HIGH COURT OF KARNATAKA
ING Vysya Bank Ltd.
Commissioner of Income-tax, Bangalore-I
W.A. Nos. 2458 & 3004-3008 of 2010 (T-IT)
July 6, 2012
Aravind Kumar, J.
This Intra Court Appeal under Section 4 of the Karnataka High Court Act, 1961 is by the first respondent -assessee preferred against order passed in W.P. No. 12239/2008 whereunder the learned Single Judge has quashed the order passed by the Income Tax Settlement Commission (Additional Bench), Chennai dated 04.02.2008 in so far as it relates to granting immunity from penalty and prosecution and remanding the matter to the Settlement Commission for limited purpose of reconsidering the question of penalty, prosecution and the order of the Assessing Officer levying penalty after providing an opportunity to both the parties.
2. We have heard Sri Sarangan, learned Senior Counsel appearing for the Appellant-assessee (hereinafter referred to as ‘Assessee’ for the sake of convenience) and Dr. R.B. Krishna, learned counsel appearing for the respondent-revenue (hereinafter referred to as ‘Revenue’ for the sake of convenience).
Genesis of the case:
3. Assessee had filed its return of income for the Assessment years 1994-95 to 1999-2000. Assessment orders came to be passed by the Assessing Officer up to the Assessment years 1997-98 and in respect of subsequent years it was pending. The Assessee not being satisfied with the order of assessment preferred appeals and same was pending before various statutory appellate authorities and during this period the assessee thought fit to approach the Settlement Commission for settlement of its cases by invoking the jurisdiction of the Settlement Commission under Chapter XIX -A of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’ for the sake of brevity) and as such an application under section 245C (1) of the Act; came to be filed on 10.07.2000. A preliminary objection was raised by the revenue that application filed by the assessee was not maintainable and said issue came to be adjudicated by the Settlement Commission after considering the contentions of both the parties and allowed the application filed by the appellant under section 245C by order dated 11.12.2000 and thereby rejecting the contention of the revenue. Aggrieved by this order revenue preferred writ petition No. 13111/2001 before this court and after hearing the learned advocates appearing for parties disposed of the writ petition by order dated 18.08.2005 by concluding as under:
“12. Accordingly, this writ petition is disposed of observing that not withstanding the impugned order dated 11.12.2000, it is open to the parties to urge all their contentions before the Commission at the stage of disposal of the application itself and the commission may independent of the findings which it has given under the impugned order, examine all the contentions and proceed to pass orders on merits in accordance with the provisions of the Act”.
4. Accordingly Settlement Commission took up the application of the assessee for hearing and after considering the arguments advanced by respective learned advocates by order dated 04.03.2008 passed under section 245D(1) and 245D(4) of the Act determined the additional income and the tax payable thereon. Maintainability of the application filed by the assessee was also upheld.
5. Being aggrieved by the order dated 04.03.2008 passed by Settlement Commission, revenue preferred writ petition before this court in W.P. 12239/2008 and this court after considering the rival contentions formulated four points for its determination which reads as under:
1. Whether the writ petition is not maintainable for want of clearance from the committee on disputes (COD)?
2. Whether the first respondent has no authority to file the writ petition?
3. Whether the Settlement Commission has no jurisdiction to admit and entertain the application of first respondent under Section 245(C) of the I.T. Act after detection and discovery of the concealed income?
4. Whether the impugned order passed by the Settlement Commission is in accordance with law?
6. The learned Single Judge of this court allowed the writ petition in part by order dated 20.05.2010 in so far as it relates to granting immunity from penalty and prosecution and remanding the matter to the Settlement Commission for limited purpose of reconsidering the question of penalty, prosecution and the order of the Assessing Officer levying penalty after providing an opportunity to both the parties. The revenue being aggrieved by this order preferred Special Leave Petition (Civil) No. 19663/2010 before the Hon’ble Apex Court and on 21.02.2012 it came to be disposed of by following order:
“In the Special Leave Petition, no reference was made to pending Writ Appeal No.2458 of 2010 filed by the assessee. The said writ appeal is pending, even today, before, the Division Bench of the High Court of Karnataka. In the circumstances, we recall our order dated 6th January, 2012, passed in S.L.P. (C) No. …..CC 19663/2010. We also request the Division Bench of the High Court to dispose of Writ Appeal No. 2458 of 2010 as expeditiously as possible, preferably within a period of two months.”
