provisions of sections 143(3) and 245D(4) to properly appreciate the nature of the Settlement Commission's order. The nature of jurisdiction assumed by the Settlement Commission on admission of the case has been succinctly indicated in para 16 of the above order. Before an order under section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application requires the description of the particulars of the issues to be settled. Note 7 shows that full details of issues for which application for settlement is made should be indicated against this column and where an application relates to more than one assessment year they should be separately furnished for each assessment year. The case that can be the subject-matter of an application under Chapter XIX-A has to relate, by definition, to a proceeding for the assessment or reassessment of any person who has not disclosed his income fully and truly before the Assessing Officer; and as pointed out by the Supreme Court in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443 at p. 451 once an application made under section 245C is admitted for consideration the Commission shall have to withdraw the case relating to that assessment year (or years, as the case may be) from the assessing/appellate/revising authority and deal with the case, as a whole, by itself, and the proceedings before it are not confined only to the income disclosed before it . The true import of the admission of the case under section 245D(1) thus is that proceedings pending before any authority under the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a higher rate of interest - the earlier rate was 15 per cent and the present rate is 24 per cent. Simultaneously section 273 empowering the levy of penalty was deleted. Further, the discretion available was also done away with. The Special Bench of the Settlement Commission has already held in Ashwani Kumar Aggarwal's case (supra) that the Settlement Commission does not have any discretion to reduce or waive the interest chargeable under the provisions of sections 234A, 234B and 234C. Thus, even in cases before the Settlement Commission, full interest will become payable in respect of the assessment years 1989-90 and onwards. The only question is the date up to which such interest is payable. The scheme of the Act clearly indicates that such interest should be paid up to the date of determination of the income by the Assessing Officer either under section 143(1) or in an assessment under section 143(3)/144. When such Assessing Officer is precluded from passing such orders, should the assessee be allowed to get away with less levy of interest even though the function of making the determination of income is vested in, and continued by, the Commission? Having regard to the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4B(3) they can be regarded as having the colour amongst others of the order of regular assessment/reassessment/appeal/revision. Section 234B(4) can then be invoked in an appropriate manner depending on whether, at the time of the application, the 'case' was pending before the assessing authority, the first appellate authority or the revisional authority. 4.3 Once this position is appreciated, it will be more easy to appreciate the correct manner of interpreting the present provisions of section 234B in the light of the law of the land as laid down by the Supreme Court in the case of Gursahai Saigal ( supra). The Supreme Court was categorical in ruling that the rule of literal construction applies only to a taxing provision and it has no application to all provisions in a taxing statute. It does not apply to a provision not creating a charge for the tax but laying down the machinery for its calculation or procedure for its collection. The provisions in a taxing statute dealing with machinery for assessment have to be construed by the ordinary rules of construction, that is to say, in accordance with the clear intention of the Legislature, which is to make a charge levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 217 is a rephrased version of the provisions of section 18A(8). It is also admitted on all hands that the provisions of section 234B amalgamate and re-enact all the provisions of sections 215 and 217 with effect from 1 -4-1989. It is, therefore, clear that the guidelines for splitting these provisions into the components of charging and machinery sections as laid down by the Supreme Court will continue to govern the interpretation of section 234B. The decision in the case of B.C. Srinivasa Setty (supra) relied upon by the different counsels in the course of their arguments is distinguishable since it concerned itself with the interpretation of the charging section in Chapter IV-E of the Act and had no relevance to the interpretation of the charging provisions in Chapter XVII-C or XVII-F. Their interpretation has to conform to the guidelines laid down in Gursahai Saigal's case (supra). 7. Construed in this manner, the charging and machinery section of 234B(1) will be bifurcated as indicated below: Charging Provision: Machinery provision or the manner of quantifying the charge : 234(1): Subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case (supra) has to be such as to advance the object of the provisions, namely, to make every assessee liable to compensate the State both monetarily and punitively in respect of the lawfully payable tax withheld and used by him, over the period of such withholding and use. If this judicial principle of interpretation which in fact is the law of land by virtue of the provisions of article 141 of the Constitution is faithfully followed in answering the five questions formulated for answering by the Special Bench, the only possible conclusion that can be reached will be the conclusion advocated by me in para 10 of this order. 9. In the light of the foregoing discussion in paragraphs 1 to 10 of my order, I would respectfully urge the view that the proper method to approach the problem will be to hold that for the purpose of resolving the issue on hand, it will have to be held that the Settlement Commission, though a high powered body, does, by virtue of the command of section 235F(2), discharge the functions of the income-tax authority before whom the case was pending at the time the settlement application was made. And, therefore, its final order, though not in pari material wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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