Arunachalam, J.
1. A common question arises for decision in all these petitions and hence they are isposed of together. The question is whether an assessee who had filed an application before the Settlement Commission under section 245C of the Income-tax Act the terms of which include grant of immunity from prosecution under section 245H of the Act and such application had been allowed to be proceeded with by the Settlement Commission under section 245D of the Act, would still be liable for prosecution when the Settlement Commission had not passed final orders on the said application under 245D(4) of the Act.
2. In each one of these petitions, certain relevant dates have to be recorded. Crim nal M. P. No. 2849 of 1983 has been filed to quash the proceedings in C. C. No. 2163 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, initiated by the respondent, viz., Income-tax Officer, Central Circle XIII, Madras, alleging commission of offences by the petitioners and another under sections 120B, 34, 193, 196 and 420, Indian Penal Code, and sections 276C, 277 and 278 of the Income-tax Act, 1961, referable to the assessment year 1977-78. The petitioners are A-1, A-2, A-4 and A-5. A-3 has not chosen to invoke the inherent powers of this court to have the proceedings against him quashed. A complaint was filed before the trial Magistrate on August 1, 1982. The first petitioner, Messrs. Kothari and sons (A-1), filed an application on November 3, 1982 before the Settlement Commission which, after notice to the Commissioner of Income-tax as contemplated under section 245D, was allowed to be proceeded with by an order dated October 20, 1983. The second petitioner, D. C. Kothari (A-2), filed a similar application before the Settlement Commission on September 21, 1984, which was permitted to be proceeded with by an order dated February 2, 1990. The third petitioner, P. D. Kothari (A-4), had not filed any application before the Settlement Commission. The fourth petitioner, C. S. Menon (A-5), filed an application on November 6, 1982, before the Settlement Commission, but it was rejected on November 9, 1983, under section 245D of the Act. As far as the petitioners Nos. 3 and 4 are concerned (A-4 and A-5), the question raised will not attract their liability to face prosecution.
3. In Criminal, M. P. No. 2851 of 1983, quashing of the proceedings in C. C. No. 2164 of 1982, on the file of the same court, has been prayed for. The offenced alleged are also the same. The assessment year is 1978-79. The respondent filed the complaint before the trial Magistrate on October 11, 1982. Messrs. Kothari and Sons, the first petitioner (A-1), has filed an application before the Settlement Commission on November 3, 1982, which was permitted to be proceeded with by an order dated October 20, 1983. The second petitioner, D. C. Kothari (A-2), filed an application under section 245C of the Act on September 21, 1984, and the same was permitted to be proceeded with by an order dated (sic) 2, 1990. The third petitioner, P. D. Kothari (A-4), had not filed any application before the Settlement Commission. The application dated November 6, 1982, filed by the fourth petitioner, C. S. Menon (A-5), before the Settlement Commission was rejected on November 5, 1983. A-3, H. C. Kothari had not chosen to challenge the maintainability of the prosecution as against him.
4. In Crl. M. Ps. Nos. 2853, 2855, 2857 and 2859 of 1983 connected with C. C. Nos. 2165, 2166, 2167 and 2168 respectively, on the file of the same trial Magistrate, the offences alleged against the petitioners are also the same. The assessment years are respectively 1979-80, 1980-81 and 1982-83. Complaints were filed by the respondent in each one of these cases on October 11, 1982. Messrs. Kothari and Sons, the first petitioner (A-1), in each of these cases had filed application for settlement before the Settlement Commission on November 3, 1982, which was permitted to be proceeded with by orders dated October 20, 1983. The second petitioner, D. C. Kothari (A-2), filed a similar application before the Settlement Commission on September 1, 1982 and they were all admitted by the Settlement Commission for further proceedings by orders dated March 30, 1983. Petition filed before the Settlement Commission under section 245C of the Act by P. D. Kothari, third petitioner (A-4) on September 1, 1982 was permitted to be proceeded with by order dated March 30, 1983. An application dated November 6, 1982 before the Settlement Commission by the fourth petitioner (A-5) was rejected on November 9, 1983, referable to Crl. M. Ps. Nos. 2853, 2855 and 2857 of 1983, while in Crl. M. P. No. 2859 of 1983, he had not filed any petition before the Settlement Commission. H. C. Kothari (A-3 in the trial court) had not chosen to challenge the proceedings in the criminal court, pending as against him.
