Orchid Infrastructure Developers Pvt. Ltd. v. Union of India; Ajay Kumar Gupta & Ors. v. Union of India

(c) where, as a result of an order under sub-section (6B) of section 245D, the amount on which interest was payable under clause (b) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly; (3) where, as a result of an order of reassessment or recomputation under section 147 or section 153A, the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under subsection (1) of section 143 or on the basis of the regular assessment as referred to in sub-section (1), as the case may be; (4) where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and—

(i) in a case where the interest is increased, the Assessing

Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly;

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded; (5) the provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.” As noticed above, sub-section (2A) to Section 234 B of the Act was inserted by the Finance Act, 2015 with effect from 1st June, 2015. We have to examine whether the inserted sub-section (2A) would be applicable to pending applications before the Settlement Commission as on the date of insertion i.e. 1st June, 2015, or sub-section (2A) would only apply to settlement applications filed after insertion of sub-section (2A) to Section 234B on 1st June, 2015. In other words, we have to examine whether the said Sub-Section would be applicable to pending cases.

9. We begin by elucidating on the object and the scheme of levy of interest under Section 234 B of the Act. Section 234 B, in clear terms, imposes a mandate to pay interest at the rates stipulated, on failure or shortfall in payment of advance tax. The expression „shall‟ used in the said section makes levy of interest mandatory and the levy of interest is not discretionary or optional.

10. Dispute had arisen whether the Settlement Commission could waive mandatory interest under Section 234 B or under similar provisions, namely Section 234A and Section 234C of the Act. Examining the three sections as well as the power of settlement as contemplated in Chapter XIX-A of the Act, a Constitution Bench of the Supreme Court in Commissioner of Income Tax Vs. Anjum M.H. Ghaswala & Ors. (2001) 252 ITR 1 held that Settlement Commission had not been expressly or impliedly conferred the power to waive or reduce the mandatory interest contemplated under Section 234 A, Section 234 B and Section 234 C of the Act. Reduction of interest under the said Section is outside the purview of the Settlement Commission. Reliance placed by the assessee on Sub-Section (6) to Section 245-B was rejected by the Supreme Court observing that the said provision was only procedural in nature since it provides fixing of the terms by which the amount settled in terms of Sub-Section (4) to Section 245D will have to be paid. The said Sub-Section did not empower the Settlement Commission to either waive or reduce the interest either under Sub-Sections 234 A, 234 B or 234 C of the Act. The mandate of Sub-section (4) to Section 245 D requires the final settlement order should be in conformity with the Act and not contrary to/or in conflict with the provisions of the Act. Object of settlement was not to give amnesty to a tax-evader and hence, it would be preposterous to hold that the Settlement Commission has power to either waive or reduce the tax or the mandatory interest due and payable in accordance with the provisions of the Act. However, the Settlement Commission can take notice of the Circular issued under Section 119 (2) of the Act to relax the rigors of Sections 234A, 234B and 234C while passing the order of Settlement. But, while doing so, the Settlement Commission cannot act and exercise power conferred on the Board under Section 119 (2) of the Act.

11. As noticed above, the petitioners have placed reliance on the decision of the Supreme Court in Brij Lal and Ors. (supra). At the outset we must record that the Supreme Court in the said case has examined and answered the following question: “2. For the sake of convenience, after hearing the learned counsel on both sides, we reframe the above questions:

(I) Whether Section 234B applies to proceedings of the

(II) If answer to the above question is in the affirmative, what is the terminal point for levy of such interest — whether such interest should be computed up to the date of the order under Section 245- D(1) or up to the date of the order of the Commission under Section 245-D(4)?

