TMI Blog1995 (3) TMI 428X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) or section 144 in addition to the determination of the income under section 143(1) and an appeal is pending before the first appellate authority. (iii) Only a return of income is furnished without or in pursuance of a notice under section 142(1) or section 148 and the income is neither determined under section 143(1) nor under section 143(3) or section 144. (iv) The assessment made under section 143(3) or section 144 is reopened under section 147 and neither any return of income is furnished in response to the notice under section 148 nor is the order of reassessment made by the Assessing Officer. (v) A reassessment is made under section 147 read with section 143(3) or section 144 and an appeal is pending before the first appellate authority. '' The genesis of the reference are two miscellaneous applications, one dated July 7, 1993, filed by Gulraj Engineering Construction Co., Bombay, and the other dated September 11, 1993, filed by Sahitya Mudranalaya Group of assessees of Ahmedabad against the orders under section 245D(4) of the Settlement Commission, Additional Bench, Bombay. While passing orders under section 245D(4) read with section 245D(6), the Commission had di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduction or waiver of interest under section 234B has given rise to this problem and requires reconsideration. According to him, the Commission has the inherent power to reduce or waive such interest and in exercise of this power, to decide the period, if any, up to which the interest for defaults of advance tax should be charged. Alternatively, the Commission having been vested under section 245F(1) with the power of every incometax authority including the Central Board of Direct Taxes (hereinafter referred to as "the Board") the Special Bench can, like the Board, prescribe guidelines regarding the charging of interest to be followed by various Benches in taking decisions in individual cases. Coming to the specific issue, Shri Sathe contended that the liability to pay interest arises only if an assessee has not paid, during the relevant financial year, up to 90 per cent. of the "assessed tax" as defined in Explanation 1 to section 234B(1) of the Act. If 90 per cent. or more of the "assessed tax" is paid, there will be no liability to pay the advance tax even where, on the basis of the Commission's order under section 245D(4), the advance tax paid turns out to be far less than 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest. Besides, section 234B(4) specifically treats an order of the Commission under section 245D(4) to be different from a regular assessment order by grouping it with the orders of other appellate authorities and the courts. Shri Patel also made a reference to subsections (1)(c), (1A)(c) and (2)(c) of section 155 of the Act to contend that Parliament by mentioning section 245D(4) there separately, has clearly treated it as an order of settlement distinct and different from an order of regular assessment or reassessment. In addition, the Settlement Commission, unlike the Assessing Officer, is a high powered body which performs so many functions like finally determining the incometax liability of an assessee and laying down the terms of settlement which, inter alia, include immunity from penalty and prosecution. Such an order of a high powered body, cannot be treated as that of regular assessment. Lastly, the High Courts have been unanimous that the interest could be charged only up to the date of regular assessment under a similar provision in section 215 of the Act. He relied upon the ratio of the decision of the Bombay High Court in CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 234B(1), while fixing the terminal date, Parliament has not used the words "whichever is later" after giving two alternative dates, namely, the date of computation of total income under section 143(1) or regular assessment. Where only a return of income is furnished and no order under section 143(1) or regular assessment is passed, no interest is chargeable at all because, in this situation, there will be no "assessed tax" nor does section 234B(1) mention the date of furnishing of the return as the terminal point for the charging of interest. If reassessment proceedings are pending on the date of admission of a settlement application under section 245D(1), the interest can be charged up to the date of regular assessment, but if there also total income under section 143(1) was computed, the interest can be charged only up to that date. In a situation where reassessment under section 147 is made, the interest will be chargeable up to the date of reassessment in view of the clear language of subsections (3) and (4) of section 234B. Dr. Pravin P. Shah, chartered accountant, pointed out that the charging of interest is dependent upon three factors, namely : (i) tax amount ; (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission under section 245D(4). According to him, the concept of assessment would have to be elongated to conclude with the order under section 245D(4). Countering the arguments of Shri Sathe and Shri Patel, he distinguished the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) and stated that it was clear from the reasons given on pages 297 to 300 of the Report that the ratio of the Supreme Court's decision was that no capital gains tax was chargeable on the sale of goodwill because it had no cost of acquisition. He also made out that the decision of the Bombay High Court in CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452 [FB] did not involve the question which is now before the Special Bench and as such the