Gujarat High Court
Ashish Prafulbhai Patel vs Income Tax Settlement Commission & 2 on 7 September, 2017
Author: Akil Kureshi
Bench: Akil Kureshi, Biren Vaishnav
C/SCA/6379/2008 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 6379 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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ASHISH PRAFULBHAI PATEL....Petitioner(s)
Versus
INCOME TAX SETTLEMENT COMMISSION & 2....Respondent(s)
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Appearance:
MR SAURABH N SOPARKAR, SR COUNSEL WITH MR BANDISH S.
SOPARKAR , ADVOCATE for the Petitioner(s) No. 1
MR ANKIT SHAH, ADVOCATE for the Respondent(s) No. 3
MR. PARTH H BHATT, ADVOCATE for the Respondent(s) No. 3
MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1 - 2
RULE SERVED for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 07/09/2017
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. This petition is filed challenging an order dated 4.10.2007 passed by respondent no.1 Income Tax Settlement Commission ("the Commission" for short) by which the petitioner's application dated 28.5.2007 for settlement of the petitioner's cases for the assessment years 20012002 to 20072008 came to be declared as having abated on the ground that the petitioner failed to pay the full tax and interest before the last date provided under the statute i.e. 31.7.2007. The petitioner has also challenged the constitutionality of sections 245D(2A), 245D(2D) and 245HA of the Income Tax Act, 1961 ("the Act" for short) inserted by the Finance Act 2007 as ultra vires Article 14 of the Constitution.
2. The petition arises in the following background. The petitioner is an individual. The petitioner's assessments for the assessment years 20012002 to 20072008 were pending at various original or appellate stages. In order to avail of the benefit of the scheme for settlement of cases Page 2 of 31 HC-NIC Page 2 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT provided in Chapter XIXA of the Act, the petitioner applied to the Commission for settlement of cases pertaining to his assessments for the assessment years 20012002 to 2007 2008 by filing an application on 28.5.2007. No order on such application was passed under subsection(1) of section 245D of the Act allowing the application to proceed further before 1.6.2007.
3. By the Finance Act, 2007, significant changes were made in the provisions contained in Chapter XIXA of the Act pertaining to settlement of cases. We would advert to the relevant provisions before and after such amendments at a later stage. At this stage, we may however note that prior to such amendments, the assessee applying for settlement of his case though was required to make payment of tax with interest on admitted income, the statute did not provide for any adverse effect on his application for settlement till its disposal by the Settlement Commission, if the assessee failed to make the payment of such tax or interest. By virtue of the amendments brought about through the Finance Act, 2007, the legislature now required that payment of admitted tax with interest should accompany the application for settlement. For the pending cases, the applicants were given time upto 31.1.2007 to make such payment, failing which, the application for settlement would abate.
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4. In terms of such amendments, the petitioner made a total payment of Rs.23,97,400/ which covered the payment for the assessment years 20012002 to 20032004, 20052006 and 20072008. The assessee was required to pay a sum of Rs.24,02,411/ by way of additional tax with interest for the assessment years 20042005 and 20062007 which was not made till 31.7.2017. Before the Settlement Commission, the assessee raised two fold contentions. One was that due to financial difficulties, the assessee could not make full payment of additional tax and interest which would cover all assessment cases, additional time may be granted to enable the assessee to make the remaining payment. The second contention was that in any case, the assessee had paid the additional tax with interest for five out of seven assessment years for which he had applied for settlement. If at all, the abatement of application for settlement should be confined to those assessment years for which the assessee was unable to make payment of additional tax with interest.
5. The Tribunal rejected both the contentions in the impugned judgment. The Tribunal was of the opinion that by virtue of amended provisions of Chapter XIXA of the Act making payment of additional tax with interest before 31.7.2007 was mandatory. The Commission had no power Page 4 of 31 HC-NIC Page 4 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT to extend the time limit or grant installments. The Commission also rejected the prayer of the assessee to limit the rejection of the application for those assessment years for which he could not make the payment. The Commission was of the opinion that the application for settlement cannot be split in parts and be allowed to proceed further with respect to some of the assessment years and rejected for some.
