Case Law Details
Kakadia Builders Pvt. Ltd. & Anr. Vs ITO (Supreme Court of India)
Summary: In Kakadia Builders Pvt Ltd v. Income Tax Officer, the issue revolved around the Settlement Commission’s authority to waive interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961. A search and seizure operation led to the appellant submitting settlement applications, which were partly accepted by the Settlement Commission in 2000. However, both the assessee and Revenue contested this order, resulting in further proceedings. The Settlement Commission later modified its decision to reduce the waiver of interest under Section 154. The appellant challenged this modification in the Gujarat High Court, which overturned the Commission’s order. Dissatisfied, the Revenue filed new petitions, leading to further legal proceedings. The Supreme Court ultimately ruled that the Settlement Commission lacked the authority to reduce or waive interest beyond what was allowed under the Board’s circulars, referencing previous decisions in the Ghaswala and Brij Lal cases. The Court nullified the High Court and Commission’s orders regarding interest waiver and remanded the case back to the Settlement Commission for reconsideration, ensuring adherence to legal principles and giving six months for resolution.
Facts of the case
On the 19.01.1994, a search and seizure operation has been initiated at the premises of the appellant (assessee) under the provisions of the Income Tax Act, 1961. While the assessment proceedings were ongoing to determine tax liability arising from the search and seizure operation, the appellant on the 12.03.1996 and the 3.09.1996 submitted settlement applications to the Settlement Commission. These applications aimed to resolve their tax matters in accordance with the procedures outlined in Chapter XIXA of the Act. On the 11.08.2000, the Settlement Commission issued an order under Section 245D(4)[1] of the Act. This order entailed certain additions and the waiver of interest under Sections 234A[2], 234B[3], and 234C[4] of the Act. Expressing dissatisfaction, the appellant (assessee) filed rectification applications with the Settlement Commission on the 29.12.2000, seeking amendments to its order dated the 11.08.2000. Simultaneously, the Revenue (Commissioner of Income Tax) also contested the order dated the 11.08.2000, filing a rectification application under Section 154[5] of the Act on the 26.07. 2002.Through an order dated the 11.10.2002, the Settlement Commission dismissed the applications filed by the appellant (assessee) and partially allowed the application filed by the respondent (Revenue). This rectification modified the original order of the Settlement Commission dated the 11.08.2000, specifically regarding the waiver of interest granted to the appellant (assessee). Dissatisfied with this order, the appellant (assessee) lodged two separate petitions (SCA Nos. 15097 and 15101 of 2004) in the High Court of Gujarat. The High Court, through its order dated 03.03.2014, granted approval to the petitions SCAs), thereby overturning the Settlement Commission order dated 11.10.2002. Moreover, the High Court provided the Revenue with the liberty to pursue available remedies against the order issued by the Settlement Commission on 11.08.2000. Subsequently, the Revenue feeling dissatisfied, initiated two petitions (SCA Nos. 7814 of 2014 and 7820 of 2014) challenging the legality of the order dated 11.08.2000. While the High Court, in its concluding paragraph, officially marked the petitions as disposed of its substantive decision allowed the SCAs, leading to a modification of the Settlement Commission order dated 11.08.2000. In response to this High Court decision, the appellant (assessee) expressed Aggrieved and subsequently filed the appeal through special leave petition.
Issue Under Consideration
1. Whether the High Court was justified in allowing the petitions filed by the Revenue and consequently, modifying the order dated 11.08.2000 passed by the Settlement Commission?
2. Whether the order dated 11.10.2002 of the Settlement Commission was held bad in law on the ground that it was passed under Section 154 of the Act?
Judgement
The ratio decidendi of the case as the court, deems it appropriate to nullify both the impugned order and the Settlement Commission order dated 11.08.2000, specifically concerning the waiver of interest after referring principles established by the Supreme Court in the Ghaswala[6] and Brijlal[7] case. The case is remanded to the Settlement Commission for fresh consideration, adhering to the legal principles outlined in Ghaswala and Brijlal case. The Supreme Court clarified that it has not expressed any opinion on the merits of the issue and instructed the Settlement Commission to decide the matter within six months from the date of its order. The Relevant para of the Judgement are 26, 27 and 28.
