VERY IMPORTANT POINT
The Settlement Commission constituted under Section 245-B of the Income Tax Act, 1961, in exercise of its powers under Sections 245(4) and (6) does not have the power to reduce or waive interest statutorily payable under Sections 234A, 234B and 234C, except to the extent of granting relief under the circulars issued by the Central Board of Direct Taxes under Section 119 of the Act.

Headnote:Income Tax Act, 1961-Chapter XIX-A-Sections 234A, 234B, 234C, r/w 245B and 245D, 245H, 245I, 2(43), 119 and 245(4) and 16-Whether the Settlement Commission constituted under Section 245-B of the Income Tax Act, 1961 has the jurisdiction to reduce or waive the interest chargeable under Sections 245-A, 245-B and 245-C of the Act, while passing orders of settlement under Section 245-D(4) of the Act? (No, except to the extent of granting relief under the circulars issued by the Control Board of Direct Taxes under Section 119 of the Act)-All matters be placed before a DB for disposal in accordance with law-Order accordingly.
       Held : It is an admitted position that by its plain language sub-section (4) of Section 245D does not empower the Commission to waive or reduce statutory interest payable under the provisions of Section 234A, 234B or 234C. The moot question, therefore, for our consideration is: does sub-section (6) which contemplates providing for the terms of settlement of tax, penalty or interest empowers the Commission, in any manner, either to waive or reduce interest payable under Section 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 sub-section (4) of the Act? (Paras 14 & 15)
       In our opinion, sub-section (6) of Section 245D is only procedural in nature. It provides for fixing the terms by which the amount settled in sub-section (4) will have to be paid. It is not a Section which empowers the Commission either to waive or reduce the interest. A proper reading of sub-section (6) would show that all that it contemplates is that while the Commission makes an order of settlement under sub-section (4) it will also have to provide for the terms under which the amount payable by way of tax, penalty or interest shall be paid by the assessee. The expression "terms" used in that sub-section does not refer to the power of the Commission to waive or reduce tax, penalty or interest because quantification of amount payable under each of those expressions are 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, sub-section (6) does not authorise the waiver or reduction of tax, penalty or interest settled under sub-section (4) of Section 245D. (Para 23)
       Held further : In our opinion, this observation in the Express Newspapers case (supra) does not help the Commission in support of its conclusion in regard to its power under Sections 245D(4) and (6). (Para 25)
       Nextly, 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 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 rigor 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(d) 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 the Parliament whereas the Commission constituted under Section 245B of the Act is a quasi-judicial body (see Sec. 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 the Parliament. Its orders 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. (Para 26)
       Held also : It is no doubt true that the terminology settlement has a very wide dictionary meaning and in the absence of a statutory definition generally the word settlement in sub-section (4) of Section 245D would give the Commission sufficient power to arrive at a settlement which it deems fit but when the statute qualifies such expression like settlement with mandatory words like in accordance with the provisions of the Act the width of the term settlement becomes subject to the mandate found in that Section, which would mean that while a Commission has sufficient elbow-room in assessing the income of the applicant under Section 245D(4) it cannot make any order with a term of the settlement which would be in conflict with the mandatory provisions of the Section like in the quantum and payment of tax and/ or interest. In this view of the matter, we are of the opinion that assuming that there is any room for interpretation of the provisions of Part F of Chapter XVII and Chapter XIX-A, we would hold that it would not in any manner empower the Commission to either waive or reduce interest which is statutorily payable under the provisions of Part F of Chapter XVII. (Para 30)
       Held later : Learned Solicitor General has pointed out that by virtue of the power vested in the Board under Section 119(2)(a) of the Act, the Board has issued Circulars by Notification No. F. No.400/234/95-IT(B) dated 23.5.1996. As per this Circular, it has empowered that the Chief Commissioner of Income Tax and Director General of Income-Tax may waive or reduce interest charged under Sections 234A, 234B and 234C of the Act in the class of cases or class of incomes specified in paragraph 2 of the said order for the period and on conditions which are enumerated therein. He submitted that in view of the said Circular, the same authority can be exercised by the Commission since the said Circular would amount to relaxation of the rigor of Sections 234A, 234B and 234C of the Act. We are in unison with this submission of the learned Solicitor General. This Court in a catena of cases has held that the Circulars of the Central Board of Direct Taxes are legally binding on the Revenue. See UCO Bank v. Commissioner of Income Tax (1999) [237 ITR 889]. Since these Circulars are beneficial to the assessees, such benefit can be conferred also on the assessees who have approached the Settlement Commission under Section 245C of the Act on such terms and conditions as contained in the Circular. In our opinion, it is for this purpose that Section 245F of the Act has empowered the Settlement Commission to exercise the power of an income-tax authority under the Act. We must clarify here that while exercising the power derived under the Circulars of the Board, the Commission does not act as a subordinate to the Board but will be enforcing the relaxed provisions of the Circulars for the benefit of the assessee in the process of settlement. (Para 34)
       Held consequently : For the reasons stated above, we hold that the Commission in exercise of its power under Sections 245(4) and (6) does not have the power to reduce or waive interest statutorily payable under Sections 234A, 234B and 234C except to the extent of granting relief under the Circulars issued by the Board under Section 119 of the Act. (Para 35)
       But held by clarification : In conclusion, we must note that we have taken up for consideration Civil Appeal Nos. 4126-50/2000 and have decided the issue pertaining to the power of the Commission to waive or reduce the interest chargeable under Sections 234A, 234B and 234C of the Act while passing orders of settlement under Section 245D(4) of the Act. We have not decided any other issue that might arise in all the appeals/petitions. (Para 36)
       Held finally : Having decided the abovesaid question of law, we think it proper that all these matters be placed before a Division Bench of this Court for disposal in accordance with law. It is ordered accordingly. No costs. (Paras 37 & 38)

JUDGMENT

Santosh Hegde, J.-CA Nos. 4126-50/2000:

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 the 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?

2. Earlier, this question arose before the Commission in the case of Ashwani Kumar Aggarwal, In re: (195 ITR 861) wherein a 5-Member Special Bench of the Commission held that under Section 245D(4) or sub-section (6), the Commission does not have the power either to waive or reduce the statutory interest payable under the Act.

3. This view of the 5-Member Bench of the Commission was overruled by a larger Bench comprising of/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 Section 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 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 wordings of Section 245D(6) of the Act.

4. 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 rigors of Section 234A, 234B and 234C of the Act.

5. 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 Commission s power to settle the case.

6. 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.

7. The constitution of the Commission and its powers are traceable to the provisions of Chapter XIX-A of the Act. As noted above, Section 245-B 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 constitution 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 .

8. Section 245-C 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 was 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.

9. The word case has been defined under Section 245A(b) thus:

"case" means any proceeding under this Act for the assessment or reassessment of any person in respect of any year of years, or by way of appeal or revision in connection with such assessment or

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2001 Supreme(SC) 1475

Cases Referred (2)