It has been discussed, elaborated over the years the basics of Wanchoo Committee Report and the creation of Income Tax Settlement Settlement Commission. Nevertheless, it is also necessary now to revisit the basics to the formation of Income Tax Settlement Commission in the context of ITSC omitted to find place in Draft DTC and having cropped in DTC Bill 2010.
The basics of Wanchoo Committee Report, thus be:
i.to bring in a mechanism for the errant tax payer to correct himself.
ii.to allow the errant tax payer to have his tax matters solved under one umbrella in avoiding litigation.
The Finance Act 2007 had brought in sweeping changes to the provisons of Income Tax Settlement Commission which found to be a fact that the ITSC is virtually killed.
The Finance Act 2010 had brought in a minor change paving the way for assesses who have been searched under section 132 of IT Act 1961 could be let in to the fold of ITSC with minimum tax payment of Rs.50 Lakhs.
The period in between Finance Act 2007 and Finance Act 2010, the Draft Direct Taxes Code came in to public domain for debate and the Chapter of Income Tax Settlement Commission did not find any space and thus no valid discussion took place thereto.
The Direct Taxes Code Bill 2010 is provided with Chapter for Settlement Commission and it goes for discussion before Parliament Committee without being discussed in public domain.
Any adjudicating authority of law requires judicial representation in adjudication the mandate of constitution.
In the context of aforesaid reasons it has become necessary for the public to debate on certain provisions.
A. Constitution of ITSC.
Section.268 of DTC Bill 2010.
268. (1) The Central Government shall constitute a Commission to be called the Incometax
Settlement Commission for the settlement of cases under this Chapter.
(2) The Settlement Commission shall consist of a Chairperson and as many Vice-
Chairpersons and other members as the Central Government deems fit and shall function
within the Department of the Central Government dealing with direct taxes.
(3) The Chairperson, Vice-Chairperson and other members of the Settlement
Commission shall be appointed by the Central Government from amongst the officers of the
Indian Revenue Service who have served for at least twenty-eight years in the service,
including at least five years in the rank of Commissioner or above.
289. Any proceeding under his Chapter before the Settlement Commission shall be a
judicial proceeding within the meaning of sections 193 and 228, and for the purposes of
section 196 of the Indian Penal Code.
The bill provides the Income Tax Settlement Commission shall be administered from persons drawn from the Indian Revenue Service vested with judicial functions.
It is worthy to bring in, the viewof Supreme Court Of India as to the constititution of Tribunals as that of Income Tax Settlement Commission which is provided with judicial powers such as to grant immunity from penalty and prosecution. A worthy debate may be required in the light of the decision placed below.
Bench: K Balakrishnan, L S Panta, P Sathasivam
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
WRIT PETITION NO.634 OF 2007
Pareena Swarup .... Petitioner (s)
Versus
Union of India .... Respondent(s)
JUDGMENT
P. Sathasivam, J.
1) Ms. Pareena Swarup, member of the Bar, has filed this
writ petition under Art. 32 of the Constitution of India by way
of Public Interest Litigation seeking to declare various sections
of the Prevention of Money Laundering Act, 2002 such as
Section 6 which deals with adjudicating authorities,
composition, powers etc., Section 25 which deals with the
establishment of Appellate Tribunal, Section 27 which deals
with composition etc. of the Appellate Tribunal, Section 28
which deals with qualifications for appointment of
Chairperson and Members of the Appellate Tribunal, Section
1
32 which deals with resignation and removal, Section 40
which deals with members etc. as ultra vires of Arts. 14, 19 (1)
(g), 21, 50, 323B of the Constitution of India. It is also
pleaded that these provisions are in breach of scheme of the
Constitutional provisions and power of judiciary.
2) Brief facts in a nutshell are:
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The Prevention of Money Laundering Act, 2002 (hereinafter
referred to as "the Act") was introduced for providing
punishment for offence of Money Laundering. The Act also
provides measures of prevention of money laundering. The
object sought to be achieved is by provisional attachment of
the proceeds of crime, which are likely to be concealed,
transferred or dealt with in any manner which may result in
frustrating any proceedings relating to confiscation of such
proceeds under the Act. The Act also casts obligations on
banking companies, financial institutions and intermediaries
to maintain record of the transactions and to furnish
information of such transactions within the prescribed time.
In exercise of powers conferred by clause (s) of sub-section (2)
of Section 73 read with Section 30 of the Prevention of Money-
2
Laundering Act, 2002 (15 of 2003), the Central Government
framed rules regulating the appointment and conditions of
service of persons appointed as Chairperson and Members of
the Appellate Tribunal. These rules are the Prevention of
Money-Laundering (Appointment and Conditions of Service of
Chairperson and Members of Appellate Tribunal) Rules, 2007.
