TMI Blog1997 (12) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... he Settlement Commission was concerned only with the settlement of a case in respect of an application which had been allowed to be proceeded with and a case could not be considered as representing a class of cases under section 119 of the Income-tax Act. However, in the event of the Central Board of Direct Taxes (hereinafter called the Board) issuing any instructions, guidelines, etc., for relaxing the provisions of sections 234A, 234B and 234C in any class of cases or class of incomes , the applicant could avail of the benefit of the Board s instructions if his case falls within the ambit of that class of cases or incomes. According to the Special Bench, the Settlement Commission could not, on its own, reduce or waive the interest chargeable under the aforesaid three sections. However, subsequent to this Special Bench decision, a new dimension had been added in this regard. The Board, in a Press Note dated May 21, 1996 [1996] 219 ITR (St.) 169, followed by an order dated May 23, 1996, issued under section 119(2)(a) of the Income-tax Act, had empowered the Chief Commissioners/Director-Generals (Investigation) to reduce or waive the penal interest charged under sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether this decision could be applied retrospectively, to cover those cases where section 245D(4) orders had already been passed prior to the Special Bench order. To set at rest the aforesaid controversies, the Chairman, Settlement Commission, passed an order under section 245BA(5A) of the Income-tax Act on September 6, 1997, constituting a larger Special Bench consisting of seven Members for adjudicating upon the aforesaid issues for deciding the settlement applications . This seven-Member Special Bench was to have its hearing at Mumbai on the 6th and 7th of October, 1997, and at the request of the Commissioner of Income-tax, the hearing was adjourned sine die. The seven-Member Special Bench hearing was refixed at Mumbai on November 19, 20 and 21, 1997, for providing answers to the following questions placed for consideration before the Bench. (a) (i) Whether the Special Bench of the Settlement Commission was correct in law in holding, in the case of Ashwani Kumar Aggarwal, In re [1992] 195 ITR 861 (ITSC) [SB], that the Settlement Commission is not vested with the power to reduce or waive the interest chargeable under sections 234A, 234B and 234C of the Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission the exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority in relation to the case. Accordingly, when the Board itself can pass orders relaxing the provisions of sections 234A, 234B and 234C, the Settlement Commission also is equally competent to reduce or waive the quantum of statutory interest. As mentioned in paragraph 2.33 in Chapter II of the Wanchoo Committee s Report, while dealing with the powers of the Direct Taxes Settlement Tribunal (renamed Income-tax Settlement Commission). The terms of the award will be set down in writing and it will be open to the Tribunal to determine not only the amount of tax, penalty or interest but also to fix date or dates of payment. The quantum of penalty and interest will be in the discretion of the Tribunal. (emphasis* supplied) The Committee s aforesaid suggestion has taken shape in the form of section 245D(6) of the Income-tax Act. The Special Bench had erred in whittling down the power of the Settlement Commission to reduce or waive the statutory interest by making this power dependent on the Board circular, that might be issued under section 119(2)(a) of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Central Board of Direct Taxes. The Special Bench s inference that the relaxation of the rigours of sections 234A, 234B and 234C could be possible only in a class of incomes or a class of cases and not in any single case is incorrect. As said by the Punjab and Haryana High Court in Sant Lal v. Union of India [1996] 222 ITR 375 (page 389) : In a given situation, a single case may constitute a class or a particular type of cases may constitute a special category. The Board may in a given case issue an order for treating an individual case as a class unto itself for the purpose of relieving an assessee of hardship. To the same effect is the decision of the Karnataka High Court in Union Home Products Ltd. v. Union of India [1995] 215 ITR 758 (page 785) : As observed by this court, once the Board exercises its powers under section 119(2)(a) and defines the class of cases in which the rigours of sections 234A, 234B and 234C will apply less harshly, it will be immaterial whether one or more cases fall in any such class prescribed by the Board. . . In the process of exercising the said power while the Board can draw upon its own experience, information or even imagin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the statutory interest, in particular, after the relaxation of the provisions of sections 234A, 234B and 234C with effect from April 1, 1990/April 1, 1991. Such an approach would be in consonance with the purpose of making the