1995-VIL-380--DT

Equivalent Citation: [1995] 215 ITR (A. T.) 1

INCOME TAX SETTLEMENT COMMISSION

Date: 28.03.1995

IN RE: GULRAJ ENGINEERING CONSTRUCTION CO.,

Vs

BENCH

Order

JUDGMENT

By order No. 1/45/Tech of 1994_SC/3865 dated January 4, 1995, the Chairman of the Incometax Settlement Commission constituted a Special Bench in exercise of the powers vested in him under section 245BA(5A) of the Incometax Act, 1961 (hereinafter referred to as "the Act"). The following issue was referred to this Bench concerning the interest payable under section 234B of the Act for defaults in payment of advance tax under each of the five situations mentioned therein :

" The period up to which the interest under section 234B of the Incometax Act, 1961, is payable for an assessment year in an order under section 245D(4) read with section 245D(6) in respect of each of the following situations existing at the time of the order passed under section 245D(1) of the said Act :

(i) The income is determined under section 143(1) but no regular assessment under section 143(3) or 144 is made with or without there being a notice under section 143(2) and/or section 142(1).

(ii) A regular assessment is made under section 143(3) or section 144 in addition to the determination of the income under section 143(1) and an appeal is pending before the first appellate authority.

(iii) Only a return of income is furnished without or in pursuance of a notice under section 142(1) or section 148 and the income is neither determined under section 143(1) nor under section 143(3) or section 144.

(iv) The assessment made under section 143(3) or section 144 is reopened under section 147 and neither any return of income is furnished in response to the notice under section 148 nor is the order of reassessment made by the Assessing Officer. (v) A reassessment is made under section 147 read with section 143(3) or section 144 and an appeal is pending before the first appellate authority. ''

The genesis of the reference are two miscellaneous applications, one dated July 7, 1993, filed by Gulraj Engineering Construction Co., Bombay, and the other dated September 11, 1993, filed by Sahitya Mudranalaya Group of assessees of Ahmedabad against the orders under section 245D(4) of the Settlement Commission, Additional Bench, Bombay. While passing orders under section 245D(4) read with section 245D(6), the Commission had directed that the interest in respect of the assessment year 198990 and onwards for the default of advance tax under section 234B should be charged "in accordance with law". The concerned Assessing Officers interpreted this direction to mean the period of interest to be from first of April next following the financial year in which the advance tax was to be paid till the date of giving effect to the respective orders of the Settlement Commission under section 245D(4) of the Act and demanded the interest computed on that basis. Those two miscellaneous applications were fixed for hearing before the Settlement Commission, Additional Bench, Bombay, consisting of two Members. It was pleaded that the interest under section 234B could not be charged if the advance tax paid, originally was more than 90 per cent. of the assessed tax. Even where it was not so, interest could be charged only up to the date of determination of the total income under section 143(1) or the date of regular assessment. There was no question of charging interest up to the date of the Settlement Commission's order under section 245D(4) much less up to the date of giving effect to it by the Assessing Officer.

After hearing the applicants, the Additional Bench felt that the period for which the interest should be charged under section 234B for default of payment of advance tax, was an important matter requiring uniform treatment all over the country. There was also difference of opinion between the two Members of the Additional Bench. Similar issues had been raised in the course of hearing of settlement applications before the Additional Bench, Bombay, although the orders under section 245D(4) had not yet been passed in the cases of Hindusthan Bulk Carriers and Nagarmal Chandanmal, both of Bombay. It was felt that this issue will arise in practically every case involving the assessment year 198990 and onwards. Under these circumstances, the Additional Bench, made a reference to the Chairman, Settlement Commission, requesting for the constitution of a Special Bench so that this important matter could be decided in the interest of achieving uniformity.

Shri Arun Sathe, Advocate, initiating the debate, submitted that the decision of the Special Bench of the Incometax Settlement Commission in Ashwani Kumar Aggarwal, In re [1992] 195 ITR 861 (ITSC) (SB) holding that the Commission had no power of reduction or waiver of interest under section 234B has given rise to this problem and requires reconsideration. According to him, the Commission has the inherent power to reduce or waive such interest and in exercise of this power, to decide the period, if any, up to which the interest for defaults of advance tax should be charged. Alternatively, the Commission having been vested under section 245F(1) with the power of every incometax authority including the Central Board of Direct Taxes (hereinafter referred to as "the Board") the Special Bench can, like the Board, prescribe guidelines regarding the charging of interest to be followed by various Benches in taking decisions in individual cases.

Coming to the specific issue, Shri Sathe contended that the liability to pay interest arises only if an assessee has not paid, during the relevant financial year, up to 90 per cent. of the "assessed tax" as defined in Explanation 1 to section 234B(1) of the Act. If 90 per cent. or more of the "assessed tax" is paid, there will be no liability to pay the advance tax even where, on the basis of the Commission's order under section 245D(4), the advance tax paid turns out to be far less than 90 per cent. of the "assessed tax". Since the charging provisions in section 234B(1) do not provide for computation of interest on the basis of the Commission's order under section 245D(4), no interest is chargeable in view of the ratio of the decision of the Supreme Court in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294. Thus, in both the cases represented by him, no interest was chargeable because the advance tax paid or the tax deducted at source was in excess of the tax payable on the basis of the total income determined under section 143(1).

Alternatively, assuming that the interest was chargeable, according to Shri Sathe, the period would be from April 1 of the financial year next following the year in which advance tax was payable to the date of total income computed under section 143(1) or the date of regular assessment. This was because of the explicit provisions of subsection (1) read with subsection (4) of section 234B of the Act. Shri Sathe vehemently urged that there was absolutely no warrant for calculating the interest up to the date of order under section 245D(4) as there was no provision under the Act permitting such an action. He further argued that in the absence of any specific provision, an interpretation beneficial to the taxpayer has to be adopted. According to Shri Sathe, where an order under section 143(1)(a) was not there, it should be deemed to have been passed when the return was filed and the court should read down the proposition. For this, he relied on the decisions of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) and CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452 (Bom) [FB].

Shri M. M. Patel, advocate, also sought a review of the Special Bench's order in the case of Ashwani Kumar Aggarwal [1992] 195 ITR 861 (ITSC) (SB). Alternatively, he pleaded that the Commission's order under section 245D(4) is not an order of regular assessment and, therefore, the interest cannot be charged up to the date of such order much less up to the date of giving effect to it. This is because, section 2(40) of the Act, which defines the expression "regular assessment" does not include the order of the Commission under section 245D(4). Explanation 2 to section 234B(1) extends the definition of the expression "regular assessment" to include such assessment as is made for the first time under section 147 only for the purpose of charging interest. Besides, section 234B(4) specifically treats an order of the Commission under section 245D(4) to be different from a regular assessment order by grouping it with the orders of other appellate authorities and the courts. Shri Patel also made a reference to subsections (1)(c), (1A)(c) and (2)(c) of section 155 of the Act to contend that Parliament by mentioning section 245D(4) there separately, has clearly treated it as an order of settlement distinct and different from an order of regular assessment or reassessment. In addition, the Settlement Commission, unlike the Assessing Officer, is a high powered body which performs so many functions like finally determining the incometax liability of an assessee and laying down the terms of settlement which, inter alia, include immunity from penalty and prosecution. Such an order of a high powered body, cannot be treated as that of regular assessment. Lastly, the High Courts have been unanimous that the interest could be charged only up to the date of regular assessment under a similar provision in section 215 of the Act. He relied upon the ratio of the decision of the Bombay High Court in CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452 [FB]. He submitted that even though for the purpose of interest payable by the Central Government under section 214(1) for excess payment of advance tax, the Gujarat High Court gave a wider meaning to the expression "regular assessment", in Bardolia Textile Mills v. ITO [1985] 151 ITR 389 (Guj) [FB], to include an appellate order also, yet for the purpose of charging of interest from the assessee for defaults of advance tax under section 215 such an appellate order was not held to be the extension of the regular assessment. According to Shri Patel an order under section 245D(4) stood on a distinct footing and cannot be equated to a "regular assessment". Section 245D(6) clearly provides for the terms of settlement including any demand by way of tax, penalty or interest and in the absence of a section 245D(4) order finding a place in section 234B(1), the Commission had clearly ample authority to vary the interest leviable, if any.

