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CASE NO.:

Appeal (civil) 4126 of 2000

PETITIONER:

COMMISSIONER OF INCOME TAX,MUMBAI

RESPONDENT:

ANJUM M.H.GHASWALA & ORS.

DATE OF JUDGMENT: 18/10/2001

BENCH:

A.S.ANAND CJI & K.T.THOMAS & R.C.LAHOTI & SANTOSH N.HEGDE & S.N.VARIAVA

JUDGMENT:

JUDGMENT

DELIVERED BY:

SANTOSH N.HEGDE,J.

SANTOSH HEGDE, J.

In these appeals, the question that arises for our

consideration is: whether the Settlement Commission (for short

the Commission) constituted under Section 245B of the

Income-tax Act, 1961 (hereinafter referred to as the Act) has

the jurisdiction to reduce or waive the interest chargeable under

Sections 234A, 234B and 234C of the Act, while passing orders

of settlement under Section 245D(4) of the Act ?

Earlier, this question arose before the Commission in the

case of Ashwani Kumar Aggarwal, In re (195 ITR 861) wherein

a 5-Member Special Bench of the Commission held that under

Section 245D(4) or sub-section (6), the Commission does not

have the power either to waive or reduce the statutory interest

payable under the Act.

This view of the 5-Member Bench of the Commission

was overruled by a larger Bench comprising of 7 Members of

the Commission which held otherwise by the impugned order.

It held that the Commission is vested with the power to waive

or reduce the interest chargeable under Section 234A, 234B and

234C of the Act in cases pending before it for the assessment

year 1989-90 and onwards (i.e. the year in which Chapter XVII-

F was introduced in the Act). It further held that this power can

be exercised by any of the Benches constituted to settle cases

under Section 245BA of the Act. While coming to this

conclusion, the Commission held that the constitution of the

Commission is based on the concept of compromise and

settlement, hence, it has the necessary power to waive or

reduce the interest, even if statutorily mandated, in view of the

wordings of Section 245D(6) of the Act.

It also held that in view of the definition of the term

income-tax authority under Section 245A(d), the Commission

being an income-tax authority it has all the powers of the Board

which are incidental to the functions of the Commission, which

includes the Boards power under Section 119 of the Act to

relax the rigors of Section 234A, 234B and 234C of the Act.

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By applying the rule of construction, the Commission

further held that taking into consideration the object for which

the Commission is constituted, it should be held by the process

of purposive interpretation that it has the power of waiver or

reduction of statutory interest because the object of the

Legislature was to settle the case without there being any

restriction on Commissions power to settle the case.

For the purpose of deciding the above issue, it is

necessary for us to examine the various provisions of the Act

which are germane to the controversy in hand.

The constitution of the Commission and its powers are

traceable to the provisions of Chapter XIX-A of the Act. As

noted above, Section 245-B provides for the constitution of a

Commission by the Central Government for settlement of cases

under that Chapter. It also provides for appointment of a

Chairman, Vice-Chairman and members of the Commission,

the constitution of various Benches of the Commission and

empowers those Benches to exercise power and authority

vested in the Commission under Chapter XIX-A of the Act.

Section 245A defines various expressions under sub-clauses (a)

to (g) but does not define the expression settlement.

Section 245-C provides for filing of an application by an

assessee at any stage of the case relating to him in a prescribed

manner giving full and true disclosure of his income which has

not been disclosed before the assessing officer and further

informing the manner in which such income has been derived

by him and the quantum of additional amount of income-tax

payable on such income amongst other particulars that may be

prescribed with a prayer to the Commission to have the case

settled.