Settlement effective. Shri Mukesh Patel, while reiterating the arguments advanced by Shri Kothari, had claimed that the decision in Ashwani Kumar s case, [1992] 195 ITR 861 (ITSC) [SB], was incorrect in law, as it truncated the powers of the Settlement Commission. But in fact the legislative import in the amendment to section 245A(d) by the Finance Act, 1987, was to energise the Settlement Commission by extending its powers, coterminous with those of an income-tax authority, specified in section 116 of the Income-tax Act, including the Board. Prior to this amendment, the Settlement Commission could rest satisfied with the powers of only few specified income-tax authorities, like the Commissioner of Income-tax, Director of Inspection, etc. Since, in view of the amendments to section 119(2)(a), the Board is empowered to issue instructions by way of relaxation of the provisions of sections 234A, 234B and 234C, the Settlement Commission could also exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs constituting the relevant Bench on the merits of each case before them. In either case, it should be ensured that injustice was not allowed to be perpetuated. Reliance was placed on the observations of the Supreme Court in Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC) (headnote) : When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non-deliberate delay. According to Shri K. H. Kaji, section 119(1) has vested in the Board the general power to issue any orders or directions to the subordinate authorities and this general power has only two restrictions, namely, that no income-tax authority could be directed to make a particular assessment or to dispose of a particular case in a particular manner and the discretion of the Deputy Commissioner (Appeals)/Commissioner (Appeals) in the exercise of his appellate functions could not be interfered with under section 119(1) of the Income-tax Act. Section 119(2), though introduced without prejudice to the generality of the power und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the Settlement Commission would have the power of waiver/reduction of interest, in case the Settlement Commission specifies the quantum of interest in its order under section 245D(4), this could not be subsequently waived or reduced by any income-tax authority, even if circumstances warrant the waiver or reduction. This is due to the fact that as per section 245-I, the order of the Settlement Commission shall be conclusive of the matter specified therein. These anomalous results flowing from the impugned Special Bench decision would vanish if certain well established canons of construction are adopted, namely, a statute has to be construed so as to make it effective and workable. A construction which reduces the statute to a futility should not be adopted. If any other construction is possible and equally reasonable, the courts will reject the construction which will defeat the plain intention of the Legislature, even though there may be some inexactitude in the language used. A court leans in favour of a construction conferring jurisdiction, as against the construction negativing the jurisdiction. According to Shri K. Shivaram, the Wanchoo Committee, while recommending the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd s press release and the circular issued in 1996, the interest charged under these sections was treated to be penal in nature. Accordingly, while determining the quantum of tax, penalty or interest payable as per the terms of settlement under sections 245D(4) and 245D(6), the Settlement Commission would be competent to reduce or waive the statutory interest. Further the inter-position of a comma between the words by way of tax, penalty or interest and the words the manner in which any sum due . . . shall be paid would mean that the words any demand would not necessarily mean that there should be a positive demand necessitating the payment of the same. Accordingly, the Settlement Commission would even waive or reduce the quantum of statutory interest. According to Shri S. N. Inamdar, the decision in Ashwani Kumar s case [1992] 195 ITR 861 (ITSC) [SB], is erroneous as, in effect, it provides for the abdication of powers by the Settlement Commission in favour of the Board, which is contrary to the spirit of settlement of cases. Chapter XIX-A of the Income-tax Act, is a complete code in itself and provides for a settlement, in the context of the voluntary declaration of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (para. 10.2 of the Central Board of Direct Taxes s Board Circular No. 549 dated October 31, 1989, reproduced at [1990] 182 ITR (St.) 1, 38). Accordingly, the purpose of introduction of the three new sections was to remove the discretion of the assessing authorities for reducing the litigation and for speeding up the realisation of the dues and the purpose was not to trammel the inherent power of the Settlement Commission to waive/reduce the statutory interest (emphasis* supplied) in the order under section 245D(4) read with section 245D(6) of the Income-tax Act. Even after the deletion of the word interest in