Income Tax Appellate Tribunal - IT
Bombay Coal Ash Co. And Ors. vs Income-Tax Settlement Commission on 5 February, 1992
ORDER
1. Facts in brief giving rise to the issue to be decided by the Special Bench 1.1 Prior to the amendments made by the Finance (No. 2) Act, 1991, which received the assent of the President on September 27, 1991, Sub-sections (1) and (1A) of Section 245D were as under :
"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.
(1A) Notwithstanding anything contained in Sub-section (1), an application shall not be proceeded with under that sub-section if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case :
Provided that where the Settlement Commission is not satisfied with the correctness of the objection raised by the Commissioner, the Settlement Commission may, after giving the Commissioner an opportunity of being heard, by order, allow the application to be proceeded with under sub Section (1) and send a copy of its order to the Commissisoner."
1.2 The provisions of Sections 1 and 66 of the Finance (No. 2) Act, 1991 are as under (see [1991] 191 ITR (St.) 197) :
"1. Short title and commencement--(1) This Act may be called the Finance (No. 2) Act, 1991.
(2) Save as otherwise provided in this Act, Sections 2 to 119 and 126 (except Sections 45, 47, 62, 66, 67, 69, 75, 76, 78, 79, 87, 88 and 120) shall be deemed to have come into force on the 1st day of April, 1991.
66. Amendment of Section 245D.--In Section 245D of the Income-tax Act,--
(a) in Sub-section (1), after the first proviso, the following proviso shall be inserted, namely :
"Provided further that the Commissioner shall furnish the report within a period of one hundred and twenty days of the receipt of communication from the Settlement Commission in case of all applications made under Section 245C, on or after the date on which the Finance (No. 2) Act, 1991, receives the assent of the President and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report."
Sub-section (1A) shall be omitted."
1.3. In view of the amendments made by the Finance (No. 2) Act, 1991, in Section 245D, the following question has been referred to the Special Bench for its consideration and opinion.
"In a case where the settlement petition made under Section 245C before September 27, 1991, is pending as on September 27, 1991, the objections raised by the Commissioner of Income-tax to the admission of the petition under Section 245D(1A) have to be considered and disposed of under the proviso to Section 245D(1A) or the question of admission or rejection of such a petition has to be decided having regard only to the provisions of Section 245D(1) in view of the fact that Sub-section (1A) of Section 245D has been omitted by the Finance (No. 2) Act, 1991 ?"
2. Reasons why a common order is being passed The arguments advanced by counsel for the different applicants were on the same lines. The submissions made on behalf of the Department in all the cases were the same. Therefore, for the sake of convenience, the reference made in the four cases is being answered by this common order.
3.1. Hearing The following three cases were heard on the dates mentioned against them.
S. No. Application No. Name of the applicant Date of hearing
1. 10/II/67/91-92/I.T. M/s. Bombay Coal Ash Co., Ahmedabad 7.1.92
2. 18A/1/482/89-I.T. 7/22/91/5-I.T. M/s. Luxmi Engg. Works Ludhiana do.
3. 8A/1/43/85-I.T. M/s. R. R. Industries, Faridabad 8.1.92 It may be mentioned that, though a notice of hearing in the case of M/s. Krishan Beharilal Jewellers (Application No. 14/1/245/90-I.T.) was duly served, the applicant did not appear on the date of hearing. No application seeking adjournment of hearing was also received.
3.2. Briefly stated, on behalf of the applicants, the following two arguments were made :
(a) As regards matters of procedure, the Legislature can make changes and those changes apply to all pending actions.
(b) The deletion of Sub-section (1A) of Section 245D by the Finance (No. 2) Act, 1991, alters only the procedure to be followed by the Settlement Commission in dealing with applications received under Section 245C and, therefore, the changed procedure would be applicable not only to applications received on and after September 27, 1991, but also to all old applications pending as on September 27, 1991.
3.3. The first limb of the argument was attempted to be supported by relying on a large number of decided cases and passages from Salmond on Jurisprudence and Maxwell on the Interpretation of Statutes. However, as the Department is not disputing the proposition that, as regards matters of procedure, the Legislature can make changes and those changes apply to all pending actions, we do not consider it necessary to make a mention of the authorities relied upon in this regard.
3.4. The second limb of the argument advanced on behalf of the applicants was attempted to be supported by relying principally on the following :
(i) "Marginal Notes" printed at the side of Section 245D, which are as under :
"Procedure on receipt of an application under Section 245C."
