Settlement commission has no powers to waive or reduce statutory interest

Khanderao B Dabke

A 5-member bench of the Supreme Court had to consider and decide in CIT v Anjum H Ghaswala, (252 ITR 1 SC), whether settlement commission constituted under section 245B of the Income Tax Act (the Act) has jurisdiction to reduce or waive interest chargeable under sections 234A, 234B & 234C of the Act while passing orders of settlement under section 245D(4).

Earlier a 5-member special bench of the commission had held that under sub-sections (4) and (6) of section 245D the commission does not have power either to waive or reduce statutory interest payable under the Act. This view was overruled by a larger bench comprising of 7 members of the commission which held that the commission is vested with the power to waive or reduce the interest chargeable under sections 234A, 234B & 234C of the Act in cases pending before it for the assessment year 1989-90 & onwards ie the year in which chapter XVII-F was introduced in the Act.

The apex court examined in detail the provisions of chapter XIX-A and in particular sub-sections (4) & (6) of section 245D. It noted that the section confers wide powers on the commission. The Act still mandates that the same will be done in accordance with the provisions of the Act. The Supreme Court noted that by its plain language sub section (4) of section 245D does not empower the commission to waive or reduce statutory interest payable under the provisions of sections 234A, 234B & 234C of the Act.

The Supreme Court examined closely provisions of section 234A, 234B and 234C and noted that u/s 234A reference is made to an order of settlement commission under sub section (4) of section 245D & that the section is an indicator of the fact that so far as interest falling due by virtue of default in furnishing a return of income, default in payment of advance tax or interest for deferment of advance tax are concerned part F of chapter XVII has been obligated with the duty of levy interest as also to make necessary changes in the payment of interest dependent on the change that may occur consequent to the order of settlement under section 245D(4).

Supreme Court noted that wherever the Act contemplated power of waiver or reduction of interest to any authority it has so specifically mentioned like section 220(2A) of the Act. After analysing the scheme of interest payable under provisions of the Act, it observed that interest contemplated under sections 234A, 234B & 234C is mandatory in nature and the power of waiver of reducing having not been expressly conferred on the commission, the same indicates that the payment of statutory interest is outside the purview of settlement contemplated in Chapter XIX-A of the Act.

The apex court rejected the contention that section 245D(6) empowers the commission to waive or reduce the statutory interest because of reintroduction of the expression “interest” in that sub section while passing an order under sub section (4) of section 245D. The court opined that sub section 245D(6) is not a substantive provision & is merely a procedural provision.

In the opinion of the Supreme Court sub section (4) of section 245D is a substantive provision under which order of settlement is to be passed while sub section (6) of 245D also provides for terms of settlement in regard to tax. The expression of “terms” used in that sub section does not refer to the power of commission to waive or reduce tax, penalty or interest because quantification of amount payable under each of those expression are dealt with under separate provisions of the Act. The Supreme Court opined that all that the expression “terms” in section 245D(6) means is that the commission can stipulate the conditions of payment like installments, last date for payment etc. Beyond that sub section (6) does not authorise waiver or reduction of tax, penalty or interest settled under sub section (4) of section 245D. The court stated that the object of Chapter XIX-A is not to give amnesty to a tax evader from paying the tax due. It would be preposterous to hold that the commission has been conferred with the power of either reducing or waiving the tax due.

The exercise of purposive interpretation by looking into the object & scheme of the Act & legislative intendment would arise if the language of the statute is other ambiguous or conflicting or gives a meaning leading to absurdity. The language of sections 243A, 243B & 243C in clear terms impose a mandate to collect interest at the rates stipulated therein.

The change brought about by Amending Act (Finance Act 1987) is a clear indication of the fact that the intention of the legislature was to make collection of statutory interest mandatory.

While the terminology of “settlement” has a very wide dictionary meaning but when the statute qualifies such expression like settlement with mandatory words like “in accordance with the provisions of the Act” the width of the term “settlement” became subject to mandate found in the section. It cannot make any order which would be conflict with the mandatory provisions of the section.
Hence the Supreme Court concluded it would not in any manner empower the commission to either waive or reduce interest which is statutory payable under the provisions of Part F of Chapter XVII.

The Supreme Court rejected the contention that commission being statutorily constituted to arrive at settlement has inherent powers to waive or reduce interest even though it is not specifically provided by stating that it is a well established legal principle that any inherent power vested in an authority cannot be exercised contrary to the express provisions of the Act.

The apex court rejected the argument that if the commission has no powers to reduce or waive interest the entire purpose of Chapter XIX-A would be defeated. The court observed that the object of the legislature in introducing this section is to see that the protracted proceedings before the authorities or in courts are avoided by resorting to settlement of cases. Hence the assessee cannot expect any reduction in amounts statutorily payable under the Act.

The apex court held that the commission in exercise of its power under sub section (4) & (6) of section 245D does not have the power to reduce or waive interest statutorily payable under sections 234A, 234B & 234C except to the extent of granting relief under circulars issued by the board under section 119 of the Act.