The word case has been defined under Section 245A(b)

thus :

case means any proceeding under this Act

for the assessment or reassessment of any

person in respect of any year or years, or by

way of appeal or revision in connection with

such assessment or reassessment, which may

be pending before an income-tax authority

on the date on which an application under

sub-section (1) of section 245C is made :

Provided that where any appeal or

application for revision has been preferred

after the expiry of the period specified for

the filing of such appeal or application for

revision under this Act and which has not

been admitted, such appeal or revision shall

not be deemed to be a proceeding pending

within the meaning of this clause;

Under the provisions of Chapter XIX-A, on such

application being made, the Commission is empowered to

dispose of the same in the manner provided thereunder. Section

245D provides for the procedure and exercise of power to be

followed by the Commission on receipt of an application under

Section 245C. Under this provision, the Commission has the

authority to call for the report from the Commissioner of

Income Tax (for short the Commissioner) and on the basis of

the material contained in such report and having regard to the

nature and circumstances of the case or the complexity of the

investigation involved therein, it may by order allow the

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application to be proceeded with or reject the application.

If the Commission allows the application filed under

Section 245C then under sub-section (3) of Section 245D it can

call for the relevant records from the Commissioner and if it

forms any opinion that any further inquiry or investigation in

the matter is necessary, it may direct the Commissioner to make

or cause to be made such further inquiry or investigation and

furnish a report on the matters covered by the application and

other matters relating to the case.

Sub-sections (4) and (6) of Section 245D being of

importance for the purpose of our discussion, the same are

extracted in verbatim hereunder :

(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).

x x x

(6) Every order passed under sub-section (4)

shall provide for the terms of 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

misrepresentation of facts. (emphasis

supplied).

From the above provisions of law, it is seen that the

Commission after examination of the records and reports

submitted to him and after giving an opportunity to the

applicant and to the Commissioner of being heard, may pass

such order as it thinks fit on the matters covered by the

application. Though Section 245D(4) confers wide power on

the Commission in the process of settling a case, the Act still

mandates that the same will be done in accordance with the

provisions of the Act.

While that is the mandate which is given to the

Commission, a perusal of sub-section (6) of Section 245D

shows that it has also empowered the Commission to provide

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for the terms of 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. It is an admitted position 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 Section 234A, 234B or 234C.

The moot question, therefore, for our consideration is:

does sub-section (6) which contemplates providing for the

terms of settlement of tax, penalty or interest empowers the

Commission, in any manner, either to waive or reduce interest

payable under Section 234A, 234B or 234C in any case that

arises for settlement before the Commission ? If so, would this

waiver of interest be in accordance with the provisions of the

Act as mandated in sub-section (4) of the Act ?

For answering the above question, we will have to

examine the character of interest payable under the provisions

of Section 234A, 234B and 234C. A perusal of these Sections

shows that the interest for default in furnishing return of

income, default in payment of advance tax and interest for

deferment of advance-tax are mandatory in nature. Section

234A which refer to the payment of interest for default in

furnishing the return of income-tax mandates :

234A. (1) Where the return of income for any

assessment year under sub-section (1) or sub-

section (4) of section 139, or in response to a

notice under sub-section (1) of section 142, is

furnished after the due date, or is not furnished, the

assessee shall be liable to pay simple interest at the

rate of [one and one-half] {Substituted for two

by the Finance Act, 1999 w.e.f. 1.6.1999} per cent

for every month or part of a month comprised in

the period commencing on the date immediately

following the due date, and, ---- (emphasis

supplied).

Similarly, Sections 234B and 234C also use similar

mandatory words in regard to payment of interest. At this stage,

it is of importance to notice sub-section (4) of Section 234A

which reads thus :

(4) Where as a result of an order under

section 154 or section 155 or section 250 or

section 254 or section 260 or section 262 or

section 263 or section 264 or an order of the

Settlement Commission under sub-section

(4) or section 245D, the amount of tax on

which interest was payable under sub-

section (1) or sub-section (3) of this section

has been increased or reduced, as the case

may be, the interest shall be increased or

reduced accordingly, and ---

(i) in a case where the interest is

increased, the Assessing Officer shall

serve on the assessee a notice of

demand in the prescribed form

specifying the sum payable, and such

notice of demand shall be deemed to

be a notice under section 156 and the

provisions of this Act shall apply

accordingly;

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(ii) in a case where the interest is reduced,

the excess interest paid, if any, shall

be refunded. (emphasis supplied)

A perusal of this sub-section which refers to sub-section

(4) of Section 245D mandates that if by virtue of an order

passed under Section 245D, the amount of tax on which interest

was payable under sub-section (1) or sub-section (3) of this

Section has been increased or reduced, as the case may be, the

interest shall be increased or reduced accordingly. This Section

is an indicator of the fact that so far as the 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 of interest, as also to make the necessary

changes in the payment of interest dependent on the change that

may occur consequent to the order of settlement under Section

245D(4).

