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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE/ORIGINAL JURISDICTION
CIVIL APPEAL Nos. 516-527 OF 2004
Brij Lal & Ors. ... Appellants
versus
Commissioner of Income Tax, Jalandhar ...
Respondents
with
Civil Appeal Nos. 280-286/2005, Civil Appeal
No. 8324/2004, Civil Appeal Nos.8325-
8328/2004, Civil Appeal No. 603/2005, Civil
Appeal No. 990/2005, Civil Appeal No.
925/2005, Civil Appeal No.
924/2005, Writ Petition (C) No. 556/2004,
Writ Petition(C)No. 555/2004, Civil Appeal
Nos. 2247-2250/2005, Civil Appeal No.
923/2005, Civil Appeal No. 995/2005,
Civil Appeal No. 994/2005, Writ Petition (C)
No. 63/2005, Writ Petition (C) No.
61/2005, Writ Petition (C) No. 62/2005,
Writ Petition (C) No. 60/2005, Civil Appeal
No. 2246/2005, Civil Appeal Nos. 3231-
3232/2005, Civil Appeal No. 3091/2004, Civil
Appeal No. 3087/2004, Civil Appeal No.
3092/2004, Civil Appeal Nos.4599-
4601/2004, Civil Appeal Nos. 528-531/2004, Writ
Petition (C) No. 325/2004, Writ Petition (C)
No. 324/2004, Writ Petition (C) No.
326/2004, Civil Appeal No. 992/2007,
Civil Appeal No.9174/2010 @ SLP (C) No.
20373/2009, Civil Appeal No.
532/2004, and Civil Appeal No. 604/2005.
JUDGMENT
S.H. KAPADIA, CJI
2
1. Leave granted.
2. Vide referral orders dated 14.12.2004 and 20.1.2005
the following questions have been referred to the Constitution
Bench of this 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 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?
(iii) 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?
3. For the sake of convenience, after hearing learned
counsel on both sides, we reframe the above questions.
3
(I) Whether section 234B applies to
proceedings of the Settlement
Commission under Chapter XIX-A of the
said Act?
(II) If answer to the above question is in the
affirmative, what is the terminal point for
levy of such interest - Whether such
interest should be computed up to the
date of the Order under section 245D(1)
or up to the date of the Order of the
Commission under section 245D(4)?
(III) Whether the Settlement Commission
could reopen its concluded proceedings
by invoking section 154 of the said Act so
as to levy interest under section 234B,
though it was not so done in the original
proceedings?
Relevant provisions of the Income Tax Act, 1961:
4. In order to answer the reframed questions, quoted
above, it would be necessary for us to cite the relevant
provisions of the Act and the Income Tax Rules, as they stood
at the material time, which are as under:
Definitions
2(40) "regular assessment" means the
4
assessment made under sub-section (3) of
section 143 or section 144 ;
2(45) "total income" means the total
amount of income referred to in section 5,
computed in the manner laid down in this Act;
Chapter XIV - Procedure for Assessment
Self-assessment
140A. (1) Where any tax is payable on the
basis of any return required to be furnished
under section 139 or section 142 or as the case
may be, section 148, after taking into account
the amount of tax, if any, already paid under
any provision of this Act, the assessee shall be
liable to pay such tax together with interest
payable under any provision of this Act for any
delay in furnishing the return or any default or
delay in payment of advance tax, before
furnishing the return and the return shall be
accompanied by proof of payment of such tax
and interest.
Explanation.--Where the amount paid by the
assessee under this sub-section falls short of
the aggregate of the tax and interest as
aforesaid, the amount so paid shall first be
adjusted towards the interest payable as
aforesaid and the balance, if any, shall be
adjusted towards the tax payable.
(2) After a regular assessment under section 143
or section 144 has been made, any amount paid
under sub-section (1) shall be deemed to have
been paid towards such regular assessment.
Assessment
143. (1)(a) Where a return has been made
5
under section 139, or in response to a notice
under sub-section (1) of section 142, -
(i) if any tax or interest is found
due on the basis of such return, after
adjustment of any tax deducted at source, any
advance tax paid and any amount paid
otherwise by way of tax or interest, then,
without prejudice to the provisions of sub-
section (2), an intimation shall be sent to the
assessee specifying the sum so payable, and
such intimation shall be deemed to be a notice
of demand issued under section 156 and all
the provisions of this Act shall apply
accordingly;
*** *** ***
Provided also that an intimation for any tax or
interest due under this clause shall not be
sent after the expiry of two years from the end
of the assessment year in which the income
was first assessable.
(b)Where as a result of an order made under
sub-section (3) of this section or section 144 or
section 147 or section 154 or section 155 or
section 250 or section 254 or section 260 or
section 262 or section 263 or section 264, or
any order of settlement made under sub-
section (4) of section 245D relating to any
earlier assessment year and passed
subsequent to the filing of the return referred
to in clause (a), there is any variation in the
carry forward loss, deduction, allowance or
relief claimed in the return, and as a result of
which, -
(i)if any tax or interest is found due, an
intimation shall be sent to the assessee
specifying the sum so payable, and such
intimation shall be deemed to be a notice of
6
demand issued under section 156 and all the
provisions of this Act shall apply accordingly,
and
(ii)if any refund is due, it shall be granted to
the assessee:
Provided that an intimation for any tax or
interest due under this clause shall not be
sent after the expiry of four years from the end
of the financial year in which any such order
was passed.
(4) Where a regular assessment under sub-
section (3) of this section or section 144 is made,
--
(a) any tax or interest paid by
the assessee under sub-section (1) shall be
deemed to have been paid towards such
regular assessment ;
Rectification of mistake.
154. (1) With a view to rectifying any mistake
apparent from the record an income-tax
authority referred to in section 116 may,--
(a) amend any order passed by it
under the provisions of this Act ;
(b) amend any intimation sent
by it under sub-section (1) of section 143. or
enhance or reduce the amount of refund
granted by it under that sub-section.
(1A) Where any matter has been considered
and decided in any proceeding by way of
appeal or revision relating to an order referred
to in sub-section (1), the authority passing
such order may, notwithstanding anything
contained in any law for the time being in
force, amend the order under that sub-section
in relation to any matter other than the matter
7
which has been so considered and decided.