Analysis of the case
The case involves an appeal where the High Court had allowed petitions (SCAs) and modified an order dated 11.08.2000 passed by the Settlement Commission. the Settlement Commission passed an order under Section 245D(4) of the Act. By the said order, the Settlement Commission made certain additions and waived interest chargeable under Sections 234A, 234 B and 234C of the Act. As the 245D (4) states that the Settlement Commission, after reviewing records and reports from the Principal Commissioner or Commissioner, and providing an opportunity for the applicant and tax authorities to be heard, may pass an order on matters covered by the application. Additionally, the Commission has the authority to address any other issues related to the case, as indicated in the report of the Principal Commissioner or Commissioner in accordance with the provisions of the Income Tax Act. In lieu of the section 245D(4), the Settlement commission made certain additions and waived interest chargeable under Sections 234A, 234 B and 234C of the Act. However, In the case of Commissioner of Income Tax, Mumbai vs. Anjum M.H. Ghaswala & Ors.[8], the Apex court addressed the jurisdiction of the Settlement Commission to reduce or waive interest under Sections 234A, 234B, and 234C of the Income Tax Act,1961 while passing a settlement order under Section 245D(4). The court held that the Commission doesn’t have the power to reduce or waive interest, except to the extent of relief granted under circulars issued by the Board under Section 119[9] of the Act. As far as 234B is concerned which stated about the Interest in defaults in payment of advance tax. The question arises in the order of the settlement commission is whether the Section 234B applies to the proceeding of the settlement commission as the order is passed in accordance with the Section 245D(4). In the case of Brij Lal & Ors. vs. Commissioner of Income Tax, Jalandhar[10], the Apex court has held that Section 234A, 234B, and 234C are applicable to Settlement Commission proceedings, and the terminal point for levying interest under Section 234B is up to the date of the order under Section 245D(1), not the date of the settlement order under Section 245D(4). The Settlement Commission cannot reopen concluded proceedings for levying interest under Section 234B in lieu of section 245D(1) by invoking the section 154.As the rectification application filed under the section 154 by the Revenue (Respondent), The settlement Commission ordered dated 11.10.2002 allow the application and modified the order of the 11.08.2000 for levying the interest under the section 245D(1) by invoking the section 154.The high court has upheld the decision of the settlement Commission order dated 11.02.2002 which was not justified by referring the above judgement of the apex court has committed the jurisdictional error i.e., without jurisdiction. The High Court overlooked that the Settlement Commissions order dated 11.10.2002 had already been invalidated by the High Court in the initial proceedings, as per its order dated 03.03.2014 in S.C.A. Nos. 15097 & 15101 of 2004.This was done in accordance with the legal principles established by the Supreme Court in Brij Lal & Ors. vs. Commissioner of Income Tax, Jalandhar[11]. Since the order dated 11.02.2002 is considered to be bad in law as per the above case law, the high court has committed jurisdictional error. In my opinion the Supreme Court has rightfully considered and allow the appeal and set aside the order of the high court as well as the order of the Settlement Commission dated 11.08.2000 to the extent it decided the issue in relation to waiver of interest and remand the case to the Settlement Commission to decide the issue relating to waiver of interest payable by the assessee.
Conclusion
In conclusion, the Supreme Court’s judgment in the case of Kakadia Builders Pvt Ltd v. Income Tax Officer[12] reflects a meticulous scrutiny of the Settlement Commission order dated 11.08.2000 and subsequent modifications Settlement Commission which was uphled by the High Court. The central issue revolved around the Settlement Commission’s authority to waiver of interest under Sections 234A, 234B, and 234C of the Income Tax Act,1961 The apex court, relying upon precedents Ghaswala and Brij Lal case, asserted that the Settlement Commission lacks the power to unilaterally reduce or waive interest beyond relief granted under circulars issued by the Board under Section 119 of the Act. Emphasizing jurisdictional errors, the court nullified the impugned order of the high court and the Settlement Commissions order, specifically regarding interest waiver. The case was remanded to the Settlement Commission with a directive to reconsider the matter within six months, adhering to legal principles. The judgment underscored that it did not express an opinion on the merits of the issue, emphasizing a procedural flaw. In essence, the Supreme Court’s decision upholds legal principles, rectifies jurisdictional errors, and ensures a fair and principled reconsideration by the Settlement Commission.
Notes:-
[1]. The Income Tax Act, 1961 (Act No. 43 of 1961), s.245D(4).
[2]. The Income Tax Act, 1961 (Act No. 43 of 1961), s.234A.
[3]. The Income Tax Act, 1961 (Act No. 43 of 1961), s.234B.
[4]. The Income Tax Act, 1961 (Act No. 43 of 1961), s.234C.
[5]. The Income Tax Act, 1961 (Act No. 43 of 1961), s.154.
[6]. Commissioner of Income Tax, Mumbai vs. Anjum M.H. Ghaswala & Ors., (2002) 1 SCC 633.
[7]. Brij Lal & Ors. vs. Commissioner of Income Tax, Jalandhar, (2011) 1 SCC 1.
[8]. (2002) 1 SCC 633.
[9]. The Income Tax Act, 1961 (Act No. 43 of 1961), s.119.