7. As such the matter is before us for being disposed of.
8. It is the contention of Sri Sarangan, learned Senior Counsel appearing for the assessee that assessee is a Private Sector Bank not run, controlled or managed by the State or Central Government and as such writ petition was not maintainable against the assessee and as such he contents the learned Single Judge erred in holding that the writ petition was maintainable. He would further contend that obtaining of approval by the committee of disputes a body constituted pursuant to directions given by Hon’ble Apex Court was not obtained was a ground for not entertaining the writ petition and the law laid down by this court in this regard was not considered by the learned Single Judge. He contends that the learned Single Judge failed to consider the fact that orders of the Settlement Commission are final and conclusive subject to constitutional remedies and such remedies could be availed only when the orders passed by the Settlement Commission are contrary to the provisions of the Act. He would contend that issue regarding jurisdiction of the Settlement Commission to entertain an application filed by the assessee having been upheld by the learned Single Judge it erred in concluding that Settlement Commission was not justified in granting immunity to the assessee from levy of penalty and initiation of prosecution as vague, unsound. He further contends that section 245C contemplates full and true disclosure of income to be made before the Settlement Commission and the same was made by the assessee and as such the learned Single Judge committed an error in holding that there is statutory requirement that concealment of particulars before the assessing officer would have a bearing with the Settlement Commission exercising its power under section 245H of the Act for granting immunity from prosecution and penalty and elaborates his contentions that section 245H empowers the Settlement Commission to grant immunity to an assessee from prosecution wholly or in part or imposition of penalty and only condition required to be satisfied by the assessee is that assessee should have co-operated in the proceedings before the Settlement Commission. He would also contend that section 245H does not contemplate any explanation or evidence that requires to be offered by the applicant to the satisfaction of the Settlement Commission and as such he contends that order of the learned Single Judge is liable to be quashed.
9. Per contra, Sri R.B. Krishna, learned counsel appearing for revenue would contend that the issue regarding the maintainability of the writ petition even in the absence of clearance from committee of disputes (COD) and the authority of the first petitioner i.e., CIT (1) to file the writ petition held in favour of the revenue cannot be found fault with. He would contend that the direction given by Hon’ble Apex Court in the case of Oil & Natural Gas Commission v. Collector of Central Excise  Supp. 4 SCC 541 related to inter departmental disputes to avoid litigations between two departments of the State and admittedly the order passed by the Settlement Commission questioned by the revenue before the learned Single Judge of this court and there was no necessity for the revenue obtaining clearance from the committee of disputes and even otherwise the said issue has now been resolved by the Apex Court in the case of Electronics Corporation of India Ltd. v. Union of India  3 SCC 404. He would further contend that in the instant case the assessing officer found that appellant is an income assessee for a number of years and has been conducting leasing business as per the guidelines issued by Reserve Bank of India and said business comprises of two types namely (1) Finance Lease – where the lease financier treats the lease as a financing transaction and interest component alone is accounted for as income, enabling the lessee to claim depreciation on the leased assets; (2) operating lease -where the lessor treats the transaction as lease per se – accounts for the entire lease rentals as income and the lessor claims depreciation on the leased assets as owner and contends that assessee accounted for interest component alone as income in line with finance lease but claimed depreciation on the leased assets as an operating lease and as such the assessee apparently sought benefits under both forms of the lease which was impermissible in law resulting in evasion of income and tax. This fact was noticed by assessing officer after completion of the assessment for the assessment years up to 1997-98 and brought to tax the concealed lease rentals as income and initiated penalty proceedings and also reopened the completed assessments for the earlier years. He contends that it is thereafter application was filed by the assessed under section 245C(1) before the Settlement Commission. He submits that there is a marked difference between “discovered” or “disclosed” in as much as what was “discovered” by the assessing officer during the course of assessment proceedings could not form part of what was “disclosed” by the assessee in the application filed before the Settlement Commission. What has been “disclosed” in the application is what was “discovered” by the assessing officer. He further contends that provisions of section 245C being made applicable to an application filed by an assessee the prime ingredient would be disclosure of such income which had not been disclosed in the return of income and contends that in the instant case that the said income which has been disclosed before the Settlement Commission is what was disclosed in the return of income by way of concealment and as such he contends that it is this precise issue which was remitted back to the commission by the learned Single Judge for being adjudicated since the Settlement Commission by two line order had granted immunity to the assessee from prosecution and levy of penalty and contends that said finding of the learned Single Judge does not call for interference.