The Central Government has also framed rules called the
Prevention of Money Laundering (Appointment and Conditions
of Service of Chairperson and Members of Adjudicating
Authorities) Rules, 2007.
3) It is highlighted that the provisions of the Act are so
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provided that there may not be independent judiciary to
decide the cases under the Act but the Members and the
Chairperson are to be selected by the Selection Committee
headed by the Revenue Secretary. It is further pointed out
that the Constitutional guarantee of a free and independent
judiciary, and the constitutional scheme of separation of
powers can be easily and seriously undermined, if the
legislatures were to divest the regular Courts of their
jurisdiction in all matters, entrust the same to the newly
3
created Tribunals. According to the petitioner, the statutory
provisions of the Act and the Rules, more particularly, relating
to constitution of Adjudicating Authority and Appellate
Tribunal are violative of basic constitutional guarantee of free
and independent judiciary, therefore, beyond the legislative
competence of the Parliament. The freedom from control and
potential domination of the executive are necessary preconditions
for the independence. With these and various
other grounds, the petitioner has filed this public interest
litigation seeking to issue a writ of certiorari for quashing the
abovesaid provisions which are inconsistent with the
separation of power and interference with the judicial
functioning of the Tribunal as ultra vires of the Constitution of
India.
4) The respondent-Union of India has filed counter affidavit
repudiating the claim of the petitioner. The Department
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highlighted that the impugned Act has not ousted the
jurisdiction of any courts and sufficient safeguards are
provided in the appointment of officers of the Adjudicating
4
Authorities, Members and Chairperson of the Appellate
Tribunal.
5) We have carefully verified the provisions of the Act and
the Rules, particularly, relating to constitution and selection of
Adjudicating Authorities, Members and Chairperson of the
Appellate Tribunal. Considering the stand taken by the
petitioner with reference to those provisions, we requested Mr.
K.K. Venugopal, learned senior counsel, to assist the Court.
Pursuant to the suggestion made by the Court, Mr. K.K.
Venugopal and Mr. Gopal Subramaniam, learned Additional
Solicitor General, discussed the above issues and by
consensus submitted certain proposals.
6) The petitioner has highlighted the following defects in the
Adjudicating Authority Rules, 2007 and the Appellate Tribunal
Rules, 2007:-
1. Rule 3(3) of Adjudicating Authority Rules, 2007 does not explicitly specify the qualifications of member
from the field of finance or accountancy.
2. Rule 4 of Appellate Tribunal Rules, 2007 which provided for Method of Appointment of Chairperson do
not give adequate control to Judiciary.
5
3. Rule 6(1) of Appellate Tribunal Rules, 2007 which defines the Selection Committee for recommending
appointment of Members of the Tribunal, would undermine the constitutional scheme of separation of powers
between judiciary and executives.
4. Rule 32(2) of PMLA which provides for removal of Chairperson/Members of Tribunal under PMLA does
not provide adequate safety to the tenure of the Chairperson/Members of the Tribunal.
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5. Rule 6(2) of Appellate Tribunal Rules is vague to the extent that it provides for recommending names after
"inviting applications thereof by advertisement or on the recommendations of the appropriate authorities."
6. Section 28(1) of PMLA, which allows a person who "is qualified to be a judge of the High Court" to be the
Chairperson of the Tribunal, should be either deleted or the Rules may be amended to provide that the Chief
Justice of India shall nominate a person for appointment as Chairperson of Appellate Tribunal under PMLA
"who is or has been a Judge of the Supreme Court or a High Court" failing which a person who "is qualified
to be a judge of the High Court."
7. The qualifications for Legal Member of the Adjudicating Authority should exclude "those who are
qualified to be a District Judge" and only serving or retired District Judges should be appointed. The
Chairperson of the Adjudicating Authority should be the Legal member.
7) As regards the above defects in the rules, as observed
earlier, on the request of this Court, Mr. K.K. Venugopal,
learned senior counsel, Mr. Gopal Subramaniam, learned ASG
as well as Ms. Pareena Swarup who has filed this PIL
6
suggested certain amendments in the line of the constitutional
provisions as interpreted by this Court in various decisions.
