SETTLEMENT
COMMISSION
Dr. P. SREE SUDHA,LL.D
ASSOCIATE PROFESSOR
WHAT IS THIS COMMISSION
Income-tax Settlement Commission is a
premier Alternative Dispute Resolution (ADR)
body in India
This institution was set up in 1976 (w.e.f. 1st
April, 1976 vide the Taxation Law
amendment Act, 1976) by the Central
Government on the recommendations of the
Direct Taxes Enquiry Committee (1971)
K. N. Wanchoo, the retired Chief Justice of
the Supreme Court of India.
POWERS OF THE COMMISSION
The settlement mechanism allows taxpayers to
disclose additional income before it over and above
what has been already disclosed before the Income-tax
Department.
The applicant has to pay full amount of tax and
interest on the additional income disclosed before the
Commission, before filing the application.
The Commission then decides upon the admissibility of
the application and in case of admitted applications,
carries out the process of settlement in a time bound
manner by giving opportunity to both parties.
At present, there are four benches of the Commission
located at New Delhi, Mumbai, Kolkata and Chennai.
POWERS OF THE COMMISSION
The Income Tax Settlement Commission is an
independent quasi-judicial authority.
The applicant has to pay full amount of tax
and interest on the additional income
disclosed before the Commission, before filing
the application.
The Commission then decides upon the
admissibility of the application and in case of
admitted applications, carries out the process
of settlement in a time bound manner by
giving opportunity to both parties.
SUPREME COURT [IN CIT VS. ANJUM M. H.
GHASWALA – (2001) 252 ITR 1] INTER
ALIA, HELD THAT:
“Chapter XIX-A was included for the purpose of
quick settlement of the cases before it so that
the tax due to the Revenue is collected at the
earliest. The object of chapter XIX-A is not to
give amnesty to a tax-evader from paying the
tax due”.
And that “the object of the legislature in
introducing this section [section 245C] is to see
that the 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
CIT VS. OM PRAKASH MITTAL (2005) 273
ITR 326 (SC)
the object to the constitution of Settlement
Commission is speedy disposal and not
reduction in statutory liability.
SCOPE AND NATURE OF POWER
At present the benefit of the settlement
mechanism can be availed by a taxpayer
application on or after 1st June, 2007.
As per Finance Act, 2010 doors of Settlement
Commission in search cases have been
reopened.
Normally approaching the Settlement
Commission is advised when the facts are very
complicated and more than two views are
possible on the factual matrix of the case.
In appropriate cases it may be desirable to
approach the Settlement Commission.
SCOPE AND NATURE OF POWER
The issues regarding determination of undisclosed
income after search may be quite complicated.
The determination by A.O. of the undisclosed
income gives rise to long drawn litigation.
In many such cases, it will be advisable to take up
the matter with the Settlement Commission.
If any assessee desires to approach the Settlement
Commission it may be desirable to approach before
passing of order by the
power to waive penalty and grant immunity from
prosecution not only under Income-tax Act but also
other Central Acts. But settlement is no bar to the
state proceedings.
SCOPE AND NATURE OF POWER
The order of settlement passed by the Settlement Commission provides
for the terms of settlement including any demand by way of tax,
penalty or interest and also provides for the manner in which such
demand is to be paid.
Such an order shall also address other matters to make the settlement
effective. The final settlement order of the Settlement Commission is
applicable for the case of the particular applicant only and its ratio is
not applicable for other cases and for proceedings before other
authorities.
The order of settlement passed by the Settlement Commission provides
for the terms of settlement including any demand by way of tax,
penalty or interest and also provides for the manner in which such
demand is to be paid. Such an order shall also address other matters to
make the settlement effective.
The final settlement order of the Settlement Commission is applicable
for the case of the particular applicant only and its ratio is not
applicable for other cases and for proceedings before other authorities.
SEC. 245D: PROCEDURE ON RECEIPT
OF AN APPLICATION U/S. 245C
as per proviso to sec. 245D(1) an application
filed is considered admitted and allowed to be
proceeded with if it is not rejected by the
Commission within 14 days under section
245D(1) of the Act.
The Commission can reject the application (as
stated above), if the applicant does not satisfy
the essential condition mentioned in Sec.
245C. Further, an application not accompanied
by the proof of payment of full amount of
additional tax and interest and the prescribed
fee of ` 500/- is also liable to be rejected.
SEC. 245D: PROCEDURE ON RECEIPT
OF AN APPLICATION U/S. 245C
An applicant cannot withdraw the application once it is filed
before the settlement commission.
the Commission calls for the report from the Principal
Commissioner or Commissioner of Income-tax under section
245D(2B) to be furnished within a period of 30 days.
The Commission may treat an application as invalid by
passing an order under Section 245D(2C) on the basis of the
report.
If the report of the Commissioner is not received within the
period of 30 days from the day the letter from the
Commission is received by him, the Commission shall
proceed further in the matter without the report.
The order of the Commission is to be passed within 15 days
of the expiry of the period of 30 days given to the Principal
Commissioner or Commissioner for submitting the report.
HUS, FROM THE ABOVE DISCUSSION,
IT IS APPARENT THAT :
Tthe settlement application passes through
several stages before the final order
providing for the terms of settlement is
passed by the Settlement Commission.
The first stage is under Section 245D(1).
This is followed by the next step under
Section 245D(2C) and finally by the order
passed under Section 245D(4).
The orders under Section 245D(1) under
Section 245D(4).