According to Shri Patel, only where interest was initially chargeable, it could be varied as a result of the Settlement Commission's order and there also only up to the date of regular assessment or the date of computation of total income under section 143(1). Where the return of income was furnished and no further action was taken by the Assessing Officer, interest could be charged only up to the date of furnishing the return. In case the regular assessment was reopened under section 147, but no return was filed, interest could be charged up to the date of the order of the Settlement Commission admitting the application under section 245D(1). And lastly, where reassessment had been made, the interest could be charged up to the date of such reassessment.

Shri D. M. Harish, advocate, urged that the answer to the issue under each of the five situations could be found within the ambit of section 234B itself and there was no need to go to any other provision of the Act. According to him, the language of section 234B was plain and unambiguous and lays down that the interest will be charged on the tax determined by the Settlement Commission under section 245D(4) but in point of time, it will be limited to the date of computation of total income under section 143(1) as provided in section 234B(1). Even if a regular assessment is made, interest will be charged only up to the date of such computation under section 143(1) because in section 234B(1), while fixing the terminal date, Parliament has not used the words "whichever is later" after giving two alternative dates, namely, the date of computation of total income under section 143(1) or regular assessment. Where only a return of income is furnished and no order under section 143(1) or regular assessment is passed, no interest is chargeable at all because, in this situation, there will be no "assessed tax" nor does section 234B(1) mention the date of furnishing of the return as the terminal point for the charging of interest. If reassessment proceedings are pending on the date of admission of a settlement application under section 245D(1), the interest can be charged up to the date of regular assessment, but if there also total income under section 143(1) was computed, the interest can be charged only up to that date. In a situation where reassessment under section 147 is made, the interest will be chargeable up to the date of reassessment in view of the clear language of subsections (3) and (4) of section 234B. Dr. Pravin P. Shah, chartered accountant, pointed out that the charging of interest is dependent upon three factors, namely :

(i) tax amount ;

(ii) rate of interest ; and

(iii) period.

With regard to the period, section 234B(1) specifies the starting date as 1st of April of the financial year next following the year in which advance tax was payable. There are three terminal dates, namely :

(i) Date of order under section 143(1) ;

(ii) Regular assessment ; and

(iii) Date of reassessment under section 147.

Thus, there is no warrant at all in law for charging of interest up to the date of the Settlement Commission's order under section 245D(4) much less up to the date of giving effect to the same by the Assessing Officer. Nothing prevents an Assessing Officer to pass an order under section 143(1) even after the settlement application is filed but before it is admitted. Besides, there will be double charging of interest if the interest is computed up to the date of the Settlement Commission's order. For example, in a case of default in the payment of tax on the basis of the settlement application, the assessee will not only pay the interest at the rate of 15 per cent. under section 245D(2C) but on the same tax he will also be liable to pay interest on the shortfall of advance tax. According to Dr. Shah, no interest is chargeable where only the return of income is furnished and neither any order under section 143(1) is passed nor is the regular assessment completed under section 143(3) or 144. Miss Usha Dalal, advocate, adopted the argument of Shri Arun Sathe, advocate, and all others representing the taxpayers. Shri R. A. Dada, Additional SolicitorGeneral of India, appearing for the Incometax Department, urged that the period up to which the interest should be charged is not specified under section 234B(4) of the Act, because subsections (1) and (2) are not incorporated in subsection (4). One has, therefore, to look to the scheme of the Settlement Commission as laid down in Chapter XIXA _ sections 245A to 245L of the Act. According to the learned Additional SolicitorGeneral, once the settlement application is admitted and the case of the assessee is allowed to be proceeded with under section 245D(1), the Assessing Officer's jurisdiction over all the pending proceedings for the admitted years is transferred and is substituted by the higher jurisdiction of the Settlement Commission. Thus, in each of the five situations, the interest will be chargeable up to the date of order of the Settlement Commission under section 245D(4). According to him, the concept of assessment would have to be elongated to conclude with the order under section 245D(4). Countering the arguments of Shri Sathe and Shri Patel, he distinguished the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) and stated that it was clear from the reasons given on pages 297 to 300 of the Report that the ratio of the Supreme Court's decision was that no capital gains tax was chargeable on the sale of goodwill because it had no cost of acquisition. He also made out that the decision of the Bombay High Court in CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452 [FB] did not involve the question which is now before the Special Bench and as such the same could not be relied upon to support the argument of capping the terminal date to conclude with the order under section 143(1). Shri Dada read out from pages 17 and 18 of the book Principles of Statutory Interpretation by G. P. Singh _ 1975 edition, to contend that the Commission must ascertain the legislative intent by not only reading the clause to be construed but also the other parts of the statute.

Dr. M. V. R. Prasad and Shri V. N. Srivastava, Commissioners of Incometax also supported the stand of Shri Dada. Shri Srivastava, in particular, mentioned that the interest should be charged up to the date of giving effect to the Settlement Commission's order because the Assessing Officer can be said to have passed, only at that time, the regular order of assessment in conformity with the order of the Settlement Commission.

As an alternative to the contention that interest under each of the five situations involved in the issue should be charged up to the date of Settlement Commission's order under section 245D(4), Shri Dada submitted that at least the interest could be charged up to the date of regular assessment and if there is no such assessment, it should be charged up to the last date up to which the regular assessment could be made. In this connection, he relied upon the ratio of the decision of the Gujarat High Court in Bardolia Textile Mills v. ITO [1985] 151 ITR 389 [FB] to contend that the expression "regular assessment" should be understood in the context in which it is used. Thus, a reasonable interpretation should be placed on this expression keeping in view the fact that the charging of interest was largely compensatory in nature. Where reassessment under section 147 is made, the interest should be charged up to the date of that reassessment. However, if only a return of income had been furnished and no order under section 143(1) was passed or regular assessment made, the interest is to be charged up to the date till which an order under section 143(1) could be passed, i.e., two years from the end of the assessment year. He also stated that the period up to which the interest should be charged is basically in the realm of a machinery provision and wherever there is an ambiguity in the statutory language, it should be so interpreted as to make the machinery workable. In this connection, support was sought from the decision of the Supreme Court in Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1.

In his counter reply, Shri Arun Sathe submitted that if the arguments of the learned Additional SolicitorGeneral, Shri Dada regarding the doctrine of incorporation were accepted, interest could not be charged at all on the basis of the Settlement Commission's order. This is because, if no period is incorporated in subsection (4) of section 234B, no interest at all can be charged. He relied upon the decisions of the Supreme Court in K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) and of CIT v. Madho Pd. Jatia [1976] 105 ITR 179, 183, 184 (SC) to contend that even where two interpretations are possible, the one in favour of the taxpayer should be adopted.

Shri M. M. Patel, replying to Shri Dada's arguments, stated that sections 234A, 234B and 234C are penal in nature because they have also replaced the penalties which used to be earlier levied for advance tax defaults and the rate of interest has been increased from 15 per cent. to 24 per cent. per annum. Such provisions should, therefore, be interpreted strictly in view of the decision of the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, 195 (SC). He also relied upon the Board's Instruction No. 947, dated April 23, 1976, printed at pages 1.272526 of Taxman's Direct Taxes Circulars, Vol. 2, 1994 edition, to contend that the Board itself has recognised in the context of a similar provision regarding interest payable by the Central Government under section 214, that it should be charged up to the date of "regular assessment" which should be the first assessment and subsequent modifications on account of appeals or revisions have to be ignored. According to Shri Patel, if the interest was chargeable up to the date of the Commission's order for the passing of which there is no time limit, the burden of interest will be catastrophic for the assessees instead of merely compensatory.

