ORDER
UNDER S. 245(1)--Application under s. 245C--Summary rejection without going into merits--Unsustainabile.
HELD :
Even if AOP might have put forward a claim which was fictitious, the same could not have any adverse impact on the claims for settlement put forward by six firms which were given due registration by the department and whose status was never challenged by the department. May be, their claims for settlement on adjudication may not be found to be valid, wholly or partially. That is a matter of merits. But the Commission could not have made a short work of these applications by rejecting them summarily under s. 245D(1) only on the ground that AOP had put forward a fictitious claim as it itself was an after-thought. Consequently, summary rejection of the applications for settlement by six firms suffers from a patent error of law and jurisdiction and on a total misconception of correct legal and factual position.
APPLICATION :
Also to current assessment years.
Income Tax Act 1961 s.245
Writ--MAINTAINABILITY--Order of Settlement Commission under s. 245D(1)--Summary rejection of applications under s. 245C thereby--Petition challenging order--Maintainable.
HELD :
What is made conclusive is the order of settlement passed under sub-s. (4) of s. 245. The present order passed by the Commission is not under s. 245D(4) but it is under s. 245D(1) as stated by the Commission in the impugned order. The order under sub-s. (4) of s. 245D would be an order on merits after the Commission admits the settlement application under s. 245D(1) and proceeds further and follows various steps contemplated by sub-ss. (2) and (3) of s. 245D and then reaches the final stage of passing appropriate orders on merits on the settlement claims as per s. 245D(1). It is such an order under s. 245D(4) which is made conclusive by s. 245-I. Therefore, on the express language of this section, no conclusiveness attaches to the order passed by the Commission under s. 245D(1) either admitting the application for being proceeded further or rejecting the same summarily. But even that apart, the conclusiveness attached to such order under s. 245-I would be for the purpose of the IT Act and such conclusiveness cannot bar the constitutional remedy available to a party under art. 227, otherwise, it would amount to amending the constitutional provisions by statutory provisions enacted by the Parliament.
APPLICATION :
Also to current assessment years.
Constitution of India art 226
Constitution of India art 227
Income Tax Act 1961 s.245D
S.B. Majmudar, J.
1. In this group of seven matters, a common order passed by the Settlement Commissioner in exercise of its powers under section 245D(1) of the Income-tax Act, 1961, has been brought in applications moved by the concerned petitioners to this group of petitions for settlement of their cases for which they had filed applications under section 245C of the said Act.
2. A few relevant facts leading to these petitions deserve to be noted at the outset. At the relevant time, there were in existence in this city eleven partnership firms engaged in the business of construction activities and manufacturing gray boxes and gray boards and bricks and plastic items and of transport and supervision and as engineers. The said firms had as their partners one or some of the following persons or their near relatives :
Percentage of profit1. Kanubhai P. Patel 292. Manibhai P. Patel 293. Satishchandra R. Desai 274. Shantilal N. Patel 115. Jaykant A. Patel 4
3. The constitution of the said firms was arrived at in such a manner that the family of each of the aforesaid five persons would be a sharer in the profits of the said firms substantially as set out above. The names of the said partnership firm were as follows :
1. Pioneer Builders.
2. Rolan Construction Company.
3. Parul Corporation.
4. Paras packaging Industries.
5. Swadeshi Industries.
6. Pioneer Brick Works.
7. Patel Desai and Company.
8. Premier Paper Industries.
9. Pioneer Transport Company.
10. Premier Plastic Industries.
11. Pioneer Industries.
4. It is the case of the petitioners that the business of the said eleven firms was supervised and controlled by the aforesaid five persons. In substance, 30 per cent. share belonged to the Desai group and 70 per cent. share belonged to the Patel group.
5. Search and seizure proceedings under section 132 of the said Act were initiated by the Income-tax Department on March 13, 1987, and March 14, 1987, and the business premises of the various firms as well as the residential premises of the partners including the five main parties mentioned above were searched and a larger number of documents, papers, account books along with cash, jewellery, etc., were seized.
