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TMI Blog2009 (8) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently only such proceedings would abate under Section 245HA(1)(iv). X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provisions of sub-section (1) of this Section, as they stood immediately before their amendment by the Finance Act, 2007 has not been made before the 1st day of June, 2007 such application shall be deemed to have been allowed to be proceeded with if the additional tax on the income disclosed in such application and the interest thereon is paid on or before the 31st day of July, 2007. In view of the explanation, 31st day of July, 2007 was deemed to be the date of the order of rejection or allowing the application to be proceeded with. Section 245D(2B) as amended provided for calling a report from the Commissioner in respect of the application within the time frame as set out. 4. The next relevant provision as submitted is Section 245D(4A) which reads as under:- The Settlement Commission shall pass an order under sub-section (4).-- (i) in respect of an application referred to in sub-section (2A) or sub-section (2D), on or before the 31st day of March, 2008; (ii) in respect of an application made on or after the 1st day of June, 2007, within twelve months from the end of the month in which the application was made. 5. Under Section 245H there is power in the Settle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduced before the assessing Officer or other income tax authority or held or recorded by him in the course of the proceedings before him. 7. Section 273AA and 278AB which were inserted by Finance Act 2008 with effect from 1st April, 2008 are also relevant for our discussion. The relevant portions of Section 273AA(1) and (3) and 278AB(1) and (3) read as under:- 273AA. Power of Commissioner to grant immunity from penalty. (1) A person may make an application to the Commissioner for granting immunity from penalty, if -- (a) he has made an application for settlement under section 245C and the proceedings for settlement have abated under section 245HA; and (b) the penalty proceedings have been initiated under this Act. (2) the application to the Commissioner under sub-section (1) shall not be made after the imposition of penalty after abatement. (3) The Commissioner may, subject to such conditions as he may as he may think fit to impose, grant to the person immunity from the imposition of any penalty under this Act, if he is satisfied that the person has, after the abatement, co-operated with the income-tax authority in the proceedings before him and has made a full and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the authorities under the Income Tax Act. The effect of the F.A. 2007 is that if the application which was filed on or before 31st May, 2007 even for no fault of the applicant could not be disposed of on or before 31st March, 2008 it would abate and consequently all the information is available to the A.O. and other authorities under the Income Tax Act. In the instant petition we are not concerned with the issue of an application made to the Settlement Officer after 1st June, 2007. 9. The petitioner along with its group companies is engaged in broadcasting of satellite television channels in 53 countries across Asia including India. The petitioner along with its group companies was engaged in a large number of litigations with the Income Tax Department as to the basis and quantum of taxability of the petitioner in respect of advertisement and subscription revenue being repatriated from India. According to the petitioner the Income Tax Department had adopted conflicting basis of assessment in respect of its various group companies With a view to have a speedy resolution of the various litigations and with a view to avoid multiplicity of proceedings the petitioners approached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of not getting a fair and just hearing or treatment from the Assessing Officer who, is in a sense, an adversary of the applicant before the Commission. (ii) Personal and institutional bias against the applicant for his approaching the Commission and disclosing the material not disclosed to the Assessing Officer. (iii) Confidential material/Information disclosed in strict confidence to the Commission being made available to the Assessing Officer to be used not only for making assessments but also for levying penalty and criminal prosecution. The power of immunity vested in the CIT is largely illusory. Being a party before the Commission, and subject to the jurisdiction of the internal audit as also the audit by the Comptroller General of India, he is not likely to exercise the power objectively and fearlessly. (iv) Income of the applicant being determined by the Assessing Officer or CIT (A) not having wide knowledge and experience of the scale that the members of the Commission have, being equivalent in status to the members of the Central Board of Direct Taxes. (v) Proceedings before the Assessing Officer are conducted by one person and are quasi-judicial. Those before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Article 14 of the Constitution of India. The object of the amended provisions are essentially to ensure expeditious disposal of the case pending before the Commission and realization of taxes thereon. The amendment in the present case was brought into effect with a view to avoid delay in determining tax liability of an assessee because of factors like duplication of proceedings, absence of statutory time frame for setting the case and also with a view to streamline the proceedings before the Settlement Commission. The classification in the present case cannot be assailed on the ground of being arbitrary or evasive, but it is based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved without violating the equal protection clause of Article 14. There is always a presumption in favour of the constitutionality of a statute and the burden in this regard is upon the person who alleges transgression of the constitutional principles. According to the respondents from experience they have found that in many cases the assessee found it convenient to move the Settlement Commission and postpone their tax liability perpetually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d further tax evasion. Each individual case can be considered on its merits and full disclosures not only of the income but of the modus operandi of its build-up can be insisted on, thus sealing off chances of continued evasion through similar practices. 