TMI Blog2014 (5) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... l income and the disclosed income, treating the aggregate thereof as the total income of the applicant - Sub section (1C) of Section 245C provides for the additional amount of income tax payable in respect of income disclosed - Clause (b) thereof which covers our situation provides that the amount of tax calculated under Section 245C(1B)(ii) shall be reduced by the amount of tax calculated in the total income returned for that year. The legislature has created a deeming fiction by providing that the tax of the applicant would be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income - This device is created for a special purpose and has a localized effect - It comes into existence only for the purpose of calculating the tax to be deposited by an applicant for settlement of a case - the aggregate of the total income returned and the income disclosed would be considered as total income - deeming fiction must be allowed its full effect - the very same clause uses the term "total income returned in a different context and the aggregate of the total income returned and the income disclosed which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired under section 245D(2A) of the Income Tax Act, 1961 ( the Act for short). 2. The petition arises in the following factual background: 2.1. The petitioner is a private limited company. For the assessment year 2005-2006, the petitioner filed the return of income on 31.3.2006 declaring nil income. On 22.6.2006, the petitioner applied to the Settlement Commission for settlement of his assessment for the said assessment year under section 245C of the Act. In such application, the petitioner disclosed additional income of Rs.72,00,000/-which did not form part of the original return. In terms of amended subsection (2A) of section 245D of the Act with effect from 1.6.2007, the petitioner was required to pay the additional tax on the income disclosed in the application for settlement along with the interest thereon, on or before 31.7.2007 in order to proceed further with the application for settlement. The petitioner deposited a sum of Rs.20 lakhs by 31.7.2007. The Settlement Commission in order to verify the compliance of section 245D(2A) of the Act, called for a report from the Commissioner of Income tax, Ahmedabad. The Commissioner made a report suggesting that the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total set off of losses 51383565 Revised Net Total Income 3770817 2.3. On the basis of such computation, the petitioner contended that the requirement of depositing additional tax with interest under section 245D(2A) was fully satisfied. The Revenue, on the other hand, contended that the provisions of the Act were clear. The application of the petitioner could be allowed to proceed only if the additional tax on the income disclosed in the application for settlement along with interest is paid before 31.7.2007. In the present case, same was not done. For the purpose of computing the additional tax payable under section 245D(2A) of the Act, resort must be had to sub-sections (1A) to (1D) of section 245C of the Act. These provisions would not permit any set off for the purpose of computing liability of paying the additional tax. 2.4. The Settlement Commission held as under : 10. We have considered the facts of this case as also the arguments advanced by both the parties. We are in agreement with the CIT(DR). The applicant had disclosed NIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al order that the Commission would pass, effect of section 32(2) read with section 72(1) of the Act would have to be given. Combined effect of these provisions would be that the petitioner s income from other sources would be squared off against unabsorbed depreciation. The tax liability of the petitioner would be decided accordingly. Under such circumstances, the petitioner would be taxed not on Rs. 72,00,000/- which formed the additional disclosure in the application for settlement but on Rs.37,70,817/- after adjusting sum of Rs.34,29,183/pertaining to unabsorbed depreciation. In this context reference was made to the decision of the Supreme Court in case of E.K. Lingamurthy and another v. Settlement Commissioner (IT and WT) and another reported in (2009) 314 ITR 305(SC). In the said case, the Court held that while computing total income for the block period, undisclosed income must be set off against the brought forward losses. It was held that the Settlement Commission had erred in disallowing such set off. 3) Heavy reliance was placed on decision of Bombay High Court in case of Gobind Builders and Developers v. Income-tax Settlement Commission and others reported in (2009) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.The fact that in normal computation of petitioner s tax liability, the petitioner would be entitled to set off the unabsorbed depreciation against his income from other sources of Rs.72,00,000/-is legally not disputable. 8.Section 32(2) of the Act reads as under : 32(2) Where in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years. 9. In turn Section 72(1) of the Act reads as under : (1) Where for any assessment year, the net result of the computation under the head Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what it would be if the assessee had first approached the High Court under Article 226 and then come up in appeal to this court under Article 136. A party does not and cannot gain any advantage by approaching this Court directly under Article 136, instead of approaching the High Court under Article 226. This is not a limitation inherent in Article 136; it is a limitation which this court imposes on itself having regard to the nature of the function performed by the Commission and keeping in view the principles of judicial review. May be, there is also some force in what Dr. Gauri Shankar says viz., that the order of commission is in the nature of a package deal and that it may not be possible, ordinarily speaking, to dissect its order and that the assessee should not be permitted to accept what is favourable to him and reject what is not. According to learned counsel, the Commission is not even required or obligated to pass a reasoned order. Be that as it may, the fact remains that it is open to the Commission to accept an amount of tax by way of settlement and to prescribe the manner in which the said amount shall be paid. It may condone the defaults and lapses on the part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds in a particular manner, Even if the interpretation placed by the commission the said deeds is not correct, it would not be a ground for interference in these appeals, since a wrong interpretation of a deed of trust cannot be said to be a violation of the provisions of the Income Tax Act. it is equally clear that the interpretation placed upon the said deeds by the Commission does not bind the authorities under the Act in proceedings relating to other assessment years. 