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Petitioner: COMMISSIONER OF INCOME-TAX VS Respondent: ANJUM M.H. GHASWALA and others (and JUDGMENT
Court Name: Supreme Court of India Judge(s): R. C. Lahoti, N. Santosh Hedge, S. N. Variava, A. S. Anand, I. K. T. Thomas Title:COMMISSIONER OF INCOME-TAX vs ANJUM M.H. GHASWALA and others (and
JUDGMENT
Reported As: 2002 PTD 1135 Result: Order accordingly Judgment JUDGMENT N.SANTOSH HEGDE, J.--- Civil Appeals Nos. 4126 to 4150 of 2000 In these appeals the question that arises for our consideration is: whether the Settlement Commission .(for short "the Commission") constituted under section 245B of the Income Tax Act, 1961 (hereinafter referred to as "the Act") has jurisdiction to reduce or waive the interest chargeable under sections 234A, 234B and 234C of the Act, while passing orders of settlement under section 245D(4) of the Act? Earlier, this question arose before the Commission in the case of Ashwani Kumar Aggarwal: In re (1992) 195 ITR 861 (ITSC) (SB) wherein a five-member Special Bench of the Commission held that under section 245D(4) or subsection (6), the Commission does not have the power either to waive or reduce the statutory interest payable under the Act. This view of the five-member Bench of the Commission was overruled by a larger Bench comprising seven Members of the Commission which held otherwise by the impugned order. It held that the Commission is vested with the power to waive or reduce the interest chargeable under sections 234A, 234B and 234C of the Act in cases pending before it for the assessment year 1989-90 and onwards (i.e. The year in which Chapter XVII-F was introduced in the Act). It further held that this power can be exercised by any of the Benches constituted to settle cases under
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section 245BA of the Act. While coming to this conclusion, the Commission held that the constitution of the Commission is based on the concept of "compromise and settlement", hence, it has the necessary power to waive or reduce the interest, even if statutorily mandated, in view of the wording of section 245D(6) of the Act. It also held that in view of the definition of the term "income-tax authority" under section 245A(d), the Commission being an income-tax authority it has all the powers of the Board which are incidental to the functions of the Commission, which includes the Board's power under section 119 of the Act to relax the rigour of sections 234A, 234B and 234C of the Act. By applying the rule of construction, the Commission further held that taking into consideration the object for which the Commission is constituted, it should be held by the process of purposive interpretation that it has the power of waiver or reduction of statutory interest because the object of the Legislature was to settle the case without there being any restriction on the Commission's power to settle the case. For the purpose of deciding the above issue, it is necessary for us to examine the various provisions of the Act which are germane to the controversy in hand. The constitution of the Commission and its powers are traceable to the provisions of Chapter XIX-A of the Act. As noted above, section 245B provides for the constitution of a Commission by the Central Government for settlement of cases under that Chapter. It also provides for appointment of a Chairman, Vice-Chairman and, members of the Commission, the tonstitution of various Benches of the Commission and empowers those Benches to exercise power and authority vested in the Commission under. Chapter XIX-A of the Act, section 245A defines various expressions under sub- clauses (a) to (g) but does not define the expression "settlement". Section 245C provides for filing of an application by an assessee at any stage of the case relating to him in a prescribed manner giving full and true disclosure of his income which has not been disclosed before the Assessing Officer and further informing the manner in which such income has been derived by him and the quantum of additional amount of income-tax payable on such income amongst other particulars that may be prescribed with a prayer to the Commission to have the case settled. The word "case" has been defined under section 245A(b) thus: `case' means any proceeding under this Act for the assessment or reassessment or any person in respect of any year or years, or by way of appeal or revision in connection with such assessment or reassessm ent, which may be pending before an income-tax authority on the date on which an application under subsection (1) of section 245C is made: Provided that where any appeal or application for revision has been preferred after the expiry of the period specified for the filing of such appeal or application for revision under this Act and which has not been admitted, such appeal or revision shall not be deemed to be a proceeding pending within the meaning of this clause;" Under the provisions of Chapter XIX-A on such application being made, the Commission is empowered to dispose of the same in the manner provided thereunder. Section 245D provides for the procedure and exercise of power to be followed by the Commission on receipt of an application under section 245C. Under this provision, the Commission has the authority to call for the report from the Commission of Income- tax (For short "the Commissioner"), and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, it may by order allow the application to be proceeded with or reject the application. If the Commission allows the application filed under section 245C then under subsection (3) of section 245D it can call for the 'relevant records from the Commissioner and if it forms any opinion