It is also to be noted that wherever the Act contemplated

power of waiver or reduction of interest to be entrusted with

any particular authority in any particular situation, it has done

so like in Section 220(2A) of the Act. It is also worthwhile to

note that the Act wherever it contemplated that there should be

no levy of interest, it has clearly made provision for the same as

could be seen from Section 158BF which mandates that no

interest under the provisions of Section 234A, 234B or 234C

shall be levied or imposed upon the assessee in respect of the

undisclosed income determined in the block assessment.

If the scheme of levy of interest is thus to be analysed on

the anvil of the provisions referred to hereinabove, it shows that

the interest contemplated under Sections 234A, 234B and 234C

is mandatory in nature and the power of waiver or reduction

having not been expressly conferred on the Commission, the

same indicates that so far as the payment of statutory interest is

concerned, the same is outside the purview of the settlement

contemplated in Chapter XIX-A of the Act.

The Commission, however, traced its power to waive or

reduce interest to the objects of the Act and to what it termed as

schematic rationalisation of the provisions of Chapter XIX-A. It

also based its finding on the statutory provisions i.e. Sections

245D(4) and (6) and Section 119(2) of the Act.

From amongst the above grounds on which the impugned

order is founded, we will examine the correctness of the

statutory basis of the order first.

The Commission in the impugned order placed strong

reliance on the wording of Section 245D(6) the language of

which, according to the Commission, empowers it to waive or

reduce statutory interest because of the reintroduction of the

expression interest in that sub-section. According to the

findings of the Commission, the inclusion of the expression

interest clearly indicates that the Statute has permitted it to

pass such orders as it deems fit in regard to payment of interest

when an order under sub-section (4) of Section 245D is made

by it. This assumption of the Commission proceeds on the

hypothesis that sub-section (6) of Section 245D is a substantive

provision. We are unable to agree with this view of the

Commission. The substantive provision in regard to settlement

in Chapter XIX-A, in our opinion, is sub-section (4) of Section

245D. It is under this provision of the Act that the Commission

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will have to pass orders as it thinks fit on the matters covered