10. He would also contend that writ appeal itself is not maintainable since the learned Single Judge has given a finding that impugned order (before the learned Single Judge) was passed by the Settlement Commission and said order was amenable to writ jurisdiction in exercise of supervisory jurisdiction under article 227 of the Constitution of India.
11. Having heard the learned advocates appearing for the parties, we are of the view that following points arise for our consideration:
(1) Whether the writ appeal in question is maintainable or not?
(2) Whether the order passed in W.P. 12239/2008 (T-IT) calls for interference?
Re: Point No. 1:
12. Revenue being aggrieved by the order passed by the Settlement Commission preferred writ petition in question before the learned Single Judge seeking for issue of writ of certiorari by quashing the order passed by the Settlement Commission dated 04.03.2008 Annexure-G and order dated 14.07.2009 Annexure – N. The copy of the said writ petition is appended to the writ appeal and perusal of the same would clearly go to show that it is filed under Articles 226 & 227 of the Constitution of India. This court in the case of Thammanna v. Ms. Renuka ILR 2009 Kar. 1207 has held as under:
“No appeal would lie under Section 4 of the Karnataka High Court Act against the order of the Single Judge passed in exercise of the power conferred under Article 227 of the Constitution of India in the matter arising against an order made deciding an issue, passed by the Court sub-ordinate to the High Court, in the course of a suit or other proceeding not finally disposed of, which is attracted by Section 115 Code of Civil Procedure and is governed under Section 8 of the Karnataka High Court Act. ……….”
In the said judgment the issue under consideration was as to whether against an interim order passed by a sub-ordinate court if challenged in writ petition under Article 226 or 227 of the Constitution of India to get over restrictions imposed in section 115 C.P.C., in view of amendment brought to the said section by Act 46 of 1999 and not as to whether order passed in exercise of the power under Articles 226 & 227 of the Constitution of India is amenable to intra court appeal or not. In the instant case it is no doubt held by the Learned Single Judge that Annexure-G can be questioned under Articles 227 of the Constitution of India. That by itself would not wipe the prayer sought for in the writ petition which is both under Articles 226 & 227 of the Constitution of India. Hence the contention of learned counsel appearing for respondent that intra court appeal is not maintainable cannot be accepted and it stands rejected.
Re: Point No. 2:
13. Chapter XIX-A was inserted by the Taxation Laws (Amendment) Act, 1975 with effect from 01.04.1976. It would not be out of context to refer at this juncture Dr. Chelliah Committee’s final report Part-1 wherein the following observation has been made:
“10.45 However, it is necessary to provide adequate safeguards in the law to ensure that the settlement commission does not become an easy escape route for tax evaders. We therefore recommend the following:
|(a), (b), (c), (d)**||**||**|
With a view to implement the objective suggested by the Wanchoo Committee that this Chapter has been introduced. The tax payer approaching the settlement commission has to comply with the requirements of the scheme of the Act and the procedure prescribed thereunder. For a meaningful settlement it would require honest co-operation and frankness from the tax payer. In this background the statutory provisions found in Chapter XIX-A of the Income Tax Act which relates to settlement of cases has to be considered and appreciated. The High Court’s power of judicial review of an administrative action including those of courts and Tribunals under Articles 226 & 227 of the Constitution of India is one of the basic structures of the Constitution and the orders of such courts and tribunals though being final judicial review remains unaffected, though it may vary. Being conscious of the limited power of judicial review courts would be loath in interfering with such decisions made by the courts and tribunal unless the exceptions like mandatory procedure prescribed under the Act being flouted, rules of natural justice given a go by and decision rendered is contrary to the statutory provision.
14. In the instant case the learned Single Judge while answering Point No.4 formulated has arrived at a conclusion that issue regarding assessee being granted immunity from penalty and prosecution is contrary to the admitted facts, on the ground that reasoning of the settlement commission is vague, unsound and contrary to established principles. It has been held that burden was on the assessee to prove that there was no concealment or wilful neglect on their part and in the absence of such evidence placed by the assessee before the settlement commission, order granting immunity from penalty and prosecution would be an illegal order. At this juncture it would be relevant to note the provision governing the filing of an application by the assessee seeking settlement namely section 245C which reads as under:
245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the (Assessing) Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided:
[Provided that no such application shall be made unless,-
(i) in a case where proceedings for assessment or reassessment for any of the assessment years referred to in section (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of a person referred to in section 153A or section 153C have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees,
(ii) in any other case, the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees, and such tax and the interest hereon, which would have been paid under the provisions of this Act had the income disclosed in the application been declared in the return of income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application.]