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that any further inquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further inquiry or investigation and furnish a report on the matters covered by the application and other matter relating to the case. Subsections (4) and (6) of section 245D being of importance for the purpose of our discussion, the same are extracted verbatim hereunder: "(4) After examination of the records and the report of the Commissioner received under subsection (1), and the report, if any, of the Commissioner received under subsection (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative 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 Commissioner under subsection (1) or subsection (3).. (6) Every order passed under subsection (4) shall provide for the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts." (Emphasis supplied). From the above provisions of law, it is seen that the Commission after 'examination of the records and reports submitted to it and after giving an opportunity to the applicant and to the Commissie per of being heard, may pass such order as it thinks fit on the maters covered by the application. Though section 245D(4) confers wide power on the Commission in the process of settling a case, the Act still mandates that the same will be done in accordance with the provisions of the Act. While that is the mandate which is given to the Commission, a perusal of subsection (6) of section 245D shows that it has also empowered the Commission to provide for the terms of settlement including any demand by way of tax. Penalty or interest; the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective. It is an admitted position that by its plain language subsection (4) of section 245D does not empower the Commission to waive or reduce statutory interest payable under the provisions of sections 234A, 234B or 234C. The moot question, therefore, for our consideration is: does subsection (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 sections 234A, 234B or 234C 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? For answering the above question, we will have to examine the character of interest payable under the provisions of sections 234A, 234B and 234C. A perusal of these sections shows that the interest for default in, furnishing return of income, default in payment of advance tax and interest for deferment of advance tax are mandatory in nature. Section 234A which refers to the payments of interest for default in furnishing the return of income-tax mandates: "234A.(1) Where the return of income for any assessment year under subsection '(1) or subsection (4) of section 139, or in response to a notice under subsection (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one and one-half (substituted for 'two' by the Finance Act, 1999, with effect from 1-6-1999) per cent. For every month or part of a month comprised in the period commencing on the date immediately following the due date and...." (Emphasis supplied) Similarly, sections 234B and 234C also use similar mandatory words in regard to payment of interest. At this stage, it is of importance to notice subsection (4) of section 234A which reads thus:
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"(4,) Where as a result of, an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section, 263 or section 264 or an order of the Settlement Commission under subsection (4) of section 245D, the amount of tax on which interest was payable under subsection (1) or subsection (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded," (Emphasis supplied) A perusal of this subsection which refers to subsection (4) of section 245D mandates that if by virtue of an order passed under section 245D, the amount of tax on which interest was payable under subsection (1) or subsection (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly. This section in an indicator of the fact that so far as the interest falling due by virtue of default in furnishing a return of income, default in payment of advance-tax or interest for deferment of advance tax are concerned. Part F of Chapter XVII has been obligated with the duty of levy of interest, as also to make the necessary changes in the payment of interest dependent on the change that may occur consequent to the order of settlement under section 245D(4). It is also to be noted that wherever the Act contemplated power of waiver or reduction of interest to be entrusted 'with any particular authority in any particular situation. It has done so like in section 220(2A) of the Act. It is also worthwhile to note that the Act wherever it contemplated that there should be no levy of interest, it has clearly made provision for the same ,as could be seen from section 158BF which mandates that no interest under the provisions of sections 234A, 234B or 234C shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the block assessm ent. If the scheme of levy of interest is thus to be analysed on the anvil of the provisions referred to hereinabove, it shows that the interest contemplated under sections 234A, 234B and 234C is mandatory in nature and the power of waiver or reduction having not been expressly conferred on the Commission, the same indicates that so far as the payment of statutory interest is concerned, the same is outside the purview of the settlement contemplated in Chapter XIX-A of the Act. The Commission, however, traced its power to waive or reduce interest to the objects of the Act and to what it termed as schematic rationalization of the provisions of Chapter XIX-A. It also based its finding on the statutory provisions, i.e., sections 245D(4) and (6) and section 119(2) of the Act. From