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TMI Blog2024 (9) TMI 1629X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax, Jalandhar (2011) 1 SCC 1. It is the correctness of the view so taken by the ITSC which is sought to be assailed in the present writ petition. 2. Before proceeding to analyse the submissions which were addressed by Mr. Ojha, learned counsel appearing for the writ petitioner, we deem it apposite to take note of the following facts. A search and seizure under Section 132 was carried out at the business and residential premises of the Radico Khaitan Group in which the respondent-assessee was the Chief Financial Officer. During the course of that search and seizure proceedings, according to the writ petitioner, a number of incriminating documents were found alongside a substantial amount of cash, jewellery and other valuables. Pursuant to the said search, a notice under Section 153A is stated to have been issued. 3. However, and before that assessment could be completed, the respondent filed a settlement application under Section 245C (1) before the ITSC. The aforesaid application was admitted on 08 February 2013. The income as declared in the SOF for Assessment Years [AY] 2010-11 and 2011-12 was ultimately determined by the ITSC in terms as contemplated under Section 245D (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafter referred to as "the Act") has the jurisdiction to reduce or waive the interest chargeable under Sections 234-A, 234-B and 234-C of the Act, while passing orders of settlement under Section 245-D (4) of the Act. xxxx xxxx xxxx 15. The moot question, therefore, for our consideration is: does sub-section (6) which contemplates providing for the terms of settlement of tax, penalty or interest empower the Commission, in any manner, either to waive or reduce interest payable under Section 234-A, 234-B or 234-C in any case that arises for settlement before the Commission? If so, would this waiver of interest be in accordance with the provisions of the Act as mandated in subsection (4) of the Act?" 6. Ultimately and while affirming the position that the ITSC does not have the power to reduce or waive interest statutorily payable the following pertinent observations came to be rendered: "23. The Commission in the impugned order placed strong reliance on the wording of Section 245-D (6) the language of which, according to the Commission, empowers it to waive or reduce statutory interest because of the reintroduction of the expression "interest" in that sub-section. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the Commission in the impugned order has not gone to the extent of holding that it has the power of either waiving or reducing the tax payable but then that would be the logical conclusion if we accept the interpretation given by the Commission in regard to the expression "interest" in Section 245-D (6) of the Act. A proper reading of sub-section (6) would show that all that it contemplates is that while the Commission makes an order of settlement under sub-section (4) it will also have to provide for the terms under which the amount payable by way of tax, penalty or interest shall be paid by the assessee. The expression "terms" used in that sub-section does not refer to the power of the Commission to waive or reduce tax, penalty or interest because quantification of amount payable under each of those expressions is dealt with under separate provisions of the Act like the payment of the tax is governed by various provisions of the Act as defined in Section 2(43) of the Act while penalty is covered by Section 245-H and interest under Sections 234-A, 234-B and 234-C of the Act. Therefore, all that the expression "term" in Section 245-D (6) means is that the Commission can st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation like Wanchoo Committee Report, Discussions of Select Committee of Parliament and introduction of Chapter XIX-A in the Act, press release of the Board dated 21-5-1996 etc. are purposeless because of the clear and unambiguous language used in Sections 234-A, 234-B and 234-C and Sections 245-D (4) and (6). We notice that if only the Commission were to follow the golden rule of interpretation by giving the words of the statute their natural and ordinary meaning without unnecessarily going into a forensic exercise of trying to find out the object of the introduction of Chapter XIX-A or Part F of Chapter XVII, the Commission would not have fallen in error. xxxx xxxx xxxx 35. For the reasons stated above, we hold that the Commission in exercise of its power under Sections 245-D (4) and (6) does not have the power to reduce or waive interest statutorily payable under Sections 234-A, 234-B and 234-C except to the extent of granting relief under the circulars issued by the Board under Section 119 of the Act." 7. We note that the issue of interest which would be payable on the amount as disclosed in an application made under Section 245C (1) appears to have constituted one of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th interest thereon; the filing of settlement application indicating the amount of income returned in the return of income and the additional income tax payable on the undisclosed income to be aggregated as total income shows that Chapter XIX-A indicates aggregation of incomes so as to constitute total income which indicates that the special procedure under Chapter XIX-A has an in-built mechanism of computing total income which is nothing but assessment (computation of total income). 26. To elaborate, under Section 245-C (1-B), if the applicant has furnished a return in respect of his total income, tax shall be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate were total income. Under the Act, tax is payable on the total income as computed in accordance with the provisions of the Act. Thus, Section 143 (3) provision is sought to be incorporated in Section 245-C. When Parliament uses the words "as if such aggregate would constitute total income", it presupposes that under the special procedure the aggregation of the returned income plus income disclosed would result in computation of total income which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt equal to the assessed tax [same words are used in Section 234-B(1)] or on the amount by which the advance tax falls short of the assessed tax. However, what is "assessed tax" for the purposes of Section 140-A is explained by Explanation. It says that assessed tax will be tax on the total income as declared in the return minus the amount of tax deducted at source or collected at source in accordance with the provisions of Chapter XVII (which covers Sections 207, 209 and 215 of the Act). 