Delhi High Court
Vatika Farms Private Limited Through ... vs Union Of India (Uoi) Through Its ... on 18 December, 2007
Equivalent citations: (2008)216CTR(DEL)25
Author: Madan B. Lokur
Bench: Madan B. Lokur, S. Muralidhar
JUDGMENT Madan B. Lokur, J.
1. In this batch of writ petitions, the prayer made by the Petitioners is to the effect that the provisions of Section 245D(2A), Section 245D(2D), Section 245D(4A) and Section 245HA(1) of the Income Tax Act, 1961 (for short the Act) be declared unconstitutional.
2. The provisions under challenge relate to settlement applications made by the Petitioners to the Settlement Commission (for short the Commission) under 245C of the Act prior to 1st June, 2007. Broadly speaking, the sections provide for the following:
(i) If a settlement application is not yet admitted for hearing, then it would be deemed to be admitted for hearing if the applicant pays the admitted or additional income tax and interest thereon or before 31st July, 2007. [Section 245D(2A)].
(ii) If the applicant pays the additional tax and interest before 31st July, 2007 then the date of admission of the application shall be deemed to be 31st July, 2007. [Explanation to Section 245D(2A)]. If the applicant does not pay the additional tax and interest thereon before 31st July, 2007 then the application shall be deemed to have been rejected on that date. [Explanation to Section 245D(2A)].
(iii) If a settlement application had earlier been admitted for final disposal (prior to 1st June, 2007) even then the additional tax and interest thereon has to be paid before 31st July, 2007. [Section 245D(2D)]. If the additional tax and interest is not paid, the consequences laid down in the Explanation to Section 245D(2A) would follow. This is notwithstanding any extension of time having earlier been granted by the Commission for payment of additional tax.
(iv) Every settlement application filed before 1st June, 2007 and admitted for hearing by the Commission shall be finally decided in accordance with Section 245D(4) of the Act before 31st March, 2008. [Section 245D(4A)].
(v) Even if an applicant who has filed a settlement application before 1st June, 2007 pays the additional tax and interest before 31st July, 2007 but the Commission does not dispose of the settlement application on or before 31st March, 2008 then the settlement application would abate on that date. [Section 245HA(1)].
(vi) The consequence of abatement of a settlement application in terms of Section 245HA(1) is that the proceeding before whom the case was pending prior to 1st June, 2007 shall continue before that authority as if no settlement application was made under Section 245C of the Act. [Section 245HA(2)].
(vii) The authority acting under Section 245HA(2) of the Act would be entitled to use all materials and information available with the Commission during the course of proceedings before him. [Section 245HA(3)].
3. The provisions under challenge were introduced in the Act by the Finance Act, 2007 with effect from 1st June, 2007 and this batch of writ petitions was filed in the last week of July, 2007. Between 26th July, 2007 and 30th July, 2007 we heard the interim applications for stay filed by the Petitioners and passed interim orders to the effect that the settlement application filed by the Petitioners would not abate due to non-payment of interest on the additional tax and that the Commission should dispose of their settlement application on or before the cut-off date of 31st March, 2008 as postulated by the Finance Act, 2007.
4. We took up WP (C) No. 5462/2007 as the main case and the facts discussed in this order pertain to this writ petition. The interim order was passed in this writ petition in CM No. 10116/2007 on 30th July, 2007.
5. Before the interim order could be confirmed, the Respondents filed an application being CM No. 11964/2007 seeking its vacation. The prayer made by the Respondents in the application is to the effect that the Petitioners may be directed to pay interest on the additional tax before the settlement application filed by the Petitioners is proceeded with by the Commission.
6. On a reading of the limited prayer made by the Respondents, it appears that they intend to dispose of the settlement application filed by the Petitioners on or before 31st March, 2008, which is the cut-off date as provided in Section 245HA(1) of the Act. The only requirement of the Respondents is that the Petitioners pay interest on the additional tax due and paid by the Petitioners as a result of their filing the settlement application.
