Case Law Details
RELEVANT PARAGRAPH
31. As a consequence of the amendments introduced by the 2007 Act, an application which abates for no fault of the applicant would, under section 245HA(2) revert back to the IT Authorities as if no application had, in the first place, been made under section 245C to the Settlement Commission. As inserted by the 2007 Act, Section 245HA(3) of the Act further provides that where an application so reverts to the IT Authorities upon abatement, the IT Authorities, including the assessing officer will be entitled to use all material and other information produced by the applicant before the Settlement Commission, including that disclosed in confidence based on the protection provided by law when the application was filed.
32. Section 245HA(3) thus has the effect of severely prejudicing the interest of applicants who in good faith that the case would be settled were induced to part with the confidential information based on the bona fide belief and a legitimate expectation, on the basis of the law in force when such applications were filed, that settlement orders would be passed and confidential information disclosed by such applicants would not be made available to the IT Authorities for use by them against such applicants in assessment proceedings, penalty and prosecution proceedings. After 1st June, 2007, the application has to be decided within twelve months. The consequences of the amendment has been that the number of new applications for settlement have dropped drastically as the applicants are aware when they make an application the consequences of an application not being disposed off within the time stipulated. As much as such an applicant cannot be visited with such great hardship, disadvantage and prejudice for no fault of its own but solely by reason of the inability of the Settlement Commission to dispose of such application by the specified date the provisions of section 245HA(1)(iv) read with Section 245HA(3) of the Act, so read would have to be held as arbitrary, unreasonable and violative of Article 14 of the Constitution.
33 The arbitrariness becomes more palpable when even in cases where the applicant has paid the additional tax and the interest thereon as required under the amended provisions of the Act and has fully co-operated with the Settlement Commission in ensuring expeditious disposal of its application, the availability of such confidential information to the IT Authorities is made dependent solely on a fortuitous circumstance, viz. the inability or failure on the part of the Settlement Commission to dispose of the application by the specified date, an event over which the applicant has no control. Thus, even two applicants who had filed their applications on the same date, equally fulfilled requirements of payment of tax and interest, and had equally cooperated with the Settlement Commission, could be classified differently on the aforesaid fortuitous circumstance. Thus, discrimination is inherent in the Impugned provision itself and the same is violative of Article 14 of the Constitution.
34. Arbitariness can also be seen in the context of consequences which the applicant has to suffer. As pointed out earlier on the application being declared as abated the confidential information which the petitioner had filed before the F.A. of 2007 and which was not available to the I.T. Authorities if the application was disposed of under Section 245(4) as it earlier stood would now be available. The answer by the Respondents to this submission is that the Legislature has advisedly amended the provisions of the Act and introduced Section 273AA. In our opinion Section 273AA as inserted only confers a power on the Commission for granting immunity from penalty. It does not prevent the authorities under the I.T. Act from using the confidential information which was filed including for prosecution and which was treated as confidential even if the petitioners application was not allowed to be proceeded with. What would be effect of Section 278AB introduced by the Finance Act 2008, will be considered separately.
35. Similarly, consequent to the amendment, if the application abates even for the reasons of the settlement Commission’s inablity or failure to decide the same by the specified cut- specified cut-off date the confidential information becomes available to the Authorities, including the Assessing Officer. The consequences of therefore, upholding Section 245HA(3) would be to cause prejudice to the interest of the applicants, who were induced to part with the confidential information based on the bona fide belief and a legitimate expectation, on the basis of the law in force when such applications were filed, that settlement orders would be passed and confidential information disclosed by such applicants would not be made available to the I.T. Authorities for use by them against such applicants in assessment proceedings, penalty and prosecution proceedings. It is true that there can be no estoppel against law. At the same time a person who voluntarily incriminates himself with the belief that if he has made a true and full disclosure, an independent body like the Settlement Commission would consider the case and not impose penalty inspite of the stand of the Department is now subject to adjudication provisions and penal consequences. Under Section 245H on an application being allowed the Settlement Commission was empowered on an applicant satisfying the conditions provided in Section 245H(1) to grant immunity from prosecution. An applicant is now denied the benefit of consideration from being prosecuted on account of failure by the Commission to dispose off the application and/or for no fault on the part of the applicant. This power continues in the Commission even after the amendment if the Commission disposes of the application within twelve months on or after 1.6.2007. In other words it becomes dependent on the efficiency of the machinery over which an applicant has no control.
