Commissioner
of Income Tax, Mumbai City-XIII, Mumbai Vs. M/S Damani Brothers [2002] Insc 71
(11 February 2002)
N. Santosh
Hegde & Doraiswamy Raju D E R Raju, J.
Special Leave Petition (civil) 18012-18015 of 2000
Pursuant
to the order dated 28.3.2001, these matters, which were directed to be delinked
from the other batch, have come up for hearing.
Civil
Appeal No.7248 of 1999 :
This
appeal has been filed against the decision dated 15.4.1999 of the Income-Tax
Settlement Commission, Additional Bench, Mumbai. The said decision was rendered
by the Special Bench of the Income-Tax Settlement Commission constituted by the
Chairman in exercise of his powers under Section 245BA (5A) of the Income-Tax
Act (hereinafter referred to as "the Act"). The Reference to the Special
Bench was in respect of the following questions :-
1. Was
the Special Bench of the Settlement Commission right in holding in the case of Om
Metals and Minerals Pvt. Ltd. (193 ITR 57 - ITSC ) that the assessment order
passed by the assessing officer before the admission of the settlement
application subsisted and recovery proceedings continued even after the
admission of the said application, especially after the judgment of the
Newspapers Ltd. (206 ITR 443) ? (The Hon'ble Court, inter alia, made the
following observation:- It is equally evident that once an application made
under Section 245C is admitted for consideration (after giving notice to and
considering the report of the Commissioner of Income-tax as provided by Section
245D) 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
himself. In other words, the proceedings before the Commission are not confined
to the income disclosed before it alone. Once the application is allowed to be
proceeded with by the Commission, the proceedings pending before any authority
under the Act relating to that assessment year have to be transferred to the
Commission and the entire case for that assessment year will be dealt with by
the Commission itself.")
2. If
the answer to question No.1 is in the affirmative, would it be correct to say
that once the Settlement Commission determines a liability of the applicant for
tax, penalty and interest under Section 245D (4), the orders of the lower
authorities would automatically stand set aside and consequently there will be
no liability under Section 220 (2) of the Act ?
3. If
the answer to question No.1 is in the affirmative, the question No.2 in the
negative, has the Settlement Commission powers to waive interest under Section
220 (2) of the Act ?" The three questions were separately and individually
considered and answered. Thereupon, the answers given have been summed up as
follows:- "Para 37. In sum, our answers to the
three questions referred us are as follows:- Question No.1
(i)
That the Special Bench in the case of Om Metals & Minerals Pvt. Ltd.
(supra) was right in holding that the assessment orders passed by the Assessing
Officer before the admission of the settlement application subsisted only
insofar as such finding applies to assessment orders passed before the date of
filing of application under Section 245C(1).
(ii)
The Special Bench of the Settlement Commission was not right in holding that
the orders passed by the Assessing Officer insofar as the finding applies to
orders passed after the date of application but before the application is
allowed to be proceeded with.
(iii)
The Special Bench was not right in holding that the recovery proceedings based
on the order of assessment can be continued even after the admission of the
said application. In our view, recovery proceedings cannot be continued after
the application has been admitted except in the matter of self-assessment tax
and in the manner laid down in section 245DD for safeguarding any likely future
demand.
Question
No.2.
(i)
The orders of lower authorities do not automatically stand set aside by the
Commission's order u/s 245D(4). The order of assessment stands modified to give
effect to the order u/s 245D(4) by the theory of merger applying to such order.
(ii)
In cases where assessment orders were passed before filing of application, the
liability of interest u/s 220(2), if any, will be upto the date of order u/s
245D(1). There will be no liability for interest u/s 220(2) thereafter. In
cases where assessment orders were passed after filing of application, there
will be no liability of interest under section 220 (2).
Question
No.3.
Yes.
The Commission has the power to reduce/waive interest chargeable u/s 220
(2)." Aggrieved, the Revenue has come up in appeal to this Court.
S.L.P.
