Commissioner
of Income Tax Vs. M/S Hindustan Bulk Carriers [2000] INSC 678 (17 December
2000)
D.M. Dharmadhikari.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 interpretation and extent of application of
the provisions of Chapter XIX A of the Income Tax Act (for short the IT Act)
1961, are involved, I propose to discuss the questions involved by this common
judgment.
Brother
Pasayat J. has reproduced all the relevant provisions of IT Act and the
questions formulated and answered by the Special Bench of the Settlement
Commission constituted in accordance with the provisions contained in Chapter
XIX-A of the said Act.
Chapter
XIX-A providing forum and procedure for "settlement of cases" was
introduced in the IT Act by Taxation Laws (Amendment) Act 1975 published in the
Gazette of India Extraordinary Part II dated 9th May, 1973 (Pages 443 to 530). The Statement of Objects and Reasons
for the Amendment reads thus:
"To
unearth black-money and prevent its proliferation; to fight and curb tax
evasion; to check avoidance of tax through various legal devises, including the
formation of trusts and diversion of income or wealth to members of family' to
reduce tax arrears and to ensure that in future, tax arrears do not accumulate;
to rationalise the exemptions and deductions available under the relevant
enactments, and to streamline the administrative set-up and make it
functionally efficient".
Clause
58 of the Bill introduced in Parliament to introduce separate Chapter in the IT
Act for "settlement of cases" reads thus :- "Clause 58 : This
clause seeks to insert a new Chapter XIXA in the act, making provision for
settlement of cases.
The
provisions proposed in this Chapter are mainly intended to give a statutory
basis for settlements of cases which are necessitated at times in the interests
of the revenue.
However,
settlement will not be allowed in cases where concealment of income or fraud is
established before the making of an application for settlement.
Settlements
are to be made by a Committee of not less than three members of the Central
Board of direct Taxes. An application for settlement once made will not be
allowed to be withdrawn.
The
order of settlement shall provide for the terms of settlement, including any
demand by way of tax, penalty or interest, the manner of payment of the sum due
under the settlement, etc. It shall also provide that the settlement shall be
void if it is subsequently found to have been obtained by fraud or mis-representation
of facts. The Committee may, if it is satisfied that the applicant has
co-operated 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 course
of regular assessment. The various situations contemplated in the IT Act have
been delineated in the order of the Special Bench of the Settlement Commission
and reproduced in the two separate opinions of Brother Pasayat J.
For
answering these two main questions, it is necessary to examine the scheme of
Chapter XIXA as reflected in its various provisions and the other relevant
provision in sections 234 A to 234 C on the subject of interest chargeable in
various specified circumstances on tax due.
For
taking a case for settlement before the Settlement Commission, the word 'case'
in clause (b) of Section 245 A has been comprehensively defined to include
proceeding under the Act for assessment or reassessment for any years and at
any stage in original, appellate or revisional proceeding. The definition of
'case' excludes appeals or revisions which have not been formally admitted by
the concerned authorities. This definition clause (b) of Section 245 A
indicates that the Settlement Commission can take up for settlement a 'case' as
defined which is pending at any stage of regular assessment proceeding before
any of the authorities under the IT Act.
Section
245 C enables an assessee to approach the Commission by disclosing his income
which he had not earlier disclosed. On such undisclosed income which is
subsequently disclosed only before the Settlement Commission, the assessee is
required to submit the return and pay additional tax along with the application
in accordance with its own assessment. Clauses (i), (ii) & (iii) of
sub-section (b) of Section 245 C clearly indicate the ambit of the power of
Settlement Commission and provide that on such approach with disclosure of
earlier concealed income, the Commission shall redetermine the taxable income
after clubbing the earlier disclosed income, if any, and subsequently disclosed
income before it. Such clubbing for consideration of the aggregate income of
the relevant year, based on earlier and subsequently disclosed income has to be
done in relation to the 'case' pending before the regular assessment
authorities at the original, appellate or revisional stage as the case may be.Clauses
(a), (b) & (c) of sub-section (1C) of Section 245 C are also indicative of
the scope, power and jurisdiction of the Settlement Commission. It has been
provided therein that it is on the determination 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 245 C 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 reopen the assessment proceedings already undertaken, for
settlement of '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 245 D 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 provisions make it clear
that once a case is admitted by the Settlement Commission for consideration, it
shall have exclusive jurisdiction to exercise all powers of regular authorities
under the IT Act for the purpose of effecting a settlement and for recovery of
tax penalty and interest. Sub-section (1) & (2) of Section 245 F are important
for the questions raised before us and they read thus :- "245F.(1) In
addition to the powers conferred on the Settlement Commission under this
Chapter, it shall have all the powers which are vested in an income-tax
authority under this Act.
