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TMI Blog2002 (12) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment has constituted the Income-tax Settlement Commission for the settlement of cases. The word "case" has been defined under section 245A(b) of the Act to mean any proceeding under the Income-tax Act for the assessment or reassessment of any person in respect of any year or years and includes appeal or revision in connection with such assessment or reassessment, which may be pending before an income-tax authority on the date on which an application under sub-section (1) of section 245C is made. Section 245C(1) provides for an application by an assessee in a prescribed form containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer and such other prescribed particulars for settlement of his case by the Settlement Commission. Other requirements are that no such application could be made unless- (a) the assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act; and (b) the additional amount of income-tax payable on the income disclosed in the application exceeds (at present) one hundred thousand rupees. The other relevant requirement which has a bearing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the order of entertaining such application, passed by the Settlement Commission under section 245D. He is given 35 days' time for making such payment under sub-section (2A) of section 245D. Under section 245H, the Settlement Commission has jurisdiction to grant immunity from prosecution and penalty if the Settlement Commission is satisfied that the assessee has co-operated with it in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived. The immunity from prosecution is for any offence under the Income-tax Act or under the Indian Penal Code or under any Central Act. However, no such immunity can be granted if the prosecution is already instituted before the date of the receipt of the application under section 245C. It also empowers the Commission to reduce the penalty as provided under the Act wholly or partly with respect to the case covered by the settlement. From this section it can be easily inferred that the Commission has no power (a) to waive tax statutorily payable under the Act, or (b) to reduce the interest on the tax payable on the income disclosed. Therefore, it cannot be contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2B) the Settlement Commission is empowered to direct recovery of the said amount with interest payable thereon under sub-section (2C) and penalty for default in making payment of such additional amount in accordance with the provisions of Chapter XVII, by the Assessing Officer having jurisdiction over the assessee. The aforesaid scheme of section 245D leaves no doubt that the assessee would be required to pay the amount with interest thereon. The amount at that stage would be the tax plus interest. In such cases, there is no question of paying interest on interest because the interest which the assessee is required to pay under sections 234A, 234B or 234C merges with the amount as provided under sub-section (2A). ARIJIT PASAYAT J.-- A question of seminal importance relating to the period for which interest in terms of section 234B of the Income-tax Act, 1961 (in short "the Act") can be levied when the Settlement Commission (in short "the Commission") passes an order under section 245D of the Act, is the subject matter of adjudication in these appeals. These appeals are directed against the common judgment of the Special Bench of the Commission in Gulraj Engineering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the additional tax in respect of the undisclosed income. An exclusive jurisdiction is conferred on the Commission and its order is conclusive. The expressions "regular assessment" or "reassessment" as appearing in sections 234A, 234B and 234C relate to income which was earlier disclosed before the income-tax authorities. For all practical purposes, the Commission exercises original jurisdiction and the orders passed under section 245D(4) and consequentially under sub-section (6) are in the nature of original orders determining liability of tax, penalty and interest and quantification thereof. It has to be borne in mind that the provisions relating to settlement as appearing in Chapter XIX-A constitute a complete code. Therefore, the view of the Special Bench with reference to regular assessment as defined under section 2(40), or reassessment under section 147 has no relevance. The liability to pay interest under sections 234A, 234B and 234C, as the case may be, is of mandatory nature as was observed by a Constitution Bench of this court in CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1. The starting point of the terminus for payment of interest is not in dispute. It is only the end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Explanation 1.-- In this section, 'assessed tax' means,-- (a) for the purposes of computing the interest payable under section 140A, the tax on the total income as declared in the return referred to in that section; (b) in any other case, the tax on the total income determined under sub-section (1) of section 143 or on regular assessment, as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. Explanation 2.-- Where in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section. Explanation 3.