Paragraph numbers below are the court’s original numbering, recovered from the source text.
9. Section 245-B provides for constitution of the Income Tax Settle- ment Commission. Sub-section (3) provides specifieally that the Chairman, Vice-Chairman and other membei:s of the Settlement Commission shall be appointed by the Central Government "from amongst persons of integrity c and outstanding ability, having special knowledge of, and, experience ~ p problems relating to direct taxes and business accounts".
10. Section 245-C provides for filing of an application by an asscssee for settlement of his case. Sub-section (1) says that an assessee may "at any stage of a case relating to him" make an application in the prescribed form and manner, "containing a full and true disclosure of his income which has G 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 prescnbed" to settle his case. There are certain other requirements which he must fulfil bdore making such an application but which it is not necessary to notice here. ff c [1994) 1 S.C.R.
11. For a proper delineation of the jurisdiction of the Commission, it is necessary to bear in mind the language of sub- section (1) of Section 245-C. It proviCles that at any stage of a case relating to him, an assessee may make an application to the Commission disclosing fully and truly income which has not been disclosed before the Assessing Officer. He must also disclose how the said income has. been derived by him besides certain other particulars. This means that an assessee cannot aproach the Com- mission for for settlement of his case with respect to income already disclosed before the Assessing Officer. An application under Section 245-C is maintainable only if it discloses income which has not been disclosed before the Assessing Officer. The disclosure contemplated by Section 245-C is thus in the nature of voluntary disclosure of concealed income. Unless the income so disclosed exceeds Rs. 50,000, the application under Section 245-C is not maintainable. It is equally evident that once an application made under Section 245-C is admitted for consideration (after giving notice to and considering the report of the Commissioner of Income D Tax as provided by Section 245-D) the Commission shall have to withdraw the case relating to that assessment year (or years, as the case may be) from the assessing/appellate/revising authority and deal with the case, as a whole, by itself. In other words, the proceedings before the Commission are not confined to the income disclosed before it alone. Once his applica- tion is allowed to be proceeded with by the Commission, the proceedings pending before any authority under the Act relating to that assessment year ·has to be transferred to Commission and the entire case for that assessment year will be dealt with by. the Commission itself. The words "at any stage of a case relating to him" only make it clear that the pendency of proceed~ ings relating to that assessment year, whether before the Assessing Officer or before the Appellate or Revisional Authority, is no bar to the filing of , an application under Section 245-C so long as the application complies with the requirements of Section 245-C.
12. Section 245~0 prescribes the procedure to be followed by the Commission on receipt of an application under Section 245-C. Sub-section G (1) is relevant for our purpose. As originally enacted, the sub:..section read as follows: "(1) On receipt <?fan application under section 245-C, the Settlement Comlnission shall call for a report from the Commissioner and on the basis of the materials contained C.l.T. v. EXPRESS NEWSPAPER [JEEV AN REDDY, J.] in such report and having regard to the nature and cir- cumstances of the case or the complexity of the investiga- tion involved therein, the Settlement Commission may, by order, allow the application to be proceeded with or reject the application: Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the applicant of being heard : Provided further that an application shall not be proceeded with under this sub-section if the Commis- sioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income-tax Act, 1922 (XI of 1922) or under this Act has been established or is likely to be established by any income-tax authority in relation to the case". c
13. By Finance Act, 1979 the second proviso was omitted and· sub- section 1-A was inserted, with effect from April 1, 1979. Sub-section 1-A E read as follows: "(lA) Notwithstanding anything contained in sub-section (1), an application shall not be proceeded with under that sub- section, if the Commissioner objects to the applica- tion being proceeded with on the ground that conceaµnent of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case: Provided that where the Settlement Commission is not satisfied with the correctness of the objection raised by the Commissioner, the Settlement Commission may, after giving the Commissioner an opportunity of being heard, c (1994) 1 S.C.R. by order, allow the application to be proceeded with under sub-section (1) and send a copy of its order to the Com- missioner".
14. It is this sub-section read with sub-section (1) which is relevant for the purposes of this case. We may, however, mention that sub-section (lA) has since been deleted and a proviso introduced in sub-section (1) as the second proviso, which reads as follows: "[Provided further that the Commissioner shall furnish the report within a period of one hundred and twenty days of the receipt of communication from the Settlement Commission in case of all applications made under section 245-C on or after the date on which the Finance (No. 2) Act, 1991, receives the assent of the President and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report.)".