5. Crl. M. P. No. 2861 of 1983 is referable to C. C. No. 2181 of 1982. The petitioners are nine in number, and the offences alleged against them are the same as in the earlier cases, though the assessment year is 1982-83. The respondents filed the complaint before the trial Magistrate on October 20, 1982. The first petitioner, Kothari and Sons (Ind.) Pvt. Ltd. (A-1) filed an application before the Settlement Commission on November 3, 1982, and the same was rejected on October 20, 1983. Similar petitions filed by the second petitioner, Indira D. Kothari (A-2), the third petitioner, Surekha P. Kothari (A-4) and the fourth petitioner, D. C. Kothari (A-5), on September 1, 1982, September 15, 1982 and September 1, 1982 respectively, were permitted to be proceeded with by the Settlement Commission by its orders dated October 20, 1983, in the case of petitioners Nos. 2 and 3 and an order dated March 30, 1983, in respect of the fourth petitioner. The applications filed before the Settlement Commission on November 6, 1982 and October 22, 1982 by the fifth petitioner, C. S. Menon (A-8), and the sixth petitioner, D. B. Saxena (A-9) respectively were rejected on November 9, 1983 and October 20, 1983. Petitioners Nos. 7, 8 and 9, viz., K. Rangarajan (A-10), S. Venkoba Rao (A-11) and C. R. Ramakrishnan (A-12) did not file any application for settlement.
6. A-1, A-2, A-4, A-6 and A-8 to A-12 in C. C. No. 2182 of 1982 are the petitioners in Crl. M. P. No. 2863 of 1983. The assessment year is 1982-83 and the complaint for the same offences as in earlier cases was filed on October 21, 1982. The petitions filed before the Settlement Commission by the first petitioner, Planting Ag. P. Limited (A-1) and the fifth petitioner, D. B. Saxena (A-8), on November 5, 1982 and October 22, 1982 respectively were rejected by the Settlement Commission on October 20, 1983. Similar petitions filed by the second petitioner, Indira D. Kothari (A-2), the third petitioner, Maya A. Dalal (A-4) and the fourth petitioner D. C. Kothari (A-6), on September 1, 1982, November 25, 1982 and September 1, 1982, respectively were permitted to be proceeded with by orders dated October 20, 1983 in respect of petitioners Nos. 2 and 3 and by an order dated March 30, 1983 in respect of fourth petitioner. Petitioners Nos. 6 to 9, viz., V. Nageswaran (A-9), C. R. Ramakrishnan (A-10), Miss K. Nagasudha (A-11) and Dhilip Methaji (A-12) did not file any application before the Settlement Commission.
7. Petitioners in Crl. M. P. No. 2865 of 1983 are A-1, A-2, A-4, A-6 and A-8 to A-12 in C. C. No. 2183 of 1982. The offences alleged are the same as in the earlier cases. The assessment year is 1983-84, though for individual accused the assessment year is 1982-83. The complaint was filed by the respondent before the trial Magistrate on October 21, 1982. The first petitioner, Investment and Finance Corporation P. Ltd., (A-1), the sixth petitioner, K. Rangarajan (A-9), the seventh petitioner, M. D. Varadan, (A-10), the eighth petitioner, S. Venkoba Rao (A-11) and the ninth petitioner, Dhilip Methaji (A-12), did not file any application before the Settlement Commission. The application of the fifth petitioner (A-8) filed on November 6, 1982 was rejected on November 9, 1983. The petitions presented before the Settlement Commission by the second petitioner (A-2) and the third petitioner (A-4) on September 1, 1982 and November 25, 1982 respectively were permitted to be proceeded with orders dated October 20, 1989. A similar petition filed by the fourth petitioner (A-6) on September 1, 1982 was allowed for further proceedings by an order dated March 30, 1983.
8. Criminal M. P. No. 2867 of 1983 relates to C. C. No. 2184 of 1982 and the assessment year is 1982-83. The complaint was filed on October 21, 1982, the offences alleged being the same as in the earlier cases. The petitioners are A-1 to A-5 and A-7 to A-12 in C. C. No. 2184 of 1982. The second petitioner, B. L. Chitale (A-2), the third petitioner, C. Srinivasan (A-3), the fourth petitioner, C. P. Shah (A-4), the eighth petitioner, C. R. Ramakrishnan (A-9), the ninth petitioner, E. Mahadevan (A-10), the tenth petitioner, B. S. R. Murthy (A-11) and the eleventh petitioner, P. L. N. Reddy (A-12) did not file any application before the Settlement Commission. The applications of the first petitioner Teatex Pvt. Ltd. (A-1), filed on December 3, 1982, of the sixth petitioner, C. S. Menon (A-7) file don November 6, 1982 and of the seventh petitioner, D. B. Saxena (A-8), sent by registered post on October 22, 1982 were rejected on October 20, 1983, November 9, 1983 and October 20, 1983, respectively. The application of the fifth petitioner, D. C. Kothari (A-5), filed on September 1, 1982 was permitted to be proceeded with by an order dated March 30, 1983.