7. It is in the light of the above limited prayer made by the Respondents that we are proceeding to dispose of the application for stay being CM No. 10116/2007 and the application for vacation of stay filed by the Respondents being CM No. 11964/2007.
8. We may mention that initially, we were inclined to finally dispose of the writ petitions and had actually heard them for final disposal but during the course of hearing, we felt considerably handicapped by the absence of any material on record, let alone relevant material, which would help us in determining the constitutional validity of the challenged provisions. We, therefore, decided not to dispose of the writ petitions finally but only dispose of the applications as mentioned above.
Procedure prior to 1st June, 2007
9. Broadly, Chapter XIXA of the Act deals with settlement of cases and this Chapter, as it stood prior to 1st June, 2007, entitled the Petitioners to move a settlement application under Section 245C of the Act containing a full and true disclosure of their income, which had not been earlier disclosed before the Assessing Officer and to have their case settled by the Commission. The pre-condition was that the applicant was required to deposit the additional amount of income tax payable on such income. There are some exceptions to this general rule but these do not concern us for the time being.
10. A settlement application under Section 245C of the Act was required to be considered by the Commission under Section 245D of the Act. The Commission was entitled to reject the application or to allow it to be proceeded with, that is to say that it was entitled to admit the settlement application for final disposal.
11. Upon admission of the settlement application, the applicant was required to pay the additional income tax on the income disclosed in the settlement application but by virtue of Section 245D(2B) of the Act, the Commission could, for good and sufficient reasons, extend the time for payment of the additional tax or even allow the applicant to pay the additional tax by installments if the applicant furnished adequate security for the payment thereof.
12. It is significant to note that prior to the amendment brought about by the Finance Act, 2007 an applicant was not required to pay any interest on the additional income tax except where the Commission had extended time for payment of the said amount or where it had allowed payment thereof by installments. However, at the time of passing the final order under Section 245D(4) of the Act, the Commission could pass an order with regard to payment of interest on the additional income tax.
13. The interest payable on the additional amount of income tax is referable to Sections 234A, 234B and 234C of the Act. It appears that on an earlier occasion, the Commission had either waived or reduced the interest payable under Sections 234A, 234B and 234C of the Act and a Constitution Bench of the Supreme Court in Anjum M.H. Ghaswala v. Commissioner of Income Tax endorsed the view of the Commission and held that it had no power to waive or reduce the quantum of interest. It was brought to our notice by learned Counsel for the Petitioners that in Brij Lal v. Commissioner of Income Tax , the Supreme Court has referred the issue with regard to payment of interest under Sections 234A, 234B and 234C of the Act to a larger Bench and while doing so, it has stayed the recovery of interest under these sections pursuant to orders passed by the Commission.
Procedure after enactment of the Finance Act, 2007
14. The material part of the procedure as it earlier existed was changed when Parliament enacted the Finance Act, 2007 and it was brought into force with effect from 1st June, 2007. The significant changes brought about are that apart from the additional income tax, the applicant is also required to pay interest thereon and that the total payment is required to be made on or before 31st July, 2007. In terms of Section 245D(2B) of the Act, the benefit that an applicant may have obtained of making a deferred payment or payment in installments, is given a complete go-bye, making it mandatory for the applicant to deposit both the additional tax as well as interest thereon on or before 31st July, 2007.
15. Additionally, in terms of Section 245HA(1) of the Act, if the applicant does not either deposit the additional income tax and the interest thereon by 31st July, 2007, the settlement application will abate on that date. Furthermore, if the Commission fails to dispose of the settlement application finally on or before 31st March, 2008 then too, the settlement application will abate. In either event, the applicant would then be liable to undergo a regular assessment.