30. Now, Section 245-C (1) is voluntary disclosure by the assessee of his undisclosed income. Under Section 245-C (1), the assessee has to mention in his settlement application the additional amount of tax payable by him on such undisclosed income. Under proviso (a), the application for settlement shall not be entertained till the assessee has furnished the return of income which he was required to file under the Act to the extent of his income. Under proviso (b). the assessee has to declare the additional amount of tax payable. Thus, the two provisos to Section 245-C (1) show that Chapter XIX-A, which prescribes a special procedure for assessment by settlement, contemplates a pre-assessment col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se an application under Section 245-C (1) is a return. Section 245-C (1) deals with computation of total income. 34. There is one more way of looking at the Act. Chapter XIX-A refers to the procedure of settlement [see Section 245-D (1)]. As stated above, Section 245-D (1) provides for expeditious recovery of tax by way of pre-assessment collection. Interest on default in payment of advance tax comes under Sections 234-A, 234-B, 234-C, which fall in Chapter XVII which deals with collection and recovery of tax. It is important to note that interest follows computation of additional payment of income tax under Sections 245-C (1-B) and (1-C). This is how Sections 234-A, 234-B and 234-C get engrafted into Chapter XIX-A at the stage of Section 245-D (1). 35. As stated, till the Settlement Commission decides to admit the case under Section 245-D (1) the proceedings under the normal provisions remain open. But, once the Commission admits the case after being satisfied that the disclosure is full and true then the proceedings commence with the Settlement Commission. In the meantime, the applicant has to pay the additional amount of tax with interest without which the application for se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commission under Section 245-D (1). 39. Moreover, as stated above, under the Act, there is a difference between assessment in law [regular assessment or assessment under Section 143 (1)] and assessment by settlement under Chapter XIX-A. The order under Section 245-D (4) is not an order of regular assessment. It is neither an order under Section 143 (1) or Section 143 (3) or Section 144. Under Sections 139 to 158, the process of assessment involves the filing of the return under Section 139 or under Section 142; inquiry by AO under Sections 142 and 143 and making of the order of assessment by AO under Section 143 (3) or under Section 144 and issuing of notice of demand under Section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapter XIX-A. The said chapter contemplates the taxability determined with respect to undisclosed income only by the process of settlement/arbitration. Thus, the nature of the orders under Sections 143 (1), 143 (3) and 144 is different from the orders of the Settlement Commission under Section 245 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vident from the aforesaid extracts of the opinion handed down by the Constitution Bench, it found that the liability of interest would be governed firstly by the provisions of Section 245C (1) and which speaks of aggregation of the income which may be disclosed in a return submitted in ordinary course and the declarations that may be made by virtue of an application of settlement made in terms thereof. The Supreme Court has explained the scheme of Section 245C (1) as thus dealing with the aggregation of the amounts as disclosed in the application for settlement together with that disclosed in the Return of Income to constitute total income. 10. It had also taken into consideration the statutory liability which stood placed upon the applicant to ensure that the amount of tax liability which would arise by virtue of a declaration made in such an application being duly deposited for the purposes of its maintainability. It thus came to conclude that Chapter XIX-A envisages two distinct stages, with the first being the submission of an application under Section 245C (1) and which upon due consideration would have ultimately come to be admitted by the ITSC in light of Section 245D (1) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47 or section 153A the assessee shall be liable for interest at the rate of 1 per cent on the amount of the increase in total income for the period commencing from date of determination of total income under sub-section (1) of section 143 or on regular assessment and ending on the date of reassessment under section 147 or section 153A. Interest is charged under section 234B on the principle that the amount of tax determined on the total income determined under section 143 (1) or on assessment or reassessment or total income declared in a settlement application was the taxpayer's true liability right from the beginning and it was with reference to that amount the advance tax should have been paid within the prescribed due date. Accordingly, it is proposed to amend clause (3) of section 234B of the Income-tax Act to provide that the period for which the interest is to be computed will begin from the 1st day of April next following the financial year and end on the date of determination total income under section 147 or section 153A. The existing provision contained in sub-section (4), inter alia, provide that where on an order of the Settlement Commission under sub-section (4) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest for defaults in payment of advance tax. 234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of [one] per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year [to the date of determination of total income under sub-section (1) of section 143 [and where a regular assessment is made, to the date of such regular assessment, on an amount]] equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. [Explanation 1.-In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,- (i) any tax deducted or collected at source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that sub-section; (b) where as a result of an order of the Settlement Commission under sub-section (4) of section 245-D for any assessment year, the amount of total income disclosed in the application under sub-section (1) of section 245-C is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under sub-section (1) of section 245-C; (c) where, as a result of an order under sub-section (6-B) of section 245-D, the amount on which interest was payable under clause (b) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly.] [(3) Where, as a result of an order of reassessment or recomputation under section 147 or section 153-A, the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t desirous of seeking closure of disputes and settlement was obliged to move an application in terms of Section 245C (1). That provision is extracted hereinbelow: "Application for settlement of cases. 