(2)
Where an application made under Section 245 C has been allowed to be proceeded
with under Section 245 D, the Settlement Commissioner shall, until an order is
passed under sub-section (4) of section 245 D, have, subject to the provisions
of sub-section (3) of that section, exclusive jurisdiction to exercise the
powers and perform the functions of an income-tax authority under this Act in
relation to the case".
The
exclusive jurisdiction which the Settlement Commission derives for exercise of
powers and functions of regular income-tax authority in accordance with
Sub-section (1) & (2) of Section 245 F can be exercised only when the
Commission makes a formal order to admit or allow the application to be
proceeded with for the purpose of effecting a settlement. This is clear from
the language of Sub-section (1) of Section 245 D which reads :- "245 D.(1)
On receipt of an application under Section 245 C, the Settlement Commission
shall call for a report from the Commissioner and on the basis of the materials
contained in such report and having regard to the nature and circumstances of
the case or the complexity of the investigation involved therein, the
Settlement Commission may, by order, allow the application to be proceeded with
or reject the application." [Underlining for emphasis] One of the
questions that is posed before us in these appeals, therefore, can be easily
answered on the basis of the above quoted portion as underlined of sub-section
(1) of Section 245 D read with sub- sections (1) & (2) of Section 245 F. It
is only when the Settlement Commission formally allows the application for
being considered for "settlement" the regular assessment proceedings
and recoveries initiated for tax penalty or interest pursuant thereto, shall
become subject to the powers of Commission and not prior 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 IT Act.
The
Settlement Commission has no power to waive tax or interest because as laid
down in sub-section (4) of Section 245 D, 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 revelant assessment year or
years. There is no power with the Settlement Commission to settle the 'case' de
hors the provisions of IT Act applicable to regular assessment because the
provisions contained in 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 provisions of the Act, the forum of
Settlement Commission is constituted for 'early recovery of tax and to unearth
black money'. The only impetus given to the assessee to avail the forum is to
allow him to make a request to the Settlement Commission to grant immunity from
prosecution and penalty in exercise of its powers under Section 245 H. In all
other respects, on the question of tax and interest, the Settlement Commission
has to settle a 'case' in accordance with the other provisions of the Act as
are applicable to regular assessment proceedings. The Act does not make
distinction or differentiation in treatment between the assessees who honestly
disclose income and are willing to pay the tax and the other assessees who do
not fully or partly disclose the income to avoid payment of tax in due time and
approach the Commission for disclosure of their earlier concealed income. Such
distinction or differentiation between the above mentioned two classes of assessees
is not permitted by the provisions contained in Chapter XIX A, it being neither
legally valid nor just. The Chapter XIX A providing settlement of cases is not
intended to benefit the assessees who had not earlier honestly disclosed their
income and paid the tax in due time. The settlement procedure aims to bring
such assessees at par with the assessees who had honestly disclosed their
income and paid the tax. The provisions of Chapter XIX A, therefore, have to be
read harmoniously with other provisions of the Act and thus applied to give
full effect to other relevant provisions of the IT Act which confer all powers
of income-tax authority under the Act on the Settlement Commission for
assessing the income and determining the tax.
On the
second question with regard to liability towards interest in various
statutorily contemplated contingencies of a 'case' brought for settlement under
Chapter XIX A of the Act, it is to be noticed that after insertion of the said
Chapter for Settlement of Cases, corresponding legislative changes have been
effected by insertion of sections 234 A and 234 C in IT Act to redetermine
quantum of interest payable in various contemplated contingencies under the
Act. Section 234 A creates liability of interest for defaults in furnishing
return of income.
