Karnataka High Court
The Commissioner Of Income Tax vs The Vysya Bank Ltd on 20 May, 2010
Author: H N Nagamohan Das
Bench: H N Nagamohan Das
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 20"' DAY OF MAY, zajo I ;;Lf f _
BEFORE I _
THE HON'BLE MR. JUSTICE H,N. I\:A<}AMOH'AI~I' DADS'
W.P.N0.12239I'2Q08 , "
BETWEEN:
1. THE COMMISSIONEROF.
BANGALORE--I,BANGALORE '
I FLOOR, C.R.BU1LDINGS,"' -- '
BANGALORE:§'G'{}QE)1.
2. THE UNION,OE INIDIAW I T-
MINISTRY OE,F'11*<'ANCE" "
REP. BY REV'~E;5NUEV':,SECRETARY
DERAR.TMENT"OE~ A
NEW DELHI. ~ * ,
" ..PETI'I'IONERS
(By«:%3rIV.DR.R.E,KR:,ISHN,A, ADV. FOR P1.
" , ''-----sRIfM.'v,SEsHA'CHALA, ADV. FOR P2)
1.' VVY:S--j1'A BANK LTD.,
(NOW INGNYSYA)
A SCHEDULED BANKING COMPANY
, AT..NO.72, STMARKS ROAD,
_E.AN'1GALORE--56o 001
'REPRESENTED BY ITS CHAIRMAN.
am?"
2. THE INCOME--TAX SETTLEMENT COMMISSION
(ADDITIONAL BENCH)
EXERCISING JURISDICTION WITHIN THE STATE
OF KARNATAKA AND LOCATED AT
640, ANNA SALAI, CHENNAL600035
REPRESENTED BY ITS VICECHAIRMAN.
(By SRI ASHOK A.KULI<ARNI FORE'-._
M.lS=K,R_IPR_ASAD FOR R1 _ '
R2 SERVED) *
THIS WRIT PETETEON _.FILED»__U/A' 225 5;? 227 OF
CONSTITUTION OF vIN3DIA_«'°PRA-YIN'G_A To QUASH THE
ORDER DATED 4.3.2008- 'PASSEIJ BY. THE SECOND
RESPONDENT IN SETTLEMENT' APP--LICAffI()N NO.563/I<ZNI<Z--
III/I5/2000-1'?(ANNEX--G).""@ ; .0 "peIi»f:jonEtIa\rIIi'gV.:'_'been._IIeé.rd and reserved for orders, H.N.NAGA1\»IOH;{N , "pronounced the following;
" " 'Vf W¢RDER Q Inpthis writ petition the petitioners have prayed for a writ in ETICSTIIHEETTG eertiorari to quash the Order dated 04.03.2008 passed .byL'.__tpE1e'v respondent -- Settlement Commission as per An'nexere'G.* ' '
2. First respondent is a schedule Bank and has been an Income Tax assessee for a number of years. The returns filedhhiby the first petitioner came to be processed and the Assessi--ngV..(_}fficerp completed the assessment wide order dated assessment year I997--98 as per assessment at Annexure A the Assessingflfficer byrovaght to t§§.xut1:e."~ ~' concealed income, disallowed depreciation claimedi non--existing assets and corrected in_'th'e«.accounAtinp procedure of first respondent,'Further...th:e_ iiieing satisfied that first ::incomg~»~fA1evied penalty under Sectiori._A27--l(iV,l(Vc':,:;'of Tax Act (for short 'the 13'. Act.') vide order"d_ated per Annexure B. Consequently the firstflrespondenti issued show--cause notice to the first respondent as ' ;to~wVhy.:_they«..should not be prosecuted under Section 276(c)(1), 277 . 