TMI Blog2017 (9) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... ons prevailing before 1.6.2007 and in view of the noted changes after 1.6.2007, such application need not have to be seen as one composite application for settlement which may either in its entirety are allowed to be proceeded with or be declared as abated. One must look at the application in the background of such statutory provisions before and after 1.6.2007. Had the requirement of payment of additional tax with interest been existing in the statute when the petitioner applied for settlement surely, he would have applied only to the extent that he was able to muster up sufficient funds for additional tax and interest. Under the circumstances, the petitioner's request that entire application for settlement may not be declared as abated, would have to be accepted. The petitioner had paid additional tax and interest by 31.7.2007, his proceedings before the Settlement Commission, would not abate. The abatement would apply with respect to those assessment years for which such payment was not made. In the result, the petition is allowed in part. The impugned order of settlement dated 4.10.2007 is set aside to the limited extent. Declaration of abatement of assessment proceedings be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement of his case though was required to make payment of tax with interest on admitted income, the statute did not provide for any adverse effect on his application for settlement till its disposal by the Settlement Commission, if the assessee failed to make the payment of such tax or interest. By virtue of the amendments brought about through the Finance Act, 2007, the legislature now required that payment of admitted tax with interest should accompany the application for settlement. For the pending cases, the applicants were given time upto 31.1.2007 to make such payment, failing which, the application for settlement would abate. 4. In terms of such amendments, the petitioner made a total payment of ₹ 23,97,400/which covered the payment for the assessment years 2001-2002 to 2003-2004, 2005-2006 and 2007-2008. The assessee was required to pay a sum of ₹ 24,02,411/by way of additional tax with interest for the assessment years 2004-2005 and 20062007 which was not made till 31.7.2017. Before the Settlement Commission, the assessee raised two fold contentions. One was that due to financial difficulties, the assessee could not make full payment of additional tax an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew condition of payment of additional tax with interest before a specified date, failure to comply with which would result into rejection of the application for settlement and on the other hand also made a provision which was not existing when the petitioner applied for settlement that the material produced by him before the Settlement Commission would be used by the Assessing Officer. 4) In support of his contentions, counsel relied on judgment of Bombay High Court in case of Star Television News Ltd. v. Union of India and others reported in (2009) 317 ITR 66 (Bom). In the said case, Bombay High Court examined the validity of the newly inserted provision in Chapter XIXA of the Act by which it was made compulsory to dispose of an application for settlement within prescribed time, failing which, the application for settlement would abate. This would be irrespective of the reason why the Commission was unable to dispose of the application within time. Bombay High Court read down the statutory provision and held that in cases where the applicant was not responsible for causing delay in disposing of the settlement application, the consequences of non disposal could not be of abate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax with interest on admitted income. The amended provisions merely provided a time limit before which such payment must be made, failing which, it would not be possible for the assessee to pursue his application for settlement. Counsel further submitted that no assessee can oppose the material which he himself has produced, from being used in the assessment once the application for settlement for whatever purpose fails. In this context counsel relied on the decision of the Division Bench of this Court in case of Arcon Pharmaceuticals and anr v. UOI and ors. (Special Civil Application No.2694/2012, judgment dated 29.8.2013) in which similar amendments in the settlement provisions contained in Central Excise Act were challenged. The Division Bench while upholding the vires of the statutory provisions observed as under : 7.11. Now, so far as the contention on behalf of the petitioners that the petitioners while submitting the application before the Settlement Commission is required to disclose all material which are within exclusive knowledge of the assessee and is required to make full and true disclosure and therefore, if considering Section 32F(6) of the Act despite the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for rejecting the application in part for certain number of assessment years whereas allowing to be proceeded further with respect to the rest. 10. Chapter XIXA of the Act pertaining to settlement of cases was introduced by the Taxation Laws(Amendment) Act, 1975, with effect from 1.4.1976. This Chapter contains provisions enabling the assessee whose assessment proceedings are pending, to apply for settlement before the Commission. Subject to fulfillment of certain conditions, the statute authorises the Commission to settle a case. The person desirous of availing such benefit would apply to the Commission under subsection( 1) of section 245C of the Act. Such application would pass through various stages envisaged under section 245D and finally the Settlement Commission would pass the order under subsection( 4) of section 245D of the Act. Under section 245H, the Settlement Commission has power to grant immunity from prosecution and penalty. Section 245HA which was introduced with effect from 1.6.2007, provides for situations under which the proceedings before the Settlement Commission would abate. 11. Prior to 1.6.2007 amendment, there was no requirement for an assessee to ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contained in Chapter XVII of the Act. 12. There were significant changes in these statutory provisions with effect from 1.6.2007. Under subsection( 1) of section 245C, now the assessee applying for settlement of his case, would pay the additional tax and interest on the income disclosed in the application for settlement. Proof of payment would be attached with the application itself. Though certain changes have been introduced also in subsections 1A to 1D of section 245C pertaining to computation of additional tax and interest, we are not directly concerned with such changes. Requirement of payment of additional tax with interest within the prescribed time, failure of which would result into abatement of the proceedings before the Settlement Commission, was introduced by way of the newly inserted subsection( 2A) of section 245D of the Act read with clause(ii) of subsection( 1) of section 245HA of the Act. Under subsection( 3) of section 245HA, upon abatement of the proceedings before the Settlement Commission when the Assessing Officer proceeds to dispose of the pending cases, the Assessing Officer or other incometax authority would be entitled to use material and other inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had