The Chief Justice of the Supreme Court is now an ardent advocate of the need for the alternative dispute resolution mechanism. Mounting tax arrears coupled with litigation at all levels have forced a rethinkon the part of the Government with regard to the necessity of avoiding multiple litigations in tax disputes. One result of this concern was the recent Circular laying down monetary limits for filing appeals.
The Government is also acutely conscious of the need to reduce or collect huge tax arrears. As per the information provided by the Minster of State for Finance in Parliament, of the total arrears, the amount locked up in disputes between the Department and tax payers as of January, 2011 is Rs 1,60,499 crore. The other important measure announced in the Budget relates to the setting up of three more additional Benches of the Settlement Commission. This will ensure fast track disposal of cases.
The role of the Settlement Commission is laudable. When a case is taken up for settlement, one can expect speedy disposal. Its orders are not appealable. The Government will be able to collect the revenue in quick time. The settlement application should disclose incomes not disclosed before the Departmental officers. This means that every case in which final orders are passed by the Commission would result in additional Revenue.
The Finance Act, 2011 has made some relaxations. The condition hitherto was that in search and seizure cases, the settlement application should disclose additional income resulting in extra taxes of Rs 50 lakh. In all other cases, the application should disclose extra revenue of Rs 10 lakh. It brings related parties to a search on par with normal taxpayers trying to settle disputes. They can file a consequential settlement application after the main party search has preferred an application. The amendment also sets out the various categories of related persons.
The application before the Settlement Commission should contain a full and true disclosure of income and also the manner in which such income has been derived and the additional amount of income tax payable. These a requirement under Section 245C(1) of the Income-Tax Act, 1961.
Full and true disclosure
The Settlement Commission is bound to pass the speaking order to the effect that there has been a full and true disclosure. If such an order is not passed, the Department can challenge the order by way of writ petition. The Supreme Court ruled recently in Ajmera Housing Corporation vs. CIT 326 ITR 642 that unless the Settlement Commission records its satisfaction about full and true disclosure and the manner of deriving the income, it will not have the jurisdiction to pass any order on the application. The law does not contemplate revision of income once disclosed before the Commission. The law also does not permit withdrawal of application. This only shows that great care will have to be taken in drafting the application.
Levy of Interest
Is the Settlement Commission entitled to waive interest charged under Section 234A, 234B and 234C? Despite the Ruling in Anjuman H.Gaswala's case, followed in 259 ITR 449 and 264 ITR 564, the Supreme Court has chosen to refer the matter to the Constitution Bench. In 328 ITR 477, the apex court, while ruling that interest under Section 234B will be chargeable by the Commission up to the date it allows the settlement application to be proceeded with, also held that the Commission did not have the power to rectify its own orders. Every Order passed by the Commission is conclusive and final. The Finance Act, 2011 amends the law in this regard and enables the Settlement Commission to rectify any mistakes apparent from its orders within 6 months from the date of order.
The Settlement Commission is an attractive institution both for the Revenue and for the taxpayer. It has earned a name for fairness in disposal. The creation of more Benches will enhance the facility of quick disposal of disputes all over India. However, it is necessary that the additional Benches should not be concentrated at the four big metropolitan cities alone. Location of Benches at different cities will make the facility accessible to larger number of litigants. Rarely an order by the Settlement Commission is taken to the High Court by way of writ petition.
(The author is a former Chief Commissioner of Income-Tax.)