'rea'dFwith 276(b) of the LT. Act as per Annexure C. Further notice iiindevri Section 148 of the LT. Act was issued to reopen the icoimppleted assessments of previous years. At that stage the first aijespondent filed an application under Section 245(c)(1) of the I.T. Act before the second respondent -- Settlement Commission for the WIV J assessment years 1995 to 2000 in the prescribed Form 34-13 dated 10.07.2000 as per Annexure Y. Before the Settlement Conirnission the first petitioner entered appearance and objected for;'ad'n1itting' t_he~. application filed by the first respondent on the has --« .. jurisdiction to entertain the applicationlsfileid.lo}? the first'~-respondent.' The second respor_1_d.ent. after hearing both me a.r.:_l'K order on 11.12.2000 admitting the ap'p.lica.tion etttie lflirstlljrespondent as per Annexure E. The..l:t"petiltiorier1s"~-questioned the order of Settlement Commi,ssion vAatt--t:.Annexnre this Court in w.P.No.1311_1j000.i';'"' l__."1'hi's. 4."\/giytelllercter dated 18.08.2005 disposed 11:l'1!200:l"directed the Settlement Commission to examinealli contc_ntion's,n_ot withstanding its earlier order dated Thereafterythe Settlement Commission passed the ' i_n'kpuvg11evd'.o'rderv as per Annexure-G dated 04.03.2008. Hence, this 'writ~petitior1'.: ---- it the pendency of this writ petition the Settlement Coniniission passed an order on 14.07.2009 rectifying its earlier 0' order at Annexure G allowing interest tax, granting immunity from &1..vJ'"
. _ amen;-ded.'* the imposition of penalty and prosecution under the IT Ac.t.p§n4_l\ri.ew of this development the first petitioner filed an applicatiori5.seel§ii:.g"' _ amendment of writ petition by way of incorporating'additional"fact.s, additional grounds and additional prayer.;fTh:is dated 11.09.2009 allowed the application-v.f0r atnei1;1ldi=r[12eI1t_of3 wmd' petition and accordingly the W.£".iE peti_tiert c_;a:rte .aVrnen.ded.
4. Further during the'~pendency do-f._th.is"wtit petition the Union of India filed an application under" 10 CPC to come on record as second "Ehi'a:Court yide..order dated 02.12.2009 allowedthe. irnpleVad'in:fig'appiication 7 permitting the Union of India to come on reco_rd as secoI;d 'peti'tioner. Accordingly the writ petition is l * Krishna, learned counsel for the first petitioner conten.dsV.that the Settlement Commission has no jurisdiction to enntertainfl an application under Section 245(c)(1) of the Act after detection/discovery of concealed income of the assessee by the department. It is contended that the Settiement Cornmission geese?"
committed an illegality in passing the impugned order when the first respondent had disclosed a negative income for certain assessment years which is invalid in the eye of law. It is contended_r'VVthatI' Settlement Commission committed an illegality 'following the .. so law laid down by this Court and the placed before it. The Settlement.Con1iI1ission"cornmittedVan erijorlin ; deleting the penalty and granting prosecution.