same could not be relied upon to support the argument of capping the terminal date to conclude with the order under section 143(1). Shri Dada read out from pages 17 and 18 of the book Principles of Statutory Interpretation by G. P. Singh _ 1975 edition, to contend that the Commission must ascertain the legislative intent by not only reading the clause to be construed but also the other parts of the statute. Dr. M. V. R. Prasad and Shri V. N. Srivastava, Commissioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court in K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) and of CIT v. Madho Pd. Jatia [1976] 105 ITR 179, 183, 184 (SC) to contend that even where two interpretations are possible, the one in favour of the taxpayer should be adopted. Shri M. M. Patel, replying to Shri Dada's arguments, stated that sections 234A, 234B and 234C are penal in nature because they have also replaced the penalties which used to be earlier levied for advance tax defaults and the rate of interest has been increased from 15 per cent. to 24 per cent. per annum. Such provisions should, therefore, be interpreted strictly in view of the decision of the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, 195 (SC). He also relied upon the Board's Instruction No. 947, dated April 23, 1976, printed at pages 1.272526 of Taxman's Direct Taxes Circulars, Vol. 2, 1994 edition, to contend that the Board itself has recognised in the context of a similar provision regarding interest payable by the Central Government under section 214, that it should be charged up to the date of "regular assessment" which should be the first assessment and subsequent modifications on account of appeals or revisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commission has the powers to grant immunity from prosecution and penalty. In terms of section 245I, every order of settlement passed by the Commission is final and conclusive as to the matters covered therein. Apart from the powers specifically contained in Chapter XIXA, the Commission has also been given, in view of section 245F(1), "all the powers which are vested in an incometax authority" under the Act. Since the order of settlement under subsection (4) of section 245D has to be in accordance with the provisions of the Incometax Act, a question was referred to the Special Bench of the Incometax Settlement Commission In re : Ashwani Kumar Aggarwal [1992] 195 ITR 861 (ITSC) (SB), if the Commission has the power to reduce or waive interest for defaults in furnishing the returns of income and those of advance tax under sections 234A, 234B and 234C which are applicable from the assessment year 198990 and onwards. It was held by the Special Bench that the Commission had no such power of reduction or waiver of interest except where an applicant before the Commission is entitled to the benefit of any relaxation in these provisions allowed by the Board, under section 119(2)(a) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section ; (ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax. (3) Where as a result of an order of reassessment or recomputation under section 147, the amount on which interest was payable under subsection (1) is increased, 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 day following the date of determination of total income under subsection (1) of section 143 or regular assessment referred to in subsection (1) and ending on the date of the reassessment or recomputation under section 147, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under subsection (1) of section 143 or on the basis of the regular assessment aforesaid. (4) Where, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is from the first April next following the financial year in which the advance tax is payable to the date of determination of total income under subsection (1) of section 143 or on regular assessment. The expression "regular assessment" has been defined in clause (40) of section 2 of the Act to mean, unless the context otherwise requires, "the assessment made under subsection (3) of section 143 or section 144". Explanation 2 to subsection (1) of section 234B has enlarged the meaning of the expression "regular assessment" to include an assessment made for the first time under section 147 for the purposes of charging of interest under section 234B. Subsection (2) provides that any interest chargeable under section 234B, which has already been paid by an assessee on the basis of selfassessment under section 140A or otherwise shall be adjusted against interest determined to be payable on computation of total income under section 143(1) or on regular assessment. Subsection (3) lays down the charge and mode of computation of interest where the tax on total income determined on regular assessment is increased as a result of reassessment or recomputation of income under section 147. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel for the assessees were to be accepted, the words "amount on which" in the expression in subsection (4), namely, "the amount on which interest was payable under subsection (1) or subsection (3) has been increased or reduced", would become superfluous which is not permissible in interpreting any provision of a statute much less that of a taxing statute. In addition, the contention, if accepted, would lead to absurd results. If, let us say, the advance tax payable on the basis of tax assessed under section 143(1) was Rs. 50,000 against which the assessee paid Rs. 1,00,000, he will be entitled to refund of the excess with interest in view of section 244(1A) of the Act. But if on the basis of the Settlement Commission's order the assessed tax comes to Rs. 5,00,000, the assessee will be liable to pay another Rs. 4,50,000 by way of tax but no interest for underpayment of advance tax will be payable and to carry the contention to its logical conclusion, the interest paid to him by the Central Government on the basis of the earlier excess of advance tax payment may also not be recoverable. For the above reasons, we do not think this contention can be accepted. We, therefore, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills Ltd. v. ITO [1985] 151 ITR 389 [FB] and relied upon by the Additional SolicitorGeneral is that the expression "regular assessment" cannot be confined to the first original assessment but also includes an assessment made pursuant to the direction of the appellate or revisional authority. However, with regard to the payment of interest by an assessee on shortfall of advance tax under section 215 even the Gujarat High Court has observed at page 430 of the report that "such interest would be payable on the first assessment". The Board has also in the context of subsection (1) of section 214 held in paragraph 2 of its Instruction No. 947 dated April 23, 1976, printed on pages 1.272526 of volume 2 of Taxman's Direct Taxes Circulars, 1994 edition, and quoted by Shri Patel that : "it is the first assessment that will be treated as the regular assessment and later assessments were immaterial. Therefore, the terminus (i.e., the date of regular assessment) cannot be altered because income assessed had undergone changes on account of subsequent vicissitude as a result of appeals before the appellate authorities or revision petitions before the Commissioner of Incometax, that is, interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessed tax as a result of rectification, appeals or settlement, was limited up to the date of regular assessment. And there also, it could be waived or reduced beyond one year from the date of furnishing of the return if the delay in completing the assessment could not be attributed to the assessee. The only changes that have been made from the assessment year 198990 and onwards are that : (i) rule 40 providing for waiver or reduction of interest has ceased to apply with effect from the assessment year 198990 ; (ii) the rate of interest has been revised to two per cent. per month or part thereof ; earlier it was 15 per cent. per annum ; and (iii) the penalty for defaults of advance tax leviable under section 273 has been omitted. There has been no extension of the terminus date for the charging of interest from the date of regular assessment to the date of the settlement order much less to the date of giving effect to it. The above view is further strengthened by the fact that interest is chargeable under subsection (2) of section 220 of the Act for default in the payment of tax after it is determined under subsection (1) of section 143 or on regular assessment to be au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be of one person. The Commission's order is final not only in respect of income/wealth but also in respect of interest, penalty and prosecution. There is no timelimit on the passing of an order of settlement whereas the regular assessment order has to be made by the Assessing Officer within the timelimit prescribed in section 153 of the Act. It can be argued that where an assessee's case is admitted by the Commission under subsection (1) of section 245D before any regular assessment is made or before even an order under subsection (1) of section 143 is passed, there will obviously be no assessment order of the Assessing Officer. The Commission will assume exclusive jurisdiction over that case in view of subsection (2) of section 245F and there will only be the order of settlement for such assessment years. We are of the view that just because there will be no order of regular assessment for some years in a case, that by itself will not mean that the Commission's order will assume that character. In our opinion, it will continue to be an order of settlement. This is particularly because no distinction has been drawn in Chapter XIXA or anywhere else in the Act to treat the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would clearly be the date of regular assessment. In this connection, the argument of Shri D. M. Harish, advocate, that the interest should always be up to the date of the determination of total income under subsection (1) of section 143 does not appear to us to be tenable. Simply because in the expression used in subsection (1) of section 234B, namely, "to the date of determination of total income under subsection (1) of section 143 or regular assessment", the words "whichever is later" have not been used does not mean that the expression "regular assessment" has to be given no meaning. It is a wellaccepted rule of construction that the use of superfluous words cannot be attributed to Parliament. Thus, every word has to be understood in a reasonable and fair manner. Besides, in the context of the abovequoted expression, we are of the view that the words "whichever is later" are not required to be added in subsection (1) of section 234B. This is because regular assessment is always made later than the date of determination of total income under subsection (1) of section 143. Thus where a regular assessment had already been made on the date of the Commission's order admitting the set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court in State of West Bengal v. Union of India, AIR 1963 SC 1241, 1265 (SC) : " The court must ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to the entire statute ; it must compare the clause with the other parts of the law, and the setting in which the clause to be interpreted occurs." (page 1265) In