9. A-1, Underwriters and Financiers P. Ltd., A-2, Indira Kothari, A-4, Maya A. Dalal, A-6, D. C. Kothari, A-8, O. S. Menon, A-9, N. S. Dubey, A-10, Mahadevan, A-11, K. Nagasudha and A-12, Dhilip Methaji are the petitioners in Crl. M. P. No. 2869 of 1983. The complaint was filed on October 21, 1982, for the same offences as in the earlier cases except that the assessment year relates to 1983-84, while, for the individual accused, the assessment year is 1982-83. Petitioners Nos. 1 and 6 to 9 (A-1 and A-9 to A-12) did not file any application before the Settlement Commission. The application of the fifth petitioner, C. S. Menon (A-8) filed on November 6, 1982 was rejected on November 9, 1983. Similar applications filed by petitioners Nos. 2 to 4 (A-2, A-4 and A-6) dated September 1, 1982, November 25, 1982 and September 1, 1982, were permitted to be proceeded with by orders dated October 20, 1983, October 20, 1983 and March 30, 1983 respectively.
10. In Crl. M. P. No. 2871 of 1983, quashing of the proceedings in C. C. No. 2186 of 1982 has been prayed for by A-1, Kothari Mehta and Co. P. Ltd., A-2, Indira D. Kothari, A-5, Surekha P. Kothari, A-6, D. C. Kothari, A-8, C. S. Menon, A-9, E. Mahadevan and A-10 K. V. Mahadevan. There is no difference in the offences alleged. The complaint was filed on October 21, 1982 referable to the assessment year 1982-83. Petitioners Nos. 6 and 7 (A-9 and A-10) did not file any application before the Settlement Commission, while the applications filed by the first and fifth petitioners (A-1 and A-8) on November 5, 1982 and November 6, 1982 were rejected by the Settlement Commission on October 20, and November 9, 1983, respectively. The applications filed by petitioners Nos. 2, 3 and 4 (A-2, A-5 and A-6) on September 1, 1982 September 13, 1982 and September 1, 1982 were allowed by the Settlement Commission to be proceeded with by orders dated October 20, 1983, October 20, 1983 and March 30, 1983 respectively.
11. The nine petitioners in Crl. M. P. No. 2873 of 1983 are Kothari and Sons (Agencies) P. Ltd., (A-1), Indira D. Kothari (A-2), Surekha P. Kothari (A-4), D. C. Kothari (A-6), C. S. Menon (A-8), D. B. Saxena (A-9), K. Rangarajan (A-10), N. B. Dubey (A-11) and R. Vaidyanathan (A-12), in C. C. No. 2187 of 1982. The allegations in the complaint filed on October 21, 1982 and referable to the assessment year 1982-83 relate to the same offences as in the earlier cases. Petitioners Nos. 7 to 9 (A-10 to A-12) did not choose to file any application before the Settlement Commission. The applications dated November 3, 1982, November 6, 1982 and October 22, 1982 filed by petitioners Nos. 1, 5 and 6 (A-1, A-8 and A-9) were rejected on October 20, 1983, November 9, 1983 and October 20, 1983 respectively. However applications dated September 1, 1982, September 13, 1982 and September 1, 1983, filed by petitioners Nos. 2 to 5 (A-2, A-4 and A-6) were admitted for further proceedings by the Settlement Commission by orders dated October 20, 1983, October 20, 1983 and March 30, 1983 respectively.
12. The answer to the question in issue will naturally decide the scope of the pending prosecution being further proceeded with only in respect of these applications under section 245C of the Act which have been permitted to be proceeded with by the Settlement Commission by exercise of its powers under section 245D of the Act.
13. Learned counsel appearing for the petitioners and learned counsel appearing on behalf of the Income-tax Department in each of these petitions have placed before me certain decided cases on the sole issue to be decided in this group of petitions.
14. Before referring to the authorities cited, it will be better to extract sections 245C, 245D, 245E, 245H and 245-I of the Act, as they existed at the time when the applications were filed before the Settlement Commission shortly after initiation of the prosecution :
'245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner and containing such particulars as may be prescribed to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided.
(2) Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed.
(3) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant.
15. Procedure on receipt of an application under section 245C :
'245D. (1) On receipt of an application under section 245C, the Settlement Commission shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investment involved therein, the Settlement Commission may, by order, allow the application to be proceeded with or reject the application :
Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the applicant of being heard. (1A) Notwithstanding anything contained in sub-section (1), an application shall not be proceeded with under that sub-section if the Commissioner objects to the application being proceeded with, on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case.
Provided that where the Settlement Commission is not satisfied with the correctness of the objection raised by the Commissioner the Settlement Commission may, after giving the Commissioner an opportunity of being heard, by order, allow the application to be proceeded with under sub-section (1) and send a copy of its order to the Commissioner.
(2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Commissioner.
(3) Where an application is allowed to be proceeded with under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case.
(4) After examination of the records and the report of the Commissioner received under sub-section (1), and the report, if any, of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application, and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under sub-section (1) or sub-section (3).
