1997-VIL-233--DT

Equivalent Citation: [1998] 230 ITR (A. T.) 1

INCOME TAX SETTLEMENT COMMISSION

Date: 12.12.1997

IN RE: ANJUM MOHAMMED HUSSEIN GHASWALA

Vs

BENCH

Certain important legal issues pertaining to the functioning of the Income-tax Settlement Commission and having all-India importance had arisen in the recent past. The first major issue was relating to the question whether the Settlement Commission, while passing the order under section 245D(4) of the Income-tax Act, could reduce or waive the interest chargeable under sections 234A, 234B and 234C of the Act, considering the mandatory nature of these statutory provisions. The other major point for consideration was as to the terminal dates up to which the interest under section 234B could be charged in different situations.

JUDGMENT

Regarding the first question as to the scope for reduction/waiver of the interest chargeable under sections 234A, 234B and 234C, a five-Member Special Bench of the Settlement Commission had answered the question in the negative in the order passed in the case of Ashwani Kumar Aggarwal, In re [1992] 195 ITR 861 (ITSC) [SB]. The Special Bench was of the opinion that under Chapter XIXA of the Income-tax Act, the Settlement Commission was concerned only with the settlement “of a case” in respect of “an application which had been allowed to be proceeded with” and “a case” could not be considered as representing “a class of cases” under section 119 of the Income-tax Act. However, in the event of the Central Board of Direct Taxes (hereinafter called the Board) issuing any instructions, guidelines, etc., for relaxing the provisions of sections 234A, 234B and 234C in any “class of cases or class of incomes”, the applicant could avail of the benefit of the Board’s instructions if his case falls within the ambit of that class of cases or incomes. According to the Special Bench, the Settlement Commission could not, on its own, reduce or waive the interest chargeable under the aforesaid three sections.

However, subsequent to this Special Bench decision, a new dimension had been added in this regard. The Board, in a Press Note dated May 21, 1996 [1996] 219 ITR (St.) 169, followed by an order dated May 23, 1996, issued under section 119(2)(a) of the Income-tax Act, had empowered the Chief Commissioners/Director-Generals (Investigation) to reduce or waive the penal interest charged under sections 234, 234B and 234C under five specific circumstances. These instructions were issued in the context of the amendments to section 119(2)(a) whereby the reference to sections 234A and 234B was introduced with effect from April 1, 1990, and the reference to section 234C was introduced with effect from April 1, 1991. Placing reliance on the aforesaid Board’s instructions, many applicants, whose requests for the reduction/waiver of interest under sections 234A, 234B and 234C had been rejected in view of the Special Bench decision in the case of Ashwani Kumar Agarwal, In re [1992] 195 ITR 861 (ITSC) [SB], had filed miscellaneous applications, seeking the relief by way of reduction/waiver of the statutory interest. Accordingly, the scope for reduction/waiver of the statutory interest by the Settlement Commission had generated a lot of discussion and conflicting opinions.

Regarding the other question as to the terminal dates up to which section 234B interest could be charged in different situations, this issue came up for consideration in the five-Member Special Bench decision of the Settlement Commission dated March 28, 1995, in the case of Gulraj Engineering Construction Co., In re [1995] 215 ITR (AT) 1 (ITSC) [SB]. The majority opinion (4 : 1) was that an order of assessment was distinct and different from that of a regular assessment. The Special Bench had also held that the interest under section 234B would be chargeable up to the date of the regular assessment under section 143(3)/144 of the Incometax Act. In case no such regular assessment was made, the interest would be chargeable up to the date of the order under section 143(1)(a) of the Income-tax Act. In the event of neither the order under section 143(1)(a) nor the regular assessment order under section 143(3)/144 being passed, the interest would be charged up to the date of filing the income-tax return.

In several cases where the interest under section 234B had already been charged for longer periods as per the orders passed under section 245D(4), the applicants had filed miscellaneous applications, subsequent to the Special Bench decision in the case of Gulraj Engineering Construction Company, In re [1995] 215 ITR (AT) 1 (ITSC) [SB], seeking the recomputation of the interest under section 234B, up to the terminal dates mentioned in the above Special Bench order. Accordingly, the question had arisen whether this decision could be applied retrospectively, to cover those cases where section 245D(4) orders had already been passed prior to the Special Bench order.

To set at rest the aforesaid controversies, the Chairman, Settlement Commission, passed an order under section 245BA(5A) of the Income-tax Act on September 6, 1997, constituting a larger Special Bench consisting of seven Members “for adjudicating upon the aforesaid issues for deciding the settlement applications”. This seven-Member Special Bench was to have its hearing at Mumbai on the 6th and 7th of October, 1997, and at the request of the Commissioner of Income-tax, the hearing was adjourned sine die.

The seven-Member Special Bench hearing was refixed at Mumbai on November 19, 20 and 21, 1997, for providing answers to the following questions placed for consideration before the Bench.

“(a) (i) Whether the Special Bench of the Settlement Commission was correct in law in holding, in the case of Ashwani Kumar Aggarwal, In re [1992] 195 ITR 861 (ITSC) [SB], that the Settlement Commission is not vested with the power to reduce or waive the interest chargeable under sections 234A, 234B and 234C of the Income-tax Act, 1961, in any case, for the assessment years 1989-90 and onwards ?

(ii) If the answer to (i) is in the negative, whether the order of the Special Bench will have prospective application only or whether the past cases where reduction/waiver has not been considered may now be reconsidered on the basis of miscellaneous applications in each case on its merits.

(b) Alternatively, since as per the mandatory provisions of section 245F(1), the Settlement Commission shall have ‘all the powers which are vested in an income-tax authority under this Act’, including the Central Board of Direct Taxes under section 116(a), whether the Settlement Commission can, on its own, prescribe the class of income or class of cases in which the interest under sections 234A, 234B and 234C can be reduced or waived ?

(c) (i) Can the law as laid down by the Commission in Gulraj Engineering Construction Company , In re [1995] 215 ITR (AT) 1 (ITSC) [SB] be applied retrospectively in cases decided prior to the date of the order of the Commission, where the order stipulated that interest shall be charged in accordance with law ?

(ii) Are the different Benches, bound to consider the cases of the persons or classes of persons falling within the circulars and instructions issued by the Central Board of Direct Taxes from time to time relaxing the provisions of Chapter XVII-F, including the instructions contained in the order passed under section 119(2)(a) in F. No. 212/495/92 IT (A II) dated May 2, 1994, and in F. No. 400/234/95-IT(B) dated May 23, 1996, that cases decided otherwise only on the ground that the Board had not issued the instructions relaxing the said provisions should now be reviewed even in the cases decided by them before the issue of this order ?”

Learned counsel appearing for the different applicants and as interveners and the learned Additional Solicitor-General made an incisive analysis of the relevant statutory provisions, judicial pronouncements, administrative instructions, etc., and the discussion was lively and of a very high standard.

Arguments regarding question (a)(i) :

Initiating arguments, Shri C. V. Kothari faulted the findings of the Special Bench in the case of Ashwani Kumar Aggarwal, In re [1992] 195 ITR 861 (ITSC) [SB], for the following reasons :

This decision had in effect overlooked the provisions of section 245F(2), vesting in the Settlement Commission the “exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority” in relation to the case. Accordingly, when the Board itself can pass orders relaxing the provisions of sections 234A, 234B and 234C, the Settlement Commission also is equally competent to reduce or waive the quantum of statutory interest.

As mentioned in paragraph 2.33 in Chapter II of the Wanchoo Committee’s Report, while dealing with the powers of the Direct Taxes Settlement Tribunal (renamed Income-tax Settlement Commission).

“The terms of the award will be set down in writing and it will be open to the Tribunal to determine not only the amount of tax, penalty or interest but also to fix date or dates of payment. The quantum of penalty and interest will be in the discretion of the Tribunal.” (emphasis* supplied)

The Committee’s aforesaid suggestion has taken shape in the form of section 245D(6) of the Income-tax Act.

The Special Bench had erred in whittling down the power of the Settlement Commission to reduce or waive the statutory interest by making this power dependent on the Board circular, that might be issued under section 119(2)(a) of the Income-tax Act. Accordingly, the following observations of the Special Bench in Ashwani Kumar Aggarwal, In re [1992] 195 ITR 861 at page 871 (ITSC) [SB] are absolutely untenable in law as these make the Settlement Commission subservient to the Board, when in fact and in law the former is not the authority subordinate to the latter.

“In our opinion, where, in respect of any ‘class of incomes’ or ‘class of cases’ under section 119, the Central Board of Direct Taxes issues instructions to the income-tax authorities subordinate to it and the case of an applicant who has come to the Settlement Commission falls in the above classes, he would still be entitled to claim before the Commission the benefit of such instructions, etc. This flows from the fact that the instructions, etc., given by the Board under section 119(2)(a) to other income-tax authorities arm them with the powers to relax the provisions of sections 234A, 234B and 234C in any ‘class of cases’ or ‘class of incomes’. In view of section 245F, these powers (vested in an income-tax authority) are available to the Settlement Commission too in relation to the case before it. Thus, as long as an applicant who has come to the Settlement Commission falls within the ambit of ‘class of incomes’ or ‘class of cases’ in respect of whom the Central Board of Direct Taxes has issued orders, instructions or directions by exercising its authority under section 119(2)(a), he will not be denied the benefit of such instructions, etc., and will, therefore, not be worse off than other persons who may not choose to come to the Commission.”

Similarly, the following observations of the Special Bench [1992] 195 ITR 861, 872 are very vague and do not specifically answer the question as to why the word “interest” was deleted earlier and subsequently reintroduced in section 245D(6) of the Income-tax Act.

“The retention of the word ‘interest’ in section 245D(6) by itself cannot lead to any inference, one way or another, in regard to the power to waive or reduce interest for and from the assessment year 1989-90 . . . there is no scope for the Commission to exercise its statutory powers to reduce or waive interest chargeable under sections 234A, 234B and 234C for the assessment year 1989-90 and onwards except in those cases which fall within the ‘class of cases’ or ‘class of incomes’ covered under the instructions, directions, etc., issued by the Central Board of Direct Taxes.”

The Special Bench’s inference that the relaxation of the rigours of sections 234A, 234B and 234C could be possible only in a “class of incomes” or a “class of cases” and not in any single case is incorrect. As said by the Punjab and Haryana High Court in Sant Lal v. Union of India [1996] 222 ITR 375 (page 389) :

“In a given situation, a single case may constitute a class or a particular type of cases may constitute a special category. The Board may in a given case issue an order for treating an individual case as a class unto itself for the purpose of relieving an assessee of hardship.”

To the same effect is the decision of the Karnataka High Court in Union Home Products Ltd. v. Union of India [1995] 215 ITR 758 (page 785) :

“As observed by this court, once the Board exercises its powers under section 119(2)(a) and defines the class of cases in which the rigours of sections 234A, 234B and 234C will apply less harshly, it will be immaterial whether one or more cases fall in any such class prescribed by the Board. . . In the process of exercising the said power while the Board can draw upon its own experience, information or even imagination, it may also be enlightened or persuaded by the facts of a given case, however, unique or freakish the same may appear to be.”