It was submitted that "Marginal Notes" printed at the side of Section 245D summarise, in brief, the contents of the section. The "Marginal Notes", it was submitted, make it clear that the said section deals with matters of procedure. In this connection, reliance was placed on the decision of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597.
(ii) "Notes on Clauses" : Clause 64 of the Finance (No. 2) Bill, 1991, which is as under (see [1991] 190 ITR (St.) 258) :
"Clause 64 seeks to amend Section 245D of the Income-tax Act relating to procedure on receipt of an application under Section 245C by the Settlement Commission.
Sub-clause (a) seeks to insert a new proviso after the existing proviso to Sub-section (1) of Section 245D. It seeks to provide that the Commissioner shall furnish the report within a period of six months of the receipt of communication from the Settlement Commission in the case of all applications made under Section 245C on or after the date on which the Finance (No. 2) Bill, 1991, receives the assent of the President and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report.
Sub-clause (b) seeks to omit Sub-section (1A) of Section 245D relating to filing of objections by the Commissioner against proceeding with the application made under Section 245C.
These amendments will take effect from the date on which this Bill receives the assent of the President."
It was emphasised that, even in the "Notes on Clauses", it had been stated that Clause 64 sought to amend Section 245D of the Income-tax Act relating to procedure on receipt of an application under Section 245C by the Settlement Commission.
(iii) Paragraph 61 of the "Memorandum explaining the Provisions in Finance (No. 2) Bill, 1991", which is as under (see [1991] 190 ITR (St.) 308 :
"Modification of provisions of Section 245D regarding procedure on receipt of an application under Section 245C for settlement of cases.
61. Under the existing provisions of Sub-section (1) of Section 245D of the Income-tax Act, the Settlement Commission, on receipt of an application under Section 245C, has to 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, etc., the Settlement Commission may allow the application to be proceeded with or reject the application. Further, Sub-section (1A) of Section 245D provides for filing of objections by the Commissioner against proceeding with the application made under Section 245C.
The above provisions cause delay, at times, in the disposal of applications filed before the Settlement Commission under Section 245C. In order to expedite the disposal of such applications, the Bill seeks to provide that the Commissioner shall furnish the report within a period of six months of the receipt of communication from the Settlement Commission in case of all applications made under Section 245C on or after the date on which the Finance (No. 2) Bill, 1991, receives the assent of the President and, if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order on the application without such report. The Bill also seeks to omit the provisions relating to filing of objections by the Commissioner against proceeding with the application made under Section 245C.
Similar amendment has been proposed to the corresponding provisions in Section 22D of the Wealth-tax Act.
These amendments will take effect from the date on which the Finance (No. 2) Bill, 1991, receives the assent of the President."
It was submitted that the Memorandum too makes it abundantly clear that the amendments were being made to modify the procedure to be followed by the Settlement Commission on receipt of a Settlement application under Section 245C.
(iv) Paragraph 69 of the Finance Minister's Speech, while presenting the Union Budget for 1991-92, is as under :
"69. The Settlement Commission was set up to provide an opportunity to assessees to declare their undisclosed income and wealth. Under the existing procedures, the Commissioner of Income-tax can, on certain grounds, object to admission of an application by the Settlement Commission. This results in unnecessary delay. This provision is, therefore, being deleted. The Settlement Commission will, however, continue to call for and take into account the Commissioner's report, provided it is furnished within a period of six months.
It was submitted that the Finance Minister in his speech had clearly mentioned that "the existing procedures" were causing unnecessary delays and that, therefore, Sub-section (1A) of Section 245D was proposed to be deleted.
(v) "Press Release" issued by the Central Board of Direct Taxes dated October 1, 1991, which inter alia, reads as under (see [1991] 191 ITR (St.) 196) :
"In order to facilitate quicker handling of cases by the Settlement Commission, the Income-tax Act has been amended. Under the new procedure, the Commissioner's right to raise objections against the Settlement Commission proceeding with an application has been withdrawn."
It was submitted that, after the Finance (No. 2) Bill, 1991, had received the assent of the President, the Central Board of Direct Taxes had issued' the "Press Release" wherein it was stated that "the new procedure" would facilitate quicker handling of cases by the Settlement Commission. Secondly, it was pointed out that the title of the "Press Release" was "Simplification of the procedure before the Settlement Commission -relating to receipt of application."