A perusal of the above section would clearly go to show that application is required to be made by an assessee which contains full and true disclosure of his income which has not been disclosed before the assessing officer. The contention of the revenue in the instant case is that assessee has not disclosed any income which was not reflected in the return of income filed before the assessing officer but the income which has escaped and discovered by the assessing officer is sought to be disclosed by the assessee as though it is a fresh disclosure.
15. The issue regarding granting immunity from prosecution and penalty is governed by section 245H and same reads as under:
245H (1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclose of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also (either wholly or in part) from the imposition of any penalty under this Act, with respect to the case covered by the settlement:
[Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 245C]
[Provided further that Settlement Commission shall not grant immunity from prosecution for any offence under the Indian Penal Code (45 of 1860) or under any Central Act other than this Act and the Wealth-tax Act, 1957 (27 of 1957) to a person who makes an application under section 245C on or after the 1st day of June, 2007]
[(1A) An immunity granted to a person under sub-section (1) shall stand withdrawn if such person fails to pay any sum specified in the order of settlement passed under sub-section (4) of section 245D within the time specified in such order or within such further time as may be allowed by the Settlement Commission, or fails to comply with any other condition subject to which the immunity was granted and thereupon the provisions of this Act shall apply as if such immunity had not been granted.]
(2) An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Settlement Commission, if it is satisfied that such person had, in the course of the settlement proceedings, concealed any particulars material to the settlement or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the settlement and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.
A reading of the above provision would go to show that the necessary ingredient for granting immunity from prosecution would be under two headings namely (a) assessee should have co-operated with the settlement commission in the proceedings before it (b) and has made a full and true disclosure of his income and the manner in which such income has been derived and subject to proviso thereunder. It is in this background the facts on hand are to be examined.
16. The Hon’ble Supreme Court in CIT v. B.N. Bhattachargee  118 ITR 461 as held to the following effect:
(viii) The policy of the law as disclosed in Chap. XIX-A is not to provide a rescue shelter for big tax-dodgers who indulge in criminal activities by approaching the Settlement Commission. The Commission will certainly take due note of the gravity of economic offences on the wealth of the nation which the Wanchoo Committee had emphasised and will exercise its power of immunisation against criminal prosecutions by using its power only sparingly and in deserving cases, otherwise such orders may become vulnerable if properly challenged.
In the background of the dicta laid down by Hon’ble Apex Court and the statutory provisions Section 245C(1) and 245H(1). Under Section 245H(1) the Settlement Commission if it is satisfied that any person who makes the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived subject to conditions it may impose grant immunity from prosecution and also from imposition of penalty either wholly or in part with respect to the case covered by the settlement. Thus, Section 245H(1) cannot be read in isolation in as much as the very section 245C is embedded in section 245H(1). In other words both these sections should be read harmoniously keeping in mind the intent of the legislature of incorporating Chapter XIX-A to the Income Tax Act. It is in this background the Hon’ble Apex Court has held that Settlement Commission will exercise its power of granting immunity against criminal prosecutions sparingly and only in deserving cases. Thus, for granting immunity from prosecution the conditions stipulated under Section 245C(1) is also required to be complied and non-compliance of the said provision or if a application made to the Settlement Commission in a given case is not satisfying the criteria then grant of immunity would not arise at all and as such while granting immunity from prosecution and imposition of penalty it is incumbent upon the Settlement Commission to examine the claim in this background namely as to the criteria prescribed under section 245C is wholly and in full complied or not.
17. In a given case if such immunity is not granted the Department would proceed to prosecute the assessee in a jurisdictional court. Once prosecution is lodged the presumption is that there was mens rea on the part of the assessee to conceal the income by a smoke screen or evade tax. Thus the Settlement Commission will have to examine the application by lifting the corporate veil to see as to whether there has been an intention to evade tax and then arrive at a conclusion. In the absence of such exercise being undertaken by the Settlement Commission the intention underlined behind section 245H(1) would become otiose or redundant.