15. It is not necessary to notice the effect of the above legislative change brought about in 1991.
16. As originally enacted the main limb of sub-section (1) provided that on receipt of an application under Section 245-C, the Commission shall call for a report from the Commissioner with respect to the applica- tion. The decision whether to "allow the application to be proceeded with or reject the application" had to be taken (a) on the basis of the material contained in the Commissioner's report and (b) having regard to the nature and circumstances of the case or the complexity of the investigation in- volved therein. The first proviso said that no such application shall be rejected unless an opportunity of hearing is afforded to the application. The second proviso to sub-section (1), however, provided that Commission shall not proceed with the application filed under Section 245-C, if the G Commissioner objected to the application being proceeded with on the ground that "concealment of particulars of income on the part of the applicant or perp,ertration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian-tax Act, 1922 (XI of 1922) or under this Act has been established or is likely to be established by any H income-tax authority in relation to the case". If the Commissioner objecte~ C.I.T. v. EXPRESSNEWSPAPER[JEEVANREDDY,J.] on the ground aforesaid, the Commissioner could not proceed with the A application under Section 245-C. (It is not necessary to decide for the purpose of this case whether the mere objection of the Commissioner sufficed and whether the Commission had no power to examine the cor- rectness of the said objection.) By the Finance Act, 1979 the second proviso was deleted. The main limb of sub-section (1) and the first proviso, B however, remained untouched. In place of the second proviso, sub-section (lA) was introduced. 'the effect of this Amendment was that the Commissioner's objection ceased to be final and conclusive. The proviso the sub- section (lA) empowered the Commissioner to examine whether the objection of the Commissioner was correct or not. After hearing the C Commissioner, if the Commission was satisfied that the objection of the Commissioner was not correct, it could proceed with the application.
17. Sub-section (lA) has to be read in harmony with the main limb of sub-section (1). The said sub-section says that the Commission shall D decide whether to allow the application to be proceeded with before it or to reject it (a) on the basis of the material contained in the report of the Commissioner and (b) having regard to the nature and circumstances of the case or the complexity of the investigation involved therein. What do these words mean? They are words of general import. What did the Parliament mean thereby? For ascertaining their meaning and purport, one has to turn to the purposes underlying the enactment as a whole. It is neither possible nor advisable to seek to lay down exhaustively the several situations in which the Commission would decide to allow the application to be proceeded with or in which the application has to be rejected. A case may be a complex one; it may involve prolonged or cumbersome investiga- tion. Another situation may be where having regard to the nature of the case and other circumstances, the Commission may feel in the interest of the Revenue and in the interest of justice that it is better to give a quietus to the case once for all instead of allowing it to be fought through the usual channels. The decision has to be taken by the Commission having regard G to all the facts and circumstances before it, in the light of the object, purpose and scheme of the enactment. It is precisely because such wide discretion is given to the Commission that the Act requires that it should be manned by men of integrity and outstanding ability, having special knowledge of direct taxes and business accounts.
18. The next set of words that present some difficulty are the words "has been established or is likely to be established by any income tax authority in relation to the case" occurring in sub-section (lA) (as well as in the second proviso to sub-section (1) as originally enacted). For a proper appreciation of the meaning of these words, it is necessary to remind B ourselves that an aplication under Section 245-C can be made only in respect of an income not disclosed by the assessee before the assessing officer. If so, what did the Parliament mean when it said that Commission shall not allow the application to be proceeded with if the Commissioner objects on the ground that "concealment of particulars of income on the part of the application or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income Tax, 1922 or under this Act, has been established or likely to be established by any Income Tax authority, in relation to the case"? To appreciate the meaning of the said words, it is necessary to keep in mind the following facts: even D though the assessee has not disclosed a particular income before the assessing officer, the latter is free to and is empowered to unearth it by making or causing such investigation and enquiries as he thinks ap- propriate. He may gather and receive information for that purpose. We may take two illustrative cases: One, where the assessing officer has dis- covered some income, which was not disclosed by the assessee, and has added it to the assessee's income. The latter challenges the same and the proceedings are pending either before the assessing officer or before an appellate or revisional authority. Second, a case where the Income Tax authorities are gathering information/material, which is likely to establish that the assessee has concealed the particulars of a particular income. If, in the first case, the assessee applies to the Commission under Section 245-C, the Commissioner can object on the ground that concealment of particulars of income has been established. Similarly, if the assessee in the second case applies to the commission, the commissioner can equally object on the ground that the investigation/enquiries made by them al- G ready- or the information received or gathered by them already-is likely to establish the concealment of particulars of income and, therefore, the Commission should not allow the application to be proceeded with. On the same lines, there may be cases where the Income Tax authorities have either established .or are likely to establish that the assessee has per- H pertrated a fraud for evading the tax or other sum chargeable or imposable C.l.T. v. EXPRESS NEWSPAPER [JEEVAN REDDY,J.] under the 1922 Act or the present Act. It is the correctness of these A objections that the Commission is supposed to look into by the proviso to sub-section (IA). It's further course of action depends upon its satisfaction one way or the other.