2.33 To ensure that the settlement is fair, prompt and independent, we would suggest that there should be a high level machinery for administering the provisions, which would also incidentally relieve the field officer of an onerous responsibility and the risk of having to face adverse criticism which, we are told, has been responsible for the slow rate of disposal of disclosure petitions. We would, therefore, recommend that settlements may be entrusted to a separate body within the Department, to be called the Direct Taxes Settlement Tribunal. It will be a permanent body with three Members. The strength of the Tribunal can be increased later, depending on the work-load. To ensure impartial and quick decisions, and to encourage officers with integrity and wide knowledge and experience to accept assignments on the Tribunal, we recommend that its members should be given the same status and emoluments as the members of the Central B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be given the same status as the members of the Central Board of Direct Taxes. They should be persons of known integrity and high sense of justice and fairness. The Taxation Law Amendment Act, 1975 inserted a new Chapter XIX A in the Income-tax Act and Chapter V-A in the Wealth-tax Act whereby the Government constituted a Settlement Commission w.e.f. 1.4.76 as a statutory body for the settlement of the cases. This institution has helped the Department to get over long and continued litigation in complicated cases. During the period 1976 to 1983, the Settlement Commission has settled 1213 cases of which only one case was admitted by the Supreme Court. The Direct Tax Laws Committee in its final report submitted in September, 1978 further recommended that all restrictions on the powers of the Settlement Commission to entertain cases should be removed. As a result of this recommendation w.e.f. 1.4.79, the powers of the Settlement Commission were further widened. Earlier, if the Commissioner objected to the application of an assessee from being proceeded with, the Commission could not proceed with it. The proviso to section 245D (1A) inserted w.e.f. 1.4.79 gave the Commission power to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted matters could be decided by one forum. (iv) Time consuming litigation in the regular Appellate procedure was avoided by the Department and the Assessee. (v) Provided its disclosure was full and true, benefits of waiver of penalties and prosecution were available to the Assessee. (vi) Confidentiality of the Assessees disclosure was maintained, as the same could be used only in the Settlement Commission. 17. Scheme of the Act and Relevant Changes in Chapter XIX-A of the Act by the Finance Act, 2007. Prior Scheme (i) An application to the Settlement Commission was submitted in accordance with Form 34B in Appendix II to the Income-tax Rules.The Annexure to Form 34B required the applicant, inter alia, to state (a) amount of income which has not been disclosed before the assessing officer; (b) additional amount of income-tax payable on such income; and (c) the manner in which the income disclosed before the Settlement Commission has been derived. The disclosure made by the applicant to the Settlement Commission in the said Annexure was to be kept confidential unless the application was admitted by the Settlement Commission. Once admitted, the disclosure made to the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008 filed on behalf of the Director on Income-tax (International Taxation) Mumbai by one I.C.S. Kaushik in reply to Writ Petition No. 952 of 2008 filed by Star Television News Ltd. in this Honble Court, it is, inter alia, alleged that The object of the amended provisions was essentially to ensure expeditious disposal of cases pending before the commission and realization of taxes thereon. It is important to note that the selection of members to the Commission, and filling of vacancies is completely within the control of the Government of India. (vi) (a) The 2007 Act substituted the definition of case in subsection (b) of section 245A of the Act, providing a more restrictive definition, thereby limiting the proceedings in which an application could be made to the Settlement Commission after the amendment of the law w.e.f. 1st June, 2007. (b) By virtue of sub-sections 245D(2A) and 245D(2D) as substituted by the 2007 Act, in the case of an application filed before 1st June 2007 where no order of admission/rejection had been passed under the erstwhile sub-section 245D(1), or where an order of admission had been passed but no final order under the erstwhile sub-section 245D(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true disclosure of his income and the matter in which such income has been derived. Similarly, Section 278AB has been introduced conferring power on the Commissioner to grant immunity from prosecution for any offence under this Act, if he is satisfied that after the abatement such person has cooperated with the Income-tax Authority in the proceedings before such Authority and has made a full and true disclosure of his income and the manner in which such income has been derived. In other words the decision to grant immunity is by an authority which would normally in the ordinary course not be the authority before whom the proceedings were but another authority. The Commissioner then will have to address himself to the issue whether there was a true and full