(2) Subject to the other provisions of this
section, the authority concerned--
(a) may make an amendment
under sub-section (1) of its own motion, and
(b) shall make such amendment
for rectifying any such mistake which has been
brought to its notice by the assessee, and
where the authority concerned is the Deputy
Commissioner (Appeals), or the Commissioner
(Appeals) by the Assessing Officer also.
(3) An amendment, which has the effect of
enhancing an assessment or reducing a refund
or otherwise increasing the liability of the
assessee, shall not be made under this section
unless the authority concerned has given
notice to the assessee of its intention so to do
and has allowed the assessee a reasonable
opportunity of being heard.
Chapter XVII - Collection and Recovery of
Tax
Liability for payment of advance tax.
207. Tax shall be payable in advance during
any financial year, in accordance with the
provisions of sections 208 to 219 (both
inclusive), in respect of the total income of the
assessee which would be chargeable to tax for
the assessment year immediately following the
financial year, such income being hereafter in
this Chapter referred to as "current income".
Computation of advance tax.
209. (1) The amount of advance tax payable by
an assessee in the financial year shall, subject
8
to the provisions of sub-sections (2) and (3), be
computed as follows, namely:--
(a) where the calculation is made by the
assessee for the purposes of payment of
advance tax under sub-section (1) or sub-
section (2) or sub-section (5) or sub-section (6)
of section 210, he shall first estimate his
current income and income-tax thereon shall
be calculated at the rates in force in the
financial year;
Payment of advance tax by the assessee of
his own accord or in pursuance of order of
Assessing Officer.
210. (1) Every person who is liable to pay
advance tax under section 208 (whether or not
he has been previously assessed by way of
regular assessment) shall, of his own accord,
pay, on or before each of the due dates
specified in section 211, the appropriate
percentage, specified in that section, of the
advance tax on his current income, calculated
in the manner laid down in section 209.
(2) A person who pays any instalment or
instalments of advance tax under sub-section
(1), may increase or reduce the amount of
advance tax payable in the remaining
instalment or instalments to accord with his
estimate of his current income and the
advance tax payable thereon, and make
payment of the said amount in the remaining
instalment or instalments accordingly.
Interest payable by assessee.
215. (1) Where, in any financial year, an
assessee has paid advance tax under section
9
209A or section 212 on the basis of his own
estimate (including revised estimate), and the
advance tax so paid is less than seventy-five
per cent of the assessed tax, simple interest at
the rate of fifteen per cent per annum from the
1st day of April next following the said
financial year up to the date of the regular
assessment shall be payable by the assessee
upon the amount by which the advance tax so
paid falls short of the assessed tax:
Provided that in the case of an assessee, being
a company, the provisions of this sub-section
shall have effect as if for the words "seventy-
five per cent', the words "eighty-three and one-
third per cent" had been substituted.
(2) Where before the date of completion of a
regular assessment, tax is paid by the
assessee under section 140A or otherwise,--
(i) interest shall be calculated in accordance
with the foregoing provision up to the date on
which the tax is so paid; and
(ii) thereafter, interest shall be calculated at
the rate aforesaid on the amount by which the
tax as so paid (in so far as it relates to income
subject to advance tax) falls short of the
assessed tax.
(3) Where as a result of an order under section
147 or 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 sub-
section (4) of section 245D, the amount on
which interest was payable under sub-section
(1) has been increased or reduced, as the case
may be, the interest shall be increased or
reduced accordingly, and--
(i) 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
1
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.]
(4) In such cases and under such
circumstances as may be prescribed, the
Assessing Officer may reduce or waive the
interest payable by the assessee under this
section.
(5) In this section and sections 217 and 273,
"assessed tax" means the tax determined on
the basis of the regular assessment (reduced
by the amount of tax deductible in accordance
with the provisions of sections 192 to 194,
section 194A, section 194C, section 194D,
section 195 and section 196A so far as such
tax relates to income subject to advance tax
and so far as it is not due to variations in the
rates of tax made by the Finance Act enacted
for the year for which the regular assessment
is made.
(6) Where, in relation to an assessment year,
an assessment is made for the first time under
section 147, the assessment so made shall be
regarded as a regular assessment for the
purposes of this section and sections 216, 217
and 273.
Interest for defaults in furnishing return of
income.
234A. (1) Where the return of income for
any assessment year under sub-section (1) or
sub-section (4) of section 139, or in response to
a notice under sub-section (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 two per cent for
every month or part of a month comprised in
the period commencing on the date
1
immediately following the due date, and,--
(a) where the return is furnished
after the due date, ending on the date of
furnishing of the return; or
(b) where no return has been
furnished, ending on the date of completion of
the assessment under section 144,
on the amount of the tax on the total income
as determined under sub-section (1) of section
143 or on regular assessment as reduced by
the advance tax, if any, paid, and any tax
deducted or collected at source;
Explanation 1.--In this section, "due date"
means the date specified in sub-section (1) of
section 139 as applicable in the case of the
assessee.
Explanation 2.--In this sub-section, "tax on
the total income as determined under sub-
section (1) of section 143" shall not include the
additional income-tax, if any, payable under
section 143.
Explanation 3.--Where, in relation to an
assessment year, an assessment is made for
the first time under section 147, the assessment
so made shall be regarded as a regular
assessment for the purposes of this section.
Explanation 4. - In this sub-section, "tax on
the total income as determined under sub-
section (1) of section 143 or on regular
assessment" shall, for the purposes of
computing the interest payable under section
140A, be deemed to be tax on total income as
declared in the return.
(2) The interest payable under sub-section (1)
shall be reduced by the interest, if any, paid
1
under section 140A towards the interest
chargeable under this section.
*** *** ***
(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 sub-section (4) of section 245D, the
amount of tax on which interest was payable
under sub-section (1) or sub-section (3) of this
section has been increased or reduced, as the
case may be, the interest shall be increased or
reduced accordingly, and--
(i) 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.
(5) The provisions of this section shall apply in
respect of assessments for the assessment
year commencing on the 1st day of April, 1989
and subsequent assessment years.
Interest 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 two per cent for every month or
1
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
(a) for the purposes of computing the interest
payable under section 140A the tax on the
total income as declared in the return referred
to in that section;
(b) in any other case, the tax on the total
income determined under sub-section (1) of
section 143 or on regular assessment, as
reduced by the amount of tax deducted or
collected at source in accordance with the
provisions of Chapter XVII on any income
which is subject to such deduction or
collection and which is taken into account in
computing such total income.
