High Court of
Hassan
Ali Khan
v.
Settlement
Commission
F.I. Rebello and R.S. Mohite, JJ.
Writ
Petition Nos. 2421 to 2423 of 2007
January
28, 2008
Section 245D of the Income-tax Act, 1961 -
Settlement Commission - Procedure on application under section 245C -
Assessment years 2000-01 to 2007-08 - Whether Settlement Commission can treat
an application for settlement as invalid meaning thereby non est, if applicant
has not made a true and full disclosure - Held, yes - Whether once decision is
taken by Settlement Commission, which acts in a quasi judicial capacity, it is
for applicants to point out that there has been either a failure to exercise
jurisdiction or that exercise of jurisdiction is based on an assumption not
warranted or that order suffers from an error of law apparent on face of record
when it holds application to be invalid and it is only in those cases, that
High Court will exercise its extraordinary jurisdiction subject of course to
discretion it has - Held, yes - During search conducted at residential premises
of petitioners, husband and wife, certain document pertaining to evasion of
foreign exchange were found - Petitioners filed income-tax returns disclosing
income from horse racing - Subsequently, they filed applications for settlement
before Settlement Commission - Settlement Commission constituted Special Bench
which rejected applications holding that same did not contain full and true
disclosure of income/wealth of petitioners - Petitioners challenged rejection
of their applications mainly on grounds that there was failure of principles of
natural justice and no sufficient opportunity was given to them as documents
relied upon by revenue were made available to them only at time of hearing;
that reasons for constitution of Special Bench were not given; and that
rejection was without jurisdiction - Whether since all documents and statements
relied upon were made available to petitioners and they had dealt with said
documents, it could be said that there was a failure of principles of natural
justice and fair play - Held, no - Whether discretion to constitute a Bench, if
there be a case which requires to be decided by Special Bench, is that of
Chairman of Commission; since petitioners had themselves set out nature and
circumstances of case and complexities of investigations which were involved
and Chairman borrowed same phraseology to constitute Special Bench, it could
not be said that action of Chairman was without jurisdiction or exercise of
power was illegal - Held, yes - Whether when during search, prima facie
material of evasion of foreign exchange had come on record and same was prima
facie contrary to disclosed source of income, i.e., horse racing, order of
Settlement Commission rejecting applications could not be said to have suffered
from either want of jurisdiction, excess of jurisdiction or disclosing an error
of law apparent on face of record - Held, yes
Section 22D of the
Wealth-tax Act, 1957 - Settlement Commission - Procedure on application made
under section 29C - Assessment years 2000-01 to 2007-08 - Whether in view of
facts under heading ‘Settlement Commission - Procedure on application under
section 245C’, once Commission found that applications filed under Income-tax
Act, 1961 were not bona fide, it was open to Commission, even in respect of an
application under Act, to treat application as invalid - Held, yes
Facts
The petitioners/applicants
‘H’ and ‘R’ were husband and wife, during search conducted at their residential
premises, certain documents pertaining to evasion of foreign exchange were
found. They filed income-tax return disclosing the income from horse racing for
the relevant assessment years. Subsequently, they filed applications for
settlement before the Settlement Commission. The Settlement Commission made an
order constituting the Special Bench which rejected the applications for
settlement, holding that same did not contain full and true disclosure of
income/wealth of the petitioners. The petitioners filed writ petitions against
the order of the Settlement Commission contending (1) that the applications
were treated as invalid without complying with the principles of natural
justice and fair play as the documents relied upon were not made available; (2)
that hearing was held behind the petitioners’ back inasmuch as they were asked
to withdraw from the proceedings and the Commission only heard the officers of
the revenue; (3) that they were not given a fair opportunity to cross-examine
persons who made statements; (4) that since the expression ‘invalid’ is not
defined in the Act, it was not open to the Settlement Commission to treat the
application as invalid; (5) that the reasons given for constitution of the
Bench were not available; (6) that no documents purportedly incriminating ‘R’
(wife) had been found and, therefore, the action of the Settlement Commission
in relation to the application of ‘R’ was without jurisdiction; and (7) that
the test for considering the wealth-tax application is different from the
income-tax applications and the Commission, applying the same yardstick to the
wealth-tax application, acted without jurisdiction.
