# COMMISSIONER OF INCOME TAX (CENTRAL) CALCUTTA v. B. N. BHATTACHARJEE & ANR

- **Citation:** [1979] 3 S.C.R. 1133
- **Court:** Supreme Court of India
- **Decided:** 1979-05-04
- **Case number:** Civil Appeal Nos. 454-465 of 1979
- **Bench:** V. R. Krishna Iyer, V. D. Tulzapurkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-central-calcutta-v-b-n-bhattacharjee-anr-7749
- **Pages:** 32

## Headnote

Income Tax Act, 1961 (43 of 1961)-Ss. 245A-245M-Scope, purpose and
\, /. obiect of-Procedure and powers of Settlement CommiJsion-Settlen1ent Com-
<1 ~
mLuioner whether a tribunal.
'
Words & Phrases-'Preferred an appeal'-S.245M(l) proviso
!11co1ne
Tax
B
Act, 1961-Meaninz of.
C
..
•
'Interpretation of Statutes-Fiscal philosophy and interpretation technoloo
to be on same wave length for legislative policy to find fulfilment in th~ enacted
text.
A large sum of Rs. 30 lakhs in cash having been recovered from the responde-nt in pursuance to a search by the Income Tax Officials his assessments f0r
the yearn 1962-63 to 1972-73 were reopened by the Department. The total tax
burden on the respondent was over Rs. 30 Iakhs and an additional sum of Rs. 35
lakhs was a..~sessed for the year 1973-74. The respondent was also prosecuted
under s. 277 of the Income Tax Act.
Appeals by the respondent to the Appellate Assistant Commissioner brought
down the assessable inrome by about Rs. 10 Iakhs.
D
The resuondent and the department both appealed
to
the
Income Tax
E
Appellate Tribunal, the former filing 12 appeals and the latter 10 appeal~.
The respondent moved the Settlement Commission for composition under
s. 245M.
The assessee withdrew his appeals and the revenue deciar'ed their
asse&Sments and appeal!! 'weak' and withdrew them.
,
The Settlem'ent Commission on receipt of the application under s. 245C
acted under s. 245D ( 1) and called for a report from the appellant.
The ap~
pellant reported that prosecution proceedings for concealment of income and
also false verification in the return by the respondent were pending against the
reipondcnt in the Magistrate's Court and that it was not a fit CMe to be pro~
ceeded with by the Commission.
The Settlement Commission after some correspondence with the respondent
and v;1ithout giving a hearing informed him that as the @Pellant had objected
under s. 245D (1), the Settlement Commission did not allow the application
to be proceeded with.
The appellant thereupon moved the Income Tax Appellate Tribunal for
restoration of its appeals although no specific provision enable ~uch a restoration, the asssessee being entitled to apply for restoration under ~. 245M.
The respondent urged the Settlement Commission to review its order as no
hearing as such was given to him. The Settlement Commission yielded to hit;
F
G
H
/
1134
SUPREME COURT REPORTS
[1979) 3 S.C.R.
A
submission, reached the reverse oonclusion that the appellant's opposition to
the composition notwithstanding, the application for settlement be considered
on merits.
The core controversy in the appeals to this Court were whether in vie'W
of the withdrawal of the departmental appeals before the Income Tax Appellate
Tribunal, the Commissioner is estopped from making a report under s. 2450(1)
B
proviso 2 to the Settlement Commission objecting to the application fro1n
)'
being proct:eded with.
,...
On behalf of the appellant it was contended tha.i:
(a)
th'ere was
no
./
po\vcr of review for the Commission, sinc'e it had declined to proceed with
\ ,
the application for settlement and consequently the re-opening of the Settle-~-~ t
n1ent proceedings was invalid, (b) even though the C.I.T. had withdrav.:n bis
C
appeals and thus facilitated the filing of an application under s. 245C no bar
of cstoppel could be spelt out to forbid the Commissioner from exercising
his statutory po\ver of withholding consent to the settl'ement proceedings and
(c) the C.l.T.'s veto Wfl6 not subject to review or invalidation by the
Settl~:
ment Commission.
Allowing the appeals
D
l-lELD
1.
The Settlement Commission should be inhibit'ed from proceeding with the application of the assessee and the appeals by the assessee before
the lnc·on1e Tax App'ellatc Tribunal must be revived and disposed of expeditiou,Jy.
[1164FJ
2. The departmental appeals, having been admitted by the Commissionfr
of Income Taix himself to be very weak and frivolous, should not be revived
E
as it \vill be only a w

## Text

_Characters 0–39,928 of 84,358. This is a partial read: ask again with offset=39928 for what follows._

1133
COMMISSIONER OF INCOME TAX (CENTRAL) CALCUTTA
A
v.
B. N. BHATTACHARJEE & ANR.
May 4, 1979
[V. R. KRISHNA IYER AND V. D. TULZAPURKAR, JJ.]
Income Tax Act, 1961 (43 of 1961)-Ss. 245A-245M-Scope, purpose and
\, /. obiect of-Procedure and powers of Settlement CommiJsion-Settlen1ent Com-
<1 ~
mLuioner whether a tribunal.