[C] Nos. 18012-18015 of 2000 :
The
above Special Leave Petitions have been filed against the order dated 20.9.1999
passed by the Income-Tax Settlement Commissioner (IT & WT), Additional
Bench, Calcutta. The said order came to be passed
on the applications seeking for rectification of the earlier order dated
16.2.1999 placing reliance upon the decision of the Settlement Commission, Special
Bench, in Special Bench felt obliged to apply the decision in 230 ITR (AT) 1
and allowed full waiver of interest charged under Section 234B of the Act for
the Assessment Years 1991-92, 1992-93, and for the Assessment Year 1993-94
allowed waiver of interest restricting to 50% of the interest charged under
Section 234B of the Act. Aggrieved, the Revenue has filed these petitions.
It may
be noticed even at this stage that on appeal filed by the Revenue against the
decision reported in [1998] 230 ITR (AT) 1, this Court in the decision order of
the Commission holding that in exercise of its power under Section 245D (4) and
(6) of the Act, the Settlement Commission had no power to reduce or waive
interest statutorily payable under Sections 234A, 234B and 234C of the Act,
except to the extent of granting relief in accordance with Circulars issued by
the Central Board of Direct Taxes under Section 119, e.g. Circular
No.400/234/95-IT(B) dated May 23, 1996.
We
have heard arguments in the appeal made by Shri R.P. Bhatt, Senior Advocate,
for the appellant and Ms. Shobha Jagtiani, Advocate, for the respondent. In the
other appeal, the respondent sought time, but having regard to the decision
taken by us to have the matter placed before a larger Bench, both are dealt with
together by this order.
Serious
issue has been raised in the matter before us with directly conflicting stands
on either side as to the extent of powers that could be exercised by the
Settlement Commission, pursuant to the applications filed under Section 245C of
the Act. Whereas it was vehemently contended for the Revenue that the
Settlement Commission is not empowered to waive or reduce the interest under
Section 234A read with Section 220 (2) of the Act while exercising its
jurisdiction under Section 245D (4) of the said Act, that the assessment order
passed by the Assessing Officer prior to the admission of Settlement
Application under Section 245C will subsist so as to enable the Revenue to
continue the recovery proceedings and that on the determination of liability by
the Settlement Commission on the application filed before it, the orders passed
by the lower authorities would not automatically stand set aside, revoked or
cancelled, on behalf of the assessee, a contrary position and stand has been asserted
with equal vehemence. Both parties sought to place strong reliance upon the
earlier 443.
We
have carefully considered the matter in the light of the relevant provisions of
the Act and decisions to which a reference will be made hereafter.
The
decision in Express Newspapers Ltd. (supra) has been rendered by a Bench of
three learned Judges. That was a case where in a question of the nature now
sought to be raised was not directly in issue or under detailed consideration
and the judgment also specifically clarifies that the order therein was
confined only to the question of jurisdiction of the Settlement Commission and
the validity of its order taking seisin of the case. On the conclusion arrived
at that the application filed before the Settlement Commission in that case was
not in compliance with the first and foremost requirement of Section 245C(1)
the very application was held to be not maintainable and ought to have been
rejected in limine. In the course of dealing with the said case, a conspectus
of the relevant provisions of law came to be incidentally considered and there
has been an observation at page 451 of the Report that "it is equally
evident that once an application made under Section 245C is admitted for
consideration (after giving notice to and considering report of the CIT as
provided by Section 245D) 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. In other words, the proceedings before the Commission are not confined
to the income disclosed before it alone. Once the application is allowed to be
proceeded with by the Commission, the proceedings pending before any authority
under the Act relating to that assessment year have to be transferred to the
Commission and the entire case for that assessment year will be dealt with by
the Commission itself".
Yet
the said decision did not specifically and clearly spell out to what extent it
can grant relief or deal with the case and could such consideration be to the
extent of over-reaching an earlier order passed and concluded or even if
proceedings were pending, to what extent the consideration by the Commission
can expand.
