1. Meaning :
Taxation laws (Amendment) Act has brought major administrative changes in the Income-tax Act. One of these changes is the setting up of Income-tax Settlement Commission. Till now the Income-tax cases were settled on an informal basis without any statutory provision. But with the setting up of settlement commission the settlement proceedings have become a formal affair.
2. Setting Up Of Settlement Commission
On the recommendations of Wanchoo Committee, the Income-tax Act, 1975 and a new Chapter XIXA—Settlement of Cases—has been added. This chapter provides for setting up Settlement Commission, procedure for application for settlement etc. In pursuance of this power, the Central Government has appointed the Settlement Commission and it has started functioning from 1st April 1976.
3. Constitution Of Settlement Commission [Section 245B]
The Central Government has been empowered to constitute ‘Income-tax Settlement Commission’. The Commission shall consist of a Chairman and as many Vice-Chairmen and other members as the Central Govt. thinks fit and shall function as the Deptt. of Central Govt. dealing with direct taxes. The Chairman, Vice-Chairmen and other members of the Commission shall be appointed from amongst persons of integrity and outstanding ability having special knowledge of and experience in problems relating to direct taxes and business accounts. Central Government can ask any two members of Central Board of Direct Taxes to act as the members of Settlement Commission and on such appointment he shall, cease to be a member of the Board.
4. Jurisdiction And Powers Of Settlement Commission [Section 245BA]
- The jurisdiction, powers and authority of the Settlement Commission may be exercised in Benches.
- A Bench shall be presided over by the Chairman or Vice-Chairman and shall consist of two other members.
- The Bench which is presided over by the Chairman shall be known as Principal Bench and other benches shall be known as additional Benches
- The Chairman may authorise any of the members to discharge the functions of Vice- Chairman.
- In case any member of the Bench is unable to discharge his duties owing to absence, illness on any other reason, the other members of the Bench may function as the Bench. The senior most member of the Bench shall act as Presiding Officer if regular presiding Officer is not present.
- The Chairman may, for the disposal of a particular case, constitute a special Bench consisting of more than three members.
- Govt. may fix the places at which the Principal Bench, additional Benches and special Bench shall ordinarily sit. New Delhi, Bombay have been notified as these places.
5. Vice-Chairman To Act As Chairman [Section 245 BB]
In case a vacancy of Chairman arises due to death, resignation or otherwise, Central Govt. may authorise one of the Vice-Chairmen to act as Chairman till a regular Chairman is appointed. The same may be made applicable in case of a temporary vacancy arising clue to absence, illness or any other cause.
The Vice-Chairman, so appointed, in the absence of permanent Chairman shall discharge the functions of the Chairman till the date on which the Chairman resumes his duties.
6. Transfer Of Cases [Section 245 BC]
The Chairman is entitled to transfer a case from one Bench to another Bench either on an application by the assessee or the Chief Commissioner or Commissioner of his own motion without any notice.
7. Decision To Be Majority [Section 245 BD]
All the decisions of the Bench must be by majority. In the event members are equally divided, the matter shall be referred to the Chairman. He may hear the matter himself or may refer it to one or more of the other members of the Commission and then the case shall be decided by a majority decision.
8. Application For Settlement Of Cases [Section 245 C]
Any assessee against whom a case is pending before any Income-tax Authority can apply to th Settlement Commission in the prescribed manner to have the case settled. The application must be accompanied by prescribed fee and once it is submitted it cannot be withdrawn.
An assessee may, at any stage of a case relating to him, make an application in prescribed form for settlement of case. Such application must contain
(i). a full and true disclosure of his income which has not been disclosed before the Assessing Officer
(ii) the manner in which such income is derived
(iii) the additional amount of income tax payable on such disclosed income ; and
(iv) the additional income-tax payable on such disclosed income that (calculated as per provision of IA) exceeds Rs. 100,000 (one hundred thousand rupees).
