High Court Of Madras
V.M. Shaik Mohammed Rowther vs. Settlement Commission (IT & WT) & Ors.
Sections 245C, 245D
Asst. Year 1976-77, 1977-78, 1978-79, 1979-80, 1980-81, 1981-82, 1982-83, 1983-84, 1984-85, 1985-86, 1986-87
R. Jayasimha Babu, J.
W.P. No. 14635 & 23284 & 23285 of 1995
30th November, 1998
V. Ramachandran, for K. Mani, for the Petitioner : C.V. Rajan, for the Respondents
R. JAYASIMHA BABU, J. :
A right to be dishonest is the right that is asserted by the petitioner herein. It is his contention that the Settlement Commission has a duty to entertain the offer made by the petitioner even if found to be falling short of full and true disclosure required of an applicant under s. 245C of the IT Act, 1961 and not to reject the same under s. 245D(1) of the Act.
The petitioner set up a factory near Coimbatore for the manufacture of synthetic gems. He promoted a private limited company for that purpose. The shares of that company are held by the petitioner, his wife and daughter. The total investment made is Rs. 75.5 lakhs. The only source from which that investment was made was claimed by the assessee to be income derived from agriculture and dairy farming by himself, his wife and daughter. He claimed that besides 15 acres of agricultural lands owned by his wife, she had taken on lease 100 acres of land and had derived substantial income therefrom. It is not in dispute that the petitioner, his wife and his daughter are not assessees under the Agrl. IT Act of the State and there was also no evidence of their having compounded their liability if any, for tax under the Tamil Nadu Agrl. IT Act. The AO as also the Commissioner rejected the claim of the petitioner that the entire investment came from that source and had held that well over Rs. 50 lakhs out of that investment was not attributable to that source at all and was unexplained.
The petitioner applied to the Settlement Commission in that background seeking settlement in respect of the asst. yrs. 1976-77 to 1986-87 offering to pay tax on the sum of Rs. 30 lakhs which sum he was willing to have treated as investments made by the applicant from his own resources and not as investment made by his wife and daughter. The offer so made was subject to several conditions. The conditions as enumerated by him in this application were :(i) Tax shall be levied on the aforesaid income for the asst. yrs. 1976-77 to 1986-87. (ii) No interest under any of the provisions of the IT or the WT Act shall be levied. (iii) No penalty under any of the provisions of the IT Act shall be levied. (iv) No penal action including prosecution shall be initiated against the applicant in respect of the aforesaid assessments under the IT Act or the WT Act. (v) The applicant, his wife and daughter shall be assessed to wealth-tax in respect of the investments. The investments in the respective names shall be treated as belonging to each of them. (vi) The applicant is willing to pay the tax remaining due after adjusting the payment already made within a reasonable time as may be allowed by the Settlement Commission. When that application came up before the Settlement Commission, the Commission rejected the same after finding that the assessee had failed to make a ull and true disclosure of his income which had not been disclosed before the AO. Such rejection was supported by the Settlement Commission, by the reasons stated by it in para. 4 of its order read as under : “We further find that the AO has already made elaborate enquiries which reveal that the applicant and his wife would not have derived any substantial agricultural income. The applicant himself does not own any agricultural lands. His wife owns only 15 acres of land. It is claimed by the applicant that he had taken on lease from his brother-in-law, agricultural lands of 100 acres by paying lease rent of Rs. 20,000 per annum. The AO, however, found that the applicant’s brother-in-law, owned only 33 acres of land and, therefore, could not have possibly leased agricultural lands to the extent of 100 acres. It is further seen that the lessor was held to be not liable to agricultural income-tax since the income was below the taxable limit. Similarly, the applicant’s wife has also been held not liable to agricultural income-tax. After a careful perusal of the evidence collected by the AO with regard to the claim of the applicant in this regard. We are of the firm opinion that the extent of agricultural income taken into account by the applicant in the statement of facts is grossly exaggerated. Sri V. Ramachandran was unable to convince us that the applicant could have earned agricultural income to the extent claimed in the SOF. In our opinion, therefore, the offer made by the applicant is inadequate to cover even the admitted investments.”
