2002 Supreme(SC) 1011

Supreme Court of India
(From Settlement Commission (Special Bench), Bombay)
M.B. Shah, Arijit Pasayat & D.M. Dharmadhikari, JJ.
Commissioner of Income Tax —Appellant
versus
M/s. Hindustan Bulk Carriers —Respondent
Civil Appeal Nos. 7966-67 of 1996
With
Commissioner of Income Tax, Mumbai —Appellant
versus
M/s. Damani Brothers —Respondent
Civil Appeal No. 7248 of 1999
Both decided on 17-12-2002

Important point
The interest chargeable in terms of Section 245D of Income Tax Act, 1961 is a separate levy and not in terms of interest chargeable under Sections 234A, A, B and C of the Act. Therefore, the apprehension that there is scope for charging of interest on interest is without any basis.

Headnote:(i) Income Tax Act, 1961—Sections 234B and 245D—Period for which interest in terms of Section 243B can be levied when the Settlement Commission passes an order under Section 245D—Appeals 7966-67 of 1996 disposed of by separate but concurring judgments.

       Held : Per Arijit Pasayat, J. :

       A question of seminal importance relating to the period for which interest in terms of Section 234B of the Income Tax Act, 1961 (in short the Act ) can be levied when the Settlement Commission (in short the Commission ) passes an order under Section 245 D of the Act, is the subject matter of adjudication in these appeals. (Para 1)

       Held after discussion : To sum up, the inevitable conclusion is that interest has to be charged for the period beginning from the first day of April next following the ­relevant financial year up to the date of ­Commission s order at the rate applicable, on interest chargeable under Section 234B, when an order under Section 245(D)(4) is passed, ­followed by quantification under ­Section 245(D)(6). The appeals are allowed to the extent indicated above. (Paras 27 and 28)

       Held Per Shah, J. (Concurring with Pasayat, J.) :

       I have gone through the judgments rendered by brother Pasayat, J. and brother Dharmadhikari, J. I agree with the views expressed in those judgments. However, for clarifying the position with regard to payment of interest I would like to add as under. (Para 29)

       The question which arises is whether the assessee is required to pay any interest on the amount of tax on the income disclosed before the Settlement Commission as contemplated under Sections 234A, 234B and 234C? That question is concluded by a decision rendered by the Constitution Bench of this Court in Commissioner of Income Tax, Mumbai v. Anjum Ghaswala [(2002) 1 SCC 633] where it was held that the interest contemplated under Sections 234A, 234B and 234C is mandatory in nature and the power of waiver or reduction having not been expressly conferred on the Commission, waiver or reduction in payment of statutory interest is outside the purview of the settlement, contemplated in Chapter XIX-A of the Act. Therefore, the assessee is required to pay interest at the prescribed rate from the date when the amount became due and payable on the undisclosed income which is disclosed before the Settlement Commission, till the date of the order of entertaining such application, passed by the Settlement Commission under Section 245C. He is given 35 days time for making such payment under sub-section (2A) of Section 245D. Under Section 245H, Settlement Commission has jurisdiction to grant immunity from prosecution and penalty if the Settlement Commission is satisfied that the assessee has co-operated with it in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived. The immunity from prosecution is for any offence under the Income Tax Act or under the Indian Penal Code or under any Central Act. However, no such immunity can be granted if the prosecution is already instituted before the date of the receipt of the application under Section 245C. It also empowers the Commission to reduce the penalty as provided under the Act wholly or partly with respect to the case covered by the settlement. From this Section it can be easily inferred that the Commission has no power (a) to waive tax statutorily payable under the Act, or (b) to reduce the interest on the tax payable on the income disclosed. Therefore, it cannot be contended that the assessee would be required to pay interest on the tax payable on the income disclosed by him only from the date when he files an application under Section 245C. He has to pay the tax amount on the disclosed income and also the interest payable on the said tax. Further, when once the order under Section 245D is passed by the Settlement Commission to proceed with the application, he is required to pay the said amount i.e. the tax on the income subsequently disclosed and the interest payable thereon, within a period of 35 days. If that amount is not paid the Commission may extend the period of payment with a specific condition that he shall pay the same interest thereon. It is true that to that extent he would be required to pay interest on interest but the scheme of Section 245D contemplates that he has to pay tax on the disclosed income and as the Commission has no power to waive interest on the said tax, he is also required to pay the tax with interest. That means under sub-section (2A) to Section 245D the assessee would be required to pay the income tax payable on the disclosed income plus the interest payable thereon as contemplated under Sections 234A, 234B or 234C. The next step is if the Commission gives further time to pay the said amount whether assessee is required to pay interest as contemplated under sub-section (2C) of Section 245D? For simplification it can be stated that once the amount is crystallized i.e. X is the tax payable on the disclosed income and Y is the interest payable thereon, on aggregate of this amount (i.e. X+Y), if the time for payment is extended by the Settlement Commission, the assessee is also required to pay the interest on the amount of X+Y . That is the scheme of sub-section (2C) of Section 245D. It specifically provides that where the additional amount of income tax is not paid within the time specified under sub-section (2A) then on the amount which remains unpaid "the assessee shall be liable to pay simple interest at the rate of 15 per annum on the amount remaining unpaid from the date of expiry of the period of 35 days referred to in sub-section (2A)". It is also to be noted that under sub-section (2D) where the additional amount of income tax referred to in sub-section (2A) is not paid by the assessee within the time specified under that sub-section or the time to pay is extended under sub-section (2B) the Settlement Commission is empowered to direct recovery of the said amount with interest payable thereon under sub-section (2C) and penalty for default in making payment of such additional amount in accordance with the provisions of Chapter XVII, by the assessing officer having jurisdiction over the assessee. The aforesaid scheme of Section 245D leaves no doubt that the assessee would be required to pay the amount with interest thereon. The amount at that stage would be the tax plus interest. In such cases, there is no question of paying interest on interest because the interest which the assessee is required to pay under Sections 234A, 234B or 234C merges with the amount as provided under sub-section (2A). (Paras 34, 35, 36 and 37)