'
Words & Phrases-'Preferred an appeal'-S.245M(l) proviso
!11co1ne
Tax
B
Act, 1961-Meaninz of.
C
..
•
'Interpretation of Statutes-Fiscal philosophy and interpretation technoloo
to be on same wave length for legislative policy to find fulfilment in th~ enacted
text.
A large sum of Rs. 30 lakhs in cash having been recovered from the responde-nt in pursuance to a search by the Income Tax Officials his assessments f0r
the yearn 1962-63 to 1972-73 were reopened by the Department. The total tax
burden on the respondent was over Rs. 30 Iakhs and an additional sum of Rs. 35
lakhs was a..~sessed for the year 1973-74. The respondent was also prosecuted
under s. 277 of the Income Tax Act.
Appeals by the respondent to the Appellate Assistant Commissioner brought
down the assessable inrome by about Rs. 10 Iakhs.
D
The resuondent and the department both appealed
to
the
Income Tax
E
Appellate Tribunal, the former filing 12 appeals and the latter 10 appeal~.
The respondent moved the Settlement Commission for composition under
s. 245M.
The assessee withdrew his appeals and the revenue deciar'ed their
asse&Sments and appeal!! 'weak' and withdrew them.
,
The Settlem'ent Commission on receipt of the application under s. 245C
acted under s. 245D ( 1) and called for a report from the appellant.
The ap~
pellant reported that prosecution proceedings for concealment of income and
also false verification in the return by the respondent were pending against the
reipondcnt in the Magistrate's Court and that it was not a fit CMe to be pro~
ceeded with by the Commission.
The Settlement Commission after some correspondence with the respondent
and v;1ithout giving a hearing informed him that as the @Pellant had objected
under s. 245D (1), the Settlement Commission did not allow the application
to be proceeded with.
The appellant thereupon moved the Income Tax Appellate Tribunal for
restoration of its appeals although no specific provision enable ~uch a restoration, the asssessee being entitled to apply for restoration under ~. 245M.
The respondent urged the Settlement Commission to review its order as no
hearing as such was given to him. The Settlement Commission yielded to hit;
F
G
H
/
1134
SUPREME COURT REPORTS
[1979) 3 S.C.R.
A
submission, reached the reverse oonclusion that the appellant's opposition to
the composition notwithstanding, the application for settlement be considered
on merits.
The core controversy in the appeals to this Court were whether in vie'W
of the withdrawal of the departmental appeals before the Income Tax Appellate
Tribunal, the Commissioner is estopped from making a report under s. 2450(1)
B
proviso 2 to the Settlement Commission objecting to the application fro1n
)'
being proct:eded with.
,...
On behalf of the appellant it was contended tha.i:
(a)
th'ere was
no
./
po\vcr of review for the Commission, sinc'e it had declined to proceed with
\ ,
the application for settlement and consequently the re-opening of the Settle-~-~ t
n1ent proceedings was invalid, (b) even though the C.I.T. had withdrav.:n bis
C
appeals and thus facilitated the filing of an application under s. 245C no bar
of cstoppel could be spelt out to forbid the Commissioner from exercising
his statutory po\ver of withholding consent to the settl'ement proceedings and
(c) the C.l.T.'s veto Wfl6 not subject to review or invalidation by the
Settl~:
ment Commission.
Allowing the appeals
D
l-lELD
1.
The Settlement Commission should be inhibit'ed from proceeding with the application of the assessee and the appeals by the assessee before
the lnc·on1e Tax App'ellatc Tribunal must be revived and disposed of expeditiou,Jy.
[1164FJ
2. The departmental appeals, having been admitted by the Commissionfr
of Income Taix himself to be very weak and frivolous, should not be revived
E
as it \vill be only a waAte of public time <ind money.
[1164G]
3. If the Department files an appeal \'Chich it drops to enable an application
before the Commission, then the proviso to s. 245M(l) does not debar the
motion for settlement.
[1l56C]
4. Functionally speaking, Chapter XIXA in the
Income1 Tax Act,
1961,
F
enacted by the Taxa.tion Laws (Amendment) Act, 1975, engrafted in partia!
implementation of the Wanchoo Committee Report, provides for settlement of · '
huge tax disputes _and immunity from criminal proc·eedings by a Commission
- L~
G
H
to be constituted by the
Central Government when
approached
without
objection from the Tax Department. [1138E]
5. Fiscal philosophy and interpretation technology must be on the
same
wavelength if legislative policy is to find fulfilment
in
the
enacted
text.
[1138 HJ
6. The mechanics of s. 245D provides that the application for settlement,
when filed, shall be forwarded to the Commissioner for a report and is only
on the basis of the mate.rial contained in such report that the Settlement Commission may allow th'e application to be proceeded \vith or reject the appli·
cation.
To reject an application is to refuse relief
outright and affects the
applica'nt adversely.
So it is provided "that an application shall not be re·
jected unless an opportunity has been given to the applicant of being heard .• ~
An applicant before the S'ettlement Commission is therefore entitled to a
hearin'i before hi' application for composition is rejected
[1146G-H]
•
•
....