36. Does Section 278AB introduced by the Finance Act, 2008 w.e.f. 1.4.2008 make any difference. Is the purported remedy completely illusory and ineffective as the grant of immunity from penalty/ prosecution is conditional upon the Commissioner after the application has abated in the proceedings before the I.T. Authority being satisfied that the person “has made a full and true disclosure of his income and the manner in which such income has been derived”. The Commissioner according to the petitioner in most cases takes a stand before the Settlement Commission that the disclosure by the applicant is not full and true. In proceedings before the Settlement Commission, the Commission takes an independent view, from the stand of the Department and often did, overrule such objection of the Commissioner. Whilst however, introducing Section 273AA and section 278AB, it is the Commissioner who will sit in judgment over an issue which most cases he has already pre-judged by taking a stand before the Commission. It is inconceivable that the same Commissioner, who may have already objected before the Settlement Commission in most pending cases that the disclosure by an applicant is not full and true, will in purporting to exercise the aforesaid powers do a volte face and declare such disclosure as full and true even if now what he considers is full and true disclosure before the I.T. Authorities the true and full disclosure is before proceedings before the I.T. Authorities. The Commissioner by the very nature of his post is a part of taxing machinery. The Commissioner, who may have taken a stand on the application before the Settlement Commission, has now become the judge as in the Petitioners own case by filing a Petition challenging the order to proceed with the application. This would violate the basic principles of natural justice which is inherent in the said provisions of the Act and the purported exercise of power thereunder will result in a flood of litigation impugning such purported exercise. A further anomaly is that in cases where the Settlement Commission has allowed the application to be proceeded with on a decision that the applicant’s disclosure is full and true, the Commissioner will now sit in effect as an appellate authority over such decision of the Settlement Commission, which is a superior independent authority created by the Act with far more extensive powers and authority. It is true that the language used in Section 278AB(3) is satisfaction after abatement if the person has cooperated with the Income-tax Authority in the proceedings before him and has made a full and true disclosure of his income and the manner in which said income has been derived. If before the Settlement Commission a stand has already been taken it is impossible to conceive that the Income Tax Authority will take a view different from the view taken before the Settlement Commission. In our opinion, the amendment made by the Finance Act 2008 in no way will remedy the unconstitutionality and the arbitrariness of the impugned provisions and in fact disclose the harshness of the consequences thereunder by attempting to create an illusory remedy.
37. Section 245HA(1)(iv) will, therefore, in the ordinary course have to be held to be arbitrary, unreasonable and violative of Article 14 of the Constitution of India in as such as such an applicant cannot be visited with such great hardship, disadvantage and prejudice for no fault of its own but solely by reason of the inability of the Settlement Commission to dispose of such application by the specified date. Even in cases where the applicant has paid the additional tax and the interest thereon as required under the amended provisions of the Act and has fully co-operated with the Settlement Commissioner in ensuring expeditious disposal of its application, the availability of such confidential information to the Income Tax Authorities is made dependent solely on this fortuitous circumstance, of the inability or failure on the part of the Settlement Commission to dispose of the application within a specified date an event over which the applicant has no control. Thus even two applicants who had filed their applications on the same date, equally fulfilled requirements of payment of tax and interest and had equally co-operated with the Settlement Commissioner, could be classified differently on the aforesaid fortuitous circumstance.
38. In Bidhannagar (Salt Lake) Welfare Association v. Central Valuation Board, AIR 2007 SC 2276 the Court held that where an independent Authority was conferred with a decision making power which was unlimited and plenary powers, and taken away from such independent person and statutorily conferred on persons who are not independent or are otherwise have an interest in the matter, then such provisions of law are per se unreasonable and the provisions per se contravene the values attached to the principles of natural justice. When there is substantive unreasonableness in a statute, it may have to be declared unconstitutional and the decision making process may suffer from an institutional bias.”