16. The problem with undergoing a regular assessment, in so far as an applicant is concerned, is that the Revenue, in terms of Section 245HA(3) of the Act, is entitled to use all the material and information produced by the applicant before the Commission, as indeed all other material available with the Commission. An applicant faced with such a situation, cannot withdraw his settlement application, nor is he entitled to any refund of the additional income tax and interest thereon, if the settlement application abates due to its non-disposal by the Commission.
The grievances of the Petitioners
17. On these broad facts, the grievances, as outlined by the Petitioners, are as follows:
(a) Whereas earlier the applicant was only required to deposit the additional income tax, either in a lump sum or by way of installments, now by virtue of Section 245D(2D) of the Act, the applicant is required to deposit the additional income tax as well as interest thereon calculated under Sections 234A, 234B and 234C of the Act on or before 31st July, 2007. In other words, the payment has to be made within a period of two months regardless of the amount of additional income tax or interest thereon. The time limit of 31st July, 2007 is sacrosanct and cannot be extended.
(b) In the event the additional income tax and interest thereon is not deposited by the applicant, the settlement application will abate on 31st July, 2007. However, if the additional income tax and interest is deposited by the applicant but the Commission does not dispose of the settlement application on merits on or before 31st March, 2008, then as per Section 245HA(1) of the Act, the settlement application will abate. The abatement on 31st March, 2008 is regardless of the fact that the applicant may have cooperated in disposal of the settlement application but for reasons best known to it, the Commission is unable to dispose of the settlement application by that date.
(c) In the event the settlement application abates, even though for reasons not attributable to the applicant, the material available with the Commission can be used against the applicant in a regular assessment which will follow as a consequence of abatement of the settlement application.
(d) Even if the applicant pays the additional income tax and interest thereon but the Commission is unable to decide the settlement application on or before 31st March, 2008 resulting in abatement of the settlement application, there is no provision for refund either of the additional income tax or interest thereon.
(e) It is not possible for an applicant to calculate the interest under Sections 234A, 234B and 234C of the Act since the final assessment made by the Commission may be different from the assessment made by the applicant and if the final assessment is on the higher side, the applicant may have to face the consequences of non-deposit of interest on the additional income tax by 31st July, 2007.
(f) The question whether the applicant is at all liable to pay interest under Sections 234A, 234B and 234C of the Act is pending before a larger Bench of the Supreme Court in Brij Lal.
(g) There is no provision permitting an applicant to withdraw the settlement application filed by him, to avoid any prejudice that may be caused by the amendments made to the Act by virtue of the Finance Act, 2007.
18. We had taken some of these factors into consideration while passing the interim order on 30th July, 2007 and to ensure that the Respondents comply with the law and the Petitioners do not suffer any prejudice, we had also required the Respondents to dispose of the settlement application on or before 31st March, 2008 so that the proceedings do not abate in terms of Section 245HA(1) of the Act. Again, as mentioned above, the Respondents have filed an application for vacation of stay in which they do not say that they cannot dispose of the settlement application before 31st March, 2008 but all that they pray for is that the Petitioners should pay interest on the additional income tax. We are, therefore, proceeding on the basis that according to the Respondents, they can dispose of all the pending settlement applications on or before 31st March, 2008.
Submissions and discussion
19. When we heard the matter, we required the learned Additional Solicitor General appearing on behalf of the Respondents to place before us the Statement of Objects and Reasons for enacting the amendments to the Act by the Finance Act, 2007. The learned Additional Solicitor General informed us that there is no Statement of Objects and Reasons for making the amendments. The learned Additional Solicitor General also did not put up any papers before us such as a Cabinet Note or any other document which could suggest why the amendments were made in the Act. All that he said was that Parliament, in its wisdom, decided to amend the Act and we cannot question this wisdom.
20. The counter affidavit filed by the Respondents to the writ petition also does not indicate any reason at all why the amendments to the Act were necessary. All that we have been told orally is that because cases were pending before the Commission for several years, and were not being disposed of, it became necessary for Parliament to introduce the drastic measures that it did and that we cannot question the wisdom of Parliament in this regard. The simple answer to such a submission is that if the Commission does not function effectively, the Respondents should find out the causes for its deficient functioning and remove the bottlenecks. Rather than do that, the Act was amended.