[10]. (2011) 1 SCC 1.
[11].(2002) 1 SCC 633.
[12].(2019) 4 SCC 543.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Leave granted.
2. These appeals are directed against the final judgment and order dated 28.07.2016 passed by the High Court of Gujarat at Ahmedabad in SCA Nos.7814 & 7820 of 2014 whereby the High Court disposed of the petitions(SCAs) filed by the respondents.
3. In order to appreciate the issue involved in these appeals, it is necessary to set out a few relevant facts infra.
4. The appellants herein are the respondents (assessee) and the respondents (Revenue) herein are the petitioners in the petitions(SCAs) before the High Court out of which these appeals arise.
5. The appellant in S.L.P. No.21139/2017 is a Private Limited Company and the appellant in SLP No.21140/2017 is the promoter Director of the said Company. On 19.01.1994, a search and seizure operation was carried out in the premises of the appellants (assessee) under the Income Tax Act, 1961 (hereinafter referred to as “the Act” ).
6. During pendency of the assessment proceedings, which were initiated for determination of the tax liability as a result of search and seizure operation, the appellants on 12.03.1996 and 03.09.1996 filed the settlement applications before the Settlement Commission and offered to settle their tax matter in accordance with the procedure provided under Chapter XIXA of the Act.
7. On 11.08.2000, the Settlement Commission passed an order under Section 245D(4) of the Act. By the said order, the Settlement Commission made certain additions and waived interest chargeable under Sections 234A, 234 B and 234C of the Act.
8. The appellants (assessee) felt aggrieved and filed rectification applications before the Settlement Commission on 29.12.2000 for amending its order dated 11.08.2000. The Revenue (Commissioner of Income Tax) also felt aggrieved by the order dated 11.08.2000 and filed a rectification application under Section 154 of the Act before the Settlement Commission on 26.07.2002.
9. By order dated 11.10.2002, the Settlement Commission dismissed the applications filed by the appellants(assessee) and partly allowed the application filed by the respondents(Revenue) rectifying its order dated 11.08.2000 insofar as it pertained to waiver of interest, which was granted to the appellants (assessee). The appellants(assessee) felt aggrieved by the order dated 11.10.2002 passed by the Settlement Commission and filed two separate petitions (SCA Nos.15097 and 15101 of 2004) in the High Court of Gujarat.
10. The High Court, by order dated 03.03.2014 allowed the petitions(SCAs) and set aside the order dated 11.10.2002 passed by the Settlement Commission and granted liberty to the Revenue to follow the remedies as may be available to them against the order passed by the Settlement Commission dated 11.08.2000.
11. The Revenue, therefore, felt aggrieved and filed two petitions (SCA Nos.7814 of 2014 and 7820 of 2014) against the order dated 11.08.2000 questioning its legality. The High Court though in concluding paragraph observed that the petitions are disposed of yet in substance allowed the petitions(SCAs) and modified the order dated 11.08.2000 of the Settlement Commission by passing the following directions in paragraph 13 which reads as under:
“Under the circumstances, we direct modification of the order of Settlement Commission dated 11.08.2000 by reversing the waiver of interest in terms of Settlement Commission’s directions contained in its order dated 11.10.2002. In other words, we adopt the same directions for modification of the Settlement Commissioner’s original order dated 11.08.2000.”
12. It is against this order, the appellants(assessee) felt aggrieved and have filed the present appeals by way of special leave in this Court.
13. So, the short question which arises for consideration in these appeals, is whether the High Court was justified in allowing the petitions(SCAs) and thereby was justified in modifying the order dated 11.08.2000 passed by the Settlement Commission.
14. Heard Mr. R.P. Bhatt, learned senior counsel for the appellants and Mr. K. Radhakrishnan, learned senior counsel for the respondents.
15. Having heard the learned counsel for the parties and on perusal of the record of the case including the written submissions filed by the parties, we are inclined to allow the appeals and remand the case to the Settlement Commission for deciding the matter in question afresh on merits keeping in view the observations made infra.
16. At the outset, we consider it apposite to mention that the issue involved in these appeals is governed by the law laid down by the decision of two Constitution Benches of this Court. One was rendered on 18.10.2001 in Commissioner of Income Tax, Mumbai vs. Anjum M.H. Ghaswala & Ors., (2002) 1 SCC 633 and the other was rendered on 21.10.2010 in Brij Lal & Ors. vs. Commissioner of Income Tax, Jalandhar, (2011) 1 SCC 1.
