TMI Blog2010 (10) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to proceedings of the Settlement Commission under Chapter XIX-A of the Act? (ii) Whether the Settlement Commission can reopen its concluded proceedings by having recourse to section 154 of the Act so as to levy interest under sections 234A, 234B and 234C of the Act, though it was not so done in the original proceedings? (iii) Whether in the absence of period of limitation prescribed for making the order of the Settlement, the relevant date for determining the quantum of interest could be the date of the said order? 3. For the sake of convenience, after hearing learned counsel on both sides, we reframe the above questions. (I) Whether section 234B applies to proceedings of the Settlement Commission under Chapter XIX-A of the said Act? (II) If answer to the above question is in the affirmative, what is the terminal point for levy of such interest - Whether such interest should be computed up to the date of the Order under section 245D(1) or up to the date of the Order of the Commission under section 245D(4)? (III) Whether the Settlement Commission could reopen its concluded proceedings by invoking section 154 of the said Act so as to levy interest u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any tax or interest due under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable. (b) Where as a result of an order made under sub-section (3) of this section or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, or any order of settlement made under sub- section (4) of section 245D relating to any earlier assessment year and passed subsequent to the filing of the return referred to in clause (a), there is any variation in the carry forward loss, deduction, allowance or relief claimed in the return, and as a result of which, - (i) if any tax or interest is found due, an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly, and (ii) if any refund is due, it shall be granted to the assessee: Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial year shall, subject to the provisions of sub-sections (2) and (3), be computed as follows, namely:-- (a) where the calculation is made by the assessee for the purposes of payment of advance tax under sub-section (1) or sub- section (2) or sub-section (5) or sub-section (6) of section 210, he shall first estimate his current income and income-tax thereon shall be calculated at the rates in force in the financial year; Payment of advance tax by the assessee of his own accord or in pursuance of order of Assessing Officer. 210. (1) Every person who is liable to pay advance tax under section 208 (whether or not he has been previously assessed by way of regular assessment) shall, of his own accord, pay, on or before each of the due dates specified in section 211, the appropriate percentage, specified in that section, of the advance tax on his current income, calculated in the manner laid down in section 209. (2) A person who pays any instalment or instalments of advance tax under sub-section (1), may increase or reduce the amount of advance tax payable in the remaining instalment or instalments to accord with his estimate of his current income and the advance tax pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection and sections 217 and 273, "assessed tax" means the tax determined on the basis of the regular assessment (reduced by the amount of tax deductible in accordance with the provisions of sections 192 to 194, section 194A, section 194C, section 194D, section 195 and section 196A so far as such tax relates to income subject to advance tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made. (6) 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 and sections 216, 217 and 273. Interest for defaults in furnishing return of income. 234A. (1) Where the return of income for any assessment year under sub-section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period commencing on the date immediate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years. Interest for defaults in payment of advance tax. 234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 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. (5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years. Interest for deferment of advance tax. 234C. (1) Where in any financial year,-- (a) the company which is liable to pay advance tax under section 208 has failed to pay such tax or-- (i) the advance tax paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing of such appeal or application for revision under this Act and which has not been admitted, such appeal or revision shall not be deemed to be a proceeding pending within the meaning of this clause; Application for settlement of cases. 245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided: Provided that no such application shall 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 one hundred thousand rupees. (1A) For the purposes of sub-section (1) of this section and sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar(s) referred to in column 5 ........................ 7. Proceedings to which application for settlement relates, the date from which the proceedings are pending and the income-tax authority before whom the proceedings are pending [See Note 6] ........................ 8. Where any appeal or application for revision has been preferred after the expiry of the period specified for the filing of such appeal or application for revision, as the case may be, whether such appeal or revision has been admitted. ........................ 9. Date of seizure, if any, under section 132 of the Income-tax Act ........................ 10. Particulars of the issues to be settled, nature and circumstances of the case and complexities of the investigation involved [See Note 7] ........................ 11. Full and true disclosure of income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived and the additional amount of income-tax ........................ payable on such income [See Notes 9 and 10] ....................... Signed (Applicant) Verification I, ................................, son/daughter/wife ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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-five days referred to in sub- section (2A). (4) After examination of the records and the report of the Commissioner, received under sub-section (1), and the report, if any, of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the 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). (6) Every order passed under sub-section (4) shall provide for the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 : (3) Notwithstanding anything contained in sub-section (2) and in the absence of any express direction to the contrary by the Settlement Commission, nothing contained in this section shall affect the operation of any other provision of this Act requiring the applicant to pay tax on the basis of self- assessment in relation to the matters before the Settlement Commission. (4) For the removal of doubt, it is hereby declared that, in the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission. Order of settlement to be conclusive. 245-I. Every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be paid on the current income which would be chargeable to tax for the assessment year immediately following the financial year. Section 210 casts the responsibility of payment of advance tax on the assessee without requiring the assessee to submit his estimate of advance tax payable. Provision for payment of advance tax is mode of quick collection of tax. Thus, section 207 defines liability to pay advance tax in respect of incomes referred to in section 208. However, advance tax paid is adjustable towards the tax due. Advance tax is collected even before the income tax becomes due and payable. By its very nature, advance tax is pre-assessment collection of taxes either by deduction of tax at source or by payment of advance tax which has to be adjusted towards income tax levied on the total income. The above two methods of realization even before any assessment is authorized by section 4(2) are incorporated in Chapter XVII which deals with "collection and recovery". In fact, section 190(1) clarifies that this method of payment of tax will not prejudice the charge of tax under section 4(1) nor will it modify the liability of the assessee to pay income tax pursuant to an assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) inter alia provides that where the amount paid by the assessee under section 140A(1) falls short of the aggregate of the tax and interest thereon the amount so paid is first adjusted towards interest payable and the balance, if any, is adjusted towards the tax payable. Thus, amount(s) paid under section 140A is deemed to have been paid towards regular assessment. 8. The liability to pay income tax is founded on sections 4 and 5 which are the charging sections. Sections 143, 144 and 147 are machinery sections to determine the amount of tax payable. Thus, whereas section 143(3) signifies computation of income, section 147 signifies computation of escaped income. As held in the case of C.A. Abraham v. Income-Tax Officer, Kottayam and Another [(1961) 41 ITR 425 (SC)], the expression "assessment" in a given provision must be determined on an examination of the relevant provisions in question and the fact that it is used in the narrower sense elsewhere will not mean that it is so used in the provision under examination. The word can be used to cover the whole procedure to ascertain the liability and the machinery for enforcement. Prior to 1.6.1999, section 143(1A)(a) inter alia pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasing or reducing the amount of tax payable and so also section 234B(4). Under section 234B, where in any financial year an assessee who is liable to pay advance tax under section 208 fails to pay such tax or where the advance tax paid under section 210 is less than 90% of the assessed tax the assessee shall pay interest from the first day of April next following such financial year to the date of determination of total income under section 143(1) or to the date of regular assessment on the amount equal to the assessed tax which has been defined in Explanation 1 to mean tax on the total income as determined under section 143(1) as reduced by the amount of tax deducted at source in accordance with Chapter XVII on income which is subject to deduction and which is taken into account in computing total income. By Explanation 3, it is clarified that for default of short payment interest will be charged on the difference between "assessed tax" (as defined) and the advance tax paid by the assessee and that for the above purpose "additional income tax" if any payable under section 143 is not to be taken into account. However, section 234B(2) covers a situation where, before the date of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. But after 1.6.1987, the tax is required to be worked out on the returned total income plus the income disclosed in the application as if the aggregate is the total income. Under section 245D(2A) the applicant 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 under section 245D(1) allowing such application to be proceeded with. Under section 245D(2A) the applicant shall, within 35 days of the receipt of the order under section 245D(1) allowing the application to be proceeded with, pay the additional amount of income tax payable on the income disclosed. Under section 245D(4) on compliance of sections 245D(2A) and (2C) and on examination of relevant records and reports, the Settlement Commission may pass such orders as it thinks fit on the matters covered by the application and any other matter relating to the "case" referred to in the report of the Commissioner of Income Tax. If one carefully analyses the provisions of sections 245D(1) and 245D(4), one finds two distinct stages - one allowing the application to be proceeded with (o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. In this connection, however, we need to keep in mind the difference between "procedure for assessment" under Chapter XIV and "procedure for settlement" under Chapter XIX-A (see section 245D). Under section 245F(4), it is clarified that nothing in Chapter XIX-A shall affect the operation of any other provision of the Act requiring the applicant to pay tax on the basis of self-assessment in relation to matters before the Settlement Commission. The point to be noted on the basis of the above analysis is that several provisions of the Act like section 140A; furnishing of the return of income by the applicant as indicated in the proviso (a) to section 245C(1); provisions of the Act governing liability and computation to pay additional income tax as indicated by proviso (b) to section 245C(1); aggregation of total income inter alia in terms of sections 143, 144 or 147 as indicated by section 245C(1B)(iii); aggregation of total income as returned plus income disclosed in the application for settlement as indicated in section 245C(1B)(ii); the deductions in section 245C(1C); increase of interest under section 215(3) pursuant to the orders of the Settlement Commission and the levy of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, in that computation, one finds that provisions dealing with a regular assessment, self-assessment and levy and computation of interest for default in payment of advance tax, etc. are engrafted. [See sections 245C(1B), 245C(1C), 245D(6), 245F(3) in addition to sections 215(3), 234A(4) and 234B(4)] (II) Terminal point for the levy of interest - Whether interest is payable under Chapter XIX-A up to the date of the order under section 245D(1) or up to the date of the order under section 245D(4)? 