Reliance is placed on the a. Cominissioner Newspapers 14:1,'. 'C
Coni.niiVssfiotier.poflncome Tax (Central) Calcutta Vs. B N C Vol. 118 ITR 461 .. Chief.iConse_1fya,tor of Forests, Govt. of AP. Vs. Collector :A'EEl.I1l.Cl:'C)'tl'lt51'S, (2003) 3 scc 472 :l'1uC:nn1flmissioner of Income--Tax Vs. Income Tax Settlement il"i:yV.Colmmission and another, (2009) 310 ITR 10 (Mad) At Raja Ram Industries Vs. Settlement Commission Vol. 81 ITR 505 54/4"
6. Per contra Sri. Ashok A Kulkarni, learned counselr'»for._the first respondent contends that the Government of Indi_a§'_'co11stit=.itedV __a' _ committee (for short 'COD') to resolve the disputes' vet: nature that is, between one wing of the Gove.rnment --and,anot'ner"'wi_ng=:ef the Government including intrawdepartrnental vdisputeisi Aflnlynafter arr: V application has been made to approval obtained, wherever necessary, initiated by one authority against Government and not otherwise; gin' cease on one hand and S6C0I1C1_IfiSpo'fidetttil'1-any' the wings of the Central Governmetit' of clearance obtained from the COD the present" niotiirnaintainable. If the writ petition is not maintainable againstV___the. second respondent then the same is not ' rnai.ntai.nable..agai_nst the first respondent which is a private Bank. It is .c'ontendeVd--thatV the first petitioner is empowered to file appeals and to initiates legal proceedings under Section 260-A and 261 of the LT. nAct.-..p'l'here is no provision under the Act authorising the first petitioner to file a writ petition under Article 227 of the Constitution of India. Therefore the writ petition filed by the first petitioner is not rnaintainable. It is contended that after 199} the first petitionerthas no authority to object the jurisdiction of the Settlemen.t§_:CoInmi:s_si::n"' _ to entertain an application under secti0n2{l5--C ofthe In the proceeding before the Settlement Commissietjn the fir_stA.pVe'titioVner can only submit a report and he has no "power tov.qucstion: the jurigsdiction --. V ' of the Setttement Cornrnission. Aft_e_firfidelet.ion of Section_l245-C(lE) of the Act the assessee canitgo ti"1'es'V':S.:ettlement Commission even after seizure?discovery"antl¥dete¢:t.ion..hytéssessing Officer. He supports V C V
17., Sn; Senio'r counsel for first respondent has takenrne'_4throufgh' and 245-1) of the 1.T. Act and va1'id;1s amendrnentsvV_at'd.ifferent points of time and the growth of ' they_object;"s_c_ope and ambit of Settlement Commission. Learned Cou7nselsi= also distinguished the decisions relied on by the petitioners and contend that they are not applicable to the facts of 2 ~ thiscasei He supports the impugned order. Reliance is placed on the following decisions.
d_uN""' a. commissioner of Income Tax Vs. Anjurn M H Ghaswala and others, Vol. 252 ITR 2 b. Commissioner of Income--Tax Vs. Nainital . (2009) 309 ITR 335 (Uttarancha1)b_
8. Heard arguments on both the side perused' the t§*nti1'-3 writ papers. On the basis of pleadinggsiand arglu';:nent's': thelfollowing points will arise for my cortsideratiiont. i I
1) Whether theiwrit petiltiorit11ot,_mairitainable for want of g1i¢aié,ncefaorn'1::1ie cjoizllilhittee disputes(COD)?
2) Whether the,vfi1'sftVrespoi1dei1t has no authority to file the writ _ -petition"? V V 0 0°-3) lW.h'eth"e.r the Settlement Commission has no jurisdiction to "a.ad.veritertain the application of first respondent under A Sectiorii'.V2i45(c) of the LT. Act after detection and discovery of the, concealed income ?
A .li5Whether the impugned order passed by the Settlement Commission is in accordance with law ?