by the application. In our opinion, sub-section (6) of Section

245D is only procedural in nature. It provides for fixing the

terms by which the amount settled in sub-section (4) will have

to be paid. It is not a Section which empowers the Commission

either to waive or reduce the interest. At the cost of repetition,

we must point out that apart from the fact that there is no

specific empowerment of waiver or reduction of tax in Chapter

XIX-A, it is also clear from the use of the expression in

accordance with the provisions of this Act found in sub-

section (4) of Section 245D, the settlement will have to be in

conformity with the Act and not contrary to or in conflict with

it. There is yet another factor to be taken note of while

interpreting sub-section (6) of Section 245D. The said sub-

section also provides for terms of settlement in regard to the

tax. If the interpretation given by the Commission is to be

accepted, it would mean that under the provisions of Section

245D(6), the Commission also has the power of waiving or

reducing the tax payable on the income settled by the

Commission. If this position in law is presumed to be correct

then the very purpose of the settlement contemplated in Chapter

XIX-A would defeat the object of the principal Act itself. As

held by the Commission itself, Chapter XIX-A was included for

the purpose of quick settlement of the cases before it so that the

tax due to the Revenue is collected at the earliest. The object of

Chapter XIX-A is not to give amnesty to a tax evader from

paying the tax due. Hence, it would be preposterous to hold

that the Commission has been conferred with the power of

either reducing or waiving the tax due. We are aware that the

Commission in the impugned order has not gone to the extent

of holding that it has the power of either waiving or reducing

the tax payable but then that would be the logical conclusion if

we accept the interpretation given by the Commission in regard

to the expression interest in Section 245D(6) of the Act. A

proper reading of sub-section (6) would show that all that it

contemplates is that while the Commission makes an order of

settlement under sub-section (4) it will also have to provide for

the terms under which the amount payable by way of tax,

penalty or interest shall be paid by the assessee. The expression

terms used in that sub-section does not refer to the power of

the Commission to waive or reduce tax, penalty or interest

because quantification of amount payable under each of those

expressions are dealt with under separate provisions of the Act

like the payment of the tax is governed by various provisions of

the Act as defined in Section 2(43) of the Act while penalty is

covered by Section 245H and interest under Sections 234A,

234B and 234C of the Act. Therefore, all that the expression

term in Section 245D(6) means is that the Commission can

stipulate the conditions of payment like instalments, last date

for payment etc. Beyond that, in our opinion, sub-section (6)

does not authorise the waiver or reduction of tax, penalty or

interest settled under sub-section (4) of Section 245D.

The Commission in support of its view on this score has

placed reliance on the judgment of this Court in the case of

Commissioner of Income-Tax v. Express Newspapers Ltd. (206

[1994] ITR 443) wherein this Court observed thus :

Sub-section (4) of section 245D

provides for passing of final orders by the

Commission. It is not necessary to refer to

the other provisions in the Chapter except to

mention that the Commission is empowered

to direct the waiver of penalty as well as

interest and to direct that the tax payable

shall be paid in prescribed instalments. It is

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further empowered to direct that the assessee

whose case has been decided by it shall not

be proceeded with or prosecuted under the

Income-tax Act or under the Indian Penal

Code or under any other Central Act for the

time being in force with respect to the case

covered by the settlement. The orders of the

Commission are final, subject of course to

constitutional remedies.

In our opinion, this observation in the Express

Newspapers case (supra) does not help the Commission in

support of its conclusion in regard to its power under Sections

245D(4) and (6). It is to be noted that in that case the settlement

sought was with regard to assessment years 1985-86, 1986-87

and 1987-88. It is an admitted fact that during those assessment

years, Sections 234A, 234B and 234C were not in the statute

book. On the contrary, the corresponding provisions existing in

the Statute, namely, Sections 139(8), 215(4) and 216 in terms

empowered the income-tax authorities to waive or reduce

interest. It is in that context that this Court observed, in the

paragraph extracted hereinabove, that under Section 245D(4),

the Commission has the power to direct the waiver of penalty as

well as interest because that was within the scope of the

provisions of the Act, as then existing, whereas at present and

for the assessment years involved in this case, Sections 234A,

234B and 234C being applicable that observation does not

apply to the cases in hand. The sentence except to mention that

the Commission is empowered to direct the waiver of penalty

as well as interest is used in that judgment on the basis of

the then existing law and to apply the same to the facts of the

present case with the mandatory change in law would amount

to applying those principles in the Express Newspapers case

(supra) out of context.

Nextly, the Commission also traced its power either to

waive or reduce the interest to Section 119(2) of the Act. In our

opinion, this process of tracing Commissions power to Section

119(2) of the Act is rather convoluted. It first relied upon

Section 245F which conferred on it the powers vested in an

income-tax authority. Next it relied upon the definition of the

expression income-tax authority as found in Section 245A(d)

of the Act which in turn referred to Section 116 of the Act

which included the Board as one of the income-tax authorities

for the purpose of the Act. Having equated itself with the

Board, it traced the power of the Board to Section 119(2) to

relax the rigor of Sections 234A, 234B and 234C. Thus, by this

process the Commission came to the conclusion that it can also

relax the rigur of Sections 234A, 234B and 234C while passing

the order of settlement without really considering whether in

the context in which this power is conferred on the Board, the

Commission could equate itself with the Board for the purpose

of exercising power under Section 119(2). Therefore, we will

first examine whether the Commission can be construed as a

Board for the purpose of Section 119 or in the alternative by

virtue of Section 245F(d) read with Section 245A(d) read with

Section 116 can the Commission exercise the power conferred

on the Board under Section 119 of the Act ? For this purpose it

is necessary to examine the nature of power exercised by the

Board under Section 119 of the Act. Undoubtedly, the Board is

an executive authority being a part of the Ministry of Finance.