Such
interest can be charged from the assessee whose 'case' has been 'settled' by
the Commission even though no return of income was filed by him for regular
assessment. Sub-section (4) of Section 234 A requires necessary adjustments to
be given for the interest earlier charged in regular assessment and the
interest chargeable after re- determination of the taxable income and the
quantum of tax. Sub-section (4) of Section 234 A 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 245 D,
the amount of tax on which interest was payable under sub-section (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 refunded".
Similarly,
necessary adjustment to be made towards interest payable on the tax due after
settlement of case in case of default in payment of advance tax can be found in
sub-section (4) of Section 234B which reads thus :- "234B.(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 245 D, the amount on
which interest was payable under sub-section (1) or sub-section (3) 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 refunded".
All
the aforesaid changes incorporated in Section 234 A to Section 234 B clearly
indicate that interest payable on the tax due, has to be determined by the
Commission after settlement of case and the starting point for charging
interest would be the due date under the regular assessment proceedings and end
point the date of order of the Settlement Commission. The aforesaid provisions
clearly indicate that interest, if any, already paid on the tax earlier due and
demanded, would be adjusted from the interest found due on the tax, as
determined and quantified by the Settlement Commission. Starting point for
calculating the interest has to be the due date in accordance with the
procedure indicated in regular assessment and the terminal date would be the
date of the order of the Settlement Commission. The assessee would have right
of claiming adjustment of tax and interest paid in the intervening period. This
appears to be the scheme of the Chapter XIX A as harmoniously construed with
the other provisions of the Act in the light of aims and objectives for
introduction of Chapter XIX A. The forum of Commission for 'Settlement of
Cases' is not created to put a premium on fraud or misrepresentation of tax
evaders. The provisions contained in Chapter XIX A merely aim at encouraging
tax payers to approach the Settlement Commission with full disclosure of their
income which they had not earlier disclosed in the course of regular
assessment. Such assessee 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 decision in the case
of Commissioner of Income Tax vs. Express Newspapers Limited [1994 (2) SCC 374]
and Commissioner of Income Tax, Mumbai vs. Anjum Ghaswala [2002 (1) SCC 633]
which authoritatively construe some of the provisions in Chapter XIXA and
records its conclusions on some aspects of the question raised before us for
answer.
In the
case of Express Newspapers (supra) 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 to a finality, the assessee approached the
Settlement Commission for settlement of the cases. The Supreme Court was of the
view that it was a case of fraud in claiming certain losses where there were
none for the assessment years in question and it was not a case of any
subsequent disclosure of income by the assessee. It was, therefore, held that
it was not open to the assessee to avail the procedure of settlement of cases
before the Forum of the Settlement Commission. While construing sub-section (4)
of Section 245D, it was observed that the Commission is empowered to direct the
waiver of penalty as well as interest and to direct that the tax payable in
question shall be paid in prescribed instalments.
The decision
of three Judge Bench of this Court in the case of Express Newspapers Limited
(supra) came up for consideration before the five Judges Bench of this Court in
the case of Anjum Ghaswala (supra) and the former case was distinguished by
observing thus:
"In
our opinion, this observation in Express Newspapers case does not help the
Commission in support of its conclusion in regard to its power under Sections
245-D(4) and (6). It is to be noted that in that case the settlement sought was
with regard to Assessment Years 1985-86, 1986-87 and 1987-88. It is an admitted
fact that during those assessment years, Sections 234-A, 234-B and 234- C were
not in the statute book. On the contrary, the corresponding provisions existing
in the statute, namely, Sections 139(8), 215(4) and 216 in terms empowered the
income tax authorities to waive or reduce interest. It is in that context that
this Court observed, in the paragraph extracted hereinabove, that under Section
245-D(4), the Commission has the power to direct the waiver of penalty as well
as interest because that was within the scope of the provisions of the Act, as
then existing, whereas at present and for the assessment years involved in this
case, Sections 234-A, 234-B and 234-C being applicable, that observation does
not apply to the cases in hand. The sentence "except to mention that the
Commission is empowered to direct the waiver of penalty as well as
interest" is used in that judgment on the basis of the then existing law
and to apply the same to the facts of the present case with the mandatory
change in law would amount to applying those principles in Express newspapers
case out of context." [Underlining by court to supply emphasis] In the
case of Anjum Ghaswala (supra) 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 XIXA
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 such a power can be inferred because conceding such power to
Settlement Commission to waive interest would help the tax evaders who did not
disclose full income at the relevant time and made a disclosure subsequently.
