Finance Bill makes Income Tax Settlement Commission more useful to 'searched' taxpayers

NEW DELHI, MAR 02, 2011: ONE of the  expectations  from Budget 2011  was that there would be some kind of amnesty scheme aimed at tapping the ocean of black money along with the offshore funds held by the Indians. Although the Finance Minister did not talk about any amnesty in his Speech but the fine prints of the Finance Bill may reveal that the the provisions for settling case have been liberalised to a good extent. In fact, expecting a sharp rise in the number of cases for settlement, the FM has proposed increasing the number of Benches for Settlement Commission from one to three in Delhi and and one to two in Mumbai.

The Finance Bill reveals that entities related to  taxpayer in whose case proceedings have been intiated as a result of search or requisition of books of account can file an application before the Settlement Commission if the additional income tax payable exceeds ten lakhs rupees.

Income-tax evaders can knock at the doors of the Settlement Commission, a quasi-judicial body to settle their tax liabilities, to come clean. They can pay their tax dues without a penalty and also get immunity from prosecution, if the commission passes an order.

This will mean more work for the Settlement  Commission and, perhaps, improve tax collections. The government  has  revived the Income-Tax Settlement Commission through amendments in Section 245 C of the Income Tax Act . As per clause 28 of the  Memorandum:

It is, therefore, proposed to insert a new clause (ia) in the proviso to section 245C(1). This stipulates that an application can also be made, where the applicant—

(a) is related to the person [referred to in (i) above] in whose case proceedings have been initiated as a result of search and who has filed an application; and

(b) is a person in whose case proceedings have also been initiated as a result of search,

the additional amount of income-tax payable on the income disclosed in his application exceeds ten lakh rupees.

As a consequence, a tax payer who is the subject matter of a search would be allowed to file an application for settlement if additional income-tax payable on the income disclosed in the application exceeds fifty lakh rupees. Entities related to such a tax payer, who are also the subject matter of search, would now be allowed to file an application for settlement, if additional income-tax payable in their application exceeds ten lakh rupees.

The relationship between the person who makes an application under clause (ia) of the proviso to section 245C(1) and the person mentioned in clause (i) of the proviso is defined by inserting an Explanation in the section. 

The budget speech quotes:

“The increase in scope of cases admitted by the Settlement Commissions has provided relief to several taxpayers.  This has also increased the workload of the Commission.  To fast track the disposal of cases, three more Benches of the Commission are being set up.”

It has been planned to create additional benches in Delhi, Mumbai, Ahmadabad, Bengaluru, Chandigarh, Hyderabad and Pune.

It is also proposed in the Finance bill 2011 to amend section 245 D to provide that Settlement Commission may, at any time within a period of six months from the date of its order, with a view to rectifying any mistake apparent from the record , amend any order passed by it under section 245 D (4).

Thus this move of the government is aimed at that the  Income Tax Settlement Commission  may  be made available for a broad category of taxpayers and its effectiveness is  enhanced. This would help  freeing up about Rs 3 lakh crore (Rs 3 trillion) in tax value locked up in appeal.

Many people can approach the settlement Commission to settle the tax disputes instead of following the lengthy procedure of  appellate proceedings.