d....rW 10 011 point No. I
9. The first petitioner and first respondent before the second respondent ~ Settlement Cornrnissi;On.l' Theft' impugned order at Annexnre--G is passed the second.:respon'dent;'1 The prayer of the petitioners in_.this we; ipe.tition_is_; to"quashi"thei'--.. impugned order at Annexure-G. Th.ei'lfinal o'u~t_c"0:-ne this writ petition will not have any on ittxeseconct respondent. There is no prayer against the second'respondent;'~TheZ_'sec--ond respondent is only a formal p'artf;;;.l,e-."1"he lis "not"betweenpetitioners and second respondent.fVOn the between petitioners and first respondent. The c1earanee"fro1'n. COD is necessary only if there is a lis betweenhtwio vwingfs. of the Central Government. Though ii"-pet'i'tione.rs and second' respondent are the wings of Central Go_ven:nie.nt"theregis no lis between them. As such clearance from riotf..~necessary to maintain the present writ petition. The decisions 'relied on by the first respondent are not applicable to the i' --_facts..iof this case. Accordingly point No. 1 is answered in negative i V. ..._holding that the writ petition is rnaintainable. W"
On point No. II
10. First petitioner is the Commissioner of Inc-o__nie"Ta'x . Second petitioner is the Union of Indi_a,nFirst resporident'initiated proceedings before the second respondentibye.'filing 'an"'appi:iication under Section 245~»(c)(l) of the Injnpt. The fiirst peatitisnegrami firstd: * respondent are parties the pApproli.:eedi.npgs Ghibefore the second respondent ~ Settlement on merits, the second respondenrtihas pegsvsed' at Annexure G. There is --V11nd.er:fftheVagainst the impugned order atihihnnexure G is final and the same is binding nggrieved party is entitled to question the impugned' order. "at Annéirure G before this Court under Article 22'? 2of?"the"" Constitution of India. This Court in its supervisory jVu.r_'isriic.t:ion"under. Article 227 of the Constitution is entitled to review v_tire_vGAi'.iripugned order at Annexure G. Therefore the first Appetitionefis entitled to maintain the present writ petition questioning ' the impugned order at Annexure G. ii. The first petitioner is an Income Tax aitthotfityifinder Section ll7 of the Act. The first petitioner in his pivota'I"position A authority under the Income Tax Act carries with h.-i~n1~ cefrt.aiii.:im.p1ieti I powers. This implied power is essential to~.tl3ie ifiristjpeti'tionerr«.to protect the interest of the Government reventiei, to prevent,the escape from the tax liability and to take actionivagaiislst the tax evaders. Even in the absence' enabling the Commissioner togifile the."Writ:'petition_ Court there is implied power file the wiritiipetition. In addition to the firstpetiti~oiieri1.::.::A_ is impleaded as second petitioner "the impugned order at Annexure G. Therefore the first petitioner is within his powers. Accordingly point No. 2 is answered in negative holding ' theVC01'n.missioner of Income Tax is having the implied powers to 'file itiiisgwriti petition questioning the impugned order at Anne.it1i'i'e G. On point No. III
12. Under Chapter XIX--A of the II' Act the provisions relating to Settlement Commission was introduced with effect from §_ir*"' E3 01.04.1976 on the basis of the recommendations madeVVi'b§'i.the Wanchoo Committee for establishing a Settlement _ relevant portion of the recommendations reve_ais'v'th:e. legislative background and also the salient aspectvsgof the. iprovisi-ons pi'ovidii3,g for establishment of Settlement C'o_nirnission_and they;'read.asVVurider: * "This, however, does that vdoorfifor com.prorni.se with taxnayeryviisliould, forever, remain closed. In the-19adrninistra.tion.nfof"fiscal laws whose r§eV'enue, there has to be room anal settlement. A rigid aittitndeinotonlyi inh'i'oit onewtime tax--evader an unintendfingl'gdefaulter from making a clean breast of his would also unnecessarily . strainliitireiiinvestigational resources of the Department Cases Ao"f*---doubtful benefit to revenue, while needlessly proliferating litigation and holding up We would, therefore, suggest that there a provision in the law for a settlement with *~ the; taxpayer at any stage of the proceedings." 9 'T 13. The provisions under Chapter XiX--A of the IT Act came to be amended in the years 1979, 1991 and 2007. It is relevant to gL@~""
notice the changes that had occurred in the amendmentsVt».to't.the provisions under Chapter XIX--A of the IT Act. Initial.E§y""in--«l _ 1976 the provisions specified that the Cl?"=e.o*ntends'-_tlrat concealment was likely to be establishedta *.obj.ected'V:t:)_ 'the admission of the case, then"the._V Settlement Clo:mrniVsssion_.3 was,V* deharred ' from taking up the :and__g thehlobjectiolns of the Commission was to be respected.,. '4'l'9'3li)jg"amendment specifies that the Settlement'Commission1'conld.':»overrule:the. objections raised by the of establishing concealgmentr that the CIT would give its:._vie'ws the investigation and nature and circumstance_sof they have no power to object on theground that 'the_con,eealment was established or likely to be ' estteblishedy si.,nce__they would not be aware of the income disclosed. . The'-»l9§li lannendment further specifies that the CIT can only submit its urepoitw and the same shall be considered by the Settlement ~ Coinniission. It further specifies that even in the absence of a report from the CIT, the Settlement Commission can proceed and decide I the application filed by the assessee. Keeping in View the object of W"
establishing a machinery caiied Settiement Commission and the subsequent amendments to Chapter X1X--A of the i.T.vyAic_t;'e.the decisions relied on by the learned counsei on both thejside examined.