Explanation 2.--Where, in relation to an
assessment year, an assessment is made for
the first time under section 147, the assessment
so made shall be regarded as a regular
assessment for the purposes of this section.
Explanation 3.--In Explanation 1 and in sub-
section (3) "tax on the total income determined
under sub-section (1) of section 143" shall not
include the additional income-tax, if any,
payable under section 143.
(2) Where, before the date of determination of
total income under sub-section (1) of section
143 or completion of a regular assessment, tax
is paid by the assessee under section 140A or
1
otherwise,--
(i) interest shall be calculated in
accordance with the foregoing provisions of
this section up to the date on which the tax is
so paid, and reduced by the interest, if any,
paid under section 140A towards the interest
chargeable under this section;
(ii) thereafter, interest shall be
calculated at the rate aforesaid on the amount
by which the tax so paid together with the
advance tax paid falls short of the assessed
tax.
(3) Where, as a result of an order of
reassessment or recomputation under section
147, the amount on which interest was payable
under sub-section (1) is increased, the
assessee shall be liable to pay simple interest
at the rate of two per cent for every month or
part of a month comprised in the period
commencing on the day following the date of
determination of total income under sub-
section (1) of section 143 and where a regular
assessment is made as is referred to in sub-
section (1) following the date of such regular
assessment and ending on the date of the
reassessment or recomputation under section
147, on the amount by which the tax on the
total income determined on the basis of the
reassessment or recomputation exceeds the
tax on the total income determined under
sub-section (1) of section 143 or on the basis of
the regular assessment aforesaid.
(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 sub-section (4) of section 245D, the
amount on which interest was payable under
sub-section (1) or sub-section (3) has been
increased or reduced, as the case may be, the
1
interest shall be increased or reduced
accordingly, and--
(i) 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.
(5) The provisions of this section shall apply in
respect of assessments for the assessment
year commencing on the 1st day of April, 1989
and subsequent assessment years.
Interest for deferment of advance tax.
234C. (1) Where in any financial year,--
(a) the company which is liable
to pay advance tax under section 208 has failed
to pay such tax or--
(i) the advance tax paid by
the company on its current income on or
before the 15th day of June is less than fifteen
per cent of the tax due on the returned income
or the amount of such advance tax paid on or
before the 15th day of September is less than
forty-five per cent of the tax due on the
returned income or the amount of such
advance tax paid on or before the 15th day of
December is less than seventy-five per cent of
the tax due on the returned income, then, the
company shall be liable to pay simple interest
at the rate of one and one-half per cent per
month for a period of three months on the
amount of the shortfall from fifteen per cent or
forty-five per cent or seventy-five per cent, as
the case may be, of the tax due on the
1
returned income;
(ii) the advance tax paid by
the company on its current income on or
before the 15th day of March is less than the
tax due on the returned income, then, the
company shall be liable to pay simple interest
at the rate of one and one-half per cent on the
amount of the shortfall from the tax due on the
returned income:
Explanation.--In this section, "tax due on the
returned income" means the tax chargeable on
the total income declared in the return of
income furnished by the assessee for the
assessment year commencing on the 1st day of
April immediately following the financial year
in which the advance tax is paid or payable, as
reduced by the amount of tax deductible or
collectible at source in accordance with the
provisions of Chapter XVII on any income
which is subject to such deduction or
collection and which is taken into account in
computing such total income;
(2) The provisions of this section shall apply in
respect of assessments for the assessment
year commencing on the 1st day of April, 1989
and subsequent assessment years.
Chapter XIX-A - Settlement of Cases
Definitions
245A. In this Chapter, unless the context
otherwise requires,--
(b) "case" means any proceeding
under this Act for the assessment or re-
assessment of any person in respect of any
year or years , or by way of appeal or revision
in connection with such assessment or re-
assessment, which may be pending before an
Income Tax Authority on the date on which an
application under sub-section (1) of section
1
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;
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:
Provided that no such application shall be
made unless,--
(a) the assessee has furnished the return
of income which he is or was required to
furnish under any of the provisions of this Act;
and
(b) the additional amount of income tax
payable on the income disclosed in the
application exceeds one hundred thousand
rupees.
(1A) For the purposes of sub-section (1) of this
1
section and sub-section (2A) to (2D) of Section
245D, the additional amount of income-tax
payable in respect of the income disclosed in
an application made under sub-section (1) of
this section shall be the amount calculated in
accordance with the provisions of sub-sections
(1B) to (1D).
(1B) Where the income disclosed in the
application relates to only one previous year,--
(i) if the applicant has not
furnished a return in respect of the total
income of that year (whether or not an
assessment has been made in respect of the
total income of that year), then, except in a
case covered by clause (iii), tax shall be
calculated on the income disclosed in the
application as if such income were the total
income;
(ii) if the applicant has furnished
a return in respect of the total income of that
year (whether or not an assessment has been
made in pursuance of such return), tax shall
be calculated on the aggregate of the total
income returned and the income disclosed in
the application as if such aggregate were the
total income;
(iii) if the proceeding pending before the
income-tax authority is in the nature of a
proceeding for reassessment of the applicant
under section 147 or by way of appeal or
revision in connection with such
reassessment, and the applicant has not
furnished a return in respect of the total
income of that year in the course of such
proceeding for reassessment, tax shall be
calculated on the aggregate of the total income
as assessed in the earlier proceeding for
assessment under section 143 or section 144
or section 147 and the income disclosed in the
application as if such aggregate were the total
1
income.
FORM NO. 34B
[See rules 44C and 44CA]
Form of application for settlement of case under section 245C(1) of the
Income-tax Act, 1961
IN THE SETTLEMENT COMMISSION.................................................
Settlement application No. .............................19.......-19..........
1. Full name and address of the applicant .........................
2. Permanent Account Number ........................
3. Status [See Note 4] ........................
4. The Commissioner having jurisdiction over the
applicant ........................
5. Assessment year(s) in connection with which the
application for settlement is made ........................
6. Date of filing the return of income for
assessment year(s) referred to in column 5 ........................
7. Proceedings to which application for settlement
relates, the date from which the proceedings are
pending and the income-tax authority before
whom the proceedings are pending [See Note 6] ........................