6. The aforesaid five persons who were the heads of the respective families made an application on March 28, 1987, to the Director of Inspection (Investigation), Gujarat, making a disclosure under the amnesty scheme of unaccounted income of Rs. 33,29,354 in their status as association of persons consisting of aforesaid five persons. The aforesaid five persons made the said disclosure for the assessment years 1982-83 to 1986-87, the assessment year 1986-87 being the last year covered by the voluntary disclosure scheme.
7. It is the case of the petitioners that, within two days of the petition by the association of persons to the Director, the cash and deposits which were seized after search from the premises of the partners of the firms were released. As per the letter of the Commissioner of income-tax, on March 31, 1987, the cash and deposits were actually released by the Department and adjustment against the tax of the association of persons as per the returns filed by the association of persons was made. However, it appears that on March 17, 1988, the Commissioner, by his letter, rejected the application moved by the association of persons for benefit under the amnesty scheme. Thereafter, on March 25, 1988, protective assessments were made by the Income-tax Officer on the association of persons for the assessment years 1984-85 and 1985-86. Similar protective assessment was made on the association of persons for the assessment year 1986-87 on December 22, 1988. Thereafter, between January 16, 1990, and March 9, 1990, six applications for settlement were moved by six firms out of the aforesaid eleven firms before the Settlement Commission under section 245C of the Act. These applicants are six petitioners in this group of seven petitions. On November 7, 1990, a notice was issued by the Income-tax Officer to the association of persons for reassessment under section 148 for the assessment years 1982-83 and 1983-84. Thereafter, the association of persons consisting of five persons also moved the Settlement Commission by an application under section 245C on December 31, 1990, and the last application for settlement was moved before the Commission by Kanubhai P. Patel, individual, on February 15, 1990. Thus, before the Settlement Commission, there were on the anvil, in all, eight applications moved under section 245C, six by the firms, the seventh by the association of persons and the eighth by Kanubhai P. Patel in his individual capacity. So far as the remaining five firms were concerned, they did not file such applications because the additional amount of income-tax payable of the income disclosable by them in such applications presumably might not have exceeded Rs. 50,000 for each of these firms and hence they were not before the Commission. So far as the aforesaid eight applications were concerned, the Settlement Commission which in common respondent No. 1 in this group of petitions, after having received objections from the Commissioner, set down the applications for hearing for deciding whether these applications were required to be admitted or not and that exercise was undertaken by the Commission under section 245D(1) of the Act. The Settlement Commission heard the parties on November 14, 1991, and, by the impugned order dated December 3, 1991, which is at under section 245D as, in the view of the Commission, they were not it to be allowed to be proceeded with. In fact, by the aforesaid common order, all the eight applications including that of the association of persons were rejected by the Commission and, therefore, originally eight petitions were moved in this court and they were admitted for final hearing. But, in the course of final hearing before us, the first petition, being Special Civil Application No. 2464 of 1992, moved by the association of persons against the order of the Commission has been withdrawn and hence we need not say anything about the order of the Commission rejecting the application of the association of persons for settlement.
8. So far as the present seven petitions are concerned, it cannot be gainsaid that they were by assessees who had moved applications under section 245C of the Act before the Commission and their applications had made disclosure of income to enable them to get their cases settled by the Commission. The reasoning adopted by the Commission for rejecting their applications is found at para 7 of the common order. As noted earlier, these petitions were admitted for final hearing and interim stay was granted in terms of para 9(B) which has continued all throughout. Because of the interim relief, the assessment proceedings including penalty proceedings against the concerned petitioners have remained stayed before the competent authority during the pendency of these proceedings.