(5) Subject to the provisions of the sub-section (2A) of section 245B, the materials brought on record before the Settlement Commission shall be considered by all members thereof before passing any order under sub-section (4) and, in the case of a difference of opinion among the members, the opinion of the majority shall prevail and such order shall be expressed in terms of the views of the majority.
(6) Every order passed under sub-section (4) shall provide for the terms of the settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misinterpretation of facts.
(7) Where a settlement becomes void as provided under sub-section (6), the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income-tax authority concerned, may, not withstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement becomes void.'
16. There was a second proviso to section 245D(1) till April 1, 1979, which was omitted with effect from that date by the Finance Act, 1979. The second proviso read as hereunder :
'Provided further that an application shall not be proceeded with under this sub-section if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income-tax Act, 1922 (XI of 1922), or under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case.'
'245F. (1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an income-tax authority under this Act.
(2) Where an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement Commission shall, until an order is passed under sub-section (4) of section 245D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case.
(3) Notwithstanding anything contained in sub-section (2) and in the absence of any express direction to the contrary by the Settlement Commission, nothing contained in this section shall affect the operation of any other provision of this Act requiring the applicant to pay tax on the basis of self-assessment or by way of advance tax in relation to the matters before the Settlement Commission.
(4) For the removal of doubt, it is hereby declared that, in the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to matters other than those before the Settlement Commission.
(5) The Settlement Commission shall, subject to the provisions of this Chapter, have power to regulate its own procedure (including the fixation of places and times of meetings) and may act notwithstanding that all the members of the Settlement Commission are not present at any of its meetings.'
'245H. (1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also from the imposition of any penalty under this Act, with respect to the case covered by the settlement.
(2) An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Settlement Commission, if it is satisfied that such person has not complied with the conditions subject to which the immunity was granted or that such person had, in the course of the settlement proceedings, concealed any particular material to the settlement or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the settlement and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted.'
17. A proviso to section 245H(1) was inserted by the Finance Act, 1987, with effect from June 1, 1987, which reads as hereunder :
'Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 245C.'
'245-I. Every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and the matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force.'
18. V. R. Krishna Iyer J., speaking for the Bench in CIT v. B. N. Bhattachargee : [1979]118ITR461(SC) , had the anatomy of Chapter XIXA dealing with settlement cases dissected while narrating a few facts so that a hang of the controversy may be got and its just resolution sought. In the words of the learned judge, section 245A is the definition clause even as section 245B is the clause constituting the Settlement Commission. Applications for settlement cases by assessees are regulated by section 245C. The process of the application is controlled by section 245C and section 245D of the Act. The Supreme Court was concerned in that case with the provisions of section 245M which does not arise in this case. In that context, the Supreme Court observed (at page 472) :
'Only if he can validly move the Commission under section 245M, can his application be processed under sections 245C, 245D and other sections of the Chapter.'
19. The further observations of the Supreme Court need extraction (at page 472) :
'Any assessee may make an application to have his case settled, but it is one thing to make an application proceeded with. For, on receipt of an application the Commission is not empowered automatically to proceed with it. The mechanics of section 245D must be remembered in this context. The application for settlement, when filed, shall be forwarded to the Commissioner for a report that the Settlement Commission may allow the application to be proceeded with or reject the application. To reject an application is to refuse relief outright and affects the applicant adversely. So it is provided that an application shall not be rejected unless an opportunity has been given to the applicant of being heard. We are clearly of the view than an applicant before the Settlement Commission is entitled to a hearing before his application for composition is rejected.'
20. The question now arises as to the course of the exercise of the Settlement Commission on receipt of an application for composition : The second proviso to section 245D(1) is compulsive in tone and import, for it mandates that an application shall not be proceeded with under this sub-section if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax has been established or is likely to be established by any income-tax authority in relation to the case. In the present case, the Commissioner did raise an objection on April 1, 1977, that :
'... prosecution proceedings for concealment of income and also false verification in the returns were pending before the chief Metropolitan Magistrate and that, in the circumstances, he did not consider this as fit case to be proceeded with by the Settlement Commission.'This objection was, in the normal course, neither foolish nor futile but fatal, being in functional fulfillment of the requirements of the second proviso to section 245D(1). Indeed, when we observe that the Commissioner of Income-tax had, with full responsibility, prosecuted the assessee in a number of cases then pending for offences which attract the conditions required by the second proviso, there is little difficulty in holding that the application for settlement having been rejected by the Commissioner, could not be proceeded with. The veto of the Commissioner was the Waterloo of the application.'