Such interpretation would also be discouragement to an honest tax payer who
fully discloses his income and on the basis of regular assessment makes payment
of tax and interest. In the case of Anjum Ghaswala (supra), the five judges
bench of this Court came to the conclusion that Settlement Commission has to
complete the asesssment proceedings and determine quantum of tax as also
interest payable in accordance with the provisions applicable to regular
assessment. The observations in that case pertinent for this case read as under
:- "It is no doubt true that the terminology "settlement" has a
very wide dictionary meaning and in the absence of a statutory definition
generally the word "settlement" in sub- section (4) of Section 245-D
would give the Commission sufficient power to arrive at a settlement which it
deems fit, but when the statue qualifies such expression like
"settlement" with mandatory words like "in accordance with the
provisions of this Act" the width of the term 'settlement' becomes subject
to the mandate found in that section, which would mean that while a Commission
has sufficient elbow room in assessing the income of the applicant under
Section 245-D(4) it cannot make any order with a term of the settlement which
would be in conflict with the mandatory provisions of the section, like in the
quantum and payment of tax and/or interest. In this view of the matter, we are
of the opinion that assuming that there is any room for interpretation of the
provisions of Part F of Chapter XVII and Chapter XIX-A, we would hold that it
would not in any manner empower the Commission to either waive or reduce
interest which is statutorily payable under the provisions of Part F of Chapter
XVII." Brother Pasayat J. has also rightly observed that if interest on
tax not paid or paid after delay is governed by different provisions on the
basis of the starting point of levy of interest and the date of payment of tax,
the interest will have to be demanded and recovered in accordance with the
provisions applicable to regular assessment may be that the tax is redetermined
by the Settlement Commission under special Chapter XIX A of the IT Act.
A note
of caution is required to be recorded. If on quantum of income and tax earlier
disclosed in regular assessment proceedings, interest had been charged on tax
due, till payment no further interest will be payable for the said period on
the total quantum of tax determined by the Settlement Commission and necessary
adjustments would be granted. Thus, in no case there would be charge of
interest on interest.
The
interest chargeable in different circumstances in regular assessment
proceedings will be calculated on the basis of the quantum of income and tax
determined by Settlement Commission and necessary recovery and adjustments will
be granted so as to avoid demand of any interest on interest.
In
conclusion, 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 IT 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 IT 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 IT Act like non-payment
of tax or delayed payment of tax in the course of regular assessment.
As has
been settled by five Judges Bench in the case of Anjum Ghaswala (supra), the
Settlement Commission has no power to waive interest on the tax determined and
found due while considering the case under Chapter XIX A in various statutory
eventualities as delineated in the impugned orders of the Special Bench of the
Settlement Commission. The interest on the "aggregate income" based
on earlier disclosed and subsequently disclosed income, is to be determined by
the Settlement Commission and on the tax found due on such income, interest
will be charged in accordance with the provisions applicable in the regular
assessment proceedings. The starting point of charging interest would be the
due date of payment of advance tax or tax assessed and demanded as applicable
to regular assessment proceedings and the end point the date of the order of
the Settlement Commission. The tax and interest already paid, if any, on the
basis of regular assessment would be adjusted from the quantum of interest and
tax found due and as determined by the Settlement Commission. It is clear that
the provisions do not allow charging of any interest on interest found due.
With
the aforesaid additional reasons, I respectfully concur with the opinion
expressed by Pasayat J. The questions are answered accordingly.
The
appeals are disposed of accordingly.
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