8) It is necessary that the Court may draw a line which the
executive may not cross in their misguided desire to take
over bit by bit and judicial functions and powers of the State
exercised by the duly constituted Courts. While creating new
avenue of judicial forums, it is the duty of the Government to
see that they are not in breach of basic constitutional scheme
of separation of powers and independence of the judicial
function. We agree with the apprehension of the petitioner
that the provisions of Prevention of the Money Laundering Act
are so provided that there may not be independent judiciary to
decide the cases under the Act but the Members and the
Chairperson to be selected by the Selection Committee headed
by Revenue Secretary. It is to be noted that this Court in the
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case of L. Chandra Kumar vs. Union of India and Ors.,
(1997) 3 SCC 261 has laid down that power of judicial review
over legislative action vested in the High Courts under Article
226 as well as in this Court under Article 32 of the
7
Constitution is an integral and essential feature of the
Constitution constituting part of the its structure. The
Constitution guarantees free and independent judiciary and
the constitutional scheme of separation of powers can be
easily and seriously undermined, if the legislatures were to
divest the regular courts of their jurisdiction in all matters,
entrust the same to the newly created Tribunals which are not
entitled to protection similar to the constitutional protection
afforded to the regular Courts. The independence and
impartiality which are to be secured not only for the Court but
also for Tribunals and their members, though they do not
belong to the `Judicial Service' are entrusted with judicial
powers. The safeguards which ensure independence and
impartiality are not for promoting personal prestige of the
functionary but for preserving and protecting the rights of the
citizens and other persons who are subject to the jurisdiction
of the Tribunal and for ensuring that such Tribunal will be
able to command the confidence of the public. Freedom from
control and potential domination of the executive are
necessary pre-conditions for the independence and
8
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impartiality of judges. To make it clear that a judiciary free
from control by the Executive and Legislature is essential if
there is a right to have claims decided by Judges who are free
from potential domination by other branches of Government.
With this background, let us consider the defects pointed out
by the petitioner and amended/proposed provisions of the Act
and the Rules.
9) Mr. Gopal Subramaniam has informed this Court that
the suggested actions have been completed by amending the
Rules. Even other wise, according to him, the proposed
suggestions formulated by Mr. K.K. Venugopal would be
incorporated on disposal of the above writ petition. For
convenience, let us refer the doubts raised by the petitioner
and amended/proposed provisions as well as the remarks of
the department in complying with the same.
S.No Issues Amended/Proposed provision Remarks
.
9
1. Rule 3(3) of Rule 3(3) of Adjudicating Action Adjudicating Authority Authority Rules, 2007 have been
completed. Rules, 2007 does not amended to specify the `academic Amended explicitly specify the
qualification' for the Member Rule as per qualifications of from the field of finance and annexure A member
from the field accounting by inserting a sub- of finance or clause (b) as follows: accountancy. "(b) From
among such persons, the Selection Committee shall
have due regard to the academic
qualifications of chartered
accountancy or a degree in
finance, economics or
accountancy or having special
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experience in finance or accounts
by virtue of having worked for at
least two years in the finance or
revenue department of either the
Central Government or a State
Government or being incharge of
the finance or accounting wing of
a corporation for a like period."
2. Rule 4 of Appellate Rule 4 of Appellate Tribunal Action Tribunal Rules, 2007 Rules, 2007 has been
amended completed. which provided for to unambiguously provide that Amended Method of the appointment
of Chairperson Rule as per Appointment of shall be made on the annexure B Chairperson do not
recommendation of the Chief give adequate control Justice of India. to Judiciary.
3. Rule 6(1) of Appellate Rule 6(1) of Appellate Tribunal Action Tribunal Rules, 2007 Rules, 2007 has been
amended completed. which defines the to provide that the Chairperson Amended Selection Committee of
Appellate Tribunal is Rule as per for recommending appointed on the annexure C appointment of
recommendation of the CJI and Members of the the composition of the Selection Tribunal, would Committee
to select Members of undermine the the Tribunal has been amended constitutional scheme to provide for a
Judge of the of separation of Supreme Court, nominated by powers between the Chief Justice of India, to be
judiciary and the Chairperson of the Selection executives. Committee.
10
4. Rule 32(2) of PMLA Appropriate amendment to the Draft Bill is which provides for Statute is being
proposed to under removal of unambiguously provide that preparation. Chairperson/Members
Chairperson/Members appointed of Tribunal under in consultation with Chief PMLA does not Justice of
India, shall not be provide adequate removed without mandatory safety to the tenure of consultation with
Chief Justice the Chairperson/ of India.
members of the
Tribunal.
5. Rule 6(2) of Appellate Rule 6(2) of the Appellate May be Tribunal Rules is Tribunal Rules, 2007 may be
deleted. vague to the extent amended to delete the words "or that it provides for on recommendation of the
recommending names appropriate authorities", a after "inviting proposal endorsed by ASG, Shri applications
thereof Gopal Subramaniam. by advertisement or
on the
recommendations of
the appropriate
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authorities."