(III) Whether the Settlement Commission could reopen its concluded proceedings by invoking Section 154 of the said Act so as to levy interest under Section 234B, though it was not so done in the original proceedings?” Question no.II which is of relevance and importance for our decision refers to the terminal point for levy of such interest under section 234B of the Act. The issue raised before the Supreme Court was whether interest should be computed upto the date of order under Section 245 D (1) or upto the date of the order under Section 245D (4) of the Act? The Supreme Court was not examining and answering the question i.e. the quantum of total income on which interest under Section 234B would be payable. The reason was that the issue with regard to quantum or amount of tax on which the interest would be payable was not the subject matter before the Supreme Court. Anjum M.H. Ghaswala(supra) decided by the Supreme Court was also a decision of the Constitution Bench of five judges and was earlier in point of time had held that levy of interest under the three sections was mandatory. It is in this context we have reproduced paragraph 2 of the judgment passed in Brij Lal and Ors. (supra), in which the Supreme Court had specifically and carefully recorded the questions posed and answered them. We have quoted Section 234 B and Sub-Section 4 to the said Section as originally enacted, which states that increase or reduction of interest subsequent to an order of Settlement Commission under Section 235 D (4) would be made, depending upon the increase or reduction of amount of tax payable.

12. The legal issue and question posed in paragraph 2 and answer being confined to the legal issue was subsequently again noticed by the Supreme Court in paragraph 16 in their judgment in Brij Lal and Ors. (supra), which reads as under: “16. On the other hand, interest for defaults in payment of advance tax falls under Section 234B, apart from Sections 234-A and 234-C, in Part F of Chapter XVII. Thus, levy of interest is incidental to the liability and computation of advance tax. It is interesting to note that Section 234-A(4) in turn refers to the increase or reduction of interest subsequent to the order of the Commission under Section 245-D(4) increasing or reducing the amount of tax payable and so also Section 234B(4).” Thereafter referring to question no.II and the answer given, the Supreme Court observed that an application under Section 245 C (1) for settlement is not maintainable without full and true disclosure of income and the manner in which such undisclosed income is derived. The applicant has to pay additional tax and interest due thereon while making an application, as per Section 245 C (1B) of the Act. The words „regular assessment‟ were not to be found in Section 245-C (1B). Further under Section 245 D (2A), the applicant is required to pay additional amount of income-tax payable on the income disclosed in the application within 35 days of receipt of the copy of the order passed by the Settlement Commission under Section 245 D(1), allowing the application to be proceeded with. The aforesaid observations made in paragraph 20 of the judgment were with reference to the provisions of law then applicable as the Supreme Court was not examining the insertion by Finance Act, 2010, that are applicable in the present cases. The Supreme Court on analysis of Sub-Sections 1 and 4 to Section 245 D has held that there were two distinct stages, one allowing the application to be proceeded with or rejected, and the other of disposal of the application by appropriate orders being passed by the Settlement Commission. Order under Section 245D (4) is final and conclusive as to the matter contained therein and cannot be reopened except in the case of fraud or misrepresentation. Referring to Sections 245 C (1B) and (1C) which stipulate that additional amount of Income-tax payable on undisclosed income shall be on the total income as calculated under Section 245 C (IB), it was held that interest flows on such computation. Sub-section (2) to Section 234 B deals with a situation where before determination of total income under Sections 143 (1), 143(3) etc., interest has to be calculated in accordance with Section 234 B (1) on the date when the tax is paid. In this sense application under Section 245C(1) is a return. It was further held: “34. There is one more way of looking at the Act. Chapter XIX-A refers to the procedure of settlement [see Section 245-D(1)]. As stated above, Section 245-D(1) provides for expeditious recovery of tax by way of pre-assessment collection. Interest on default in payment of advance tax comes under Sections 234-A, 234-B, 234-C, which fall in Chapter XVII which deals with collection and recovery of tax. It is important to note that interest follows computation of additional payment of income tax under Sections 245-C(1-B) and (1-C). This is how Sections 234-A, 234-B and 234-C get engrafted into Chapter XIX-A at the stage of Section 245-D(1).

36. The question is — what happens in cases where 90% of the assessed tax is paid but on the basis of the Commission's order under Section 245-D(4) the advance tax paid turns out to be less than 90% of the assessed tax as defined in the Explanation to Section 234-B(1)?