8. 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, as the case may be,
whether such appeal or revision has been
admitted. ........................
9. Date of seizure, if any, under section 132 of the
Income-tax Act ........................
10. Particulars of the issues to be settled, nature
and circumstances of the case and complexities
of the investigation involved [See Note 7] ........................
11. Full and true disclosure of income which has not
been disclosed before the Assessing Officer, the
manner in which such income has been derived
and the additional amount of income-tax ........................
payable on such income [See Notes 9 and 10]
.......................
Signed
(Applicant)
Verification
I, ................................, son/daughter/wife of .................................. do
hereby solemnly declare that to the best of my knowledge and belief,
2
what is stated above and in the Annexure [including the statement(s) and
documents accompanying such Annexure] is correct and complete. I
further declare that I am making this application in my capacity as ......
...........(designation) and that I am competent to make this application
and to verify it.
Verified today the ...................................... day of ....................19
Place .............. .......................
Signed
(Applicant)
Procedure on receipt of an application
under section 245C.
245D. (1) On receipt of an application under
section 245C, the Settlement Commission shall
call for a report from 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, the
Settlement Commission may, by order, allow
the application to be proceeded with or reject
the application:
Provided that an application shall not be
rejected under this sub-section unless an
opportunity has been given to the applicant of
being heard:
Provided further that the Commissioner shall
furnish the report within a period of forty-five
days of the receipt of communication from the
Settlement Commission in case of all
applications made under Section 245C on or
after the 1st day of July, 1995 and if the
Commissioner fails to furnish the report within
the said period, the Settlement Commission
may make the order without such report.
(2B) If the Settlement Commission is satisfied,
on an application made in this behalf by the
2
assessee, that he is unable for good and
sufficient reasons to pay the additional
amount of income tax referred to in sub-
section (2A) within the time specified in that
sub-section, it may extend the time for
payment of the amount which remains unpaid
or allow payment thereof by instalments if the
assessee furnishes adequate security for the
payment thereof.
(2C) Where the additional amount of income-
tax is not paid within the time specified under
sub-section (2A), then, whether or not the
Settlement Commission has extended the time
for payment of the amount which remains
unpaid or has allowed payment thereof by
instalments under sub-section (2B), the
assessee shall be liable to pay simple interest
at fifteen per cent per annum on the amount
remaining unpaid from the date of expiry of
the period of thirty-five days referred to in sub-
section (2A).
(4) After examination of the records and the
report of the Commissioner, received under
sub-section (1), and the report, if any, of the
Commissioner received under sub-section (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 sub-section (1) or sub-section (3).
2
(6) Every order passed under sub-section (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.
(6A) Where any tax payable in pursuance of an
order under sub-section (4) is not paid by the
assessee within thirty-five days of the receipt
of a copy of the order by him, then, whether or
not the Settlement Commission has extended
the time for payment of such tax or has
allowed payment thereof by instalments, the
assessee shall be liable to pay simple interest
at fifteen per cent per annum on the amount
remaining unpaid from the date of expiry of
the period of thirty-five days aforesaid.
(7) Where a settlement becomes void as
provided under sub-section (6), the
proceedings with respect to the matters
covered by the settlement shall be deemed 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.
Power of Settlement Commission to reopen
completed proceedings.
245E. If the Settlement Commission is of the
2
opinion (the reasons for such opinion to be
recorded by it in writing) that, for the proper
disposal of the case pending before it, it is
necessary or expedient to reopen any
proceeding connected with the case but which
has been completed under this Act by any
income-tax authority before the application
under section 245C was made, it may, with the
concurrence of the applicant, reopen such
proceeding and pass such order thereon as it
thinks fit, as if the case in relation to which
the application for settlement had been made
by the applicant under that section covered
such proceeding also :
Powers and procedure of Settlement
Commission.
245F. (1) In addition to the powers conferred
on the Settlement Commission under this
Chapter, it shall have all the powers which are
vested in an income-tax authority under this
Act.
(2) Where an application made under section
245C has been allowed to be proceeded with
under section 245D, the Settlement Commission
shall, until an order is passed under sub-
section (4) of section 245D, have, subject to the
provisions of sub-section (3) of that section,
exclusive jurisdiction to exercise the powers
and perform the functions of an income-tax
authority under this Act in relation to the case
:
(3) Notwithstanding anything contained in
sub-section (2) and in the absence of any
express direction to the contrary by the
Settlement Commission, nothing contained in
this section shall affect the operation of any
other provision of this Act requiring the
applicant to pay tax on the basis of self-
2
assessment in relation to the matters before
the Settlement Commission.
(4) For the removal of doubt, it is hereby
declared that, in the absence of any express
direction by the Settlement Commission to the
contrary, nothing in this Chapter shall affect
the operation of the provisions of this Act in so
far as they relate to any matters other than
those before the Settlement Commission.
Order of settlement to be conclusive.
245-I. Every order of settlement passed under
sub-section (4) of section 245D shall be
conclusive as to the matters stated therein and
no matter covered by such order shall, save as
otherwise provided in this Chapter, be
reopened in any proceeding under this Act or
under any other law for the time being in force.
5. At this stage, it may be noted that section 245C stood
substituted by Finance Act, 2007, w.e.f. 1.6.2007. Prior to its
substitution, the proviso to section 245C(1), as substituted by
the Finance Act, 1987, w.e.f. 1.6.1987 and later on amended
by Finance Act, 1995, w.e.f. 1.7.1995, read as under:
"Provided that no such application shall be
made unless,--
(a) the assessee has furnished the return
of income which he is or was required to
furnish under any of the provisions of this Act;
and
(b) the additional amount of income tax
payable on the income disclosed in the
application exceeds one hundred thousand
rupees."
6. Section 245C(1) read with the proviso thereto, as
2
substituted by Finance Act, 2007 w.e.f. 1.6.2007, reads as
under:
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:
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 application
been declared in the return of
income before the Assessing Officer
on the date of application, has been
paid on or before the date of making
the application and the proof of
such payment is attached with the
application.
