TMI Blog1979 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... alcutta (CIT) against an adverse order made by the Settlement Commission. Functionally speaking, this chapter, engrafted in partial implementation of the Wanchoo Committee Report, provides for settlement of huge tax disputes and immunity from criminal proceedings by a Commission to be constituted by the Central Government when approached without objection from the tax department. It is based on the debatable policy, fraught with dubious potentialities in the context of Third World conditions of political peculium and bureaucratic abetment, that composition and collection of public revenue from tycoons is better than prosecution of their tax-related crime and litigation for total revenue, recovery. A social audit of the working of this chapter in action and its fall-out may benefit the nation by information about who the true beneficiaries of this legislation are and whether there is more than meets the eye. The Wanchoo Committee which recommended this step titled its chapter meaningfully as " Black Money and Tax Evasion " and the Act itself was passed and brought into force during the era of Emergency which was marked by speed and silence and hushed politico-official operations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns do not call for our comment but are being mentioned as part of the narrative which ostensibly induced him to go before the Commission under Chap. XIX-A. To compress the long story without crippling the foundational facts, what happened after the assessee decided upon offering himself to the Settlement Commission was to prepare the ground to enable him to institute a proceeding in this behalf. The deck had to be cleared before moving the Settlement Commission. The conditions for entitlement to make an application to the Settlement Commission are set out in s. 245M. We may have to examine closely the connotation of the expressions used in this section but for the once it is sufficient to state that it is obligatory for the assessee to withdraw any appeal that may be pending at his instance before being qualified to make an application to the Settlement Commission. Another condition stipulated in the same section is that an assessee shall not be entitled to make an application " in a case where the ITO has preferred an appeal under sub-s. (2) of s. 253 against the order to which the assessee's appeal relates ". Without meticulous dissection of the provision, we may broadly draw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 1976, the assessee wrote a letter asking for adjournment wherein he stated : " With regard to the above I beg most respectfully to submit that one petition was filed for withdrawing all the above appeals only to have those cases settled before the Settlement Commission, New Delhi, but the Department had also preferred appeals for those years. Unless the Department also withdraws their appeals there will be no purpose for our withdrawal of appeals. As such my client is persuading the Central Board of Direct Taxes to do something effectively in the matter, but for consultations with their counsels, etc., it would take at least two months' time. " Probably the assessee felt that the Central Board could be persuaded " to do something effectively in the matter ", given some time. The anticipations of the assessee were not belied because the addressee-Member of the Central Board, with celerity, consulted the Commissioner, who, in turn, sought and got affirmative reports from those below him and at the end of this rapid departmental exercise, reached the conclusion in October/November (i.e., in about a month) that the appeals of the departments were very weak, even frivolous (see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment declared their assessments and appeals " weak " and self-condemned themselves before the Commission by confessing that the Central Government's appeals were frivolous? " But if the salt hath lost its savour wherewith shall it be salted. " Once the statutory operation for settlement was switched on, the machine moved on. The Settlement Commission, on receipt of the application under s. 245C, acted under s. 245D(1) and called for a report from the Commissioner, mindless of the movement of the calendar. For, the Ides of March came in the meanwhile and, the CIT, for reasons we do not know, took a stiff look at the case and reported on 1st April, 1977 : " That prosecution proceedings for concealment of income and also false verification in the return were already pending before the Chief Metropolitan Magistrate, and that he did not consider this as a fit case to be proceeded with by the Settlement Commission. " After some correspondence with the applicant, and without giving a hearing, the Settlement Commission by its order dated the 3rd February, 1978, informed the applicant that, as the Commissioner had objected under s. 245-D(1), the Settlement Commission did not allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission and so the order under appeal was bad and beyond power. Of course, subsidiary issues did crop up and Shri A. K. Sen, appearing for the respondent-assessee, not only joined issue with Shri Desai but also took a preliminary objection that art. 136 was unavailable against an order of the Settlement Commission. It is necessary to mention that an argument which was mooted at our instance as the arguments proceeded ; viz., that withdrawal by the revenue of an appeal once filed did