•
C. I. T. V. B. N. BHATTACHARJEE
1135
7. The rule of fairplay incorporated in the first proviso to s.
245D(l)
·obligates the Commission to hear the applicant before reljection. EYen apart
from any specific provision, it is legal fairplay not to hurt any party without
heaxing him unless the Act expressly excludes it.
No~ing is lost by hearing
a petitioner whose application for settl'ement is being rejected and much may
be gained by such hearing in properly processing the application in the spirit of
Chapter XIXA.
S. 245D(l) docs. not negate natural justice and in the
absence of an express exclusion of the rule of audi afteram partem, it is fair,
indeed fundarnental, that no man is prejudiced by action without opportunity
to show to the' contrary.
Law leans in favour of natural justice where statutory interdict does not forbid it.
[1147A-D, F]
Mohinder Singh Gill v. Chief Election Commissioner. [1978] 1 SCC 405;
Maneka Gandhi v. Union of India, [1978] 1 SCC 248; referred to.
In the instant case, the Settlement Commission in the first instance rejected
the ~pplication because the Commission'er of Income Tax objected to it.
The
rule of fairplay incorporated in the first proviso to s. 245(1) obligates the
Comn1ission to hear the applicant, before rejection. The Settlement Commission's decision to re-hear and pass a de novo order cannot, therefore, be
.aid to be illegal.
[1147E]
8. The second proviso to s. 2450(1) is compulsive in tune and import,
for it mandates "that an a.pplication shall not be proceeded with under this
sub-section if the Com.missioner objects to the application being
proceeded
with on the ground that concealment of particulars of income on the part of
the applicant or perpetration of fraud by him for evading any tax .... haS' been
esta.blish'cd or is likely to be establis·hed by any income tax authority, in
relation to the case."
There is little difficulty in holding that the application
for settlement, having been rejected by the Commissioner, could not be proceed-
·ed with.
The veto of the Commissioner was the Waterloo of the application.
[1147G-1148A, DJ
9. Section 245H is of great moment from the angle of public interest and
public morals at it immunises white collar offenders again&t criminal prosecuA
B
c
D
E
tions and, in unscrupulous circumstances, becomes a suspect instru1nent of
negotiable
corruption.
More than the prospect of
monetary liability and
mounting penalty is the dread of traumatic prison tenancy that a tax-dodging
F
tycoon is worried about.
And if he can purchase freedom from criminal
prosecution and incarceratory sentence he maiy settle with the Commission.
and towards this end, try to lay those who remotely control the departmental
echelons whose veto or green signal, opens the prosecutions.
Thus, s. 245H,
which clothes the Commission with the power to grant immunity from prose-
·cution for "any offence under this Act or under the Indian Penal Code or
under any other Central Act .... " is a magnet which attract3 large ta.x-dodgers
G
and offers, indirectly an opportunity to the highest departmental and political
authorities a suspect poWer to barga.in.
[1150.C-E]
10. Section 245M 'enables certain persons who ha.ve filed appeals to the
Appe1late Tribunal to make applications to the Settlement Commission.
Tue
section (a) enables withdrawal of appeals before tribunals by assessee as con-
·dition prec'edent to applications for composition by the Settlement
Commission. (b) applies, by a legal fiction, Section 245C and D to such applications,
H
and (c) where the proceedings before the Commission is not
entertained
-allows revival of the withdra-wn appeals thus restoring th'e Status quo ante'.
1136
SUPREME COURT REPORTS
[1979] 3 s.c.R.
A
The proviso to &. 245M(l) places an embargo on the right of the assessee to
move the Commission where· the income tax officer has preferred an appeal
under sub-s.(2) of s. 253 against the order to which the
assessee's appeal
relates.
The proviso interdicts entertainment of a
settlement
application if
departmental appeals are filed.
[l 150F, 1151G, 1152C, !153F]
B
c
D
E
F
G
H
11. Purposefully interpreted preferring an appeal means. more tha.n formally
filing it but effectively pur.Yuing it.
If a party retreats
before the contest
begins it is as good as not having entered the fray.
After all, Chapter XIXA
is geared to pron1otion of settlernent and creation of road-blocs in reasonable
composition.
The teleok~gical method of interpretation leads to the view that
early withdrawal of the LT.O's appeal removed the bar of the proviso.
[1153C-D]
12. The purpose of substituting the method of inves.tigativc negotiation,
just scttletnent and ea.rly exigibility by a high powered Commission for a
tier-upon-tier of long protract"ed litigation, where victory may be phyrrhic and
futile, is ill-served by keeping out cases solely for the reasons that departmental
appeals have been filed.
[1153H-1154A]
13. 'fhe obvious object of the clause, "the assessee shall not be deemed
to have withdrawn the a.ppeal from the appellate tribunal," is to restore the
parties to .status quo ante, and in fairness, must apply to the Department as
to the assesse'e.
This non-discriminatory import can be reaoonably read into
the clause if we construe th'e expression "the assessee in a. wider way so as
to include all parties affected by the subject matter of the asressment. In that
case, the clause may mean that no one who is aggrieved by the assessment
shall be deemed to have withdrawn th'e aippeal from the appellate tribunal."
