SC affirmed Settlement Commission’s decision giving immunity from punishment and prosecution
Fact and issue of the case
This appeal has been filed assailing the judgment dated 06.07.2012, passed by the High Court of Karnataka at Bangalore, in Writ Appeal No. 2458 of 2010 whereby the judgment of the learned Single Judge dated 20.05.2010 passed in Writ Petition No. 12239 of 2008, remanding the matter to the Settlement Commission to determine afresh, the question as to immunity from levy of penalty and prosecution, was affirmed and the aforesaid Writ Appeal filed by the appellant herein, was dismissed.
The facts giving rise to the present appeal, in a nutshell are that the appellant-assessee, Kotak Mahindra Bank Limited (formerly, “M/s ING Vysya Bank Limited”) is a Public Limited Company carrying on the business of banking and is assessed to tax in Bangalore where its registered office is located. Apart from the business of banking, the appellant also carries out leasing business on receiving approval from the Reserve Bank of India (hereinafter “RBI” for short) vide Circular dated 19.02.1994. Thus, the appellant derives its income, inter alia, from banking activities as well as from leasing transactions.
The appellant filed its income tax returns for the assessment years 1994-1995 to 1999-2000 and assessment orders were passed up to assessment year 1997-1998 and the assessment for the subsequent years was pending. During the assessment proceedings for the assessment year 1997-1998, the Assessing Officer made certain additions and disallowances based on which the assessment already concluded for the assessment years 1994-1995 to 1996-1997 were proposed to be reopened. The Assessing Officer then passed an Assessment Order dated 30.03.2000 for the Assessment Year 19971998. The main issue pertained to the income in respect of the activity of leasing. As per the Assessment Order, the appellant had been accounting for lease rental received, by treating the same as a financial transaction. As a result, the lease rental was bifurcated into capital repayment portion and interest component. Only the interest component was offered to tax. In other words, the appellant treated such leases as loans granted to the “purported” lessees to purchase assets. In such cases, the ownership of the assets is vested with the lessees. However, the appellant claimed depreciation on those assets under Section 32 of the Income Tax Act, 1961 (hereinafter referred to as “the Act” for the sake of convenience) though the appellant was not the owner of the assets for the purpose of the said transactions.
On 09.06.2000 the Assessing Officer issued a notice under Section 148 of the Act for the reassessment of income for the aforesaid assessment years. The Assessing Officer also passed a penalty order dated 14.06.2000 levying a penalty under Section 271 (1)(c) of the Act after being satisfied that the appellant had concealed its income as regards lease rental.
While various proceedings, such as an appeal before the CIT (A) for the assessment year 1997-1998, re-assessment proceedings for the assessment years 1994-1995 to 1996-1997 and regular assessment proceedings for the assessment years 1998-1999 and 1999-2000 were pending before various income tax authorities, the appellant, on 10.07.2000, approached the Settlement Commission at Chennai to settle its income tax liabilities under Section 245C (1) of the Act, by way of an application in Form No. 34B bearing No. 563/KNK-III/15/2000-IT. The appellant sought for determination of its taxable income for the assessment years 1994-1995 to 1999-2000, after considering the issues pertaining to the income assessable in respect of its leasing transaction; eligibility to avail depreciation in respect of leased assets; the quantum of allowable deduction under Section 80M and exemption under Section 10(15) and 10(23G); and depreciation on the investments portfolio of the bank classified as permanent investments.
When matters stood thus, the concluded assessments for earlier assessment years were reopened by issuance of notices under Section 148 of the Act. The appellant filed returns under protest with respect to the said assessment years.
Before the Settlement Commission, the Respondents-Revenue raised a preliminary objection contending that the appellant did not fulfil the qualifying criteria as contemplated under Section 245C(1) and hence, the application filed by the appellant was not maintainable, as, under the said provision, the appellant was required to make an application in the prescribed manner containing full and true disclosure of its income which had not been disclosed before the Assessing Officer and also the manner in which such income had been derived. That unless there is a true and full disclosure there would be no valid application and the Settlement Commission will not be able to assume jurisdiction to proceed with the admission of the application. It was thus contended that the purported application made before the Settlement Commission was not an application as contemplated under section 245C (1) of the Act for the reason that the appellant had not made a full and true disclosure of its income which had not been disclosed before the Assessing Officer.