Held
In view of section 245C,
the important criteria is (1) full and true disclosure of income which has not
been disclosed and (2) the manner in which such income has been derived. [
In the instant case,
all the documents relied upon considering the averments were made available
though some at the stage of hearing. Secondly, the Settlement Commission might
not have followed the correct procedure in hearing the application for
privilege of documents by revenue, by directing the petitioners to leave the
premises. That, by itself, could not vitiate the
proceedings. From the letter addressed by the Commissioner, it would be clear
that the revenue had sought privilege in respect of those documents and for an
in-camera hearing. The Settlement Commission granted in-camera hearing without
hearing the representatives of the petitioners. In such circumstances, the
petitioners would have to make out a case of prejudice. The Settlement
Commission, on the contrary, rejected the claim of privilege and directed the
revenue to make available the paperbook of the documents. It was, therefore,
not possible to accept the contention of the petitioners that on account of
being kept out of the hearing, the decision of the Commission was vitiated. The
scope, at the stage of deciding whether there is a true and full disclosure and
to treat the application as valid or invalid, would not require making
available any witness whose statements were recorded for cross examination as
long as the material and the statements of witnesses, which were recorded, were
made available. The investigation by the authorities could not be frustrated
merely because the petitioners after the search operations discovered material
and chose to file their return and applications to the Commission. It is no
doubt true that an application for settlement, if rejected, does result in
civil consequences. In the instant case, the statements recorded were made
available to the petitioners. The statements were of a person who was found in
the house of the petitioners when the search and seizure operations were
carried out. The contents of the statements were put to the petitioners and
that statement was also made available. In those circumstances, it really could
not be said that there was a failure of principles of natural justice and fair
play. The hearing contemplated under section 245D(2C)
is an opportunity to the person who makes the application to put forward his
case as disclosed in the application and to be made available the report
submitted by the Commission. That was complied with. [
As regards the
contention of the petitioners that the documents were made available at the
time of hearing and as such no sufficient opportunity was given to them, the
petitioners were asked to show any single averment in the petition or any
application moved before the Settlement Commission that they were prejudiced on
that count, and that more time should be granted to them. However, they were
unable to show that any such objection was raised before the Settlement Commission, neither was there any specific averment made in
the petition that such a request was made and denied. Except vague allegations
as to violation of principles of natural justice and fair play, there was no
specific averment. When a party seeks to challenge an order on the ground that
he did not have an effective opportunity, it must be specifically pleaded to
enable the respondents to meet such a contention and for the High Court to
consider whether any prejudice was occasioned for failure on that count. On the
contrary, it was clear from the findings of the Commission that the petitioners
had dealt with the documents which were placed by the revenue before the
Commission. Therefore, that contention must be rejected. [
So far as the
contention of the petitioners in respect of constitution of the Special Bench
and the binding character of its findings, is concerned, the power to
constitute a Special Bench is conferred on the Chairman of the Commission under
section 245BA(5A). It is, therefore, not a case of non-existence of power. The
only contention as urged was that the reasons for constitution of the Bench and
the material relied upon for that purpose had not been disclosed. On a
consideration of section 245BA(5A), it is clear that
power is conferred on the Chairman for disposal of a particular case to
constitute a Special Bench. The gravamen of the argument by the petitioners was
that the Commission had referred to complexities without even the respondents
raising such a contention. The discretion to constitute a
Bench, if there be a case which requires to be decided by Special Bench, is
that of the Chairman of the Commission. The petitioners themselves in
their applications had set out various facts. That was the material which was
available to the Chairman. In Item No. 10 of Form 34B, the petitioners
themselves set out the nature and circumstances of the case and the
complexities of investigations which were involved. If the Chairman, therefore,
had borrowed phraseology used by the petitioners themselves, it was not open to
the petitioners to contend that such material was not available to the
Chairman. Apart from the fact that there was no requirement to disclose reasons
considering the power of constituting the Special Bench and the contents of the
settlement application of the petitioners, it could not be said that the action
of the Chairman was without jurisdiction or exercise of power was illegal. In
those circumstances, the said question would not arise for consideration. It
was also sought to be contended that the Commission had framed issues and
answered the same which were binding on the petitioners. A perusal of section
245J would indicate that what is binding is only the final order made under
section 245D(4). The findings given by the Settlement
Commission are for the purpose of considering whether the application is to be
treated as invalid. In the instant case, no such findings had been given under
section 245D(4) which were binding on the petitioners.
The contention urged, therefore, was totally devoid of merit. [
The expression
‘invalid’ is not defined in the Act. In K.J. Aiyar’s Judicial Dictionary, ‘invalid’ is equated
with the word ‘void’.