37. As held hereinabove, under Section 245-C(1) read with Section 245-C(1-B)(ii) and Section 245-C(1-C)(b), the additional amount of income tax payable is to be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate is the total income. Thus, the scheme of the said sections is based on computation of total income and in that sense we have stated that such application for settlement is akin to a return of income. The said provision deals with “total income”. Thus, as stated above, Sections 234-A, B and C are applicable up to the stage of Section 245-D(1) order passed by the Settlement Commission. However, Parliament has not extended the provisions and the liability to pay interest beyond the date of application for settlement. This is the position even after the Finance Act of 2007.

39. Moreover, as stated above, under the Act, there is a difference between assessment in law [regular assessment or assessment under Section 143(1)] and assessment by settlement under Chapter XIX-A. The order under Section 245-D(4) is not an order of regular assessment. It is neither an order under Section 143(1) or Section 143(3) or Section 144. Under Sections 139 to 158, the process of assessment involves the filing of the return under Section 139 or under Section 142; inquiry by the AO under Sections 142 and 143 and making of the order of assessment by the AO under Section 143(3) or under Section 144 and issuing of notice of demand under Section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapter XIX-A. The said chapter contemplates the taxability determined with respect to undisclosed income only by the process of settlement/arbitration. Thus, the nature of the orders under Sections 143(1), 143(3) and 144 is different from the orders of the Settlement Commission under Section 245-D(4).

40. Even in CIT v. Anjum M.H. Ghaswala [(2002) 1 SCC 633: (2001) 252 ITR 1] there is no finding by this Court that the order of the Settlement Commission under Section 245-D(4) is an order of assessment under Section 143(3) or under Section 144. In Ghaswala case [(2002) 1 SCC 633: (2001) 252 ITR 1] the only question decided by this Court is that the interest under Section 234-B is mandatory in nature and that the Settlement Commission, therefore, had no authority to waive it.

41. Further, as stated above, the jurisdiction of the AO is not fettered merely because the applicant has filed the settlement application. The Act does not contemplate stay of the proceedings during that period i.e. when the Settlement Commission is deciding whether to proceed or reject the settlement application. The jurisdiction of the Settlement Commission to proceed commences only after an order is passed under Section 245-D(1). That, after making an application for settlement the applicant is not allowed to withdraw it [see Section 245-C(3)]. Once the case stands admitted, the Settlement Commission shall have exclusive jurisdiction to exercise the powers of the Income Tax Authority.”

13. In view of the aforesaid discussion we hold that in Brij Lal and Ors. (supra), the Supreme Court has laid down that the terminal point for levy of interest would be the order under Section 245 D(1) of the Act. However, the Supreme Court in this decision did not deal with the issue in question namely on the quantum of tax on which interest would be paid. The Supreme Court did not therefore hold that the quantum of tax would not determine the interest. This would necessarily follow from sub-section (6) to Section 245 D under which the computation sheet is made following the order under Section 245 D (4) of the Act. The computation-sheet under Sub-Section (6) to Section 245 D has to separately compute the tax payable which could in a given case include the enhanced amount as well as interest due on the said amount.

14. Counsel for the petitioner is correct in its proposition that imposition of interest, even if compensatory would be substantive enactment and not a mere procedural change, as was held by the Supreme Court in J.K. Synthetics Limited (supra), and as is clear from paragraph 16 of the judgment which reads as under:

15. Counsel for the petitioner is also correct in his submission that the amendment and insertion of sub-section (2A) to Section 234 B is not declaratory or clarificatory in nature as was asserted by counsel for the respondents. The reason is simple and clear that Section 234 B was interpreted by the Constitution Bench in Brij Lal and Ors. (supra), and the said declaration of law would be binding on the authorities. Legislation could not, by a clarification or declaration over-turned and over-ruled decision of the Supreme Court in Brij Lal and Ors. (supra), interpreting the applicable statutory provisions i.e. Section 234 B read with provisions of Chapter XIX-A of the Act. Legislature in this case did not amend the Statute with retrospective effect to change the law with retrospective effect [See National Agricultural Cooperative Vs. Union of India & Anr., (2003) 260 ITR 458 (SC)].

