This paper deals with a very important aspect of the Income Tax Act, 1961 i.e. powers of the Settlement Commission to grant immunity from penalty and prosecution and its impact on the pendency of criminal prosecution against defaulters under the Act.
As per the Act, the powers of the criminal prosecution against defaulters are vested with the Commissioner of Income Tax who is the sanctioning authority and puts the criminal prosecution into motion by filing a criminal complaint in the designated court i.e. Court of the Learned ACMM (Spl. Acts) Central Delhi. After the filing of the complaint, the summoning order is passed by the Ld. ACMM and the trial proceeds as per the provisions of the Code of Criminal Procedure and culminates in either conviction or acquittal of the accused.
The Income Tax Settlement Commission is a premier Alternative Dispute Resolution (ADR) body in India. The Income Tax Settlement Commission is mandated with resolving income tax and wealth tax disputes between the Income Tax department and income tax assesses.
The Income Tax Settlement Commission was set up to allow a one-time tax evader or an un intending defaulter to make clean breast of his affairs. The Income Tax Settlement Commission allows taxpayers to disclose additional Income over and above what has been already disclosed before the Income Tax Department. The applicant has to pay full amount of tax and interest on the additional income disclosed before the Commission. The Commission then decides upon the admissibility of the application and in case of admitted applications, carries out the process of settlement in a time bound manner by giving an opportunity to both parties for being heard.
The Income Tax Settlement Commission is required to pass the settlement order in time bound manner. The Settlement Commission has wide powers of granting immunity from penalty and prosecution for income tax assesses. The orders passed by the Commission are final and conclusive.
The Settlement Commission is a quasi judicial body and was set up under Section 245B of the Act. It has been set up as a result of recommendations made by Direct Taxes Enquiry Committee (Popularly known as Wanchoo Committee). The objective of setting up of this Commission was to settle tax liabilities in complicated cases avoiding endless and prolonged litigation and consequential strain on investigation resources of Income-tax Department. This commission comprises persons of integrity and outstanding ability, having special knowledge of and experience in, problems relating to direct taxes and business accounts.
The Settlement Commission consists of a Chairman, Vice-Chairmen and Members. However, the number of Vice-Chairmen and members in the Settlement Commission is decided by the Central Government. The jurisdiction, powers and authority of the Commission shall vest in the hands of Chairman, in case of Principal Bench, and in the hands of Vice-chairman, in case of Additional Bench. The Delhi Bench is known as the Principal Bench and the Benches at Mumbai, Calcutta and Chennai are known as the Additional Benches.
Section 245 H of the Act grants the power to Settlement Commission to grant immunity from prosecution and penalty in appropriate cases. The said Section is reproduced here under:
245H. Power of Settlement Commission to grant immunity from prosecution and penalty
(1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has cooperated with the Settlement Commission in the proceedings before- it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also (either wholly or in part)] from the imposition of any penalty under this Act, with respect to the case covered by the settlement:
Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 245C.
At this stage it would be profitable to refer to Section 245 I of the Act:
245 I. Order of settlement to be conclusive. Every order of settlement passed under sub- section (4) of section 245D shall be conclusive as to the matter stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force.
From the conjoint reading of Section 245 H and 245 I of the Act, it would be apparent that immunity from prosecution and penalty granted by the Settlement Commission while passing an order under Section 245 D (4) of the Act shall be final and conclusive.
The consequence would be after the immunity having been granted by the Settlement Commission, the prosecution pending against the assessee shall come to an end.
As per the proviso added after Section 245 H (1) by way of insertion by the Finance Act, 1987, w. e. f. 1-6-1987 no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 245 C of the Act (emphasis added).
Now the question arises what would happen if the Settlement Commission passes an order of total immunity from penalty and prosecution even in respect of the prosecution that was pending in the court of the Ld. ACMM (Spl.Acts) as on the date of receipt of the application under Section 245 C of the Act, after the addition of the proviso. Is the Income Tax Department bound by the verdict of the Settlement Commission?
The Income Tax Settlement Commission is the final statutory authority under the Income Tax Act, whose decision is final and binding on the tax authorities under the Act and no appeal is provided against orders of this authority before any appellate forum and it can only be challenged before the Hon’ble High Court in its supervisory jurisdiction by filing a writ petition under Article 226/227 of the Constitution of India.
The C.I.T., which is the sanctioning authority of a prosecution being a party before the Ld Income Tax Settlement Commission is duty bound to obey the Authoritative Orders of the Income Tax Settlement Commission.
The prosecution is commenced by filing a complaint pursuant to the sanction by the Income Tax Commissioner and the superior body under the Income Tax Act having granted immunity, the pending complaint cannot be proceeded with.
It would be advisable to take the help of the authoritative judicial dicta at this stage. The Hon’ble Supreme Court in the matter of Nirmal & Navin (P) Ltd. and Ors. v. D. Ravindian (2002) 255 ITR 514 (SC), held that in view of the total immunity granted by the Settlement Commission, the criminal Court could not go beyond the order passed by the Settlement Commission. Again the Hon’ble Supreme Court in Him Lal Hari Lal Bhagwati v. CBI, AIR 2003 SC 2545, dealt with proceedings under the Kar Vivad Samadhan Scheme, 1998, and the issue arose about the obligations under the Foreign Trade Act. It was held that the criminal liability stood compounded on settlement of civil issues.
That Justice S.K. Kaul of the Delhi High Court (as his Lordship then was) in the matter of Standard Surfactants Ltd Vs Union of India and Ors delivered on 14 December 2004 (2005) 193 CTR Del 279 was pleased to inter alia hold as under
20.The judgments of the Supreme Court referred to by learned counsel for the petitioner in Nirmal & Navin (P) Ltd.’s case (supra) and Hiia Lal Hari Lal Bhagwati’s case (supra) also led force to this finding that, once a matter of civil liability is settled by the Settlement Commission, even criminal liability will not arise, leave aside any liability on account of interest or penalty. The object is also salutary, which is to put an end to all kinds of litigation once the Settlement Commission has gone into the complete issue.
In the considered view of the author, the Income Tax authorities are bound by the mandate of the Settlement Commission in view of salutary provisions of Section 245 I of the Act. In the event the Income Tax Authorities are of the view that the verdict of the Settlement Commission is not in accordance with law then the same can be challenged before the Hon’ble High Court invoking its supervisory jurisdiction by filing a writ petition under Article 226/227. Till then, the authorities are bound by the decision of the Settlement Commission. Exactly this very issue is pending disposal in the Hon’ble Delhi High Court and by way of an interim order the criminal proceedings in the said case have been stayed.
(The writer is an Advocate, Delhi High Court.)