High Court Of Karnataka
V.B. Desai & Anr. vs. Administrative Officer, Settlement Commission For Income Tax & Wealth Tax & Anr. (No. 1)
Section 155(1)(c), 245D
Asst. Year 1974-75, 1975-76
V.K. Singhal, J.
WP Nos. 22001-02 of 1991
5th May, 1999
K.R. Prasad, for the Petitioners : E.R. Indrakumar, for the Respondents
V.K. SINGHAL, J. :
The petitioners prayed for quashing para 25 of the order of the Settlement Commission dt. 15th June, 1984, in respect of the asst. yrs. 1974-75 and 1975-76 and also the order dt. 22nd Jan., 1991, refusing to rectify the order dt. 15th June, 1984, under which, prayer to delete para 25 was made.
2. The facts of the case are, that an order was passed by the Settlement Commission on the application moved by B.J. Desai & Sons, by which, directions with regard to tax payable were given. In para 25 it is observed that the ITO will issue a demand notice and also revise the assessment of partners so far as it covers the share income from the applicant firm. Tax payable by the applicant and the partners will be paid in eight quarterly instalments, the first instalment starting after 35 days of service of demand notice. Interest under s. 220(2) of the IT Act was to be charged from the firm as well as the partners with the last quarterly instalments. It was also observed that the settlement shall be declared void if either on a report received from the Department or otherwise, it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. Thereafter, the ITO computed the income and tax liability of the firm as well as the partners. The petitioners moved an application dt. 17th Dec., 1986, stating that the application for settlement so moved, was by the partnership firm and not by the partners and, therefore, the order could be passed against the firm and not against the partners which are separate. It was pointed out that the provisions of s. 155(1)(c) were enacted subsequently, i.e., w.e.f. 1st Oct., 1984, and, therefore, directions for computing the tax liability of the partners could not be given. The petitioners were heard by the Settlement Commission on 2nd Jan.,1991, and an order dt. 22nd Jan., 1991, was passed, in which, it was observed that, it was by virtue of s. 245F(1) of the Act that the directions have been given to the AO as contemplated under s. 153(3)(v)(i) to recompute the income in the partners’ case. The provisions of s. 245D(8) introduced w.e.f. 1st Oct., 1984, were considered only for the provision of removal of doubt of the existing position of law at the time when the time-limit of s. 153 is not applicable, with regard to assessments,reassessments and recomputation made in pursuance of any ‘directions contained in the order under s. 245D(4). It was also observed that it is the duty of the Commission in passing the order that the terms of settlement are set out and that the settlement is effective in accordance with the provisions of s. 245D(6). The settlement cannot be considered to be effective unless consequential effect is given in the case of partners and for that reason, the petition was dismissed. Against these proceedings, the petitioner has come up ‘before this Court. Learned counsel for the petitioner submitted that a Division Bench of this Court in the case of CIT vs. A.V. Venkatakeshava Shetty (ITRC Nos. 137 to 142 of 1994 decided on 14th June, 1996) observed that fixing the liability of the partner by rectifying the assessment order under s. 155 consequent to the enhancement of tax liability of the firm in pursuance of the order of settlement prior to the insertion of s. 155(1)(c) is not in accordance with the decisions given by the Supreme Court in the cases of ITO vs. S.K. Habibullah (1962) 44 ITR 809 (SC) and ITO vs. T.S. Devinatha Nadar (1968) 68 ITR 252 (SC). In the light of these judgments, it is submitted that the order passed by the Settlement Commission, only with reference to para 25, be modified, so that, the liability on the partners is not fixed as they were not party before the Settlement Commission.
3. On behalf of the IT Department, learned standing counsel, Sri E.R. Indra Kumar, pointed out that, in Shriyans Prasad Jain vs. ITO (1993) 114 CTR (SC) 411 : (1993) 204 ITR 616 (SC), it was observed that, even the Supreme Court would not go into the question in any appeal against the order of the settlement of dispute or reverse the finding of fact recorded by the Commission. The Court would interfere with the order of the Settlement Commission only if it was found to be contrary to the provisions of the IT Act. Reliance is also placed on the decision given in the case of N. Krishnan vs. Settlement Commission (1989) 80 CTR (Kar) 15 : (1989) 180 ITR 585 (Kar) wherein, it was observed that, the power of judicial review of administrative action including those of Courts and Tribunals conferred on the High Courts under Arts. 226 and 227 constitutes one of the basic structures of the Constitution. It is for an assessee to voluntarily submit to its jurisdiction after giving up his right to the ordinary remedies under the Act. In other words, it is an opportunity to surrender and to have the matter settled through the Settlement Commission. The decision of the Settlement Commission is made final and conclusive by s. 245-I of the IT Act, 1961. Sec. 245L declares all proceedings before the Settlement Commission to be judicial proceedings. The provision for settlement would show that it is in the nature of statutory arbitration to which a person may submit himself voluntarily. A contention was raised by learned standing counsel for the Department that the Settlement Commission has granted registration to the firm under s. 184 only with the understanding that the partners will also be made liable to pay tax in respect of their share of income and if the firm alone is before the Settlement Commission, then, a different view could have been taken. I have considered over the matter. Sec. 155(2)(c) of the IT Act provides that assessment of a member of an association or BOI could be amended on any order passed under sub-s. (4) of s. 245D on the application made by the association or body. The AO can also amend the order with the inclusion of share. This amendment was brought by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1st Oct., 1984. The provisions of s. 153 are for completion of assessments and reassessments under ss. 143, 144 and 147. The order passed by the ITO in pursuance of the order of the Settlement Commission are not on record and, therefore, it could be considered that the power under s. 147 was not exercised. The time- limit permitted under s. 153 has no relevance to the orders which are passed in consequence of the order of the Settlement Commission and therefore, reference to s. 153 has no relevance. It was also found that the Settlement Commission in order to make the settlement effective, the order passed by the Settlement Commission under sub-s. (4) of s. 245D would be for the terms of settlement including any demand by way of tax, penalty or interest.
It may be that the Settlement Commission has granted registration with the understanding that the partners’ would be liable to pay tax, but during the relevant time, since the partners were not before the Settlement Commission, no orders could have been passed against the partners. If it is also necessary to pass an order against the partners, then it is also necessary to hear them by the Settlement Commission. Nothing has come on record that the partners were heard or they have moved the Settlement Commission, fixing their liability or even the CIT in his report referred to the liability of the partners. Since the amendment of s. 155(2)(c) was not considered to be procedural or retrospective in its application by the Division Bench of this Court, the Settlement Commission could not have directed to fix the liability of the partners.
In these circumstances, the orders dt. 15th June, 1984, and 22nd Jan., 1991, are quashed. The matter is sent back to the Settlement Commission for determining the liability afresh as to whether the firm is liable for registration or not and the order would be passed only against the firm alone if it is considered proper.
The writ petitions are disposed of with the above observation.
[Citation : 260 ITR 273]