Analysis of the Act
2
7. Liability to pay advance tax arises under section 207.
The said section is based on the principle "pay as you earn". It
requires tax to be paid during the financial year. It has to be
in respect of the total income of the assessee which would be
chargeable to tax under the Act. The said total income is not
as understood in section 2(45) but it is equated to "current
income" for the purposes of Chapter XVII. After the Amending
Act of 1987, advance tax is to be paid on the current income
which would be chargeable to tax for the assessment year
immediately following the financial year. Section 210 casts
the responsibility of payment of advance tax on the assessee
without requiring the assessee to submit his estimate of
advance tax payable. Provision for payment of advance tax is
mode of quick collection of tax. Thus, section 207 defines
liability to pay advance tax in respect of incomes referred to in
section 208. However, advance tax paid is adjustable towards
the tax due. Advance tax is collected even before the income
tax becomes due and payable. By its very nature, advance tax
is pre-assessment collection of taxes either by deduction of tax
at source or by payment of advance tax which has to be
adjusted towards income tax levied on the total income. The
2
above two methods of realization even before any assessment
is authorized by section 4(2) are incorporated in Chapter XVII
which deals with "collection and recovery". In fact, section
190(1) clarifies that this method of payment of tax will not
prejudice the charge of tax under section 4(1) nor will it modify
the liability of the assessee to pay income tax pursuant to an
assessment order. [See Modi Industries Limited, Modinagar
and Others v. Commissioner of Income Tax, Delhi and
Another, 216 ITR 759 at 780] At one point of time, section
209(1)(a)(iii) (relating to computation of advance tax) provided
that the income tax calculated on the total income with
reference to which the demand for advance tax was made
should be reduced by the amount of income tax deductible in
accordance with sections 192 to 194, 194A and 195 on any
income included in the total income. The levy of interest
under section 215 is part of the process of assessment. If the
income tax liability on the first day of the assessment year is
larger than the amount of advance tax standing to the credit of
the assessee then interest will have to be paid under section
215 on 75% of the deficit amount of tax from the first day of
2
the assessment year to the date of computation of total income
vide assessment order. Interest under section 215 is
chargeable from the first day of April next following the
financial year wherein the advance tax was paid up to the date
of regular assessment, if no tax has been paid under section
140A or otherwise. However, section 215(2) provides that
where advance tax paid is less than 75% of the "assessed tax",
but the assessee has paid tax under section 140A or otherwise
before the date of completion of regular assessment then the
interest shall be limited to the interest on the shortfall between
the "assessed tax" and the advance tax paid for the period
from the first April next following the financial year up to date
of payment under section 140A plus interest on the shortfall
between "assessed tax" and "total tax paid" for the period from
the day following the date of such payment under section
140A up to the date of regular assessment. Coming to section
140A, as a result of the amendment of section 140A(1) by
Direct Tax Laws Amendment Act, 1987 w.e.f. 1.4.1989 and
vide Finance Act of 1999, the assessee is required to calculate
the tax payable on the basis of the return to be furnished
under section 139 or under section 142 or under section 148
2
after taking into account the amount of tax paid under the
Act; to calculate also interest payable under section 234A or
under section 234B/234C for any default or delay in payment
of advance tax; to pay such tax with interest before the
assessee furnishes his return. The Explanation to section
140A(1) inter alia provides that where the amount paid by the
assessee under section 140A(1) falls short of the aggregate of
the tax and interest thereon the amount so paid is first
adjusted towards interest payable and the balance, if any, is
adjusted towards the tax payable. Thus, amount(s) paid
under section 140A is deemed to have been paid towards
regular assessment.
8. The liability to pay income tax is founded on sections
4 and 5 which are the charging sections. Sections 143, 144
and 147 are machinery sections to determine the amount of
tax payable. Thus, whereas section 143(3) signifies
computation of income, section 147 signifies computation of
escaped income. As held in the case of C.A. Abraham v.
Income-Tax Officer, Kottayam and Another [(1961) 41 ITR
425 (SC)], the expression "assessment" in a given provision
3
must be determined on an examination of the relevant
provisions in question and the fact that it is used in the
narrower sense elsewhere will not mean that it is so used in
the provision under examination. The word can be used to
cover the whole procedure to ascertain the liability and the
machinery for enforcement. Prior to 1.6.1999, section
143(1A)(a) inter alia provided that where the total income as a
result of any adjustments made exceeded the total income
declared in the return by any amount then it was open to the
A.O. to increase the amount of tax payable under section
143(1) by additional income tax calculated at the specified
rate. In brief, section 143(1A) provided for the levy of
additional income tax of an amount equal to 20% of the tax
payable on the amount of difference between the total income
determined under section 143(1) and total income declared in
the return. Where the additional income tax was increased,
the A.O. had to serve a notice under section 156. Even under
section 143(1B), as it stood before 1.6.1999, where an
assessee furnished a revised return under section 139(5) after
service of intimation, the assessee was liable to pay additional
income tax in relation to adjustments made under section
3
143(1)(a) read with the proviso.
9. Now, Chapter XVII deals with "collection and
recovery". It covers Tax Deduction at Source and Advance
Payment of taxes (see section 190). Section C deals with
advance payment of taxes. Section 207 refers to liability to
pay advance tax whereas section 209 deals with computation
of advance tax. Section 215 refers to interest payable by the
assessee. Section 210(1) inter alia provides that every person
who is liable to pay interest under Section 208, shall of his
own accord pay, on each of the due dates specified in section
211, the appropriate percentage of advance tax on his current
income calculated in the manner under section 209. Under
section 209(1)(a), the amount of advance tax payable by the
assessee in any financial year is as follows:
(a) where calculation is made by the assessee for the
purposes of payment of advance tax under section 209(1), he
shall first estimate his current income and the tax shall be
computed at the rates in force in the financial year. Thus,
liability and computation of advance tax is done under section
C of Chapter XVII. On the other hand, interest for defaults in
payment of advance tax falls under section 234B, apart from
3
sections 234A and 234C, in section F of Chapter XVII. Thus,
levy of interest is incidental to the liability and computation of
advance tax. It is interesting to note that section 234A(4) in
turn refers to the increase or reduction of interest subsequent
to the Order of the Commission under section 245D(4)
increasing or reducing the amount of tax payable and so also
section 234B(4). Under section 234B, where in any financial
year an assessee who is liable to pay advance tax under
section 208 fails to pay such tax or where the advance tax
paid under section 210 is less than 90% of the assessed tax
the assessee shall pay interest from the first day of April next
following such financial year to the date of determination of
total income under section 143(1) or to the date of regular
assessment on the amount equal to the assessed tax which
has been defined in Explanation 1 to mean tax on the total
income as determined under section 143(1) as reduced by the
amount of tax deducted at source in accordance with Chapter
XVII on income which is subject to deduction and which is
taken into account in computing total income. By Explanation
3, it is clarified that for default of short payment interest will
be charged on the difference between "assessed tax" (as
3
defined) and the advance tax paid by the assessee and that for
the above purpose "additional income tax" if any payable
under section 143 is not to be taken into account. However,
section 234B(2) covers a situation where, before the date of
determination of total income under section 143(1) or
completion of regular assessment, tax is paid by the assessee
under section 140A or otherwise, interest shall be calculated
under section 234B(1) up to the date on which tax was so paid
and reduced by the interest, if any, paid under section 140A
towards interest chargeable under section 234B.