6. This order the petitioner has challenged in the present petition and as noted, has also challenged the vires of amended provisions of Chapter XIXA of the Act.
7. Learned counsel Shri Soparkar for the petitioner with respect to the Constitutionality raised the following contentions :
1) When the petitioner filed the application for settlement, the statute did not envisage payment of additional tax with interest before a specified date and upon the assessee failing to comply with such a condition, the rejection of the application for settlement. Such a condition could not have been imposed with retrospective effect which would amount to taking away a vested right.
2) The amended provisions imposed an onerous condition with no possibility of extending the time for payment of Page 5 of 31 HC-NIC Page 5 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT additional tax with interest even in genuine cases of hardship. Such provisions therefore, must be read down as not to be applicable to pending cases.
3) The amended statute now provides that if an application for settlement is rejected or abated, the materials produced by the assessee applicant could be utilised by the Assessing Officer in the assessment proceedings. On one hand, thus the statute imposed a new condition of payment of additional tax with interest before a specified date, failure to comply with which would result into rejection of the application for settlement and on the other hand also made a provision which was not existing when the petitioner applied for settlement that the material produced by him before the Settlement Commission would be used by the Assessing Officer.
4) In support of his contentions, counsel relied on judgment of Bombay High Court in case of Star Television News Ltd. v. Union of India and others reported in (2009) 317 ITR 66 (Bom). In the said case, Bombay High Court examined the validity of the newly inserted provision in Chapter XIXA of the Act by which it was made compulsory to dispose of an application for settlement within prescribed time, failing which, the application for settlement would abate. This would be irrespective of the reason why the Commission was unable to dispose of the application within time.
Bombay High Court read down the statutory provision and held that in cases where the applicant was not responsible for causing delay in disposing of the settlement application, the consequences of non disposal could not be of Page 6 of 31 HC-NIC Page 6 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT abatement of the case before the Settlement Commission. Counsel pointed out that the decision of the Bombay High Court in case of Star Television News Ltd.(supra) was upheld by the Supreme Court in case of Union of India v. Star Television News Ltd. reported in (2015) 373 ITR 528 (SC). Counsel also relied on a recent judgment of the Supreme Court in case of K. Raveendranathan Nair v. Commissioner of Income Tax & Anr. (Civil Appeal No.3131/2006 with connected appeal judgment dated 10.8.2017) in support of his contention that the assessee having already applied for settlement of his case, even the statutory amendments would not take away the vested right which had accrued on the date of such application. Reliance was placed on a recent decision of Supreme Court in case of Shayara Bano v. Union of India and others (Writ Petition(C) No. 118/2016, judgment dated 22.8.2017) to contend that the statute being arbitrary is one of the grounds for challenge to its constitutionality. Counsel submitted that the amended provisions are wholly arbitrary and, therefore, violative of Article 14 of the Constitution.
5) With respect to the deficit in payment of additional tax and interest, counsel submitted that the petitioner had made payment which was clearly relatable to each assessment year for which the application for settlement was filed. The payment covered the petitioner's additional tax and interest liability for five out of seven assessment years. For the remaining two assessment years, the petitioner was unable to raise funds for making payment. If at all, therefore, the rejection of the application for settlement could be qua only Page 7 of 31 HC-NIC Page 7 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT those years for which additional tax and interest was not paid. Counsel submitted that nothing contained in the Act prevents the assessee from making separate applications for different assessment years. The view taken by the Settlement Commission that the application for settlement was a composite one for all assessment years was therefore, not correct.