39. Reading Down the Provisions to Uphold Their Constitutionality: The choice, therefore, before the Court is whether considering the discussion above, to strike down Section 245D(4A)(1), Section 245HA(1)(iv) and Section 245HA(3) or read them down to uphold their constitutionality. We may at this stage note that in the petition the petitioners have not sought a prayer challenging the vires of Section 245D(4A)(1), on the ground that fixing of 31st March, 2008 for disposal of applications filed before 1.6.2007 is arbitrary, though the said plea has been taken and arguments advanced.. This Court in Narang Overseas Pvt. Ltd. vs. ITAT, (2007) 295 ITR 22 (Bom.) read down the provisions of Section 254(2A) of the Act as amended by the 2007 Act which purported to curtail the power of the Tribunal to grant or continue an order of stay beyond the prescribed period where the appeal was not disposed of within such period, even in cases where the delay in disposal of the appeal was in no way attributable to the assessee relying on the judgment of the Supreme Court Commissioner of Customs & Central Excise vs. Kumar Cotton Mills (P) Ltd. 2005 13 SCC 296.. This Court had held that where the plain literal interpretation produces an absurd or manifestly unjust result which could never have been intended by the legislature, the court might fine tune the language used by the legislature so as to achieve the intention of the legislature and produce a rational construction. This Court also held that Courts must construe provisions of statutes consistent with the constitutional mandate and the principle to avoid a provision being rendered unconstitutional. Therefore, we held that the purported object of the amendment was not to protect an assessee who dragged on an appeal whilst enjoying the benefit of an interim order but correspondingly to impose a duty on the Tribunal to dispose of an appeal within the prescribed time limit. The Court, therefore, read the provision as imposing a limitation on the power of the Tribunal to continue interim relief in a case where the hearing of the Appeal has been delayed for acts attributable to the assessee. Thus the Court observed that it cannot mean that a construction be given that the power to grant interim relief is denuded even if the acts attributable are not of the assessee but of the Revenue or of the Tribunal itself.
40. Considering the discussion and findings, the fixing of cut-off date under Section 245D(4A)(1), the abatement under section 245HA(1)(iv) , making available the confidential information under and section 245HA(3) of the Act, as inserted by the 2007 Act, would be clearly ultra vires the Constitution and are liable to be struck down as null and void ab initio. It is, however, open to this Court instead of striking down the impugned provision in its entirety to read down such provision in such a manner so as to set at naught the unconstitutional portion.
41. In D.S. Nakara v. Union of India the Supreme Court, while reading down the provisions of the impugned memoranda, excluded the words “that in respect of the government servants who were in service on March 31, 1979 and retiring from service on or after that date” and “the new rates of pension are effective from April 1, 1979 and will be applicable to all service officers who became/become non-effective on or after that date” occurring therein, in order to uphold the constitutional validity of the impugned memoranda. In paragraph 59 of the judgment, the Court observed as follows:
“In reading down the memoranda, is this Court legislating? Of course `not’. When we delete [sic] basis of classification as violative of Article 14, we merely set at naught the unconstitutional portion retaining the constitutional portion.”
42. In Ahmedabad Municipal Corpn v. Nilaybhai R. Thakore [(1999) 8 SCC 139 the Supreme Court read the words “and includes a permanent resident of the Ahmedabad Municipality who acquires the above qualifications from any of the high schools or colleges situated within the Ahmedabad Urban Development Area” into the impugned rule in order to save the same from offending Article 14. The Court did so “with a view to iron out the creases in the impugned rule which offends Article 14”. The Court relied on “the famous and oft-quoted principle” relied on by Lord Denning in the case of Seaford Court Estates Ltd. v. Asher [(1949) 2 All ER 155 (CA)] wherein Lord Denning held “When a defect appears a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of the Parliament, … and then he must supplement the written word so as to give `force and life’ to the intention of the legislature. A Judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out? He must then do as they would have done. A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases.”
43. In Arun Kumar v Union of India [286 ITR 89 (SC)] The Hon’ble Supreme Court had to consider the validity of Rule 3 of the Income Tax Rule as amended in 2001. The Court “read down” the provisions of the Rule, holding the same only to apply in cases where there was “a concession” in respect of accommodation. Where there is no concession the Court held the Rule can not apply. The Court also laid down – “In considering the validity of a statute the presumption is always in favour of constitutionality and the burden is upon the person who attacks it to show that there has been transgression of constitutional principles. For sustaining the constitutionality of an Act, a court may take into consideration matters of common knowledge, reports, preamble, history of the times, object of the legislation and all other facts which are relevant. It must always be presumed that the Legislature understands and correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds and considerations. It is also well-settled that courts will be justified in giving a liberal interpretation in order to avoid constitutional invalidity. A provision conferring very wide and expansive powers on an authority can be construed in conformity with the legislative intent of exercise of power within constitutional limitations. Where a statute is silent or is inarticulate, the court would attempt to transmute the inarticulate and adopt a construction which would lean towards constitutionality albeit without departing from the material of which the law is woven. These principles have given rise to the rule of “reading down” the provisions if it becomes necessary to uphold the validity of the law.”
