Case Note & Summary
The Union of India and the Commissioner of Income Tax filed a writ petition challenging two orders dated 05/06/1998 and 04/08/1999 passed by the Income Tax Settlement Commission (Respondent No.2) which reduced the interest levied under Section 220(2) of the Income Tax Act, 1961 for the assessment year 1989-90. The respondent-assessee, M/s. Dodsal Ltd., had filed its return on 11/10/1990 declaring total income of Rs.1,14,75,526/-. The Assessing Officer passed an assessment order under Section 143(3) on 31/03/1992 assessing total income at Rs.10,31,23,618/-. On the assessee's application, the assessment was rectified under Section 154 on 27/07/1992, reducing the total income to Rs.5,50,53,255/- after allowing set-off of unabsorbed investment allowance. On 06/08/1992, the assessee applied to the Settlement Commission for A.Y. 1989-90 and 1990-91. The Settlement Commission by order dated 31/01/1996 determined the taxable income at Rs.4,97,26,970/-. The Assessing Officer gave effect to this order on 16/02/1996 and calculated interest under Section 220(2) at Rs.1,71,93,439/-, later rectified to Rs.1,71,93,439/- on 30/12/1996. The assessee then filed an application before the Settlement Commission seeking reduction of interest under Section 220(2). The Settlement Commission by order dated 05/06/1998 reduced the interest to Rs.1,20,00,000/-, and by subsequent order dated 04/08/1999 further reduced it to Rs.1,00,00,000/-. The petitioners challenged these orders on the ground that the Settlement Commission had no power to reduce interest under Section 220(2) as it was not part of the settlement proceedings. The Court analyzed the provisions of Chapter XIX-A of the Act, particularly Sections 245D(4) and 245H(1), and held that the Settlement Commission has wide powers to settle a case, including the power to reduce interest under Section 220(2). The Court noted that the settlement order under Section 245D(4) can provide for the terms of settlement including the amount of interest payable, and Section 245H(1) empowers the Commission to grant immunity from penalty and interest. The Court also observed that the petitioners had not challenged the settlement order itself and that the reduction of interest was within the Commission's discretion. The Court dismissed the petition, upholding the orders of the Settlement Commission.
Headnote
A) Income Tax - Settlement Commission - Power to Reduce Interest - Section 220(2), Section 245D(4), Section 245H(1) of the Income Tax Act, 1961 - The issue was whether the Settlement Commission can reduce interest under Section 220(2) while settling a case. The Court held that the Settlement Commission has the power to reduce interest under Section 220(2) as part of its settlement powers under Section 245D(4) read with Section 245H(1), and such reduction does not require prior payment of interest. (Paras 1-10)
Issue of Consideration
Whether the Income Tax Settlement Commission has the power to reduce or waive interest levied under Section 220(2) of the Income Tax Act, 1961, in a settlement proceeding under Chapter XIX-A.
Final Decision
The Bombay High Court dismissed the writ petition, upholding the orders of the Income Tax Settlement Commission dated 05/06/1998 and 04/08/1999 reducing the interest under Section 220(2) of the Income Tax Act, 1961.
Law Points
- Settlement Commission has power to reduce interest under Section 220(2) of the Income Tax Act
- 1961
- in a settlement proceeding under Chapter XIX-A
- Section 245D(4) and Section 245H(1) of the Income Tax Act
- Section 220(2) of the Income Tax Act