Accordingly, even a single case may be a case justifying the redressal from the rigours of sections 234A, 234B and 234C of the Income-tax Act.

In any event, the impugned Special Bench decision dated February 7, 1992 (Ashwani Kumar Aggarwal, In re [1992] 195 ITR 861 (ITSC) [SB]), was in effect overruled by the Supreme Court judgment dated January 11, 1994, in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443. As observed by this court ([1994] 206 ITR 456 (SC) last paragraph) “the Commission is empowered to direct the waiver of . . . interest . . .”. Though in the relevant case before the Supreme Court, the settlement application pertained to the assessment years 1985-86 to 1988-89 for which sections 234A, 234B and 234C were not applicable, the above observation was made in the context of section 245D(4), which had not undergone any modification. It is a well-established proposition of law that the Supreme Court decision will be binding on all the High Courts and could not be disregarded on the plea that certain statutory provisions or particular arguments were not brought to the notice of that court and were also not considered (Jain Brothers v. Union of India [1970] 77 ITR 107 (SC) ; CIT v. Jagadish Jakati and Co. [1979] 119 ITR 19 (Kar)). It is also equally well-established that the law as interpreted by the Supreme Court would be binding on all the courts and Tribunals and even the obiter dicta of the Supreme Court, though cannot be strictly regarded as forming the ratio of the court’s decision in a given case, would be equally binding on other courts and Tribunals (CWT v. Aluminium Corporation of India Ltd. [1972] 85 ITR 167 at 172 (SC), CIT v. Indian Express (Madurai) Pvt. Ltd. [1983] 140 ITR 705 at 706 (Mad), 111 ITR 292 at 295 (Bom) (sic)). The above observation of the Supreme Court could not be said to be per incuriam, i.e., made through inadvertence, since the court had given a specific finding with reference to the scope of section 245D(4) of the Income-tax Act.

Since as per section 245D(6), the order passed under section 245D(4) shall provide for the terms of settlement in respect of “all other matters to make the settlement effective” the Settlement Commission is competent to provide for the waiver or reduction of the statutory interest, in particular, after the relaxation of the provisions of sections 234A, 234B and 234C with effect from April 1, 1990/April 1, 1991. Such an approach would be in consonance with the purpose of making “the Settlement effective.”

Shri Mukesh Patel, while reiterating the arguments advanced by Shri Kothari, had claimed that the decision in Ashwani Kumar’s case, [1992] 195 ITR 861 (ITSC) [SB], was incorrect in law, as it truncated the powers of the Settlement Commission. But in fact the legislative import in the amendment to section 245A(d) by the Finance Act, 1987, was to energise the Settlement Commission by extending its powers, coterminous with those of an income-tax authority, specified in section 116 of the Income-tax Act, including the Board. Prior to this amendment, the Settlement Commission could rest satisfied with the powers of only few specified income-tax authorities, like the Commissioner of Income-tax, Director of Inspection, etc. Since, in view of the amendments to section 119(2)(a), the Board is empowered to issue instructions by way of relaxation of the provisions of sections 234A, 234B and 234C, the Settlement Commission could also exercise the power of reduction or waiver of the impugned statutory interest. Being a high-powered body having exclusive powers of granting immunity from prosecution under the Indian Penal Code or under any Central enactment, which powers are not available with any income-tax authority including the Board, it was imperative for the Settlement Commission to have the power of waiver or reduction of the statutory interest. This is due to the fact that as per section 245D(4) read with section 245D(6), while passing the order “as it thinks fit”, it should take cognisance of the matters covered by the settlement application and provide for the matters to make the settlement effective. The aspect of “making the settlement effective” includes the aspect of quantification of the interest, even either by way of reduction or waiver thereof, since as per the comprehensive settlement effected, the principle of equity should be assigned due significance as, for example, in a case where the quantum of interest exceeds the quantum of tax.

Shri R. P. Agarwalla focussed his attack on the undue emphasis by the Special Bench on the distinction between the words “a case”/“the case” and a “class of cases”. According to him, the settlement application filed in an individual case in fact relates to a class of cases, namely, of persons who make a full and true disclosure of their income which had not been disclosed before the Assessing Officer and whose cases, inter alia, are bristling with complexity of investigation. According to him, the Special Bench had erroneously founded its finding with reference to the availability or otherwise of the Board’s circulars under section 119(2)(a) of the Income-tax Act. In fact, the Settlement Commission was not bound by any Board circular and, accordingly, the concern of the Special Bench whether a person would be better off by approaching the Settlement Commission or the Board is a misplaced one.

Shri Y. P. Trivedi had also asserted that the Settlement Commission being an independent income-tax authority, not subservient to the Board, could exercise the power of reduction/waiver of interest under sections 234A, 234B and 234C in the light of the statutory amendments in section 119(2)(a) of the Income-tax Act. This could be done either by laying down its own guidelines or leaving the matter of reduction/waiver of interest to be decided by the Members constituting the relevant Bench on the merits of each case before them. In either case, it should be ensured that injustice was not allowed to be perpetuated. Reliance was placed on the observations of the Supreme Court in Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC) (headnote) :

“When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have a vested right in injustice being done because of a non-deliberate delay.”

According to Shri K. H. Kaji, section 119(1) has vested in the Board the general power to issue any orders or directions to the subordinate authorities and this general power has only two restrictions, namely, that no income-tax authority could be directed to make a particular assessment or to dispose of a particular case in a particular manner and the discretion of the Deputy Commissioner (Appeals)/Commissioner (Appeals) in the exercise of his appellate functions could not be interfered with under section 119(1) of the Income-tax Act. Section 119(2), though introduced “without prejudice to the generality” of the power under section 119(1), does not restrict the scope of section 119(1), which is all pervasive. According to the accepted canons of construction, if power is conferred to make subordinate legislation in general terms like specification of the topics, e.g., the sections mentioned in section 119(2)(a), it is to be considered as merely illustrative and as not limiting the scope of the general power : Rohtak and Hissar Districts Electric Supply Co. Ltd. v. State of Uttar Pradesh, [1965-66] 29 FJR 76 ; AIR 1966 SC 1471, 1477, Sudarshan Mineral Co. Ltd. v. Union of India, AIR 1975 SC 949, 951 (para 5), Ajay Canu v. Union of India, AIR 1988 SC 2027 at 2030. Unlike in the case of any other incometax authority, the distinct powers of investigation, assessment, appeal, revision, etc., are all dovetailed into a single income-tax authority, namely, the Settlement Commission, which is the sole authority to decide each and every question arising in the case pending before it. Accordingly, the restrictions imposed on the Board as per the proviso to section 119(1) would have no application to the Settlement Commission. However, unlike the Board, the Settlement Commission is not required to issue any orders, instructions and directions to any other income-tax authority under section 119(1) of the Income-tax Act, and it cannot also issue any order to itself. Accordingly, the Settlement Commission can exercise the power of reduction/waiver of the statutory interest independent of the issue of any Board’s instructions on this point and in particular when sections 234A, 234B and 234C had been relieved of their rigour, in view of the amendments to section 119(2)(a) with effect from April 1, 1990 and April 1, 1991. The assessees declaring their undisclosed income, forming the basis of a settlement reached by following the distinct procedure, will per se constitute a “class of cases” for considering the scope for reduction/waiver of interest in their cases. According to Shri Kaji, the anomalous situations arising out of the decision in Ashwani Kumar’s case are :

(a) Though the Settlement Commission would be having the extraordinary power of granting immunity from penalty and prosecution, it would be deprived of the normal power of waiver or reduction of interest vested in any income-tax authority subordinate to the Board.

(b) If a rigid view is taken that only the authorities other than the Settlement Commission would have the power of waiver/reduction of interest, in case the Settlement Commission specifies the quantum of interest in its order under section 245D(4), this could not be subsequently waived or reduced by any income-tax authority, even if circumstances warrant the waiver or reduction. This is due to the fact that as per section 245-I, the order of the Settlement Commission shall be conclusive of the matter specified therein.

These anomalous results flowing from the impugned Special Bench decision would vanish if certain well established canons of construction are adopted, namely, a statute has to be construed so as to make it effective and workable. A construction which reduces the statute to a futility should not be adopted. If any other construction is possible and equally reasonable, the courts will reject the construction which will defeat the plain intention of the Legislature, even though there may be some inexactitude in the language used. A court leans in favour of a construction conferring jurisdiction, as against the construction negativing the jurisdiction. According to Shri K. Shivaram, the Wanchoo Committee, while recommending the setting up of an authority for settlement of cases, had stated that, “the quantum of penalty and interest will be in the discretion of the Tribunal”. Accordingly, this committee had recommended that the Settlement Commission should have the discretion to determine the quantum of interest. Since, the term “settlement” is wider in its import as compared to the term “assessment”, the Settlement Commission set up “to settle or to compromise cases” has also the powers to settle, even the liability to pay interest. The Supreme Court had considered the Settlement Commission as a “Tribunal” (CIT v. B. N. Bhattachargee [1979] 118 ITR 461 (SC)), and as per the Supreme Court decision in ITO v. M. K. Mohammed Kunhi [1969] 71 ITR 815 (SC), a Tribunal has got implied powers in addition to its express powers (page 819). “An express grant of statutory power carries with it by necessary implication the authority to use all reasonable means to make such grant effective”. Accordingly while fixing the terms of settlement, the Settlement Commission can also waive or reduce the statutory interest.

Shri Arun Sathe had claimed that the earlier Special Bench had wrongly opined that a single case before the Settlement Commission would not constitute a “class of cases” under section 119(2)(a) of the Income-tax Act, whereas as per section 13(2) of the General Clauses Act, 1897, “the words in the singular shall include the plural and vice versa”. Accordingly, “a case” would fall within the ambit of a “class of cases”. Though the Karnataka and the Punjab High Courts had, in the cases reported in Union Home Products Ltd. v. Union of India [1995] 215 ITR 758 and Sant Lal v. Union of India [1996] 222 ITR 375, held that the interest under sections 234A, 234B and 234C was compensatory in nature, this finding was given in the context of upholding the constitutional validity of the relevant sections. However, sections 234A, 234B and 234C were introduced in substitution of and representing the amalgam of the provisions for charging the interest under sections 139(8), 215, 216 and 217 and the provisions for imposing the penalties under sections 217(1)(a), 273 and 140A(3) of the Income-tax Act. Thus, the statutory provisions are penal in nature and these provide for the charging of the interest at rates higher than those prevailing under sections 139(8), 215, 216 and 217. In fact, even in the Board’s press release and the circular issued in 1996, the interest charged under these sections was treated to be “penal” in nature. Accordingly, while determining the quantum of tax, penalty or interest payable as per the terms of settlement under sections 245D(4) and 245D(6), the Settlement Commission would be competent to reduce or waive the statutory interest. Further the inter-position of a comma between the words “by way of tax, penalty or interest” and the words “the manner in which any sum due . . . shall be paid” would mean that the words “any demand” would not necessarily mean that there should be a positive demand necessitating the payment of the same. Accordingly, the Settlement Commission would even waive or reduce the quantum of statutory interest.