Its actions are amenable to scrutiny by the said Ministry as also

by audit bodies and also the Parliament whereas the

Commission constituted under Section 245B of the Act is a

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quasi-judicial body (see Sec.245L) and its orders are not

amenable to either supervisory or appellate jurisdiction of the

Ministry of Finance or any of the audit bodies and for that

matter even by the Parliament. Its orders under Section 245-I

are conclusive which cannot be reopened in any proceedings

under the Act or under any other law for the time being in force.

Therefore, it cannot be said that in the context in which the

power under Section 119 could be exercised by the Board, the

Commission could either equate itself with the Board or claim

the right to exercise the power vested in the Board under

Section 119 which is an administrative power.

Then it is to be seen that the Act requires the Board to

exercise the power under Section 119 in a particular manner i.e.

by way of issuance of orders, instructions and directions. These

orders, instructions and directions are meant to be issued to

other income-tax authorities for proper administration of the

Act, the Commission while exercising its quasi-judicial power

of arriving at a settlement under Section 245D cannot have the

administrative power of issuing directions to other income-tax

authorities. It is a normal rule of construction that when a

statute vests certain power in an authority to be exercised in a

particular manner then the said authority has to exercise it only

in the manner provided in the statute itself. If that be so since

the Commission cannot exercise the power of relaxation found

in Section 119(2)(a) in the manner provided therein it cannot

invoke that power under Section 119(2)(a) to exercise the same

in its judicial proceedings by following a procedure contrary to

that provided in sub-section (2) of Section 119.

There is one other reason why Section 119(2) is not

available to the Commission, because if we examine the

provisions of Section 245A through which the Commission has

traced its power to be equated with the Board which defines the

expression case to mean any proceeding under this Act for

the assessment or reassessment of any person in respect of any

year or years..which may be pending before an income-

tax authority on the date on which an application under sub-

section (1) of Section 245 is made. As per this definition, it is

clear that the power of settlement is vested in the Commission

in regard to a particular case pertaining to an assessee, may be

for one or more years while the power of relaxation

contemplated under Section 119(2)(a) can be exercised only in

regard to class of cases or class of incomes. It is not open to be

used in regard to any particular person or case contemplated

under the definition of the expression case in Section 245A

(supra). Therefore, we are of the opinion that the context in

which the power under Section 119 is vested in the Board and

the context in which the power of settlement is vested with the

Commission under Section 245C indicates that the Parliament

did not intend that the power under section 119 of the Act could

be used by the Commission for granting the said relief, and the

Commission cannot be equated with the Board for the purpose

of exercise of the power under Section 119 of the Act. Having

noticed this difference, the Commission in the impugned order

holds that it is not exercising the administrative power of

issuing directions or instructions, hence, it relied upon the

legislative intent of giving relief of waiver or reduction of

interest to the assessee while arriving at a settlement.

Nextly, the Commission has elaborately discussed the

object of introduction of Chapter XIX-A in the Act, the history

behind the introduction and schematic rationalisation of the

provisions of Chapter XIX-A brought about through Finance

Act, 1987 to hold that in exercising its power under Chapter

XIX-A it has almost an unbridled power to arrive at a

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settlement. This exercise of purposive interpretation by looking

into the object and scheme of the Act and legislative

intendment would arise, in our opinion, if the language of the

Statute is either ambiguous or conflicting or gives a meaning

leading to absurdity. We do not find any such problem in the

provisions of the Act to which we have already referred to.

