Income Tax Settlement Commission

Tax Settlement Commission, a quasi judicial body, was set up under section 245B of Income-tax Act 1961. It has been set up as a result of recommendations made by Direct Taxes Enquiry Committee (Popularly known as Wanchoo Committee). The objective of setting up of this Commission is to settle the tax liabilities in complicated cases avoiding endless and prolonged litigation and consequential strain on investigational resources of Income-tax Department. This commission comprises persons of integrity and outstanding ability, having special knowledge of and experience in, problems relating to direct taxes and business accounts.

COMPOSITION:

The Settlement Commission consists of a Chairman, Vice-Chairmen and Members. However, the number of Vice-Chairmen and members in the Settlement Commission is decided by the Central Government. The jurisdiction, powers and authority of the Commission shall vest in the hands of Chairman, in case of Principal Bench, and in the hands of Vice-chairman, in case of Additional Bench. At present, four Benches of the Commission are functioning. The Delhi Bench is known as the Principal Bench and the Benches at Mumbai, Calcutta and Chennai are known as the Additional Benches.

SETTLEMENT COMMISSION AND APPEAL:

The application for settlement can be made only during the pendency of the assessment proceedings, whereas an appeal can be filed only after conclusion of assessment proceedings, against an order of assessment. For approaching the settlement commission, an applicant is required to disclose income which he has not disclosed before the Income Tax Department and also to pay applicable tax and interest on it before filing the application. No such conditions are needed for filing an appeal.

ELIGIBILITY FOR FILLING OF APPLICATION:

An applicant can approach the Income Tax Settlement Commission in respect of a particular assessment year only if no assessment order is passed by the concerned income tax authority and the statutory time-limit for passing of assessment order for that year has not lapsed. The proceedings are considered to be pending from the first day of the assessment year and it is not needed that a return of income is filed or a notice for scrutiny is issued before failing of application.

An applicant  have to disclose an additional amount of income tax before the Commission which is at least Rupees ten lakhs. This does not include the amount of interest chargeable on such tax. For cases involving Search and seizure assessment proceedings, the additional amount of income tax to be disclosed is at least Rupees fifty lakhs.

How to calculate additional income TAX:

a. In case the applicant has not furnished return, tax shall be calculated on the income disclosed in the application as if it is the total income and such tax shall be the additional amount of income tax payable.

b. In case applicant has furnished a return, additional income shall be calculated as under.

Total income returned: A

Add: income disclosed in settlement commission: B

Total: c

Additional amount of income tax = tax on C-tax on A

If the income so disclosed relates to more than one previous year,

The applicant shall aggregate income by using above methods.

While in a case where assessment proceeding is pending u/s 153A, for all the seven years (1 year relevant to p.y when search is conducted and 6 a.y. immediately preceding the assessment year) putting together , the limit of 50 lakhs in aggregate should be fulfilled. If the applicant is filling application for lesser number of years the additional tax in aggregate should be 50 lakhs.

Aggregation should be income and not offering of loss. CIT vs Express Newspapers Ltd.

An application can be made by an assessee for settlement before the Commission only once in a lifetime

There are other procedural requirements such as payment of prescribed fees and informing the concerned Assessing officer on the same date till the prescribed Form no.34 BA.

HOW TO FILL APPLICATION:

Settlement application is to be filed only in the prescribed Form No.34-B notified under the Income Tax Rules, 1962, which is to be signed by the applicant himself. The application can be made personally or by post. The applicant or his authorized representative can make application in person. Application can also be sent by registered post addressed to the Secretary of the concerned Bench of the income tax Settlement Commission. The application should be accompanied by the proof of payment of additional Tax and interest under section 234B and 234C on it. The interest on the additional tax is chargeable till the date of admission of the application. The application has to be accompanied by a copy of Challans of payment of tax which have to be attested by the applicant. The application is also to be accompanied by the evidence of payment of the prescribed fee. At present the Amount of the fee is Fixed at Rs. 500/-.

PROCEDURE ON RECEIPT OF APPLICATION:

An application can be rejected by the Commission during the course of proceedings under section 245D (1) within 14 days of filling of the Settlement application if applicant does not fulfill required conditions mentioned above.. If the application is not rejected by the Commission within 14 days, it is deemed to have been admitted by it.

After the application has been admitted, the Commission calls for the report of the Commissioner of Income Tax under section 245D (2B). The Commission may treat an application as valid by passing an order under Section 245D (2C), If the report of the Commissioner is not received within the period of 30 days from the day the letter from the Commission is received by the Commissioner, or on the basis of satisfaction of the Commission, on the basis of the report of the Commissioner. The order of the Commission is to be passed within 15 days of the expiry of the period of 30 days given to the Commissioner for submitting the report. The Commission is required to give an opportunity to the applicant before treating the application as invalid under Section 245D (2C).

Once an application has been held as valid, the Commission forwards the confidential part of the application to the Commissioner calling for his report under Rule 9 of the Income Tax Settlement Commission (procedure) Rules, 1997. This report is to be submitted by the Commissioner within 45 days. The Commission can allow further time, if needed by the Commissioner depending upon the facts of the case. Upon receipt of the Rule 9 Report, a copy of the same is sent to the applicant by post for submitting rejoinder on such report. A copy of rejoinder sent by the applicant is shared with the Commissioner. The officers of the Commission then issue notice and fix hearing on a particular day and at a specified time. On the day of hearing, the applicant or his authorised representative and the Commissioner of Income Tax (or Assessing Officer) or his representative, namely Commissioner of Income Tax (Departmental Representative) appear before the Bench of the Settlement Commission. The Commission may ask the parties to further produce documents and submission. It may also ask the Commissioner to carry out further inquiry
After considering both sides, the Commission then passes the final settlement order under Section 245D (4), in writing. The settlement order provides for the terms of settlement which includes determining the amount of additional tax and interest thereon and the manner of payment. It also provides for levy of penalty, or waiver from penalty under the Income Tax Act or the Wealth Tax Act. The Settlement order under Section 245D (4) can be rectified by the Commission to correct mistakes apparent from records within 6 months of the order. However, where the effect of the rectification is to alter the tax liability of the applicant, due opportunity has to be given to the applicant as also the Commissioner.

Challenging the order of the settlement commission:

It can be challenged in court of law by filling a writ petition when:

a. Principles of natural justice violated

b. Mandatory procedural requirements of law were not complied with.

Wealth tax settlement

Wealth tax settlement are similar to provisions contained in the income tax law except that there is no requirement of any minimum amount of additional wealth tax payable.

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CA Tarannum Khatri