L4. The Supreme CourtVin«.__the case' of Coinimivsvsioner of Income Tax Vs. Express 1994 SC 443 held that "if the Assessing'S--V:O£t'ie'er'*=has'already discovered a conceaiment ElI'1d'.'.l'yaS gathered " Tito estabiish the particulars pf or is at a stage of investig.ation/eniduitfi-es;\yhere"--the material gathered by him is likely to estabiish income or fraud, the assessee canri-otbe allowed»-.tov defeat or forestall as the case may be, the entire ' exercise 'oI'«.vthe__income--tax authorities just by approaching the 'SettlementCornmission. In such a case, it cannot be said that he is acting Voluntarily or in good faith. The assessee shouid not be 2 Aiallowediii to take advantage of the comparatively easy course of "settiement. The assessee must face the normal channels of assessment/appeal etc. Section 245--C is meant for those assesses W"
who seek to disclose income not disclosed before the._0Qffi.cer including the manner in which such income has been "the _ department already knows and has gathered parti'cn'1ja.;S"--.pf «finch ''~ 2 income and the manner in which it has b.een:_'deri'vetii tl1en'ther:e_is"13ot disclosure by the assessee."
15. The Supreni1e'*t'0:3ioL1rti--_ihn Limited's case specifically observed:'that-it":is0 the effect of the legislative chat-mg js§ci.i:4i5'c and 2459 of the IT Act. In construed the provisions of Section conjunction with Section 245-134 of the H'. Actiias those 'shectitifis stood prior to its amendment by the Finanwcev (No. A--ct,__of_l99l. Admittedly, in the instant case, the ' first._ revspondeint filed application before the Settlement
-: Section 245--C--l of the LT. Act on 10.07.2000 for assessment years 1994-95 to 1999-2000. On the face of it the A claim' of first respondent before the Settlement Commission was Aisiubsiequent to the amendment in the year 1991. The amendment of 1991 to Section 245-01 and Section 245-13 of I.T. Act specifies that §t_,t;~"' 17 the Settlement Commission will send copy of the application of the assessee excluding the confidential portion containing additiional income disclosed to the CIT for his report on the investigation and nature and circumstances of the«-ca'sep.V 'It:'fI1rth.er specifies that in the event of the CIT not thereport the specified time then the Settlement Cornrnjssion can 'proceedigwiith C, the application in accordance with law..pviln.yiew of change in the legal position, the law laid.._idownl._by;,r_*-Supreme Court in Express Newspapers Limit.ed's case Vhas'=no= appliciationfto the facts of the pI'CS€1'llI C386.
Fl-¢'n';.i--o1.,,oa2o.rj7'««.'sec_a;;n 245.94 of the LT. Act has undergonea l"Ll,I'thC1'.Cl'lal'1g§3i3Ild'fl1C same reads as under:
V _ V "(in receipt.of an application under Section 245, the,.S_ettlement Commission shall, within seven days of receipt of the application, issue a noticelptoll the applicant requiring him to explain as to it ..wh.y.the application made by him be allowed to he proceeded with, and on hearing the applicant, the Settlement Commission shall, within a period of fourteen days from the date of the application, by an J"
18
order in writing, reject the application or allow the application to be proceeded with."