answering the question raised in situation (iii) of the issue, we also seek support from the observations of the Supreme Court at pages 605606 in K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) : " It is now a wellsettled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even 'do some violence' to it, so as to achieve the obvious intention of the Legislature and produce a rational construction." Evidently, subsection (1) of section 234B does not expressly mention the terminus date up to which interest should be calculated where only a return of income is furnished and no order under subsection (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rselves to accept this view for the following main reasons : (i) Subsection (1) of section 245D does not provide any timelimit for admission of the settlement application. The assessee will be exposed to interest liability for an indefinite period without any fault on his part. (ii) It will discourage the Assessing Officer from performing his statutory duty of computing the total income under subsection (1) of section 143 or making a regular assessment within a reasonable time after the return of income is furnished. Needless to state, he can do so even after the settlement application is filed and till it is admitted by the Commission. (iii) There are 120 days of statutory time given to the Commissioner of Incometax to furnish his report on the settlement application under the second proviso to subsection (1) of section 245D. Further an assessee cannot furnish an application in view of subsection (1E) of section 245C, for 120 days from the date of seizure in the case of search under section 132 of the Act. If interest was to be charged up to the date of admission of the settlement application, the assessee will have to pay interest even for the statutory time allowed as abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of section 143 could be computed or regular assessment could be made. There is no direct or indirect support for this view in any of the legal provisions. We, therefore, regret, we are unable to persuade ourselves to adopt this view. Coming to the fifth and the last possibility, i.e., charging of interest up to the date of furnishing the return of income, we notice that the interest for default of advance tax is payable till the date of furnishing of the return in view of subsection (1) of section 140A read with clause (a) of Explanation 1 to subsection (1) of section 234B. The same period needs to be imported for the purpose of modifying the interest as a result of the order of settlement. In this way, the objective of public policy will also be served by demanding interest for a shorter period from an assessee who is keen to come back to the path of rectitude by making a true and full disclosure of his income in the settlement application soon after the return of income is furnished. There is certainty as to the terminus date as in every case a return of income has to be furnished in view of clause (b) of the proviso to subsection (1) of section 245C before a valid settleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for defaults of advance tax under section 234B in respect of the assessment year 198990 and onwards is laid down in subsection (1) and subsection (3) thereof. Subsection (4) of section 234B provides for the automatic revision of the amount of interest where the amount of tax is varied as a result of an order of rectification, appeal, revision or settlement. The terminus period for the charging of interest is to be as laid down in subsection (1) or subsection (3) of section 234B as the case may be. It can, under none of the five situations mentioned in the issue referred to this Bench be up to the date of the order of settlement passed by the Commission under subsection (4) of section 245D much less up to the date of giving effect to such an order by the Assessing Officer. The interest will, however, be chargeable as a result of the order of settlement even where the advance tax paid was more than 90 per cent. of the tax on the total income shown in the return of income or that determined under subsection (1) of section 143 or on regular assessment. For each of the first four situations mentioned in the issue referred to us, and prevailing at the date the settlement application is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, it is necessary to set down my views in some detail. It will be necessary to compare the provisions of sections 143(3) and 245D(4) to properly appreciate the nature of the Settlement Commission's order. The nature of jurisdiction assumed by the Settlement Commission on admission of the case has been succinctly indicated in paragraph 16 (at page 14) of the above order. Before an order under section 143(3) can be made, it would be necessary for the Assessing Officer to issue a notice under section 143(2). Under this subsection, where a return has been made, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income and/or underpaid the tax in any manner, serve on the assessee a notice requiring the assessee to produce any evidence on which the assessee may rely in support of the return. Now what is to be done in those cases where by virtue of the other provisions contained in the Incometax Act the power of the Assessing Officer to issue a notice under section 143(2) and/or to pass the order after hearing the assessee in the manner laid down under section 143(3) is taken away from the Assessing Officer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration 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, and the proceedings before it are not confined only to the income disclosed before it". The true import of the