According to Shri S. N. Inamdar, the decision in Ashwani Kumar’s case [1992] 195 ITR 861 (ITSC) [SB], is erroneous as, in effect, it provides for the abdication of powers by the Settlement Commission in favour of the Board, which is contrary to the spirit of settlement of cases. Chapter XIX-A of the Income-tax Act, is a complete code in itself and provides for a settlement, in the context of the voluntary declaration of the undisclosed income by an assessee. Just as a similar full and true disclosure of the particulars of income under section 273A(1)(b) provides for the waiver or reduction of the penalty under section 271(1)(iii), the voluntary disclosure of the undisclosed income resulting in a settlement would also entail, inter alia, the waiver or reduction of statutory interest. This is due to the fact that the computation of interest in an assessment includes the determination of the interest in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 (SC), Associated Stone Industries (Kotah) Ltd. v. CIT [1997] 224 ITR 560 (SC). In fact the word “settlement” has not been defined in the Income-tax Act, and it has grammatical conotations like “stability, comfort, dispose of, in rest, etc.” Accordingly, while defining the power of settlement, the power to reduce/waive the interest may also be read in the provisions of the Income-tax Act.

In the opinion of Shri S. N. Rotho, the institution named Settlement Commission was created for providing an opportunity to errant taxpayers to come clean and to make a full and true disclosure of their undisclosed income. Even if section 245D(4) is to be considered de hors sections 116 and 119, the Settlement Commission has the power to determine the quantum of interest and may even waive or reduce the same, while examining the matters covered by the settlement application, including the request for reduction or waiver of interest. As per the well known principle of interpretation of law, whenever the question of exercise of jurisdiction is in doubt, the finding should be in favour of conferring the jurisdiction. Similarly, whenever a doubt arises whether there is a scope for grant of relief, the decision should be in favour of granting the relief. The above view was shared by Shri L. G. Thakkar who had contended that the Settlement Commission should deal with the applicant’s request for reduction/waiver of interest, while passing the order under section 245D(4) of the Income-tax Act.

According to Shri T. N. Manoharan, the provisions of sections 234A, 234B and 234C were introduced in substitution of sections 139(8), 215, 216, 217, 271(1)(a), 273 and 140A(3) “with a view to simplify the aforesaid provisions and also to remove the discretion of the assessing authorities which had led to litigation and delay in realisation of dues” (para. 10.2 of the Central Board of Direct Taxes’s Board Circular No. 549 dated October 31, 1989, reproduced at [1990] 182 ITR (St.) 1, 38). Accordingly, the purpose of introduction of the three new sections was to remove the discretion of the assessing authorities for reducing the litigation and for speeding up the realisation of the dues and the purpose was not to trammel the inherent power of the Settlement Commission to waive/reduce the statutory interest (emphasis* supplied) in the order under section 245D(4) read with section 245D(6) of the Income-tax Act. Even after the deletion of the word “interest” in section 245D(6) with effect from October 1, 1984, as per the Board’s Circular No. 394 dated September 14, 1984, [1984] 150 ITR (St.) 3, the Settlement Commission was not precluded from setting out the terms relating to the payment of interest. Accordingly, the word “interest” was presumably deleted from section 245D(6) in the context of the introduction of section 245D(2C) and section 245D(6A) providing for the charging of the interest subsequent to the passing of the orders under sections 245D(1) and 245D(4) of the Income-tax Act. From this, it would be evident that the interest chargeable for specific defaults like delay in the filing of return, non-payment/delay in the payment of advance tax, etc., could be waived or reduced by the Settlement Commission. Shri Manoharan had made a distinction in this regard between the “penalty” referred to in section 245H(1) and the “penalty” mentioned in section 245D(6) of the Income-tax Act. According to him, the term “penalty” under section 245H(1) might include various penalties for defaults like failure to maintain or retain books of account, failure to get the accounts audited, failure to comply with the provisions of sections 269SS and 269T, failure to deduct tax at source, etc. The term “penalty” in section 245D(6) would relate to penalties directly arising out of order under section 245D(4) and relatable to the terms of settlement. According to learned counsel, when the word “interest” was reintroduced in section 245D(6) with effect from June 1, 1987, as per the Finance Act, 1987, this was done “to strengthen the functioning of the Commission” (para. 48 at page 173 (St.) of [1987] 165 ITR). Accordingly, when the legislative intent was to strengthen the functioning of the Settlement Commission, it would be unrealistic to hold that the inherent power to waive or reduce the interest, while fixing up the terms of settlement, would not be available.

Shri Rafiq Dada appearing for the Income-tax Department made the following submissions :

The Special Bench decision in Ashwani Kumar’s case [1992] 195 ITR 861 (ITSC) [SB] is correct and would require no disturbance. Merely because a different view has to be taken, a seven-Member Bench need not be constituted to upset the decision of the five-Member Bench, unless something grossly wrong is found. Unless palpable injustice is found, an earlier decision need not be disturbed. As observed by the Supreme Court in Union of India v. Raghubir Singh [1989] 178 ITR 548 (SC), the court, (headnote), “. . . should not differ from its earlier decision merely because a contrary view appeared preferable. But if the previous decision is plainly erroneous, there is a duty of the court to say so and not perpetuate the mistake”. Reference was also made to the Supreme Court decision in Union of India v. Paras Laminates Pvt. Ltd. [1990] 186 ITR 722, regarding the constitution of a larger Bench for deciding an issue.

Section 119(1) falls within the realm of delegated legislation. It is the function of the Legislature to legislate and the normal feature of enabling Acts is to grant the power to make rules, which may provide for a number of enumerated matters. It is for Parliament to decide whether the rigour of any statutory provision is to be removed. Once it has decided so, it may delegate the authority to the executive, to frame rules, issue instructions, etc., as to how this rigour could be reduced. Accordingly, the Board’s power to issue directions, instructions, etc., under section 119(2)(a) in respect of the relaxation of the provisions of sections 234A, 234B and 234C flows from the delegated legislation effected by Parliament. In fact, even the order passed under section 119(2)(c) shall be laid before each House of Parliament. There cannot be two bodies exercising the powers under the delegated legislation. Though the Board can issue instructions to its subordinate authorities, the Settlement Commission cannot issue such instructions to any Additional Bench of the Commission.

The definition of the term “income-tax authority” in section 245A(d) as amended with effect from June 1, 1987, is qualified by the words “unless the context otherwise requires”. As observed by the Supreme Court in Vanguard Fire and General Insurance Co. Ltd. v. Fraser and Ross [1960] 30 Comp Cas (Ins.) 13 ; AIR 1960 SC 971, at 974-975 (page 17 of [1960] 30 Comp Cas (Ins.)) :

“It is well-settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or context.”

In that particular case, taking into account the basic structure of the Insurance Act, 1938, and the purpose of having an investigation into the affairs of an insurer, the Supreme Court held that the word “insurer” would also refer to insurers who were carrying on the business of insurance and had closed the same. Similarly, in view of article 367 of the Constitution of India, the term “unless the context otherwise requires” appearing in the General Clauses Act, 1897, is to be applied for the interpretation of the terms of the Constitution. Since the definition of “State” in section 3(58) of the General Clauses Act includes “Union Territories” the word “State” in article 3 and entry 8 of the Union List of the Constitution would include the “Union Territories” (Ram Kishore Sen v. Union of India, AIR 1966 SC 644, Management of Advance Insurance Co. Ltd. v. Shri Gurudasmal AIR 1970 SC 1126). Since “the context otherwise requires”, the word “State” appearing in article 246 is treated as not including a “Union Territory” (T. M. Kanniyan v. ITO [1968] 68 ITR 244 (SC) ; AIR 1968 SC 637). In view of the above, the Settlement Commission cannot be treated to be on all fours with the Board, in view of the qualifying words “unless the context otherwise requires” appearing in section 245A of the Income-tax Act.

Since the order passed under section 245D(4) should be “in accordance with the law”, the Settlement Commission cannot afford to bypass the provisions of law including the mandatory provisions like sections 234A, 234B and 234C. Any deviation by the Settlement Commission from the provisions of law would attract the interference by the courts under articles 32, 136, 226 and 227 of the Constitution of India (N. Krishnan v. Settlement Commission [1989] 180 ITR 585 (Kar), Joytendrasinhji v. S. I. Tripathi [1993] 201 ITR 611 (SC), CIT v. Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618 (SC)).

The observations of the Supreme Court in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443, page 456, relied upon by Shri C. V. Kothari should be treated as having been made per incuriam as the Supreme Court was dealing with a case pertaining to the assessment years 1985-86 to 198889 to which the mandatory provisions of sections 234A, 234B and 234C were not applicable.

The following arguments were addressed by way of rejoinder to the submissions of Shri Rafiq Dada :

According the Shri Mukesh Patel, a court can differ from its earlier decision, if a particular point was not considered in the earlier judgment and if it is in public interest, it may deviate from its earlier stand (Union of India v. Raghubir Singh [1989] 178 ITR 548 (SC)). In view of this, the constitution of a larger Special Bench for examining the correctness of the earlier Special Bench decision in Ashwani Kumar’s case [1992] 195 ITR 861 (ITSC) [SB] was fully justified. The decision in Ashwani Kumar’s case, [1992] 195 ITR 861 (ITSC) [SB], might lead to an illogical situation, wherein for settling his case the applicant had to approach the Settlement Commission, whereas for seeking the waiver/reduction of the statutory interest he had to approach the Chief Commissioner. It is likely that the Chief Commissioner/Commissioner would reject the request for waiver/ reduction of the statutory interest on the ground that the applicant had gone to the Settlement Commission. In extreme situations like the death of the senior family member leading to the delay in the filing of the income-tax return, reference to the Board circular would provide no remedy by way of waiver/reduction of interest, as such a situation had not been mentioned in this circular. Though there was a reasonable cause for the delay in the filing of the return in the above situation, the Chief Commissioner/Commissioner cannot reduce or waive the interest, in the absence of any provision for the same in the Board circular. But the Settlement Commission, being a high powered body settling the case, can take cognizance of this hardship and provide for the waiver/reduction of the interest under sections 234A, 234B and 234C in the terms of settlement.