10. Coming to Chapter XIX-A which deals with Settlement
of Cases, it may be stated that the word "case" is defined
under section 245A(b). It is an exhaustive definition. The
definition makes it clear that an application for Settlement
shall lie only when any proceedings for assessment or re-
assessment is pending or an appeal or revision in connection
with such assessment or re-assessment is pending before the
Income Tax Authority. Under section 245C(1), such
application for settlement will not be maintainable without full
and true disclosure of the income by the applicant, the
manner in which such undisclosed income was derived and
3
that the applicant had furnished his return of income and that
the additional tax payable on such income exceeds the
specified amount. This was the position prior to Finance Act
of 2007. However, section 245C(1A) inter alia provides that
additional amount of income tax payable in respect of the
income disclosed shall be calculated in accordance with the
provisions of section 245C(1B). Under sub-section (1B) if the
applicant has furnished his return in respect of his total
income and no assessment is made, the tax shall be calculated
on the aggregate of the total income returned and the income
disclosed in the application as if such aggregate was the total
income. The words "regular assessment" are not there in
section 245C(1B)(ii). However, under section 245C(1C)(b), it is
provided that the additional tax calculated under section
245C(1B)(ii) shall be reduced by the aggregate of the tax
deducted at source or tax paid in advance and the amount of
tax paid under section 140A. The resultant amount is the
additional tax payable by the assessee. Thus, section 245C
incorporates within it the provisions of Chapters XVIIB, XVIIC
and section 140A of the Act. It may be noted that section
245C(1B)(iii), as it stood before 1.6.1987, required income tax
3
to be calculated on the aggregate of the total income as
assessed plus the income disclosed in the application as if
such aggregate was the total income. But after 1.6.1987, the
tax is required to be worked out on the returned total income
plus the income disclosed in the application as if the aggregate
is the total income. Under section 245D(2A) the applicant is
required to pay the additional amount of income tax payable
on the income disclosed in the application within 35 days of
the receipt of the copy of the order passed by the Settlement
Commission under section 245D(1) allowing such application
to be proceeded with. Under section 245D(2A) the applicant
shall, within 35 days of the receipt of the order under section
245D(1) allowing the application to be proceeded with, pay the
additional amount of income tax payable on the income
disclosed. Under section 245D(4) on compliance of sections
245D(2A) and (2C) and on examination of relevant records and
reports, the Settlement Commission may pass such orders as
it thinks fit on the matters covered by the application and any
other matter relating to the "case" referred to in the report of
the Commissioner of Income Tax. If one carefully analyses the
provisions of sections 245D(1) and 245D(4), one finds two
3
distinct stages - one allowing the application to be proceeded
with (or rejected) and the other of disposal of the application
by appropriate orders being passed by the Settlement
Commission. In between the two stages, we have provisions
which require the applicant to pay the additional income tax
and interest. Even under section 245D(7) it is provided that
where the settlement becomes void under section 245D(6) the
proceedings with respect to the matters covered by the
settlement shall be deemed to have revived from the stage at
which the application was allowed to be proceeded with by the
Settlement Commission and the income tax authority may
complete the proceedings within the period mentioned therein.
Thus, section 245D(7) brings out the difference between
section 245D(1) stage and section 245D(4) stage. Under
section 245D(6), it is laid down that every order under section
245D(4) shall provide for the Terms of Settlement including
any demand by way of tax, penalty or interest. In the case of
C.I.T. v. Damani Brothers reported in 259 ITR 475, a 3-
Judge Bench of this Court, while analyzing the scheme of
Chapter XIX-A, has held that section 234B, section 245D(2C)
and section 245D(6A) operate in different fields. Section 234B
3
comes into operation when there is default in payment of
advance tax whereas liability to pay interest under section
245D(2C) arises when the additional amount of income tax is
not paid within time specified under section 245D(2A). Section
245D(6A), on the other hand, imposes liability to pay interest
only when the tax payable in pursuance of an order of
Settlement Commission under section 245D(4) is not made
within the specified time. Consequently, section 234B, section
245D(2C) and section 245D(6A) in Chapter XIX-A operate in
different fields. To this extent, we agree with the view
expressed in Damani Brothers case (supra). Descriptively, it
can be stated that assessment in law is different from
assessment by way of settlement. If one reads section 245D(6)
with section 245I, it becomes clear that every order of
settlement passed under section 245D(4) shall be final and
conclusive as to the matters contained therein and that the
same shall not be re-opened except in the case of fraud and
misrepresentation. Under section 245F(1), in addition to the
powers conferred on the Settlement Commission under
Chapter XIX-A, it shall also have all the powers which are
vested in the income tax authority under the Act. In this
3
connection, however, we need to keep in mind the difference
between "procedure for assessment" under Chapter XIV and
"procedure for settlement" under Chapter XIX-A (see section
245D). Under section 245F(4), it is clarified that nothing in
Chapter XIX-A shall affect the operation of any other provision
of the Act requiring the applicant to pay tax on the basis of
self-assessment in relation to matters before the Settlement
Commission. The point to be noted on the basis of the above
analysis is that several provisions of the Act like section 140A;
furnishing of the return of income by the applicant as
indicated in the proviso (a) to section 245C(1); provisions of
the Act governing liability and computation to pay additional
income tax as indicated by proviso (b) to section 245C(1);
aggregation of total income inter alia in terms of sections 143,
144 or 147 as indicated by section 245C(1B)(iii); aggregation of
total income as returned plus income disclosed in the
application for settlement as indicated in section 245C(1B)(ii);
the deductions in section 245C(1C); increase of interest under
section 215(3) pursuant to the orders of the Settlement
Commission and the levy of interest under sections 234A(4)
and 234B(4) all bring into Chapter XIX-A various provisions of
3
the Act. Thus, when we read the provisions of Sections 245C
and 245D one has to keep in mind various above provisions of
the Act and the concepts of self-assessment, assessment,
regular assessment and computation of total income which
have been engrafted in Chapter XIX-A.