16. This brings us to the moot question; whether the amendment inserted by the legislature through Finance Act, 2015 enacting sub-section (2A) to Section 234B would be applicable to pending proceedings before the Settlement Commission. Law in this regard appears to be well settled. We would begin by referring to the decision of the Constitution Bench in Mohanlal Jain Vs. His Highness Maharaja Shri Sawai Mansinghji, AIR 1962 SC 73, which had examined the question whether Section 87B inserted by Section 12 of the Code of Civil Procedure (Amendment) Act, 1951, stating that provisions of Section 85 and Sub-sections (1) and (2) of Section 86 of the Code would apply to the rulers of former Indian States would apply prospectively or would even apply to pending suits. On principles discernible on the question of retrospectivity of law, reference was made to United Provinces Vs. Atiqa Begum’s case 1940 F.C.R. 1102 to observe that when vested rights are affected amended law should not be presumed to be retrospective and that the rights of the parties to an action would ordinarily be determined in accordance with law as it stood on the date of commencement of the action. The above rule is however subject to the second rule as pointed out by the Privy Council in K.C. Mukherjee Vs. Mst. Ram Ratan Kuer (1935) I.L.R. 15 (Patna) that the language of the enactment might be sufficient to rebut the first principle. When the language of the enactment includes pending actions the second principle would apply i.e. the amending enactment would apply to pending cases unless the enactment itself says that the pending actions are saved. In the context of section 87B of the Code the expression „sued‟ used in past tense in the enactment was to include and cover the entire proceedings in action i.e. even pending proceedings. We would like to reproduce the relevant portion of the said judgment:

17. The aforesaid dictum and principle was earlier elucidated in Shyabuddinsab Mohidinsab Akki Vs. The Gadag-betgeri Municipal Borough & Ors. AIR 1955 SC 314 wherein the question whether the amendments would be retrospective as to cover and affect the pending proceedings it was held should be answered with reference to the Statute enacted. Further, express words are not required in the amending Statute to the effect that the amendments shall apply to the pending proceedings also. On the other hand reference was made to the dictum of Lord Reading C.J. in the case of The King Vs. The General Commissioners of Income-tax for Southampton [2016] 2 K.B. 249: “I cannot accept the contention of the applicant that an enactment can only take away vested rights of action for which legal proceedings have been commenced if there are in the enactment express words to that effect. There is no authority for this proposition, and I do not see why in principle it should be the law. But it is necessary that clear language should be used to make the retrospective effect applicable to proceedings commenced before the passing of the statute.”

18. Referring to this decision, the Supreme Court has held that in every case the language and the manner of the Statute has to be examined to find out whether the legislature clearly intended the provision to apply to pending proceedings, which would be then be affected by the new provision. Reference was thereafter made to the decision of the K.C. Mukerjee Vs. Mst. Ramratan Kuer (supra), to observe as under: “In that case while an appeal had been pending before the Judicial Committee the amending Act had been passed clearly showing that the Act was retrospective in the sense that it applied to all cases of a particular description, without reference to pending litigation. In those circumstances their Lordships pointed out that if any saving were to be implied in favour of pending proceedings, then the provisions of the statute would largely be rendered nugatory. Those observations apply with full force to the present case, inasmuch as if any saving were to be implied in favour of cases pending on the date of the amendment, the words “all elections to the office of the president or Vice-President, held on or after the said date and before the coming into force of this Act, shall be deemed to be valid” could not be given their full effect. As there are no such saving clauses in express or implied terms, it must be held that the amendment was clearly intended by the legislature to apply to all cases of election of president or Vice- President, whether or not the matter had been taken to court. It is the duty of courts to give full effect to the intentions of the legislature as expressed in a statute. That being so, it must be held that the amending Act had the effect of curing any illegality or irregularity in the elections in question with reference to the provisions of Section 19 of the Act.”