According to Shri Aggarwala, the Departmental counsel had not cited any judicial pronouncement to support his claim that in respect of delegated legislation, there should inevitably and always be only one delegate. Shri Dada had also not adduced any reason for the removal of the word “interest” with effect from October 1, 1984, and its subsequent insertion with effect from June 1, 1987, in section 245D(6) and for its subsequent retention even after April 1, 1989, when the mandatory provisions of sections 234A, 234B and 234C were introduced. The rule of interpretation is against the redundancy or superfluity of any expression found in the statute. Accordingly, the word “interest” must have its full scope for operation. Regarding the need for upsetting the earlier order of the Special Bench, as observed by the Supreme Court in Union of India v. Raghubir Singh [1989] 178 ITR 548, before thinking of reversing an earlier decision, the court should see “whether the reversal of the earlier decision would lead to public inconvenience, hardship or mischief”. The decision in Ashwani Kumar’s case, [1992] 195 ITR 861 (ITSC) [SB] would require reconsideration as it had, in effect restrained the Settlement Commission from taking steps, on its own, to remove the hardship to the taxpayer. It had also not interpreted the provisions of sections 245D(4) and 245D(6) read in the context of section 245F(2) of the Income-tax Act. The question, whether a person would be better off by approaching the Commission or the Board, pertains to the realm of equity and cannot be the concern of the court. Regarding the aspect of delegated legislation, the decision to relax the particular statutory provision is to be taken by the Legislature. Under what circumstances the relaxation can be effected is to be decided by the executive authority. There is no repugnancy in section 245A(d) in view of the phrase “unless the context otherwise requires”. There is also no dichotomy in the matter of deciding as to the circumstances under which there could be waiver/reduction of the interest under sections 234A, 234B and 234C. In the context of the expression of the legislative intent to relax the provisions of these sections, till the case is admitted under section 245D(1), the Board and its subordinate authorities can exercise the power of waiver/reduction of interest. Once the case is admitted, till the order is passed under section 245D(4), the Settlement Commission can examine this question, while determining the terms of settlement under section 245D(6) of the Income-tax Act. This power to waive or reduce interest is a “quasi-judicial power”. When an authority discharges a quasijudicial function, it goes without saying that it has to conform to the principles of natural justice in H. S. Anantharamaiah v. CBDT [1993] 201 ITR 526 (Kar).

Shri K. H. Kaji, while endorsing the stand of Shri Aggarwala, had also claimed that the reintroduction of the word “interest” in section 245D(6) was simultaneous with the inclusion of the Board as an incometax authority, under section 245A(d), whose powers are vested in the Settlement Commission by virtue of section 245F(1) of the Income-tax Act. The legislative intent could be only to provide for the scope for waiver/reduction of interest, in the settlement proceeding. In fact, the introduction of sections 234A, 234B and 234C was also intended to be simultaneous but owing to objections from the public, the insertion thereof by the Taxation Laws (Amendment) Act, 1987, was delayed. These sections were introduced only with effect from April 1, 1989. Since the Memorandum to the Finance Bill, 1987, [1987] 165 ITR (St.) 173-174, mentioned that the amendments were meant to strengthen the working of the Commission, power to deal with the waiver/reduction of interest had been made available to the Settlement Commission.

Arguments regarding question (a)(ii) : There was no unanimity of approach among the various counsel, while answering this question. As against the stand of the Departmental counsel that the decision in Ashwani Kumar’s case, [1992] 195 ITR 861 (ITSC) [SB], was correct and required no reconsideration, some counsel had claimed that the decision by the present larger Bench, if contrary to the decision in Ashwani Kumar’s case, [1992] 195 ITR 861 (ITSC) [SB], should be given retrospective effect. However, Shri R. P. Aggarwala had cautioned against the retention of the words “may now be reconsidered” in this question, as the word “reconsidered” may be taken as meaning “review”, when in fact the Settlement Commission has no power to review its own earlier order.

Arguments regarding question (b) : According to Shri Rafiq Dada, the Settlement Commission cannot spell out the instances where reduction/ waiver of interest can be effected, as this can be done only through delegated legislation and cannot be done to benefit only some errant tax payers. On the contrary Shri Y. P. Trivedi had contended that the Settlement Commission could lay down its own guidelines for the exercise of the powers of waiver/reduction of interest on the lines of the Income-tax Rules, rules 40 and 117A, which had stood the test of time. Shri K. H. Kaji, however, felt that there would be no need for framing any rules or guidelines by the Settlement Commission as these are required to be framed only by a supervisory authority, like the Board to ensure that the actual relaxation of the provisions was carried out by the subordinate authorities. Being a high-powered body, entrusted with all the powers of the income-tax authorities, the Settlement Commission itself could, on its own, waive or reduce the statutory interest in each individual case on the basis of the specific facts and circumstances therein and it could exercise its power in a proper judicial discretion.

Shri S. K. Majumdar had supported this stand, from a different angle. According to him, unlike in the case of a Special Bench of the Incometax Appellate Tribunal, whose decision is uniformly followed by different Benches of the Tribunal as the relevant findings relate mostly to questions of law, since the Settlement Commission is dealing with the settlement of individual cases and each Bench is to deal with the peculiar facts and circumstances of a specific case, it may not be possible for the Special Bench to lay down any binding guidelines, instructions, etc., regarding the aspect of waiver/reduction of interest. According to him, each Bench may take a decision, on its own, to waive or reduce the interest, on the basis of the specific facts and circumstances of the case pending before it.

Arguments regarding question (c)(i) : Conflicting views were expressed on the question whether the Special Bench decision in Gulraj Engineering and Construction Co.’s case, [1995] 215 ITR (AT) 1 (ITSC) could be held to be retrospective in operation. But Shri Rafiq Dada appearing for the Department, had cautioned against the retrospective application of this decision, in view of this decision being challenged before the High Court and the Supreme Court and the matter being sub judice. He had also referred to the dissenting note in this order indicating that there was a difference of opinion on the relevant issue, thus indicating the absence of any mistake of law.

Arguments regarding question (c)(ii) : The answer to this question had been linked with the arguments, raised with reference to questions Nos. (a)(i) and (b).

The following are our findings on the relevant issues :

At the outset, it is worth noting that the genesis of the Settlement Commission was the report of the Wanchoo Committee. This Committee examined the functioning of the Income-tax Department and suggested various methods for strengthening the administration and improving compliance. It observed that the practice of resorting to frequent disclosure schemes

“would not only fail to achieve the intended purpose of unearthing black money but would also have deleterious effect on the level of compliance among the tax paying public and on the morale of the administration”.

It had also observed that :

“This, however, does not mean that the door for compromise with an errant taxpayer should forever remain closed. In the administration of fiscal laws, whose primary objective is to raise revenue, there has to be room for compromise and settlement A rigid attitude would not only inhibit a one-time tax-evader or an unintending defaulter from making a clean breast of his affairs, but would also unnecessarily strain the investigational resources of the Department in the case of doubtful benefit to revenue, while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in the law for a settlement with a taxpayer at any stage of the proceedings. . . A provision of this type facilitating settlement in individual cases will have this advantage over general disclosure schemes that misuse thereof will be difficult and the disclosure will not normally breed further tax evasion. Each individual case can be considered on its merits and full disclosures not only of the income but of the modus operandi of its buildup can be insisted on, thus sealing off chances of continued evasion through similar practices.”

Accordingly it had suggested the setting up of a “high level machinery” to ensure that “the settlement is fair, prompt and independent”. In the context of the recommendations of the Wanchoo Committee and the subsequent discussions in the Select Committee of Parliament, Chapter XIX-A of the Income-tax Act was introduced, with effect from April 1, 1976, through the Taxation Laws (Amendment) Act, 1975, providing for the setting up of the Income-tax Settlement Commission.

As observed by Krishna Iyer J., in the case of CIT v. B. N. Bhattachargee [1979] 118 ITR 461 (SC) (pages 465 and 466) :

“Functionally speaking, this chapter, engrafted in partial implementation of the Wanchoo Committee report, provides for settlement of huge tax disputes and immunity from criminal proceedings by a Commission to be constituted by the Central Government when approached without objection from the tax department . . . That is the challenge to judicial resourcefulness the present appeals offer, demanding, as it does, a holistic perspective and harmonious construction of a whole chapter, especially a complex provision therein, so that a balance may be struck between purpose and result without doing violence to statutory language and social values. This chapter is fresh and the issue is virgin : and that makes the judicial adventure hazardous, compounded by the involved and obscure drafting of the bunch of provisions in Chapter XIX-A.”

As observed in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443 (SC) (page 444) :

“Chapter XIX-A is a part of the Income-tax Act and must be con-strued consistent with the overall scheme and object. The Chapter is meant for those assessees who want to disclose income not disclosed till then together with the manner in which that income is derived.” As stated in the Madras High Court decision in S. P. A. M. Krishnan Chettiar and Son v. ITSC [1993] 202 ITR 81 (page 88) :

“Thus, a careful study of the anatomy of Chapter XIX-A clearly brings out that it was only in the nature of machinery provisions for the purpose of settlement of tax disputes between the assessees and the Revenue. The provisions do not compel any assessee to resort to section 245C, but that can be availed of, if the assessee so chooses. In other words, the remedy provided under section 245C, as a machinery provision for effecting settlement of tax disputes, was only in the nature of a concession or option open to the assessee who desired to settle his tax matters.”

Just as Chapters XIX-B and XX-A operate in distinct and separate fields relating to the pronouncement of advance rulings on specific questions of law or fact and the acquisition of immovable properties for counteracting tax evasion, Chapter XIX-A is also a separate code in itself, providing for the settlement of cases. Any assessee may, at any stage of the proceeding for the assessment/reassessment/appeal/revision in his case in respect of any assessment year/years, file a settlement application in accordance with the terms of section 245C of the Income-tax Act and in Form No. 34B. Once this application is allowed to be proceeded with under section 245D(1), the Settlement Commission assumes exclusive jurisdiction to dispose of this case until an order under section 245D(4) is passed. The array of sections 245A to 245L deal with the jurisdiction, powers and procedure of the Settlement Commission. Suffice it to say that as per section 245-I, every order of settlement passed under section 245D(4) “shall be conclusive as to the matters stated therein” and no matter covered by such order shall be reopened in any proceeding under the Income-tax Act or under any other law for the time being in force, save as otherwise provided in Chapter XIX-A of this Act.

In the present proceeding, we are called upon to give a finding of law as to how, in its order passed under section 245D(4), the Settlement Commission would deal with the question of charging of interest under sections 234A, 234B and 234C of the Income-tax Act. It is worth noting that these three sections forming part of Chapter XVII-F were inserted, with effect from April 1, 1989, by the Direct Tax Laws (Amendment) Act, 1987. They provide for the mandatory charging of the relevant interest. The relevant words used are “the assessee shall be liable to pay simple interest . . . .” (emphasis* supplied)

As observed in the Notes on Clauses of the Direct Tax Laws (Amendment) Bill, 1987 ([1987] 168 ITR (St.) 342) :

“Clause 94 seeks to insert in Chapter XVII of the Income-tax Act, a new sub-Chapter ‘F Interest chargeable in certain cases’, setting out three new sections 234A, 234B and 234C. The new sub-Chapter brings together these new sections dealing with mandatory charge of interest for specified defaults. The new section 234A provides for charge of interest for defaults in furnishing return of income. Accordingly, the existing provisions of sub-section (8) of section 139 have been omitted. Section 234B provides for the charge of interest for defaults in payment of ad-vance tax and section 234C deals with charge of interest for deferment of an instalment of advance tax. The existing corresponding sections 215, 216 and 217 have been omitted. Also sections 140A(3), 271(1)(a) and 273 dealing with penalty in such cases are omitted.”

