This article is written by Sahitya Gali, pursuing a Certificate Course in Advanced Corporate Taxation from LawSikho.com. Here she discusses “How do Proceedings before Settlement Commission Work?”.
What is Settlement Commission?
The Department of Revenue introduces the Settlement Commission as a statutory body established by not one statute but two provisions i.e. Section 245 B of the Income-tax Act, 1961 (Chapter XIX-A), and Section 22B of the Wealth Tax Act, 1957. These provisions are an effect of the Wanchoo Committee Report which aimed at full disclosure of income and immunity against criminal proceedings for prompt and fair settlements in tax-related applications. Therefore, the Settlement Commission is supposed to address and set terms of settlement for both income tax and wealth tax-related matters.
The establishment took place in and is as old as 1976. Therefore it is a statutory body as identified by the Department of Revenue on its website.
The Department of Revenue has introduced the Settlement Commission on its website, to fail to explain the duties and powers of the Settlement Commission in detail. It has listed Settlement Commission with other kinds of statutory bodies those which prescribes terms of settlement of similar tax-related aggrieved applications i.e. the Customs & Central Excise Settlement Commission, and the Income Tax Ombudsman 2006, although their functions and duties vary from the Settlement Commission.
Delhi has the principal bench constituted with several other additional benches. Mumbai has two additional benches while Kolkata and Chennai constitute a bench in each. Therefore, in total, four main cities have managed to establish a Settlement Commission i.e. New Delhi, Mumbai, Kolkata, and Chennai. The Bench consists of Vice Chairman and two members in each of the additional benches, however, the principal bench of New Delhi is constituted by the Chairman of the Settlement Commission and two members.
The Department of Revenue has made it clear on the website that only the assessee under the Income-tax Act, 1961, or the Wealth Tax Act, 1957, can approach the Settlement Commission. The chapter which establishes the Commission has laid down the powers and functions of the same.
The assessee can approach the Commission even when a case is pending before the Assessing Officer or even during the proceedings before the Assessing Officer. However, the applicant or the assessee must approach the Assessment Officer first to approach the Settlement Commission.
According to Section 245C of the same chapter i.e. Chapter XIX, clearly lays down the essentials content of the application made by an assessee. It provides with an obligation of an assessee to disclose assessee’s income which has not been disclosed before the Assessing Officer. The manner and additional taxes to be paid and other such particulars worth mentioning shall be included in the application before the Settlement Commission.
Such additional income tax shall be paid with the interest and disclosed before the applicant assessee approaches the Settlement Commission.
Hence it is Section 245C that gives an assessee the right to approach the Settlement Commission in the prescribed procedure, however, the matter of the case i.e. the income tax and the interest paid by the assessee must be more than Rs. 3 lakhs.
Procedure followed by Settlement Commission
The main function of the Settlement Commission is to prescribe the terms of the settlement or resolve the applicant’s application. Section 245D of Chapter XIX lays down all the duties, or we can say, the procedure after the application of an assessee is received by the Settlement *Commission. Within seven days of receiving the application from the assessee that the Settlement Commission must issue a notice to the applicant assessee as to why the application is meant to proceed. In case of rejecting the application, the Settlement Commission shall pass an order stating the same with reasons within 14 days from the date of hearing the application. In case there is no such order passed, then the application is assumed to be proceeded further for resolving to settle by the Settlement Commission.
The second step to be taken by the Settlement Commission is to call for a report from the Commissioner. The Commissioner will have to furnish all the details and make 7 copies of such reports, one which is to be given to the assessee, within 30 days from the date of the receipt of such communication from the Settlement Commission.
If the Commissioner does not submit the report before the prescribed period, the Settlement Commission proceeds with the matter without the report.
The Settlement Commission declares the report submitted by the Commissioner either invalid or not declared invalid. In case the Settlement Commission declares the report to be valid or doesn’t declare the report to be invalid, the Settlement Commission has the option to direct the Commissioner to produce records and investigate further to furnish the report more within 90 days from the receipt of such communication from the Commission.
In the case where the Settlement Commission declares the report submitted by the Commissioner to be invalid after the applicant is given an opportunity to be heard, then such order shall be sent to the applicant as well as the Commissioner.
