Facts of the Case

The Commissioner of Income Tax (Central) filed a writ petition before the Delhi High Court challenging the proceedings relating to an application made by M/s Xerox Modi Corporation Ltd. before the Income Tax Settlement Commission. The controversy arose regarding the scope and effect of admission of an application for settlement under Chapter XIX-A of the Income-tax Act, 1961.

The Revenue sought judicial intervention against the proceedings before the Settlement Commission. During the hearing, counsel appearing for the Settlement Commission clarified the legal position concerning the powers of the Commission under Section 245D of the Act.

The matter came up before the Division Bench of the Delhi High Court comprising Justice Swatanter Kumar and Justice Madan B. Lokur on 21 February 2005.

 

Issues Involved

  1. Whether admission of an application for settlement under Section 245D of the Income-tax Act, 1961 creates any vested right in favour of the assessee.
  2. Whether the Settlement Commission retains the authority to reject an application even after its admission.
  3. Whether the stand taken by the Settlement Commission was in accordance with the scheme and provisions of the Income-tax Act, 1961.

 

Petitioner’s Arguments

The Commissioner of Income Tax (Central), being the petitioner, challenged the proceedings relating to the settlement application and sought issuance of appropriate directions against the respondents.

The Revenue questioned the manner in which the settlement proceedings were being dealt with and sought consideration of its objections by the Court.

 

Respondent’s Arguments

On behalf of the Settlement Commission, it was submitted that any application, even if admitted for settlement within the purview and scope of Section 245D of the Income-tax Act, 1961, can subsequently be rejected by the Settlement Commission in exercise of its discretion and in accordance with the settled provisions of law.

It was contended that admission of an application does not automatically guarantee settlement and that the Commission continues to possess statutory authority to examine the maintainability and merits of the application during the settlement proceedings.

 

Court Findings / Order

The Delhi High Court observed that, prima facie, the stand taken by the Settlement Commission was in consonance with the scheme of the Income-tax Act, 1961. The Court accepted the submission that an application admitted under Section 245D may still be rejected by the Settlement Commission in accordance with law.

The Court granted liberty to the Revenue to raise all its objections and issues before the Settlement Commission at the time of hearing of the assessee’s settlement application.

Considering the above position, the High Court declined to interfere at that stage and disposed of the writ petition. The connected application was also disposed of accordingly.

 

Important Clarification

The judgment clarifies that:

  • Admission of a settlement application under Section 245D does not confer an absolute right upon the assessee to obtain settlement.
  • The Settlement Commission retains discretion to reject an application even after admission if the circumstances and statutory requirements so warrant.
  • Revenue authorities are entitled to raise all permissible objections before the Settlement Commission during the course of settlement proceedings.
  • Judicial interference at an intermediate stage of settlement proceedings may not be warranted when an effective statutory remedy exists before the Settlement Commission.

 

Sections Involved

  • Section 245D, Income-tax Act, 1961
  • Chapter XIX-A – Settlement of Cases under the Income-tax Act, 1961

 

Link to Download the Order-https://delhihighcourt.nic.in/app/case_number_pdf/2005:DHC:19456-DB/SK21022005CW30262005_144427.pdf

 

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