44 . It has been submitted on behalf of the petitioners in this petition and other companion petitions that to avoid striking down, in their entirety, the impugned provisions as unconstitutional, this Hon’ble Court ought to read section 245HA(1)(iv) as under:
“in respect of any other application made under section 245C, where due to reasons attributable to the assessee an order under subsection (4) of section 245D has not been passed within the time or period specified under sub-section (4A) of section 245D”
45. Just, Equitable and Reasonable Interpretation It is further submitted that following settled principles of statutory interpretation, this Hon’ble Court would read the provisions of section 245HA(1)(iv) in the manner suggested by the petitioners. viz. it is only applications where the applicants have, by some willful act or omission, prevented the Settlement Commission from fulfilling its statutory mandatory duty under section 245D(4A) would stand the application abate.
46. Ordinarily the Court assumes that that the entire legislative process is influenced by considerations of justice and reason, and avoids a construction which is inequitable or onerous or operates harshly, ridiculously or in any other manner contrary to prevailing conceptions of justice and reason. Where the plain literal interpretation of a statutory provision produces a discriminatory or incongruous or manifestly absurd or unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even “do some violence” to it, so as to achieve the obvious intention of the Legislature and produce a rational construction. [See Bhudan Singh and Ano v Nabi Bux and Ano – (1969) 2 SCC 481, K. P. Varghese v. ITO – (1981) 4 SCC 173, C.W.S. (India) Ltd. v C.I.T. – 1994 Supp (2) SCC 296,Calcutta Gujarati Education Society v Calcutta Municipal Corpn. – (2003) 10 SCC 533.
47. In Narang Overseas P. Ltd. v ITAT [supra] the Division Bench referred to the observation of the Supreme Court in C.I.T. v J.H. Gotla – (1985) 156 ITR 323] that:
“Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than injustice, then such a construction should be preferred to the literal construction. “
48. This Court whilst interpreting the third proviso to Section 254(2A) in Narang Overseas P. Ltd. v ITAT had relied on a decision of the Supreme Court in Commr. Of Customs & Central Excise v Kumar Cotton Mills (P) Ltd (supra) which had considered a similar provision as contained in section 35-C(2A) of the Central Excise Act which provided that the stay granted by the Tribunal shall stand vacated if the appeal is not disposed of within the period prescribed thereunder. The Court noted that the provision was made for the purpose of curbing dilatory tactics of those assesses who had obtained interim orders and sought to continue such order by delaying the disposal of the appeal, depriving the Revenue not only of the benefit of the assessed value but also a decision on points which may have impact on other pending matters. This Court then held as under:
“The sub-section which was introduced in terrorem cannot be construed as punishing the assessees for matters which may be completely beyond their control. For example, many of the Tribunals are not constituted and it is not possible for such Tribunals to dispose of the matters. Occasionally, by reason of other administrative exigencies for which the assessee cannot be held liable, the stay applications are not disposed of within the time specified. However, we should not be understood as holding that any latitude is given to the Tribunal to extend the period of stay except on good cause and only if the Tribunal is satisfied that the matter could not be heard and disposed of by reason of the fault of the Tribunal for reasons not attributable to the assessee.”