The Incometax Settlement Commission was constituted by the Central Government for settlement of cases in pursuance of Chapter XIXA (sections 245A to 245M_section 245M later omitted with effect from June 1, 1987) inserted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. The scheme of settlement permits an assessee to make an application for settlement of his case to the Commission at any stage of pendency of proceedings concerning the assessment or reassessment of his income in view of subsection (1) of section 245C read with clause (b) of section 245A of the Act. The settlement application can be filed even where the return of income has been furnished and no further action has been taken thereon by the Assessing Officer or, in the case of a reassessment, only a notice under section 148 has been issued to the assessee. A settlement application can be filed for more than one assessment year and once it is admitted under subsection (1) of section 245D, the proceedings pending before any incometax authority relating to the admitted years get transferred to the Commission which, under subsection (2) of section 245F, is vested with "exclusive jurisdiction to exercise the powers and perform the functions of an incometax authority under this Act in relation to the case". Only the provisions relating to payment of selfassessment tax continue, under subsection (3) of section 245F to be enforced by the incometax authority subject to any express direction of the Commission to the contrary. Every order of settlement passed by the Commission under subsection (4) of section 245D has to be "in accordance with the provisions of the Act". It has, by virtue of subsection (6) thereof, to include "the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective". It shall "also provide that the order shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts". Under section 245H, the Commission has the powers to grant immunity from prosecution and penalty. In terms of section 245I, every order of settlement passed by the Commission is final and conclusive as to the matters covered therein. Apart from the powers specifically contained in Chapter XIXA, the Commission has also been given, in view of section 245F(1), "all the powers which are vested in an incometax authority" under the Act.

Since the order of settlement under subsection (4) of section 245D has to be in accordance with the provisions of the Incometax Act, a question was referred to the Special Bench of the Incometax Settlement Commission In re : Ashwani Kumar Aggarwal [1992] 195 ITR 861 (ITSC) (SB), if the Commission has the power to reduce or waive interest for defaults in furnishing the returns of income and those of advance tax under sections 234A, 234B and 234C which are applicable from the assessment year 198990 and onwards. It was held by the Special Bench that the Commission had no such power of reduction or waiver of interest except where an applicant before the Commission is entitled to the benefit of any relaxation in these provisions allowed by the Board, under section 119(2)(a) of the Act, to any "class of incomes" or "class of cases". Because of this decision and since this issue has not been referred to us for review, we decline to consider the pleas made by Shri Sathe as well as Shri Patel for its reconsideration.

The issue referred to this Bench concerns largely the interpretation of section 234B of the Act. The said section is reproduced below :

" 234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent. of the assessed tax, the assessee shall be liable to pay simple interest at the rate of two per cent. for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under subsection (1) of section 143 or regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

Explanation 1._In this section, 'assessed tax' means, _

(a) for the purposes of computing the interest payable under section 140A, the tax on the total income as declared in the return referred to in that section ;

(b) in any other case, the tax on the total income determined under subsection (1) of section 143 or on regular assessment, as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.

Explanation 2._Where in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section.

Explanation 3._In Explanation 1 and in subsection (3) 'tax on the total income determined under subsection (1) of section 143' shall not include the additional incometax, if any, payable under section 143. (2) Where, before the date of determination of total income under subsection (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise, _

(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section ;

(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.

(3) Where as a result of an order of reassessment or recomputation under section 147, the amount on which interest was payable under subsection (1) is increased, the assessee shall be liable to pay simple interest at the rate of two per cent. for every month or part of a month comprised in the period commencing on the day following the date of determination of total income under subsection (1) of section 143 or regular assessment referred to in subsection (1) and ending on the date of the reassessment or recomputation under section 147, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under subsection (1) of section 143 or on the basis of the regular assessment aforesaid.

(4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under subsection (4) of section 245D, the amount on which interest was payable under subsection (1) or subsection (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and _

(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly ;

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989, and subsequent assessment years. ''

Section 234B was inserted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. As stated in subsection (5), it is applicable to the assessment year 198990 and onwards. Up to the assessment year 198889, section 215 of the Act read with rule 40 of the Income tax Rules, 1962, governed the charging of interest for such defaults in the payment of advance tax.

Subsection (1) to section 234B provides for the charge and mode of computation of interest up to the date of regular assessment.

The amount for the purposes of charging of interest is to be the "assessed tax". The expression "assessed tax" has been defined in Explanation 1 to subsection (1) to mean, for the purposes of computing the interest payable on self assessment under section 140A to be the tax on the total income as declared in the return of income and, in any other case, the tax on the total income determined under subsection (1) of section 143 or on regular assessment. From the "assessed tax" so computed, the amount of tax deducted or collected at source on any income in accordance with the provisions of Chapter XVII has to be reduced. Explanation 3 to subsection (1) also excludes the additional incometax payable under section 143(1) from the amount of "assessed tax".

The rate is simple interest of two per cent. per month or part thereof.

The period for which the interest has to be charged is from the first April next following the financial year in which the advance tax is payable to the date of determination of total income under subsection (1) of section 143 or on regular assessment. The expression "regular assessment" has been defined in clause (40) of section 2 of the Act to mean, unless the context otherwise requires, "the assessment made under subsection (3) of section 143 or section 144". Explanation 2 to subsection (1) of section 234B has enlarged the meaning of the expression "regular assessment" to include an assessment made for the first time under section 147 for the purposes of charging of interest under section 234B.

Subsection (2) provides that any interest chargeable under section 234B, which has already been paid by an assessee on the basis of selfassessment under section 140A or otherwise shall be adjusted against interest determined to be payable on computation of total income under section 143(1) or on regular assessment.

Subsection (3) lays down the charge and mode of computation of interest where the tax on total income determined on regular assessment is increased as a result of reassessment or recomputation of income under section 147.

Subsection (4) provides for automatic revision of the amount of interest where the amount of tax is varied as a result of the order of rectification, appeal, revision or settlement mentioned therein.

Let us now deal with the first substantive issue raised by all counsels for the applicants and interveners, namely, that if an assessee has paid, by way of advance tax, more than 90 per cent. of the "assessed tax" he would not be liable to pay any interest as a result of the order of the Settlement Commission under subsection (4) of section 245D even if such advance tax subsequently becomes less than 90 per cent. of the tax found due on the basis of the Commission's order. The argument that subsection (4) comes into play only when as a result of the Commission's order, interest payable under subsection (1) or subsection (3) has been "increased or reduced" should be considered in its proper perspective. Explanation 1 to subsection (1) read with subsection (4) requires computation of assessed tax at four stages :

(i) On the basis of income shown in the return ;

(ii) Total income determined under section 143(1) ;

(iii) Regular assessment ;

(iv) Modification as a result of rectification, appeal, revision or settlement. Thus, even if interest payable at each of the first three stages is zero even then it can be increased to any amount which may be found just and proper. In taking this view, apart from the clear language used in subsections (1) and (4) of section 234B, we rely on the following observations of the Rajasthan High Court at page 104 of CIT v. Multimetals Ltd. [1991] 187 ITR 98 made in the context of similar provisions contained in subsection (3) of section 215 :

" The words 'has been increased or reduced' should be considered in the proper perspective. If there was a dispute or direction about the interest under section 263 and, if the assessing authority finds that no interest is leviable, even then the zero can be increased to any amount which may be found just and proper. "

But a more important consideration is that subsection (4) refers to the increase or reduction in the amount of tax on which interest is payable and the computation of assessed tax will need to be made when modification in income takes place as a result of the Settlement Commission's order whether or not any interest was earlier payable or not. If the contention of learned counsel for the assessees were to be accepted, the words "amount on which" in the expression in subsection (4), namely, "the amount on which interest was payable under subsection (1) or subsection (3) has been increased or reduced", would become superfluous which is not permissible in interpreting any provision of a statute much less that of a taxing statute. In addition, the contention, if accepted, would lead to absurd results. If, let us say, the advance tax payable on the basis of tax assessed under section 143(1) was Rs. 50,000 against which the assessee paid Rs. 1,00,000, he will be entitled to refund of the excess with interest in view of section 244(1A) of the Act. But if on the basis of the Settlement Commission's order the assessed tax comes to Rs. 5,00,000, the assessee will be liable to pay another Rs. 4,50,000 by way of tax but no interest for underpayment of advance tax will be payable and to carry the contention to its logical conclusion, the interest paid to him by the Central Government on the basis of the earlier excess of advance tax payment may also not be recoverable. For the above reasons, we do not think this contention can be accepted. We, therefore, hold that, in every case, where on the basis of the Commission's order, the assessed tax results in liability for interest, it will be payable by the assessee even though earlier, at any of the three stages of computation of assessed tax mentioned above, no interest was payable. Assessed tax can only mean the correct tax as finally determined.