17. From a reading of the above section it is V. ' word 'report of the Comrrnssioner' and the word 'cori2p1evxlity'i' hatvef V' « been left out. The only person who has hea.:d._by: iélettlenientl Commission is the assessee. A combined reading of section"245--'C..l '- and Section 245--D--1 of the I.T. xi\ict.y:rna.nifestIy_iniahes ittpcilear that the CIT=s power to object 't¢~~./the made byitheiiassessee is narrowed down. The wordjat a;;yf'.'gt5fVge'.s*iii"semen 245431 of the III'. Act specifies even. atithe; staged theappeal pending before the first Appellate"-.. the assessee can go before the Settlement"Commission andeedisclose the true and correct income. 'I'hVerefore' the asfse'ssee__can go before the Settlement Commission at ._stage. 'e.yen___after detection/investigation by the Assessing 'An'thority.~:
1»-.8.' Inf the event of the Assessing Authority detecting the concealed income, then he is entitled to pass assessment orders vbringing the concealed income to tax liability, impose penalty and JN 19 initiate prosecution proceedings. This power is also availablepwith the Settlement Commission. If the Settlement Comrr§iis'sio.r1v--~--.holds"« _ that there is deliberate concealment of income by _tl'1e'assessee. then it has got the power to bring the conceded:<ine_orne, to.impose"'interest,e penalty and to order for pros'eicution. "l'herefoi'eii.t' vc.ann.ot be contended th t in the event of detection;_b}z_pthe Zxssessingfiflfficer an application under Sectiontiitii 24fi.~t3:?{.'1 _I.'1'. Act is not maintainable. If snch_. an then the very object of establishing in Commission will be defeated. 3 in negative.
l9.iii's«--.s:iflie iicontentioiri of the petitioner that the first res_pdndent u had A' "on1_y__y.disclosed negative income for 'certain ' assessmeritt ..is unacceptable to me. The settlement commission in the impngnead order directed the first respondent to pay tax on undisclosed income with interest. Except this contention no other X1' " conte.ntion is urged with regard to the merits of the impugned order. &..u'~'°°' 20
20. On the question of granting immunity from penalty and prosecution, the reasoning of the settlement commissi_on"'i.s contrary to the admitted facts. The reasoning of V' commission under these heads is vague, tmseatnd and contrary tofthe'-t established principles of law. it is not that .subsequent~ the order of Assessing Officer "to tax, disallowing depreciation claimed, coriec_t_ing"c.e.rtainll anomalies in the accounting procedure, after' show cause notice to prosecuté .._ and:-llaly the completed assessments, ;thel"_firstv"respond_en*t .__ii1ed».:an application before the Settlement Conrrnissionfiunder.:S"~r:tio'n 245(c) (.1) of the IT Act. The burden is on" the first relspoizdiejnt to prove that concealment did not a1ise_i_?rornc*.any fraudlior any gross or wilful neglect on their part.
in is noi.such'~--eyidence placed by the first respondent before the Settlement Comritiislsion. In the absence of convincing explanation V . and e.y'idenVce,"the Settlement Commission committed an illegality in «granti.n_g immunity from penalty and prosecution. It is necessary that .l Settlement Commission shall record a finding whether there is deliberate concealment or not. There is no such finding in the as '21 impugned order. On this ground the impugned order in so far as it relates to grating immunity from penalty and prosecution is Eiable to be quashed.
For the reasons stated above, the following order'.~ V ii"
i) H\ my
iii) The writ petition is partly alilovved'.
1
The impugned order roassedlézxy the second respon=de'm V' dated 4.2.2008 Anne)rure¥G in--so~.faras itiivrelates to granting imrniun-ity frornand prosecution and annulling the or_d'er__cf:iasises'sing~ifoffieer in so far as lexéyingvpenpalty Remaining all ' other 'aspects tlh-::y_.ifim;}u'gned order remains undisturbed. rnatterA._isw.r:emanded to the second respondent -- VSettle1n.ent__'Comrnission for limited purpose of reconsidering the question of penalty, prosecution and if l'.V--i'rjtheF'iorder of assessing officer levying penaity after if providing an opportunity to both the parties. Ordered accordingly.
gal -
11399"