disclosure. A party may be aggrieved by the order of the Income Tax Authority in which event the party may prefer an appeal. Would the Commissioner still then consider the information disclosed as a true and full disclosure. On the other hand under Section 245H power was in the Settlement Commission to grant immunity from prosecution for any offence under this Act or under the Indian Penal Code or any other Central Act for the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 170 Less than 1 year Filed between 01.04.2007 to 01.06.2007 543 162 147 18 870 Filed after 01.06.2007 11 4 6 0 21 Total *1657 (1057) 413 808 212 *3090 (2490) *(Seems to be calculation error) 20. In the reply filed in the Delhi High Court in Vatika Farms Pvt. Ltd., the learned Bench of the Delhi High Court noted that in Writ Petition No.245 of 2008 (Vardhman Properties Ltd. vs. Union of India), the Secretary to the Settlement Commission filed an affidavit dated January 29, 2008 in which it is candidly admitted that it is not possible for the Settlement Commission to dispose of all the pending cases before March 31, 2008. It is also mentioned in the affidavit the disposal of cases for the last five years from 2003-03 to 2006-07 as 100, 88, 75, 85 and 101 respectively (See Vatika Farms Pvt. Ltd. vs. Union of India (Delhi) (2008) 302 ITR 98 (Delhi). 21. Considering the provisions pursuant to the F.A. 2007 it would be clear that the Legislation has created only two classes of applicants. Those applicants whose applications were pending before 1st June, 2007 and others whose applications were filed on or after 1st June, 2007. The Legislature, therefore, identifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There can be no doubt that it is a founding faith of the Constitution. It is indeed the pillar on which rests securely the foundation of our democratic republic. And, therefore, it must not be subjected to a narrow, pedantic or lexicographic approach. No attempt should be made to truncate its all-embracing scope and meaning for, to do so would be to violate its activist magnitude. Equality is a dynamic concept with many aspects and dimensions and it cannot be imprisoned within traditional and doctrinaire limits.... Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. The principle of reasonableness, which legally as well as philosophically, is an essential element of equality or non-arbitrariness pervades Article 14 like a brooding omnipresence. 11. The decisions clearly lay down that though Article 14 forbids class legislation, it does not forbid reasonable classification for the purpose of legislation. In order, however, to pass the test of permissible classification, two conditions must be fulfilled, viz., (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognise even degree of evil, but the classification should never be arbitrary, artificial or evasive. (7). The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that differentia must have a rational relation to the object sought to be achieved by the Act. 13. The other facet of Article 14 which must be remembered is that it eschews arbitrariness in any form. Article 14 has, therefore, not to be held identical with the doctrine of classification. As was noticed in Maneka Gandhi's case in the earliest stages of evolution of the Constitutional law, Article 14 came to be identified with the doctrine of classification because the view taken was that Article 14 forbids discrimination and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the social stratification and economic inequality and keeping in view the guidelines on which the State action must move as constitutionally laid down in part IV of the Constitution, evolved the doctrine of classification. The doctrine was evolved to sustain a legislation or State action designed to help weaker sections of the society or some such segments of the society in need of succour. Legislative and executive action may accordingly be sustained if it satisfies the twin tests of reasonable classification and the rational principle correlated to the object sought to be achieved. The State, therefore, would have to affirmatively satisfy the Court that the twin tests have been satisfied. It can only be satisfied if the State establishes not only the rational principle on which classification is founded but correlate if to the objects sought to be achieved. This approach is noticed in Ramana Dayaram Shetty v. The International Airport Authority of India and Ors., when at page 1034, the Court observed that a discriminatory action of the Government is liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Department itself it is indisputable that the cut-off date of 31st March 2008 for disposal of all applications filed prior to 1st June 2007 were known to be illusory, whimsical, capricious and so wide off the reasonable mark as to make it palpably arbitrary. The arbitrariness of the choice of 31st March 2008 as the cut-off date is even more apparent when it is noticed that the Settlement Commission is not being wound up, but on the contrary even after the amendments made by the 2007 Act came into effect on 1st June 2007, the Act permits the filing of fresh applications before the Settlement Commission - a clear recognition by Parliament that the assumptions made by the Wanchoo Committee and the rationale given by it for establishing the Settlement Commission are still valid and applicable. In the present circumstances, the choice of 31st March 2008 as the cut-off date cannot but be described as a date of imaginative exercise having no basis or rationale whatsoever. 27. By fixing such an unrealistic and arbitrary cut-off date, into which of the two abovementioned classes an applicant would fall, depended entirely on the fortuitous circumstance of the Settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd realization of taxes thereon. 