Coming to the argument of the Additional SolicitorGeneral that in the absence of incorporation, in subsection (4), of the period up to which the interest has to be charged, the provisions of the statute as a whole should be read, we are of the view that there is no such omission.

Subsection (4) deals only with the modification in the amount of assessed tax on which interest is payable. The period for which interest is to be charged and the rate of interest are to be adopted from subsection (1) or subsection (3) as the case may be. This is because of the clear and unambiguous language used in subsection (4) providing for increase or reduction of interest in the manner laid down in subsection (1) or subsection (3) consequent upon a modification in the amount of assessed tax as a result of the Commission's order. Besides, the provisions of subsection (4) are in pari materia with those of subsection (3) of section 215 which were applicable till the assessment year 198889. There has hardly been any controversy on the scope of subsection (3) of section 215. The controversy has been on the interpretation of the expression "regular assessment" used in subsection (1) of section 214 concerning the terminal point up to which interest on the excess payment of advance tax is payable by the Central Government. According to one view, the expression "regular assessment" is to be understood as the first or original assessment made by the Assessing Officer under subsection (3) of section 143 or section 144 and it does not refer to a fresh assessment or modification of the assessment to give effect to the decision of the appellate or revisional authority. This view is supported, among others, by the decision of the Bombay High Court in CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452 [FB] holding that the same meaning should be placed on the expression "regular assessment" used in both subsection (1) of sections 214 and 215 of the Act. The other view supported, among others, by the decision of the Gujarat High Court in Bardolia Textile Mills Ltd. v. ITO [1985] 151 ITR 389 [FB] and relied upon by the Additional SolicitorGeneral is that the expression "regular assessment" cannot be confined to the first original assessment but also includes an assessment made pursuant to the direction of the appellate or revisional authority. However, with regard to the payment of interest by an assessee on shortfall of advance tax under section 215 even the Gujarat High Court has observed at page 430 of the report that "such interest would be payable on the first assessment".

The Board has also in the context of subsection (1) of section 214 held in paragraph 2 of its Instruction No. 947 dated April 23, 1976, printed on pages 1.272526 of volume 2 of Taxman's Direct Taxes Circulars, 1994 edition, and quoted by Shri Patel that : "it is the first assessment that will be treated as the regular assessment and later assessments were immaterial. Therefore, the terminus (i.e., the date of regular assessment) cannot be altered because income assessed had undergone changes on account of subsequent vicissitude as a result of appeals before the appellate authorities or revision petitions before the Commissioner of Incometax, that is, interest payable under section 214 will not be altered with reference to the tax payable according to the appellate order or orders under section 263/264". The omission of a reference to the Settlement Commission's order in the Board's instruction is probably because, the provision adding the order of settlement under subsection (4) of section 245D was inserted in subsection (1A) of section 214 later by the Direct Tax Laws (Amendment) Act, 1987. That instruction was judicially noticed by the Bombay High Court in CIT v. Tata Chemicals Ltd. [1988] 169 ITR 314 (Bom) and the above interpretation of the Board was found to be according to law. The Board's concession in paragraph 4 of the said instruction permitting payment of interest up to the date of rectification under section 154 was held to be in the nature of "giving relief to the assessee regardless of the fact that the legal position has been held to be different". Item (v) of paragraph 10.3 of the Board's Circular No. 549 dated October 31, 1989 (see [1990] 182 ITR (St.) 1, 389) explaining subsection (4) of section 234B as inserted by the Direct Tax Laws (Amendment) Act, 1987, stated that the variation refers to the "amount of tax". This is how that item of the Board's circular reads :

" (iv) Subsection (4) provides for automatic revision of the amount of interest where the amount of tax is varied as a result of an order of rectification, appeal, revision or settlement mentioned in the subsection. "

Under the old provisions for charging of interest for defaults of advance tax, even the period up to the date of "regular assessment" prescribed in subsection (1) of section 215 could be reduced in view of subrule (1) of rule 40 of the Incometax Rules, 1962, to the period for which the delay in completing the assessments could be attributed to the assessee. This is how subrule (1) of rule 40 reads :

"40. The Assessing Officer may reduce or waive the interest payable under section 215 or section 217 in the cases and under the circumstances mentioned below, namely :

(1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee. ''

It will be noticed from the foregoing discussion that under similar provisions of subsections (1) and (3) of section 215, the period of charging of interest due to modification of the assessed tax as a result of rectification, appeals or settlement, was limited up to the date of regular assessment. And there also, it could be waived or reduced beyond one year from the date of furnishing of the return if the delay in completing the assessment could not be attributed to the assessee. The only changes that have been made from the assessment year 198990 and onwards are that :

(i) rule 40 providing for waiver or reduction of interest has ceased to apply with effect from the assessment year 198990 ;

(ii) the rate of interest has been revised to two per cent. per month or part thereof ; earlier it was 15 per cent. per annum ; and

(iii) the penalty for defaults of advance tax leviable under section 273 has been omitted.

There has been no extension of the terminus date for the charging of interest from the date of regular assessment to the date of the settlement order much less to the date of giving effect to it. The above view is further strengthened by the fact that interest is chargeable under subsection (2) of section 220 of the Act for default in the payment of tax after it is determined under subsection (1) of section 143 or on regular assessment to be automatically modified, under the first proviso to subsection (2) as a result of rectification, appeal, revision or settlement by the Commission. It cannot be the legislative intention that both interests, i.e., under subsection (1) of section 234B and subsection (2) of section 220 should run concurrently.

In the view that we have taken on the basis of the plain reading of the relevant statutory provisions, it is not necessary to deal with the arguments of S/S Sathe and Patel about the principles of interpretation or the serious financial impact on the assessees if the view canvassed by the Additional SolicitorGeneral were to be accepted.

As to the argument of the Additional SolicitorGeneral that the concept of assessment has to be elongated to conclude with the order of the Settlement Commission under subsection (4) of section 245D of the Act and, therefore, the interest in each of the five situations will be charged up to the date of such order of the Commission, it is true that the word "assessment" may carry different meanings depending upon the context in which the word is used. We have, however, to see if in the context of subsection (1) of section 234B the order of the Settlement Commission can be said to be one of "regular assessment". The order of the Commission under subsection (4) of section 234B has been used in conjunction with the orders in appeal, or revision under section 264 which, like the Commission's order have no timelimit within which they should be passed. The title of Chapter XIXA is described as "Settlement of cases" and wherever the need to describe the nature of the Commission's order has arisen in that Chapter, it has been referred to as the "order of settlement", e.g., sections 245I, 245J and clauses (i) and (ii) of section 245K.