9. Before we advert to the main challenge on the merits mounted in these petitions against the order of the Commission, it may be necessary to note the preliminary objection raised against the maintainability of these petitions by the learned advocate for the respondent-authorities. Mr. Shelat for the respondents submitted that these petitions are moved against the common order of the Commission which is held to be a Tribunal by the Supreme Court in CIT v. B. N. Bhattachargee : [1979]118ITR461(SC) and that the decision of the Tribunal cannot be challenged by way of a writ petition under article 227 of the Constitution before the high Court for two reasons. Firstly, such proceedings would be barred by section 245-I of the Act and, secondly, they would be barred on account of the fact that the order of the Commission can be made the subject-matter of an appeal by special leave under article 136 of the Constitution and, according to the learned advocate of the respondents, that would be the only remedy available to the petitioners if at all they are aggrieved by the order of the Settlement commission and they cannot move a writ petition under article 227 of the Constitution before this court. Mr. Kaji for the petitioners has vehemently opposed this preliminary objection.
10. In our view, there is no substance in this preliminary objection based on the aforesaid two grounds. So far as the first ground of the preliminary objection is concerned, it has to be stated only to be rejected. Section 245-I reads as under :
'Every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provide in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force.'
11. A mere look at the said provision shows that what is made conclusive is the order of settlement passed under sub-section (4) of section 245D. The present order passed by the Commission is not under section 245D(4) but it is under section 245D(1) as stated by the Commission in the impugned order. The order under sub-section (4) of section 245D would be an order on the merits after the Commission admits the settlement application under section 245D(1) and proceeds further and follows the various steps contemplated by sub-sections (2) and (3) of section 245D and then reaches the final stage of passing appropriate orders on the merits on the settlement claims as per section 245D(4). It is such an order under section 245D(4) which is made conclusive by section 245-I. Therefore, on the express language of this section, no conclusiveness attaches to the order passed by the Commission under section 245D(1) either admitting the application for being processed further or rejecting the same summarily. But even that apart, the conclusiveness attached to such order under section 245-I would be for the purpose of the Income-tax Act and such conclusiveness cannot bar the constitutional remedy available to a party under article 227 of the Constitution, otherwise, it would amount to amending the constitutional provisions by statutory provisions enacted by parliament. Consequently, the first ground of the preliminary objection is found to be devoid of any substance and is rejected.
12. So far as the second ground of the preliminary objection is concerned, it is equally on weak footing. It is true as held by the Supreme Court in Bhattachargee's case : [1979]118ITR461(SC) that the Settlement Commission acts as a Tribunal while it settles the case moved before it under section 245C by the concerned assessee. It is also true that the Supreme Court has held that, against the orders of such Settlement Commission, a petition for special leave to appeal under article 136 would lie. But the Supreme Court, in the aforesaid decision, has nowhere held that the parties aggrieved by such order cannot approach the High Court under article 227 and that an appeal under article 136 by way of special leave is the only remedy in such cases. Mr. Shelat also invited our attention to the decision in the case of CIT v. Surender K. Shah [1990] 181 ITR 20 for showing that, against the Settlement Commission's order, a special leave petition can be moved before the Supreme Court. There cannot be any dispute on this aspect. However, the moot question is whether the remedy under article 227 is not available to a party to challenge the order of the Settlement Commission and its only remedy is to go under article 136. Such type of decision is not rendered by the Supreme Court in any of the aforesaid cases on which strong reliance was placed by Mr. Shelat in support of the second ground of preliminary objection. He also invited our attention to the decision of the Delhi High Court in the case of Deen Dayal Didwania v. Union of India : [1986]160ITR12(Delhi) , wherein the Delhi High Court took the view that the High Court cannot direct the Settlement Commission to decide pending settlement applications expeditiously as it is for the Settlement Commission to proceed in accordance with law under the Act. Even this judgment cannot be of any assistance to Mr. Shelat as it is not an authority for the proposition about the exclusion of jurisdiction of the High Court under article 227 which is being canvassed by Mr. Shelat in the present proceedings. Consequently, even the second ground of preliminary objection is found to be without any merit and, consequently, the preliminary objection against the maintainability of these petitions has to be overruled.
