By TIOL News Service

AHMEDABAD, SEPT 15, 2017: THE issue before the Bench is - Whether when the assessee has filed settlement applications for several AYs but only partly paid additional tax with interest, only those proceedings before the Commission would abate for which no payment of tax was made before June 1, 2007 and not all the proceedings. YES is the answer from the High Court.

The Assessee is an individual and assessments for the AY's 2001-2002 to 2007-2008 were pending at various original or appellate stages. In order to avail of the benefit of the scheme for settlement of cases the Assessee applied to the Commission for settlement of cases pertaining to his assessments for those AY's. In the meantime, by the Finance Act 2007, significant changes were made in the provisions contained in Chapter XIXA of the Act pertaining to settlement of cases. Prior to such amendments, the Assessee applying for settlement of his case though was required to make payment of tax with interest on admitted income but in case the Assessee failed to make the payment of such tax or interest the statute did not provide for any adverse effect on his application till its disposal by the Settlement Commission. By virtue of the amendments brought by the Finance Act 2007, the legislature now required that payment of admitted tax with interest should accompany the application for settlement and for the pending cases, the applicants were given time upto 31.1.2007 to make such payment, failing which, the application for settlement would abate.

In terms of such amendments, the Assessee made a total payment of Rs.23,97,400/- which covered the payment for the AY's 2001-2002, 2003-2004, 2005-2006 and 2007-2008. The Assessee was required to pay a sum of Rs.24,02,411/- by way of additional tax with interest for the AY's 2004-2005 and 2006-2007 which was not made till 31.7.2017. The Assessee contended that due to financial difficulties he could not make full payment of additional tax and interest which would cover all assessment cases and some additional time may be granted to enable the him to make the remaining payment. The Assessee also contended that he had paid the additional tax with interest for five out of seven AY's for which he had applied for settlement and the abatement of application for settlement should be confined to those assessment years for which the assessee was unable to make payment of additional tax with interest. The Commission rejected both the contentions contending that by virtue of amended provisions of Chapter XIXA of the Act making payment of additional tax with interest before 31.7.2007 was mandatory and Commission had no power to extend the time limit or grant installments. The Commission also rejected the prayer of the Assessee to limit the rejection of the application for those assessment years for which he could not make the payment contending that application for settlement cannot be split in parts and be allowed to proceed further with respect to some of the assessment years and rejected for some.

In Writ, the High Court held that,

++ the eligibility of an assessee to file separate applications for settlement must be seen in light of the subsequent statutory changes with effect from 1.6.2007 by which the legislature cast a duty on the applicant who had already applied for settlement to pay the additional tax with interest on income disclosed before the Settlement Commission latest by 31.7.2007. These amendments brought in two major changes. First was that in all pending applications, the payment would now be made latest by 31.7.2007 with no possibility of extending the time. This was in stark contrast to the prevailing statutory provisions which enabled the Commission to extend the time for payment of tax if the assessee made out good and sufficient grounds for not being able to pay the same within the prescribed period. The Commission could also grant installments. Such powers of the Commission were taken away and a deadline of 31.7.2007 was introduced. The second major change was that if the assessee failed to make the payment of such additional tax and interest before 31.7.2007, his application for settlement would abate;

++ the combined effect of the statutory provisions prevailing before 1.6.2007 did not prohibit filing of separate applications for settlement assessment year wise and the newly introduced requirement of payment of additional tax with interest by 31.7.2007, failing which, the proceedings before the Settlement Commission would abate, would persuade us to hold that it was open for the Settlement Commission to examine the requirement of payment of additional tax with interest as may be correlated to a particular assessment year. It may be that the assessee himself had filed one common application for settlement of all cases. In view of the statutory provisions prevailing before 1.6.2007 and in view of the noted changes after 1.6.2007, such application need not have to be seen as one composite application for settlement which may either in its entirety are allowed to be proceeded with or be declared as abated. One must look at the application in the background of such statutory provisions before and after 1.6.2007. Had the requirement of payment of additional tax with interest been existing in the statute when the assessee applied for settlement surely, he would have applied only to the extent that he was able to muster up sufficient funds for additional tax and interest. Under the circumstances, the assessee's request that entire application for settlement may not be declared as abated, would have to be accepted. In other words, to the extent, the assessee had paid additional tax and interest by 31.7.2007, his proceedings before the Settlement Commission, would not abate. The abatement would apply with respect to those assessment years for which such payment was not made.

(See 2017-TIOL-1893-HC-AHM-IT)