section 245D(6) with effect from October 1, 1984, as per the Board s Circular No. 394 dated September 14, 1984, [1984] 150 ITR (St.) 3, the Settlement Commission was not precluded from setting out the terms relating to the payment of interest. Accordingly, the word interest was presumably deleted from section 245D(6) in the context of the introduction of section 245D(2C) and section 245D(6A) providing for the charging of the interest subsequent to the passing of the orders under sections 245D(1) and 245D(4) of the Income-tax Act. From this, it would be evident that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f delegated legislation. It is the function of the Legislature to legislate and the normal feature of enabling Acts is to grant the power to make rules, which may provide for a number of enumerated matters. It is for Parliament to decide whether the rigour of any statutory provision is to be removed. Once it has decided so, it may delegate the authority to the executive, to frame rules, issue instructions, etc., as to how this rigour could be reduced. Accordingly, the Board s power to issue directions, instructions, etc., under section 119(2)(a) in respect of the relaxation of the provisions of sections 234A, 234B and 234C flows from the delegated legislation effected by Parliament. In fact, even the order passed under section 119(2)(c) shall be laid before each House of Parliament. There cannot be two bodies exercising the powers under the delegated legislation. Though the Board can issue instructions to its subordinate authorities, the Settlement Commission cannot issue such instructions to any Additional Bench of the Commission. The definition of the term income-tax authority in section 245A(d) as amended with effect from June 1, 1987, is qualified by the words unless the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rishnan v. Settlement Commission [1989] 180 ITR 585 (Kar), Joytendrasinhji v. S. I. Tripathi [1993] 201 ITR 611 (SC), CIT v. Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618 (SC)). The observations of the Supreme Court in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443, page 456, relied upon by Shri C. V. Kothari should be treated as having been made per incuriam as the Supreme Court was dealing with a case pertaining to the assessment years 1985-86 to 198889 to which the mandatory provisions of sections 234A, 234B and 234C were not applicable. The following arguments were addressed by way of rejoinder to the submissions of Shri Rafiq Dada : According the Shri Mukesh Patel, a court can differ from its earlier decision, if a particular point was not considered in the earlier judgment and if it is in public interest, it may deviate from its earlier stand (Union of India v. Raghubir Singh [1989] 178 ITR 548 (SC)). In view of this, the constitution of a larger Special Bench for examining the correctness of the earlier Special Bench decision in Ashwani Kumar s case [1992] 195 ITR 861 (ITSC) [SB] was fully justified. The decision in Ashwani Kumar s case, [1992] 195 ITR 861 (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Settlement Commission from taking steps, on its own, to remove the hardship to the taxpayer. It had also not interpreted the provisions of sections 245D(4) and 245D(6) read in the context of section 245F(2) of the Income-tax Act. The question, whether a person would be better off by approaching the Commission or the Board, pertains to the realm of equity and cannot be the concern of the court. Regarding the aspect of delegated legislation, the decision to relax the particular statutory provision is to be taken by the Legislature. Under what circumstances the relaxation can be effected is to be decided by the executive authority. There is no repugnancy in section 245A(d) in view of the phrase unless the context otherwise requires . There is also no dichotomy in the matter of deciding as to the circumstances under which there could be waiver/reduction of the interest under sections 234A, 234B and 234C. In the context of the expression of the legislative intent to relax the provisions of these sections, till the case is admitted under section 245D(1), the Board and its subordinate authorities can exercise the power of waiver/reduction of interest. Once the case is admitted, till t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st can be effected, as this can be done only through delegated legislation and cannot be done to benefit only some errant tax payers. On the contrary Shri Y. P. Trivedi had contended that the Settlement Commission could lay down its own guidelines for the exercise of the powers of waiver/reduction of interest on the lines of the Income-tax Rules, rules 40 and 117A, which had stood the test of time. Shri K. H. Kaji, however, felt that there would be no need for framing any rules or guidelines by the Settlement Commission as these are required to be framed only by a supervisory authority, like the Board to ensure that the actual relaxation of the provisions was carried out by the subordinate authorities. Being a high-powered body, entrusted with all the powers of the income-tax authorities, the