If the phraseology of
section 245D(2C) is examined, it would be clear
firstly that the application must meet the requirements of section 245C(1). In
other words, complying with the requirements of full and true disclosure and
the manner in which such income has been derived. On complying with those
requirements, the next step would be to follow the procedure under section
245D. It is not as if the moment an application is made and there is compliance
of the requirements of section 245D, that the Commission is bound to entertain
the application and allow it. The Commission has then to consider whether the application
is invalid under section 245D(2C). The Commission must
be satisfied from the report of the Commissioner and on hearing the applicant
that the application is not invalid. The Settlement Commission can treat the
application as invalid meaning thereby non est if the applicant has not made a true
and full disclosure and how the income has been derived. The expression
‘invalid’ will have to be given a meaning of ‘non est’; in other words as
if not made on and from the inception. If on the material, it arrives at a
conclusion even prima facie that there was no true and full disclosure, it has then the right to declare the application
as invalid. Read in this context, there is power conferred on the Commission,
based on the material before it, to form an opinion if the party has concealed
facts and/or not made true disclosure during a search operation. In the instant
case, the petitioners had come before the Commission on the ground that the income,
which they were disclosing, was income from horse racing. There was material
before the Settlement Commission that there were acts which would constitute
foreign exchange dealings without following the due procedure of law. If there
was prima facie such material, it was always open to the Commission to
have rejected the application made by the petitioners. Once the decision is
taken by the Settlement Commission, which acts in a quasi-judicial capacity,
it is for the petitioners to point out that there has been either a failure to
exercise jurisdiction or that the exercise of jurisdiction is based on an
assumption not warranted or that the order suffers from an error of law
apparent on the face of the record when it holds the application to be invalid.
It is only in those cases the High Court will exercise its extraordinary
jurisdiction, subject of course to the discretion it has. The section, as it
now stands, does not involve deciding the complexities of a case. The
Commission, on the material placed before it, had treated the application as
invalid. It was not a case where the Commission could not have taken such a
decision or the decision taken was based on no material and/or decision which
was totally perverse warranting the High Court to draw an inference that the
order suffered from error of law apparent on the face of the record. Even
otherwise, those were applications made after a search operation when prima
facie material of evasion had come on record and was prima facie
contrary the source of income which was disclosed. Considering the ratio of
decision in the case of CIT v. Express Newspaper Ltd. [1994] 72
Taxman 438/206 ITR 443 (SC), the exercise of jurisdiction in such cases ought
not to be normally invoked if material had come on record during the course of
search. It was so in the instant case. The order of the Settlement Commission
could not be said to have suffered from either want of jurisdiction, excess of
jurisdiction or disclosing an error of law apparent on the face of the record. The
contention, therefore, urged on that count had to be rejected. [
As regards the
contention of ‘R’ that no incriminating documents were found from her and in
those circumstances the Commission ought not to have rejected her application,
it could not be said that merely because no documents were found in R’s
possession, the documents found could not have been considered. The petitioners
were disclosing income based on purported earning of horse racing. If the case
of husband could not be accepted, it would be difficult to accept the case of
wife. [
As regards the
contention that the tests applicable for consideration of application under the
Wealth Tax Act are different from what has to be considered while dealing with
the applications under the Income-tax Act, the Commission in entertaining an
application had to decide whether the petitioners had come to it with a case
which was bona fide and
without suppression of material facts. Once the Commission found on considering
the material before it that the application was not bona fide, it was
open to the Commission even in respect of an application under the Wealth -tax
Act to treat the application as invalid. Therefore, no fault could also be
found in that context. [
Thus, there was no merit
in the petitions. [
Case
review
CIT v. Express Newspaper Ltd. [1994]/72
Taxman 438/206 ITR 443 (SC) followed.
Shakti Metal Box v. Union of
Cases
referred to
Centurion
Bank of Punjab Ltd. v. ITSC
[2007] 290 ITR 555/161 Taxman 97 (Bom.) [Para 4], CIT v. Express Newspapers
Ltd. [1994] 206 ITR 443/72 Taxman 438 (SC) [Para 12], State of Kerala
v. M.K. Kunhikannan Nambiar Manjeri Manikoth AIR 1996 SC 906 [Para 16], Haji
N. Abdulla v. IT Settlement Commission [Writ Petition No. 1427 of
2007, dated 8-10-2007] [Para 16] and Shakti Metal Box v. Union of
India [1993] 204 ITR 450/66 Taxman 170 (Punj. & Har.) [
Y.P.
Trivedi, Pankaj R. Toprani and
J.D. Mistry for the Petitioner. B.M. Chatterji, P.P.
Bhosale and P.S. Sahadevan for the Respondent.
nn