30. On this touchstone, the choice of a date is clearly capricious or whimsical as on failure by the Settlement Commission, even for no fault of the petitioner delaying the proceedings, the application stood abated by operation of law. In these circumstances will not reading the cut-off date 31st March, 2008 as mandatory be unjust, arbitrary and also discriminatory. We have referred to the various material placed by Union of India itself before the Supreme Court in the petitioners own case as also the stand of the Union of India before the Delhi High Court in Vatika Farms case. We have also set out the various figures of pendency of matters and the disposal by the Commission. In the affidavit filed before this Court it is the stand of the respondents that the object of the amendment was for early settlement of the cases. The cut-off date did not take into consideration whether the failure to dispose of the application is on account of any act on the part of the applicant or not . The pendency of matters itself will show that the matters could not be disposed of as the adjudicating machinery created by the Act (Legislature) was not in a position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttlement Commission. Once admitted, the disclosure made to the Commission in the said Annexure and the accompanying material was conveyed to the IT Authorities and could be used by IT Authorities for the limited purpose of making submissions to the Settlement Commission, and the Settlement Commission alone was empowered to pass a final order. Prior to the 2007 Act, if the application filed by the applicant was rejected as not admitted, the disclosure made by the applicant in the said Annexure and the accompanying material would not be available to the IT Authorities. It may be mentioned that once an applicant applies, the applicant could not withdraw the application. The confidential information could only be used by the Settlement Commission. 32. As a consequence of the amendments introduced by the 2007 Act, an application which abates for no fault of the applicant would, under section 245HA(2) revert back to the IT Authorities as if no application had, in the first place, been made under section 245C to the Settlement Commission. As inserted by the 2007 Act, Section 245HA(3) of the Act further provides that where an application so reverts to the IT Authorities upon abatement, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Settlement Commission, could be classified differently on the aforesaid fortuitous circumstance. Thus, discrimination is inherent in the impugned provision itself and the same is violative of Article 14 of the Constitution. 35. Arbitariness can also be seen in the context of consequences which the applicant has to suffer. As pointed out earlier on the application being declared as abated the confidential information which the petitioner had filed before the F.A. of 2007 and which was not available to the I.T. Authorities if the application was disposed of under Section 245(4) as it earlier stood would now be available. The answer by the Respondents to this submission is that the Legislature has advisedly amended the provisions of the Act and introduced Section 273AA. In our opinion Section 273AA as inserted only confers a power on the Commission for granting immunity from penalty. It does not prevent the authorities under the I.T. Act from using the confidential information which was filed including for prosecution and which was treated as confidential even if the petitioners application was not allowed to be proceeded with. What would be effect of Section 278AB introduced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been derived. The Commissioner according to the petitioner in most cases takes a stand before the Settlement Commission that the disclosure by the applicant is not full and true. In proceedings before the Settlement Commission, the Commission takes an independent view, from the stand of the Department and often did, overrule such objection of the Commissioner. Whilst however, introducing Section 273AA and section 278AB, it is the Commissioner who will sit in judgment over an issue which most cases he has already pre-judged by taking a stand before the Commission. It is inconceivable that the same Commissioner, who may have already objected before the Settlement Commission in most pending cases that the disclosure by an applicant is not full and true, will in purporting to exercise the aforesaid powers do a volte face and declare such disclosure as full and true even if now what he considers is full and true disclosure before the I.T. Authorities the true and full disclosure is before proceedings before the I.T. Authorities. The Commissioner by the very nature of his post is a part of taxing machinery. The Commissioner, who may have taken a stand on the application before the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttlement Commission to dispose of the application within a specified date an event over which the applicant has no control. Thus even two applicants who had filed their applications on the same date, equally fulfilled requirements of payment of tax and interest and had equally co-operated with the Settlement Commissioner, could be classified differently on the aforesaid fortuitous circumstance. 39. In Bidhannagar (Salt Lake) Welfare Association v. Central Valuation Board, AIR 2007 SC 2276 the Court held that where an independent Authority was conferred with a decision making power which was unlimited and plenary powers, and taken away from such independent person and statutorily conferred on persons who are not independent or are otherwise have an interest in the matter, then such provisions of law are per se unreasonable and the provisions per se contravene the values 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." 40. Reading Down the Provisions to Uphold Their Constitutionality: The choice, therefore, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abatement under section 245HA(1)(iv), making available the confidential information under and section 245HA(3) of the Act, as inserted by the 2007 Act, would be clearly ultra vires the Constitution and are liable to be struck down as null and void ab initio. It is, however, open to this Court instead of striking down the impugned provision in its entirety to read down such provision in such a manner so as to set at naught the unconstitutional portion. 