       Held Per Dharmadhikari, J. (also concurring with Pasayat, J.)

       I am in respectful agreement with the reasoning and conclusion recorded by Brother Pasayat J. in his opinion prepared by him in these appeals I, however, consider it necessary to supplement his reasons for the conclusion reached by us. Since in these appeals common questions on interpretation and extent of application of the provisions of Chapter XIX A of the Income Tax Act (for short the IT Act) 1961, are involved, I propose to discuss the questions involved by this common judgment. (Para 38)

       Held after discussion : In conclusion, two main questions formulated by me are answered thus :-

       The first question formulated is what is the efficacy of the regular assessment proceedings which took place before and after the admission of the case by the Settlement Commission for settlement under Chapter XIX A of IT Act.

       The answer is that it is only after a formal order of allowing or admitting the application for consideration of settlement is recorded by the Settlement Commission that all earlier assessment proceedings and recovery proceedings, if any, issued pursuant thereto, would become subject to the order of the Settlement Commission which will exercise all powers conferred on the income-tax authority under the IT Act.

       The second question is what would be the extent of liability towards payment of interest on the tax as determined and found due in a case settled by the Settlement Commission in various situations contemplated in the IT Act like non-payment of tax or delayed payment of tax in the course of regular assessment.

       As has been settled by five Judges Bench in the case of Anjum Ghaswala (supra), the Settlement Commission has no power to waive interest on the tax determined and found due while considering the case under Chapter XIX A in various statutory eventualities as delineated in the impugned ­orders of the Special Bench of the Settlement Commission. The interest on the "aggregate income" based on earlier disclosed and subsequently disclosed income, is to be determined by the Settlement Commission and on the tax found due on such income, interest will be charged in accordance with the provisions applicable in the regular assessment proceedings. The starting point of charging interest would be the due date of payment of advance tax or tax assessed and demanded as applicable to regular assessment proceedings and the end point the date of the order of the Settlement Commission. The tax and interest already paid, if any, on the basis of regular assessment would be adjusted from the quantum of interest and tax found due and as determined by the Settlement Commission. It is clear that the provisions do not ­allow charging of any interest on interest found due.

       With the aforesaid additional reasons, I respectfully concur with the opinion expressed by Pasayat J. The questions are answered accordingly. The appeals are disposed of accordingly. (Paras 59, 60 and 61)

       (ii) Income Tax Act, 1961—Sections 153(3), 220(2), (2A), 234B, 245D—Whether the Settlement Commission gets a complete role in total substitution of other authorities under the Income Tax Act, 1961, and if so, for what purpose and to what extent? (See paras 9 and 10) would it be correct to say that once the Settlement Commission determines a liability of the applicant for tax, penalty and interest under Section 245D(4), the orders of the lower authorities would automatically stand set aside and consequently there will be no liability under Section 220(2) of the Act? (No) (See para 11)—Has the Settlement Commission Power to reduce or waive interest under Section 220(2) of the Act? (Yes) (See para 12)—Whether the apprehension that there is scope for charging of interest on interest is correct? (No) (see para 14)—Result—Appeal 7248 of 1999 allowed to the extent indicated by a common judgment.