not have the effect of not preferring an appeal, was not pursued by the appellant before us but we are not bound by counsel pressing or cold-shouldering a point of law if attention of the advocates has been drawn thereto, as in this case it was. The scheme of Chap. XIXA must be grasped before we embark on the discussion. The incarnation of Chap. XIXA was in the wake of the Wanchoo Committee Report. The vampirish vices of black money and colossal tax evasion, both together using money power to prevent action against white-collar offender, had been a terrible menace to the health and wealth of the nation. In particular, black money, whose constant companion was tax evasion, posed a challenge to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report and have eventually been translated into statutory provisions in Chap. XIXA. This legislative history leads us on to a broad unfoldment of the actual provisions of ss. 245A to 245M which constitute a fasciculus of provisions designed for settlement of taxes in dispute. Section 245A is the definition clause even as s. 245B is the clause constituting the Settlement Commission. Applications for settlement of cases by assessees are regulated by s. 245C which reads : " 245C. Application for settlement of cases.-(1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner and containing such 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 ........ " Its meaning can be understood fully only when we read the definition of " case ". According to the definition in s. 245A(a), a " case " means any proceeding under the income-tax law in connection with the assessment or reassessment of any person which may be pending before an income-tax authority on the date of application under s. 245C(1). It is common knowled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as lethal potency but the rule of fairplay incorporated in the first proviso to s. 245D(1) obligates the Commission to hear the applicant before rejection. Even apart from any specific provision, it is legal fairplay not to hurt any party without hearing him unless the Act expressly excludes it. One may conceive of many reasons why a hearing, even at this stage, may be useful. The Commissioner or his representative may, in the light of the circumstances which the applicant may point out, withdraw his objection. Likewise, the applicant may point out that what appears to the Settlement Commission to be an objection by the Commissioner is not an objection to proceed with the application, but only a clarification of some aspect or other. Nothing is lost by hearing a petitioner whose application for settlement is being rejected and much may be gained by such hearing in properly processing the application in the spirit of Chap. XIXA. Anyway, s. 245D(1) does not negate natural justice and in the absence of an express exclusion of the rule of audi alteram partem, it is fair, indeed fundamental, that no man is prejudiced by action without opportunity to show to the contrary. Without expound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be proceeded with. The veto of the Commissioner was the Waterloo of the application. The Settlement Commission, however, took the view that the Commissioner was estopped from exercising his power to object and for this reason ignored the veto of the Commissioner and proceeded to process the application in terms of sub-ss. (2) to (5) of s. 245D. The core controversy in this appeal is as to whether the view of the Settlement Commission that the veto is unavailable for the Commissioner in view of his earlier stand in regard to the withdrawal of appeals is valid or not. After setting out the course of events and earlier readiness of this department to withdraw its appeals to enable the Commission to be moved by the assessee notwithstanding the pendency of the criminal cases and having regard to the absence of any new material, having being discovered justifying a reversal of the CIT's stand, the Commission took the view that the rule of estoppel forbade the appellant from objecting to the Commission's proceedings with the application of this assessee. It argued itself into that conclusion thus : " In this particular case, in view of the withdrawal of the departmental appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the second proviso to section 245D(1) without any fresh material is, therefore, no ground to dislodge the right of the assessee to come before the Commission. " We have earlier clarified that an I.T.A.T. is not an income-tax authority and proceedings pending before such Tribunals are not cases. But s. 245M takes care of assessees whose appeals pend before the I.T.A.T. but are anxious to square up their litigation through the Settlement Commission. A close-up of this provision is necessitous and and reading of its full range of meaning is decisive of the subject of this appeal. We may skip ss. 245E, F and G but dwell for a moment on s. 245H which is of great moment from the angle of public interest and public morals as it immunises white-collar offenders against criminal prosecutions and, in unscrupulous circumstances, becomes a suspect instrument of negotiable corruption. More than the prospect of monetary liability and mounting penalty is the dread of traumatic prison tenancy that a tax-dodging tycoon is worried about. And if he can purchase freedom from criminal prosecution and incarceratory sentence he may settle with the Commission ; and, towards this end, try to buy