Facts of the Case

The petitioner had approached the Income Tax Settlement Commission under Chapter XIX-A of the Income-tax Act, 1961 seeking settlement of tax liabilities. The Settlement Commission, after following the prescribed procedure under Section 245D, passed a final settlement order under Section 245D(4) around 13.05.1998.

One of the terms of settlement included waiver of interest under Sections 234A, 234B and 234C of the Act. Subsequently, after the Supreme Court’s judgment in CIT v. Anjum M.H. Ghaswala holding that mandatory statutory interest could not be waived by the Settlement Commission, the Revenue moved applications before the Settlement Commission seeking rectification of the earlier settlement orders under Section 245F read with Section 154 of the Act.

The Settlement Commission entertained the applications and passed orders modifying its earlier settlement orders by directing levy of statutory interest. Aggrieved by these rectification orders, the petitioner challenged the same before the Delhi High Court.

 

Issues Involved

  1. Whether an order passed by the Settlement Commission under Section 245D(4) is final and conclusive under Section 245-I of the Income-tax Act, 1961.
  2. Whether the Settlement Commission can invoke powers under Section 154 of the Act to rectify or review its concluded settlement order.
  3. Whether a subsequent judicial pronouncement can be used to reopen a final settlement order passed years earlier.
  4. Whether the Settlement Commission becomes functus officio after passing a settlement order under Section 245D(4).

 

Petitioner’s Arguments

The petitioner contended that:

  • Section 245-I expressly declares that every order passed under Section 245D(4) is conclusive regarding matters stated therein.
  • The statute specifically bars reopening of matters covered by a settlement order in any proceeding under the Act or under any other law.
  • The Settlement Commission has no power of review and cannot reopen concluded proceedings.
  • Once the settlement order was passed in 1998, the Settlement Commission became functus officio and ceased to have jurisdiction over the matter.
  • The subsequent judgment of the Supreme Court in Anjum M.H. Ghaswala could not be used to unsettle final orders accepted by all parties.
  • Chapter XIX-A is a self-contained code governing settlement proceedings and provides only limited situations in which a settlement can be disturbed, such as fraud or misrepresentation.

 

Respondent’s Arguments

The Revenue argued that:

  • The Settlement Commission possesses powers of an Income-tax Authority under Section 245F.
  • Since Income-tax Authorities can rectify mistakes apparent from the record under Section 154, the Settlement Commission could also exercise similar powers.
  • The waiver of mandatory interest under Sections 234A, 234B and 234C was contrary to law in view of the Supreme Court’s judgment in Anjum M.H. Ghaswala.
  • The earlier settlement orders suffered from a mistake apparent from the record and therefore required rectification.
  • The rectification orders merely corrected an obvious legal error and did not amount to an impermissible review.

 

Court Findings / Order

The Delhi High Court allowed the writ petitions and quashed the rectification orders passed by the Settlement Commission.

The Court held:

1. Settlement Orders Under Section 245D(4) Are Final and Conclusive

The Court observed that Section 245-I specifically provides that every order of settlement passed under Section 245D(4) shall be conclusive as to matters stated therein and no matter covered by such order can be reopened in any proceeding under the Act or under any other law.

2. Chapter XIX-A Is a Complete Code

The Court held that the settlement provisions constitute a separate and self-contained code. The Settlement Commission can exercise only those powers expressly conferred by Chapter XIX-A.

3. Settlement Commission Becomes Functus Officio

After passing an order under Section 245D(4), the Settlement Commission becomes functus officio. It cannot thereafter reopen, review, revise or rectify the settlement except in situations specifically provided in the Chapter.

4. Section 154 Cannot Be Invoked

The Court rejected the Revenue’s argument that Section 154 could be used by the Settlement Commission after passing a final settlement order.

It held that once the order becomes final under Section 245-I, the Commission ceases to have authority to reopen the matter through rectification proceedings.

5. Subsequent Change in Legal Position Does Not Reopen Final Settlements

The Court emphasized that even if a later judgment declares the legal position differently, final settlements already accepted and concluded cannot be disturbed through rectification proceedings.

6. Only Statutory Exceptions Apply

The Court noted that Chapter XIX-A itself contains limited provisions permitting interference with settlement orders, such as cases involving fraud or misrepresentation. Outside those specific situations, reopening is prohibited.

Final Direction

The Delhi High Court quashed and set aside the orders passed by the Settlement Commission under Section 154 seeking to levy interest after the settlement had attained finality.

 

Important Clarification

The judgment clarifies that:

  • A Settlement Commission order under Section 245D(4) attains statutory finality under Section 245-I.
  • The Settlement Commission has no inherent power of review.
  • Section 154 cannot be used to reopen or modify a concluded settlement order.
  • The Commission becomes functus officio after passing a final settlement order.
  • A subsequent Supreme Court judgment cannot be invoked to disturb completed settlements accepted by parties.
  • Settlement orders can be interfered with only in the manner specifically permitted under Chapter XIX-A, such as fraud or misrepresentation.

 

Sections Involved

Income-tax Act, 1961

  • Section 154 – Rectification of mistakes apparent from the record
  • Section 234A – Interest for default in furnishing return
  • Section 234B – Interest for default in payment of advance tax
  • Section 234C – Interest for deferment of advance tax
  • Section 245A – Definitions relating to settlement proceedings
  • Section 245C – Application for settlement
  • Section 245D – Procedure on receipt of settlement application
  • Section 245D(4) – Final order of settlement
  • Section 245D(6) – Terms of settlement
  • Section 245E – Reopening of completed proceedings
  • Section 245F – Powers and procedure of Settlement Commission
  • Section 245H – Grant of immunity
  • Section 245-I – Finality and conclusiveness of settlement orders

Link to Download the Order:

https://delhihighcourt.nic.in/app/case_number_pdf/2004:DHC:21002/BDA13042004CW33592003_113621.pdf

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