(I) Whether Sections 234A, 234B and 234C are
applicable to Chapter XIX-A proceedings?
11. Our detailed analysis shows that though Chapter XIX-
A is a self-contained Code, the procedure to be followed by the
Settlement Commission under sections 245C and 245D in the
matter of computation of undisclosed income; in the matter of
computation of additional income tax payable on such income
with 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 inbuilt mechanism of
computing total income which is nothing but assessment
(computation of total income). To elaborate, under section
4
245C(1B), 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 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 in
terms 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
4
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)?
12. In our view the answer to the above question lies in
the provisions of the proviso to Sections 245C(1), 245C(1B)
and 245C(1C), 245D(4) and 245F(3) which bring in the
concepts of returned income, self-assessment, aggregation of
income returned and income disclosed as if it is total income;
levy of interest under section 215(3) read with section 245D(4);
increase of interest under sections 234A(4) and 234B(4) read
with section 245D(4) as also sections 140A(1A) and (1B) read
with sections 234A and 234B. For example, section 140A
deals with self-assessment which is different from regular
assessment. Under section 140A(1) where tax is payable on
the basis of any return furnished by the assessee [see proviso
(a) to section 245C(1)], after taking into account tax paid, the
assessee shall be liable to pay such tax with interest payable
4
for default under section 234B in payment of advance tax
before furnishing the return. This position is clarified by
sections 140A(1A) and (1B) under which inter alia interest
payable for default in payment of advance tax under section
234A shall be computed on the amount of tax on the total
income as declared in the return minus the advance tax paid.
Similarly, it is clarified vide sub-section (1B) to section 140A
that interest payable under section 234B for default in
payment of advance tax shall be computed on an amount
equal to the assessed tax [same words are used in section
234B(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 140A 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). Now, section 245C(1) is voluntary disclosure by the
assessee of his undisclosed income. Under section 245C(1),
the assessee has to mention in his settlement application the
additional amount of tax payable by him on such undisclosed
4
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 245C(1) show that Chapter XIX-A, which
prescribes a special procedure for assessment by settlement,
contemplates a pre-assessment collection of tax. With the
filing of the settlement application and after such application
is allowed to be proceeded with under section 245D(1),
intimation under section 143(1), regular assessment under
sections 143(3)/144 and re-assessment under section 147 lose
their existence as under sections 245C(1A) and (1B) it is only
the income disclosed in the return of income before the A.O.
alone which survives for consideration by the Settlement
Commission for settling the amount of income which is not
disclosed in the return. Under section 245C(1B)(ii), if the
applicant has furnished a return in respect of the total
income, whether or not assessment is made in pursuance of
the return, the additional amount of income tax payable in
respect of the total income disclosed shall be on the aggregate
4
of the total income returned and the income disclosed in his
application for settlement as if such aggregate was his total
income. This is pre-assessment collection of tax. Such pre-
assessment is based on the estimation of the current income
and tax thereon by the applicant himself. Now, when the
Settlement Commission accepts the Voluntary Disclosure vide
the application for settlement, section 234B(2) steps in. It is
important to remember that the assessee is liable to pay
advance tax, he commits default in payment to the extent of
the undisclosed income but he offers to pay additional income
tax then interest has to be calculated in accordance with
sections 207, 208 and 234B(2) up to the date on which such
tax is paid. This is not the interest which assessee has to pay
after assessment under section 245D(4). Under sections
245C(1B) and (1C) the additional amount of income tax
payable on the undisclosed income shall be on the total
income as calculated under section 245C(1B). On
computation of total income under sections 245C(1B) and
(1C), interest follows such computation. It is important to
note that interest follows computation of total income. Once
such computation takes place under section 245C(1B) then
4
section 234B(2) applies. The said sub-section deals with the
situation where before determination of total income under
section 143(1) or 143(3) tax is paid under section 140A or
otherwise interest shall be calculated in accordance with
section 234B(1) up to the date on which tax is so paid. In that
sense an application under section 245C(1) is a return.
Section 245C(1) deals with computation of total income. There
is one more way of looking at the Act. Chapter XIX-A refers to
procedure of settlement (see section 245D(1)). As stated
above, section 245D(1) provides for expeditious recovery of tax
by way of pre-assessment collection. Interest on default in
payment of advance tax comes under sections 234A, 234B,
234C, 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 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
4
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.
13. The question is - what happens in cases where 90% of
the assessed tax is paid but on the basis of the Commission's
order under section 245D(4) the advance tax paid turns out to
be less than 90% of the assessed tax as defined in the
Explanation to Section 234B(1)?
14. As held hereinabove, under section 245C(1) read with
section 245C(1B)(ii) and section 245C(1C)(b), the additional
amount of income tax payable is to be calculated on the
aggregate of total income returned and the income disclosed in
the settlement application as if such aggregate is the total
income. Thus, the scheme of the said sections is based on
computation of total income and in that sense we have stated
4
that such application for settlement is akin to a return of
income. The said provision deals with "total income". Thus,
as stated above, sections 234A, B and C are applicable up to
the stage of section 245D(1) order passed by the Settlement
Commission. However, Parliament has not extended the
provisions and the liability to pay interest beyond the date of
application for settlement. This is the position even after
Finance Act of 2007. Once this position is taken, section 140A
is attracted. When an assessee has paid interest under
sections 234A, B and C in self-assessment under section
140A, which is similar to the scheme of section 245C(1), and
once the Settlement Commission admits the application for
settlement, one finds that even under section 140A(1B)
interest payable under section 234B has to be computed on an
amount equal to the assessed tax as defined in the
Explanation to mean tax on the total income as declared in the
return. Under sub-section (1B) to Section 140A interest
payable under section 234B can also be computed on an
amount by which the advance tax paid falls short of the
assessed tax as defined in the Explanation thereto. Thus,
there is no provision under Chapter XIX-A or even under
4
section 140A (dealing with self-assessment) to charge interest
beyond the date of application for settlement after the same is
admitted by the Commission under Section 245D(1).