Apart from the fact that the order of the Commission has been described as the "order of settlement" in various sections of Chapter XIXA, even its nature and scope is different from that of regular assessment passed by the Assessing Officer. The order of the Commission is final unlike that of the Assessing Officer which is subject to appeal, revision, etc. It is to be normally passed by a Bench consisting of the Chairman or the Vice Chairman and two members [section 245BA(2)]. Only in exceptional circumstances, it has to be passed by two members [section 245BA(5)]. The order of the Assessing Officer has to be of one person. The Commission's order is final not only in respect of income/wealth but also in respect of interest, penalty and prosecution. There is no timelimit on the passing of an order of settlement whereas the regular assessment order has to be made by the Assessing Officer within the timelimit prescribed in section 153 of the Act.

It can be argued that where an assessee's case is admitted by the Commission under subsection (1) of section 245D before any regular assessment is made or before even an order under subsection (1) of section 143 is passed, there will obviously be no assessment order of the Assessing Officer. The Commission will assume exclusive jurisdiction over that case in view of subsection (2) of section 245F and there will only be the order of settlement for such assessment years. We are of the view that just because there will be no order of regular assessment for some years in a case, that by itself will not mean that the Commission's order will assume that character. In our opinion, it will continue to be an order of settlement. This is particularly because no distinction has been drawn in Chapter XIXA or anywhere else in the Act to treat the Commission's order differently where it is passed without regular assessment having been made in a case for any assessment year.

In view of the above, we hold that the order of the Commission is an order of settlement distinct and different from that of a regular assessment and there is no justification to elongate its meaning to be coterminous with regular assessment even where the case is admitted without such an assessment having been made by the Assessing Officer. Thus, in none of the five situations, can interest be charged under subsection (1) of section 234B of the Act up to the date of the Commission's order much less up to the date of giving effect to it by treating it as an order of regular assessment for the purpose of the said subsection.

Since the interest under subsection (1) of section 234B cannot be charged up to the date of the order of settlement, we now address ourselves to the question as to what are the other terminus dates up to which it can be charged. As regards situations (i), (ii), (iv) and (v) involved in the issue before us, we are of the opinion that the answers can be provided on the basis of the plain reading of the various subsections of section 234B.

In situation (i), the period for charging of interest has to be determined where no regular assessment under subsection (3) of section 143 or section 144 is made but the total income stands determined under subsection (1) of section 143 on the date the settlement application is admitted. In such a situation, we are of the view that as a result of the Commission's order under subsection (4) of section 245D, only the amount should be substituted for the amount in the order under subsection (1) of section 143. The interest is clearly chargeable on a plain reading of subsection (1) of section 234B, from 1st April next following the financial year in which the advance tax was payable to the date of determination of total income under subsection (1) of section 143. There does not appear to be any warrant to disregard the plain language and to read the expression "to the date of determination of total income under subsection (1) of section 143 or regular assessment" used in subsection (1) to read "to the date up to which regular assessment could be made" as canvassed in the alternative plea made by the Additional SolicitorGeneral.

With regard to situation (ii), the terminal date would clearly be the date of regular assessment. In this connection, the argument of Shri D. M. Harish, advocate, that the interest should always be up to the date of the determination of total income under subsection (1) of section 143 does not appear to us to be tenable. Simply because in the expression used in subsection (1) of section 234B, namely, "to the date of determination of total income under subsection (1) of section 143 or regular assessment", the words "whichever is later" have not been used does not mean that the expression "regular assessment" has to be given no meaning. It is a wellaccepted rule of construction that the use of superfluous words cannot be attributed to Parliament. Thus, every word has to be understood in a reasonable and fair manner. Besides, in the context of the abovequoted expression, we are of the view that the words "whichever is later" are not required to be added in subsection (1) of section 234B. This is because regular assessment is always made later than the date of determination of total income under subsection (1) of section 143. Thus where a regular assessment had already been made on the date of the Commission's order admitting the settlement application under subsection (1) of section 245D, the interest will be charged up to that date.

As regards situation (iv), since no return of income is furnished in response to the notice under section 142(1) nor any reassessment order made by the Assessing Officer, only the regular assessment under subsection (3) of section 143 or section 144 is found to be made on the date of the Commission's order under subsection (1) of section 245D, we are of the view that such a situation is clearly covered under subsection (1) of section 234B and interest on the basis of the Settlement Commission's order will be charged up to the date of regular assessment. We do not find any legal basis in the contention of Shri Patel that interest under situation (iv) could be charged up to the date of the admission order under section 245D(1).

In respect of situation (v), since a reassessment or recomputation is made under section 147 as on the date of admission of the settlement application, the terminus date for charging interest would be as laid down in subsection (3) of section 234B, namely, the date of such reassessment or recomputation under section 147.

Coming to situation (iii), i.e., where only a return of income is furnished without there being any order under subsection (1) of section 143 or regular assessment as on the date of admission of the settlement application, subsection (1) of section 234B is silent about the terminus date for charging of interest. We, therefore, search for the intention of Parliament by looking to other relevant provisions of the Act and the setting in which subsection (1) of section 234B appears. In this connection, we prefer the method of interpretation canvassed by the Additional SolicitorGeneral to that urged by Shri Sathe and Shri Patel in their counter replies. This is because the period for which interest should be charged is a machinery provision as was held by the Supreme Court in Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1 in the context of a similar provision for charging of interest for nonpayment of advance tax under subsection (8) of section 18A of the Indian Incometax Act, 1922.

A machinery section has to be so interpreted as to make the machinery workable. In quoting from pages 1718 of the book Principles of Statutory Interpretation by G. P. Singh, 1975 edition, Shri Dada relied on the following observations of the Supreme Court in State of West Bengal v. Union of India, AIR 1963 SC 1241, 1265 (SC) :

" The court must ascertain the intention of the Legislature by directing its attention not merely to the clauses to be construed but to the entire statute ; it must compare the clause with the other parts of the law, and the setting in which the clause to be interpreted occurs." (page 1265)

In answering the question raised in situation (iii) of the issue, we also seek support from the observations of the Supreme Court at pages 605606 in K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) :

" It is now a wellsettled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and 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."

Evidently, subsection (1) of section 234B does not expressly mention the terminus date up to which interest should be calculated where only a return of income is furnished and no order under subsection (1) of section 143 or regular assessment is made. There are the following possibilities :

(i) No interest should be charged as no terminus date is prescribed.

(ii) Interest should be up to the date of the order of settlement.

(iii) It should be up to the date of Commission's order admitting the settlement application under subsection (1) of section 245.

(iv) The interest should be charged up to the last date up to which the total income could be computed under subsection (1) of section 143 or regular assessment could be made.

(v) It should be up to the date of furnishing the return.

Examining the first possibility in the light of the rules of interpretation stated above, we notice that the counsel advocating it sought support from the literal or strict rule of construction. Shri Patel sought support for this rule of construction by urging that charging of interest under section 234B is penal in character as it also replaces the earlier penalty provisions under section 273 and raises the rate of interest from 15 per cent. to 24 per cent. per annum. As we have held before, strict rules of construction cannot be applied as the period for charging of interest is clearly in the nature of a machinery provision. The legislative intention could never be not to permit a revision of interest when the tax is modified on an order of settlement when subsection (1) of section 140A read with clause (a) of Explanation 1 to subsection (1) of section 234B clearly provides for payment of interest at the time of furnishing the return on the shortfall in tax on the total income declared therein. Besides, subsection (4) of section 234B clearly provides for the modification of the interest payable consequent upon the order of settlement and it will not be permissible to take the view that such a modification is only intended where total income is determined under subsection (1) of section 143 or on regular assessment.

Regarding the second possibility, we have already held in paragraph 29.4 (at page 24) above that in no case the interest can be charged up to the date of the order of settlement because an order of settlement cannot be equated to a regular assessment. As regards the third possibility, namely, that the interest could be charged up to the date of the order admitting the settlement application under subsection (1) of section 245D, we are unable to persuade ourselves to accept this view for the following main reasons :

(i) Subsection (1) of section 245D does not provide any timelimit for admission of the settlement application. The assessee will be exposed to interest liability for an indefinite period without any fault on his part.