(vi) The decision of the Supreme Court in the case of R.B. Shreeram Durga Prasad v. Settlement Commission (I. T and W. T.) [1989] 176 ITR 169, was strongly relied upon by each and every counsel and it was submitted that, in view of the ratio of this decision, it would have to be held that the changed procedure applied to pending applications under Section 245C too.
3.5. On behalf of the Department, it was firstly stated that the Department had no quarrel with the proposition that, as regards matters of procedure, the Legislature can make changes and those changes apply to all pending proceedings. However, it was the submission of the Commissioner of Income-tax (DRs) that "Marginal Notes" printed at the side of sections were not conclusive of the contents of the sections and that the sections have to be properly analysed to find out whether they conferred any right(s) on any of the parties before a court/tribunal. It was submitted that retrospective operation has not to be given to a statute so as to impair existing rights or obligations. The Commissioner of Income-tax, it was submitted, had a right under Section 245D(1A) to raise objections on certain grounds to the admission of a settlement petition and such a right cannot be impaired by giving retrospective operation to the provisions of the Finance (No. 2) Act, 1991. It was also submitted that, if an enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. In support of their submissions, the Commissioner of Income-tax (DRs) relied on the decision of the Supreme Court in the case of Govinddas v. ITO [1976] 103 ITR 123, wherein their Lordships have held as under (headnote):
"It is a well-settled rule of interpretation that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. If the enactment is expressly in language which is fairly capable of either interpretation, it ought to be construed as prospective only."
Yet another argument advanced by the Department before us was that the newly inserted second proviso to Section 245D(1) was applicable only to applications received on or after September 27, 1991. It was submitted that, in the circumstances, it would be but proper to hold that, in respect of settlement applications received before September 27, 1991, the Commissioner of Income-tax had a right to raise objections under the said sub-section and that the Commission has to deal with such objections under the proviso to Sub-section (1A).
4.1. Commission's decision on the issue referred to it After a very careful consideration of the submissions made before us on behalf of the applicants and the Department, we have come to the conclusion that the issue arising in these cases is squarely covered by the ratio of the Supreme Court decision in the case of R.B. Shreeram Durga Prasad v. Settlement Commission (I. T. and W. T.) [1989] 176 ITR 169 and that, in view of the said decision, it will have to be held that the amended provisions of Section 245D will be applicable not only to applications received on and after September 27, 1991, but also to applications received prior to September 27, 1991. The reasons why we have come to this conclusion have been elaborated in the succeeding paragraphs.
4.2. When Chapter XIX-A was inserted in the Income-tax Act by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, the provisions of Section 245D(1) were as under :
"245D. Procedure on receipt of an application under Section 245C.--(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 subsection unless an opportunity has been given to the applicant of being heard :
Provided further that an application shall not be proceeded with under this sub-section, if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case."
By virtue of the second proviso to Section 245D(1), an application under Section 245C could not be proceeded with under Section 245D(1), if the Commissioner objected to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Income-tax Act had been established or was likely to be established by any income-tax authority in relation to the case. The second proviso to Section 245D(1) gave a "veto" power to the Commissioner under certain circumstances. The Settlement Commission could not examine and decide whether the objection raised by the Commissioner of Income-tax under the second proviso to Section 245D(1) was well-founded or not. This provision, it would appear, had been made in view of the following observations of the Wanchoo Commission in its report.
"Any taxpayer will be entitled to move a petition before the Tribunal for settlement of his liability under the direct tax laws. We do not think that it is necessary to provide for cases being referred to the Tribunal by the Department. However, we wish to emphasise that the Tribunal will proceed with the petition filed by a taxpayer only if the Department raises no objection to its being so entertained. We consider that this will be a salutary safeguard, because otherwise the Tribunal might become an escape route for tax evaders who have been caught and who are likely to be heavily penalised or prosecuted."
This was the position of law during the period April 1, 1976, to March 31, 1979.
4.3. By Section 20 of the Finance Act, 1979, the second proviso to Section 245D(1) was omitted and, after Sub-section (1) of Section 245D, the following sub-section was inserted (see [1979] 117 ITR (St.) 77) :
"(1A) Notwithstanding anything contained in Sub-section (1), an application shall not be proceeded with under that sub-section if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case :
Provided that where the Settlement Commission is not satisfied with the correctness of the objection raised by the Commissioner, the Settlement Commission may, after giving the Commissioner an opportunity of being heard, by order, allow the application to be proceeded with under Sub-section (1) and send a copy of its order to the Commissioner."
Both these amendments became effective from April 1, 1979.