The Finance Act 2007 has further added that no such application shall be made unless
(i) the additional amount of income-tax payable on the income disclosed in the application exceeds Rs. 3 lakhs; and
(ii) such tax and the interest thereon which would have been paid had the income disclosed in the application been declared in the return of income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application.
9. Calculation Of Additional Income-Tax [Section 245C (IA)]
The method for calculation of additional tax is given in sub-section (IB) to (ID) of section 245C. These provisions are
(A) Where The Income Disclosed Relates To One Previous Year [Section 245 C (1B)]
(i) If the applicant has not furnished a return in respect of the total income of that year; then, tax shall be calculated on the income disclosed in the application as if such income were the total income.
(ii) If the applicant has furnished a return in respect of the total income of that year, tax shall he calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income.
(B) Where The Income Disclosed Relates To More Than One Previous Year [Section 245C(1D)]
The income shall be considered to be the income of each previous year and tax shall be calculated as per aforesaid provisions in respect of each previous year. The difference of tax payable and tax paid in respect of each previous year shall be calculated. The difference in amount of each previous year shall be aggregated and this amount shall be called additional In come-tax.
10. Bar On Making Application [Section 245C (1E)]
(i) Every application made before the Settlement Commission shall be accompanied by such fees as may be prescribed. Prescribed fees is Rs 500.
(ii) An application made before the Settlement Commission shall not be allowed to be withdrawn by the applicant.
(iii) The assessee shall, on the date on which he makes an application before the Settlement Commission, also intimate the Assessing Officer in the prescribed manner of having made such application to the said Commisssion.
11. Procedure On Receipt Of Application [Section 245D]
Within 7 days from the date of receipt of the application, the Settlement Commission shall issue a notice to the applicant requiring him to explain why the Commission should proceed with his application. On hearing the applicant, the Settlement Commission shall, within a period of 14 days from the date of application, by an order in writing, reject the application or allow the application to be proceeded with.
It is also provided that in case no such order has been passed by the Settlement Commission within the aforesaid period, the application shall be deemed to have been allowed to be proceeded with.
A copy of every order under this section shall be sent both to the applicant and to the Commissioner.
Under section 245D (2B) the Settlement Commission shall, within 30 days from the date on which the application was made call for a report from the commissioner and the commissioner shall furnish the report within 30 days of the receipt of communication from the Settlement Commission.
12. Payment Of Additional Income-Tax [Section 245D (2A)]
The assessee must deposit the additional amount of tax payable within 35 days of the receipt of the copy of the order and shall submit proof of such payment to the Settlement Commission.
In case assessee is unable to deposit the amount of tax due to good and sufficient reasons oved to the satisfaction of Settlement Commission it may permit such assessee to pay the amount of additional income-tax in installments provided the assessee furnishes the requisite security [Section 24D (2B)].
In case assessee fails to deposit the amount of tax within prescribed time he shall be required to pay interest @ 15% p.a. on the amount remaining unpaid from the date of expiry of the period of 35 days. [Section 245 D (2C)]
In case of default, Settlement Commission can levy penalty and the amount of tax, interest and penalty can be recovered according to the procedure laid down for recovery of tax. [Section 24D (2D)]
Where the Commission decides to proceed with the application, it may call for the relevant record from the Commissioner and after examining the record and after conducting further investigation may ask the Commissioner to conduct any further investigation if required. If the Settlement Commission finds that any further inquiry or investigation is required in this matter, it may direct the Commissioner to conduct or cause to conduct such further investigation and furnish a report on the matter covered by the application and furnish any further facts related to the case. [Section 245D(3)]
On examining the records and reports received by the Commission, it may pass such orders as it thinks fit but only after giving the applicant and Commissioner an opportunity of being heard either in person or through an authorised representative.