6) On the other hand, learned counsel Shri Manish Bhatt for the department opposed the petition contending that the statutory changes were within the powers of the parliament. In order to instill greater seriousness in an assessee pursuing the case for settlement, certain changes were made. Even under the existing provisions, the assessee was always liable to pay additional tax with interest on admitted income. The amended provisions merely provided a time limit before which such payment must be made, failing which, it would not be possible for the assessee to pursue his application for settlement. Counsel further submitted that no assessee can oppose the material which he himself has produced, from being used in the assessment once the application for settlement for whatever purpose fails. In this context counsel relied on the decision of the Division Bench of this Court in case of Arcon Pharmaceuticals and anr v. UOI and ors. (Special Civil Application No.2694/2012, judgment dated 29.8.2013) in which similar amendments in the settlement provisions contained in Central Excise Act were challenged. The Division Bench while upholding the vires of the statutory provisions observed as under : Page 8 of 31
HC-NIC Page 8 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT "7.11. Now, so far as the contention on behalf of the petitioners that the petitioners while submitting the application before the Settlement Commission is required to disclose all material which are within exclusive knowledge of the assessee and is required to make full and true disclosure and therefore, if considering Section 32F(6) of the Act despite the reasons which are not attributable to the applicant, the Settlement Commission did not pass any final order within the stipulated time prescribed under Section 32F(6) of the Act and the proceedings are declared abated and the proceedings before the adjudicating officer shall have to go on and the material which has been disclosed by the applicant can be used against the applicant and therefore, such a provision would be unreasonable, is concerned, it is required to be noted that as such to approach the Settlement Commission as per Section 32E and 32F of the Act is not mandatory. Only those assessee who have avoided payment of duty and want to avoid further litigation and desirous of immunity from prosecution etc. may approach the Settlement Commission with clean hands and on true and complete disclosure of their duty liability. It is required to be noted that as such even otherwise, any assessee is required to make true and complete disclosure of their duty liability.
As such and as per the provisions of Section 32F, an assessee who has been served with the show cause notice by the adjudicating officer can approach the Settlement Commissioner accepting his duty liability under the Act on making true and complete disclosure. Under the circumstances, on the aforesaid ground the provisions of Section 32F(6) of the Act to the extent it provides that in case Settlement Commission does not pass final order within the period stipulated in the said provision, proceeding shall stand abated, cannot be declared ultra vires the Article 14 of the Constitution of India."
8. Counsel would however agree that in view of the judgment Page 9 of 31 HC-NIC Page 9 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT of Bombay High Court in case of Star Television News Ltd. (supra) which was approved by the Supreme Court in case of Union of India v. Star Television News Ltd.(supra), decision of this Court in case of Arcon Pharmaceuticals and anr (supra) was perhaps no longer good law.
9. Shri Bhatt further submitted that the application made by the petitioner was a composite one as the statute itself envisages and requires that the entire application has to be seen as one application for settlement for all assessment years. Such application either be allowed to be proceeded further if condition for payment of additional tax and interest is fulfilled before the specified date or is to be rejected if such condition is not fulfilled. There is no scope for rejecting the application in part for certain number of assessment years whereas allowing to be proceeded further with respect to the rest.
10. Chapter XIXA of the Act pertaining to settlement of cases was introduced by the Taxation Laws(Amendment) Act, 1975, with effect from 1.4.1976. This Chapter contains provisions enabling the assessee whose assessment proceedings are pending, to apply for settlement before the Commission. Subject to fulfillment of certain conditions, the statute authorises the Commission to settle a case.
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The person desirous of availing such benefit would apply to the Commission under subsection(1) of section 245C of the Act. Such application would pass through various stages envisaged under section 245D and finally the Settlement Commission would pass the order under sub section(4) of section 245D of the Act. Under section 245H, the Settlement Commission has power to grant immunity from prosecution and penalty. Section 245HA which was introduced with effect from 1.6.2007, provides for situations under which the proceedings before the Settlement Commission would abate.