It has also been clarified in the Notes on Clauses that the provisions for reduction or waiver of interest payable under section 139(8)/215/217 had been abolished.

Regarding the scope for reduction/waiver of the interest under sections 234B and 234C, we have to examine, in the first instance, the provisions of sections 245D(4) or 245D(6), 245F(1) and 245F(2) read with section 245A(d) of the Income-tax Act. As per section 245D(4), after complying with the procedural requirements as spelt out in this subsection, the Settlement Commission “may in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to”, in the report of the Commissioner under section 245D(1) or section 245D(3). This sub-section has a direct nexus with section 245D(6), whereby every order passed under section 245D(4) “shall provide for 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 and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts.” (emphasis* supplied)

As per section 245F(1), in addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an income-tax authority under this Act. Accordingly, it is evident that the Settlement Commission has, in addition to the specific powers, vested in it under sections 245DD, 245E, 245H, etc., all the powers which are vested in the income-tax authority under the Income-tax Act.

The definition of the term “income-tax authority” as per section 245A(d), as it stood prior to its substitution with effect from June 1, 1987, by the Finance Act, 1987, provided for an exhaustive definition covering only the Director of Inspection, Commissioner, Commissioner (Appeals), Appellate Assistant Commissioner, Inspecting Assistant Commissioner and Income-tax Officer. However, as per section 245A(d) as substituted with effect from June 1, 1987, the term “income-tax authority” means an incometax authority specified in section 116 including therein, apart from the Commissioner, Commissioner (Appeals), Director of Income-tax, Income tax Officer, etc., various income-tax authorities starting with the Board and up to the level of the Inspector of Income-tax. Thus the sweep of the powers of the Settlement Commission under section 245F(1) had been extended to cover the powers of various income-tax authorities from the Board down to the Income-tax Inspector. But an unqualified exercise of such powers may not be possible when section 245F(1) is read in consonance with the ensuing sub-section, namely, 245F(2) whereby the exclusive jurisdiction of the Settlement Commission “to exercise the powers and perform the functions of an income-tax authority under this Act” is circumscribed by certain limits, viz., that it should be “in relation to the case” and that this would be available only up to the date of the order under section 245D(4) of the Income-tax Act. There is also another in-built restriction as the definition provided under section 245A(d) is qualified by the words “unless the context otherwise requires”. In view of this statutory restriction, the Settlement Commission cannot exercise the powers of the Board under certain sections like sections 127(2)(b), 200, 279(2), 293B and 295 of the Income-tax Act, as there is absolutely no corelation between the exercise of the powers under these sections and the settlement of the cases pending before it.

However, we had the benefit of an illuminating and thought-provoking discussion at the Bar as to whether, in view of section 245F(1) read with section 245A(d), the Settlement Commission could, by way of relaxation of the provisions of sections 234A, 234B and 234C, issue orders under section 119(2)(a), setting forth the directions or instructions as to the guidelines, principles or procedures to be followed. It is worth noting that the Finance Act, 1990, inserted the reference to sections 234A and 234B in section 119(2)(a) of the Income-tax Act with effect from April 1, 1990. Similarly, the Finance (No. 2) Act of 1991 inserted the reference to section 234C in section 119(2)(a) with effect from April 1, 1991.

Deriving support from these legislative amendments, the Board issued a Press Release dated May 21, 1996 ([1996] 219 ITR (St.) 169-170), empowering the Chief Commissioners/Directors-General of Investigation to reduce or waive the penal interest charged under sections 234A, 234B and 234C, under certain circumstances. As mentioned in this public circular :

“Prior to 1989, taxpayers who had failed to furnish the return of income within the specified time-limit or had paid inadequate or had not paid advance tax within the stipulated time-limit were charged penal interest for such defaults and also subjected to penalty proceedings. The Direct Tax Laws (Amendment) Act, 1987 (see [1988] 169 ITR (St.) 89), inserted new sections 234A, 234B and 234C in the Income-tax Act from assessment year 1989-90 to provide for penal interest at higher rates for the defaults in late furnishing of the return of income, defaults in payment of advance tax and for deferment of advance tax respectively and omitted separate penalty provisions for these defaults. The interest payable under these sections was mandatory and there was no provision for reduction or waiver of the penal interest, as was provided specifically in this behalf prior to 1989. As a result, several taxpayers faced unintended hardships in certain circumstances.” (emphasis* supplied)

The Board had also clarified that this Press Release authorising the Chief Commissioners and Directors-General to reduce or waive penal interest under sections 234A, 234B and 234C “is a major step taken by the Central Board of Direct Taxes to mitigate the hardship in the deserving cases”. This public circular was followed by an order under section 119(2)(a) of the Income-tax Act, issued by the Board in F. No. 400/234 of 1995-IT(B) dated May 23, 1996, whereby the Chief Commissioners/Directors-General were authorised to reduce/waive statutory interest. As per paragraph 3 of this circular, the Board had also clarified that “if any petition in the past has been rejected because the Board had not issued this direction earlier, these may be reconsidered and decided in accordance with this order.”

The question arises whether in the light of the aforesaid amendments in section 119(2)(a), the Settlement Commission could reduce or waive interest under sections 234A, 234B and 234C. Shri Rafiq Dada contended that this is a case of delegated legislation, whereby the Legislature after laying down the legislative policy, confers discretion on an administrative agency as to the execution of the policy and leaves it to that agency to work out the details within the framework of the policy. In his opinion, since the delegated authority had been entrusted only to one body, viz., the Board, this cannot be exercised by any other authority, i.e., the Settlement Commission, since there cannot be two delegates of the same power. Refuting this contention, Shri R. P. Aggarwala had claimed that there would be no dichotomy in the exercise of the power of reduction/ waiver of statutory interest between the Board and the Settlement Commission. Accordingly, once the settlement application is admitted under section 245D(1), the Settlement Commission alone is vested with the exclusive jurisdiction under section 245F(2) over the relevant case and it alone could exercise the powers of reduction/waiver of statutory interest. The income-tax authorities referred to in the Board’s public circular dated May 21, 1996, can exercise such a power of reduction or waiver of interest, only in a case where no settlement application had been filed or had been admitted. According to him, the Settlement Commission can frame guidelines for the reduction/waiver of the statutory interest, to be followed by its various Benches.

We do not find any need for issuing any guidelines to be followed by the various Benches of the Commission, for reduction or waiver of the statutory interest, on the lines of the Board’s public circular dated May 21, 1996, and the Board’s order dated May 23, 1996. We are of the opinion that in view of the legislative intent as demonstrated by various statutory amendments and the principles of statutory interpretation, the Settlement Commission can fix the quantum of interest, as per the “terms of the settlement” under section 245D(6) read with section 245D(4) of the Income-tax Act.

The statute is an edict of the Legislature (Vishnu Pratap Sugar Works (P.) Ltd. v. Chief Inspector of Stamps, AIR 1968 SC 102, page 104). As stated in Salmond’s Jurisprudence (11th edition : page 152) the duty of the court “is to act upon the true intention of the Legislature—the mens or sententia legis”. As observed by Mukherjea J. “Each word, phrase or sentence is to be construed in the light of the general purpose of the Act itself” (Poppatlal Shah v. State of Madras [1953] 4 STC 188 ; AIR 1953 SC 274, page 226). As clarified by Krishna Iyer J., the aspect of interpretation of the statute “must be illumined by the goal though guided by the word” (Smt. Kanta Goel v. B. D. Pathak, AIR 1977 SC 1599, page 1601). As succinctly summed up by Chinnappa Reddy J. :

“Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted.” (Reserve Bank of India v. Peerless General Finance and Investment Co. [1987] 61 Comp Cas 663, 692 ; AIR 1987 SC 1023)

In the words of Krishna Iyer J. “to be literal in meaning is to see the skin and miss the soul of the Regulation. The judicial key to construction is the composite perception of the deha and the dehi of the provision.” (Chairman, Board of Mining Examination and Chief Inspector of Mines v. Ramjee, AIR 1977 SC 965, page 968)

In the light of the above legal proposition, certain observations of the Supreme Court in the case of CIT v. B. N. Bhattachargee [1979] 118 ITR 461, 471, are worth referring to. While commenting on the report of the Wanchoo Committee, the Supreme Court had observed that this Committee had proposed (page 471) “a compromise measure of a statutory settlement machinery where the big evader could make a disclosure, disgorge what the Commission fixes and thus buy quittance for himself.” It had also observed that (page 471) : “the Commission was vested with full powers to investigate cases on its jurisdiction being invoked and to quantify the amount of tax, penalty and interest that it may eventually fix as payable.” Thus, according to the Supreme Court, having regard to the objects and reasons for setting up the Settlement Commission, this Commission has got the power “to quantify the amount of interest”. As clarified by the Supreme Court in CIT v. Express Newspapers Ltd. [1994] 206 ITR 443, Chapter XIX-A is a part of the Income-tax Act and “must be construed consistent with the overall scheme and object”. (emphasis* supplied)

As observed by the Select Committee of Parliament in paragraph 48(ii) of its Report [1975] 99 ITR (St.) 27, the Settlement Commission should “proceed with all the matters covered by the application and any other matter not raised in the report of the Commissioner so that a full and final settlement could be conveniently made”. The Wanchoo Committee Report is a part of the travaux preparatoires relevant for ascertaining the legislative intent behind the settlement provisions. The Parliamentary Select Committee, while approving the creation of the Settlement Commission, had before it the observations of the Wanchoo Committee that “in the administration of fiscal laws, whose primary object is to raise revenue, there has to be room for compromise and settlement. A rigid attitude would inhibit a one-time tax evader or an unintending defaulter from making a clean breast of his affairs”. (emphasis* supplied)

As held by the Supreme Court, a reference to the Statement of Objects and Reasons is permissible for understanding the background, antecedent state of affairs, surrounding circumstances in relation to the statutes and the evil which the statute sought to remedy (Sanghvi Jeevraj Ghewar Chand v. Secretary, Madras Chillies, Grains and Kirana Merchants Workers Union [1969] 35 FJR 162 ; [1969] AIR 1969 SC 530 at 543 ; Virji Ram Sutaria v. Nathalal Premji Bhanvadia, AIR 1970 SC 765 at 767 ; State of Madhya Pradesh v. Dadabhoy’s New Chirimiri Ponri Hill Colliery Co. P. Ltd., AIR 1972 SC 614 at 620 ; Hiralal Rattan Lal v. STO, AIR 1973 SC 1034 at 1037 ; Santa Singh v. State of Punjab, AIR 1976 SC 2386 at 2393 ; Udayan Chinubhai v. R. C. Bali, AIR 1977 SC 2319 at 2326 ; Organic Chemical Industries v. Union of India [1979] 55 FJR 283 ; [1979] AIR 1979 SC 1803 at 1816 and 1817 ; Mrs. Winifred Ross v. Mrs. Ivy Fonseca, AIR 1984 SC 458 ; Narain Khamman v. Parduman Kumar Jain, AIR 1985 SC 4). In the light of this legal proposition, the guiding factors in settlement proceedings are that there should be “room for compromise and settlement” and that a “rigid attitude” should be eschewed.