Settlement Commission itself could, on its own, waive or reduce the statutory interest in each individual case on the basis of the specific facts and circumstances therein and it could exercise its power in a proper judicial discretion. Shri S. K. Majumdar had supported this stand, from a different angle. According to him, unlike in the case of a Special Bench of the Incometax Appellate Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attitude would not only inhibit a one-time tax-evader or an unintending defaulter from making a clean breast of his affairs, but would also unnecessarily strain the investigational resources of the Department in the case of doubtful benefit to revenue, while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in the law for a settlement with a taxpayer at any stage of the proceedings. . . A provision of this type facilitating settlement in individual cases will have this advantage over general disclosure schemes that misuse thereof will be difficult and the disclosure will not normally breed 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 buildup can be insisted on, thus sealing off chances of continued evasion through similar practices. Accordingly it had suggested the setting up of a high level machinery to ensure that the settlement is fair, prompt and independent . In the context of the recommendations of the Wanchoo Committee and the subsequent discussions in the Select Committee of Parliament, Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable properties for counteracting tax evasion, Chapter XIX-A is also a separate code in itself, providing for the settlement of cases. Any assessee may, at any stage of the proceeding for the assessment/reassessment/appeal/revision in his case in respect of any assessment year/years, file a settlement application in accordance with the terms of section 245C of the Income-tax Act and in Form No. 34B. Once this application is allowed to be proceeded with under section 245D(1), the Settlement Commission assumes exclusive jurisdiction to dispose of this case until an order under section 245D(4) is passed. The array of sections 245A to 245L deal with the jurisdiction, powers and procedure of the Settlement Commission. Suffice it to say that as per section 245-I, every order of settlement passed under section 245D(4) shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any proceeding under the Income-tax Act or under any other law for the time being in force, save as otherwise provided in Chapter XIX-A of this Act. In the present proceeding, we are called upon to give a finding of law as to how, in its order passed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. (emphasis* supplied) As per section 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. Accordingly, it is evident that the Settlement Commission has, in addition to the specific powers, vested in it under sections 245DD, 245E, 245H, etc., all the powers which are vested in the income-tax authority under the Income-tax Act. The definition of the term income-tax authority as per section 245A(d), as it stood prior to its substitution with effect from June 1, 1987, by the Finance Act, 1987, provided for an exhaustive definition covering only the Director of Inspection, Commissioner, Commissioner (Appeals), Appellate Assistant Commissioner, Inspecting Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive amendments, the Board issued a Press Release dated May 21, 1996 ([1996] 219 ITR (St.) 169-170), empowering the Chief Commissioners/Directors-General of Investigation to reduce or waive the penal interest charged under sections 234A, 234B and 234C, under certain circumstances. As mentioned in this public circular : Prior to 1989, taxpayers who had failed to furnish the return of income within the specified time-limit or had paid inadequate or had not paid advance tax within the stipulated time-limit were charged penal interest for such defaults and also subjected to penalty proceedings. The Direct Tax Laws (Amendment) Act, 1987 (see [1988] 169 ITR (St.) 89), inserted new sections 234A, 234B and 234C in the Income-tax Act from assessment year 1989-90 to provide for penal interest at higher rates for the defaults in late furnishing of the return of income, defaults in payment of advance tax and for deferment of advance tax respectively and omitted separate penalty provisions for these defaults. The interest payable under these sections was mandatory and there was no provision for reduction or waiver of the penal interest, as was provided specifically in this behalf prior to 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement Commission can frame guidelines for the reduction/waiver of the statutory interest, to be followed by its various Benches. We do not find any need for issuing any guidelines to be followed by the various Benches of the Commission, for reduction or waiver of the statutory interest, on the lines of the Board s public circular dated May 21, 1996, and the Board s order dated May 23, 1996. We are of the opinion that in view of the legislative intent as demonstrated by various statutory amendments and