245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the [Assessing] Officer, the manner in which such income has been derived, the additional amount of income tax payable on such income and such other 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:" 19. Originally and prior to its amendment by Finance Act, 2010 the First Proviso to Section 245C (1) read as follows: "Provided that no such application shall be made unless,- (i) the additional amount of income-tax payable on the income disclosed in the application exceeds three lakh rupees; and (ii) such tax and the interest thereon, which would have been paid under the provisions of this Act had the income disclosed in the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been ordinarily declared together with that which came to be disclosed in the application for settlement becomes apparent from the Proviso using the expression ".......had the income disclosed in the application been declared in the Return of Income before the Assessing Officer on the date of application.........". 22. The statute placed a positive and unerring obligation upon the applicant to ensure that the entire amount of tax along with interest in accordance with the disclosures made in the application had been paid on or before the date of submission alone. The Proviso further required proof of such payment being attached with the said application. The entire amount of taxable liability computed upon the total or aggregate income as disclosed in that application was thus liable to be discharged prior to the application being submitted itself. This necessarily would have entailed not only the computation of tax payable on the total income as disclosed in that application as also the payment of interest that would have otherwise been attracted in terms of Section 234A, Section 234B and other cognate provisions in the statute. 23. The application once made is thereafter l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty days of the receipt of communication from the Settlement Commission. (2C) Where a report of the [Principal Commissioner or Commissioner] called for under sub-section (2B) has been furnished within the period specified therein, the Settlement Commission may, on the basis of the report and within a period of fifteen days of the receipt of the report, by an order in writing, declare the application in question as invalid, and shall send the copy of such order to the applicant and the [Principal Commissioner or Commissioner]: Provided that an application shall not be declared invalid unless an opportunity has been given to the applicant of being heard: Provided further that where the [Principal Commissioner or Commissioner] has not furnished the report within the aforesaid period, the Settlement Commission shall proceed further in the matter without the report of the [Principal Commissioner or Commissioner]: [Provided also that where in respect of an application, an order, which was required to be passed under this sub-section on or before the 31st day of January, 2021, has not been passed on or before the 31st day of January, 2021, such application shall deemed to be valid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the [Principal Commissioner or Commissioner]. (4A) The Settlement Commission shall pass an order under sub-section (4),- (i) in respect of an application referred to in sub-section (2A) or sub-section (2D), on or before the 31st day of March, 2008; (ii) in respect of an application made on or after the 1st day of June, 2007 [but before the 1st day of June, 2010], within twelve months from the end of the month in which the application was made.] [(iii) in respect of an application made on or after the 1st day of June, 2010, within eighteen months from the end of the month in which the application was made.] [(5) Subject to the provisions of section 245BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the Bench concerned before passing any order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income tax authority concerned, may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void. (8) For the removal of doubts, it is hereby declared that nothing contained in section 153 shall apply to any order passed under subsection (4) or to any order of assessment, reassessment or recomputation required to be made by the [Assessing] Officer in pursuance of any directions contained in such order passed by the Settlement Commission [and nothing contained in the proviso to sub-section (1) of section 186 shall apply to the pursuance of any such directions as aforesaid.]] [(9) On and from the 1st day of February, 2021, the provisions of sub-sections (1), (2), (2-B), (2-C), (3), (4), (4-A), (5), (6) and (6-B) shall apply to pending applications allotted to Interim Board with the following modifications, namely:- (i) for the words "Settlement Commission", wherever they occur, the words "Interim Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be proceeded with. The ITSC is further enabled to call for reports and records from the Principal Commissioner with respect to the disclosures as made in such an application. It is only after the ITSC is convinced that a full, true and candid disclosure has been made by the applicant, that the same is admitted for further consideration. The amount which the applicant may ultimately be called upon to pay could hypothetically be more than that which may be disclosed in the SOF. This is by virtue of the exercise and inquiry which the ITSC is enabled to undertake in terms of sub-sections (3) and (4) thereof. It is only upon the conclusion of that inquiry that the ITSC proceeds to fame a formal order in terms contemplated under sub-section (4)(a) and frame consequential directions in accordance with sub-section (6). 25. Brij Lal makes a clear distinction between the admission of an application under Section 245D (1) and the determinative exercise which the ITSC ultimately takes under Section 245D (4). It has in unequivocal terms observed that the interest liability flowing from Section 234 B cannot go or travel beyond the date of admission of the application under Section 245D (1). ..... X X X X Extracts X X X X X X X X Extracts X X X X
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