12. In that view of the matter, it does appear to us that if the application for settlement was properly instituted and if allowed to be proceeded further, after crossing different stages envisaged under the Act, the Settlement Commission would have to decide the tax liability of the petitioner, unless further additions are made for appropriate reasons, on the basis of additional disclosed income by giving benefit of set off of unabsorbed depreciation. It was in this context, learned senior counsel Shri Soparkar had vehemently contended that the petitioner cannot be expected to deposit by way of additional tax which ultimately may not result into its tax liability in an order that the Settlement Commission may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome tax payable in respect of the income disclosed in an application made under sub section (1) of this section shall be the amount calculated in accordance with the provisions of sub sections (1B) to (1D). (1B) Where the income disclosed in the application relates to only one previous year, (i) if the applicant has not furnished a return in respect of the total income of that year, then, tax shall be calculated on the income disclosed in the application as if such income were the total income; (ii) if the applicant has furnished a return in respect of the total income of that year, tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income. (1C) The additional amount of income tax payable in respect of the income disclosed in the application relating to the previous year referred to in sub section (1B) shall be (a) in a case referred to in clause(i) of that sub section, the amount of tax calculated under that clause; (b) in a case referred to in clause (ii) of that sub section, the amount of tax calculated under the clause as reduced by the amount of tax calculated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the receipt of communication from the Settlement Commission. 18. Under Sub section (2C) of Section 245D of the Act, the Settlement Commission would proceed to pass an order on the basis of the report by the Commissioner within 15 days of the receipt of the report if so found appropriate declaring the application as invalid after giving an opportunity of being heard to the applicant. Further proviso to sub-section (2C) makes it clear that where the Commissioner has not furnished the report within the period prescribed, the Settlement Commission would proceed further in the matter without the report of the Commissioner. Sub sections (3) and (4) of Section 245D of the Act pertain to the power of the Settlement Commission to call for the records from the Commissioner and to direct further enquiry or investigation, if necessary, and to pass such order as it thinks fit. 19. Sub section (4A) of Section 245D of the Act lays down time limit for passing order under sub section (4). Under Section 245H the Settlement Commission has the power to grant immunity from prosecution and penalty. Section 245HA pertains to abatement of proceedings before the Settlement Commission, in particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of income tax payable on such income, reference to this being the disclosure of his income which has not been disclosed before the Assessing Officer. Sub section (1A) of Section 245C prescribes the manner in which the additional amount of income tax payable in terms of sub section (1) of Section 245C in respect of income disclosed in an application made under the said sub section shall be computed by providing that the same shall be calculated in accordance with the provisions of sub sections (1B) to (1D). Sub section (1B) envisages two situations; first is where the applicant had not furnished a return in which case the tax shall be calculated on the income disclosed in the settlement application considering such income as total income of the assessee. The second situation is and with respect to which we are concerned, where the applicant had furnished return in respect of the total income of the assessment year under consideration, in such a case, the tax would be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income. In terms of Clause (ii) of said section (1B) therefore the tax woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment, reassessment, collection and enforcement of tax including penalty if any of the State under the Sales tax law of the State as if the tax or penalty were payable under the sales tax law of the State. 25. In the present case, legislature has created a deeming fiction by providing that the tax of the applicant would be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income. This device is created for a special purpose and has a localized effect. It comes into existence only for the purpose of calculating the tax to be deposited by an applicant for settlement of a case. In such a situation, the aggregate of the total income returned and the income disclosed would be considered as total income. 26. Under the circumstances, the contention of the counsel for the petitioner that the term total income should be construed as defined under Section 5 of the Act for the purpose of calculating additional tax of an applicant for settlement of a case cannot be accepted. This is for multiple reasons. Firstly, as discussed earlier Clause (ii) of sub section (1B) of Section 245C of the Act giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereon only upon which application can be allowed to proceed further, no complex exercise or verification is envisaged. If the concept of total income contained in the Act is imported at such a stage, it can give rise to multiple disputes and lengthy debates with respect to the total income of an assessee and whether full tax on such income has been paid or not. At such a stage, the legislature does not envisage the Commission to go into a complex exercise of ascertaining the total income of the assessee and further ascertaining his tax liability on such income. The legislature has, therefore, provided for a simple formula possible of a simple arithmatical application. It may be that in a given case the assessee may be entitled to a refund once the Settlement Commission passes its final order. Such isolated case, however, would not govern the interpretation of sub sections (1B) and (1C) of Section 245C. Any such interpretation would give rise to complex consideration by the Settlement Commission of the assessee's total income not as defined in sub section (1B) to but as otherwise understood and referred to in Section 5 of the Act. Likewise, the computation of the tax on such t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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