the principles of statutory interpretation, the Settlement Commission can fix the quantum of interest, as per the terms of the settlement under section 245D(6) read with section 245D(4) of the Income-tax Act. The statute is an edict of the Legislature (Vishnu Pratap Sugar Works (P.) Ltd. v. Chief Inspector of Stamps, AIR 1968 SC 102, page 104). As stated in Salmond s Jurisprudence (11th edition : page 152) the duty of the court is to act upon the true intention of the Legislature the mens or sententia legis . As observed by Mukherjea J. Each word, phrase or sentence is to be construed in the light of the general purpose of the Act itself (Poppatlal Shah v. State of Madras [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with all the matters covered by the application and any other matter not raised in the report of the Commissioner so that a full and final settlement could be conveniently made . The Wanchoo Committee Report is a part of the travaux preparatoires relevant for ascertaining the legislative intent behind the settlement provisions. The Parliamentary Select Committee, while approving the creation of the Settlement Commission, had before it the observations of the Wanchoo Committee that in the administration of fiscal laws, whose primary object is to raise revenue, there has to be room for compromise and settlement. A rigid attitude would inhibit a one-time tax evader or an unintending defaulter from making a clean breast of his affairs . (emphasis* supplied) As held by the Supreme Court, a reference to the Statement of Objects and Reasons is permissible for understanding the background, antecedent state of affairs, surrounding circumstances in relation to the statutes and the evil which the statute sought to remedy (Sanghvi Jeevraj Ghewar Chand v. Secretary, Madras Chillies, Grains and Kirana Merchants Workers Union [1969] 35 FJR 162 ; [1969] AIR 1969 SC 530 at 543 ; Virji Ram Sut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er should be: (a) in accordance with the provisions of this Act . (b) it should be on the matters covered by the application and (c) also on any other matter relating to the case not covered by the application but referred to in the Commissioner s report under section 245D(1)/245D(3) of the Income-tax Act. (vi) As per section 245D(6), every order passed under section 245D(4) should provide for the terms of settlement . These terms should include : (a) any demand by way of tax penalty or interest, (b) the manner in which any sum due under the settlement shall be paid, (c) all other matters to make the settlement effective, and (d) a mention that the settlement shall be void, if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts . Each of the above ingredients of the aforesaid sections would require detailed elaboration. Though there is a specific definition clause relating to the word case in section 245A, there is no precise definition of the other important terms like settle , settlement and terms of settlement , either in Chapter XIX-A of the Income-tax Act or in the General Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 81 at 88-E (Mad)). The words to quantify may also include, powers to reduce or to waive especially interest and penalty. On the question whether the Settlement Commission is a Tribunal for the purpose of article 136 of the Constitution of India, the Supreme Court had held it to be so in CIT v. B. N. Bhattachargee [1979] 118 ITR 461 (page 481) : We have hardly any doubt that it is a Tribunal. Its powers are considerable ; its determination affects the rights of parties; its obligations are quasi-judicial ; the orders it makes at every stage have tremendous impact on the rights and liabilities of parties. When a body is created by statute and clothed with authority to determine rights and duties of parties and to impose pains and penalties on them it satisfies the test laid down in Associated Cement Co. s case [1965] 2 SCR 366 ; 27 FJR 204 ; AIR 1965 SC 1595. A constitutional Bench of this court in that case has indicated the quintessential test in this regard and we need only extract a portion of the head-note relevant to this aspect : In considering the question about the status of any body or authority as a Tribunal under the article, the consideration about the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (emphasis* supplied) In view of this, the Settlement Commission is to exercise the implied power of quantifying the interest even by way of reduction or waiver thereof from time to time as occasion requires . It is worth noting that the word interest appearing in the phrase including any demand by way of tax, penalty or interest in section 245D(6) was deleted with effect from October 1, 1984, by the Taxation Laws (Amendment) Act, 1984. Interestingly, the same word interest was reintroduced with effect from June 1, 1987, by the Finance Act, 1987. The reason for the deletion of the word interest under section 245D(6) with effect from October 1, 1984, has been mentioned in paragraph 29.8 of the Board s Circular No. 394 dated September 14, 1984 [1984] 150 ITR (St.) 3, 20, as under : 29.8 Sub-section (6) of section 245D, inter alia, provides that 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 Amending Act has amended the aforesaid sub-section with a view to deleting the reference to interest under the aforesaid provision. The aforesaid amendment is consequential to the insert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inter alia, the reintroduction of the word interest in section 245D(6) and the enlarged definition of the term income-tax authority in section 245A(d). Accordingly, it is evident that the intention of the Legislature while introducing these amendments was to strengthen the functioning of the Commission . Thus, the legislative intent appears to be to strengthen the functioning of the Commission, in so far as it relates to the laying down of the terms of settlement , including the demand by way of interest. (emphasis* supplied) As per section 245D(4), the order passed by the Commission shall be in accordance with the provisions of this Act . In this regard it is worth noting that the Direct Tax Laws (Amendment) Act, 1987, had inserted sub-Chapter F with the caption Interest chargeable in certain cases and covering sections 234A, 234B and 234C, in Chapter XVII of the Incometax Act with effect from April 1, 1989. This newly introduced portion of Chapter XVII of the Income-tax Act provided for the charging of mandatory interest under sections 234A, 234B and 234C in respect of the defaults specified under these sections. Unlike in the earlier provisions under section 139(8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Bux, AIR 1970 SC 1880, 1883 : Justice and reason constitute the great general legislative intent in every piece of legislation. Consequently, where the suggested construction operates harshly, ridiculously or in any other manner contrary to prevailing conceptions of justice and reason, in most instances, it would seem that the apparent or suggested meaning of the statute was not the one intended by the law-makers. In any event, the legislative intent to provide redressal from the hardship, likely to ensure from the strict interpretation of sections 234A, 234B and 234C, had been made abundantly clear and unambiguous by Parliament, by inserting the reference to sections 234A and 234B in section 119(2)(a) with effect from April 1, 1990, as per the Finance Act, 1990, and the reference to section 234C in section 119(2)(a) with effect from April 1, 1991, as per the Finance (No. 2) Act, 1991. It is worth noting that section 119(2)(a) provides for the relaxation of any of the statutory provisions specified therein. The nature of these statutory amendments to section 119(2)(a) spelling out the legislative intent of Parliament has been clarified in paragraph 34 (at page 108) of the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y sometimes need to be relaxed in cases of genuine hardship. At present, it is not possible for the Board to relax these provisions. 45.1 Therefore, a reference to sub-section (1A) of section 201, sections 211 and 234C has been incorporated in clause (a) of sub-section (2) of section 119 so that the Board is empowered to relax the provisions of these sections applicable to any class of incomes or class of cases. 45.2 This amendment takes effect from April 1, 1991. Accordingly, by expressing the legislative intent to alleviate the hardship of the taxpayers, through the Finance Act, 1990, and the Finance (No. 2) Act of 1991, Parliament has toned down the mandatory nature of sections 234A, 234B and 234C into one of mutability. In view of this, it is open to the Settlement Commission to quantify the interest demand and even provide for the reduction/waiver thereof, while determining the terms of settlement. We have alluded to the provisions of section 119(2)(a), only for the limited purpose of unravelling the legislative intent of Parliament to relax the provisions of sections 234A, 234B and 234C. We are not interested in substituting the Settlement Commission in place of the Bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slative intent, providing flexibility to the provisions of sections 234A, 234B and 234C of the Incometax Act. For the aforesaid reasons, while passing the order under section 245D(4), inter alia, on the matters covered by the application , the Settlement Commission shall provide for the terms of settlement, including the quantification of the interest under sections 234A, 234B and 234C having in view the legislative intent as evident from the statutory amendments effected in section 119(2)(a) with effect from April 1, 1990, and April 1, 1991, divesting sections 234A, 234B and 234C of the earlier rigidity and mandatory import. Each Bench may take a decision on the facts and circumstances of each case pending before it regarding the quantification, reduction and in extreme cases, even waiver of the interest. This can be done only if the concerned Bench considers it necessary or expedient so to do for making the settlement effective. However, while spelling out the terms of settlement the reasons justifying this action should be recorded in writing. Since the functioning of the Settlement