[Section 245D (4)]
The materials brought on record before Settlement Commission shall he considered by the members of the concerned Bench before passing any orders. [Section 245 D (5)]
Any order passed by the Commission shall provide for the terms of settlement including any demand for the tax, penalty or interest and the manner in which any such sum due on the settlement shall be paid. The orders of the Commission must be explicit, and it shall be void if it is found afterwards that settlement was obtained by way of fraud or misrepresentation. In this situation the proceedings of the case will begin from the stage they were left when case was referred from Income- tax authorities to Settlement Commission. [Section 245D (6)]
In case any tax is payable as a result of the order of Settlement Commission and is not paid within 35 days of the receipt of the copy of such order, simple interest at the rate of 15% [w.e.f. I- 4-2008 one and one-fourth per cent for every month or part of a month shall be payable by assessee even if the Settlement Commission has extended the time or allowed the tax to be paid in instalments. The interest will he calculated on the amount remaining unpaid from the date of the expiry. of period of 35 days. [Section 245D (6A)]
In case settlement becomes void as provided at (6) above, and the proceedings before Income- tax authorities have begun, such authorities shall complete the proceedings at any time beThre the expiry of 2 years from the end of financial year in which the settlement became void. [Section 245D (7)]
The provision of section 153 shall not apply to any order of settlement and provision of section 186 (i) also shall not apply to the cancellation of registration of firm if required under directions of Settlement Commission. [Section 245D (8)]
13. Power Of Settlement Commission To Order Provisional Attachment To Protect Revenue [Section 245DD (1)]
Where, during the pendency of any proceeding before it, the Settlement Commission is of the opinion that for the purpose of protecting the interest of the revenue it is necessary so to do, it may, by order, attach provisionally any property belonging to the applicant in the manner provided in the Second Schedule
Provided that where a provisional attachment made under section 281 B is pending immediately before an application is made under section 245 C, an order under this sub-section shall continue such provisional attachment up to the period up to which an order made under section 281 B would have continued if such application had not been made.
Provided further that where the Settlement Commission Passes an order under this sub-section after the expiry of the period referred to in the precceeding proviso, the provisions of sub-secUon (2) shall apply to such order as if the said order had originally been passed by the Settlement Commission.
(2) Every provisional attachment made by the Settlement Commission under sub-section (1) shall cease to have effect after the expiry of a period of six months from the date of the order made under sub-section (1)
Provided that the Settlement Commission may, for reason to be recorded in writing, extend the aforesaid period by such further period or periods as it thinks fit.
- Powers to Re-open the Completed Proceeding (Section 245F). With concurrence of the applicant, the Commission is empowered to re-open the completed assessments when it is necessary and expedient. The Commission has to record the reasons in writing which led it to believe that reopening of completed assessment is necessary for the proper disposal of the case pending before the Commission. The Commission cannot re-open the assessment after the expiry of 9 years from the end of the assessment year to which such re-opening proceedings relate.
- Powers of Income-tax Authority [Section 245F (1)1. The Settlement Commission shall have all the powers which are vested in an Income-tax authority. When a case is pending before the Commission, its jurisdiction shall be exclusive in relation to the case [Section 245F (2)]. Where the Commission has not expressly directed to the contrary, the provision of self-assessment tax shall remain in force. [Section 245 F(3)]
- Powers to Regulate its own Procedure [Section 245F (5)1. The Commission has been empowered to regulate its own procedure for the settlement of the case.
- Inspection of Reports (Section 24G). For gathering relevant facts for the proper settlement of the case the Commission approaches the different Income-tax Authorities for supplying such reports and facts to the Commission. All such reports sent by the Income-tax authorities to the Settlement Commission are confidential and no person shall be entitled to inspect or obtain copies of such reports. However, the Commission is empowered and it may at its discretion, furnish copies on payment of prescribed fees and application made in this behalf.
Where any assessee finds it necessary to rebut any evidence on record against him, the Commission must mandatorily provide the assessee with certified copies of the report from the relevant part of the report on payment of the prescribed fees and application made in this behalf.