An equitable and purpose oriented construction of the clause means that the
assessee will be put back in the s-ame position vis-a-vis his app'eals and if, to
facilitate his moving the Comm.is.5ion the I.T.O. has
withdrawn
the departmental appeals, the Commission's rejection of the application shall not prejudice the R~venue. Actus curie neminem gravabit is the principle of wider
import and is a tool of construction too.
This perhaps may be making up
for a lacuna. by a res-tructuring of the clause so as to work out justice to the
Department.
[1154E-G]
14. The scheme of s. 253(4) contemplates filing of memorandun1 of crossobjections by the ITO on receipt of notice of the appeal by the as-sessee.
So
much so it is also possible, alternatively to read into s. 245 (7) the right of the
department to file an appeal de novo on receipt of notice of the revival of
the aiss'ess·ee's appeal, within the period specified in s. 253 ( 4).
This does not
do violence to the language of s. 245M(7) and affords equitable relief to the:
Department by enabling it to bring its appeal back to life notwithstanding the
earlier withdrawal. when the ass'essee's appeal reinc21rnates s. 245M (7).
[1154H-1155B]
15. The judicial process does not stand helples& with folded hands but
engineers its way to discern meaning when a new construction with a view
to rationlisation is needed.
[1155C]
Seaford Court Estates Ltd. v. Asher, [1949] 2 KB 481, referred to.
16. A casual perusal of Chapter XIXA convin,.:es the discerning eye that
the Settlement Commiss.ion exercises many powers which affect, for good or
oth'erwise, the rights of the parties before it and vests in it powers to grant
'
C. I. T. V. B. N. BHATTACHARJEE
1137
immunity from prosecution and penalty, to investigate into any matters and to
A
enjoy conclusiveness regarding its orders or settlenient.
Section 245L declares
all proceedings before th'e Settlement Comrniss-ion to be judicial proceedings.
Settlement Commission are therefore tribunals.
[1157D-E, 1156E]
Associated Cement Co1npa11ies Ltd. v. P. N. Sharma and another [1962] 2
SCR 266; referred to.
17. The Commissioner has a duty to the public Revenue and more im·
portantly, a duty to object to any assessec who is prima facie guilty of grave
crimin2.1 conduct in the shape of concealment of income or perpetration of
"-
fraud getting away ·with it bY invoking chapter XIXA.
The gravity of thi!t
"'- _ ~
public policy
cam.1ot be undermined
by
interpretative softness of second
"'proviso to s. 245D(l).
To whittle down the imperative nature of this veto
power is to undo the expectations of the Wancboo Committee and amounts
to stultify the rule of 1aVv', an integrad μart of which is that the law shall not
let the greater felon loose.
[1158E; 1158H-1159A]
• ,
18.
Section 245D· by the 2nd Proviso, cas.ts a public duty on the Com·
missioner of Income Tax to consider in the light of th'e ;::ase made out in the
assessee's application whether "concealment of particulars of income on the
part of the applicant or perpetra.tion of fraud by him for evading any tax or
other sum chargeable or imposabl'e under the Indian Income Tax Act, 1922
(11 of 1922). or under this Act, has been
established or is likely to be
es.tablished by any Income.tax authority, in relation to the case," and exercise
his veto po-w·er to prevent esca.pe of macro.....::riminals prima facie ·guilty of
grave eoonomic crimes.
He ·Ca'tlnot bargain over this interdict in advance
or barter away a legal mandate in anticipation.
He may permit or even
assist the. filing of ai conciliation n1otion of the assesse'e but when the Com·
mission intimates him under s. 245D(1) he shall, with statutory &eriousness,
exercise his discretion.
He cannot enter into a 'deal' over this power without
betraying the statutory trust.
The plea that the Commissioner of Income-taJC,
by conduct and understanding has 'irredeemably mortgaged' his staitutory duty
to object if the case deserves such objection has to be negativt!d.
Estoppel
then is. both odious and omnius and discretion the door to corruption.
[11600-G]
19. In th'e instant case, the ClT \vithdrew 1he appeals but it is not correct
that he made representations to the al'3sessee to act in a particular manner with
a provision of doing something to his advantage leading to the assessee jn turn
acting to his own prejudice by withdrawing his app'eals.
His withdrawal of
the appeals \\TJ5 independently decided upon by him so that he could move
the Commission.
Thereafter he moved the departm'ent to withdraw ifs appeals
so as to entitle him to make an application to the Commission.
The canons
that govern the application of the principle of estoppel contradict its extension
to 2' situation like the present.
The plea of estoppel which has found favour
with the Commission has therefore to be ov'er-ruled.
The objection raised by
the CIT is a potent interdict on the jurisdiction of the Commission.
[1163H·
1164A, CJ
20. The policy of the law a.:; disclosed in Chapter XIXA is not to provide
a....rescue shelter for big tax-dodgers who
indulge in criminal
activities by
approaching the Settlement Commission.
The Settlement Commission will
certainly take due note of the gravity of economic offenc'es on the wealth of
the nation which the Wanchoo Committee bas ernphas.is'ed and
will
exercise
B
c
D
E
F
G
1138
SUPREME COURT REPORTS
[1979] 3 S.C.R.