4.4. In connection with the amendments made in Chapter XIX-A by the Finance Act, 1979, this is what the Deputy Prime Minister and Minister of Finance had to say in his "Budget Speech". (See [1979] 116 ITR (St.) 34) :
"While I want to step up the drive against tax evasion, I also would like to promote greater expedition in the settlement of income-tax cases. At present, the Income-tax Settlement Commission is debarred from proceeding with a case if the Commissioner of Income-tax objects to the application being proceeded with on certain grounds. The Direct Tax Laws Committee has recommended that the application for settlement should be rejected only after the Commission is satisfied that the objection has been raised by the Commissioner on proper and valid grounds. I propose to implement this recommendation subject to the safeguard that, before overruling the objection raised by the Commissioner of Income-tax, the Settlement Commission should hear him."
4.5. In the case of R.B. Shreeram Durga Prasad v. Settlement Commission (I. T. and W. T.) [1989] 176 ITR 169 (SC), the applicant had made an application to the Settlement Commission on January 22, 1977, requesting the Commission to settle his income-tax assessments for assessment years 1948-49 to 1975-76. On August 12, 1977, the Commissioner of Income-tax objected to the settlement for the years 1948-49 to 1959-60 but agreed to the settlement being made by the Settlement Commission for the later years. The Commission, accordingly, made an order on August 24, 1977, rejecting the application for settlement for the years 1948-49 to 1959-60. The applicant, on September 20, 1977, applied to the Commission to recall its order dated August 24, 1977, since the same had been made without furnishing an opportunity of hearing as required by the provisions of the first proviso to Section 245D(1). When the said application was pending, on April 1, 1979, the Finance Act, 1979, inserted Sub-section (1A) after Section 245D(1), which empowered the Settlement Commission to overrule the objections of the Commissioner. On May 29, 1979, the applicant applied to the Commission to permit him to contest the objections of the Commissioner under the provisions of Sub-section (1A) inserted by the Finance Act, 1979, with effect from April 1, 1979. The Settlement Commission, by its order dated August 7, 1987, negatived this contention of the applicant in view of the position of "law which prevailed on August 24, 1977", i.e., the date on which it had passed the order under Section 245D(1). This order of the Commission, viz., the order dated August 7, 1987, was the subject-matter of challenge before the Supreme Court. The Supreme Court firstly held that the order passed by the Commission on August 24, 1977, was a nullity as the same had been passed without giving a hearing to the applicant "in violation of the principles of natural justice". Thereafter, their Lordships, in their judgment, have observed as under (at page 174) :
"If that is so, then the order made in violation of the principles of natural justice was of no value. If that is so, then the application made for the settlement under Section 245C was still pending before the Commission when the amendment made to the Finance Act of 1979, came into effect and the said amendment being procedural, it would govern the pending proceedings and the Commission would have the power to overrule the objections of the Commissioner."
4.6. From the above, it is abundantly clear that, according to the Supreme Court, the amendments made by the Finance Act, 1979, with effect from April 1, 1979, which had the effect of depriving the Commissioner of Income-tax of his "veto" power and empowering the Settlement Commission to overrule the objections raised by the Commissioner of Income-tax, only changed the procedure to be followed by the Settlement Commission while dealing with settlement applications and that the changed procedure applied to pending applications.
4.7. In view of the Supreme Court decision, in the case of R.B. Shreeram Durga Prasad v. Settlement Commission (IT. & W.T.) [1989] 176 ITR 169, we are of the opinion that the amendments made in Section 245D by the Finance (No. 2) Act, 1991, have only changed the procedure to be followed by the Settlement Commission while dealing with settlement applications and that the changed procedure would apply not only to applications made to the Settlement Commission on and after September 27, 1991, but also to settlement applications filed before September 27, 1991, which were pending as on September 27, 1991.
5. In view of the foregoing discussion, our answer to the question referred to us (vide para 1.3 above), is as follows :
In a case where the settlement petition made under Section 245C before September 27, 1991, is pending as on September 27, 1991, the objections raised by the Commissioner of Income-tax to the admission of the petition under Section 245D(1A) have not to be considered and disposed of under the proviso to Section 245D(1A), but the question of admission or rejection of such a petition has to be decided having regard only to the provisions of Section 245D(1) in view of the fact that Sub-
section (1A) of Section 245D has been omitted by the Finance (No. 2) Act, 1991.
6. Having regard to the aforesaid discussion, the, respective Benches of the Settlement Commission may pass appropriate orders under Section 245D(1) on the settlement petitions.