11. Prior to 1.6.2007 amendment, there was no requirement for an assessee to make payment of additional tax with interest along with the application filed under subsection(1) of section 245C of the Act, though sub sections (1B), (1C) and (1D) provided the manner in which such additional tax and interest would be computed. Under subsection (2A) of section 245D, the assessee within thirtyfive days of the receipt of a copy of the order under subsection(1) of section 245D allowing the application to be proceeded with, would have to pay the additional amount of incometax payable on the income disclosed in the application and furnish proof thereof to the Settlement Commission. Under subsection (2B) of section 245D, the Settlement Commission had the power to extend Page 11 of 31 HC-NIC Page 11 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT the time limit for payment of additional tax if it was satisfied that the assessee for good and sufficient reasons was unable to pay the same. The Commission could also grant installments. As per subsection(2C) of section 245D, whenever additional tax was not paid within the time prescribed under subsection(2A), irrespective of the fact whether the Settlement Commission had extended the time for payment, the assessee would be liable to simple interest at the prescribed rate on the amount which remained unpaid. After the expiry of the period specified in sub section(2A), under subsection(2D) of section 245D, the additional tax which remained unpaid within the time specified under section (2A) or within the extended time allowed by the Commission under subsection(2B), the Commission would direct that the amount remaining unpaid with interest be recovered and it will also be open for the Commission to impose penalty for non payment of such amount. Neither section 245D nor any other provisions contained in Chapter XIXA provided for any further consequence of non payment of additional tax and at any rate the statute did not envisage that the settlement application would abate on account of nonpayment. We may notice that under subsection(1A) of section 245H, if the assessee fails to pay the sum specified by the Settlement Commission in its order under subsection(4) of section 245D within the specified or extended time, the Page 12 of 31 HC-NIC Page 12 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT immunity granted by the Commission from penalty or prosecution be withdrawn. Under section 245J, the amount ordered by the Settlement Commission to be paid under subsection(4) of section 245D could be recovered by the department in accordance with the provisions contained in Chapter XVII of the Act.
12. There were significant changes in these statutory provisions with effect from 1.6.2007. Under subsection(1) of section 245C, now the assessee applying for settlement of his case, would pay the additional tax and interest on the income disclosed in the application for settlement. Proof of payment would be attached with the application itself. Though certain changes have been introduced also in subsections 1A to 1D of section 245C pertaining to computation of additional tax and interest, we are not directly concerned with such changes. Requirement of payment of additional tax with interest within the prescribed time, failure of which would result into abatement of the proceedings before the Settlement Commission, was introduced by way of the newly inserted subsection(2A) of section 245D of the Act read with clause(ii) of subsection(1) of section 245HA of the Act. Under subsection(3) of section 245HA, upon abatement of the proceedings before the Settlement Commission when the Assessing Officer proceeds to dispose of the pending Page 13 of 31 HC-NIC Page 13 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT cases, the Assessing Officer or other incometax authority would be entitled to use material and other information produced by the assessee before the Settlement Commission, as if such material had been produced before the Assessing Officer or the authority as the case may be. We may reproduce these relevant provisions :
"245D xxx (2A) Where an application was made under section 245C before the 1st day of June, 2007, but an order under the provisions of subsection (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, has not been made before the 1st day of June, 2007, such application shall be deemed to have been allowed to be proceeded with if the additional tax on the income disclosed in such application and the interest thereon is paid on or before the 31st day of July, 2007.
Explanation.--In respect of the applications referred to in this subsection, the 31st day of July, 2007 shall be deemed to be the date of the order of rejection or allowing the application to be proceeded with under sub section (1).
245HA. Abatement of proceeding before Settlement Commission. (1) Where--
xxx
(ii) an application made under section 245C has not been allowed to be proceeded with under subsection Page 14 of 31 HC-NIC Page 14 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT (2A) or further proceeded with under subsection (2D) of section 245D; or xxx the proceedings before the Settlement Commission shall abate on the specified date.
Explanation.--For the purposes of this subsection, "specified date" means--
xxx
(b) in respect of an application referred to in clause (ii), the 31st day of July, 2007;
xxx (2) Where a proceeding before the Settlement Commission abates, the Assessing Officer, or, as the case may be, any other incometax authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 245C had been made.
(3) For the purposes of subsection (2), the Assessing Officer, or, as the case may be, other incometax authority, shall be entitled to use all the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it, as if such material, information, inquiry and evidence had been produced before the Assessing Officer or other incometax authority or held or recorded by him in the course of the proceedings before him."