amongst the above grounds on which the impugned.Order is founded, we will examine the correctness of the statutory basis of the order first. The Commission in the impugned order placed strong reliance on the wording of section 245D(6) the language of which,, according to the Commission, empowers it to waive or reduce statutory interest because of the reihtroduction of the expression "interest" in that subsection. According to the findings of the Commission, the inclusion of the expression "interest" clearly indicates that the statute has permitted it to pass such orders as it deems fit in regard to payment of interest when an order under subsection (4) of section 245D is made by it. This assumption of the Commission proceeds on the hypothesis that subsection (6) of section 245D is a substantive provision. We are unable to agree with this view of the Commission. The substantive provision in regard to settlement in Chapter XIX-A, in our opinion, is subsection (4) of section 245D. It is under this provision of the Act that the Commission will have to pass orders as it thinks fit on the matters covered by the application. In our opinion, subsection (6) of section 245D is only procedural in nature. It provides for fixing the terms by which the amount settled in subsection (4). Will have to be paid. It is not a
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section which empowers the Commission either to waive or reduce the interest. At the cost of repetition, we must point out that apart from the fact that there is no specific empowerment of waiver or reduction of tax in Chapter XIX-A, it is also clear from the use of the expression "in accordance with the provisions of this Act" found in subsection (4) of section 245D, the settlement will have to be in conformity with the Act and not contrary to or in conflict with it. There is yet another factor to be taken note of while interpreting subsection (6) of section 2,45D. The said subsection also provides for terms of settlement in regard to the tax. If the interpretation given by the Commission is to be accepted, it would mean that under the provisions of section 245D(6), the Commission also has the power of waiving or reducing the tax payable on the income settled by the Commission. If this position in law is presumed to be correct then the very purpose of the settlement contemplated in Chapter XIX-A would defeat the object of the rnincipal Act itself. As held by the Commission itself, Chapter XIXA was included for the purpose of quick settlement of the cases before it so that the tax due to the Revenue is collected at the earliest. The object of Chapter XIX-A is not to give,amnesty to a tax evader from paying the tax due. Hence, it would be preposterous to hold that the Commission has been conferred with the power of either reducing or waiving the tax due . We are aware 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 245D(6) of the Act. A proper reading of subsection (6) would show that all that it contemplates is that while the Commission makes an order of settlement under subsection (4) it will also have to provide for the terms under which the amount payable by way of tax, penalty by way of tax, penalty or interest shall be paid by the assessee. The expression "terms" used in that subsection does not refer to the power of the Commission to waive or reduce tax, penalty or interest because quantification of the 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 245H and interest under sections 234A, 234B and 234C of the Act. Therefore, all that the expression "term" in section 245D(6) means is that the Commission can stipulate the conditions of payment like instalments, last date for payment, etc. Beyond that, in our opinion, subsection (6) does not authorise the waiver or reduction of tax, penalty or interest settled under subsection (4) of section 245D. The Commission, in support of its view on this score, has,placed reliance on the judgment of this Court in the case of CIT v. Express Newspapers Ltd. (1994) 206 1TR 443, wherein this Court observed thus (page 456): "Subsection (4) of section 245D provides for passing of final orders by the Commission. It is not necessary to refer to the other provisions in the Chapter except to mention that the Commission is empowered to direct the waiver of penalty as well as interest and to direct that the tax payable shall be paid in prescribed instalments. It is further empowered to direct that the assessee whose case has been decided by it shall not be proceeded with or prosecuted under the Income-tax Act or under the Indian Penal Code or under any other Central Act for the time being in force with respect to the case covered by the settlement. The orders of the Commission are final, subject of course to Constitutional remedies." In our opinion, this observation in Express Newspapers' case (1994) 206 ITR 443 (SC) does not help the Commission in support of its conclusion in regard to its power under section 245D(4) and (6). It is to be noted that in that case the settlement sought was with regard to the assessment years 1985-86, 1986-87 and 1987-88. It is an admitted fact that during those assessment years, sections 234A, 234B and 234C were not in the statute book. On the contrary. The corresponding provisions existing in the statute, namely, sections 139(8), 215(4) and 216 in terms empowered the Income-tax