12. In our view the answer to the above question lies in the provisions of the proviso to Sections 245C(1), 245C(1B) and 245C(1C), 245D(4) and 245F(3) which bring in the concepts of returned income, self-assessment, aggregation of income returned and income disclosed as if it is total income; levy of interest under section 215(3) read with section 245D(4); increase of interest under sections 234A(4) and 234B(4) read with section 245D(4) as also sections 140A(1A) and (1B) read with sections 234A and 234B. For example, section 140A deals with self-assessment which is different from regular assessment. Under section 140A(1) where tax is payable on the basis of any return furnished by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 245C(1B)(ii), if the applicant has furnished a return in respect of the total income, whether or not assessment is made in pursuance of the return, the additional amount of income tax payable in respect of the total income disclosed shall be on the aggregate of the total income returned and the income disclosed in his application for settlement as if such aggregate was his total income. This is pre-assessment collection of tax. Such pre- assessment is based on the estimation of the current income and tax thereon by the applicant himself. Now, when the Settlement Commission accepts the Voluntary Disclosure vide the application for settlement, section 234B(2) steps in. It is important to remember that the assessee is liable to pay advance tax, he commits default in payment to the extent of the undisclosed income but he offers to pay additional income tax then interest has to be calculated in accordance with sections 207, 208 and 234B(2) up to the date on which such tax is paid. This is not the interest which assessee has to pay after assessment under section 245D(4). Under sections 245C(1B) and (1C) the additional amount of income tax payable on the undisclosed income shall be on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5C(1B)(ii) and section 245C(1C)(b), the additional amount of income tax payable is to be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate is the total income. Thus, the scheme of the said sections is based on computation of total income and in that sense we have stated that such application for settlement is akin to a return of income. The said provision deals with "total income". Thus, as stated above, sections 234A, B and C are applicable up to the stage of section 245D(1) order passed by the Settlement Commission. However, Parliament has not extended the provisions and the liability to pay interest beyond the date of application for settlement. This is the position even after Finance Act of 2007. Once this position is taken, section 140A is attracted. When an assessee has paid interest under sections 234A, B and C in self-assessment under section 140A, which is similar to the scheme of section 245C(1), and once the Settlement Commission admits the application for settlement, one finds that even under section 140A(1B) interest payable under section 234B has to be computed on an amount equal to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether to proceed or reject the settlement application. The jurisdiction of the Settlement Commission to proceed commences only after an order is passed under section 245D(1). That, after making an application for settlement the applicant is not allowed to withdraw it [see section 245C(3)]. Once the case stands admitted, the Settlement Commission shall have exclusive jurisdiction to exercise the powers of the Income Tax Authority. The order of Settlement Commission under section 245D(4) shall be final and conclusive under section 245I subject to two qualifications under which it can be recalled, viz., fraud and misrepresentation but even here it is important to note that under section 245D(7) where the settlement becomes void on account of fraud and misrepresentation the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission. This further supports our view that there are two distinct stages under Chapter XIX- A and that the Legislature has not contemplated the levy of interest between order under section 245D(1) stage and section 245D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be calculated on the aggregate of total income as assessed in the earlier proceedings for assessment under section 143 or under section 144 or under section 147 [see section 245C(1B)]. The point to be noted is that in computation of additional income tax payable by the assessee, there is no mention of section 154. On the contrary, under section 245I the order of the Settlement Commission is made final and conclusive on matters mentioned in the application for settlement except in the two cases of fraud and misrepresentation in which case the matter could be re- opened by way of review or recall. Like ITAT, the Settlement Commission is a quasi-judicial body. Under section 254(2), the ITAT is given the power to rectify but no such power is given to the Settlement Commission. Thus, we hold that Settlement Commission cannot reopen its concluded proceedings by invoking section 154 of the Act. Lastly, one must keep in mind the difference between review/ recall of the order and rectification under section 154. The Schedule of Chapter XIX-A does not contemplate invocation of section 154 otherwise there would be no finality to the assessment by settlement which is different from assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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