After considering the contentions of both parties, the Settlement Commission passed an Order dated 11.12.2000 entertaining the application filed by the appellant under Section 245C and rejecting the preliminary objections raised by the Revenue. The Settlement Commission allowed the application filed by the appellant by way of a speaking order and permitted the appellant to pursue its claim under Section 245D. Thus, the application was proceeded further under Section 245D (1) of the Act.
The Revenue challenged the Order dated 11.12.2000 passed by the Settlement Commission before the High Court of Karnataka at Bangalore by way of Writ Petition No. 13111 of 2001. The Revenue questioned the jurisdiction of the Settlement Commission in entertaining the application filed by the appellant under Section 245C(1) of the Act.
The learned Single Judge of the High Court of Karnataka, after going through the legislative history of the provisions of Chapter-XIXA, accepted the argument advanced by the appellant that the proviso to Section 245C as it stood earlier, which enabled the Commissioner to raise an objection even at the threshold to entertain an application of this nature had been later shifted to sub-section (l)(A) of Section 245D and from the year 1991, it had been totally omitted and in the light of such legislative history, it was not open to the Revenue to raise any such preliminary objection regarding maintainability of the application itself. It was further held that the application can be proceeded with by the Settlement Commission for determination of the same on merits and it was not necessary that the Revenue should be permitted to raise a preliminary objection as to the maintainability of the application. The learned Single Judge disposed of the above Writ Petition by way of an Order dated 18.08.2005 in favour of the appellant herein by holding that notwithstanding any preliminary finding, it was still open to the Commissioner to agitate or to apprise the Commission of all the aspects of the matter that he may find fit to be placed before the Commission. The Single Judge was of the view that it was not necessary to examine the legal position that may require an interpretation of provisions of Section 245C at that stage when the matter itself was still at large before the Settlement Commission as the very object of Chapter-XIXA was to settle cases and to reduce the disputes and not to prolong litigation. Thus, the High Court disposed of the Writ Petition holding that it was open to the parties to raise all their contentions before the Commission at the stage of disposal of the application and the Commission may, independent of the findings which it has given under the Order dated 11.12.2000, examine all the contentions and proceed to pass orders on merits in accordance with the provisions of the Act.
As a result of the Order dated 18.08.2005 passed by the High Court of Karnataka, the Settlement Commission heard both parties on merits as well as on the issue of maintainability. The Settlement Commission upheld the maintainability of the application filed by the appellant and passed an Order dated 04.3.2008 under Sections 245D(1) and 245D(4), determining the additional income at Rs.196,36,06,201/-. As regards the issue of immunity from penalty and prosecution, the Commission, having regard to the fact that the appellant had co-operated in the proceedings before the Settlement Commission and true and full disclosure was made by the appellant before the Commission in paragraph 18.2 of its Order granted immunity under Section 245H(1) from the imposition of penalty and prosecution under the Act and the relevant sections of the Indian Penal Code. Further, the Settlement Commission annulled the penalty levied by the Assessing Officer under Section 271(1)(c) for the assessment year 19971998 in respect of non-disclosure of lease rental income. The same was annulled considering that the non-disclosure was on account of RBI guidelines and subsequent disclosure on the part of the appellant, of additional income of the lease income before the Settlement Commission when the appellant realised the omission to disclose the same as per income tax law.
Observation of the court
In the light of the aforesaid discussion, we are of the view that the learned Single Judge of the High Court was not right in holding that the reasoning of the Settlement Commission was vague, unsound and contrary to established principles. Division Bench was also not justified in affirming such view of the learned Single Judge. The Commission, in our view, adequately applied its mind to the circumstances of the case, as well as to the relevant law and accordingly exercised its discretion to proceed with the application for settlement and grant immunity to the assessee from penalty and prosecution. The Order of the Commission dated 04.03.2008 did not suffer from such infirmity as would warrant interference by the High Court, by passing an order of remand.