11
6. Section 28(1) of PMLA, There are several Acts under There is no which allows a person which Judges and
those requirement who "is qualified to be `qualified to be a judge' are to amend a judge of the High equally
eligible for selection like either the Court" to be the for Chairman under NDPS Act Statute or Chairperson of
the and SAFEMA; Judicial member the Rules. Tribunal, should be under Administrative Tribunal either
deleted or the Act; Chairperson under FEMA Rules may be etc. The eligibility criteria, for amended to
provide appointment as a judge of a High that the Chief Justice Court, provided in the of India shall
Constitution of India under nominate a person for Article 217(2)(b), is that the appointment as person should
have been "for at Chairperson or least 10 years as an advocate of Appellate Tribunal a High Court..."
Furthermore, under PMLA "who is since appointment of or has been a Judge of Chairperson of the Tribunal
the Supreme Court or under PMLA is to be made on the a High Court" failing recommendation of CJI, it is
which a person who expected that an independent "is qualified to be a person would be appointed to judge of
the High head the Appellate Tribunal. Court."
12
7. The qualifications for 1. Persons `qualified to be a There is no Legal Member of the district Judge' are
treated at par requirement Adjudicating Authority with District Judges for the to amend should exclude "those
purposes of qualification for either the who are qualified to be appointment as member in ATFE Statute or a
District Judge" and under FEMA; as President of the Rules. only serving or retired District Forum under
Consumer District Judges should Protection Act, 1986 etc. The be appointed. The eligibility criterion, for
Chairperson of the appointment as a District Judge, Adjudicating Authority provided in the Constitution of
should be the Legal India under Article 233(2), is that member. the person should have been an advocate "for
not less than seven
years".
2. PMLA is a specialized and new
Act and District Judges may not
be available with experience in
related issues whereas Advocates
or officers of Indian Legal
Service, who are eligible to be
District Judges, may often have
greater knowledge of its
provisions and working.
3. The Adjudicating Authority is
a body of experts from different
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fields to adjudicate on the issue
of confirmation of provisional
attachment of property involved
in money laundering. The
functions of Adjudicating
Authority are civil in nature to
the extent that it does not decide
on the criminality of the offence
nor does it have power to levy
penalties or impose punishment.
4. Adjudication is a function
which is performed by Executives
under many statutes. The
Competent Authority under
NDPS/SAFEMA have been
conducting Adjudication
proceedings routinely since 1978
13
10) Inasmuch as the amended/proposed provisions, as
mentioned in para 9, are in tune with the scheme of the
Constitution as well as the principles laid down by this Court,
we approve the same and direct the respondent-Union of India
to implement the above provisions, if not so far amended as
suggested, as expeditiously as possible but not later than six
months from the date of receipt of copy of this judgment. The
writ petition is disposed of accordingly. No costs. This Court
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records its appreciation for the valuable assistance rendered
by Mr. K.K. Venugopal, learned senior counsel and Mr. Gopal
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In view of the aforesaid decision is it a need the constitution of ITSC requires a modification.
B.THE TAX LIMITS TO FILE AN ELIGIBLE APPLICATION
1. The applications before ITSC are segregated primarily as search cases and other cases.
273. (1) An assessee may, at any stage of a case relating to him, make an application
to the Settlement Commission in such form and manner as may be prescribed, to have the
case settled.
(2) The application made under sub-section (1) by an assessee shall contain –
(a) a full and true disclosure of his income or wealth which has not been disclosed
before the Assessing Officer;
(b) the manner in which such income or wealth has been derived;
(c) the details of additional amount of income-tax or wealth-tax payable on such
income or wealth along with the proof of payment of such tax; and
(d) such other particulars as may be prescribed
(3) The application under sub-section (1) shall not be made unless –
(a) the assessee has furnished the return of tax bases which he is or was required
to furnish under any of the provisions of this Code; and
(b) the additional amount of income-tax payable on the income disclosed in the
application exceeds,—
(i) fifty lakh rupees in a case where proceedings for assessment or reassessment
way financial year have been initiated in consequence of an action
under section 135 or section 136, as the case may be;
(ii) ten lakh rupees in any other case;
2. The limits proposed in the DTC Bill 2010 is that where an Assessee is subjected to search the thereshold limit for eligible application is Rupees fifty lakh and Rupees ten lakh for others.The limits specified are in similairity with Finance Act 2010.Now a discussion is requied as to why small assesses are made ineligible to have the fruits of ITSC when it is available once in life time.
