The Hindu Business Line : Diluting the powers of Settlement Commission

The Settlement Commission is a high-powered body, established on the recommendations of the Wanchoo Committee. The Committee was discussing black money and tax evasion. It expressed the view that in the administration of fiscal laws, whose primary objective is to raise revenue, there has to be room for compromise and settlement. It referred to the “confession” method in vogue in the UK since 1923.

The orders of the Settlement Commission are taken as final and, normally, High Courts are reluctant to entertain writ petitions against such orders.

An application for settlement can be made at any stage of the proceedings pending before any income-tax authority. The additional tax payable upon disclosure before the Settlement Commission in the application should be at least Rs 1 lakh. The tax payable is allowed to be paid after the application for settlement is admitted. There is no time limit for finalisation of the settlement on the application filed by the taxpayer. All this is set to change.

Sweeping alterations

The Finance Act, 2007 has made radical alterations with regard to the powers, procedures and functioning of the Settlement Commission. W.e.f. June 1, 2007, an application before the Settlement Commission can be made only if the additional tax payable is at least Rs 3 lakh. Application can be made only at the stage of the pendency of the original assessment proceedings before the assessing officer (AO).

Hereafter, no application can be made when proceedings are initiated for assessment or reassessment under Section 148 of the Income-Tax Act, 1961. The same applies to proceedings initiated in search cases under Section 153A of the Act. Proceedings for making fresh assessment when original assessment was set aside either by the Commissioner or by the Tribunal will also be outside the purview of the application for settlement.

Tax payable on the income disclosed in the application should be paid along with interest on or before the date of making the application. Within seven days of the application, the Settlement Commission will issue a notice to the applicant to explain why his application must be admitted. Within 14 days, the Settlement Commission should pass on order either allowing the application to be proceeded with or rejecting the same.

At present, a major consideration for allowing the application for settlement is the complexity of the case and the investigation. Hereafter, complexity will not be criteria for considering a case.

If the Commission passes no order within the period prescribed, the application will deemed to have been allowed to be proceeded with.

The Commission should hear the Commissioner of Income-Tax concerned within 30 days of the receipt of the application for settlement. If the Commissioner defaults in sending the report, the Commission may proceed further in the matter. The final order will have to be passed by the Commission within nine months from the end of the month in which the application for settlement was received. The Commission will, henceforth, have no power to reopen the completed proceedings.

Grant of immunity

Two other important amendments relate to the powers of the Settlement Commission to grant immunity. Before the amendment by the Finance Act, 2007, the Commission was empowered to grant immunity from prosecution under all Central legislation. After the amendment, the Commission can grant immunity only under the I-T and the Wealth tax Acts. The scope for prosecution under other legislation, such as the Prevention of Corruption Act, the Indian Penal Code and the Narcotics Act, will remain open hereafter.

The amendment lays down that hereafter an application can be made by an assessee for settlement before the Commission only once in a lifetime.

Diminution of status

The Supreme Court had considered the status of the Settlement Commission vis-À-vis the Central Board of Direct Taxes in the Anjum Ghaswala (252 ITR 1), Damani Brothers (254 ITR 91) and Hindustan Bulk Carriers (259 ITR 449) cases. This was in the context of waiver of interest. These cases have resulted in the diminution in the status of the Commission.

In an early case on the subject, Jutice V. R. Krishna Iyer had observed: “The Policy of the law as disclosed in Chapter XIX A is not to provide a rescue shelter for big tax-dodgers, who indulge in criminal activities by approaching the Settlement Commission.”

The amendments made by the Finance Act, 2007 will result in the slow death of the Settlement Commission. It will be worthwhile to ponder what brought about these radical changes to downsize the powers and functions of the Settlement Commission.

(The author is a former Chief Commissioner of Income-Tax.)