It may be apposite at this juncture, to refer to the decision of this Court in Ashirvad Enterprises vs. State of Bihar, (2004) 3 SCC 624 wherein it was stated that whether immunity from prosecution and penalty should be granted in a given case, has to be decided by the Commission by exercising its discretion, in the light of the facts and circumstances of each case. There is no straight jacket formula that would universally apply in every case. Where the Commission is satisfied that the applicant (a) has made full and true disclosure of his income and the manner in which such income was derived, and (b) has co-operated with the Commission in the proceedings before it, immunity under Section 245H may be granted.
In the present case, as noted above, we find that the appellant placed material and particulars before the Commission as to the manner in which income pertaining to certain activities was derived and has sought to offer such additional income to tax. Based on such disclosures and on noting that the appellant co-operated with the Commission in the process of settlement, the Commission proceeded to grant immunity from prosecution and penalty as contemplated under Section 245H of the Act. The High Court ought not to have sat in appeal as to the sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to grant immunity from prosecution and penalty as contemplated under Section 245H of the Act.
We are fortified in our view by the judgment of this Court in Jyotendrasinhji vs. S.I. Tripathi, 1993 Supp (3) SCC 389, wherein it was observed that a Court, while exercising powers under Articles 32, 226 or 136 of the Constitution of India, as the case may be, may not interfere with an order of the Commission, passed in exercise of its discretionary powers, except on the ground that the order contravenes provisions of the Act or has caused prejudice to the opposite party. Interference may also be open on the grounds of fraud, bias or malice. Therefore, this Court has carved out a very narrow scope for judicial review of the Commission’s orders, passed in the exercise of its discretionary powers. Hence, we hold that sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to grant immunity from prosecution and penalty as contemplated under Section 245H of the Act, are beyond the scope of judicial review, except under the circumstances set out in Jyotendrasinhji vs. S.I. Tripathi (supra).
We find that the judgment of this Court in Express Newspapers (supra), sought to be relied upon by the Respondents, would not come to their aid in the present case. It is to be noted that the said judgment turns on its own facts. In the said case, the income tax authorities had made extensive investigation and inquiry, whereby they had collected voluminous material demonstrating large scale concealment of income on the part of the assessee therein. In that background, this Court observed that the assessee, having merely offered a part of such concealed income before the Commission, the application for settlement ought to have been rejected.
While we are mindful of the fact that the provisions of Chapter XIX-A of the Act are not to be employed so as to provide a shelter for tax dodgers to obtain immunity from facing the consequences of tax evasion by simply approaching the Settlement Commission, vide N. Bhattacharjee (supra), we are however of the view that in the present case, the Commission rightly exercised its discretion under Section 245H having regard to the bona fide conduct of the assessee of offering additional income for tax, apart from the income disclosed in the return of income.
Before parting with the record, we may add that having regard to the legislative intent, frequent interference with the orders or proceedings of the Settlement Commission should be avoided. We have already indicated the limited grounds on which an order or proceeding of the Settlement Commission can be judicially reviewed. The High Court should not scrutinize an order or proceeding of a Settlement Commission as an appellate court. Unsettling reasoned orders of the Settlement Commission may erode the confidence of the bonafide assessees, thereby leading to multiplicity of litigation where settlement is possible. This larger picture has to be borne in mind.
In light of the aforesaid discussion, we are of the view that the Order of the Settlement Commission dated 04.03.2008 was based on a correct appreciation of the law, in light of the facts of the case and the High Court ought not to have interfered with the same. Therefore, the judgment dated 06.07.2012, passed by the High Court of Karnataka at Bangalore in Writ Appeal No. 2458 of 2010 whereby the judgment of the learned Single Judge dated 20.05.2010, passed in Writ Petition No. 12239 of 2008, remanding the matter to the Settlement Commission to determine afresh, the question as to immunity from levy of penalty and prosecution was affirmed, is hereby set aside.
Consequently, the order of the learned Single Judge is also set aside. The Order of the Settlement Commission dated 04.03.2008 is restored. The appeal is allowed. Pending application (s), if any, stand disposed of in the aforesaid terms.
No order as to costs.
In the result, appeal of the assessee is allowed and ruled in favour of the assessee
Read the full order from hereKotak-Mahindra-Bank-Limited-Vs-CIT-Supreme-Court-of-India-2