been produced before the Assessing Officer or other incometax authority or held or recorded by him in the course of the proceedings before him. 13. The comparison of the statutory provisions before and after amendment with effect from 1.6.2007 would show that even earlier the assessee always had a liability to pay the tax on additional income disclosed in the application for settlement filed before the Commission. Such liability would be discharged within thirtyfive days of the receipt of a copy of the order under subsection( 1) of section 245D. It was ofcourse open for the assessee to apply to the Settlement Commission for extension of time or installments by making out good or sufficient reasons for being unable to pay the same within the prescribed time. Whether such extension was granted or not, in terms of subsection( 2C) of section 245D, the assessee would be liable to pay interest on the amount of tax which remained unpaid after completion of prescribed period. The Settlement Commission could also direct payment of tax with interest or even impose penalty on the assessee not paying the same. The statutory provisions however, did not provide for abatement of proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 31st July, 2007. 16. It is not difficult to appreciate that these provisions were brought into the statute to bring in a greater seriousness and in order to ensure that the applications for settlement are pursued with due care and promptness. In this context, we may also notice some of the other changes simultaneously made in the said chapter. For example, in the substituted subsection (1) of section 245D, the legislature introduced the concept of extremely short time limits for crossing the first stage of allowing or not allowing an application for settlement to be proceeded further. Under this provision, on receipt of an application under section 245C, the Settlement Commission within seven days from the date of receipt of the application, shall issue a notice to the applicant requiring him to explain why the application should be allowed to be proceeded with. After hearing the applicant, the Settlement Commission would within fourteen days from the date of the application, either reject or allow the application to be proceeded with. As per proviso to subsection (1) if no order has been passed within the said period by the Settlement Commission, the application shall be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er side, for whatever reason, the application for settlement were to fail, the pending assessment would revive and be continued from whatever stage it was pending. The statutory provisions under challenge before us therefore, must be seen in light of the over all relevant changes made by the legislature and the ultimate effect of such changes in the settlement proceedings. 18. The parameters for testing the constitutionality of the legislation made by the parliament or the State legislature are well laid down in series of judgments of the Supreme Court and this Court. Two of the grounds on which such legislation can be called in question are that the legislature lacks the competence to frame the law or that the statutory provision is opposed to the fundamental rights enshrined under the Constitution or any other constitutional provision. It is in fact, within these two grounds of challenge to a statute, the Supreme Court in case of Shayara Bano (supra) has expanded to a limited extent the scope of examination, propounding that the legislation can also be struck down on the ground of arbitrariness. Nevertheless, the concept of arbitrariness in context of testing a statutory pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent are now asked to pay the additional tax on income disclosed in the settlement application before a certain date, by itself would not render the statute arbitrary. This would be for multiple reasons. Firstly, the tax being collected is on the admitted income, the income which the assessee had not disclosed in the original return filed before the Assessing Officer but which he now admits in the application for settlement filed before the Commission. No tax payer can claim liberty from payment of tax on an admitted income. Secondly, even in the provisions prevailing upto 1st June 2007, there was always the liability of the assessee applying for settlement to pay the additional tax on the income disclosed. If he failed to pay the sum within the prescribed time, he would have to pay the tax along with interest at the prescribed rate. We are conscious that the provision for abatement of settlement proceedings before the Commission, upon the assessee not being able to pay the sum by 31st July 2017, was newly introduced. However, the applicant before the Settlement Commission cannot claim vested right to have the application granted and seek immunity from penalty and prosecution even w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immunity from use of such material unless such immunity was granted in specific terms of statute. No assessee can claim that he made a certain declaration before the Commission which was true but should not be utilised by the incometax authority for the purpose of his assessment. Even while filing a return before the Assessing Officer and participating in the assessment proceedings, be it before the Assessing Officer or at the appellate stage, there is inherent duty of every assessee to make true and full disclosures. In our opinion therefore, the newly inserted subsection( 3) of section 245HA did not take away any vested right hitherto enjoyed by the assessee. In the result, the challenge to the vires of the statutory provisions must fail. 24. We now come to the petitioner's challenge to the order of Settlement Commission on merits. So far as the first prayer of the petitioner before the Settlement Commission to extend the time for payment of tax with interest is concerned, the Settlement Commission correctly came to the conclusion that the statute did not permit any flexibility and the Settlement Commission did not have any power to extend the time. However, the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07. These amendments brought in two major changes. First was that in all pending applications, the payment would now be made latest by 31.7.2007 with no possibility of extending the time. This was in stark contrast to the prevailing statutory provisions which enabled the Commission to extend the time for payment of tax if the assessee made out good and sufficient grounds for not being able to pay the same within the prescribed period. The Commission could also grant installments. Such powers of the Commission were taken away and a deadline of 31.7.2007 was introduced. The second major change was that if the assessee failed to make the payment of such additional tax and interest before 31.7.2007, his application for settlement would abate. 26. The combined effect of the statutory provisions prevailing before 1.6.2007 which as noted above, in our opinion did not prohibit filing of separate applications for settlement assessment year wise and the newly introduced requirement of payment of additional tax with interest by 31.7.2007, failing which, the proceedings before the Settlement Commission would abate, would persuade us to hold that it was open for the Settlement Commission to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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