|
In pursuit of knowledge |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Abatement of Settlement Applications – An alternative to present litigation Direct Taxes S. R. Wadhwa |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Income Tax Settlement Commission-a high powered judicial forum, manned by very senior officers of the Income-tax Department, was set up in 1976 at Delhi to settle, once for all, complex income-tax/wealth tax cases or those requiring prolonged and cumbersome investigation. Since 1981, it has four Benches each functioning at Delhi, Mumbai, Kolkata and Chennai. Over the years, the pendency of settlement applications grew despite directory provision, introduced w.e.f. 1-6-2002 in sub-section (4A) to section 245D of the Income-tax Act, requiring the Commission to settle every case within 4 years from the end of the year of its admission, where it was possible. Reasons for increasing pendency of settlement applications The main reason for the increase in pendency was the in-ordinate long time taken by the Commission in admitting the applications for settlement leaving little time to settle the cases. The legal justification was provided by the judgement of the Supreme Court in CIT vs. Express News Papers Ltd. (1994) 206 ITR 443(SC) delivered in February, 1994 where, describing the scheme of settlement, the Supreme Court observed that where an applicant did not make a true and full disclosure of his income not disclosed before the income-tax authorities, his application was not maintainable and should be rejected at the threshhold. The Benches of the Commission started in-depth examination of the applications at the admission stage itself to ascertain if the disclosure was true and full. So much so, a Special Bench was set up at Delhi to lay down the guidelines and procedure for examination before admission of settlement applications. Another reason was the un-settled character of the Settlement Commission itself due to the reduction in the normal tenure of the Members of the Commission from four years to only two years and suffering several transfers as well with in this short period. Remedial action – Abatement of un-disposed of applications The Central Government took several steps to remedy the situation through the Finance Act, 2007 but, in the process, threw the baby with the tub water. The admission of settlement applications was almost made automatic on the applicant paying the entire tax and interest due on the basis of the additional tax disclosed along with the settlement application. To reduce the intake of fresh applications, their scope was restricted to the pendency of first assessment proceeding before the assessing authority. Search and seizure cases were excluded from the jurisdiction of the Commission. The additional tax payable for a settlement application was increased from Rs. 1 lac to Rs. 3 lakhs. The existence of complexity of investigation as a condition for admission of the settlement application was given up. A mandatory time limit of 12 months for passing the final order of settlement was also laid down in section 245D(4A)(ii) of the Act. These provisions were, however, made applicable to the settlement applications filed on or after 1st June, 2007. In respect of the applications filed earlier, on or before 31st May, 2007, the Finance Act 2007, required the entire tax and interest to be paid on the basis of additional income disclosed on or before 31st July, 2007 failing which, such applications were to abate. Having collected the tax and interest due, clause (i) of section 245D (4A), read with section 245HA (1) (IV), provided for abatement of such applications as were not disposed of on 31-3-2008. This was a very harsh provision and was made without due regard to the fact that there were nearly 3700 such applications pending, and keeping in view the normal annual disposal of about 500 applications, it would be totally unrealistic and virtually impossible for the Commission to dispose them off by 31st March, 2008. The consequences of the abatement were disastrous. On abatement of the settlement application, vide sub-section (2) to section 245HA, the proceedings for all the years involved there-in were to be restored to the files of the income tax authorities, i.e., Assessing Officer or the Commissioner of Income-tax (Appeals), where they were pending at the time of making the settlement application. Such authorities could use all the material and information including the material submitted before the Settlement Commission in strict confidence while making the true and full disclosure of income not disclosed before the tax authorities. Besides, such unfortunate applicants have been made to suffer the usual process of assessments, appeals etc. to the CIT (A), Tribunal, High Court and Supreme Court. They are also to face penalty for concealment of income and criminal prosecution for which, Settlement Commission had the power to grant immunity. Thus, for absolutely no fault of theirs, the applicants whose applications abated, and who had been awaiting patiently for several years for their cases to be settled by the Commission, would now suffer prolonged and ruinous litigation – a process for the avoidance of which they had gone to the Commission and made a true and full disclosure of their undisclosed income and paid full tax and interest thereon. A thousand and odd writ petitions in the High Courts/Supreme Court More than a thousand writ petitions appear to have been filed against the abatement in various High Courts/Supreme Court causing avoidable additional work in these Courts that are already suffering from huge pendency of cases The constitutional validity of the abatement provision has been challenged, among others, on the following grounds:-
Even if the abatement provisions are held valid by the Apex Court, the most laudable objective of expeditious determination of tax liability and payment of tax would be totally frustrated. In some cases, complex as they are, 22 to 30 years of litigation may ensue before the regular assessments made after abatement reached finality. Alternative to the litigation Let us, therefore, examine if all these litigations causing great hardship to the unfortunate applicants is worthwhile or there is some better alternative to the litigation in the High Courts/ Supreme Court. For this purpose, let us examine the quantitative dimension of the problem. The bench-wise work-load of settlement applications both with regard to the old applications which were to have abated and the new applications filed on or after 1-6-2007, is as under:- Bench wise institution and disposal of settlement applications during the F.Y. 2007-08*
|