On a conjoint reading of sections 245A(b), 245C(1), 245D(4), 245D(6) and 245F(2), the following legal propositions are discernible.

“(i) An assessee may at any stage of a case relating to him, make a settlement application in the prescribed form and in the prescribed manner. As per section 245A(b) the term ‘case’ has a precise meaning namely that it denotes the assessment/reassessment/appeal/revision proceeding under the Income-tax Act relating to any person in respect of any year or years, which may be pending before an income-tax authority, on the date on which the settlement application is made.

(ii) The settlement application should contain a full and true disclosure of the assessee’s income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable, on such income and such other particulars as may be prescribed.

(iii) This application is filed before the Settlement Commission ‘to have the case settled’.

(iv) On the application being allowed to be proceeded with under section 245D(1), having regard to the nature and circumstances of the case or the complexities of investigation involved therein, the Settlement Commission assumes ‘exclusive jurisdiction to exercise the powers and perform the function of the income-tax authority’ under the Income-tax Act, ‘in relation to the case’, till an order is passed under section 245D(4) of the Income-tax Act.

(v) After complying with the procedural formalities mentioned in section 245D(4), the Settlement Commission may ‘pass such order as it thinks fit’, but this order should be:

(a) ‘in accordance with the provisions of this Act’.

(b) it should be ‘on the matters covered by the application’ and

(c) also on any other matter relating to the case not covered by the application but referred to in the Commissioner’s report under section 245D(1)/245D(3) of the Income-tax Act.

(vi) As per section 245D(6), every order passed under section 245D(4) should provide for the ‘terms of settlement’. These terms should include :

(a) any demand by way of tax penalty or interest,

(b) the manner in which any sum due under the settlement shall be paid,

(c) all other matters to make the settlement effective, and

(d) a mention that the settlement ‘shall be void, if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts’.”

Each of the above ingredients of the aforesaid sections would require detailed elaboration.

Though there is a specific definition clause relating to the word “case” in section 245A, there is no precise definition of the other important terms like “settle”, “settlement” and “terms of settlement”, either in Chapter XIX-A of the Income-tax Act or in the General Clauses Act, 1897. As clarified by the Supreme Court, when a word is not defined in the Act itself, it would be permissible to refer to the dictionary to ascertain the general sense in which that word is used in common parlance (CIT v. Benoy Kumar Sahas Roy [1957] 32 ITR 466 ; AIR 1957 SC 768 at 772 ; Bhogilal Chunilal Pandya v. State of Bombay, AIR 1959 SC 356 at 357 ; CWT v. Officer-in-Charge (Court of Wards), Paigah [1977] 105 ITR 133 (SC) ; AIR 1977 SC 113 at 117). The word “settle” is defined in the Concise Oxford Dictionary to mean “determine, agree upon, decide, appoint, resolve (quarrel, question, doubts, etc.) : terminate (law suit) by mutual agreement”. the word “settle” is defined in Webster’s New Twentieth Century Dictionary (second edition) to mean inter alia “to fix definitely : to determine : decide (something in doubt or question) : to end (a dispute) : to decide (a legal dispute) by agreement without court action”. The word “settlement” is defined in the same dictionary as meaning “an agreement, arrangement, or understanding”. Accordingly the terms of settlement should be understood in a grammatical sense to mean the terms of agreement, arrangement or understanding. (empahsis* supplied)

The “terms of settlement” or understanding shall include any demand by way of tax, penalty or interest. The word “demand” is not meant to include the “manner” in which any sum . . . shall be paid”, as the latter requirement is specifically and separately provided for in section 245D(6). The use of the term “demand” does not necessarily mean that a definite positive figure of tax, penalty or interest should be provided as payable for each of the assessment years covered by the settlement. It is likely that because of brought forward statutory claims like brought forward losses, unabsorbed depreciation, etc., for one or more years, there may not be any amount payable as tax, penalty or interest. In fact the relevant words in section 245D(6) “including any demand by way of tax, penalty or interest” would in effect mean “to quantify the amount of tax, penalty and interest that it may eventually fix as payable” (CIT v. B. N. Bhattachargee [1979] 118 ITR 461 at 471 (SC) (third paragraph). The Madras High Court has also held that the Settlement Commission “has full powers to investigate, quantify the amount of tax, penalty as well as interest, etc. . . .” ([1993] 202 ITR 81 at 88-E (Mad)). The words “to quantify” may also include, powers “to reduce or to waive” especially interest and penalty.

On the question whether the Settlement Commission is a Tribunal for the purpose of article 136 of the Constitution of India, the Supreme Court had held it to be so in CIT v. B. N. Bhattachargee [1979] 118 ITR 461 (page 481) :

“We have hardly any doubt that it is a Tribunal. Its powers are considerable ; its determination affects the rights of parties; its obligations are quasi-judicial ; the orders it makes at every stage have tremendous impact on the rights and liabilities of parties. When a body is created by statute and clothed with authority to determine rights and duties of parties and to impose pains and penalties on them it satisfies the test laid down in Associated Cement Co.’s case [1965] 2 SCR 366 ; 27 FJR 204 ; AIR 1965 SC 1595. A constitutional Bench of this court in that case has indicated the quintessential test in this regard and we need only extract a portion of the head-note relevant to this aspect : ‘In considering the question about the status of any body or authority as a Tribunal under the article, the consideration about the presence of all or some of the trappings of a court is really not decisive. The presence of some of the trappings may assist the determination of the question as to whether the power exercised by the authority which possessed the said trappings, is the judicial power of the State or not. The main and basic test, however, is whether the adjudicating power which a particular authority is empowered to exercise, has been conferred on it by a statute and can be described as a part of the State’s inherent power exercised in discharging its judicial function.’

The expanding jurisprudence of administrative Tribunals to which some eminent judges, cradled in Dicean concepts, in the early days of English law, has come to stay whether we call it the new despotism or the pragmatic instrumentality of dispensing justice untrammelled by the complexities and mystiques which are part of the processual heredity of courts.’’

As is palpable from the above judgment, the Settlement Commission is a Tribunal “which has a pragmatic instrumentality of dispensing justice”. (emphasis* supplied)

Regarding the question whether the “Tribunal”, in the nature of the Settlement Commission, has incidental and ancillary powers, apart from the express powers granted under the statute, the Supreme Court had clarified, in unequivocal terms, that such implied powers are available (ITO v. M. K. Mohammed Kunhi [1969] 71 ITR 815 (SC) at 819). Accordingly, the terms of settlement relating to the demand by way of interest may also provide for the fixation of any quantum of interest, in exercise of the implied powers vested in the Commission. It may also provide for the charging of lower interest or the waiving of the interest, if so warranted on the facts and circumstances of the case. As observed in paragraph 2.33 in Chapter 2 of the Wanchoo Committee Report “the quantum of penalty and interest will be in the discretion of the Tribunal”. In any event, a finding is to be given if such a request is made in the settlement application since the order passed under section 245D(4) should be “on the matters covered by the application.”

As per section 14(1) of the General Clauses Act, 1897.

“Where, by any Central Act or Regulation made after the commencement of this Act, any power is conferred, then, unless a different intention appears, that power may be exercised from time to time as occasion requires.” (emphasis* supplied) In view of this, the Settlement Commission is to exercise the implied power of quantifying the interest even by way of reduction or waiver thereof “from time to time as occasion requires”.

It is worth noting that the word “interest” appearing in the phrase “including any demand by way of tax, penalty or interest” in section 245D(6) was deleted with effect from October 1, 1984, by the Taxation Laws (Amendment) Act, 1984. Interestingly, the same word “interest” was reintroduced with effect from June 1, 1987, by the Finance Act, 1987. The reason for the deletion of the word “interest” under section 245D(6) with effect from October 1, 1984, has been mentioned in paragraph 29.8 of the Board’s Circular No. 394 dated September 14, 1984 [1984] 150 ITR (St.) 3, 20, as under :

“29.8 Sub-section (6) of section 245D, inter alia, provides that every order passed under sub-section (4) shall provide for the terms of settlement including any demand by way of tax, penalty or interest. The Amending Act has amended the aforesaid sub-section with a view to deleting the reference to ‘interest’ under the aforesaid provision. The aforesaid amendment is consequential to the insertion of new sub-section (2C) which provides for payment of interest on the additional amount of income-tax and new sub-section (6A) which also provides for payment of interest on the tax payable by an assessee in pursuance of an order made by the Settlement Commission under sub-section (4) of section 245D. However, as the existing provisions of sub-section (6) empower the Settlement Commission to specify the terms of settlement, including any demand by way of tax, penalty or interest, the omission of the word ‘interest’ by the amending Act will not preclude the Settlement Commission from setting out the terms relating to payment of interest in its order under section 245D(4) to the extent that such terms do not contravene the provisions of new sub-sections (2C) and (6A).”

Accordingly, this circular has clarified that, in spite of the deletion of the word “interest” under section 245D(6) with effect from October 1, 1984, there would be still scope for setting out the terms relating to payment of interest in the order under section 245D(4), provided that these do not contravene the provisions of sections 245D(2C) and 245D(6A) of the Income-tax Act. As argued by Shri T. N. Manoharan, since subsections (2C) and (6A) continue to exist even as on date, there would be no need to reintroduce the word “interest” in section 245D(6) with effect from April 1, 1987, if the Department’s stand was that the word “interest” would relate to the period falling after the admission of the settlement application and to the post-settlement period.

In the Notes on Clauses relating to the Finance Bill, 1987, ([1987] 165 ITR (St.) 142), it was stated that “sub-clause (b) seeks to amend subsection (6) to provide for the payment of interest by the assessee in addition to tax and penalty”. No specific reason had been spelt out for the reintroduction of the word “interest” in section 245D(6) with effect from June 1, 1987.

Regarding the modification of the provisions relating to settlement of cases as per the Finance Bill, 1987, paragraph 48 of the Memorandum explaining the provisions of this Bill ([1987] 165 ITR (St.) 173-174) refers to certain specific provisions like sections 245BA, 245C, 245E and 245H. It had also mentioned that “the other amendments seek to strengthen the functioning of the Commission”. ([1987] 165 ITR (St.) 174). “The other amendments” referred to ante include, inter alia, the reintroduction of the word “interest” in section 245D(6) and the enlarged definition of the term “income-tax authority” in section 245A(d). Accordingly, it is evident that the intention of the Legislature while introducing these amendments was “to strengthen the functioning of the Commission”. Thus, the legislative intent appears to be to strengthen the functioning of the Commission, in so far as it relates to the laying down of the “terms of settlement”, including the demand by way of interest. (emphasis* supplied)

As per section 245D(4), the order passed by the Commission shall be “in accordance with the provisions of this Act”. In this regard it is worth noting that the Direct Tax Laws (Amendment) Act, 1987, had inserted sub-Chapter “F” with the caption “Interest chargeable in certain cases” and covering sections 234A, 234B and 234C, in Chapter XVII of the Incometax Act with effect from April 1, 1989. This newly introduced portion of Chapter XVII of the Income-tax Act provided for the charging of mandatory interest under sections 234A, 234B and 234C in respect of the defaults specified under these sections. Unlike in the earlier provisions under section 139(8)/215/217, there is no specific provision for the reduction or waiver of the statutory interest in these three new sections.