21. The apex court was considering the second proviso to section 245D(1) which was deleted with effect from April 1, 1979, by the Finance Act, 1979. The present position to which these prosecutions relate is governed by section 245D(1A) which was ushered in on April 1, 1979, when the second proviso referred to earlier was omitted. By this provision, an application shall not be proceeded with under sub-section (1), if the Commissioner objected to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Act has been established or was likely to be established by any income-tax authority, in relation to the case. The proviso to this section is significant, for, where the Settlement Commission was not satisfied with the correctness of that objection raised by the Commissioner, the Settlement Commission may, after giving an opportunity of being heard, by order, allow the application to be proceeded with under sub-section (1) and send a copy of its order to the Commissioner. Therefore, it is apparent that, in spite of the objection of the Commissioner, the Settlement Commission can still allow the application to be proceeded with if it was not satisfied with the objections raised.
22. On facts, after furnishing an opportunity to the Commissioner of Income-tax of being heard, the Settlement Commission, by order made on different dates, had allowed the application of some of the petitioners to be proceeded with, as detailed in the earlier part of the order. The law as applicable to the case of the petitioners, therefore, cannot be vetoed by the Commissioner, for the Settlement Commission has the power to allow the application to be proceeded with, if it was not satisfied with the correctness of the objection raised by the Commissioner. In these petitions, that stage has been crossed and the final orders are yet to be passes by the Settlement Commission, under section 245D(4) of the Act.
23. In the aforesaid case, the Supreme Court had observed that filing of a complaint for launching of a prosecution earlier was not a relevant matter for the exercise of the jurisdiction under the second proviso to section 245D(1) at that stage, in the light of the facts brought before it. However, it should be noticed that, with effect from June 1, 1987, due to the introduction of the proviso to section 245H(1) of the Act, the Settlement Commission cannot grant immunity in cases where the proceedings for the prosecution for any such offence contemplated under section 245H(1) have been instituted before the date of receipt of the applications under section 245C. This proviso does not attract the settlement applications in these cases, for the applications as well as the institution of prosecutions were for years earlier to June 1, 1987. Taking note of the observations of the Supreme Court and the lack of proviso to section 245H(1), it is clear that the filing of an application under section 245C of the Act before the Settlement Commission, after the institution of the prosecution, can have no bearing on these cases.
24. While considering the provisions of section 245H, the Supreme Court observed as follow (at page 475 of 118 ITR) :
'And if he can purchase freedom from criminal prosecution and incarceratory sentence he may settle with the commission; and, towards this end, try to buy those who remotely control the departmental echelons whose veto or green signal closes or opens the jurisdiction of the Settlement Commission and hushes or pushes the prosecutions. Thus, section 245H, which clothes the Commission with the power to grant immunity from prosecution.... is a magnet which attracts large tax dodgers and offers, indirectly, an opportunity to the highest departmental and political authorities a suspect power to bargain.'
25. As stated earlier, the veto power of the Commissioner is no longer in existence and, on a consideration of the entire matter, after hearing both the authorities, the Settlement Commission either allows the applications to be proceeded with or rejects it.
26. It was also observed by the Supreme Court (at page 481 of 118 ITR) that a casual perusal of Chapter XIXA convinced the discerning eye that the Settlement Commission exercised many powers which affected, for good or otherwise, the rights of the parties before it and vested in it powers of grant immunity from prosecution and penalty, to investigate into many matters and to enjoy conclusiveness regarding its orders or settlement.
27. The law laid down by the Supreme Court in P. Jayappan v. S. K. Perumal, First ITO : [1984]149ITR696(SC) , that the prosecution for false evidence and wilful attempt to evade tax could not be held to be premature, while reassessment proceedings on the basis of material seized in a search were still pending, for a criminal court had to judge the case independently, can have no application to the case on hand, since the provisions of Chapter XIXA had not been considered in the said case.
28. The Punjab and Haryana High Court, in Harbans Singh v. Union of India , held that Chapter XIXA incorporated special provisions for settlement of cases, which was a complete code in itself. It provided the procedure and mechanism for the settlement of disputes. Section 245F of the Act spelt out the powers of the Settlement Commission. Sub-section (4) thereof provided that, in the absence of any express direction by the Settlement Commission to the contrary, nothing in Chapter XIX-A shall affect the operation of the provisions of the Act in so far as they related to any matters other than those before the Settlement Commission. So, the mere filing of the application for the settlement under section 245C would not have the effect of staying the operation of the other provisions of the Act, like those providing for the prosecution of the assessee for concealing and making incorrect and false statements in the return. It was further held that, since the Settlement Commission had not passed any orders staying the proceedings in the criminal complaint, the Magistrate was duty bound to try and decide the case in accordance with law. This decision did not take note of the powers of the Settlement Commission under section 245H to grant immunity from prosecution not only for any offence under the Act but also under the Indian Penal Code or under any other Central Act for the time being in force. On facts, the petitioners have prayed for immunity from prosecution before the Settlement Commission and final orders are yet to be passed in all the pending applications, permitted to be proceeded with, after hearing the Commissioner of Income-tax. This decision, therefore, may not help in answering the question framed for consideration.