13. The comparison of the statutory provisions before Page 15 of 31 HC-NIC Page 15 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT and after amendment with effect from 1.6.2007 would show that even earlier the assessee always had a liability to pay the tax on additional income disclosed in the application for settlement filed before the Commission. Such liability would be discharged within thirtyfive days of the receipt of a copy of the order under subsection(1) of section 245D. It was ofcourse open for the assessee to apply to the Settlement Commission for extension of time or installments by making out good or sufficient reasons for being unable to pay the same within the prescribed time. Whether such extension was granted or not, in terms of subsection(2C) of section 245D, the assessee would be liable to pay interest on the amount of tax which remained unpaid after completion of prescribed period. The Settlement Commission could also direct payment of tax with interest or even impose penalty on the assessee not paying the same. The statutory provisions however, did not provide for abatement of proceedings if the assessee failed to make payment of tax or interest nor would the Settlement Commission refuse to dispose of the application on the ground of non payment thereof. The fall out of non payment of the tax and interest could be traced to Sub section(1A) of section 245H as per which the immunity granted by the Settlement Commission to any person would stand withdrawn if he failed to pay the sum specified under the order of settlement passed under subsection(4) Page 16 of 31 HC-NIC Page 16 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT of section 245D. This would be independent of the recovery that the department may carry out of such sum in terms of section 245J of the Act.
14. It can thus be seen that even in the provisions contained prior to amendment of 1.6.2007, the assessee always had the liability to pay additional tax on the income disclosed before the Settlement Commission. The result of non payment would be two fold. One, the immunity from penalty and prosecution if granted by the Settlement Commission would stand withdrawn and two, the department would recover the unpaid dues in accordance with the provisions of Chapter XVII of the Act.
15. Amending such statutory provisions, now after 1.6.2007, the statute requires an assessee applying for settlement to make payment of additional tax with interest while making application for settlement itself. In fact, sub section(1) of section 245C now requires that the applicant would produce the proof of the payment along with the application. For those applications which were made before 1.6.2007, a special provision was made under sub section(2A) of section 245D granting time upto 31.7.2007 in cases where no order under subsection(1) of section 245D was passed before 1.6.2007 by providing that if the additional tax on the income disclosed in the application Page 17 of 31 HC-NIC Page 17 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT with interest is paid before 31.7.2007, such application shall be deemed to have been allowed to be proceeded further. Newly inserted section 245HA provides for abatement of proceeding before the Settlement Commission. Under clause (ii) of subsection (1) of section 245HA, an application made under section 245C which has not been allowed to be proceeded further under sub section (2A) or further proceeded with under subsection (2D) of section 245D, the proceedings before the Settlement Commission shall abate on the specified date. As per the explanation of the said subsection, specified date in such a case would mean 31st July, 2007.
16. It is not difficult to appreciate that these provisions were brought into the statute to bring in a greater seriousness and in order to ensure that the applications for settlement are pursued with due care and promptness. In this context, we may also notice some of the other changes simultaneously made in the said chapter. For example, in the substituted subsection (1) of section 245D, the legislature introduced the concept of extremely short time limits for crossing the first stage of allowing or not allowing an application for settlement to be proceeded further. Under this provision, on receipt of an application under section 245C, the Settlement Commission within seven days from the date of receipt of the application, shall issue Page 18 of 31 HC-NIC Page 18 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT a notice to the applicant requiring him to explain why the application should be allowed to be proceeded with. After hearing the applicant, the Settlement Commission would within fourteen days from the date of the application, either reject or allow the application to be proceeded with. As per proviso to subsection (1) if no order has been passed within the said period by the Settlement Commission, the application shall be deemed to have been allowed to be proceeded further. Thus, the first threshold examination of the application under subsection (1) of section 245D would come within a summary time frame permitting no flexibility. If for some reason the Settlement Commission is unable to pass an order allowing or not allowing the application to be proceeded further, the deeming fiction would apply and the application would be deemed to have been allowed to be proceeded with. Sub section (4A) was added to section 245D requiring the Settlement Commission to pass an order under subsection (4) within a time frame. The applications pending at the time of statutory changes shall be decided before 31st March, 2008, those made on or after 1st June 2007 but before 1st June 2010, would be decided within twelve months from the end of the month in which the application was made. In cases of application made after 1st June 2010, the same would be decided within eighteen months from the end of the month in which the application was Page 19 of 31 HC-NIC Page 19 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT made. In terms of clause (iv) of subsection (1) of section 245HA, in case the Settlement Commission does not pass order under subsection (4) of section 245D within the time prescribed under subsection (4A), the proceedings before the Settlement Commission would abate.