Sections 234A, 234B and 234C in clear terms impose a

mandate to collect interest at the rates stipulated therein. The

expression shall used in the said Section cannot by any stretch

of imagination be construed as may. There are sufficient

indications in the scheme of the Act to show that the expression

shall used in Sections 234A, 234B and 234C is used by the

Legislature deliberately and it has not left any scope for

interpreting the said expression as may. This is clear from the

fact that prior to the Amendment brought about by the Finance

Act, 1987, the Legislature in the corresponding Section

pertaining to imposition of interest used the expression may

thereby giving a discretion to the authorities concerned to either

reduce or waive the interest. The change brought about by the

Amending Act (Finance Act, 1987) is a clear indication of the

fact that the intention of the Legislature was to make the

collection of statutory interest mandatory. In this connection,

we may usefully refer to the judgment of this Court in Jaywant

S. Kulkarni & Ors. v. Minochar Dosabhai Shroff & Ors. (AIR

1988 SC 1817) wherein this Court held that when the

Legislature changes the expression may to shall by

amendment of the statute, it is clear that it intended to make the

provision mandatory from the existing directory provision.

Therefore, the question of the Commission relying upon

external aids, for the purpose of interpretation like Wanchoo

Committee Report, Discussions of Select Committee of

Parliament and introduction of Chapter XIX-A in the Act, Press

Release of the Board dated 21.5.1996 etc. are purposeless

because of the clear and unambiguous language used in

Sections 234A, 234B and 234C and Sections 245D(4) and (6).

We notice if only the Commission were to follow the golden

rule of interpretation by giving the words of the Statute their

natural and ordinary meaning without unnecessarily going into

a forensic exercise of trying to find out the object of the

introduction of Chapter XIX-A or Part F of Chapter XVII, the

Commission would not have fallen in error.

It is no doubt true that the terminology settlement has a

very wide dictionary meaning and in the absence of a statutory

definition generally the word settlement in sub-section (4) of

Section 245D would give the Commission sufficient power to

arrive at a settlement which it deems fit, but when the statute

qualifies such expression like settlement with mandatory

words like in accordance with the provisions of this Act the

width of the term settlement becomes subject to the mandate

found in that Section, which would mean that while a

Commission has sufficient elbow-room in assessing the income

of the applicant under Section 245D(4) it cannot make any

order with a term of the settlement which would be in conflict

with the mandatory provisions of the Section like in the

quantum and payment of tax and/or interest. In this view of the

matter, we are of the opinion that assuming that there is any

room for interpretation of the provisions of Part F of Chapter

XVII and Chapter XIX-A, we would hold that it would not in

any manner empower the Commission to either waive or reduce

interest which is statutorily payable under the provisions of Part

F of Chapter XVII.

It was then argued that the Commission having been

statutorily constituted to arrive at a settlement has also the

inherent power which includes the power to waive or reduce the

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interest even though it is not specifically provided for. This

argument, in our opinion, cannot be sustained. Assuming that

the Commission has any inherent power, 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. In the instant case, there being express provisions in regard

to the levy of interest under Part F of Chapter XVII even if

there is any inherent power in the Commission such power

cannot be exercised contrary to the provisions of the said

Chapter.

Shri Ramamurti, learned senior counsel appearing for

some of the respondents, placed strong reliance on the Press

Release dated 21st May, 1996 issued by the Board in support of

the contentions raised on behalf of the respondents. It is true

that by this Press Release the Board had interpreted the

provisions of the Act in a particular manner. Be that as it may,

we would like to make it clear that every Clarificatory Note or

Press Release issued by the Board does not have the statutory

force like the Circulars issued by the Board under Section 119

of the Act. It is only those Circulars issued by the Board under

the provisions of Section 119 of the Act, will have the statutory

force and will be binding on every income-tax authorities.

Therefore, the Press Release relied upon by Shri Ramamurti not

being a Circular issued under Section 119 of the Act will not be

of any assistance to the respondents in support of their

contentions.

