The Hindu Business Line : Pre-conditions for settlement

The Government has not proposed any voluntary disclosure scheme, which grants immunity to tax evaders. But, then, there is no need for such a scheme because the Income-Tax Act has a set of provisions that permits a tax-payer to go before a statutorily-constituted Settlement Commission. H. P. Ranina on the Commission and the procedures involved.

THE GOVERNMENT has shown its determination to avoid the temptation of coming up with voluntary disclosure schemes, which grant immunity to tax evaders. In fact, there is no need for such schemes because the Income-Tax Act, 1961, has a separate set of provisions, which permit a tax-payer to go before a statutorily-constituted Settlement Commission.

The Commission is constituted by the Centre for the settlement of cases under Chapter XIX-A. The expression "case" as appearing in Section 245-A(b) refers to any proceeding under the Act for the assessment or reassessment of income of any person in respect of any year or years by way of appeal or revision in connection with such assessment or reassessment which may be pending before any income-tax authority on the date on which an application under Section 245-C(1) is made.

It further provides that where any appeal or application for revision has been preferred after the expiry of the specified period and which has not been admitted, then the same shall not be deemed to be a proceeding pending within the meaning of Section 245-A(b).

The scheme of Chapter XIX-A shows that the filing of application by the assessee is a unilateral act, and the department may not be aware of the same. It has to be noted that if an application for settlement is filed under Section 245-C, it is not automatically admitted.

Section 245-D deals with procedure on receipt of an application under Section 245-C. Under sub-section (1) thereof, the Commission after following the prescribed procedure can allow the application to be proceeded with or rejected. Only after the Commission allows the petition to be proceeded with, it exercises the power of settlement.

One basic feature of Chapter XIX-A is that it relates to income, which was not disclosed before the income-tax authorities.

Section 245-C(1) makes it clear that at any stage of a case relating to him an assessee may make an application to the Commission disclosing fully and truly his income which has not been disclosed before the Assessing Officer. To put it differently, an assessee cannot approach the Commission for settlement of his case in respect of an income, which has already been disclosed before the Assessing Officer. The income disclosed as contemplated is in the nature of voluntary disclosure of concealed income.

Section 245-F dealing with powers and procedure of Settlement Commission provides that in addition to the powers conferred on the Settlement Commission under Chapter XIX-A, it has all the powers which are vested in the income-tax authority under the Act. Sub-section (2) is of vital importance and provides that where an application made under Section 245-C has been allowed to be proceeded with under Section 245-D, the Commission would, until an order is passed under Section 245-D(4), subject to the provisions of Section 245-D(3), have exclusive jurisdiction to exercise the powers and perform the functions of the income-tax authority under the Act in relation to the case. In essence, the Commission assumes jurisdiction to deal with the matter after it decides to proceed with the application and continues to have the jurisdiction till it makes an order under Section 245-D.

Section 245-D(4) is the charging section and sub-section (6) prescribes the modalities to be adopted to give effect to the order. It has to be noted that the language used in Section 245-D is "order" and not "assessment". The order is not described as the original assessment or regular assessment or reassessment. In that sense, the Commission exercises a plenary jurisdiction.

The Commission's power of settlement has to be exercised in accordance with the provisions of the Act. Though the Commission has elbow room in assessing the income of the applicant, it cannot make any order with a term of settlement which would be in conflict with the mandatory provisions of the Act, like in the quantum and payment of tax and the interest. The object of the Legislature in introducing section 245-C is to see that protracted proceedings before the authorities or in Courts are avoided by resorting to settlement of cases. In this process, an assessee cannot expect any reduction in amounts statutorily payable under the Act.

A bare reading of Section 245-D(6) shows that every order passed under sub-section (4) has to provide the terms of the settlement and also to provide that the settlement would be void if it is found subsequently by the Commission that it has been obtained by fraud or by misrepresentation of facts. The plea of the assessee that the initiation of proceeding to find out as to whether the order has been obtained by fraud or misrepresentation of facts has to be initiated by the Commission suo motu is not spelt out in the said sub-section. It is a statutory requirement that a condition has to be incorporated in the order passed under sub-section (4) specifying that the settlement would be void if it is subsequently found by the Commission that it has been obtained by fraud or misrepresentation of facts.

The decision whether the order has been obtained by fraud or misrepresentation of facts is that of the Commission. However, it is not a requirement that the Commission must suo motu initiate the action.

If the Revenue has material to show that the order was obtained by fraud or misrepresentation of facts, it certainly can move the Commission for decision on that issue. Otherwise, even if in a given case there is material in abundance to establish that the order was obtained by fraud or misrepresentation of facts, yet the void order would continue to be operative because of the fortuitous circumstance that the Commission does not suo motu initiate the proceeding.

The foundation for settlement is an application, which the assessee can file at any stage of a case relating to him in such form and in such manner as is prescribed. The statutory mandate is that the application should contain "full and true disclosure" of the income, which has not been disclosed before the Assessing Officer. The fundamental requirement of the application under Section 245-C is that full and true disclosure of the income has to be made, along with the manner in which such income was derived.

On receipt of the application, the Commission calls for a report from the Commissioner and on the basis of the material contained in the report and having regard to the nature and circumstances of the case or complexity of the investigation involved therein, it can either reject the application or allow the application to be proceeded with as provided in Section 245-D(1).

It has to be noted that the Commission exercises power in respect of income, which was not disclosed before the authorities in any proceeding, but is disclosed in the petition under Section 245-C. It is not that any amount of undisclosed income can be brought to the notice of the Commission in the said petition. The Commission exercises jurisdiction if the additional amount of tax on such undisclosed income is more than a particular figure.

The assessee must have in addition furnished the return of income which he is or was required to furnish under any of the provisions of the Act. In essence the requirement is that there must be income disclosed in a return furnished and undisclosed income disclosed to the Commission by a petition under Section 245-C.

There is a purpose for the Legislature to have prescribed the condition relating to declaration of the order void when it is obtained by fraud or misrepresentation of facts. If an order is obtained by fraud or misrepresentation of facts, it cannot be said that there was true and fair disclosure. It may be noted here that unlike Section 139 of the Act, which provides for filing of a revised return, there is no provision for revision of an application made in terms of Section 245-C. This shows the clear legislative intent that the applicant for settlement has to make a true and fair declaration from the threshold.

It is on the basis of the application received that the Commission calls for a report to decide whether the application is to be rejected or permitted to be continued. The declaration contemplated in Section 245-C is in the nature of a voluntary disclosure of concealed income, but it must be a true and fair disclosure. Thus, a voluntary act of making a full and true disclosure of the income is a necessary precondition for invoking the Commission's jurisdiction.

(The author is a Mumbai-based advocate specialising in Direct Tax Laws.)

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Merging into a mere circular

Right to information

The fluster in FBT

Cost accountant and the art of motorcycle valuation

Fiscal harmony in final handshake

An undeserved denial

Attack of nerves hits Western markets

Pre-conditions for settlement

Tall tax, food police, a bizarre bridge and a robber wanting your past or future