19. Similarly, in Lakshminarayan Guin & Ors. Vs. Niranjan Modak AIR 1985 SC 111, while dealing with the question of applicability of rent control legislation, referring to the language of the Statute, Supreme Court had considered whether the protection under the rent control legislation would cover decrees for recovery of possession which have already been passed or only to new institution of suits. It was emphasized that when new law speaks in language which expressly or by clear intendment takes in even pending matters in its ambit, the court of trial as well as the court of appeal must have regard to the intention so expressed. In fact the Court of appeal may give effect to such law even after the judgment of the court of first instance. In Safali Roy Choudhary & Ors. Vs. Amarendra Kumar Dutta (1976) SC 1810, the Supreme Court has observed that the section in the rent legislation having been enacted must be given effect to, to cover and include proceedings which have been initiated before the date of enactment. It will apply to pending proceedings as well. We would also make reference to the decision of the Supreme Court in Union of India & Ors. Vs. ITC Ltd. 1993 Supl. (4) SCC 326, wherein with reference to provisions to Section 11 B regulating refund of Central Excise Duty, which had undergone a change by introduction of provisions against unjust enrichment after amendment by Central Excise and Customs Laws (Amendment) Act, 1991 with effect from 20th September, 1991, it was observed that the provisions as enacted would have to be applied and it could, in a given case, apply to pending proceedings when the statute so requires. Appropriate in this regard would be the dictum and principle which is to be found in an old decision of 1982 in Quilter Vs. Mapleson [L.R.] 9 Q.B.D. 672, wherein Jessel, M.R. had held as under: “Then does the enactment apply to pending proceedings? I think it does. The second sub-section only applies where the landlord has not re-entered. This is important to be observed. On an ejectment under the Common Law Procedure Act, 1852 (15 and 16 Vict. C. 76), s. 210, a tenant could obtain relief against forfeiture for non-payment of rent at any time within six months after execution. No such period is allowed by the Act of 1881, s. 14, sub-s. 2, and the tenant must proceed under that enactment before the landlord has re-entered. We must, therefore, in furtherance of the objects of the Act, hold the enactment to apply to pending proceedings, unless there is something in the words to prevent our doing so. Mr. Greene argued that this sub-section cannot apply to pending proceedings, because it refers to the conduct of the parties under the foregoing provisions which can only relate to matters after the Act comes into operation; but I think we must treat those words as referring to the conduct of the parties under the preceding provisions, when and so far as the previous provisions are applicable. I think, therefore, that the sub section is applicable to pending proceedings, and that we have jurisdiction under it, unless the fact of this being an appeal prevents our having it.”

20. We would now turn to the sub-section (2A) to Section 234B and examine whether same states that it would be applicable to pending proceedings. Clause (a) of the said Sub-Section states that where an application under Sub-Section 245C for any assessment year has been made, the assessee shall be liable to pay simple interest at the rate specified for every month or part of the month comprised in the period commencing on 1st day of April of the assessment year and ending with the date of making such application. This refers to the application that has been made. It would apply to all applications that have been made. Clause (b) states that whereas as a result of order of the Settlement Commission in Sub-Section (4) to Section 245 D the amount of total income disclosed in the application under Sub-Section (1) to Section 245C is increased, the assessee would be liable to pay simple interest for every month or part of the month comprised in the period commencing from 1st day of April of such assessment year and ending with the date of the order on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under Sub-section (1) to Section 245C of the Act. The provision clearly uses the present tense i.e. where application under Sub-Section (1) to Section 245C of the assessment year has been made. Clause (a) is therefore clearly intended to cases where application was pending and orders had not been passed when sub-section (2A) to Section 234B was enacted. Clause (b) refers to the date of order i.e. as a result of Sub-Section (4) to Section 245D of the Act, which should be after insertion of sub-section (2A) to Section 234B of the Act.

21. As a sequitur and consequence it would follow that the amendment was intended to apply to all pending proceedings in which orders under Section 245 D(4) are passed after sub-section (2A) was introduced and made part of the Statute. The intendment of the legislature is therefore, clear and it would apply to pending proceedings. Therefore the second principle as per the above dictum is applicable. Accordingly, we hold that sub-section (2A) to Section 234B would be applicable to all proceedings in which orders are pending and /or in which orders under Section 245 D (4) are passed on or after 1st June, 2015.

22. In view of the aforesaid findings, we do not find any merit in the aforesaid writ petitions and the same are dismissed. However, in the facts of the case, there would be no order as to costs.

(SANJIV KHANNA) JUDGE (ANUP JAIRAM BHAMBHANI)

JUDGE JANUARY 17th, 2019 ssn/NA