18. Now, we would like to turn our attention to the Judgments relied upon by the assessee whereunder it has been held that it is not open to the High Court to say that the order passed by the Settlement Commission was in any way illegal or void and had also quashing of the criminal prosecution launched by the revenue.
(1) Nirmal & Navin (P.) Ltd. v. D. Ravindran  255 ITR 514
“9. Considering the co-operation extended by the applicant in the proceedings before us immunity is granted from penalties and prosecution in respect of matters arising out of this settlement. The immunity from prosecution is subject to the applicant cooperating with the department in any proceedings for assessment, penalty or prosecution in case of ENP. The delay of six months in filing the return will be condoned and no interest under section 139(8) will be charged. Interest under section 215/217 will however be charged for a period of twelve months.
In view of the total immunity granted by the settlement commission, it was totally unjustified on the part of the Commissioner of Income Tax to proceed with the complaint against the appellants. It is also not open to the criminal court to go behind the order passed by the Settlement Commission. It was not open to the High Court to say that the impugned order passed by the Settlement Commission was in any way illegal or void.”
In the above case the assessee being aggrieved by the order passed by High Court of Madras in Criminal Revision had preferred a Special Leave questioning the prosecution initiated by the Department.
(2) Ashirvad Enterprises v. State of Bihar  266 ITR 578 :
“Section 245C of the Act deals with application of settlement of cases. As noted above no immunity can be granted by the Commission in cases where the proceedings for prosecution under the Act or under the Indian Penal Code, 1860 (in short “the IPC”) or under any Central Act for the time being in force have been instituted before the date of receipt of application under section 245C after June 1, 1987. There is logic in the prohibition. It is intended to discourage filing of belated applications after prosecution is launched and also reasons envisaged in CIT v. B.N. Bhattachargee  118 ITR 461 (SC), wherein it was observed that section 245H is a magnet which attracts large tax-dodgers, and it was emphasised that the power of immunisation against criminal prosecution should be used in deserving cases. Whether grant of immunity is called for in a given case is to be decided by the Commission on the facts of each case and no straight-jacket formula for any universal application can be laid down. In the instant case, the Commission has been satisfied that grant of immunity is called for. Since the decision has not been questioned by the income tax authorities it has attained finality.”
In the above said case prosecution was launched against assessee for alleged concealment of income and thereby wilfully attempting to evade tax and for making false statement in the verification in terms of Section 276C of the Act. After sanction granted by the Commissioner. Cognizance was taken by the jurisdictional Court and being aggrieved by this the assessees filed petitions under section 482 seeking quashing of the proceedings by taking a specific stand that proceedings should not continue since the application of the assessee was pending before Settlement Commission which was not accepted by the High Court on the ground that no order of immunity had been passed by the Commission. The Hon’ble Apex Court after noticing the Judgment of B.N. Bhattachargee’s case (supra) held grant of immunity is called for in a given case is to be decided by the Commission on the facts of each case and no straight-jacket formula for any universal application can be laid down. It was also noticed in the case that the order of Settlement Commission had not been challenged by the revenue and since it had reached finality it did not find fault with the order of Settlement Commission which had granted immunity to the assessee from prosecution. However, in the instant case it is noticed that the revenue is pursuing the very order of the Settlement Commission and by no stretch of imagination it can be construed that order of Settlement Commission has reached finality. In that view of the matter, we are of the considered view that said judgment would not come to the assistance of the assessee.
19. It is to be noticed by us that as per the provision of section 245D then prevalent, the Settlement Commission on receipt of an application filed under section 245C had to call for a report from the Commissioner and on the basis of the material contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission was empowered to reject or allow the application to be proceeded with, within the prescribed period and it is in this background the granting of immunity from prosecution ought to have been scrutinised by the Settlement Commission which the learned Single Judge has found not to be so and as such remanded the matter for de novo adjudication which does not suffer from any material irregularity or illegality so as to invite the attention of this court for exercising the Appellate jurisdiction which is limited in scope. In that view of the matter also the point No. 2 formulated herein above deserves to be answered in the negative i.e., against the assessee/appellant.
20. In the result appeal fails and it is hereby dismissed. The order passed by the learned Single Judge in W.P. No. 12239/2008 to the extent of answering point No. III formulated by it in favour of the revenue is hereby affirmed. Costs made easy.