Case Note & Summary
The petitioner, M/s. Karia Erectors Private Limited, challenged the legality and validity of orders passed by the Income Tax Settlement Commission (respondent no.2) and the Assistant Commissioner of Income Tax (respondent no.3) under the Income Tax Act, 1961. The dispute arose from a search and seizure operation conducted on 23rd November 1995 under Section 132 of the Act, followed by a notice under Section 158BC. The petitioner filed a return for the block period from 1st April 1985 to 11th November 1995, declaring undisclosed income of Rs.71,70,000/-. The Assessing Officer passed a block assessment order on 27th November 1996 determining total income at Rs.6,24,54,530/-. The petitioner then applied to the Settlement Commission under Section 245C, which was admitted on 9th April 1997. The Settlement Commission passed a final order on 31st December 2007 under Section 245D(4), determining total income at Rs.1,67,82,072/- after adding Rs.96,12,072/-. However, the Commission also directed levy of interest under Section 220(2) and surcharge under Section 113 of the Act. The petitioner contended that the Settlement Commission had no jurisdiction to levy such interest and surcharge, as the settlement order itself created a new liability and the assessee could not be in default until the amount was determined. The respondents argued that the Commission had powers under Section 245F to impose such charges. The court analyzed the provisions and held that interest under Section 220(2) can only be levied if the assessee is in default after a demand is made, and since the settlement order itself determined the amount, there was no default prior to that. Regarding surcharge under Section 113, the court noted that it was introduced by the Finance Act, 2002 and applies only to block assessments made after that date, not to the assessment years in question. The court also held that the Settlement Commission's powers under Section 245F are limited to the terms of settlement and cannot be used to impose additional liabilities not agreed upon. Consequently, the court allowed the petition and quashed the impugned orders to the extent they levied interest under Section 220(2) and surcharge under Section 113.
Headnote
A) Income Tax - Settlement Commission - Interest under Section 220(2) - The Settlement Commission, while passing an order under Section 245D(4) of the Income Tax Act, 1961, cannot levy interest under Section 220(2) for the period prior to the date of the settlement order, as the settlement order itself creates a new liability and the assessee cannot be in default until the amount is determined and demanded. (Paras 1-13)
B) Income Tax - Block Assessment - Surcharge under Section 113 - Surcharge under Section 113 of the Income Tax Act, 1961 is not applicable to block assessment years prior to the date of search, as the provision was introduced by the Finance Act, 2002 and applies only to block assessments made after that date. (Paras 14-18)
C) Income Tax - Settlement Commission - Scope of Powers - The Settlement Commission's powers under Section 245F of the Income Tax Act, 1961 are limited to the terms of settlement and cannot be used to impose interest or surcharge that are not part of the settlement. (Paras 19-22)
Issue of Consideration
Whether the Income Tax Settlement Commission can levy interest under Section 220(2) and surcharge under Section 113 of the Income Tax Act, 1961 in a settlement order under Section 245D(4) for block assessment years prior to the date of search.
Final Decision
The court allowed the writ petition and quashed the impugned orders dated 31st December 2007, 10th December 2008, and 18th June 2008 to the extent they levied interest under Section 220(2) and surcharge under Section 113 of the Income Tax Act, 1961.
Law Points
- Settlement Commission's power under Section 245D(4) is limited to the terms of settlement
- cannot levy interest under Section 220(2) for pre-settlement period
- surcharge under Section 113 not applicable to block assessment years prior to search date
- Section 245F does not confer power to impose interest or surcharge beyond settlement terms
Case Details
2022 LawText (BOM) (02) 27
Writ Petition No.2121 of 2010
K.R. Shriram, N.J. Jamadar
Mr. Dharan V. Gandhi for petitioner, Mr. Suresh Kumar for respondents
M/s. Karia Erectors Private Limited
Union of India, Income Tax Settlement Commission, Assistant Commissioner of Income Tax
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Nature of Litigation
Writ petition challenging the legality and validity of orders passed by the Income Tax Settlement Commission and the Assistant Commissioner of Income Tax levying interest under Section 220(2) and surcharge under Section 113 of the Income Tax Act, 1961.
Remedy Sought
Petitioner sought quashing of the impugned orders to the extent they levied interest under Section 220(2) and surcharge under Section 113.
Filing Reason
The Settlement Commission, while passing a final order under Section 245D(4), directed levy of interest under Section 220(2) and surcharge under Section 113, which the petitioner contended was beyond the Commission's jurisdiction.
Previous Decisions
The Settlement Commission passed an order on 31st December 2007 under Section 245D(4) determining total income at Rs.1,67,82,072/- and directed levy of interest and surcharge. The Assistant Commissioner passed an order on 18th June 2008 giving effect to the Commission's order.
Issues
Whether the Settlement Commission can levy interest under Section 220(2) of the Income Tax Act, 1961 in a settlement order under Section 245D(4) for block assessment years prior to the date of search.
Whether the Settlement Commission can levy surcharge under Section 113 of the Income Tax Act, 1961 for block assessment years prior to the date of search.
Submissions/Arguments
Petitioner argued that the Settlement Commission had no jurisdiction to levy interest under Section 220(2) as the settlement order itself created a new liability and the assessee could not be in default until the amount was determined and demanded. Further, surcharge under Section 113 was not applicable to block assessment years prior to the date of search.
Respondents argued that the Settlement Commission had powers under Section 245F to impose interest and surcharge as part of the settlement.
Ratio Decidendi
The Settlement Commission, while passing an order under Section 245D(4) of the Income Tax Act, 1961, cannot levy interest under Section 220(2) for the period prior to the settlement order as the assessee is not in default until a demand is made. Surcharge under Section 113 is not applicable to block assessment years prior to the date of search as it was introduced by the Finance Act, 2002 and applies only to block assessments made after that date.
Judgment Excerpts
Petitioner is challenging the legality and validity of the impugned orders dated 31st December 2007 passed by respondent no.2 under Section 245D(4) of the Income Tax Act, 1961 to the extent applicable to Block Assessment Years 1985-1986 to 1996-1997 applying interest under Section 220(2) of the Act, the order dated 10th December 2008 confirming interest under Section 220(2) of the Act and applying surcharge under Section 113 of the Act and orders passed on 18th June 2008 by respondent no.3 while giving effect to the order dated 31st December 2007 passed by respondent no.2.
Procedural History
Search and seizure on 23rd November 1995 under Section 132; notice under Section 158BC; petitioner filed return on 11th November 1996 declaring undisclosed income of Rs.71,70,000/-; Assessing Officer passed block assessment order on 27th November 1996 determining total income at Rs.6,24,54,530/-; petitioner applied to Settlement Commission under Section 245C; application admitted on 9th April 1997 under Section 245D(1); Settlement Commission passed final order on 31st December 2007 under Section 245D(4) determining total income at Rs.1,67,82,072/- and directed levy of interest under Section 220(2) and surcharge under Section 113; Assistant Commissioner passed order on 18th June 2008 giving effect; petitioner filed writ petition challenging these orders.
Acts & Sections
- Income Tax Act, 1961: Section 132, Section 158BC, Section 245C, Section 245D(1), Section 245D(4), Section 220(2), Section 113, Section 245F