t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission, then, the assessee shall not be deemed to have withdrawn the appeal from the Appellate Tribunal and the provisions contained in section 253, section 254 and section 255 shall, so far as may be, apply accordingly. " Briefly, the section (a) enables withdrawal of appeals before Tribunals by assessees as condition precedent to applications for composition by the Settlement Commission, (b) applies, by a legal fiction, ss. 245C and 245D to such applications, and (c) where the proceeding before the Commission is not entertained, allows revival of the withdrawn appeals thus restoring the status quo ante. This is but fair because the assessee should not suffer if the Settlement Commission bars its doors. The facts of our case show that the assessee had filed appeals before the Tribunal and had later moved for their withdrawal in terms of s. 245M(1), (2) and (3). Sub-s. (4) thereupon opened and by virtue of sub-s. (6) the mechanics of ss. 245C and 245D sprang into action. It would have been smooth sailing but for the proviso to s. 245M(1), which runs thus : " Provided that no such assessee shall be entitled to make an application in a case where the Income-tax Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC). Black's Law Dictionary gives the following meaning : Prefer : To bring before ; to prosecute ; to try to proceed with. Thus, preferring an indictment signifies prosecuting or trying an indictment. To give advantage, priority, or privilege ; to select for first payment, as to prefer one creditor over others. Thus, it may mean " prosecute " or effectively pursue a proceeding or merely institute it. Purposefully interpreted, preferring an appeal means more than formally filing it but effectively pursuing it. If a party retreats before the contest begins it is as good as not having entered the fray. After all, Chap. XIXA is geared to promotion of settlement and creation of road-blocs in reasonable compositions. The teleological method of interpretation leads us to the view that early withdrawal of the ITO's appeal removes the bar of the proviso. The problem that troubles us arises from s. 245M(7). If a settlement application is not entertained and is rejected in limine there is a statutory revival of the assessee's appeal before the I.T.A.T. because of the deeming provision, but what happens to the appeal of the ITO which he withdraws to enable the assessee to file an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. After all, the clause we have to decode is " the assessee shall not be deemed to have withdrawn the appeal from the Appellate Tribunal ". The obvious object of this clause is to restore the parties to status quo ante, and, in fairness, must apply to the department as to the assessee. This non-discriminatory import can be reasonably read into the clause if we construe the expression the " assessee " in a wider way so as to include all parties affected by the subject-matter of the assessment. In that case, the clause may mean that no one who is aggrieved by the assessment shall " be deemed to have withdrawn the appeal from the Appellate Tribunal ". An equitable and purpose-oriented construction of the clause means that the assessee will be put back in the same position vis a vis his appeals and if, to facilitate his moving the Commission, the ITO has withdrawn the departmental appeals, the Commission's rejection of the application shall not prejudice the revenue. Actus curie neminem gravabit is the principle of wider import and is a tool of construction too. This perhaps may be making up for a lacuna by a restructuring of the clause so as to work out justice to the department. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent the written word so as to give ' force and life ' to the intention of the legislature. That was clearly laid down by the resolution of the judges ...... in Heydon's case [1584] 3 Co Rep 7b, and it is the safest guide to-day. Good practical advice on the subject was given about the same time by Plowden ...... Put into homely metaphor it is this : A judge should ask himself the question : If the makers of the Act had themselves come across this ruck in the texture of it, how would they have straightened it out? He must then do as they would have done. A judge must not alter the material of which it is woven, but he can and should iron out the creases. " The upshot of the discussion is to hold that if the department files an appeal which it drops to enable an application before the Commission, then the proviso to s. 245M(1) does not debar the motion for settlement. The preliminary objection raised by Shri A. K. Sen need not detain us because we are satisfied that the amplitude of art. 136 is wide enough to bring within its jurisdiction orders passed by the Settlement Commission. Any judgment, decree, determination, sentence or order in any case or matter passed or made by any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , accessibility, freedom from technicality, expedition and expert knowledge of their particular subject ". A casual perusal of Chap. XIXA convinces the discerning eye that the Settlement Commission exercises many powers which affect, for good or otherwise, the rights of the parties before it and vests in it powers to grant immunity from prosecution and penalty, to investigate into many matters and to enjoy conclusiveness regarding its orders or settlement. In short, Settlement Commissions are Tribunals. The preliminary point fails and we proceed to