But as per the principles of statutory interpretation, though the use of the word “shall” raises a presumption that the relevant statutory provision is imperative in nature, this prima facie inference may be refuted in the context of other considerations like object and scope of enactment and the consequences flowing from such rigid construction. As observed by the Supreme Court, the word “shall” is ordinarily mandatory, but it is some times not so interpreted, if the context or the intention otherwise demands (Sainik Motors v. State of Rajasthan, AIR 1961 SC 1480 at 1485). (emphasis* supplied)

In so far as the settlement proceeding is concerned, the use of the word “shall” in sections 234A, 234B and 234C need not necessarily impart rigidity to the relevant provisions considering the fact that the object of creation of the Settlement Commission is to provide “the room for compromise and settlement” (as per Wanchoo Committee Report) and considering the context that the Settlement Commission is a Tribunal for a “pragmatic instrumentality of dispensing justice” ([1979] 118 ITR 461 (SC) at 481). As observed by Justice Holmes in Towne v. Eisner [1917] 245 U. S. 418 at page 425 :

“A word is not a crystal, transparent and unchanged : it is the skin of a living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used.” Accordingly, the use of the word “shall” in sections 234A, 234B and 234C “may vary greatly in colour and content according to the circumstances and the time in which it is used”.

As per another canon of statutory interpretation, a departure from the rule of literal construction may be legitimate so as to avoid any part of the statute becoming meaningless (Siraj-Ul-Waq Khan v. Sunni Central Board of Waqf, AIR 1959 SC 198). (emphasis* supplied) Accordingly, considering the legislative scheme for settlement of cases, providing “room for compromise and settlement”, the mandatory import of sections 234A, 234B and 234C may be mollified, so as to provide succour from the likely hardship that may entail if rigid terms of charging of interest are interlaced in the terms of settlement, covering several assessment years. As observed by the Supreme Court in Budhan Singh v. Babi Bux, AIR 1970 SC 1880, 1883 :

“Justice and reason constitute the great general legislative intent in every piece of legislation. Consequently, where the suggested construction operates harshly, ridiculously or in any other manner contrary to prevailing conceptions of justice and reason, in most instances, it would seem that the apparent or suggested meaning of the statute was not the one intended by the law-makers.”

In any event, the legislative intent to provide redressal from the hardship, likely to ensure from the strict interpretation of sections 234A, 234B and 234C, had been made abundantly clear and unambiguous by Parliament, by inserting the reference to sections 234A and 234B in section 119(2)(a) with effect from April 1, 1990, as per the Finance Act, 1990, and the reference to section 234C in section 119(2)(a) with effect from April 1, 1991, as per the Finance (No. 2) Act, 1991. It is worth noting that section 119(2)(a) provides for the relaxation of any of the statutory provisions specified therein. The nature of these statutory amendments to section 119(2)(a) spelling out the legislative intent of Parliament has been clarified in paragraph 34 (at page 108) of the Board’s Circular No. 572 (see [1990] 186 ITR (St.) 81), August 3, 1990 (Explanatory Notes on the Finance Act, 1990) and in paragraph 45 (page 190) of the Board’s Circular No. 621 (see [1992] 195 ITR (St.) 154) dated December 19, 1991 (Explanatory Notes on the Finance (No. 2) Act of 1991) as under :

“Amendment of the provisions which empower the Board to relax the effect of provisions of certain sections :

34. Under the existing provisions of clause (a) of sub-section (2) of section 119 of the Income-tax Act, the Board is empowered to relax, by issue of general or special orders, the provisions of certain sections of the Act, relating to assessment and collection of revenue in respect of any class of incomes or class of cases. The provisions of section 139 relating to filing of return of income, section 234A relating to the charging of mandatory interest for defaults in furnishing return of income and section 234B relating to charge of mandatory interest for defaults in payment of advance tax, may sometimes need relaxation. At present, it is not possible for the Board to relax these provisions.

34.1 Therefore, a reference to sections 139, 234A and 234B has been incorporated in clause (a) of sub-section (2) of section 119 so that the Board is empowered to relax the provisions of these sections applicable to any class of income or class of cases.

34.2 Similar amendments have been made in the corresponding provisions in section 10(2)(a) of the Wealth-tax Act and section 9(2)(a) of the Gift-tax Act.

34.3 These amendments will take effect from April 1, 1990. (Sections 33, 53 and 59 of the Finance Act).

Amendment to the provisions which empower the Board to relax the effect of provisions of certain sections

45. Under the existing provisions of clause (a) of sub-section (2) of section 119 of the Income-tax Act, the Board is empowered to relax by issue of general or special orders, the provisions of certain sections of the Act relating to assessment and collection of revenue in respect of any class of incomes or class of cases. The provisions of sub-section (1A) of section 201 relating to charge of mandatory interest for defaults in deduction of tax at source or payment of such tax, section 211 relating to instalments of advance tax and due dates for payment thereof and section 234C relating to charge of mandatory interest for deferment of advance tax may sometimes need to be relaxed in cases of genuine hardship. At present, it is not possible for the Board to relax these provisions.

45.1 Therefore, a reference to sub-section (1A) of section 201, sections 211 and 234C has been incorporated in clause (a) of sub-section (2) of section 119 so that the Board is empowered to relax the provisions of these sections applicable to any class of incomes or class of cases.

45.2 This amendment takes effect from April 1, 1991.” Accordingly, by expressing the legislative intent to alleviate the hardship of the taxpayers, through the Finance Act, 1990, and the Finance (No. 2) Act of 1991, Parliament has toned down the mandatory nature of sections 234A, 234B and 234C into one of mutability. In view of this, it is open to the Settlement Commission to quantify the interest demand and even provide for the reduction/waiver thereof, while determining the terms of settlement.

We have alluded to the provisions of section 119(2)(a), only for the limited purpose of unravelling the legislative intent of Parliament to relax the provisions of sections 234A, 234B and 234C. We are not interested in substituting the Settlement Commission in place of the Board in section 119(2)(a), as we find no need to issue any “guidelines, principles or procedures to be followed by other income-tax authorities”, as mentioned in that sub-section. Accordingly, we find that the detailed discussion at the Bar as to the aspect of delegated legislation and as to whether there can be more than one delegate of the delegated power, to be of mere academic importance. In the same vein, we also hold that the argument of Shri S. K. Majumdar that the finding of the Special Bench would not be binding on the other Benches, is of no consequence. This is due to the fact that each Bench is entitled to take a decision on the quantification of the interest, on the facts and circumstances of each case pending before it. There cannot be any rule of the thumb, taking the shape of any instructions, guidelines, etc., for deciding each case. However, the composition of the present Special Bench is representative in character covering all the four Benches located in Delhi, Mumbai, Chennai and Calcutta. The findings given in the present order represent the collective wisdom, as embellished by the appreciation of the illuminating arguments raised at the Bar.

Similarly, the question whether a single individual or a single applicant before the Settlement Commission would constitute a “class of cases” under section 119(2)(a) is also of the least consequence, as we are not going to lay down any guidelines, principles or procedures under this statutory provision.

Incidentally, a reference may be made to the following observations of the Supreme Court in CIT v. Express Newspapers Ltd., [1994] 206 ITR 443 (at page 456) :

“Sub-section (4) of section 245D provides for passing of final orders by the Commission. It is not necessary to refer to the other provisions in the Chapter except to mention that the Commission is empowered to direct the waiver of penalty as well as interest and to direct that the tax payable shall be paid in prescribed instalments.”

Though in that particular case, the settlement application was relating to the assessment years 1985-86 to 1988-89 for which sections 234A, 234B and 234C would have no application, the above observations were made as binding obiter dicta with reference to section 245D(4), which had not undergone any change. The aforesaid observations assume utmost significance, in the context of the expression of the legislative intent, providing flexibility to the provisions of sections 234A, 234B and 234C of the Incometax Act.

For the aforesaid reasons, while passing the order under section 245D(4), inter alia, “on the matters covered by the application”, the Settlement Commission shall provide for the terms of settlement, including the quantification of the interest under sections 234A, 234B and 234C having in view the legislative intent as evident from the statutory amendments effected in section 119(2)(a) with effect from April 1, 1990, and April 1, 1991, divesting sections 234A, 234B and 234C of the earlier rigidity and mandatory import. Each Bench may take a decision on the facts and circumstances of each case pending before it regarding the quantification, reduction and in extreme cases, even waiver of the interest. This can be done only if the concerned Bench considers it necessary or expedient so to do for making the settlement effective. However, while spelling out the terms of settlement the reasons justifying this action should be recorded in writing.

Since the functioning of the Settlement Commission is based on the concept of “compromise and settlement” (vide Wanchoo Committee Report) and since the settlement application furnishes the items of additional income, which are not disclosed before the Assessing Officer, the final order of settlement may result in the adoption of a higher income than that offered in the application. Accordingly, it is likely that in respect of the non-filing/late filing of the income-tax returns, the non-payment and short-payment/delayed payment of the advance tax, due to the adoption of higher figures of income for the relevant assessment years, the quantum of mandatory interest under sections 234A, 234B and 234C may be enormous and may even far exceed the tax demand. This may entail hardship to the applicant before the Settlement Commission. Such a grave situation may not be prevalent during the normal assessment proceeding for any particular year. Accordingly, the five instances cited in para 2 of the Board’s Press Release dated May 21, 1996 ([1996] 219 ITR (St.) 170, justifying the reduction or waiver of statutory interest may be taken as illustrative and not exhaustive.

Regarding question No. (a)(i) placed for our decision, we hold that the answer is implicitly in the negative. It is due to the fact that the Special Bench, which decided Ashwani Kumar Aggarwal’s case [1992] 195 ITR 861 (ITSC), founded its decision mainly with reference to the issue of instructions under section 119(2)(a) and on the question whether “a case” would constitute “a class of cases”. It had in effect baulked the aspect of legislative intent of Parliament, as evidenced by the reintroduc-tion of the word “interest” in section 245D(6) and by the amendments to section 119(2)(a), removing the rigidity inherent in sections 234A, 234B and 234C. This relaxation of the provisions of sections 234A, 234B and 234C is a major factor to be considered while laying down the terms of settlement under section 245D(6) read with section 245D(4). In the light of the principles of statutory interpretation and the plethora of judicial pronouncements referred to by us ante, the Settlement Commission on its own can reduce/waive the statutory interest, without having recourse to the Board’s public press release and the Board’s circular. Accordingly, the earlier Special Bench had reached an untenable proposition providing for a subsidiary role to the Settlement Commission and vesting the initiative with the Board and its subordinate authorities, in the matter of reduction/waiver of the statutory interest.