19. The idea underlying the said words (in the main limb of sub- section (lA)) is self-evident. The disclosure under Section 245-C must be of an income not disclosed before the assessing officer. If the assessing officer (or the Income Tax authority) has already discovered it and has either gathered the material to establish the particulars of such income or fraud fully or is at a stage of investigation/enquiries where the material gathered by him is likely to establish the particulars of such income or fraud, the assessee cannot be allowed to defeat or forestall, as the case may be, the entire exercise of the Income Tax authorities just by approaching c the Commission. In such a case, it cannot be said that he is acting voluntarily or in good faith. He should not be allowed to take advantage of the comparatively easy course of settlement. He must be allowed to face D the normal channels of assessment/appeal etc, Section 245-C is meant for those assessees who seek to disclose income not disclose before the officer including "the manner in which such income has been derived". If the department already knows and has gathered particulars of such income and the manner in which it has been derived, there is no 'disclosure' by the assessee. Let it be remembered that the words in question (in Sect~on 245-D(lA) are not words of limitation nor are they meant to help un- scrupulous assessees. Chapter XIX is a part of the Income Tax Act and must be construed consistent with the over-all scheme and object. The Chapter is menat for those assessees who want to disclose income not disclosed till then together with the manner in which the said income is derived. It is not meant for those who come after the event, i.e., after the discovery of the particulars of income and its source-or discovery of particulars of fraud perpetrated by the assessee, as the case may be-nor even to those who come to the Commission to forestall the investigation/en- quiries which have reached a stage where the department is in possession of material which though not sufficient to establish such concealment or fraud, is such that it is likely to establish it-may be some more material is required to establish it fully. The Commission has to keep all this this in mind while deciding whether to allow the application to be proceeded H A before it or to reject it. c
20. This discussion also shows that the Commission cannot say that any material collected by the Commissioner after the date of filing of the application under Section 245-G is not relevant for the purposes of Section 245-0(1). The filing of an application by the assessee is an unilateral act. The department may not be aware of the same. The proper line- ordinarily speaking-is to be drawn with reference to the date of submission of the report by the Commissioner. This does not, however, prevent the· Commis- sion from looking into material collected by Income Tax Authorities even subsequent to the submitting of the report by the Commissioner, if it thinks such a course is called for in the interests of justice.
21. Sub-section (4) of Section 245-D 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 em- D powered to direct the waiver of. penalty as well as interest and to direct that the tax payable shall be paid in prescribed instalments. It is further empowered to direct that the assessee whose case has been decided by it · shall not be proceeded with or prosecuted under the Income Tax Act or under the Indian Penal Code or under any ot_her Central Act for the time E being in force with respect to the case covered by the settlement. The order of the Commission are final, subject of course to constitutional remedies.
22. MERITS OF THE CASE: If we look at the facts of the case in the light of the legal position adumbrated hereinabove, it would be clear that the ·application filed by the respondent before the Commission was not maintainable and could not have been allowed to be proceeded with. Firstly, the respondent did not disclose, in its application under Section 245-C, any income which was not disclosed before the assessing offieer. This was a case where the respon- dent was claiming certain losses, which he sought to set off against its other income. If the respondent's case was true, it would not have been liable to pay any tax for the reason that entire income from property (and other income, if any) would have been swamped by the said losses. Indeed, the loss had to be carried forward to the next year. The case of the Revenµe, H however, was that all the alleged transactions (from which loss is said to C.l.T. v. EXPRESS NEWSPAPER [JEEV AN REDDY, J.) have resulted) were bogus and fictitious ones, fabricated only for the A purpo&es of evading the tax lawfully due on its income. In his application to the Commissioner, the respondent did not disclose any income not disclosed by him before the assessing officer nor did he disclose in his application the manner in which such income was derived. The assessee merely offered a part of the amount (claimed by rum as losses) towards B taxable income. Thus, his application, not being in compliance with the first and foremost requirement of Section 245-C(l), was not maintainable there- under. It ought to have been rejected in limine. The Commission had no jurisdiction to entertain the said application. Secondly, this is a case where the Income Tax authorities had made extensive investigation and enquiries C wherein they had collected voluminous material, which, according to them, established the particulars of concealment of income· on the part of the respondent-assessee. It was so held by the assessing officer-with whom the first appellate authority agreed, no doubt, subsequent to the filing of the application under Section 245-C but before the passing of the im- pugned order.
23. The Commission was also not right in holding that while deciding whether to allow the application to be proceeded with before it under Section 245-D(l), they will not look into the material collected after the date of filing of the application under Section 245-C. It has not been found E by the Commission that the Income Tax authorities were aware of the filing of the application on December 16, 1988. Even if they were aware, the mere filing of the application did not mean that they should fold their hands and stop their investigation and enquiries in their tracks. They were, in fact, entitled to rely upon the evidence and material collected by them till the date of submission of the report to the Commission. The decision ·of the Commission is thus vitiated by misdirection in law. It took cognizance of a matter which it could not have. The impugned order is equally vitiated by a misapprehension as to true legal position on the part of the Commission.
24. The appeals are allowed accordingly. The order of the Settlement G Commission under appeal is set aside. The assessments relating to all the four assessment years shall now proceed according to law. Having regard to the facts of the case, we direct that it shall be open to the respondent to file an appeal before the Tribunal against the order dated March 31, 1989 within one month from today. If so filed, it shall be treated as filed H [1994) 1 S.C.R. within time anq shall be dealt with as such. We make it clear that this order r– order is confined to the jurisdiction of the Commission and the validity of its order taking seisin of the case. We have not expressed nor did we intend to· express any opinion on the merits of the same. It is for the appropriate authorities to go into the same in accordance with law. The respondent shall pay the costs of the appellant in this appeal which we assess at Rs. 10,000. G.N. Appeals allowed. . –{