A
:ts power of immunisation against criminal prose.:utions by us-ing its power
only sparingly and in deserving cases, otherwise such orders may become
vulnerable if properly challenged.
[1164 E]
B
c
D
E
F
G
11
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 454-465 of
1979.
Appeals by Special Leave from the Order dated 9-5-1978 of the
Settlemrnt Commissioner (LT. & W.T.) Govt of India, New Delhi
in Application No. 7/1120-77-11.
S. T. Desaz, J. Ramamurthi and Miss A. Subhashini for the Appel-
.
,1
~-
.~·
A. K. Sen, Dinesh Vyas, Manuia/, P. H. Parekh, C. R. Singh, M.
Mudgal, and N. Munda/ for the Respondent No. 1
The Judgment of the Court was delivered by
KRISHNA IYER, J. A nascent Chapter (Chapter XIXA)
in
the
Income Tax Act, 1961, enacted by the Taxation Laws (Amendment)
Act, 1975, whose beneficiaries are ordinarily those whose tax liability
is astronomical and criminal culpability perilous, falls for decoding by
this Court in this appeal by the C.I.T.(') (Central), Calcutta, against
an adverse order made by the Settlement Commission. Functi<mally
speaking, this Chapter, engrafted in partial
implementation of
the
Wanchoo Committee Report, provides for settlement of huge tax disputes and immunity from criminal proceedings by a Commission· to be
constituted by the Central Government when
approached
without
objection from the Tax Department. It is based on the debatable policy,
fraught with dubious potentialities in the context of Third World
conditions of political peculium and bureaucratic abetment, 1hat composition and collection of public revenue from tycoons is better than
prosecution of their tax-related crime and litigation for total revenue .
recovery. A social audit of the working of this Chapter in action and
'
its fall-out may benefit the nation by information about who the true
,-,
beneficiaries of this legislation are and whether there is
more than
meets the eye. The Wanchoo Committee which recommended
this
step titled its Chapter meaningfully as
"Black Money
and
Tax
Evasion" and the Act itself was passed and brought into force during
the era of Emergency which was marked by speed and
silence and
bushed politico-official operations.
Be that as it may, fiscal philosophy and interpretative technology
must be on the same wavelength if legislative policy is to find fulfilment
in the enacted text. That is the challenge lo judicial resourcefulness the
present appeals offer, demanding, as it does, a holistic perspective and
(1) Commissioner of Income 'Fax.
•
•
C.I.T. V, B. N. BHATTACHARJEE (Krishna Iyer, J.)
1139
harmonious construction of a whole chapter, especially a complex provision therein, so that a balance may be struck between purpose and
result without doing violence to statutory language and social values.
The Chapter is fresh and the issue is virgin; and that makes the judicial adventure hazardous, compounded by the involved and obscure
drafting of the bunch of provisions in Chapter XIXA.
A few facts must be narrated and the anatomy of the Chapter projected at this stage, so that a hang of the controversy may be got and
its just resolution sought.
The respondent, an elderly but apparently immense businessman,
A
B
was the cynosure of suspicion of the Income Tax Officials which led c
to search and seizure of around Rs. 30 lakhs in cash from him. A
chain reaction set in and assessments froni 1962-63 to 1972-73 were
re-opened. The total tax burden so fixed ran into well over Rs.
60
Jakhs pins around Rs. 35 lakhs assessed for 1973-74. The stakes thus
ran into a crore or so plus awesome prosecutions under s. 277 of the
Act with unpredictable
prospects of sentences.
The
respondentassessee and his version or explanation had hopes of averting the
Waterloo; but the Income Tax Officer (I.TO)
rejected
his
case.
Indeed, we arc neither called upon nor disposed
to
examh1e
the
merits of either side and, maybe, the assessee has a presentable case.
Appeais to the Appellate Assistant Commissioner
( A.A.C.)
were
carried by the assessee against the colossal imposts, which marginally
brought down the assessable income by around Rs. 10 lakhs. Both the
·dissatisfied assessee and the partially injured Department appealed to
the Income Tax Appellate Tribunal (I.T.A.T.) against the A.A.C's
·decisions. During their pendency, prudence dawned on the respondent
to seek sanctuary before Settlement Commission abandoning his appeal
to the Tribunal attended with litigative uncertainties and penal potentialities. At seventy, with understandable high blood pressure to boot,
he preferred negotiated peace to judicial justice heartful of quest for
quiet although hopeful of winning his cases. These motivations do not
·call for our comment but are being mentioned as part of the narrative
which ostensibly induced him to go before the Commission
under
·Chapter XIXA.
To compress the long story without crippling the fonndationitl
facts, what happened after the assessee decided upon offering himself
to the Settlement Commission was to prepare the ground to enable him
to institute a proceeding in this behalf.
The deck had to be cleared before moving the Settlement Com1nission. The conditions for entitlement to make an applicatioR to the
D
E
F
G
H
A
B
c
D
F
G
H
1140
SUPREME COURT REPORTS
[1979] 3 S.C.R.
Settlement Commission are set out in s. 245M.