17. So far as the decision rendered in Ghaswala (supra) is concerned, the question involved therein was whether the Settlement Commission constituted under Section 245B of the Act has the jurisdiction to reduce or waive the interest chargeable under Sections 234A, 234B and 234C of the Act while passing the order of settlement under Section 245D of the Act. After examining the scheme of the Act in the context of the powers of the Settlement Commission, Justice Santosh Hegde speaking for the Bench held as under:
“35. For the reasons stated above, we hold that the Commission in exercise of its power under Sections 245D(4) and (6) does not have the power to reduce or waive interest statutorily payable under Sections 234A, 234B and 234C except to the extent of granting relief under the circulars issued by the Board under Section 119 of the Act.”
18. So far as the decision rendered in Brijlal (supra) is concerned, this Court examined the following three questions:
“(I) Whether Section 234B applies to proceedings of the Settlement Commission under Chapter XIXA of the said Act?
(II) If answer to the above question is in the affirmative, what is the terminal point for levy of such interest — whether such interest should be computed up to the date of the order under Section 245D(1) or up to the date of the order of the Commission under Section 245D(4)?
(III) Whether the Settlement Commission could reopen its concluded proceedings by invoking Section 154 of the said Act so as to levy interest under Section 234B, though it was not so done in the original proceedings?”
19. After examining these questions, this Court speaking through Justice S.H. Kapadia, the then learned CJI, answered the questions as under :
“ (1) Sections 234A, 234B and 234C are applicable to the proceedings of the Settlement Commission under Chapter XIXA of the Act to the extent indicated hereinabove.
(2) Consequent upon Conclusion (1), the terminal point for the levy of interest under Section 234B would be up to the date of the order under Section 245D(1) and not up to the date of the order of settlement under Section 245D(4).
(3) The Settlement Commission cannot reopen its concluded proceedings by invoking Section 154 of the Act so as to levy interest under Section 234B, particularly, in view of Section 245I.”
20. Keeping in view the law laid down by this Court in the aforementioned two decisions, the question arises for consideration in these appeals is whether the High Court was justified in allowing the petitions(SCAs) filed by the Revenue.
21. It is not in dispute that when the Settlement Commission passed the first order on 11.08.2000 disposing of the application of the appellants(aseesee), the issue with regard to the powers of the Settlement Commission was not settled by any decision of this Court. These two decisions were rendered after the Settlement Commission passed the order in this case. Therefore, the Settlement Commission had no occasion to examine the issue in question in the context of law laid down by this Court in these two decisions. However, the issue in question was, at that time, pending before the High Court in the petitions(SCAs).
22. In a situation like the one arising in the case, the High Court instead of going into the merits of the issue, should have set aside the order dated 11.08.2000 passed by the Settlement Commission and remanded the case to the Settlement Commission for deciding the issue relating to waiver of interest payable under Sections 234A , 234B, and 234C of the Act afresh keeping in view the scope and the extent of powers of the Settlement Commissioner in relation to waiver of interest as laid down in the said two decisions.
23. The High Court, however, committed a jurisdictional error when it observed in Para 13 (quoted above) that they (High Court) adopt the directions contained in the order of the Settlement Commission dated 11.10.2002 and then went on to make the said directions as a part of the impugned order in relation to waiver of interest. This approach of the High Court is wholly without jurisdiction.
24. The High Court failed to see that the order dated 11.10.2002 of the Settlement Commission was already set aside by the High Court itself in the first round vide order dated 03.03.2014 passed in S.C.A. Nos. 15097 & 15101 of 2004 in the light of law laid down by this Court in Brijlal (supra) wherein it is laid down that the Settlement Commission has no power to pass orders under Section 154 (see conclusion III).
25. Since the order dated 11.10.2002 of the Settlement Commission was already held bad in law on the ground that it was passed under Section 154 of the Act, the same was neither in existence for any purpose and nor it could be relied upon by the High Court much less for making it a part of their order for issuing a writ.
26. In the light of what we have held above, we consider it apposite to set aside the impugned order and the order dated 11.08.2000 passed by Settlement Commission to the extent it decided the issue in relation to waiver of interest and remand the case to the Settlement Commission to decide the issue relating to waiver of interest payable by the assessee (appellants herein) afresh keeping in view the law laid down by this Court in Ghaswala (supra) and Brijlal (supra) after affording an opportunity to the parties concerned.
27. The appeals are accordingly allowed. The impugned order passed by the High Court and the order dated 11.08.2000 passed by the Settlement Commission in Settlement Application Nos.10/S/095/9596/IT & 10/S/029/9596/IT are set aside.
28. We, however, make it clear that we have not expressed any opinion on the merits of the issue while having formed an opinion to remand the case to the Settlement Commission. The Settlement Commission will accordingly decide the matter uninfluenced by any observations made by this Court. Let the matter be decided by the Settlement Commission within six months from the date of this order.
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