The Employees’ Compensation Act, 1923 is an old but an important enactment, as it introduced a kind of social security scheme for the employees of this country. It enables an employee, and in case of death of an employee, his dependents, to get, at the cost of his employer compensation for employment injury.

Much later, in 1948, the Employees’ State Insurance Act, introduced a social insurance scheme for the employees of his country. Unlike the earlier scheme this scheme rests on joint contribution by Government, employers and employees. The two enactments together constituted what may be called a Code of social security benefits for the workers of this country.

Objectives

The Object of the Act is to provide for the payment of compensation by certain employers to their employees for injury caused to them by accident while in employment. If an employee contracts an occupational disease while in employment, it is also treated under the Act as injury caused by accident.

Applicability

In case of Maharashtra, The Employees’ Compensation Act is applicable to all shops & Establishments by virtue of Sec. 38-A of The Bombay Shops & Establishments.

Sec. 16 of the Apprentices Act extends the application of the Employees’ Compensation Act to the Apprentices appointed under Apprentices Act, 1961 rendering the employers liable to pay compensation for any personal injury or accident arising out of and in the course of employment caused to the apprentices.

Every Employer

  1. Employing persons listed in Schedule II to the Act;

  2. Carrying on an occupation listed in Schedule III to the Act

Is liable to pay compensation under the Act.

Eligibility

The following persons are liable to receive compensation under the Act:-

  1. Certain Railway Servants;

  2. Persons listed in schedule II to the Act,

  3. Persons employed in occupations listed in Schedule III to the Act.

Injuries Compensated under the Act

Under the Act injuries are broadly classified into four groups as those resulting in:-

  1. Death,

  2. Permanent Total Disablement,

  3. Permanent partial disablement &

  4. Temporary disablement whether total or partial

  5. Contracted an occupational diseases.

The Act provides for different scales of compensation for different kinds of injuries.

Conditions for Receiving Compensation

An employee to whom personal injury is caused by accident is entitled to receive compensation under the Act if the accident arose out of and in the course of his employment. That means the accident must occur while the employee is in employment and it must also be connected with his employment.

Circumstances in which the employer is not liable to pay compensation for injury to a workman:-

The employer is not liable to pay compensation for injury to an employee on following circumstances:-

  1. If the injury does not result in total or partial disablement of the employee for a period exceeding three days;

  2. If the injury does not result in death of the employee and is caused by an accident which is directly attributable to:-

    1. If an employee have been at the time thereof under the influence of drink or drugs

    2. The disobedience of the employee to an order expressly given, or to a rule expressly framed, for the purpose of securing the safety of workman, or

    3. The wilful removal or disregard by the employee of any safety guard or other device which he knew to have been provided for the purpose of securing the safety of employee.

Amount of Compensation

When the injury to an employee results in his death, the amount of compensation payable to his dependents is an amount equal to 50% of the monthly wages of the deceased employee multiplied by a figure ranging from 228.54 to 99.37 (depending upon the age of the deceased employee) or an amount of` 1,20,000, whichever is more. However, if the monthly wages of the deceased employee exceed` 8000/-, his monthly wages for the purpose of calculating the compensation shall be deemed to be ` 8,000/- only (w.e.f. 31st May 2010)

Note:- By Amendment Act of 2000 the minimum amount of compensation for death is enhanced from ` 50,000/- to ` 80,000/- and the deemed maximum monthly wage of the deceased employee is enhanced from ` 2,000/- to` 4,000/-

Amount of Compensation Received in case of permanent total disablement

When the injury of an employee results in his permanent total disablement, the amount of compensation he is entitled to receive is an amount equal to 60% of the monthly wages of the injured employee multiplied by a figure ranging from 228.54 to 99.37 (depending upon the age of the injured person) or an amount of ` 1,40,000/- whichever is more. However, if the monthly wages of the injured employee exceed ` 8000, his monthly wages for the purpose of calculating the compensation shall be deemed to be ` 8,000/- only.

When the injury of an employee results in his permanent partial disablement, the amount of compensation he is entitled to receive is a percentage of the compensation payable in the case of permanent total disablement. The percentage is determined with reference to the extent of loss of earning capacity caused by the injury and is a lumpsum payment.