Power to Grant Immunity from Prosecution and Penalty (Section 245H). If any person who has made the application for settlement has co-operated with the Commission and has made full and true disclosure of his income, the Commission may grant such person immunity from prosecution for any offence or also from imposing any penalty under this Act, in respect of the case.
The Finance Act 2007 has provided that the Settlement Commission shall not grant immunity from prosecution for any offence under Indian Penal code or under any Central Act other than the Income-Tax Act and the wealth tax Act to a person who makes an application u/s 245C on or after 1-6-2007.
Section 245(H)(2) also empowers the Commission to withdraw the immunity so granted if the Commission is satisfied that in the process of the investigations the assessee has concëled any material particulars vital in relation to this case or that false evidence has been give1l by the assessee. In such a case, such person may be tried for the offence with respect to wh\ch the immunity was granted or any other offence in which he appears to be guilty in connection wi\h the settlement. Such a person shall also become liable to pay penalty to which such person would been liable, had such immunity not been granted.
- Power to send the case back to Assessing Officer [Section 245HA]
- In case Settlement Commission is of the opinion that assessee is not cooperating in the proceedings, it may refer such case back to the Assessing Officer who shall dispose of the case as if no application for settlement was made.
- The Assessing Officer shall be entitled to use all the material or reports of investigations produced before the Settlement Commission, as if they were produced before Assessing Officer.
- For the purpose of calculating time limit to finalise the assessment proceeding before Assessing Officer the period commencing from the date on which application for settlement was made till the receipt of orders of referring back of the case shall be excluded.
- Order of Settlement Commission to be Conclusive [Section 245 (I)]. The orders passed by the Commission shall be final and conclusive as regards the matters referred in the case cannot be re-opened in any proceedings.
(viii) Recovery of Sums due under order of Settlement [Section 245 (I)). If any payment as provided under settlement orders is not forthcoming the Assessing Officer having jurisdiction over the defaulting person may use the powers conferred on him under chapter XVII regarding recovery of taxes. The Assessing Officer is also empowered to impose penalties for default in making payments.
(ix) Bar on Subsequent Application for Settlement u/s 245(c) [Section 245K].
1. In following cases, an assessee shall not be entitled to apply for settlement u/s 245C in relation to any other matter where—
(i) an order of settlement passed u/s 245D(4) provides for the imposition of penalty on the applicant on the ground of concealment of particulars of his income,
(ii) after the passing of an order of settlement under the said sub-section (4) in relation to a case, such person is convicted of any offence under Offence and Prosecution in relation to that case,
(iii) the case of such person was sent back to the Assessing Officer by the Settlement Commission or on before the I st day of June, 2002, then, he shall not he entitled to apply for settlement u/s 245C in relation to any other matter.
2. Where a person has made an application u/s 245C on or after 1-6-2007 and if such application has been allowed to be proceeded with under section 245D(1) such person shall not be subsequently entitled to make an application u/s 245C.
(x) Proceeding to be Judicial (Section 245 L). Any proceedings under this chapter before the Settlement Commission shall be deemed to be judicial proceedings. RULES
(xi) Form of Application for Settlement of a Case (Rule 44 C). An application for settlement of a case shall be made is quintuplicate in Form No. 34 B.
(xii) By whom to be Signed (Rule 44 C). The application form and the form of verification shall be signed by
(a) in case of individual by the individual himself;
(b) in case of H.U.F.—by the karta
(c) in case of a company—by its managing director
(d) in case of firm—by its managing partner
(e) n case of local authority—by its principal officer
(f) in case of any other association —by any member of the association, or by principal officer; and
(g) in case of any other person—by that person or some person competent to act on his behalf.
(xiii) Form to be accompanied by Fee (Rule 44 C). Every application in connection with the settlement of case must be accompanied by a fee of Rs. 500 (Five hundred) only.