of Income Tax Vs. M/S Hindustan Bulk Carriers, M/S Damani Brothers
 Insc 559 (17
Shah Shah, J.
Appeal (civil) 7248 of 1999
gone through the Judgments rendered by brother Pasayat, J. and brother Dharmadhikari,
J. I agree with the views expressed in those Judgments. However, for clarifying
the position with regard to payment of interest I would like to add as under:
provided under Section 245B of the Income-Tax Act, 1961, (hereinafter referred
to as 'the Act') the Central Government 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.
requirements are that no such application could be made unless-
assessee has furnished the return of income which he is or was required to
furnish under any of the provisions of this Act; and
additional amount of income-tax payable on the income disclosed in the
application exceeds (at present) one hundred thousand rupees.
other relevant requirement which has a bearing on the question involved in
these appeals is sub-section (1A) of Section 245C, which provides that the
additional amount of income tax payable in respect of the income disclosed in
an application should be the amount calculated in accordance with the
provisions of sub- sections (1B) to (1D).
next stage is Section 245D which empowers the Settlement Commission to reject
the application or to allow the application to proceed with within a period of
one year from the end of the month in which such application was made.
Rejection of such application could be only after giving an opportunity of
hearing to the applicant as well as after considering the report of the
Commissioner of Income Tax. If the application is not rejected and the
Settlement Commission decides to proceed with the application, then the assessee
is required to pay the additional amount of income tax payable on the income
disclosed in the application within 35 days of the receipt of the copy of the
order passed by the Settlement Commission.
subsequent stage provided under sub-sections (2B) and (2C) to Section 245D is
that if the assessee is not in a position to pay the said amount within a
period of 35 days it may extend the time for payment of the amount which
remains unpaid but the assessee would be liable to pay simple interest at the
rate of 15% per annum on the amount remaining unpaid from the date of the
expiry of the period of 35 days referred to in sub-section (2A).
question which arises is whether the assessee is required to pay any interest
on the amount of tax on the income disclosed before the Settlement Commission
as contemplated under Sections 234A, 234B and 234C? That question is concluded
by a decision rendered by the Constitution Bench of this Court in Commissioner
of Income Tax, Mumbai v. Anjum Ghaswala [(2002) 1 SCC 633] where it was held that
the interest contemplated under Sections 234A, 234B and 234C is mandatory in
nature and the power of waiver or reduction having not been expressly conferred
on the Commission, waiver or reduction in payment of statutory interest is
outside the purview of the settlement contemplated in Chapter XIX-A of the Act.
Therefore, the assessee is required to pay interest at the prescribed rate from
the date when the amount became due and payable on the undisclosed income which
is disclosed before the Settlement Commission, till the date of the order of
entertaining such application, passed by the Settlement Commission under
Section 245C. He is given 35 days' time for making such payment under
sub-section (2A) of Section 245D.
Section 245H, 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.
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
waive tax statutorily payable under the Act, or
reduce the interest on the tax payable on the income disclosed.
it cannot be contended that the assessee would be required to pay interest on
the tax payable on the income disclosed by him only from the date when he files
an application under Section 245C. He has to pay the tax amount on the
disclosed income and also the interest payable on the said tax. Further, when
once the order under Section 245D is passed by the Settlement Commission to
proceed with the application, he is required to pay the said amount i.e.
tax on the income subsequently disclosed and the interest payable thereon,
within a period of 35 days. If that amount is not paid the Commission may
extend the period of payment with a specific condition that he shall pay the
same interest thereon. It is true that to that extent he would be required to
pay interest on interest but the scheme of Section 245D contemplates that he
has to pay tax on the disclosed income and as the Commission has no power to
waive interest on the said tax, he is also required to pay the tax with
means under sub-section (2A) to Section 245D the assessee would be required to
pay the income tax payable on the disclosed income plus the interest payable
thereon as contemplated under Sections 234A, 234B or 234C.
next step is if the Commission gives further time to pay the said amount
whether assessee is required to pay interest as contemplated under sub-section
(2C) of Section 245D? For simplification it can be stated that once the amount
is crystallized i.e. X is the tax payable on the disclosed income and Y is the
interest payable thereon, on aggregate of this amount (i.e. X+Y), if the time
for payment is extended by the Settlement Commission, the assessee is also
required to pay the interest on the amount of 'X+Y'. That is the scheme of
sub-section (2C) of Section 245D. It specifically provides that where the
additional amount of income tax is not paid within the time specified under
sub-section (2A) then on the amount which remains unpaid "the assessee
shall be liable to pay simple interest at the rate of 15% per annum on the
amount remaining unpaid from the date of expiry of the period of 35 days referred
to in sub- section (2A)". It is also to be noted that under sub-section
(2D) where the additional amount of income tax referred to in sub-section (2A)
is not paid by the assessee within the time specified under that sub- section
or the time to pay is extended under 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