-- In Explanation 1 and in sub-section (3) 'tax on the total income determined under sub-section (1) of section 143' shall not include the additional income-tax, if any, payable under section 143. (2) Where, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years." The levy is attracted where subject to other provisions in the section in any financial year an assessee who is liable to pay the advance tax under section 208, has failed to pay such tax or where advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent. of the assessed tax. The beginning point is the first day of April next following the relevant financial year. Different end points are prescribed. They are: (i) up to the date of determination of total income under sub-section (1) of section 143; (ii) the date of regular assessment when a regular assessment is made; and (iii) where there is an order of reassessment or recomputation under section 147, or the difference of assessed income on reassessment or recomputation and originally assessed income till date of reassessment or recomputation, as the case may be. Sub-section (3) provides the modalities to be adopted. Section 234C deals with interest for deferment of advance tax. As noted above, great emphasis is laid by the assessee on sub-section (4) of section 245D which, inter al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the total income of that year (whether or not an assessment has been made in pursuance of such return), tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income; (iii) if the proceeding pending before the income-tax authority is in the nature of a proceeding for reassessment of the applicant under section 147 or by way of appeal or revision in connection with such reassessment, and the applicant has not furnished a return in respect of the total income of that year in the course of such proceeding for reassessment, tax shall be calculated on the aggregate of the total income as assessed in the earlier proceeding for assessment under section 143 or section 144 or section 147 and the income disclosed in the application as if such aggregate were the total income. (1C) The additional amount of income-tax payable in respect of the income disclosed in the application relating to the previous year referred to in sub-section (1B) shall be,-- (a) in a case referred to in clause (i) of that sub-section, the amount of tax calculated under that clause; (b) in a case referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thirty-five days of the receipt of a copy of the order under sub-section (1) allowing the application to be proceeded with, pay the additional amount of income-tax payable on the income disclosed in the application and shall furnish proof of such payment to the Settlement Commission. (2B) If the Settlement Commission is satisfied, on an application made in this behalf by the assessee, that he is unable for good and sufficient reasons to pay the additional amount of income-tax referred to in sub-section (2A) within the time specified in that sub-section, it may extend the time for payment of the amount which remains unpaid or allow payment thereof by instalments if the assessee furnishes adequate security for the payment thereof. (2C) Where the additional amount of income-tax is not paid within the time specified under sub-section (2A), then, whether or not the Settlement Commission has extended the time for payment of the amount which remains unpaid or has allowed payment thereof by instalments under sub-section (2B), the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of its power under section 245D(4) and (6), does not have the power to reduce or waive interest statutorily payable under sections 234A, 234B and 234C, except to the extent of granting relief under the circulars dated 23rd May, 1996, issued by the Board under section 119 of the Act. While exercising the power derived under the circulars of the Board, the Commission does not act as a subordinate to the Board but will be enforcing the relaxed provisions of the circulars for the benefit of the assessee in the process of settlement. 2. Interest due under the mandatory provisions like sections 234A, 234B and 234C has to be included in the settlement. 3. Wherever the Act contemplated power to waive or reduction of interest to be exercised by any particular authority in any particular situation it has done so like in sections 139(8), 215(4), 216 and section 220(2A) of the Act. 4. Prior to the Finance Act, 1987, the corresponding sections pertaining to imposition of interest used the expression 'may' but the change brought about in the Finance Act, 1987, is a clear indication that the intention of the Legislature was to make the collection of statutory interest mandatory. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erminus has to be as provided in relation to disclosed income. It cannot be even countenanced that no interest is chargeable for that portion of the income forming part of the total income as determined by the Commission which was not earlier disclosed before the Assessing Officer. The Commission's power of settlement has to be exercised in accordance with the provisions of the Act. Though the Commission has sufficient elbow room in assessing the income of the applicant it cannot make any order with a term of settlement which would be in conflict with the mandatory provisions of the Act like in the quantum and payment of tax and the interest. The object of the Legislature, as noted by the Constitution Bench, in introducing section 245C is to see that protracted proceedings before the authorities or in courts are avoided by resorting to settlement of cases. In this process an assessee cannot expect any reduction in amounts statutorily payable under the Act. Under section 245H, the Commission has the power to grant immunity to the assessee from prosecution and penalty. The immunity extends not only to the penal provisions of the Act but to offences under the Indian Penal Code, 1860 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 959] 35 ITR 408 (SC); AIR 1959 SC 352, Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1; AIR 1963 SC 1062). The courts will have to reject that construction which will defeat the plain intention of the Legislature even though there may be some inexactitude in the language used. If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation we should avoid a construction which would reduce the legislation to futility, and should rather accept the bolder construction, based on the view that Parliament would legislate only for the purpose of bringing about an effective result, referred to in Pye v. Minister for Lands for New South Wales [1954] 3 All ER 514 (PC)). The principles indicated in the said cases were reiterated by this court in Mohan Kumar Singhania v. Union of India, AIR 1992 SC 1. The statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same Act so as to make a consistent enactment of the whole statute. The court must ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication for settlement to be proceeded with. In such event, there is no further charge of interest in terms of sections 234A, 234B and 234C. The interest charged in terms of section 245D is a separate levy and not in terms of interest chargeable under sections 234A, 234B and 234C. Therefore, the apprehension that there is scope for charging of interest on interest is without any basis. To sum up, the inevitable conclusion is that interest has to be charged for the period beginning from the first day of April next following the relevant financial year up to the date of the Commission's order at the rate applicable, on interest chargeable under section 234B, when an order under section 245D(4) is passed, followed by quantification under section 245D(6). The appeals are allowed to the extent indicated above. D.M. DHARMADHIKARI J.-- I am in respectful agreement with the reasoning and conclusion recorded by Brother Pasayat J. in his opinion prepared by him in these appeals. I, however, consider it necessary to supplement his reasons for the conclusion reached by us. Since in these appeals common questions on the interpretation and extent of application of the provisions of Chapt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with it in the proceedings before it and has made full and true disclosure of his income and the manner in which it has been derived, grant to the applicant immunity from prosecution and penalty. Such immunity can, however, be withdrawn later under certain circumstances. The order of settlement will be final. There will be a bar on subsequent applications for settlement by a person if an order of settlement provides for imposition of penalty for concealment of income or if the person has, after the order of settlement, been convicted of any offence under Chapter XXII of the Act in relation to that case." On the questions formulated by the Special Bench of the Settlement Commission two main issues require consideration and answer by this court. The first main question is what is the efficacy of the regular assessment proceedings which took place before and after the admission of the case for consideration by the Settlement Commission. The second question is what would be the extent of liability towards payment of interest on the tax due as determined in a "case" by the Settlement Commission in the light of various situations of no payment of tax or delayed payment of tax in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the "aggregate income" by the Settlement Commission, the tax payable for the relevant assessment year shall be calculated by giving adjustment to the tax, if any, already paid by the assessee when its case was pending-at whatever stage in the regular assessment proceeding. Sub-section (1D) of section 245C also requires the Settlement Commission to undertake the exercise of clubbing the disclosed income, if any, of the assessee in the regular proceeding and subsequently disclosed income before the Commission and treat it as an aggregate income for the purpose of determining taxable income of a particular year. The Settlement Commission, thus, is empowered to this limited extent to re-open the assessment proceedings already undertaken, for settlement of the "case" before it on the basis of subsequently disclosed income and pass a composite order determining the liability of assessee towards tax, penalty and interest. This is clear from sub-section (6) of section 245D which requires the Settlement Commission to make an order providing for terms of settlement, indicating the demand towards tax, penalty and interest and the manner in which it shall be paid. The above discussed prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the same. In other words, it means that mere filing of an application by the assessee for settlement and before the same is formally allowed for consideration, would