29. The same High Court, in R. I. Chadha v. ITO [1987] 168 ITR 591, while considering the several sections under Chapter XIXA of the Act observed that, in the light of section 245F of the Income-tax Act, 1961, it was patent that the Settlement Commission, during the pendency of proceedings before it, enjoyed all the powers which were vested in an income-tax authority before the Act. Sub-section (2) made it manifest that, till the culmination of those proceedings, with the passing of an order under sub-section (4) of section 245D of the Act, it had exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under the Act in relation to that case. Sub-section (4) further made it clear that the authorities under the Act, including the Commissioner and the Income-tax Officer, may continue to exercise their jurisdiction under the Act with regard to any matters other than those which were before the Settlement Commission but that too was subject to any direction by the Commission to the contrary. It was, therefore, held that the Settlement Commission had exclusive jurisdiction to launch a prosecution against the assessees. The Commissioner could not direct or authorise, the filing of the complaint against the petitioners during the course of the pendency of the proceedings before the Settlement Commission. This decision had not been brought to the notice of the learned judge who decide Harbans Singh's case .
30. R. A. Mehta J., of the Gujarat High Court in Ashvin Kumar Vadilal Patel v. S. Rajguru : [1987]165ITR583(Guj) , while considering the provisions of section 245H of the Act, observed that the prosecution was not required to be stayed merely because an application under section 245H was made and was pending. Till such an application was granted, there was no immunity and merely because an application was made about the merits of which there was nothing before the court and regarding the merits of which the criminal court had no jurisdiction, the prosecution cannot be stayed. It was further observed that the power to grant immunity by the Settlement Commission was to be exercised sparingly and the criminal court cannot grant even temporary immunity by granting stay of prosecution. Therefore, until immunity was granted, the criminal prosecution need not be stayed. The learned judge had not considered section 245F(4) of the Act, which states that, for the removal of doubt, it was declared that in the absence of any express direction by the Settlement Commission to the contrary, nothing in this Chapter affected the operation of the provisions of that Act in so far as they relate to any matters other than those before the Settlement Commission. There is no dispute on facts that the applications for settlement filed by the petitioners contain a prayer for immunity from prosecution and, in the exercise of powers under section 245D of the Act, the Settlement Commission had allowed the applications to be proceeded with. It will also be relevant to refer to refer to and extract once again section 245F(2) which reads as hereunder :
'Where an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement Commission shall, until an order is passed under sub-section (4) of section 245D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case.'
31. In view of the aforementioned provision referred by me, I am unable to agree with the view expressed by R. A. Mehta J., in Ashvin Kumar Vadilal Patel v. S. Rajguru : [1987]165ITR583(Guj) . At this stage, it is better to consider the argument of learned counsel for the respondent that the definition of 'case' contained in section 245A(b) would relate only to the proceedings of the Act for the assessment or reassessment and will not take in its fold a prosecution. This contention has to be negatived for section 245A reads that in that Chapter, unless the context otherwise required, 'case' meant what had been contemplated under (b). Section 245H of the Act has also used the word 'case' while dealing with the power of the Settlement Commission to grant immunity from prosecution and penalty. 'Case' in that context naturally includes prosecution. In that context, the word 'case' used in section 245H of the Act will certainly form part of the final order to be passed under section 245D(4).
32. In another case reported in Ashwini Kumar Vadilal Patel v. P. T. Mehta, ITO : [1989]178ITR385(Guj) , the Gujarat High Court after referring to the decision rendered by R. A. Mehta J., in Ashvin Kumar Vadilal Patel v. S. Rajguru : [1987]165ITR583(Guj) held that it might be that the Settlement Commission might not ultimately grant immunity to the petitioner and, in that case, the criminal proceedings would have to be carried to their logical conclusion. But, before the Settlement Commission arrived at its decision, to allow the proceedings before the criminal court to continue might lead to an anomalous situation. Under these circumstances, it was the view of the learned judge that the complaint need not be quashed at that stage, but it required to be stayed till the rendering of its final decision by the Settlement Commission. While distinguishing the judgment rendered in Ashvin Kumar Vadilal Patel v. S. Rajguru : [1987]165ITR583(Guj) , the learned judge took note of the recording of a finding by the Settlement Commission that no income had been concealed and none was likely to be established to have been concealed, while allowing the application to be proceeded with. In those cases, the Settlement Commission had observed that the charge of fraud or concealment cannot be said to be likely to be established against the applicants. The final orders of the Settlement Commission are still awaited.