powers
of the Settlement Commission came to be considered by a Bench of two learned
Judges and Jeevan Reddy, J., who spoke for the earlier Bench, speaking for the
Bench in this case also, while dealing with the Scheme of the provisions
contained in Chapter XIX-A, has categorically held that not only an application
envisaged under Section 245C can be made only in respect of a pending case and
the Commission take over all the proceedings relating to that case which may be
pending before any authority under the Act, such power is confined to "the
case before the Commission, which means the case relating to the assessment
year for which the application for settlement is filed and admitted for
settlement". It has also been stated that while Section 245E empowers the
Commission to reopen any completed proceedings connected with the case before
it, such power is circumscribed by the requirement expressly stated in that
Section that such reopening of completed proceedings should be "necessary
or expedient for the proper disposal of the case pending before it". It
was also observed therein as follows :- "There are two other limitations
upon this power, viz., that this reopening of the completed proceedings can be
done, even for the aforesaid limited purpose, only with the concurrence of the assessee
and secondly that this power cannot extend to a period beyond eight years from
the end of the assessment year to which such proceeding relates. These two
features make it abundantly clear that the section contemplates reopening of
the completed proceedings not for the benefit of the assessee but in the
interests of the Revenue. It contemplates a situation where the case before the
Commission cannot be satisfactorily settled unless some previously concluded
proceedings are reopened which would normally be to the prejudice of the assessee.
It is precisely for this reason that the section says that it can be done only
with the concurrence of the assessee and that too for a period within eight
years. This section cannot be read as empowering the Commission to do
indirectly what cannot be done directly." At page 631 of the Report, it is
further observed as follows:- "Lastly, we may refer to Sri Poddar's
submission based upon section 245F(1). According to him, sub-section (1)
confers the powers of an income-tax authority upon the Settlement Commission
including the power to reopen the assessments as contemplated by section 147.
We do not know whether the power under section 147 can also be claimed by the
commission. But assuming it can, the said power has to be exercised in
accordance with the provisions contained in sections 147 to 150 including
sections 148 and 149. Admittedly, they were not complied with in this
case." In the decision reported in 252 ITR 1 (supra) also, a Constitution
Bench of this Court observed that the object of Chapter-XIX-A is not to give an
amnesty to a tax evader from paying the tax due and that it would be
preposterous to hold that the Commission has been conferred with the power for
either reducing or waiving the tax due.
We
find that Section 245C has undergone a specific amendment of considerable
significance with effect from 1.10.1984 under the Taxation Laws (Amendment)
Act, 1984 (Act 67 of 84) making it imperative that an application to be filed
is not only to be in such form and in such manner as has been prescribed, but
it should contain full disclosure of an income "which has not been
disclosed before the assessing officer and the manner in which such income has
been derived, with the additional amount of income tax payable "on such
income" and with such further and other particulars as may be prescribed.
Sub-section (4) of Section 245D enables the Commission to pass, in accordance
with the provisions of the Act, orders on "matters covered by the
application and any other matter relating to the case not covered by the
application, but referred to in the report of the Commissioner under
Sub-section (1) or Sub-section (3)." Reference has been earlier made to
Section 245E and the powers thereunder.
The
scope and impact of Section 245F (4) are also required to be considered.
We
further find that nowhere in any of the provisions contained in the said
Chapter XIX-A, any specific provision or stipulation is made that once the
application is taken up for consideration after notice to the Commissioner and
after receipt of the Report from the Commissioner, the proceedings pending on
the file of the income-tax authority at various stages shall stand transferred
automatically to the Commission to be dealt with as a whole, nor is there any specific
indication as to the extent or manner in or upto which the Settlement
Commission can deal with the claims other than those covered by the application
made by an applicant. Does the Settlement Commission get a complete role in
total substitution of the other authorities under the Act and, if so, far what
purpose and to what extent. An answer to the questions thus raised before us
may call for a detailed consideration of the views expressed in the earlier
decisions in order either to further elaborate or to confine them in a manner
that is desirable or permissible in terms of the Scheme, the language used and
the purpose underlying the various statutory provisions. Therefore, we would
consider it more appropriate as well as proper to have the matter referred for
the consideration of a larger Bench than merely a Bench of two Judges as we
are.
Such
questions, being recurring in nature, deserve to be decided at an early date.
We
direct that the papers may be placed before the Hon'ble the Chief Justice for appropriate
orders as the matter may deserve.
.J.
[N. Santosh
Hegde] J.
[Doraiswamy
Raju] February 11, 2002.
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