Regarding question No. (a)(ii), we hold that where orders under section 245D(4) were passed, without considering on the merits, the applicant’s request for reduction/waiver of interest under sections 234A, 234B and 234C, on requisite applications being filed in those cases, these may be examined with reference to the facts and circumstances of each case and, where the grant of any relief is justified, such relief may be granted.

Regarding question No. (b), this question has already been covered in our detailed discussion above. We have already held that the Settlement Commission need not prescribe guidelines and principles relating to the relaxation of the provisions of sections 234A, 234B and 234C, in respect of any class of incomes or class of cases.

Regarding question No. (c)(i), as the decision of the Special Bench in the case of Gulraj Engineering Construction Company, In re [1995] 215 ITR (AT) 1 (ITSC) [SB], has already been questioned in special leave petitions filed before the Supreme Court under article 136 of the Constitution of India and in the writ application under article 226 of the Constitution filed before the Gujarat High Court and as the matter is sub judice, we refrain from answering this question.

Regarding question No. (c)(ii), the answer to this question is in the negative, for the detailed reasons given in the earlier part of this order.

H. VENKATARAMAN (Chairman).—I am in agreement with answers recorded to the five questions posed before the Special Bench in paragraphs 48 to 52 (pages 43 and 44) of the foregoing order.

I will however, like to supplement the reasons given in support of our answers to question No. a(i) with the following further observations :

The various representatives and the interveners had contended, in relation to this question, that :

(i) Sections 245D(4) and 245D(6) read with sections 245F(1) and 245F(2) vested in the Settlement Commission the duty of determining, inter alia, the interest chargeable in respect of cases settled by them and this duly included the power to reduce or waive them.

(ii) In any case, the legislative intent to enable reduction or waiver of interest was manifested through the amendment in section 119(2)(a) of the Income-tax Act through the Finance Acts of 1990 and 1991. The power to do so was vested in the Board, but, as the amendment to section 245A(d) with effect from June 1, 1987, clothed the Settlement Commission with the powers of the Board, the Commission also derived the same powers in respect of the cases before them.

The learned Additional Solicitor-General sought to repel both these propositions.

(i) He submitted at the outset that the same propositions have been advocated before, and dismissed by the Special Bench in Ashwani Kumar’s case [1992] 195 ITR 861 (ITSC). Such a decision should not be upset lightly merely because a different view could be preferable.

(ii) Since the order passed under section 245D(4) had to be in accordance with law, the Commission could not by-pass the mandatory provisions of sections 234A, 234B and 234C in any of its orders.

(iii) Section 119(2) fell within the realm of delegated legislation and there cannot be two delegates in respect of the same functions.

Paragraphs 30 to 41 (pages 31—39) state our views on the validity of the arguments based on a combined reading of the provisions of sections 245D(4), 245D(6), 245F(1) and 245F(2) read in the context of the totality of the scheme of Chapter XIXA. We have dealt with the significance of the reintroduction of the word “interest” through the Finance Act, 1987, in paragraphs 38, 38.1 and 38.2. Apart from those observations, weighty in themselves, I would like to urge that the introduction of this word in section 245D(6) should be considered in the context of the historical development of the scheme of simplification and rationalisation of the direct tax laws promised through the long-term fiscal policy adopted in 1985. A process of major tax reform was initiated through the 1985-86 budget. At the same time, the broad direction and strategy for this reform was set out in the long-term fiscal policy. Simplification and rationalisation of the income-tax law was one of the key ingredients of this policy. A discussion paper on the objectives sought to be achieved through such simplification and rationalisation of the direct tax laws and the direction of the proposed amendments (reported in [1986] 161 ITR (Journal) pages 1 to 15), was widely circulated. A detailed amendment Bill proposing such changes was already under consideration. The Bill was actually introduced on December 11, 1987, but para. 69 of the Prime Minister’s Budget speech on February 28, 1987, clearly indicated that such a Bill was intended to be introduced in the budget session itself. This Amendment Bill, when introduced, did not contain a single amendment relating to Chapter XIX-A dealing with settlement of cases. On the other hand, the Finance Act, 1987, contained a large number of amendments to this Chapter, including some of a far-reaching nature. Sections 245BA, 245BB, 245BC and 245BD were introduced with a view to ensure the functioning of a Bench in certain situations like the absence of a Member, Vice-Chairman or Chairman, which had till then prevented it from sitting to discharge its functions. Section 245HA enabling the Settlement Commission to send back a “case” admitted by it to the Assessing Officer in certain situations was also introduced through this Act. Vital amendments to section 245C(1) which prescribed certain additional conditions to be fulfilled by every applicant to make his application maintainable were inserted. A whole new set of provisions were substituted for sections 245C(1B) to 245C(1D) to rationalise the mode of computation of the additional income-tax payable. A new sub-section (1A) was inserted in section 245H to preclude the Settlement Commission from granting immunity against prosecution launched before the filing of the application for settlement. All these were no doubt part of the process of rationalisation of Chapter XIX-A in pursuance of the long-term fiscal policy which had already secured broad parliamentary approval. Their enactment was, however, advanced, as they did not generate any controversy, unlike some of the other changes then under discussion.

Thus, it could be easily understood that the reinsertion of the word “interest” in section 245D(6) was a part of the same process of rationalisation. Only, it anticipated the enactment of sections 234A, 234B and 234C through the comprehensive Amendment Act. So also the amendment of the proviso to section 245E enhancing the time limit for reopening of past assessments by a period of two years to keep this provision in harmony with the similar anticipated amendment of section 149, dealing with the time limits for reopening concluded assessments under section 147(a). Since all these rationalising measures had already been enacted through the Finance Act, 1987, it became unnecessary to have a single amendment relating to Chapter XIX-A in the mammoth Direct Tax Laws (Amendment) Act, 1987, which, inter alia, dealt with some major controversial changes like the taxation of firms, mandatory levy of interest, etc., on which a wider public debate took place. Once this background is appreciated, it will be easy to understand that for the purpose of construction of the relevant changes made through the Finance Act, 1987, in this Chapter, it will be necessary to read these provisions and the provisions of the Direct Tax Laws (Amendment) Act, 1987, as limbs of the same amendatory process set in motion in pursuance of the long-term fiscal policy which had already secured broad parliamentary approval.

The two keystones of this view are the proper construction of :

(i) The words “in accordance with the provisions of this Act” appearing in section 245D(4), and

(ii) The word “interest” appearing/disappearing/reappearing, at different times in section 245D(6).

Prior to April 1, 1989, the Commission exercised the power of waiver/ reduction of interest under Chapter XIX-A read with various other sections appearing in other Chapters of the Act which authorised the assessing authority, whose functions were specifically vested in the Commission, to waive/reduce interest subject to the presumptions in the Income-tax Rules. As this power was exercised “in accordance with the provisions of this Act” up to March 31, 1989, the Legislature did not hesitate to remove the word “interest” from section 245D(6) with effect from April 1, 1984. Its removal was linked with the introduction of sections 245D(6A) and 245D(2C) in Chapter XIX-A. The powers to waive/reduce interest for some delays/defaults remained intact in spite of the dropping of the word from section 245D(6) with effect from October 1, 1984. (see Board’s Circular No. 394 [1984] 150 ITR (St.) 3), dated September 14, 1984), with the initiation of the reform process in the Income-tax Act through the 1985-86 budget the executive intent which manifested itself as legislative prescription with effect from April 1, 1989, in the shape of sections 234A, 234B and 234C, was to make the charging of interest mandatory and deprive the various income-tax authorities of the power to waive and reduce interest. (emphasis* supplied) Even after the amendment of section 119(2) with effect from April 1, 1990/April 1, 1991, the power of relaxation was delegated only to the Board and not the lower income-tax authorities. But it can be seen to have been the intention of the Legislature not to strip the Commission also, as was intended in respect of the other income-tax authorities, of its power to waive and reduce interest. It is in this context, that the reappearance of the word “interest” in section 245D(6) of Chapter XIXA with effect from June 1, 1987, assumes great significance. It needs to be noticed that the Legislature did not amend or remove sections 245D(6A) and 245D(2C) the introduction of which led to the initial removal of the word “interest” in section 245D(6) with effect from October 1, 1984. Thus, is would be clear that the reintroduction of the word “interest” in section 245D(6) with effect from June 1, 1987, is directly linked with the subsequent enactment of sections 234A, 234B and 234C.

Viewed in this background, it will be seen that the reinsertion of “interest” in section 245D(6) acquires considerable significance in the context of the subsequent insertion of new Chapter XVII-F through the Direct Tax Laws (Amendment) Act, 1987. These provisions have, therefore, to be read and construed together to appreciate the true significance of the amendment to section 245D(6). It was the failure to do so, which had led the earlier Special Bench to ascribe an almost insignificant and irrelevant meaning to the amendment, while pronouncing its opinion on this aspect in the case of Ashwani Kumar (vide pages 871 and 872 of the report in [1992] 195 ITR 861 (ITSC) [SB]. The other aspects of our reasons for coming to a conclusion different from the conclusion reached in the case of Ashwani Kumar [1992] 195 ITR 861 (ITSC) [SB], have already been spelt out in the main order. I would only like to supplement that for the reasons outlined by me in the preceding paragraphs, the five-Member Bench which considered these issues, with due respect and apologies to the Bench, seems to have missed out the essence of the schematic rationalisation of the provisions of Chapter XIXA brought about through the Finance Act, 1987.

This will also effectively meet the first submission of the learned Additional Solicitor-General that the decision in the case of Ashwani Kumar [1992] 195 ITR 861 (ITSC) [SB], should not be upset lightly. It is not as if we are merely taking a different view as such a view appears to us preferable. We are differing from the earlier view because in our opinion the fundamental concepts underlying the amendments made through the Finance Act, 1987, and the scheme of those amendments has not been appreciated in a holistic perspective ; and untenable conclusions whittling down the effectiveness of the Settlement Commission as a “pragmatic instrumentality of dispensing justice” have been reached on a flawed construction of the different amendments within a narrow framework. The second submission already stands rejected as, according to our reading of the relevant provisions, the law always intended that the power to quantify the interest for delays/defaults in filing the return or paying the advance tax on a case by case basis vested in the Settlement Commission, and was never curtailed or taken out.

G. S. SIDHU (Vice-Chairman).—The executive and legislative intent to keep intact the powers of the Settlement Commission to reduce and waive interest even after other income-tax authorities were deprived of such powers as per the long-term fiscal policy and substitution of sections 139(8), 215, 216, 217 and 273 by sections 234A, 234B and 234C, is clear from the reintroduction of the word “interest” in section 245D(6) with effect from June 1, 1987. The learned Chairman in his note above has brought out, inter alia, the circumstances under which the amendment of section 245D(6) reintroducing the word “interest” and the enactment of sections 234A, 234B and 234C got delinked and appeared on the statute book at different times. This note could have formed part of the main order to add weight to the findings recorded in para 48 (page 43) supra.

I am in agreement with the answers recorded in paragraphs 48 to 52 (pages 43 and 44) of the foregoing order, to the five questions posed before the Special Bench.

 

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