33. The last of the cases cited is the one rendered by Jagdish Chandra J., of the Delhi High Court in Geeta Gupta (Dr.) (Mrs.) v. IAC of I. T. : [1987]168ITR222(Delhi) . That was a case where the prayer was to quash the complaint against the petitioner therein and the summons issued against her, on the ground that the continuance of the prosecution, until the commission passed its final order of settlement under section 245D(4), was not maintainable. While allowing the petition, the learned judge had considered all the relevant sections in Chapter XIXA and their effect. It was the view of the learned judge that when the Settlement Commission, after dealing with the objections of the Commissioner raised under section 245(1A) to the entertainment of an application for settlement of a case, was not satisfied with the correctness of the objections and rejected them on the basis of the material available at that point of time, holding that concealment of income had not been established nor was it likely to be established, there was no material whatever that the Department has, at that particular point of time, to continue the prosecution of the person who had made the application under section 245C for settlement. After the making of the application, it was the Commission alone in whom exclusive jurisdiction was vested under section 245F(2) to exercise the Act in relation to the case including the power of continuing the prosecution already launched by the Commissioner prior to the making of the application. It was also observed that, if the Settlement Commission found any concealment of income on the part of the applicant in its final order, it may recommend the launching of a prosecution or in the absence of it, grant immunity from prosecution under section 245H. If immunity is not granted, the thread may again be picked up by the Department for launching a fresh complaint. It was ultimately held that the continuance of prosecution during that period cannot be merely stayed and that the summons based on the complaint had to be quashed.
34. Both learned counsel represented that the entire case-law available on the subject has been placed before the court. It was also brought to my notice that the Commissioner of Income-tax, Madras challenged the order of the Settlement Commission, permitting the applications to be proceeded with, in the Supreme Court of India, by filing petitions for special leave to appeal, in S. L. P. Nos. 6086 of 1984 to 6090 of 1984, etc., and the apex court rejected those petitions on the ground that there was no reason to interfere at that stage, in as much as the Commissioner's order was to be processed for settlement.
35. I have carefully analysed the various provisions contained in Chapter XIX-A of the Act in the light of the decisions rendered by various High Courts. The conclusions arrived at by me are :
(1) In Chapter XIX-A, the context requires that the word 'case' should take in its fold a prosecution as well, if the object behind section 245H read with section 245F(1), (2) and (4) of the Act were to be taken note of;
(2) Once the application filed for settlement of a case had crossed the stage under section 245D(1) after furnishing of an opportunity to the Commissioner of Income-tax of being heard, resulting in allowing the application to be proceeded with, till a final order is passed, allowing prosecution to be proceeded with will lead to an anomalous situation;
(3) If the prosecutions were allowed to be proceeded with, section 245F(2) would be rendered meaningless and will also set at naught the object of the Act. Sub-section (4) thereof provides for removal of doubt and it is apparent that, in so far as the matters which relate to those before the Settlement Commission, the provisions of Chapter XIX-A would stand affected;
(4) Section 245H vests power with the Settlement Commission to grant immunity to an applicant from prosecution for any offence under the Act or under the Indian Penal Code or under any other Central Act for the time being in force and also from the imposition of any penalty under the Act with respect to the case covered by the settlement and this power of granting immunity may be exercised at the discretion of the Commission in favour of the applicant on the conditions mentioned in the section being satisfied. Sub-section (2) thereof provides for withdrawal of immunity in certain circumstances contemplated therein. It is not as though the prosecution cannot be proceeded with in the event of the Settlement Commission holding against the applicant, for, as observed by Jagdish Chandra J., in Geeta Gupta (Dr.) (Mrs.) v. IAC of I. T. : [1987]168ITR222(Delhi) , 'the thread may again be picked up for launching a fresh complaint', 'or the prosecution kept pending can always be continued.'
(5) The provisions of section 245-I appear to be very relevant, for every order of settlement passed under section 245D(4) shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in that Chapter, be reopened in any proceeding under the Act or under any other law for the time being in force and;
(6) The policy of the law engrafted in Chapter XIX-A is not a rescue shelter against prosecution, but provides a forum to take note of the entire picture placed by the assessee and the Department before exercising powers of immunisation against criminal prosecution. The expectation of the law-maker was that the power of Settlement Commission would be sparingly used in deserving cases. The object was to 'ensure that the settlement was fair, prompt and independent given a high level machinery for administering the provision.'
36. Therefore, the answer to the question framed is, when an assessee had filed an application before the Settlement Commission under section 245C of the Act, the terms of which include grant of immunity from prosecution under section 245H of the Act, and such application had been allowed to be proceeded with by the Settlement Commission under section 245D of the Act, till final orders under section 245D(4) on the said application are rendered by the Settlement Commission, the prosecution cannot be proceeded with subject of course to the proviso to section 245H(1) inserted with effect from June 1, 1987.
37. I hold that the prosecutions initiated even before the filing of applications before the Settlement Commission under section 245C of the Act need not be quashed, but will have to be necessarily stayed, pending final decision by the Settlement Commission in all these petitions under section 245D(4), which includes the power exercisable under section 245H either to grant or refuse immunity from prosecution.
38. It is seen that the applications for settlement are pending before the Settlement Commission for over six years. It is hoped that the Settlement Commission can decide very soon and pass its final orders as early as possible, for the evidence which either the prosecution or the defence my intend leading, in the event of immunity from prosecution not being granted, should not be lost with the passage of time.