4. Learned senior counsel for the petitioner submitted that the Commission has acted illegally in rejecting the application at the threshold. Counsel submitted that the Commission has no power to do so. It was submitted that an application could be rejected only on the ground of non-cooperation by the assessee or on the ground that the complexity of the investigation involved warranted rejection of the application. It was the contention of learned counsel that if the Commission were to insist upon full and true disclosure by an applicant, the existence of the Commission would be without any purpose and that it is the duty of the Commission to determine the extent of the income in every case where the application is made and it cannot be dismissed on a ground other than non-co- operation by the assessee or on the ground that the complexity of the investigation required warranting rejection. Counsel in this context referred to s. 245D(1) of the Act which is set out below : “245D. (1) On receipt of an application under s. 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 investigation 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 : Provided further that the CIT shall furnish the report within a period of forty-five days of the receipt of communication from the Settlement Commission in case of all applications made under s. 245C on or after the 1st July, 1995, and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report.” Counsel also referred to s. 245HA(1) which reads as under : “245HA. (1) The Settlement Commission may, if it is of opinion that any person who made an application for settlement under s. 245C has not co-operated with the Settlement Commission in the proceedings before it, send the case back to the AO who shall thereupon dispose of the case in accordance with the provisions of this Act as if no application under s. 245C had been made.”
5. The submissions so made for the petitioner cannot be accepted. No assessee has a right to approach the Commission without disclosing or making a full and true disclosure of his income, as such disclosure is a necessary precondition for invoking the Commission’s jurisdiction under s. 245C. An application to the Commission is not intended to enable the dishonest assessee to continue his dishonest conduct and still claim the benefits which can be conferred by the Commission if the Commission were to ultimately make an order for settlement. The Settlement Commission is not meant to be an optional forum chosen at the option of the assessee for the settlement of the tax liability of the assessee as also his liability for further proceedings or prosecution under this Act or other Acts, even while the assessee continues to be dishonest and deliberately fails to make a true and full disclosure of the extent of the income which he had not disclosed before the AO. The machinery of the Settlement Commission is available to the assessee who, after exhibiting his dishonest conduct by filing a return in which true income has not been disclosed, has availed of the chance to correct himself by making a true and full disclosure before the Commission. There is no right in the assessee to invoke the Commission’s jurisdiction even while he continues with his dishonest conduct. Sec. 245C(1) which deals with an application for settlement of case, in unambiguous terms, inter alia, prescribes “full and true disclosure” as an essential condition to be satisfied in any application presented before the Commission. Sec. 245C(1) reads as under : “245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, an containing a full and true disclosure of his income which has not been disclosed before the AO, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other 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.”
The proviso and other part of the section not being relevant for the present purpose the same are not extracted and set out here. Sec. 245H(1) which deals with the power of the Settlement Commission to grant immunity from prosecution and penalty also refers to the requirement that the assessee should make before the Commission a true and full disclosure of his income and the manner in which such income had been derived.
6. Sec. 245D deals with the procedure on receipt of an application under s. 245C. It enables the Commission, inter alia, having regard to the nature and circumstances of the case to allow the application to be proceeded with or reject the application. The circumstances of the case have been considered by the Commission after calling for a report of the Commissioner. It is on such consideration the Commission has rejected the application. The reasons given for such rejection are reasons which are clearly relevant. The assessee’s failure to make a full and true disclosure being patent, it was not necessary for the Commission to proceed with the further consideration of the application only to pass an order of rejection at the end of such further proceeding.
The impugned order does not suffer from any infirmity calling for interference in exercise of the discretionary power of this Court. The writ petition is dismissed with costs of Rs. 1,500. Consequently, WMP Nos. 23284 and 23285 of 1995 are also dismissed.
[Citation: 236 ITR 581]