If there is not such furnishing done within the prescribed time, the Settlement Commission may pass an order without the report.
After giving an opportunity to be heard to both the applicant and the Commissioner, when the Settlement Commission considers the furnished report by the Commissioner after examination, the Settlement Commission may pass an order which may fall under the purview of the subject matter of the application or even subject matter not covered in the application based on the report submitted by the Commissioner.
The main function of the Settlement Commission is to pass an order to fix the terms of the settlement. If the settlement turns out to be void because of misrepresentation or fraudulent facts, then the proceeding begins with the stage of the application again. Such matter can be taken by the Income Tax Authority and settle within 2 years of the financial year at which the settlement became void.
During the pendency of the cases, the Settlement Commission has the power to attach the property of the applicant assessee for not more than 6 months, if the Commission thinks that the attachment of property is necessary, in terms of revenue. The 6-month period might be extended by a written order by the Settlement Commission with justified reasons.
The Commission has also a power to make an assessee immune from any other prosecution or penalty as prescribed in any other law like Indian Penal Code or any Central Act based on the assessee’s behaviour and conduct throughout the proceedings. Though it may even withdraw the same immunity of the Commission is in the opinion that the applicant assessee has not stuck to the conduct like non-disclosure of records.
One of the main aims of establishing the Settlement Commission is to establish a separate body for tax-related cases so that such cases are settled expeditiously and fairly. However, in recent times, the Settlement Commission has received high criticism in the news. There is dissatisfaction spread as the Settlement Commission failed to yield desired results even after 30 years of establishment and operations. One of the reasons why is that the powers of the Settlement Commission though are provided by the Act, yet it is still not clear as to how much power does it share with the Income Tax Authority or how much not.
The Act has clearly provided the Commission with the same powers as the Income Tax Authority, yet nowhere are the limitations mentioned or provided. Also, there are many cases where the jurisdiction of the Settlement Commission was questioned due to unclear character of taxation laws and statutes. For example, recently in the case of Principal Commissioner of Income Tax, Central V. Income Tax Settlement Commission (22/10/2019), the Gujarat High Court in the month of June, had to make it clear that assets outside India do not fall under the heading Income outside India. The bench dug deep into the meaning and definitions and held that the Settlement Commission does not have jurisdiction to give an order as to fully disclose assets earned outside of India. It specifically mentioned that the undisclosed assets earned outside India pertains to Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, therefore the case should be in the jurisdiction of the Income Tax Department. However, in a similar natured case in the state of West Bengal, the High Court went in favour of the Settlement Commission.
Similarly, the Delhi High Court, in the case of Sonepat & Ors. V. Amit Decorative Plywoods Pvt. Ltd. & Ors. (19/11/2019), clearly expressed disappointment with the nature of jurisdiction exercised by the Settlement Commission. The bench made it clear that the Settlement Commission is not an alternative available to an applicant or, in this case, assessee. It emphasized on the fact that the Settlement Commission is not a ‘parallel body’ available to replace the regular adjudicating authorities. In this case of tax evasion by manipulating records and modifying the data, the Respondent moved to the Settlement Commission without responding to the Show Cause Notice issued to the respondents by the actual adjudicatory body. The Delhi High Court was disappointed with the fact that the Settlement Commission accepted such Show Cause to settle the case and made it very clear that a Show Cause notice is completely out of the Settlement Commission’s jurisdiction.
The Settlement Commission was criticized for accepting gold smuggling cases even though the Settlement Commission was clearly prohibited from accepting applications related to gold smuggling. Even the Centre was questioned through many applications as to why is there confusion when there is a clear provision of the prohibition of Settlement Commission from accepting gold smuggling cases.
Considering the unclear laws, the power of granting immunity to the assessee applicant against any prosecution is only restricted to the Central Acts, therefore, the Settlement Commission may not have the power to grant immunity to any assessee applicant from prosecution according to any State laws.
The Commission has completely failed to settle the cases before it in low cost. Yet the Settlement Commission is highly appreciated for its ability to solve the most complex tax-related cases. Settlement Commission needs to nourish its functioning.
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