49. The principles set out above in the abovementioned decisions squarely apply in the present case where the purported objective of the amendments introduced in Chapter XIX-A by the 2007 Act is to streamline the proceedings before the Settlement Commission and to ensure expeditious disposal of pending cases. The said amendments cannot be construed as punishing an applicant for the inability or failure of the Settlement Commission to dispose of its application within the period specified in section 245D(4A) where such delay in disposal is not attributable to the applicant. The time limit for disposal of an application under Section 245D(4A)(1) will have to be read as `may’ to the extent that it is not on account of the fault of the applicant. It does do some violence to the language, but at the same time the constitutionality of the provision can be upheld. To do otherwise would be to punish an applicant for the inability of the Settlement Commission to fulfill its statutory obligation, for matters completely beyond the applicant’s control. As set out above, the Court will presume that the legislature enacts laws which are honest, fair and equitable and that the legislative process is influenced by considerations of justice and reason. Accordingly, an interpretation leading to such an unjust, inequitable, harsh and absurd result must be rejected. Consequently section 245HA(1)(iv) must be read in the manner set out above only to applications where the applicants have, by some willful act or omission, prevented the Settlement Commission from fulfilling its statutory mandatory duty under section 245D(4A) only such applications will abate. will abate. To do so will also avoid the inequitable and unjust result whereby an applicant, who has been induced to pay the tax on the income disclosed and interest thereon by reason of a statutory assurance that its application will be settled by the Settlement Commission on or before 31st March 2008, is penalized for no fault of its own by the abatement of its application and the attendant consequences, including disclosure of the confidential information and material to the IT Authorities for use in proceedings before them as also possible proceedings for penalty and prosecution. It is for the Settlement Commission to decide the aspect of the matter.
50. A Harmonious Interpretation of Section 245D(4A) and Section 245HA(1)(iv) would remove the vice of arbitrariness and save the provisions from being struck down as unconstitutional. Following settled principles of statutory interpretation, this Court should read the amended provisions of Chapter XIX-A of the Act harmoniously and in a manner so as to avoid any provision being rendered nugatory or redundant or unconstitutional to the extent possible.
51. Section 245D(4A)(i) provides that the Settlement Commission “shall pass an order under sub-section (4)” in respect of an application filed prior to 1st June 2007 that has been allowed to be proceeded with “on or before the 31st day of March, 2008”. If “good faith and knowledge of the existing conditions on the part of a Legislature are to be presumed” See Ram Krishna Dalmia v Justice Tendolkar , it must also be presumed that the Settlement Commission (being an instrumentality of the State) would fulfill the aforesaid mandatory statutory command and dispose of all such applications by the specified date. In that case there would be no question of any application abating under section 245HA(1)(iv) by reason of an order under section 245D(4A)(1) not having been passed within the specified time, and section 245HA(1)(iv) being rendered otiose and redundant. Accordingly, for an application to abate under section 245HA(1)(iv) it must mean that Parliament assumed that the Settlement Commission would disregard the aforesaid mandatory statutory command to dispose of all such applications by the specified date – an assumption or intention, it is submitted, that can never be ascribed to Parliament. However, even if such an intention could be ascribed to Parliament, the result would necessarily be to render section
245D(4A)(i) redundant and otiose.
52. In Surjit Singh Kalra v. Union of India (1991) 2 SCC 87, the Supreme Court relied on Craies’ Statute Law (7th Edn., pg 109). The Court held “True it is not permissible to read words in a statute which are not there, but `where the alternative lies between either supplying by implication words which appear to have been accidentally omitted, or adopting a construction which deprives certain existing words of all meaning, it is permissible to supply the words'”. The Court also relied on the decision in Siraj-ul-Haq v S.C. Board of Waqf AIR 1959 SC 198.
53. By reading the words “any other application made under section 245C” in section 245HA(1)(iv) as “any other application made under section 245C, where due to reasons attributable to the assessee” this Court would avoid rendering any part of either section 245D(4A)(i) or section 245HA(1)(iv) otiose, meaningless or redundant. The two provisions, read in such a harmonious manner, would mean that the Settlement Commission must fulfill its mandatory statutory duty in disposing of such applications as are referred to in section 245D(4A)(i) by the date specified therein except where prevented from doing so due to any reason attributable on the part of the applicant, and that an application in respect of which the Settlement Commission has been prevented from fulfilling the aforesaid mandatory statutory duty due to any reasons attributable on the part of the applicant shall abate on the specified date under section 245HA(1)(iv) . In this manner both section 245D(4A)(i) and section 245HA(1)(iv) will have applicability, meaning and effect. We may also clarify that the expression `reasons attributable’ should be reasonably construed. While so dealing, the Settlement Commission also to consider whether in the petition before this Court the petitioner had averred that the proceedings were delayed not on account of any reason attributable to him, and whether the State had denied the same. If there be no denial then to consider that circumstances in favour of the petitioner.