17. We are conscious that the said time limit provisions contained in the amended section 245D of the Act have been explained by the Bombay High Court in case of Star Television News Ltd. (supra) reading down the rigid requirement holding that if the assessee is not responsible for causing delay in disposal of the case, the same would not abate for the Settlement Commission not being able to dispose of the same within the prescribed time. Nevertheless, the legislative intent of bringing a degree of seriousness and promptness in pursuing the settlement cases, would not escape our notice. This is even otherwise an understandable anxiety of the legislature since during the pendency of settlement proceedings, the ordinary assessment would be kept in abeyance. Thus, by mere pendency of an application for settlement before the Commission, the normal assessment mechanism would be kept at bay. The Revenue therefore, would certainly be interested in knowing the outcome of settlement proceedings so that if a case is settled, the ordinary Page 20 of 31 HC-NIC Page 20 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT assessment proceedings would be rendered inconsequential. If on the other side, for whatever reason, the application for settlement were to fail, the pending assessment would revive and be continued from whatever stage it was pending. The statutory provisions under challenge before us therefore, must be seen in light of the over all relevant changes made by the legislature and the ultimate effect of such changes in the settlement proceedings.
18. The parameters for testing the constitutionality of the legislation made by the parliament or the State legislature are well laid down in series of judgments of the Supreme Court and this Court. Two of the grounds on which such legislation can be called in question are that the legislature lacks the competence to frame the law or that the statutory provision is opposed to the fundamental rights enshrined under the Constitution or any other constitutional provision. It is in fact, within these two grounds of challenge to a statute, the Supreme Court in case of Shayara Bano (supra) has expanded to a limited extent the scope of examination, propounding that the legislation can also be struck down on the ground of arbitrariness. Nevertheless, the concept of arbitrariness in context of testing a statutory provision made by the parliament or the Page 21 of 31 HC-NIC Page 21 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT State legislature cannot be put in a golden scale. If the legislature in its wisdom applying its mind, which is a presumption, to all relevant aspects of the matter, framed a certain legislative policy by enacting a law, the Court would certainly not substitute its individual judgement or opinion for that of the competent legislative body.
19. In case of the State of Jammu & Kashmir v. Triloki Nath Khosa and others reported in AIR 1974 Supreme Court 1, the respondents had successfully challenged before the High Court the validity of a service rule framed by Jammu and Kashmir Government which permitted a classification of Assistant Engineer between Diploma holder and Degree holder for promotion as Executive Engineer. The Constitution Bench of the Supreme Court observed that in order to establish that the protection of the equal opportunity clause has been denied to them, it is not enough for the respondents to say that they have been treated differently from others, not even enough that a differential treatment has been accorded to them in comparison to others similarly circumstanced. Discrimination is the essence of classification and does violence to the constitutional guarantee of equality only if it reasons on an unreasonable basis.