(ii) It will discourage the Assessing Officer from performing his statutory duty of computing the total income under subsection (1) of section 143 or making a regular assessment within a reasonable time after the return of income is furnished. Needless to state, he can do so even after the settlement application is filed and till it is admitted by the Commission.

(iii) There are 120 days of statutory time given to the Commissioner of Incometax to furnish his report on the settlement application under the second proviso to subsection (1) of section 245D. Further an assessee cannot furnish an application in view of subsection (1E) of section 245C, for 120 days from the date of seizure in the case of search under section 132 of the Act. If interest was to be charged up to the date of admission of the settlement application, the assessee will have to pay interest even for the statutory time allowed as above for no laches or delay on his part. This is against the scheme of charging of interest as explained in paragraphs 28.4 and 28.5 above (at page 22).

(iv) Although charging of interest till the date of admission of the settlement application has the merit of recovery of interest till the liability to pay tax on the basis of the said application arises, the above infirmities remain and there is not even any indirect support in any legal provision for this view.

Computation of total income under subsection (1) of section 143 can be made within two years from the end of the assessment year in which the income was first assessable in view of the third proviso to clause (a) of the said subsection. Likewise, an order of regular assessment under subsection (3) of section 143 or section 144 can ordinarily be made within two years from the end of the assessment year in which the income was first assessable in view of clause (a) of subsection (1) of section 153. If interest was to be charged up to the last date up to which the total income could be computed under subsection (1) of section 143 or up to the last date of regular assessment, the start of the period being 1st April of the financial year next following the year in which advance tax is payable, the assessee will have to pay interest at the rate of 2 per cent. per month for 36 months. This is despite the fact that he submits the settlement application soon after furnishing the return of income. He will be treated adversely compared to the assessee who delays the furnishing of the application till after the total income is computed under subsection (1) of section 143 or the regular assessment. Such a view will be opposed to public policy. The very objective of the settlement provisions of encouraging the recalcitrant assessees to make a true and full disclosure of their incomes not disclosed before the Assessing Officer and to get their tax liabilities settled expeditiously will be defeated. There will also be the possibility of double charge of interest as pointed out by Dr. Shah where tax is not paid on the basis of an order under subsection (1) of section 245D. In such a case, the assessee will be charged interest at the rate of 15 per cent. per annum in view of subsection (2D) of section 245D and also interest for default of advance tax up to the last date up to which the total income under subsection (1) of section 143 could be computed or regular assessment could be made. There is no direct or indirect support for this view in any of the legal provisions. We, therefore, regret, we are unable to persuade ourselves to adopt this view.

Coming to the fifth and the last possibility, i.e., charging of interest up to the date of furnishing the return of income, we notice that the interest for default of advance tax is payable till the date of furnishing of the return in view of subsection (1) of section 140A read with clause (a) of Explanation 1 to subsection (1) of section 234B. The same period needs to be imported for the purpose of modifying the interest as a result of the order of settlement. In this way, the objective of public policy will also be served by demanding interest for a shorter period from an assessee who is keen to come back to the path of rectitude by making a true and full disclosure of his income in the settlement application soon after the return of income is furnished. There is certainty as to the terminus date as in every case a return of income has to be furnished in view of clause (b) of the proviso to subsection (1) of section 245C before a valid settlement application can be made. Besides, the Commissioner of Incometax gets at least 120 days from the date of receipt of the settlement application to make a report, within which the Assessing Officer can compute the total income under subsection (1) of section 143. In that event, instead of the date of furnishing the return of income the terminus date will get extended to the date of the said computation of total income. For the above reasons, we are of the view that Parliament's intention appears to be to treat the date of furnishing of the return as the terminus date under subsection (1) of section 234B where, on the date of the admission order by the Commissioner under subsection (1) of section 245D, neither the total income is determined under subsection (1) of section 143 nor has a regular assessment been made. The words "to the date of furnishing of the return of income or" should be added in the terminus period laid down in subsection (1) of section 234B to make up for the omission. Since these words will also apply to the rectification, appeal or revision referred to in subsection (4) of section 234B, the words, "whichever is last" may also need to be added at the end of the expression laying down the terminus period to put it beyond any shadow of controversy. The provision relating to the terminus period will, therefore, read as "to the date of furnishing of the return of income or to the date of determination of total income under subsection (1) of section 143 or regular assessment, whichever is last". In doing so, we are sensitive to the fact that we have done some violence to the language of subsection (1) of section 234B of the Act. We have done so in our search for ascertaining the legislative intent to make a machinery provision workable for which we have the authority of the Supreme Court in Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1 and K. P. Varghese v. ITO [1981] 131 ITR 597, 605, 606 (SC) referred to above in paragraphs 35 and 35.2 (at page 26).

To sum up, the question decided by the Special Bench of the Incometax Settlement Commission in Ashwani Kumar Aggarwal's case [1992] 195 ITR 861 that the Commission has no power to reduce or waive the interest chargeable under sections 234A, 234B and 234C of the Act cannot, in the absence of any reference to this effect, be reviewed by this Bench. The period up to which the interest can be charged for defaults of advance tax under section 234B in respect of the assessment year 198990 and onwards is laid down in subsection (1) and subsection (3) thereof. Subsection (4) of section 234B provides for the automatic revision of the amount of interest where the amount of tax is varied as a result of an order of rectification, appeal, revision or settlement. The terminus period for the charging of interest is to be as laid down in subsection (1) or subsection (3) of section 234B as the case may be. It can, under none of the five situations mentioned in the issue referred to this Bench be up to the date of the order of settlement passed by the Commission under subsection (4) of section 245D much less up to the date of giving effect to such an order by the Assessing Officer. The interest will, however, be chargeable as a result of the order of settlement even where the advance tax paid was more than 90 per cent. of the tax on the total income shown in the return of income or that determined under subsection (1) of section 143 or on regular assessment. For each of the first four situations mentioned in the issue referred to us, and prevailing at the date the settlement application is admitted under subsection (1) of section 245D, the interest in respect of an assessment year will be charged from the 1st day of April next following the financial year in which the assessee was liable to pay the advance tax under section 208 read with section 210 of the Act to the date of :

(a) Situation (i) determination of total income under sub section (1) of section 143 of the Act. (b) Situation (ii) regular assessment under subsection (3) of section 143 or section 144 of the Act. (c) Situation (iii) furnishing the return of total income. (d) Situation (iv) regular assessment under subsection (3) of section 143 or section 144 of the Act. (e) Situation (v) the period will be from the day following the date of determination of total income under subsection (1) of section 143 or regular assessment and ending on the date of reassessment or recomputation of total income under section 147 of the Act for the relevant assessment year.

The miscellaneous applications in the cases of Gulraj Engg. Construction Co. and Sahitya Mudranalaya group of cases will go back to the Additional Bench of the Settlement Commission, Bombay, for appropriate orders to be passed thereon. In other cases, including those of the interveners, suitable orders may be passed in accordance with the principles set out above while making orders of settlement under subsection (4) read with subsection (6) of section 245D of the Act.

H. Venkataraman (Member). _ I have had the benefit of reading the order of my learned brothers. I am, unfortunately, unable to fully agree with the reasonings and the approach advocated in the order. However, I would agree with the replies given to formulations (ii) and (v) though on a different reasoning.

I entirely agree with the views expressed in paragraph 27 (at page 19) of the order to dismiss the unmaintainable contention that if no interest was chargeable under section 234B on the basis of either the order passed under section 143(1) or under section 143(3)/144 the question of charging any interest after the Settlement Commission's order has been finalised cannot arise.

My basic reservation is on the construction of the scope of the order passed by the Settlement Commission. This has been dealt with elaborately in paragraphs 29.1 to 29.4 (at pages 23 and 24) of the order. I have a fundamental divergence of views on this portion of the order and, therefore, it is necessary to set down my views in some detail.