In case of temporary Disablement

When the injury of an employee results in his temporary total disablement or temporary partial disablement he is entitled to receive compensation in the form of a half-monthly payment. The amount of a half-monthly payment is determined with reference to the monthly wages the employee was drawing at the time of the injury and is equal to 25% of the monthly wages of the employee. The maximum period during which the employee can receive compensation for temporary total disablement or temporary partial disablement is five years.

In case of Fatal Accidents

Payment of compensation in respect of employee whose injury has resulted in death is not to be made directly to the dependents of the employee. In such case the employers is required to deposit the amount of compensation with the Commissioner for Employee’s Compensation. The Commissioner will then apportion the amount among the dependents of the employee.

Note:- It is held that the payment of compensation directly to a dependent is not legal even if he is the only One dependent of the deceased employee claiming compensation.

Protection of Compensation

Compensation payable under the Act, whether in the form of a lump sum or in the form of a half – monthly payment, cannot be assigned, charged, attached or set – off against any claim

Special Powers of the Commissioner in respect of Lumpsum Payment

Where any lumpsum compensation is payable to an employee or a person under a legal disability, the employer must deposit it with the Commissioner for Employee’s Compensation. It is open to the Commissioner to invest such sum for the benefit of the woman or of such person during his disability.

Special Powers of the Commissioner in respect of Half-Monthly Payment

Where any half-monthly compensation is payable to a person under a legal disability, it is open to the Commissioner for Employee’s Compensation to order that such payment be made during the disability of the person to any dependent of the Employee or to any other person best fitted to provide for the welfare of the Employee.

Report of Fatal Accidents

If any accident occurs on the premises of any employer which results in death of an employee or serious bodily injury to an employee, the employer must, within 7 days of the death or serious bodily injury, send in the prescribed form a report to the Commissioner for Employee Compensation giving the circumstances attending the death or serious bodily injury.

When an Employee is injured while employed by a contractor, the principal employer is liable to pay compensation to him, but he is entitled to be identified by the contractor. The Employee is, however, free to recover compensation either from the principal employer or from the contractor.

Contracting Out

An employee is prohibited from contracting out of the benefits of the Act, i.e. from giving up his right to receive compensation from his employer under the Act. Any contract or agreement made by him relinquishing such right is null and void insofar as it removes or reduces the liability of any person to pay compensation under the Act.

The Procedure to be followed for computing compensation for death or disablement

The Compensation is computable on the basis of monthly wages and the relevant factor, specified in the second column of Sch. IV:-

Calculation of monthly wages:-

Sr. No

Graded Tenure of Service

Computation of Monthly Wages

A

Monthly wages in case of an employee in continuous service for not less than twelve months immediately preceding the accident

½ of the total wages due for payment in the twelve months preceding the accident (Sec. 5(a)) Ex. An employee’s total wages in the preceding 12 months is ` 40,800/- His monthly wages in this case will be:- ` 40,000 / 12 = ` 3,333/-

B

Monthly wages in case of an employee whose whole of the continuous period immediately preceding the accident is less than a month

The average monthly amount earned by any other an employee doing the same work during the twelve months immediately preceding the accident. Or in his absence, by a an employee employed in similar work in the same locality.

Ex.: A an employee doing the same work earns a total of ` 33,600/- as wages during the preceding 12 months. Average monthly amount = ` 33,600 / 12 = ` 2,800/-

C

Monthly wages in any other case where it is not possible to calculate it for want of information

The total wages earned in respect of the last continuous period immediately preceding the accident multiplied by thirty times & divided by No. of days of such continuous period.

Ex. An employee drawing in to wages of ` 4,000/- is in continuous period for 60 days immediately preceding the accident. The monthly wages can be arrived at : 4,000 x 30 / 60 = ` 2,000/-

After having determined the monthly wages, the Compensation will be computed as under:

D

Compensation in case of death

50% (fifty per cent) of monthly wages of the deceased employee (if the monthly wages exceed 8,000 the monthly wages are to be taken ` 8,000/- only) x the relevant factor specified in the second column of sch. IV

Or

An amount of ` 1,20,000/- whichever is more Sec. 4 (a)

Ex. An employee draws monthly wages of ` 9,000/- (worked out as above) dies of burn injuries while working at a furnace and his age is 42 years.