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20. In case of Indian Express Newspapers (Bombay) Private Ltd and others reported in (1985) 1 Supreme Court Cases 641, the Court was examining the validity of a subordinate legislation levying customs duty on imported newsprint. In this context, it was observed that a sub ordinate legislation may be questioned on the grounds of legislative competence on which the plenary legislation is also subject or being ultra vires the Constitution, as also additional grounds such as, being ultra vires the parent statute or being in conflict with any other statute or being so arbitrary that it could not be said to conform to the statute or violative of Article 14 of the Constitution
21. It was argued that these amendments may act somewhat harshly on the assessees and particularly when such amendments are applied to pending applications for settlement, the same would be arbitrary. It is well settled that the statute cannot be declared as unconstitutional merely because it is likely to work harshly against some sections of the citizens. Merely because those who have already applied for settlement are now asked to pay the additional tax on income disclosed in the settlement application before a certain date, by itself would not render the statute arbitrary. This would be for multiple reasons. Firstly, the tax being collected is on the admitted income, Page 23 of 31 HC-NIC Page 23 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT the income which the assessee had not disclosed in the original return filed before the Assessing Officer but which he now admits in the application for settlement filed before the Commission. No tax payer can claim liberty from payment of tax on an admitted income. Secondly, even in the provisions prevailing upto 1st June 2007, there was always the liability of the assessee applying for settlement to pay the additional tax on the income disclosed. If he failed to pay the sum within the prescribed time, he would have to pay the tax along with interest at the prescribed rate. We are conscious that the provision for abatement of settlement proceedings before the Commission, upon the assessee not being able to pay the sum by 31st July 2017, was newly introduced. However, the applicant before the Settlement Commission cannot claim vested right to have the application granted and seek immunity from penalty and prosecution even while continuing to be in default in paying the tax on admitted income. What the statute perhaps cannot take away is a vested right and not a perceived right in which the assessee had no vested interest.
22. We may recall subsection(1) of section 245HA provides for abatement of proceedings before the Settlement Commission under certain circumstances. As per subsection(2) of section 245HA, where the proceedings Page 24 of 31 HC-NIC Page 24 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT so abate, the Assessing Officer or the incometax authorities before whom the proceedings at the time of making of the application was pending, would proceed to dispose of the same in accordance with the provisions of the Act as if no application for settlement was made. While doing so, under subsection(3), such authority would be entitled to use all the material and other information provided by the assessee before the Commission or the results of the inquiry held or evidence recorded by the Commission in the course of such proceedings, as if such material, information, inquiry and evidence had been produced before the Assessing Officer or the authority. The effect of subsection(3) of section 245HA is to enable the incometax authority, be it Assessing Officer or some other authority, who upon abatement of settlement proceedings would proceed to decide the pending cases in accordance with the provisions of the Act, to utilise all the material and other information produced by the assessee before the Commission as well as the material collected through inquiry during the course of such settlement proceedings or evidence recorded by the Commission. Effectively, this would transpose the material before the Commission, collected till the proceedings reached the stage of abatement before the incometax authority, who would be entitled to use the same.
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23. It is not even the case of the petitioner that earlier there was any provision which prohibited the Assessing Officer or the incometax authority from accessing such information and utilising the same in the course of completion of pending cases, to which the settlement proceedings related. All that perhaps materially changed is that insofar as the material, other information produced by the assessee before the Commission is concerned, it would partake the character of the same having been produced by the assessee before the Assessing Officer or the incometax authority. Surely, no assessee can claim immunity from use of such material unless such immunity was granted in specific terms of statute. No assessee can claim that he made a certain declaration before the Commission which was true but should not be utilised by the incometax authority for the purpose of his assessment. Even while filing a return before the Assessing Officer and participating in the assessment proceedings, be it before the Assessing Officer or at the appellate stage, there is inherent duty of every assessee to make true and full disclosures. In our opinion therefore, the newly inserted subsection(3) of section 245HA did not take away any vested right hitherto enjoyed by the assessee. In the result, the challenge to the vires of the statutory provisions must fail.