We may have to
examine closely the connotation of the expressions used in this Section
but for the nonce it is sufficient to state that it is
obligatory for the
assessee to withdraw any appeal that may be pending at his instance
before being qualified to make an application to the Settlement Commission. Another condition stipulated in the same Section is that an
assessee shall not be entitled to make an application "in a case where
the I.T.0. has preferred an appeal nnder sub-section (2) of section
253 against the order to which the assessee's appeal relates." Without
meticulous dissection of the provision, we may broadly draw the conclusion that the assessce must withdraw his appeal before the Tribunal
before moving the Settlement . Commission.
Likewise, the I.T.O.
should not have preferred an appeal. Therefore, the respondent-assessee engaged himself in complying with these conditions. He expected to
achieve this objective by moving for withdrawal of his own 12 appeals
before the Tribunal and by persuading the Income Tax Department to
withdraw i(s 10 appeals pending before the Tribunal. At the moment,
we do not discuss the finer issue of crucial significance as to whether
an appeal preferred by the Revenue but later withdrawn by it would
have the effect of total obliteration so as to fulfil the condition of no
appeal having been preferred by the Income Tax Department. The
narrative alone need be continued. On 23-8-1976 the assessee addressed a letter to the Appellate Tribunal seeking to withdraw his appeals
under s. 245M of the Act. On the same day he moved Mr. Kuruvilla,
Member, Central Board of Direct Taxes requesting the Board
to
instruct the concerned ofljcer of the Department to withdraw all the
pending appeals filed by the Department before the Tribunal. The letter
stated :
"Though I am· sure that I shall win all these appeals
filed by me with the Court of the Appellate Tribunal but
just to buy peace at my old age I wanted to place myself in
the hands of the Settlement Commission and seek full justice and mercy.
In view of all these facts explained above I pray for
undernoted point for your kind consideration and necessary
action. I shall be grateful, if you would kindly
ask your
Department to withdraw all the pending applications filed by
the Department with the I.T.A.T."
(emphasis added)
The somewhat ambivalent terminology and incongruous stances
taken in the letter are striking. For instance, he asserted that he was
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C.I.T. V, B. N. BHATTACHARJEE (Krishna Iyer, J.)
1141
~ure to win all his appeals but still he sought mercy from the Commjssion. He put forward old age and hypertension for desisting from
litigation and gratefully desired the Department to cooperate with him
by withdrawing its appeals. Before knowing the open response of the
Department, he addressed the Tribunal for withdrawal of his appeal
which, perhaps, suggests that he was rnre of the reaction of the Department or did not loss much by withdrawing his appeals. However, when
the LT.AT. posted the withdrawal application for hearing on 24th
September, 1976, the assessee wrote a letter asking for adjournment
wherein he stated :
"With regard to the above I beg most respectfully to submit that one petition was filed for withdrawing all the above
appeals only to have those cases settled before the Settlement
Commission, New Delhi but the Department had also preferred appeals for those years. Unless the Department also
withdraws their appeals there will be no purpose for our
withdrawal of appeals. As such my client is pursuading the
Central Board of Direct Taxes to do something effectively in
the matter, but for consultations with their councils, etc., it
would take a:t least two months' time."
Probably the assessee felt that the Central Board could be persuaded "to do something effectively in the matter", given some time.
The anticipations of the assessec were not belied because the addressee
Member of the Central Board, with celerity, consulted the Commissioner, who, in tum, sought and got affirmative reports from those
below him and at the end of this rapid departmental exercise, reached
the conclusion in October/November (i.e. in about a month) that the
appeals of the Departments were very weak, even frivolous(') and
that, therefme, nothing was lost by withdrawing them from the Tribunal. In keeping with this conclusion, the tempo was accelerated by
the Board Member issuing necessary instructions to
withdraw its
appeals, and the C.I.T. hastened to write to the assessee-respondent in
December, 1976.
"I am to inform you that the Departmontal
appeals
pending before the Income-tax Appellate Tribunal, Calcutta
against you will be withdrawn provided all the appeals filed
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by you for the assessment year 1962-63 to 1973-74 are withH
drawn by you."
(l) See para 5 ·2 and 5.3 of the Settlement Commission's Order.
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SUPREME COURT REPORTS
[1979] 3 S.C.R.
A
A consequential representation was made before the I.T.A.T.
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"I have been directed to withdraw the above
Departmental appeals on condition that the assessee's appeals for
the assessment years 1962-63 to 1973-74 are also withdrawn."
I.T.A.T. was persuaded to pass orders dismissing the appeals from
both sides as withdrawn. The obvious purpose of the Department's
withdrawal of its appeals was to enable the assessee to move the Settlement Commission. From the Member of the Central Board down
to the I.T.0. they conveniently discovered, at this critical sfaiie late in
1976, that their appeals were weak and frivolous.
The plea of the appellant that the decision to withdraw the appeals
by the Revenue was independent of the respondent's request that he be
helped to move the Commission needs for its acceptance a degree of
naivete which we do not possess, as we will later show.