CIT VS. K. JAYAPRAKASH NARAYANAN
(2009) 184 TAXMAN 85 (SC). SLP
"1. Delay condoned. This Special Leave Petition is filed against
the decision of the Settlement Commission admitting the
application of the Assessee under Section 245D of the Income-
tax Act, 1961. It is the case of the Department that the
Assessee had failed to make full and true disclosure in the first
instance and that the said declaration made at a later date by
way of second declaration cannot be the ground for admitting
the application under Section 245D. Since this Special Leave
Petition is filed only against the order of the Settlement
Commission admitting the application of the Assessee under
Section 245D, we do not wish to interfere at this stage.
However, we make it clear that on the point of maintainability
of the Application, it would be open to the Department to
raise the contention before the Settlement Commission who
would be entitled to examine that the Special Leave Petition
is disposed of accordingly."
BRIJ LAL V. COMMISSIONER OF
INCOME TAX [2010] [328 ITR 477]
In the instant case, the Apex court had held that in view of section 245-I
of the Act, the Settlement Commission cannot reopen its concluded
proceedings by invoking section 154 of the Act so as to levy interest under
section 234B.
Chapter XIX–A does not contain specific provisions to rectify any order
passed by the Settlement commission. However, section 245F(1) of the Act
confers all the powers which are vested in an Income tax Authority under
the Income Tax Act to the Settlement Commission. Under section 154 of
the Act, an income tax authority may amend any order passed by it under
the Act to rectify any mistake apparent from record.
Points for consideration
Whether in view of the provisions of section 245F read with section 154 of
the Act, the Settlement Commission has powers to invoke section 154 of
the Act?
By virtue of this decision does it follow that the applicant is not left with
any remedy in case of obvious errors/mistake of fact and law apparent
from the order/records (i.e., arithmetical errors, credit for taxes,
computational errors, inclusion of any income by mistake, etc..) ?
SEC. 245E : POWER OF SETTLEMENT COMMISSION
TO REOPEN COMPLETED PROCEEDINGS
a) An assessment completed under the 1922 Act cannot
be now reopened.
b) The concurrence of the applicant assessee to such
reopening is necessary.
c) No proceeding shall be reopened if the period
between the end of the assessment year to which it
relates and the date of application for settlement
under sec. 245C exceeds nine years. Prior to 1st
June, 1987, no proceeding could be reopened after
the expiry of a period of eight years from the end of
the assessment year to which it relates.
d) The commission should record, in writing, its reasons
for considering that such reopening is necessary.
SECTION 245G – INSPECTION
ETC. OF REPORTS
provides for right to documents in the
possession of the Settlement Commission on
application and payment of requisite fee.
There is, however, discretion to withhold any
document in its discretion.
It follows that such discretion may not be
exercised in a manner that will affect the
rights of the applicant for settlement.
Rule 44D contains the provision regarding fee
payable for inspection.
SECTION 245HA : ABATEMENT OF PROCEEDING
BEFORE SETTLEMENT COMMISSION
All pending applications are required to be
disposed by 31st March 2008, those filed on or
after 1-6-2007 will be completed within 9
months from the end of the month in which
application is made.
The Supreme Court itself has granted stay
against such abatement in Prabhu Dayal vs.
Union of India in Civil No. 113 of 2008
granting interim stay against abatement. [Also
see UOI vs. Rajendra Construction Co. (2010)
217 Taxation 273 / 187 Taxman 135 / 31 DTR
186 / 227 CTR 241 (SC)].
SECTION 245HA : ABATEMENT OF PROCEEDING
BEFORE SETTLEMENT COMMISSION
The Bombay High Court in Star Television News Ltd. vs. UOI
[2009] 317 ITR 66, held that to save these sections from vice
of discrimination an applicant could not be punished for
inability or failure of Settlement Commission where such
delay in disposal was not attributable to applicant u/s.
245D(4A) and consequently, where applicants had prevented
Settlement Commission from fulfilling its statutory
mandatory duty u/s. 245D(4A), such applications would
abate as per s. 245HA. Constitutional validity of s. 245D(4A)
ans. 245HA was thus protected from vice of discrimination.
The department SLP against the above order is heard and
dismissed on 25-3-2015. The Hon’ble Supreme Court was of
the opinion that the decision of Bombay High Court is a well-
considered judgment and does not call for any interference.
BENEFITS OF SETTLEMENT
COMMISSION
Department to get over long and continued litigation in
complicated cases
ii) Final Settlement for settling liabilities across the board in
complicated cases with doubtful benefit to Revenue, avoiding
endless and prolonged litigation and subsequent strain on
investigational resources of the Department.
iii) Provided its disclosure was “full and true”, the assessee had a
forum wherein complicated matters could be decided by one
forum.
iv) Time consuming litigation in the regular appellate procedure
was avoided by the Department and the assessee.
v) Provided its disclosure was full and true, benefits of waiver of
penalties and prosecution are available to the assessee.
vi) Confidentiality of the assessee’s disclosure is maintained, as
the same could be used only in the Settlement Commission
except as provided in Sec. 245HA(3) of the Act.
HIGHLIGHTING FEATURES OF
SETTLEMENT COMMISSION ARE
a) To pass the Settlement order within 18
months of filling of the application
(b) It has wide power of granting immunity
from penalty and prosecution, which are
major sources of litigation
(c) The orders passed by the Commission are
final and conclusive.