42. In D.S. Nakara v. Union of India the Supreme Court, while reading down the provisions of the impugned memoranda, excluded the words that in respect of the government servants who were in service on March 31, 1979 and retiring from service on or after that date and the new rates of pension are effective from April 1, 1979 and will be applicable to all service officers who became/become non-effective on or after that date occurring therein, in order to uphold the constitutional validity of the impugned memoranda. In paragraph 59 of the judgment, the Court observed as follows: In reading down the memoranda, is this Court legislating? Of course not. When we delete [sic] basis of classification as violative of Article 14, we m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siderations. It is also well-settled that courts will be justified in giving a liberal interpretation in order to avoid constitutional invalidity. A provision conferring very wide and expansive powers on an authority can be construed in conformity with the legislative intent of exercise of power within constitutional limitations. Where a statute is silent or is inarticulate, the court would attempt to transmute the inarticulate and adopt a construction which would lean towards constitutionality albeit without departing from the material of which the law is woven. These principles have given rise to the rule of reading down the provisions if it becomes necessary to uphold the validity of the law. 45. It has been submitted on behalf of the petitioners in this petition and other companion petitions that to avoid striking down, in their entirety, the impugned provisions as unconstitutional, this Hon'ble Court ought to read section 245HA(1)(iv) as under: in respect of any other application made under section 245C, where due to reasons attributable to the assessee an order under subsection (4) of section 245D has not been passed within the time or period specified under sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dilatory tactics of those assesses who had obtained interim orders and sought to continue such order by delaying the disposal of the appeal, depriving the Revenue not only of the benefit of the assessed value but also a decision on points which may have impact on other pending matters. This Court then held as under: The sub-section which was introduced in terrorem cannot be construed as punishing the assessees for matters which may be completely beyond their control. For example, many of the Tribunals are not constituted and it is not possible for such Tribunals to dispose of the matters. Occasionally, by reason of other administrative exigencies for which the assessee cannot be held liable, the stay applications are not disposed of within the time specified. However, we should not be understood as holding that any latitude is given to the Tribunal to extend the period of stay except on good cause and only if the Tribunal is satisfied that the matter could not be heard and disposed of by reason of the fault of the Tribunal for reasons not attributable to the assessee. 50. The principles set out above in the abovementioned decisions squarely apply in the present case wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutional. Following settled principles of statutory interpretation, this Court should read the amended provisions of Chapter XIX-A of the Act harmoniously and in a manner so as to avoid any provision being rendered nugatory or redundant or unconstitutional to the extent possible. 52. Section 245D(4A)(i) provides that the Settlement Commission shall pass an order under sub-section (4) in respect of an application filed prior to 1st June 2007 that has been allowed to be proceeded with on or before the 31st day of March, 2008. If good faith and knowledge of the existing conditions on the part of a Legislature are to be presumed See Ram Krishna Dalmia v Justice Tendolkar , it must also be presumed that the Settlement Commission (being an instrumentality of the State) would fulfill the aforesaid mandatory statutory command and dispose of all such applications by the specified date. In that case there would be no question of any application abating under section 245HA(1)(iv) by reason of an order under section 245D(4A)(1) not having been passed within the specified time, and section 245HA(1)(iv) being rendered otiose and redundant. Accordingly, for an application to abate under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same. If there be no denial then to consider that circumstances in favour of the petitioner. 55. From the above discussion having arrived at a conclusion that fixing the cutoff date as 31st March, 2008 was arbitrary the provisions of Section 245HA(1)(iv) to that extent will be also arbitrary. We have also held that it is possible to read down the provisions of Section 245HA(1)(iv) in the manner set out earlier. This recourse has been taken in order to avoid holding the provisions as unconstitutional. Having so read, we would have to read Section 245HA(1)(iv) to mean that in the event the application could not be disposed of for any reasons attributable on the part of the applicant who has made an application under Section 245C. Consequently only such proceedings would abate under Section 245HA(1)(iv). Considering the above, the Settlement Commissioner to consider whether the proceedings had been delayed on account of any reasons attributable on the part of the Applicant. If it comes to the conclusion that it was not so, then to proceed with the application as if not abated. Respondent No.1 if desirous of early disposal of the pending applications, to consider the appointm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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