consider the triple substantial questions set out earlier. The two gut issues that must now engage us take us to the turn of events surrounding the withdrawal of appeals by both sides. To complete the story-and this fact has a bearing on one of the legal questions-it must be stated that when the Settlement Commission first acted under the second proviso to s. 245D(1), the department, even like the assessee, applied to the I.T.A.T. for revival of its appeals although s. 245M(7) does not make any such provision for revival of the ITO's appeals. In ordinary circumstances the 2nd proviso to s. 245D(1) is easy of construction and the exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to guard against fraud and to uphold the paramount principles, more important than physical gains and losses, of economic offenders being punished by arming the Commissioner with the right to object to the very entertainment of the application. " We consider that this will be a salutary safeguard, because otherwise the Tribunal (Settlement Commission) might become an escape route for tax evaders who have been caught and who are likely to be heavily penalised or prosecuted. " The gravity of this public policy cannot be undermined by interpretative softness of the second proviso to s. 245D(1). To whittle down the imperative nature of this veto power is to undo the expectations of the Wanchoo Committee and amounts to stultifying the rule of law an integral part of which is that the law shall not let the greater felon lose. Can the rule of estoppel override a statutory mandate of a prohibitory character calculated to inhibit/escape from the coils of the law crime ? Moreover, we have to examine, assuming the application of the rule of estoppel, where the basics of that rule of a clear representation having been made by A to B and the latter on the face of representation acting to his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a statutory duty to inquire into the truth of a petition." [Hudson v. Hudson [1948] p. 292; Halsbury's Laws of England, para. 1515)]. The luminous footnote cites rulings and states that : " This rule probably also applies where the statute bestows a discretion rather than imposing a duty." (Halsbury's Laws of England, 4th Edn. p. 109] To sum up, where public duties cast by statute are involved, private parties cannot prevent performance by invoking estoppel. We do not discuss further since the facts here exclude estoppel. In the present statutory situation, s. 245D, by the second proviso, casts a public duty on the CIT to consider, in the light of the case made out in the assessee's application, whether"' concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian I.T. Act, 1922 (11 of 1922), or under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case ", and exercise his veto power to prevent escape of macro-criminals prima facie guilty of grave economic crimes. He cannot bargain over this interd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic duties. The assessee takes the initiative and beseeches the income-tax department to help him move the Settlement Commission by withdrawing its appeals. The story, when unfurled, shows how the assessee acted on his own, independently of the department, never had any blanket assurance from the latter about non-objection to the later stages of the application whatever be the guilt of the assessee vis-a-vis the second proviso to s. 245D(1), defeating the statutory efficacy of the provision. It all begins chronologically with the assessee-respondent representing to the I.T.A.T. on August 23, 1976, the following : " Re : I.T. appeals in the name of Sri B. M. Bhattacharjee for the asst. years 1962-63, 63-64, 64-65, 65-66, 66-67, 67-68, 68-69,69-70, 70-71, 71-72, 72-73 and 73-74. Sub : Prayer u/s. 245M of the I.T. Act, 1961, for withdrawal of appeals. With regard to the above I beg to submit that all the above appeals I have filed on 12-9-75 but, now, I like to have my cases settled by the Settlement Commission and as such I may kindly be allowed to withdraw all the above twelve appeals u/s. 245M of the I.T. Act, 1961. The matter is very much urgent and the settlement petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic in terms : " I am to inform you that the departmental appeals pending before the Income-tax Appellate Tribunal, Calcutta, against you will be withdrawn provided all the appeals filed by you for the assessment years 1962-63 to 1973-74 are withdrawn by you." It is incredible that the tone, sequence and the context and pouring subjective wine into the vessel of words used, the Commission should interpret this communication to reflect an understanding with or a representation by the department to the assessee to do a thing to his prejudice whereupon he acted that way laying the basis for a plea of estoppel. Far from the revenue making any positive representation to the assessee it was a case of a concession shown to him to try his chance before the Commission. This is clear from the assessee's own petition to the Tribunal dated December 17, 1976, wherein he states : " ...... now the learned CIT, Central, Calcutta, has very kindly agreed to withdraw their departmental appeals for the assessment years 1962-63 to 1971-72 on condition that your petitioner would also withdraw all the appeals for 1962-63 to 73-74 assessments." It is true that the CIT withdrew the appeals of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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