21. We may have misunderstood the learned Additional Solicitor General, but his argument sounds a bit like throwing out the baby with the bathwater. But be that as it may, in so far as the wisdom and intention of Parliament is concerned, there can be no doubt that cases pending before the Commission should be disposed of expeditiously. This is a salutary requirement inasmuch as speedy disposal of cases is absolutely necessary; but, at the same time, it is certainly not advisable to ride rough-shod over the rights of citizens if speedy justice cannot be delivered.
22. The Comptroller and Auditor General of India has submitted a report for the year ended March, 2006 [Union Government (Direct Taxes) No. 8 of 2007]. Page 33 of this Report is quite instructive and it gives the table of cases settled by the Commission over the last three financial years. The table is reproduced below:
TABLE 2.26: CASES SETTLED BY THE SETTLEMENT COMMISSION Year Opening Addition Total cases Number of cases Percentage of Number of balance for disposal settled cases settled cases pending 1 2 3 4 5 6 7 Income Tax 2003-04 2, 4644912, 9551886.372, 7672004-052, 7674273, 19437211.652, 8222005-062, 8224773, 2993019.122, 998 Wealth Tax 2003-04 66 Nil 6600.0066 2004-05 66 Nil 6611.5265 2005-06 652670067
23. A perusal of the above table shows that the Commission has not been able to dispose of pending settlement applications fast enough to cope up with the fresh institutions. We have been told by learned Counsel for the Petitioners that the pendency figure of 2005-06 of 2,998 pending settlement applications has now swelled to over 4,500 pending settlement applications. If this is so, it appears to us that it is virtually impossible for the Commission to dispose of all the pending cases that we are concerned with in Delhi (apart from a large number of cases said to be pending in Mumbai, Chennai and other places) on or before 31st March, 2008.
24. The consequence of non-disposal of the pending settlement applications by the Commission is that a large number of them will abate and the applicants will have to face regular assessment on the basis of material that they have disclosed in confidence along with their settlement applications. This will, no doubt, seriously prejudice the applicants but the Respondents do not seem to be concerned about it. The noble intention of Parliament is sought to be defeated by the Respondents by frustrating the implementation of the law, without actually saying so. Is this what speedy justice is all about? It is in this context that we say that the rights of citizens cannot be trampled over by the Respondents, under the banner of speedy justice.
25. It was urged by the learned Additional Solicitor General that there is no vested right in the Petitioners to seek a settlement of their cases and that there was always a requirement in law, even prior to the impugned amendments, that the applicant should pay both the admitted amount of tax on the income disclosed as well as the interest thereon. Reliance was placed on a judgment of the Supreme Court in Commissioner of Income Tax v. Hindustan Bulk Carriers . We are not able to agree with this submission. This position does not, in our view, emanate from a reading of the provisions as they stood prior to the amendment. This was also not the Revenue?s understanding of the provisions as they stood prior to the amendments. In fact, none of the Petitioners here, some of whom have been waiting for the disposal of their applications by the Commission for over ten years, have been ever called upon to pay interest on the admitted tax relatable to the disclosed income. The judgment in Hindustan Bulk Carriers also does not deal with this aspect as is evident from the question considered by the Supreme Court as set out at page 455 of the Report in the opinion of Pasayat, J. Another factor that weighs with us in rejecting the contention is that it is not as if the Commission is being wound up once and for all. The retention of the provisions relating to waiver of penalties contra indicates this position. Therefore, the question centres around the rationale for picking 31st March, 2008 as a deadline for deciding cases pending with the Commission prior to 1st June, 2007. As mentioned earlier, the Respondents have till date been unable to show us the basis for choosing this date apart from saying that it is the wisdom of Parliament.