It will be necessary to compare the provisions of sections 143(3) and 245D(4) to properly appreciate the nature of the Settlement Commission's order. The nature of jurisdiction assumed by the Settlement Commission on admission of the case has been succinctly indicated in paragraph 16 (at page 14) of the above order. Before an order under section 143(3) can be made, it would be necessary for the Assessing Officer to issue a notice under section 143(2). Under this subsection, where a return has been made, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income and/or underpaid the tax in any manner, serve on the assessee a notice requiring the assessee to produce any evidence on which the assessee may rely in support of the return. Now what is to be done in those cases where by virtue of the other provisions contained in the Incometax Act the power of the Assessing Officer to issue a notice under section 143(2) and/or to pass the order after hearing the assessee in the manner laid down under section 143(3) is taken away from the Assessing Officer and vested in a different authority ? In that case, the Assessing Officer is by law precluded from passing an order under section 143(3) or under section 144. Thus, no regular assessment as contemplated by the limited definition in section 2(40) can result in such a case. This is precisely what happens in all cases where an applicant makes an application under section 245C(1) which gets admitted by the Settlement Commission under section 245D(1). The provisions of various subsections of section 245F and particularly the provisions of section 245F(2) vesting the exclusive jurisdiction to proceed with the case in the Settlement Commission comes into operation in such a case, thus preventing the operation of the normal procedures under section 143(3) or for that matter section 144. What happens in such cases ? In those cases, the Settlement Commission is mandated by virtue of the provisions of subsection (4) of section 245D to examine the records, the reports of the Commissioner, to give an opportunity to the applicant and the Commissioner to be heard, examine such further evidence as may be placed before it or obtained by it and then to pass such order as it thinks fit on the matters raised in the application and any other matter relating to the case.

The definition of "case" in section 245A(b) means any proceeding under the Act for the assessment or reassessment of any person in respect of any year or years. The matters that can be covered by the application made under section 245C in respect of the case relating to him are to be gleaned from Form No. 34B prescribed in the Incometax Rules. Column No. 10 of the application requires the description of the particulars of the issues to be settled. Note 7 shows that full details of issues for which application for settlement is made should be indicated against this column and where an application relates to more than one assessment year they should be separately furnished for each assessment year. The case that can be the subjectmatter of an application under Chapter XIXA has to relate, by definition, to a proceeding for the assessment or reassessment of any person who has not disclosed his income fully and truly before the Assessing Officer ; and as pointed out by the Supreme Court in Express Newspapers' case [1994] 206 ITR 443, page 451E and 451F, "once an application made under section 245C is admitted for consideration the Commission shall have to withdraw the case relating to that assessment year or years, as the case may be, from the assessing/appellate/revising authority and deal with the case, as a whole by itself, and the proceedings before it are not confined only to the income disclosed before it". The true import of the admission of the case under section 245D(1) thus is that proceedings pending before any authority under the Act relating to that assessment year have to be transferred to the Commission and the entire case for that assessment year will be dealt with by the Commission itself. The provisions of sections 245D and 245F(2) and their interpretation by the Supreme Court in Express Newspapers' case [1994] 206 ITR 443 clearly establish that irrespective of the issues framed by the applicant, the Settlement Commission has the bounden duty to determine the income of an applicant assessable in that year in accordance with the provisions of the Act in its order under section 245D(4). Further, by the provisions of section 245D(6), the Commission also has to determine and communicate to the applicant the tax, interest and penalty payable by it as a result of its order under section 245D(4). Thus, the provisions of sections 245D(4) and 245D(6) read together very clearly establish that the effect of the final order passed by the Settlement Commission in terms of these provisions is to partake of the nature of an order on regular assessment made under section 143(3)/ 144. Thus, it is obvious that these orders would take the place of, and act as the orders of regular assessment referred to in section 2(40). Therefore, it is only proper to conclude that the orders of the Settlement Commission in those cases where no regular assessments had been made specifically either under section 143(3) or under section 144 and no such orders could be made by the Assessing Officer because of the overriding provisions of Chapter XIXA will have to be regarded, in themselves, as orders of regular assessment for the purpose of section 234B by invoking an enlarged definition of that phrase in that context. To this extent, I find that the learned Additional SolicitorGeneral is strong in his plea for invoking the contextual rule of construction to the provisions of section 234B.

The application of the mischief rule will also not be out of place in respect of the issues for our consideration. Section 234B was inserted with effect from April 1, 1989. Prior to that date, the prevailing provisions were contained in sections 215, 217 and 273. These earlier provisions vested a discretion with the incometax authority to levy or waive the interest for noncompliance with the requirements of law relating to payment of advance tax and the levy or nonlevy of penalty for the same defaults. Section 234B provided for the levy of a higher rate of interest_the earlier rate was 15 per cent. and the present rate is 24 per cent. Simultaneously, section 273 empowering the levy of penalty was deleted. Further, the discretion available was also done away with. The Special Bench of the Settlement Commission has already held in Ashwani Kumar's case [1992] 195 ITR 861 that the Settlement Commission does not have any discretion to reduce or waive the interest chargeable under the provisions of sections 234A, 234B and 234C. Thus, even in cases before the Settlement Commission, full interest will become payable in respect of the assessment year 198990 and onwards. The only question is the date up to which such interest is payable. The scheme of the Act clearly indicates that such interest should be paid up to the date of determination of the income by the Assessing Officer either under section 143(1) or in an assessment under section 143(3)/144. When such Assessing Officer is precluded from passing such orders, should the assessee be allowed to get away with a less levy of interest even though the function of making the determination of income is vested in, and continued by, the Commission ? Having regard to the purpose of changing the law which was to take away the discretion available to the assessing authority to reduce or waive the interest or condone the default, it is, in my view, necessary to prefer that construction of the provisions of the Act which would fulfil the avowed purpose of introducing the provision. Of course, such an interpretation is to be followed only when the specific legislative prescriptions are inadequate to deal with the issue. It is, therefore, my view that notwithstanding the position that the orders passed by the Commission under section 245D(4) are treated as falling in a separate class of "order of settlement" referred to in paragraphs 29 to 29.4 (at pages 23 and 24) of the majority order they incorporate within them all the necessary ingredients of an order on regular assessment and could thus be regarded as orders of regular assessment only for the purpose of section 234B(1) and orders of reassessment for the purpose of section 234B(3) wherever the proceedings vested in the Commission before such orders could be passed by the assessing authorities. This will be the appropriate manner of construing the provisions of Chapter XVIIF and Chapter XIXA so as to cure the mischief of noncompliance with Chapter XVIIC in the manner intended by the amendments to law effective from April 1, 1989.

There could also be another way of looking at this issue. It is obvious from the scheme of the provisions of section 245F(2) that the specific case which is admitted by the Commission vests exclusively in the Commission after an order under section 245D(1) is made until an order under section 245D(4) is made. To this extent, it can be said that the powers of the incometax authority before whom the proceedings were pending at the time of the application merge into the powers of the Settlement Commission. The higher powers available to the Commission do not negate this legal effect. Thus, the orders of the Settlement Commission when ultimately made under section 245D(4) can certainly be treated as merging into them the powers of the lower authorities such as the Assessing Officer or the Commissioner (Appeals) to pass an order of regular assessment or an appellate order. The final order of the Commission is thus an order into which the order which could have been passed by the lower authorities have merged and, therefore, for the purpose of section 234B(1)/234B(3), they can be regarded as having the colour, amongst others, of the order of regular assessment/reassessment/appeal/revision. Section 234B(4) can then be invoked in an appropriate manner depending on whether, at the time of the application, the "case" was pending before the assessing authority, the first appellate authority or the revisional authority.