39. The net result in each of the petitions is as follows :
Criminal M. P. No. 2849 of 1983. - The proceedings in C. C. No. 2163 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, are stayed, pending final orders of Settlement Commission in respect of petitioners Nos. 1 and 2 (A-1 and A-2). The petition stands dismissed with regard to petitioners Nos. 3 and 4 (A-4 and A-5).
Criminal M. P. No. 2851 of 1983. - The prosecution in C. C. No. 2164 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, will stand stayed in respect of petitioners Nos. 1 and 2 (A-1 and A-2) till final orders are passed by the Settlement Commission. The petition is dismissed as far as petitioners Nos. 3 and 4 (A-4 and A-5) are concerned.
Criminal M. P. No. 2853 of 1983. - Pending final orders of the Settlement Commission, the proceedings in C. C. No. 2165 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, are stayed as far as petitioners Nos. 1 to 3 (A-1, A-2 and A-4) are concerned while the prayer of the fourth petitioner (A-5) stands rejected.
Criminal M. P. No. 2855 of 1983. - Pending final orders of the Settlement Commission, proceedings in C. C. No. 2166 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, are stayed in the case of petitioners Nos. 1 to 3 (A-1, A-2 and A-4), while the plea of the fourth petitioner (A-5) stands rejected.
Criminal M. P. No. 2857 of 1983. - The prosecution in C. C. No. 2167 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, in respect of petitioners Nos. 1 to 3 (A-1, A-2 and A-4) shall stand stayed, while there will be no bar to proceed with the prosecution as far as the fourth petitioner (A-5) is concerned whose plea stands rejected.
Criminal M. P. No. 2859 of 1983. - The prosecution in C. C. No. 2168 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, in respect of petitioners Nos. 1 to 3 (A-1, A-2 and A-4) are stayed pending final orders of the Settlement Commission. This petition is rejected in respect of the fourth petitioner (A-5).
Criminal M. P. No. 2861 of 1983. - The prayer of Nos. 1, 5, 6, 7, 8 and 9 (A-1, A-8, A-9, A-10, A-11 and A-12) is rejected. The prosecution in C. C. No. 2181 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, is stayed as against petitioners Nos. 2, 3 and 4 (A-2, A-4 and A-6).
Criminal M. P. No. 2863 of 1983. - This petition is dismissed as against petitioners Nos. 1 and 5 to 9 (A-1 and A-8 to A-12), while stay of proceedings in C. C. No. 2182 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, in respect of petitioners Nos. 2 to 4 (A-2, A-4 and A-6) is ordered, pending final orders if the Settlement Commission.
Criminal M. P. No. 2865 of 1983. - This petition stands dismissed as against petitioners Nos. 1, 5, 6 to 9 (A-1, A-8 and A-9 to A-12). The prosecution in respect of the petitioners Nos. 2, 3 and 4 (A-2, A-4 and A-6) in C. C. No. 2183 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, will be stayed pending final orders by the Settlement Commission.
Criminal M. P. No. 2867 of 1983. - This petition is rejected as far as petitioners Nos. 1 to 4 and 6 to 11 (A-1 to A-4 and A-7 to A-12) are concerned. The prosecution in respect of the fifth petitioner (A-5) in C. C. No. 2184 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, shall stand stayed till the final disposal of his application by the Settlement Commission.
Criminal M. P. No. 2869 of 1983. - This petition is rejected as far as petitioners Nos. 1 and 5 to 9 (A-1 and A-8 to A-12) are concerned. The prosecution in C. C. No. 2185 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, is directed to be stayed in respect of petitioners Nos. 2 to 4 (A-2 and A-4 and A-6) till the final decision is rendered in their settlement applications.
Criminal M. P. No. 2871 of 1983. - This petition is dismissed as far as petitioners Nos. 1 and 5 to 7 (A-1, and A-8 to A-10) are concerned. The proceedings in C. C. No. 2186 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras, as far as petitioners Nos. 2, 3 and 4 (A-2, A-5 and A-6) are concerned will be stayed pending final orders on their applications filed before the Settlement Commission.
Criminal M. P. No. 2873 of 1983. - This petition is dismisses as against petitioners Nos. 1 and 5 to 9 (A-1 and A-7 to A-11). The prosecution in C. C. No. 2187 of 1982 on the file of the Additional Chief Metropolitan Magistrate, Egmore, Madras in respect of petitioners Nos. 2 to 4 (A-2, A-4 and A-6) will be stayed pending final orders of the Settlement Commission in their application filed under section 245C of the Act. It will be open to the respondent to proceed with the prosecution in each one of the calendar cases pending before the Additional Chief Metropolitan Magistrate, B. O. I., Egmore, Madras, as far as the petitioners against whom these petitions have been dismissed.