admission of the case under section 245D(1) thus is that 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. The provisions of sections 245D and 245F(2) and their interpretation by the Supreme Court in Express Newspapers' case [1994] 206 ITR 443 clearly establish that irrespective of the issues framed by the applicant, the Settlement Commission has the bounden duty to determine the income of an applicant assessable in that year in accordance with the provisions of the Act in its order under section 245D(4). Further, by the provisions of section 245D(6), the Commission also has to determine and communicate to the applicant the tax, interest and penalty payable by it as a result of its order under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest should be paid up to the date of determination of the income by the Assessing Officer either under section 143(1) or in an assessment under section 143(3)/144. When such Assessing Officer is precluded from passing such orders, should the assessee be allowed to get away with a less levy of interest even though the function of making the determination of income is vested in, and continued by, the Commission ? Having regard to the purpose of changing the law which was to take away the discretion available to the assessing authority to reduce or waive the interest or condone the default, it is, in my view, necessary to prefer that construction of the provisions of the Act which would fulfil the avowed purpose of introducing the provision. Of course, such an interpretation is to be followed only when the specific legislative prescriptions are inadequate to deal with the issue. It is, therefore, my view that notwithstanding the position that the orders passed by the Commission under section 245D(4) are treated as falling in a separate class of "order of settlement" referred to in paragraphs 29 to 29.4 (at pages 23 and 24) of the majority order they incorporate within them all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it has no application to all provisions in a taxing statute. It does not apply to a provision not creating a charge for the tax but laying down the machinery for its calculation or procedure for its collection. The provisions in a taxing statute dealing with machinery for assessment have to be construed by ordinary rules of construction, that is to say, in accordance with the clear intention of the Legislature, which is to make the charge levied effective. In applying these principles of construction, the Supreme Court also proceeded to divide the provisions of section 18A(8) into its two components : the charging section and the machinery section. It specifically split the provisions of section 18A(8) of the Indian Incometax Act, 1922, in this manner as shown below : (a) The text of section 18A(8) at the relevant time was "where on making the regular assessment, the Incometax Officer finds that no payment of tax has been made in accordance with the foregoing provisions of this section, interest calculated in the manner laid down in subsection (6) shall be added to the tax as determined on the basis of the regular assessment". (b) This section was split into charging and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the charging section in Chapter IVE of the Income tax Act and had no relevance to the interpretation of the charging provisions in Chapter XVIIC or XVIIF of the Incometax Act. Their interpretation has to conform to the guidelines laid down in Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1. Construed in this manner, the charging and machinery sections of 234B(1) will be bifurcated as indicated below : Charging provision Machinery provision or the manner of quantifying the charge 234B(1). Subject to the other (c) at the rate of two per cent. provisions of this section : month (a) (i) Where, in any financial (d) (i) from the 1st day of April, year, an assessee who is liable next following the financial year to pay advance tax under section to the date of determination of 208 has failed to pay such tax ; or total income under section 143(1), or ; (ii) to the date of regular assessment (ii) where the advance tax paid is (e) on an amount equal to the less than 90 per cent. of the assessed assessed tax or, as the case may tax ; be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Similarly, section 234B(3) will be bifurcated as under : (a) Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the case was pending at the time the settlement application was made. And, therefore, its final order, though not in pari materia with that authority's order in so far as the procedures and finality are concerned, still does incorporate within it such authority's order also. Thus, if the proceeding was pending before the Assessing Officer, the Settlement Commission will, inter alia, discharge the functions of the Assessing Officer. If it was pending before the first appellate or revisional authority it will, inter alia, discharge the functions of the first appellate or revisional authority. In the light of this discussion, the answers to the various questions set down in paragraph 1 (at page 7) of the order of the majority of my learned brothers will be as under: Interest under section 234B will be chargeable : in Cases I and III up to the date of the order passed by the Settlement Commission under section 245D(4). in Case II up to the date of regular assessment made under section 143(3) or section 144 of the Act by the Assessing Officer. in Case IV from the date of regular assessment made by the Assessing Officer under section 143(3) or section 144, to the date of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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