Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2010 Supreme(SC) 1005

Supreme Court of India
THE HONOURABLE CHIEF JUSTICE MR. S.H. KAPADIA, THE HONOURABLE MR. JUSTICE B. SUDERSHAN REDDY, THE HONOURABLE MR. JUSTICE K.S. RADHAKRISHNAN, THE HONOURABLE MR. JUSTICE SURINDER SINGH NIJJAR & THE HONOURABLE MR. JUSTICE SWATANTER KUMAR
Brij Lal & Others
Versus
Commissioner of Income Tax, Jalandhar
CIVIL APPEAL Nos. 516-527 OF 2004 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
Decided On : 21-10-2010

Advocates Appeared: Appearing Parties:Gopal Subramanium, SG, C.S. Aggarwal, Porus F. Kaka, R.P. Bhat, O.S. Bajpai, Sr. Advocates, Rajiv K. Garg, Vivek Verma, Ashish Garg, Vineet Garg, A.D.N. Rao, Preetesh Kapur, G.S. Pikale, E.C. Agarwala, Mahesh Agarwal, Rishi Agrawala, Amit Kumar Sharma, Ms Rohma Hameed, Rajeev Tyagi, Vijay Verma, Chanchal Biswal, Ms. Asha Gopalan Nair, Balaji Subramanium, Aman Ahuliwalia, B.V. Balaram Das, Subramoium Prasad, Ajay Majithia, Manish Kanth, Rajesh Kumar, Dr. Kailash Chand, Chirag M. Shroff, Dattatray Vyas, Ajay Vohra, Kavita Jha, Amit Sachdeva, Prem Malhotra, Ms. Rachna Gupta, C.S. Jain, Y. Raja Gopala Rao, Krishna, V.N. Jha, V.N. Raghupathy, Ajay Jain, Rajiv Tyagi, R.K. Raghavan, Chanchal Biswal, Manjit Singh, Kamal Mohan Gupta, Santosh Aggarwal, Bhargava V. Desai, Rahul Gupta, Nikhil Sharma, Vivek Verma, Ms. Pallavi Mohan, Pankaj Jain, Abhay Jain, Rakesh Jain, Manish Kr. Choudhary, Namita Chaudhary, S.K. Verma, Mohit Chaudhary, Ashok Kulkarni, Ms. Puja Sharma, A. Das, Rituraj Chaudhary, Advocates.

IMPORTANT POINTS
(1) Sections 234A, 234B and 234C have limited applicability to the proceedings of the Settlement Commission under Chapter XIX-A of the Act.
(2) Consequently, the terminal point for the levy of interest under section 234B would be up to the date of the order under section 245D(1) and not up to the date of the Order of Settlement under section 245D(4).
(3) The Settlement Commission cannot re-open its concluded proceedings by invoking section 154 of the Act so as to levy interest under section 234B, particularly, in view of section 245I.

Headnote:(a) Income Tax Act, 1961 – Section 245C(1B) – The income shown in the return and income disclosed in settlement application are to be aggregated for determining tax liability – This is nothing but assessment – Provisions of section 143(3) are thus incorporated in section 245C(1B) – Similarly, section 245C(1C) provides for deductions from the total income computed in terms of section 245C(1B) – Special type of computation of total income is nothing but assessment taking place at stage of section 245D(1) – In such computation provisions of regular assessment, self-assessment and levy and computation of interest for default in payment of advance tax, etc. are engrafted. (Para 11)
       (1961) 41 ITR 425 (SC) – Relied upon
       216 ITR 759 at 780 – Referred
       (b) Income Tax Act, 1961 – Chapter XIX-A – Interest on income – Payable up to what date –Provisos to section 245C(1) showing that Chapter XIX-A contemplates a pre-assessment collection of tax – When settlement application is accepted for consideration u/s 245D(1), only the income disclosed remains under consideration of the Commission – U/s 245C(1B)(ii) if return includes total income, additional amount of income tax payable shall be on aggregate income including income disclosed in settlement application – After computation of total income u/s 245C(1B) and (1C) interest follows because application u/s 245C(1) is akin to return – Further, section 245D(1) provides for expeditious recovery of tax by way of pre-assessment collection – Thus assessee has to pay additional tax with interest before filing settlement application u/s 245D(1) – Sections 234A, B and C are applicable up to the stage of section 245D(1) order passed by the Settlement Commission – Orders under sections 143(1), 143(3) and 144 are by way of regular assessment while those u/s 245D(4) are by way of settlement/ arbitration. (Para 12, 14)
       252 ITR 1; 259 ITR 475 – Relied upon
       (c) Income Tax Act, 1961 – Section 154 – Proceedings before Settlement Commission are similar to arbitration proceedings – Contemplating assessment by settlement, not regular assessment or assessment u/s 143(1) or (3) or section 144; procedure for assessment (Chapter XIV) being different from procedure for settlement (Chapter XIX-A) –Under section 245I order of Settlement Commission becomes final and conclusive – Only in cases of fraud and misrepresentation the matter could be re-opened by way of review or recall – Section 154 provides for rectification of an order – Therefore Settlement Commission cannot reopen its concluded proceedings by invoking section 154. (Para 15)
       259 ITR 475; 252 ITR 1; (2003) 259 ITR 449 – Relied upon
       Facts of the case:
       The following questions were referred to the Constitution Bench:
       (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?
       The questions have been reframed as under:
       (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?
       Finding of the Court:
       (1) Sections 234A, 234B and 234C have limited applicability to the proceedings of the Settlement Commission under Chapter XIX-A of the Act.
       (2) Consequently, the terminal point for the levy of interest under section 234B would be up to the date of the order under section 245D(1) and not up to the date of the Order of Settlement under section 245D(4).
       (3) The Settlement Commission cannot re-open its concluded proceedings by invoking section 154 of the Act so as to levy interest under section 234B, particularly, in view of section 245I.
       Result:
       Matters disposed of.

Judgment :-

S.H. KAPADIA, CJI

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.

(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 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 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;

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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 su