Brij Lal and others (civil Appeal no. 516 of 2004) 

Question raised before the constitution bench (5 Judges ) of the Apex Court. 

(i)     Whether sections 234A, 234B and 234C of the Income Tax Act, 1961 (for short  "the   Act")    are        at   all    applicable    to proceedings of the Settlement Commission under Chapter XIX-A of the Act?

(ii)       Whether in the absence of period of limitation prescribed for making the order of the Settlement, the relevant date for determining the quantum of interest could be the date of the said order?

(iii)    Whether the Settlement Commission can reopen its concluded proceedings by having recourse to section 154 of the Act  so as to levy interest under sections 234A, 234B and 234C of the Act, though it was not so done in the original proceedings?

   

(i)  On Whether Sections 234A, 234B and 234C are applicable to Chapter XIX-A proceedings?

Para 11

Our detailed analysis shows that though Chapter XIX- A is a self-contained Code,

To elaborate, under section 245C(1B), if the applicant has furnished a return in respect ofhis 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 245C. 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 is the basis for the levy of tax on the undisclosed income which is nothing but "assessment".

Similarly, section 245C(1C) provides for deductions from the total income computed interms of section 245C(1B). Thus, the special procedure under sections 245C and 245D in Chapter XIX-A shows that a special type of computation of total income is engrafted in the said provisions which is nothing but assessment which takes place at section 245D(1) stage. However, in that computation, one finds that provisions dealing with a regular assessment, self-assessment and levy and computation of interest for default in payment of advance tax, etc. are engrafted. [See sections 245C(1B), 245C(1C), 245D(6), 245F(3) in addition to sections 215(3), 234A(4) and 234B(4)]

(II)   Terminal point for the levy of interest – Whether interest is payable under Chapter XIX-A up to the date of the order under section 245D(1) or up to the date of the order under section 245D(4)?

Para 12

It is important to note that interest follows computation of additional payment of incometax under sections 245C(1B) and (1C). This is how sections 234A, 234B and 234C get engrafted into Chapter XIX-A at the stage of section 245D(1). As stated, till the Settlement Commission decides to admit the case under section 245D(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, applicant has to pay the additional amount of tax with interest without which the application for settlement would not be maintainable. Thus, interest under section 234B would be payable up to the stage of section 245D(1). Our view is supported by the amendment made by Finance Act of 2007 w.e.f. 1.6.2007 in which interest is required to be paid for maintainability of the Application for Settlement.

There are two distinct stages under Chapter XIX- A and that the Legislature has not contemplated the levy of interest between order under section 245D(1) stage and section 245D(4) stage. Thus, interest under section 234B will be chargeable till the order of the Settlement Commission under section 245D(1), i.e., admission of the case.

III.   Whether the Settlement Commission can re-open its concluded proceedings by having recourse to Section 154 of the Act so as to levy interest under section 234B, if it was not done in the original proceedings? 

Para 15

Proceedings before Settlement Commission are similar to arbitration proceedings.        It contemplates assessment  by settlement and not by way of regular assessment or assessment under section 143(1) or under section 143(3) or under section 144 of the Act. In that sense, it is a Code by itself. It does not begin with the filing of the return but by filing the application for settlement. 

Under section 245I the order of the Settlement Commission is made final and conclusive on matters mentioned in the application for settlement except in the two cases of fraud and misrepresentation in which case the matter could be re- opened by way of review or recall. Like ITAT, the Settlement Commission is a quasi-judicial body. Under section 254(2), the ITAT is given the power to rectify but no such power is given to the settlement Commission.  Thus, we hold that Settlement   Commission cannot reopen its   concluded proceedings by invoking section 154 of the Act.

Summarised conclusions

(1) Sections 234A, 234B and 234C are applicable to the proceedings of the Settlement Commission under Chapter XIX-A of the Act to the extent indicated hereinabove.

(2) Consequent upon conclusion (1), the terminal point for the levy of interest under section 234B would be up to the date of the order under section 245D(1) and not up to the date of the Order of Settlement under section 245D(4).

(3) The   Settlement   Commission    cannot   re-open    its concluded proceedings by invoking section 154 of the Act so as to levy interest under section 234B, particularly, in view of section 245I.

(Plese click here for judgment)

     

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