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 245D(4) is not an
order of regular assessment. It is neither an order under
section 143(1) or 143(3) or 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 the A.O.
under sections 142 and 143 and making of the order of
assessment by the A.O. 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
4
143(1), 143(3) and 144 is different from the orders of the
Settlement Commission under section 245D(4). Even in
Commissioner of Income Tax v. Anjum M.H. Ghaswala and
others [252 ITR 1] there is no finding by this Court that the
order of Settlement Commission under section 245D(4) is an
order of assessment under section 143(3) or under section
144. In Ghaswala's case the only question decided by this
Court is that the interest under section 234B is mandatory in
nature and that Settlement Commission, therefore, had no
authority to waive it. Further, as stated above, the jurisdiction
of the A.O. is not fettered merely because the applicant has
filed the Settlement Application. The Act does not contemplate
stay of the proceedings during that period, i.e., when the
Settlement Commission is deciding whether to proceed or
reject the settlement application. The jurisdiction of the
Settlement Commission to proceed commences only after an
order is passed under section 245D(1). That, after making an
application for settlement the applicant is not allowed to
withdraw it [see section 245C(3)]. Once the case stands
admitted, the Settlement Commission shall have exclusive
5
jurisdiction to exercise the powers of the Income Tax
Authority. The order of Settlement Commission under section
245D(4) shall be final and conclusive under section 245I
subject to two qualifications under which it can be recalled,
viz., fraud and misrepresentation but even here it is important
to note that under section 245D(7) where the settlement
becomes void on account of fraud and misrepresentation the
proceedings with respect to the matters covered by the
settlement shall be deemed to have been revived from the
stage at which the application was allowed to be proceeded
with by the Settlement Commission. This further supports
our view that 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. Lastly, the
expression "interest" in section 245(6A) fastens the liability to
pay interest only when the tax payable in pursuance of an
order under section 245D(4) is not paid within the specified
time and which levy is different from liability to pay interest
5
under section 234B or under section 245D(2C). [See Damani
Brothers (supra) at page 485]
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?
15. As stated, 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. As stated
above, under the Act, procedure for assessment falls in
Chapter XIV (in which section 154 falls) which is different from
procedure for settlement in Chapter XIX-A in which sections
245C and 245D fall. Provision for levy of interest for default in
payment of advance tax under section 234B falls in Chapter
XVII [Section F] which deals with collection and recovery of tax
which as stated above is incidental to the liability to pay
advance tax under section 207 (which is also in Chapter XVII)
and to the computation of total income in the manner
5
indicated under Chapter XIX-A vide sections 245C(1B) and
245C(1C) read with the provisos to section 245C(1) on the
additional income tax payable on the undisclosed income.
Further, if one examines the provisions of sections 245C(1B)
and 245C(1C), one finds that various situations are taken into
account while computing the additional amount of tax
payable, viz., if the applicant has not filed his returns, if he
has filed but orders of assessment are not passed or if the
proceedings are pending for re-assessment under section 147
(again in Chapter XIV) or by way of appeal or revision in
connection with such re-assessment and the applicant has not
furnished his return of total income in which case tax has to
be calculated on the aggregate of total income as assessed in
the earlier proceedings for assessment under section 143 or
under section 144 or under section 147 [see section
245C(1B)]. The point to be noted is that in computation of
additional income tax payable by the assessee, there is no
mention of section 154. On the contrary, 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
5
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. Lastly, one
must keep in mind the difference between review/ recall of the
order and rectification under section 154. The Schedule of
Chapter XIX-A does not contemplate invocation of section 154
otherwise there would be no finality to the assessment by
settlement which is different from assessment under Chapter
XIV where there is an appeal, revision, etc. Settlement of
liability and not determination of liability is the object of
Chapter XIX-A. Even otherwise, invocation of section 154 on
facts of this batch of cases is not justified. In this batch of
cases, the situation which prevailed when the Settlement
Commission waived or reduced interest chargeable under
sections 234A and 234B was that a debate was on as to
whether the Settlement Commission has the power to reduce
or waive interest. It is only after Ghaswala's case that the law
5
got settled that the nature and the character of the interest
was compensatory and mandatory and that the Commission
had no such power. But even in Ghaswala, the question as to
whether such interest under section 234B should run up to
the order under section 245D(1) or up to the date of the order
under section 234D(4) was not decided. In fact, that was the
reason for the Orders of Reference to the Constitution Bench
of this Court vide orders dated 14.12.2004 and 20.1.2005.
There is one more reason for this Reference. In the case of
CIT v. Hindustan Bulk Carrier [(2003) 259 ITR 449], a 3-
Judge Bench of this Court, by majority, held that where, upon
the Order of the Settlement Commission under section
245D(4), there arises a deficit in the payment of advance tax
under section 208, the end point or the terminus of the period
for which interest has to be paid under section 234B on the
deficit is the date on which the Settlement Commission passes
the order under section 245D(4). This decision was delivered
on 17.12.2002 after the judgment of this Court in Ghaswala
(supra). On the same day, the same Bench in the case of
Damani Brothers (supra) held that interest charged under
5
section 234B becomes payable on the income disclosed in the
return and the income disclosed before the Settlement
Commission; that, such interest is chargeable till the
Commission acts in terms of section 245D(1) and that after
the Settlement Commission allows the application for
settlement to be proceeded with there will be no further charge
of interest under section 234B. Thus, even on the question of
terminus there was lot of controversy and in the
circumstances, we are of the view that invocation of section
154 (held to be inapplicable to Chapter XIX-A proceedings)
cannot be justified.
Conclusions :
16. (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
5
as to levy interest under section 234B, particularly, in view of
section 245I.
17. Accordingly, Reference to the Constitution Bench vide
orders dated 14.12.2004 and 20.1.2005 stands duly answered
and the matters are accordingly disposed of.
.................................CJI
(S. H. Kapadia)
...................................J.
(B. Sudershan Reddy)
...................................J.
(K.S. Radhakrishnan) ...................................J.
(Surinder Singh Nijjar) ...................................J.
(Swatanter Kumar)
New Delhi;
October 21, 2010.
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