Commission is based on the concept of compromise and settlement (vide Wanchoo Committee Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter of reduction/waiver of the statutory interest. Regarding question No. (a)(ii), we hold that where orders under section 245D(4) were passed, without considering on the merits, the applicant s request for reduction/waiver of interest under sections 234A, 234B and 234C, on requisite applications being filed in those cases, these may be examined with reference to the facts and circumstances of each case and, where the grant of any relief is justified, such relief may be granted. Regarding question No. (b), this question has already been covered in our detailed discussion above. We have already held that the Settlement Commission need not prescribe guidelines and principles relating to the relaxation of the provisions of sections 234A, 234B and 234C, in respect of any class of incomes or class of cases. Regarding question No. (c)(i), as the decision of the Special Bench in the case of Gulraj Engineering Construction Company, In re [1995] 215 ITR (AT) 1 (ITSC) [SB], has already been questioned in special leave petitions filed before the Supreme Court under article 136 of the Constitution of India and in the writ application under article 226 of the Constitution filed bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eintroduction of the word interest through the Finance Act, 1987, in paragraphs 38, 38.1 and 38.2. Apart from those observations, weighty in themselves, I would like to urge that the introduction of this word in section 245D(6) should be considered in the context of the historical development of the scheme of simplification and rationalisation of the direct tax laws promised through the long-term fiscal policy adopted in 1985. A process of major tax reform was initiated through the 1985-86 budget. At the same time, the broad direction and strategy for this reform was set out in the long-term fiscal policy. Simplification and rationalisation of the income-tax law was one of the key ingredients of this policy. A discussion paper on the objectives sought to be achieved through such simplification and rationalisation of the direct tax laws and the direction of the proposed amendments (reported in [1986] 161 ITR (Journal) pages 1 to 15), was widely circulated. A detailed amendment Bill proposing such changes was already under consideration. The Bill was actually introduced on December 11, 1987, but para. 69 of the Prime Minister s Budget speech on February 28, 1987, clearly indicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt) Act, 1987, which, inter alia, dealt with some major controversial changes like the taxation of firms, mandatory levy of interest, etc., on which a wider public debate took place. Once this background is appreciated, it will be easy to understand that for the purpose of construction of the relevant changes made through the Finance Act, 1987, in this Chapter, it will be necessary to read these provisions and the provisions of the Direct Tax Laws (Amendment) Act, 1987, as limbs of the same amendatory process set in motion in pursuance of the long-term fiscal policy which had already secured broad parliamentary approval. The two keystones of this view are the proper construction of : (i) The words in accordance with the provisions of this Act appearing in section 245D(4), and (ii) The word interest appearing/disappearing/reappearing, at different times in section 245D(6). Prior to April 1, 1989, the Commission exercised the power of waiver/ reduction of interest under Chapter XIX-A read with various other sections appearing in other Chapters of the Act which authorised the assessing authority, whose functions were specifically vested in the Commission, to waive/reduce i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was the failure to do so, which had led the earlier Special Bench to ascribe an almost insignificant and irrelevant meaning to the amendment, while pronouncing its opinion on this aspect in the case of Ashwani Kumar (vide pages 871 and 872 of the report in [1992] 195 ITR 861 (ITSC) [SB]. The other aspects of our reasons for coming to a conclusion different from the conclusion reached in the case of Ashwani Kumar [1992] 195 ITR 861 (ITSC) [SB], have already been spelt out in the main order. I would only like to supplement that for the reasons outlined by me in the preceding paragraphs, the five-Member Bench which considered these issues, with due respect and apologies to the Bench, seems to have missed out the essence of the schematic rationalisation of the provisions of Chapter XIXA brought about through the Finance Act, 1987. This will also effectively meet the first submission of the learned Additional Solicitor-General that the decision in the case of Ashwani Kumar [1992] 195 ITR 861 (ITSC) [SB], should not be upset lightly. It is not as if we are merely taking a different view as such a view appears to us preferable. We are differing from the earlier view because in our op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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