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Authorities to waive or reduce interest. It is in that context that this Court observed, in the paragraph extracted hereinabove, that under section 245D(4), the Commission has the power to direct the waiver of penalty as well as interest because that was within the scope of the provisions of the Act, as then existing, whereas at present and for the assessment years, involved in this case, sections 234A, 234B and 234C being applicable that observation does not apply to the cases in hand. The sentence "except to mention that the Commission is empowered to direct the waiver of penalty as well as interest..." is used in that judgment on the basis of the then existing law and to apply the same to the facts of the present case with the mandatory change in law would amount to applying those principles in Express Newspapers' case (1994) 206 ITR 443 (SC) out of context. Next, the Commission also traced its power either to waive or reduce the interest to section 119(2) of the Act. In our opinion, this process of tracing the Commission's power to section 119(2) of the Act is rather convoluted. It first relied upon section 245F which conferred on it the powers vested in an income-tax authority. Next it relied upon the definition of the expression "Income-tax Authority" as found in section 245A(d) of the Act which in turn referred to section 116 of the Act which included the Board as one of the income-tax authorities for the purpose of the Act. Having equated itself with the Board, it traced the power of the Board to section 119(2) to relax the rigour of sections 234A, 234B and 234C. Thus, by this process the Commission came to the conclusion that it can also relax the rigour of sections 234A, 234B and 234C while passing the order of settlement without really considering whether in the context in which this power is conferred on the Board, the Commission could equate itself with the Board for the purpose of exercising power under section 119(2). Therefore, we will first examine whether the Commission can be construed as a Board for the purpose of section 119 or in the alternative by virtue of section 245F(1) read with section 245A(d) read with section 116 can the Commission exercise the power conferred on the Board under section 119 of the Act? For this purpose it is necessary to examine the nature of power exercised by the Board under section 119 of the Act. Undoubtedly, the Board is an executive authority being a part of the Ministry of Finance. Its actions are amenable to scrutiny by the said Ministry as also by audit bodies and also Parliament whereas the Commission constituted under section 245B of the Act is quasi-judicial body (see section 245L) and its orders are not amenable to either supervisory or appellate jurisdiction of the Ministry of Finance or any of the audit bodies and for that matter even by Parliament. Its order under section 245-I are conclusive which cannot be reopened in any proceedings under the Act or under any other law for the time being in force. Therefore, it cannot be said that, in the context in which the power under section 119 could be exercised by the Board, the Commission could either equate itself with the Board or claim the right to exercise the power vested in the Board under section 119 which is an administrative power. Then it is to be seen that the Act requires the Board to exercise the power under section 119 in a particular manner, i.e., by way of issuance of orders, instructions and directions. There orders, instructions and directions are meant to be issued to other Income-tax Authorities for proper administration of the Act, the. Commission while exercising its quasi-judicial power of arriving at a settlement under section 245D cannot have the administrative power of issuing directions to other Income-tax Authorities. It is a normal rule of construction that when a statute vests certain power in an authority to be exercised in a particular manner then the said authority has to exercise it only in the manner -provided in the statute itself. If that be so since the Commission cannot exercise the power of relaxation found in section 119(2)(a) in the manner provided therein it cannot invoke that power under section 119(2)(a) to exercise the same in its judicial proceedings by following a procedure contrary to that provided in subsection (2) of section 119. There is one other reason why section 119(2) is not available to the Commission, because if we examine the provisions of section 245A through which the Commission has traced its power to be equated with the Board which defines the expression "case" to mean "any proceeding, under this
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Act for the assessm ent or reassessm ent of any person in respect of any year or years.... Which may be pending before an income-tax authority on the date on which an application under subsection (1) of section 245 is made". As per this definition, it is clear that the power of settlement is vested in the Commission in regard to a particular case pertaining to an assessee, may be for one or more years while the power of relaxation contemplated under section 119(2)(a) can be exercised only in regard to class of cases or class of incomes. It is not open to be used in regard to any particular person or case contemplated under the definition of the expression "case" in section 245A. Therefore, we are of the opinion that the context in which the power under section 119 is vested in the Board and the context in which the power of settlement is vested with the Commission under section 245C indicates that Parliament did not intend that the power under section 119 of the Act could be used by the Commission for granting the said relief, and the Commission cannot be equated with the Board for the purpose of exercise of the power under section 119 of the Act. Having noticed this difference, the Commission in the impugned order holds that it is not exercising the administrative power of issuing…
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