Once this position is appreciated, it will be more easy to appreciate the correct manner of interpreting the present provisions of section 234B in the light of the law of the land as laid down by the Supreme Court in the case of Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1. The Supreme Court was categorical in ruling that the rule of literal construction applies only to a taxing provision and it has no application to all provisions in a taxing statute. It does not apply to a provision not creating a charge for the tax but laying down the machinery for its calculation or procedure for its collection. The provisions in a taxing statute dealing with machinery for assessment have to be construed by ordinary rules of construction, that is to say, in accordance with the clear intention of the Legislature, which is to make the charge levied effective. In applying these principles of construction, the Supreme Court also proceeded to divide the provisions of section 18A(8) into its two components : the charging section and the machinery section. It specifically split the provisions of section 18A(8) of the Indian Incometax Act, 1922, in this manner as shown below :

(a) The text of section 18A(8) at the relevant time was "where on making the regular assessment, the Incometax Officer finds that no payment of tax has been made in accordance with the foregoing provisions of this section, interest calculated in the manner laid down in subsection (6) shall be added to the tax as determined on the basis of the regular assessment".

(b) This section was split into charging and machinery provisions as under :

Charging provision :

Where on making the regular assessment, the Incometax Officer finds that no payment of tax has been made in accordance with the foregoing provisions of the section, interest shall be added to the tax.

Machinery provision :

The interest to be added will be calculated in the manner laid down in subsection (6).

(c) Though the judgment as such did not proceed to similarly dissect the provisions of subsection (6) since in that case, it was concerned with the manner of charging interest only under section 18A(8), implicit in the court's decision is a similar bifurcation of subsection (6) as under :

Charging provision :

Where in a year the assessee has paid tax under subsection (2) or subsection (3) on the basis of his own estimate and the advance tax so paid is less than 80 per cent. of the tax determined on the basis of the regular assessment, simple interest shall be payable by the assessee.

Machinery provision :

Simple interest to be paid will be calculated at the rate of six per cent. per annum from the first day of January in the financial year in which the tax was paid up to the date of the said regular assessment upon the amount by which the tax so paid falls short of the said 80 per cent.

As far as I could see this interpretation of the Supreme Court, does not appear to have been modified, varied, restricted or overruled by any other decision of the Supreme Court and thus lays down the law of the land on this subject.

It is well recognised and accepted that section 215 of the Incometax Act is a rephrased version of the provisions of section 18A(6) of the Indian Income tax Act, 1922, and similarly, section 217 is a rephrased version of the provisions of section 18A(8). It is also admitted on all hands that the provisions of section 234B amalgamate and reenact all the provisions of sections 215 and 217 of the Income tax Act with effect from April 1, 1989. It is, therefore, clear that the guidelines for splitting these provisions into the components of charging and machinery sections as laid down by the Supreme Court will continue to govern the interpretation of section 234B. The decisions in the case of B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) relied upon by the different counsel in the course of their arguments is distinguishable since it concerned itself with the interpretation of the charging section in Chapter IVE of the Income tax Act and had no relevance to the interpretation of the charging provisions in Chapter XVIIC or XVIIF of the Incometax Act. Their interpretation has to conform to the guidelines laid down in Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1.

Construed in this manner, the charging and machinery sections of 234B(1) will be bifurcated as indicated below : Charging provision Machinery provision or the manner of quantifying the charge 234B(1). Subject to the other (c) at the rate of two per cent. provisions of this section : month (a) (i) Where, in any financial (d) (i) from the 1st day of April, year, an assessee who is liable next following the financial year to pay advance tax under section to the date of determination of 208 has failed to pay such tax ; or total income under section 143(1), or ; (ii) to the date of regular assessment

(ii) where the advance tax paid is (e) on an amount equal to the less than 90 per cent. of the assessed assessed tax or, as the case may tax ; be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

Similarly, section 234B(3) will be bifurcated as under : (a) Where, as a result of reassessment (c) at the rate of two per cent. or the recomputation under section 147, per month. the amount on which interest was payable (d) for the period commencing under section 234(B)(1) is increased from the date of section 143(1) or regular assessment to the date of reassessment ;

(b) the assessee shall be liable to pay (e) on the amount by which the interest reassessed tax exceeds the assessed tax.

It will be seen that conditions (a) and (b) indicated under charging provisions from both sections 234B(1) and 234B(3) will have to be attracted before the assessee can be liable to pay any interest. These create the charge. These have to be construed strictly and literally. Any person who does not fall strictly within the contours delineated in (a) and (b), i.e., the charging section escapes the charge irrespective of whether such escapement is morally and equitably justifiable or not. However, when coming to the contours of calculating the interest in the manner specified in (c), (d) and (e) which respectively lay down the rate of interest, the period and the amount on which the interest is chargeable, under the respective machinery provisions as indicated above, the rule of interpretation, as laid down in the Supreme Court decision in Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1, has to be such as to advance the object of the provisions, namely, to make every assessee liable to compensate the State both monetarily and punitively in respect of the lawfully payable tax withheld and used by him, over the period of such withholding and use. If this judicial principle of interpretation which in fact is the law of the land by virtue of the provisions of article 141 of the Constitution is faithfully followed in answering the five questions formulated for answering by the Special Bench, the only possible conclusion that can be reached will be the conclusion as advocated by me in paragraph 10 of this order.

In the light of the foregoing discussion in paragraphs 1 to 8 (at pages 31_38) of my order, I would respectfully urge the view that the proper method to approach the problem will be to hold that for the purpose of resolving the issue on hand, it will have to be held that the Settlement Commission, though a high powered body, does, by virtue of the command of section 245F(2), discharge the functions of the incometax authority before whom the case was pending at the time the settlement application was made. And, therefore, its final order, though not in pari materia with that authority's order in so far as the procedures and finality are concerned, still does incorporate within it such authority's order also. Thus, if the proceeding was pending before the Assessing Officer, the Settlement Commission will, inter alia, discharge the functions of the Assessing Officer. If it was pending before the first appellate or revisional authority it will, inter alia, discharge the functions of the first appellate or revisional authority.

In the light of this discussion, the answers to the various questions set down in paragraph 1 (at page 7) of the order of the majority of my learned brothers will be as under:

Interest under section 234B will be chargeable :

in Cases I and III up to the date of the order passed by the Settlement Commission under section 245D(4).

in Case II up to the date of regular assessment made under section 143(3) or section 144 of the Act by the Assessing Officer.

in Case IV from the date of regular assessment made by the Assessing Officer under section 143(3) or section 144, to the date of the order made by the Settlement Commission under section 245D(4).

in Case V to the date of the reassessment made by the Assessing Officer from the date of regular assessment under section 143(3)/144.

The starting point for levy of interest in items I to III above will invariably be from the first day of the relevant assessment year.

Incidentally, it may be noticed that the construction advocated in paragraph 33 (at page 25) of the majority order will also have to be the construction that has to be adopted for applying the provisions of section 234A(3) as the facts envisaged give rise to the application of the provisions of both sections 234A(3) and 234B(3). If this is done, then it will be found that no interest whatever will be chargeable under section 234A(3) though the section would clearly be attracted to the facts. In such a case also unless the Settlement Commission's order is viewed as supplanting and, therefore, acting as the order of regular assessment an anomaly would result. The scheme of the Act would thus seem to suggest the adoption of my view advocated in paragraphs 1 to 10 (at pages 31_39) of this order.

Lastly, it may be stated that the provisions of section 234B(2) safeguard the interest of all the assessees including the applicants before the Settlement Commission. If at the stage of making an application under section 245C(1), the applicant makes a full and true disclosure of his total income, the interest liability which would attach itself to him will substantially come down as the taxes paid in pursuance of the application would also qualify as the taxes paid "otherwise" referred to in section 234B(2). No special lenience may need to be shown to an applicant who, by definition, has failed to disclose the full and true income before the Assessing Officer and even before the Commission, merely because he has made an application to the Commission. This will also be in line with the conclusion already reached by the Commission in Ashwani Kumar's case [1992] 195 ITR 861 (ITSC) (SB).

In view of section 245BD of the Income tax Act, 1961, the order of the Special Bench shall be the order of the majority of Members of the Bench.

 

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