It is then contended that if it is to be construed that the

Commission has no power of waiver or reduction of interest

then the entire purpose of Chapter XIX-A would be defeated

since a person making an application to the Commission would

not be in any way better off than pursuing his remedy otherwise

provided in the Act. We are unable to accept this argument

advanced on behalf of the respondents because the persons who

approach the Commission under Chapter XIX-B are admittedly

the persons who had not declared their true incomes to the

income-tax authorities as required under the Act. Inspite of this

default, Section 245C comes to the aid of such assessees by

providing a way out of the statutory implications of their

default. 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. In this

process, an assessee cannot expect any reduction in amounts

statutorily payable under the Act. While the Settlement

Commission arrives at the taxable income of the assessee on the

basis of records available before it, it has to levy the

mandatorily chargeable tax on such income arrived at by it and

wherever interest is due under the mandatory provisions like

Sections 234A, 234B and 234C, it has to include the said

interest also in the settlement. But, at the same time, the

assessee who because of his non-disclosure would otherwise

have been liable for various penal actions, gets an opportunity

of getting immunity from penal proceedings. It is to be seen

that under Section 245H the Commission has the power to grant

immunity to the assessee from prosecution and penalty. This

immunity is not confined only to the penal provisions of the Act

but it is also available if granted by the Commission to offences

under the Indian Penal Code or under any other Central Act for

the time being in force and also get the benefit of waiver or

reduction in the imposition of penalty under the Act with

respect to the cases covered by the settlement. Therefore, it is

futile to contend that merely because the Settlement

Commission has not been vested with the power of waiving or

reducing the interest, Chapter XIX-A would either become

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otiose or would not serve any purpose. Hence, this argument

has to be rejected.

Learned Solicitor General has pointed out that by virtue

of the power vested in the Board under Section 119(2)(a) of the

Act, the Board has issued Circulars by Notification

No.F.No.400/234/95-IT(B) dated 23.5.1996. As per this

Circular, it has empowered that the Chief Commissioner of

Income Tax and Director General of Income-tax may waive or

reduce interest charged under Sections 234A, 234B and 234C

of the Act in the class of cases or class of incomes specified in

paragraph 2 of the said order for the period and on conditions

which are enumerated therein. He submitted that in view of the

said Circular, the same authority can be exercised by the

Commission since the said Circular would amount to relaxation

of the rigor of Sections 234A, 234B and 234C of the Act. We

are in unison with this submission of the learned Solicitor

General. This Court in a catena of cases has held that the

Circulars of the Central Board of Direct Taxes are legally

binding on the Revenue. See UCO Bank v. Commissioner of

Income Tax (1999) [237 ITR 889]. Since these Circulars are

beneficial to the assessees, such benefit can be conferred also

on the assessees who have approached the Settlement

Commission under Section 245C of the Act on such terms and

conditions as contained in the Circular. In our opinion, it is for

this purpose that Section 245F of the Act has empowered the

Settlement Commission to exercise the power of an income-tax

authority under the Act. We must clarify here that while

exercising the power derived under the Circulars of the Board,

the Commission does not act as a subordinate to the Board but

will be enforcing the relaxed provisions of the Circulars for the

benefit of the assessee in the process of settlement.

For the reasons stated above, we hold that the

Commission in exercise of its power under Sections 245(4) and

(6) does not have the power to reduce or waive interest

statutorily payable under Sections 234A, 234B and 234C except

to the extent of granting relief under the Circulars issued by the

Board under Section 119 of the Act.

In conclusion, we must note that we have taken up for

consideration Civil Appeal Nos.4126-50/2000 and have decided

the issue pertaining to the power of the Commission to waive or

reduce the interest chargeable under Sections 234A, 234B and

234C of the Act while passing orders of settlement under

Section 245D(4) of the Act. We have not decided any other

issue that might arise in all the appeals/petitions.

Having decided the abovesaid question of law, we think

it proper that all these matters be placed before a Division

Bench of this Court for disposal in accordance with law.

It is ordered accordingly. No costs.

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