26. The learned Additional Solicitor General then proceeded on the basis that the integrity of the applicants are doubtful and that is why they have applied for settlement of their cases. We cannot proceed on this assumption since every person is presumed to be innocent until he is found guilty and in so far as the settlement applications pending before the Commission are concerned, there is no question of anybody being guilty or innocent. There may be a variety of reasons prompting an applicant to approach the Commission for settlement of their case, some of which may have absolutely no connection with the integrity or otherwise of the applicant.
27. However, since the Respondents have not expressed their inability to decide the settlement application of the Petitioners before 31st March, 2008, we assume (theoretically) that it is possible that the Respondents may set up a very large number of Benches of the Commission to deal with the pending settlement applications so that they are disposed of on or before 31st March, 2008. We certainly cannot overlook this theoretical possibility but as things stand today, it seems a remote possibility considering what we have been told by learned Counsel for the Petitioners that over the last few months since 1st August, 2007, less than 15 settlement applications have been disposed of by the Commission.
28. Where we really find difficulty in proceeding to decide on the merits of the writ petition is the complete absence of any effective assistance rendered by the Respondents by way of facts or figures which could suggest that the amendments to the Act are not only necessary, but do not fall foul of constitutional imperatives. In view of this handicap, we are not inclined to dispose of the writ petitions finally at this stage because of the theoretical possibility that all these petitions may become infructuous if in fact the settlement applications of the Petitioners before us are decided by the Commission on or before 31st March, 2008. What the factual position would be can only be known when we are quite close to 31st March, 2008. In fact, the learned Additional Solicitor General had at one point of time submitted that the present writ petitions may be pre-mature since the crucial date of 31st March, 2008 is still quite far away.
29. Taking the learned Additional Solicitor General at his word and proceeding on the basis of the limited prayer in the application filed by the Respondents for vacation of stay, we do not think it appropriate to express any opinion on the contentions canvassed by learned Counsel for the Petitioners except to say that all the grounds raised by them may not necessarily be germane to taking a decision on the constitutional validity of the provisions that have been challenged by them. But we leave it at that.
30. But, given the fact situation as it exists today, and on the basis of the submissions put forward before us, we are of the opinion that it would be appropriate for us to wait for a while and to cross the bridge when we reach it and take a decision on the constitutional validity of the amendments made to the Act by virtue of the Finance Act, 2007 at the appropriate time. For the present, we need only reiterate that the Respondents have not submitted or stated that they cannot dispose of the pending settlement applications before 31st March, 2008. That being so, we expect them to do so, and this requires us to only confirm the directions that we had given in this regard on 30th July, 2007.
31. In so far as the financial aspect is concerned, namely, payment of interest on the additional amount of income tax, we do not think that it is possible for us to vacate the interim order passed by us or to direct the Petitioners to pay interest at this stage. The Petitioners were suddenly saddled with a huge liability without any reference to their financial capacity. If the Respondents are really keen on having the interest amount from the Petitioners on the additional income tax paid by them, perhaps the Respondents would be well advised to take a less rigid stand in this regard. While arriving at this conclusion, we have also noted the contention of the Petitioners that in the event the settlement application abates due to the failure of the Respondents to decide it before 31st March, 2008 not only will they be prejudiced in their regular assessment but they would not be entitled to refund of the interest paid by them. The Petitioners cannot be made losers, whatever the eventuality.
32. The interim order passed on 30th July, 2007 is, therefore, confirmed in this case and similar interim orders passed in the connected cases are also confirmed. The applications filed by the Respondents in this case as well as in the connected cases for vacation of stay are dismissed.
33. Both the applications stand disposed of.
34. List the matter for directions on 3rd March, 2008 before the appropriate Bench as per the roster.
35. We wish to make it clear that any observation made by us on the merits of the controversy is only for deciding the applications pending before us, and would not, of course, bind the Bench which finally hears the writ petitions.
36. A copy of this order be given dusty to learned Counsel for the parties.