have no adverse effect on the proceeding of assessment or recovery pending or initiated against the assessee under the regular procedure for assessment and recovery of dues under the Income-tax Act. The Settlement Commission has no power to waive tax or interest because as laid down in sub-section (4) of section 245D, it has to pass orders on the matter of determining the quantum of income and tax in accordance with the other relevant provisions of the Act applicable to the relevant assessment year or years. There is no power with the Settlement Commission to settle the "case" de hors the provisions of the Income-tax Act applicable to regular assessment because the provisions contained in the scheme of settlement under Chapter XIX-A as examined above, do not envisage and allow the Commission to settle a "case" based on disclosure of income before it in any other manner. As has been found from the Statement of Objects and Reasons for introducing Chapter XIX-A, which can be taken aid of for construing various pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n though no return of income was filed by him for regular assessment. Sub-section (4) of section 234A requires necessary adjustments to be given for the interest earlier charged in regular assessment and the interest chargeable after redetermination of the taxable income and the quantum of tax. Sub-section (4) of section 234A reads thus: "234A. (4) Where as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount of tax on which interest was payable under subsection (1) or sub-section (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- (i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproach the Settlement Commission with full disclosure of their income which they had not earlier disclosed in the course of regular assessment. Such assessees who co-operate with the assessing authorities in making proper assessment of tax can be granted immunity from prosecution and penalty. There is no provision that they can be granted immunity from payment of interest on the tax assessed. Brother Pasayat J. in his two opinions separately rendered in the appeals has taken note of the decisions in the case of CIT v. Express Newspapers Ltd. [1994] 206 ITR 443 (SC); [1994] 2 SCC 374 and CIT v. Anjum M. H. Ghaswala [2001] 252 ITR 1 (SC); [2002] 1 SCC 633 which authoritatively construe some of the provisions in Chapter XIX-A and record its conclusions on some aspects of the question raised before us for answer. In the case of Express Newspapers Ltd. [1994] 206 ITR 443 (SC) it was found that in regular assessment for the years 1985-86, 1986-87 and 1987-1988 the assessee had fraudulently claimed certain losses and when they were being enquired into and investigated by the assessing authorities for reaching a finality, the assessee approached the Settlement Commission for settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Anjum M.H. Ghaswala [2001] 252 ITR 1 (SC) the main question that fell for consideration before the Supreme Court was whether the Settlement Commission has power to waive interest for non-payment or delayed payment of tax found due. The Supreme Court answered the question holding that the scheme contained in Chapter XIX-A does not empower the Commission to waive interest payable for non-payment or delayed payment of tax found due. Brother Pasayat J. has also reached the same conclusion and I am in respectful agreement with the same that such waiver of interest by the Settlement Commission is neither intended in the scheme of Chapter XIX-A nor can such a power be inferred because conceding such power to Settlement Commission to waive interest would help tax evaders who did not disclose full income at the relevant time and made a disclosure subsequently. Such interpretation would also be a discouragement to an honest taxpayer who fully discloses his income and on the basis of regular assessment makes payment of tax and interest. In the case of Anjum M.H. Ghaswala [2001] 252 ITR 1, the five-judge Bench of this court came to the conclusion that the Settlement Commission has to compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the quantum of income and tax determined by the Settlement Commission and necessary recovery and adjustments will be granted so as to avoid demand of any interest on interest. In conclusion, the two main questions formulated by me are answered thus: The first question formulated is what is the efficacy of the regular assessment proceedings which took place before and after the admission of the case by the Settlement Commission for settlement under Chapter XIX-A of the Income-tax Act. The answer is that it is only after a formal order of allowing or admitting the application for consideration of settlement is recorded by the Settlement Commission that all earlier assessment proceedings and recovery proceedings, if any, issued pursuant thereto, would become subject to the order of the Settlement Commission which will exercise all powers conferred on the income-tax authority under the Income-tax Act. The second question is what would be the extent of liability towards payment of interest on the tax as determined and found due in a case settled by the Settlement Commission in various situations contemplated in the Income-tax Act like non-payment of tax or delayed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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