We revert to the further factual developments to catch up with the
legal questions argued before us. On the Tribunal dismissing all the
appeals as withdrawn, the asscssee-respondent applied to the Settlement Commission on January 6, 1977 under s. 245C. The C01nmissi0n in its order, has recorded that as a prelude to this application :
"the Commissioner of Income Tax and the applicant
had arrived at an understanding or an arrangement, mutually
~
satisfactory and in the public interest to settle the tax liability
in a forum where decisions would be conclusive and not drag
on for years."
.. _.,
Secret understandings between high tax officials and big assesseebusinessmen are potential pollutants and convert Settlement Commis·
sions into cover-ups-a consummation farthest from the Wanchoo Committee's intentions and Parliament's expectations! It is not demoralising
that the heirarchy of officials in the Income Tax Department declared ~ .
their assessments and appeals 'weak' and self-condemned themselves "!
before the Commission by ·confessing that the Central Government's
-...
appeals were frivolous ? "But if the salt hath lost its savour wherewith
,.
shall it be salted?"
Once the statutory operation for settlement was switched on, the
machine moved on. The Settlement Commission, on receipt of the
>
application under s. 245C, acted under s. 245D(l) and called for a
report from the Commissioner,
mindless of the
movement. of the
calender.
For, the ides of March came in the meanwhile and the
C.I.T., for reasons we do not know, took a stiff look at the case and
reported on 1st April, 1977.
"that prosecution proceedings for concealment
of income and also false verification in the return were already
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C.I.T. v. B. N. BHATTACHARJEE (Krishna Iyer, l.)
I 143
pending before the Chief Metropolitan Magistrate, and that
he did not consider this as a fit case to be proceeded with by
the Settlement Commission".
After some correspondence with the applicant, and without giving
a hearing, the Settlement Commission by its order dated the 3rd
February, 1978 informed the applicant that, as the Commissioner had
objected under section 2450( 1), Settlement Commission did not allow
the application to be proceeded with.
" .
• ~ Parenthetically though,· it must be stated that on the first rejection
··of the application by the Settlement Commission, the Revenue moved
the I.T.A.T. for restoration of its appeals although no specific provision enables such a restoration. The assessee can apply for restoration
of his appeals since s. 245M enables it.
This order of the Commission shows that some correspondence
with the applicant' did take place before the order not to proceed
with his composition petition. No hearing as such was given to him
though, before making this adverse decision of February 3, 1978. The
assessee urged that the order be reviewed as natural justice had not
been complied with. The Settlement Commission yielded to this submission and, after elaborate argument and reasoning,
reached the
rever.s'"- conclusion that the C.I. T's opposition to the composition notwithstanding, the application for settlement shall be considered on the
merits.
The Union of India, through the C.I. T. concerned, has challenged
the Settlement Commission's decision on jurisdictional and other legal
grounds. The statutory scheme, the semantics of the expressions used,
,.
the jurisdictional limitations of the Settlement Col!lmission and allied
_
issues, have been debated at the bar and the declaration of law on these
aspects has seminal significances because it relates to a sensitive area
where Big Business may operate at high politico-official levels and the
court mnst invigilate so that the law keeps its promises .
•
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This perspective of the litigation brings into focus the high points
of the debate before us, largely reflected in the Tribunal's long order
Sri S. T. Desai, for the appellant-Revenue concentrated his fire on three
vulnerable aspects of the judgment under attack. There was no power
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of review for the Commission, once it had declined to proceed with the
application for settlement. Therefore, he argued that the reopening of
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the Settlement proceedings was invalid. Secondly, he submitted that
even though the C.I. T. had withdrawn his appeals and thus facilitated
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SUPREME COURT REPORTS
[ 1979] 3 s.c.R:
the filing of an application under s. 24SC no bar of est6ppel could at
all be spelt out to forbid the Commissioner from exercising his statutory power of with-holding consent to the settlement
proceedings.
Thirdly, he pressed the position that the C.I.T.'s veto was not subjech
to review or invalida'.ion by the Settlement Conunission and so the
order under appeal was bad and beyond power. Of course, subsidiary
issues did crop up and Shri A. K. Sen, appearing for the respondcntassessee, not only joined issue with Shri Desai but also took a preliminary objection that Art. 136 was unavailable against an order of the
•
Settlement Conunission. It is necessary _to mention that an argument
.,,/
which was mooted at our instance as the arguments proceeded \•iz., __}.,
that withdrawal by the Revenue of an appeal once filed did not have ·
~
the effect of not preferring an appeal, was not pursued by the appellant
before us but we are not bound by counsel pressing or cold-shouldering a point of law if attention of the advocates has been drawn thereto,
as in this case it was.
The scheme of Chapter XIXA must be grasped before we embark
on the discussion.
The incarnation of Chapter XIXA was in the wake of the Wanchoo
Conunittee Report. The vampirish vices of black money and colossal
tax evasion, both together using money power to prevent action against
white-coller offender, had been a terrible menace to the health and
wealth of the nation.