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24. We now come to the petitioner's challenge to the order of Settlement Commission on merits. So far as the first prayer of the petitioner before the Settlement Commission to extend the time for payment of tax with interest is concerned, the Settlement Commission correctly came to the conclusion that the statute did not permit any flexibility and the Settlement Commission did not have any power to extend the time. However, the petitioner's second contention requires closer consideration. We have noticed that the application for settlement was filed seeking settlement of seven cases for the assessment years 2001 2002 to 20072008. The petitioner could raise sufficient funds to pay the tax with interest covering the additional liability for the assessment years 20012002, 20022003, 20032004, 20052006 and 20072008. The assessee could not pay additional tax for the assessment years 20042005 and 20062007. The application for settlement was made as per the then prevailing subsection(1) of section 245C of the Act. This provision did not envisage that there has to be one single composite application for settlement of all cases that the assessee wants to settle, failing which, such an application would not be maintainable. At the relevant time, the definition of term 'case' included a pending assessment or even appeal or revision in connection with such an assessment. It can thus be seen that even while an assessee would make an Page 27 of 31 HC-NIC Page 27 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT application for settlement of a case and when such application is pending, the situation may arise where he would be prompted to file similar application for another assessment year. A situation may also be envisaged where an assessee may consider prudent or advisable to apply for settlement in a particular assessment proceeding after he had opted to apply for settlement in case of another assessment year. There is nothing to suggest in the then existing statute to prevent or prohibit such applications at the hands of the same assessee. It was thus always open for the assessee to apply separately for settlement of different cases. Though the prescribed format in which such application is to be filed refers to one common application for multiple years, the vital details to be provided such as the admitted income, additional income disclosed, tax payable on such income is to be provided assessment year wise. In any case, the printed proforma cannot govern the true interpretation of the statute.
25. The eligibility of an assessee to file separate applications for settlement must be seen in light of the subsequent statutory changes with effect from 1.6.2007 by which the legislature cast a duty on the applicant who had already applied for settlement to pay the additional tax with interest on income disclosed before the Settlement Commission latest by 31.7.2007. These amendments Page 28 of 31 HC-NIC Page 28 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT brought in two major changes. First was that in all pending applications, the payment would now be made latest by 31.7.2007 with no possibility of extending the time. This was in stark contrast to the prevailing statutory provisions which enabled the Commission to extend the time for payment of tax if the assessee made out good and sufficient grounds for not being able to pay the same within the prescribed period. The Commission could also grant installments. Such powers of the Commission were taken away and a deadline of 31.7.2007 was introduced. The second major change was that if the assessee failed to make the payment of such additional tax and interest before 31.7.2007, his application for settlement would abate.
26. The combined effect of the statutory provisions prevailing before 1.6.2007 which as noted above, in our opinion did not prohibit filing of separate applications for settlement assessment year wise and the newly introduced requirement of payment of additional tax with interest by 31.7.2007, failing which, the proceedings before the Settlement Commission would abate, would persuade us to hold that it was open for the Settlement Commission to examine the requirement of payment of additional tax with interest as may be correlated to a particular assessment year. It may be that the assessee himself had filed one Page 29 of 31 HC-NIC Page 29 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT common application for settlement of all cases. In view of the statutory provisions prevailing before 1.6.2007 and in view of the noted changes after 1.6.2007, such application need not have to be seen as one composite application for settlement which may either in its entirety are allowed to be proceeded with or be declared as abated. One must look at the application in the background of such statutory provisions before and after 1.6.2007. Had the requirement of payment of additional tax with interest been existing in the statute when the petitioner applied for settlement surely, he would have applied only to the extent that he was able to muster up sufficient funds for additional tax and interest. Under the circumstances, the petitioner's request that entire application for settlement may not be declared as abated, would have to be accepted. In other words, to the extent, the petitioner had paid additional tax and interest by 31.7.2007, his proceedings before the Settlement Commission, would not abate. The abatement would apply with respect to those assessment years for which such payment was not made.
27. In the result, the petition is allowed in part. The impugned order of settlement dated 4.10.2007 is set aside to the limited extent. Declaration of abatement of assessment proceedings before the Settlement Commission in terms of subsection(3) of section 245HA, would be Page 30 of 31 HC-NIC Page 30 of 31 Created On Sat Sep 16 06:31:28 IST 2017 C/SCA/6379/2008 JUDGMENT limited to the assessment years 20042005 and 2006 2007. The application for rest of the assessment years would be revived and be placed before the Settlement Commission for disposal in accordance with law.
28. Petition is disposed of accordingly.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) raghu Page 31 of 31 HC-NIC Page 31 of 31 Created On Sat Sep 16 06:31:28 IST 2017