13. The takes us to the merits of the controversy between the parties. The reasons which have weighed with the Settlement Commission in summarily rejecting the seven applications moved by the seven petitioners are found in para 7 of the common order at annexure C. It has been noted therein that all throughout the proceedings, the stand of the concerned applicants was that they were assessees under the Act and that subsequently they had switched their stand to the effect that they were not genuine partnership firms but were benamis of the applicant association of persons. Apparently, in the eyes of the applicants, there was no sanctity about such status claims and one can change one's stand according to the convenience of the movement. The Commission was also inclined to agree with the Department's stand that the alleged association of persons of Kanubhai P. Patel and others was never in existence and it was an invention to escape penalties and prosecution on account of concealment of income by the firms and to get the benefit of the amnesty scheme. The aforesaid reasoning of the Commission would go to show that the settlement application moved by the association of persons was not maintainable as, according to the Commission, it was an afterthought on the part of the concerned partners of the firms. If this were so, the application of the association of persons would stand rejected and it has been rejected by the Commission of persons is also withdrawn as noted earlier. That controversy no longer survives any further. But so far as the six applications were concerned, it is nobody's case that the applicants were not assessees under the Act for several years and if they came forward with applications under section 245C claiming to disclose the income and if their applications were maintainable under section 245C, as we have noted earlier, the Commission would not have summarily rejected these applications only because, according to the Commission, the association of persons was an invention. In fact, the submission made by Mr. Thakkar who appeared for the petitioners before the Commission was that even if the Commission did not consider the application of the association of persons as acceptable on the ground that it was not a genuine entity, the Commission could proceed with the other applications where the status of the partnership firms was not in dispute. This argument was repelled by the Commission by holding as under :
'Implicit in the stand of the applicants and the arguments of Shri Thakkar is the fact that the association of persons is an afterthought. In the scheme of settlement, the applicant is expected to make a clean breast of his affairs and come out with a true and full disclosure. Persons taking contradictory alternative pleas forfeit the right to have their cases settled by the Settlement Commission.'
14. It is difficult to appreciate this line of reasoning. It reflects a patent error on the part of the Commission on the question of jurisdiction which it has to settle cases placed before it. Even if the association of persons might have put forward a claim which was a fictitious claim, the same could not have any adverse impact on the claims for settlement put forward by the six firms which were given due registration by the Department and whose status was never challenged by the Department. May be, their claims for settlement on adjudication may not be found to be valid, wholly or partially. That is a matter of merits. But the Commission could not have made short work of these applications by rejecting them summarily under section 245D(1) only on the ground that the association of persons had put forward a fictitious claim as it itself was an afterthought. Consequently, the summary rejection of the applications for settlement by the six firms which are petitioners in these proceedings suffers of the correct legal and factual position, the Commission failed to exercise its jurisdiction so far as the claims for settlement put forward by these firms are concerned.
15. So far as the seventh petitioner, Kanubhai P. Patel, individual, is concerned, the Commission has not even whispered how his application is not maintainable and still this application has been summarily rejected along with the remaining applications. The Commission has also noted that there is no complexity of investigation involved in these cases and that, having regard to the nature and circumstances of the cases, they do not deserve to be admitted. This conclusion of the Commission is directly linked with its main conclusion that as the association of persons was an afterthought, these applications were required to be summarily rejected. The Commission has given no reason as to why there is no complexity of investigation according to it and how it agreed with the Department's stand in this connection. We must, therefore, hold that the Commission had committed a grave error of jurisdiction and also a patent error of law in summarily rejecting the applications moved by the firms and the application moved by Kanubhai P. Patel, an individual. In fact, the order passed by the Commission shows that it decided to throw the baby out with the bath water without pausing to consider how, due to any contamination in the bath water, the baby also could be thrown out. Consequently, without expressing any opinion on the merits of the controversy between the parties, these petitions are allowed. The orders of the Commission at annexure C so for as the seven petitioners are concerned petitioners are restored to the file of the Commission with the direction to proceed further beyond the stage of section 245D(1) and to treat them as having been admitted for settlement and to deal with them in accordance with law and also to pass appropriate order on the merits in these applications as per section 245D(4). Rules issued in these petitions are made absolute to the aforesaid extent with no order as to costs in each one of them.