In particular, black money, whose constant companion was ta.x
evasion, posed a challenge to the country's economy and the Wanchoo
Committee was appointed to make recommendations with a view
to
arrest this evil. That Committee made a wealth of recommendations,
but we are concerned only with Chapter 2 of the Report which, under -~
the title "Black Money and Tax Evasion", proposed a
compromise
measure of a statutory settlement machinery where the bi~ evader could
make a disclosure, di•gorge what the Commission fixes and thus buy
quittance for himself and accelerate recovery of taxes in arrears by
the State, although less than what may be fixed after long protracted
litigation and recovery proceedings. We are not concerned with the
merits of the recommendation except to state that if it works according
to plan, it may "ensure that the settlement i• fair, prompt and independent'', given "a high level machinery for admini•tering the provisions". The risk of adverse criticism of escape by tax dodgers was
adverted to by the Committee, but was silenced by the counter-argument that if the Commission was composed of officers with integrity,
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c.I.T. v. B. N. BHATTACHARJBB (Krishna Iyer, J.)
1145
wide knowledge and experience and high status and emoluments, the
A
rill: was minimal. A precautionary step against possible misuse by
evaders of the settlement machinery was thought of by the Wanchoo
Committee which made the circumspect observation.
"However, we wish to emphasize that the Tribunal will
proceed with the petition filed by a taxpayer only if the
Department raises no objection to its being so entertained.
We consider that this will be a ialutary safeguard, because
othel'Wise the Tribunal might become an escape route for
tu evadors who have been caught and who are likely to be
hea vii y penalised or prosecuted."
('The Tribunal', in tho Wanchoo Committee Report was rechristened 'the Settlement Commission' in the Act when it was passed
by Parliament).
The Commission was vested with full
power to
investigate cases on its jurisdiction being invoked and to quantify the
amount of tax, penalty and interest that it may
eventually fix as
payable.
A strategic provision which held out fascination for the
criminal tu evaders was contained in the
report.
The Wanchoo
Committee recommended conferment on the Settlement Commission
of a discretion to "grant immunity from criminal prosecution in suitable cases".
The detailed mechanics of application, investigation,
consideration, bearing and disposal are contained in the report and
have eventually been translated into statutory provisions in Chapter
XIXA.
Thii legislative history leads us on to a broad unfoldment of the
actual provisions of ss. 245A to 245M which constitnte a fasciculus
of provisions designed for settlement of taxes in dispute. Section 245A
is the definition clause even as 11. 245B is the clause constituting the
Settlement Commission.
Applications for settlement
of cases
by
assessees are regulated by s. 245C which reads
245C. Application far uttkment of cares.
(1) An assessee may, at any stage of a: case relating to .
him, make an application in such form and in such manner
and containing such particulars as may be prescribed to the
Settlement Commission to have the case settled and any such
application shall be disposed ot in the manner hereinafter
proYided.
(2) ........... .
(3) ........... .
. 17-<409SCI/79
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SUPREME COURT REPORTS
[1979] 3 S.C.R.
Its meaning can be understood fully ooly when we read the definition of "case". According to the definition in s. 245A(a), a •case·
means any proceeding under the income tax law in connection with
the assessment or reassessment of any person which may be pending
before an income tax authority on the date of application under ~ection .•
245C(l). It is common knowledge that I.T.A.T. is not an income
tax authority, which expression, it is settled, includes the I.T.O. and
A.AC. and others.
Therefore, when an appeal pends before the
Tribunal, it cannot be said that a case pends before an income tax
authority.
In the present case, we are concerned with a stage when
appeals are pending before the Tribunal. Section 245C(I) may not
enable an assessee to move the Commission in such cases but for the
provision in s. 245M Indeed, we are intimately coocerned with the
express provisions in and implications of s. 245M which specifically
deal with persons who have filed appeals to the Appellate Tribunal
and seek to apply to the Settlement Commission.
Sub-section (6)
of s. 245M is a deeming provision. Any application under s. 245M
will be deemed to be an application under s. 245C( 1) and all provisions of Chapter XIXA [except s. 2450(7)] shall apply to such
proceedings.
The question then arises whether and subject to what conditions
can an assessee take advantage of s. 245M and move the Commission.
Only if he can validly move the Commission under s. 245M can his .
application be processed under s. 245C, 2450 and other Sections of
the Chapter.
An intensive examination of s. 245M(l) to (S) ud
(7) thus becomes imperative.
Any assessee may make an application to have his case settled,
but it is one thing to make an application proceeded with.
For, on
receipt of an application the Commission is not empowered automatically to proceed with it.
The mechanics of s. 2450 must be
remembered in this context.
The application for settlement, when
filed, shall be forwarded to the Commissioner for a report and it is
only on the basis of the material contained in such report that the
Settlement Commission may allow the application to be proceeded
with or reject the application.
To reject an application is to refuse
relief outright and affects the applicant adversely.
So it is provided
"that an application shall not be rejected unless an opportunity has
been given to the applicant of being heard." We are clearly of the
view that an applicant before the Settlement Commission is entitled
to a hearing before his application for composition is rejected.
In
the present case, on the facts stated earlier, the Settlement Commission in the first instance rejected the application because
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C.J.T. v. B. N. BHATTACHARJEE (Krishna Iyer, J.)
1147
the C.l.T objected to it. Maybe, the objection of the Commissioner
has lethal potency but the rule of fairplay incorporated in the first
proviso to s.