In terms of Sec. 4(a) his monthly wages is to be taken as ` 8,000/- only and 50% of it is ` 4,000/-

Thus compensation Payable = 4,000 x 178.49 = ` 7,13,960/-

E

Compensation in the case of permanent total disablement

60% of monthly wages of the deceased employee (if the monthly wages exceed ` 8,000/- the monthly wages are to be taken

` 8,000/- only) multiplied by the relevant factor specified in the second column of Sch. IV.

Or

` 1,40,000/- whichever is more Sec. 4 (b)

Ex. In the above example, if the injury results in permanent total disablement, the compensation payable will be as under ` 4,800 (60% of 8000) x 178=49 = ` 8,56,752/-

F

In case of permanent partial disablement resulting firm injury specified in part II of the Sch. I

Compensation will be calculated as in the case of permanent total disablement on the basis of the percentage loss of earning capacity, specified against each injury in part II of Sch. I

Ex. An employee’s monthly wages is ` 8,000/- and he suffered an injury of loss of three fingers of left hand. The percentage loss of earning capacity specified in Part II of Sch. I against the said injury is 30%. The employee’s age is 45 years. The compensation is worked out as under:-

Compensation that would have been payable in total permanent disablement

4,800 (60% of 8000) x 169=44 = ` 8,13,312/-

Compensation payable for loss of three fingers ` 8,13,312 x 30% = ` 2,43,993=60

G

In case of injury not specified in Sch. I

Compensation will be equal to such percentage of compensation payable for permanent total disablement as proportionate to the loss of earning capacity as assessed by the qualified medical practitioner, permanently caused by the injury.

H

In case of more injuries than one are caused by the same accident resulting in permanent partial disablement

The amount of compensation payable for all injuries shall be aggregated but it shall not exceed the amount payable, in the case of permanent total disablement 4 (C) (Explanation I)

Ex. An employee lost his right hand as well as four fingers of left hand by an accident. His monthly wages are ` 8,000/- his age is 45 yrs. The compensation is worked out as under:-

Compensation for permanent total disablement in his case will be = ` 8,13,312/- (ref. Col. F)

Compensation increase of loss of hand:- 8,13,312 x 60% = ` 4,87,987/-

Compensation in case of loss of four fingers of left hand:- 8,13,312 x 50% = 4,06,656/-

Aggregate of A + B = ` 8,94,643/-

The compensation payable is restricted to ` 8,13,312/-

I

In case of temporary disablement whether total or partial disablement

A half monthly payment of the sum equivalent to 25% of the monthly wages for the period of disablement or 5 yrs. Whichever is lesser.

Ex. An employee is temporarily disabled and his monthly wages is ` 8,000/-

Compensation in this is :- 8,000 x 25 / 100 = ` 2,000/- case will be –

This amount is to be paid on half monthly basis as specified in sub-sec. (2) of Sec. 4(c)

In the absence of any evidence as to the wages drawn by an employee, the minimum wages applicable to him at the relevant time shall be taken as the basis for determining the amount of compensation.

Claims for Compensation

The procedure for claiming compensation payable under the Act may be summarized as follows:-

  1. An application for claiming compensation payable under the act has to be made to the Commissioner for Employee’s Compensation in the prescribed form.

  2. Before filing the application the Employee has to give notice of the accident to the employer containing the details of the accident.

  3. Before filing the application the Employee has also to submit himself for medical examination if he is required to do so by the employer

  4. The application has to be made within 2 years of the occurrence of the accident or within 2 years from the date of death.

  5. If any applicant is poor, the Commissioner may exempt him from paying the application fees.

  6. The Commissioner can take the assistance of any person possessing special knowledge of any matter relating to the case for deciding the application.

  7. The Commissioner can recover the amount payable by any person under the Act as an arrear of land revenue.

Orders of the Commissioner for Employee’s Compensation Appealable

The provisions regarding appeals against the orders of the Commissioner for Employee’s Compensation may be summarised as follows: –

  1. If any party is aggrieved by an order of the Commissioner it can prefer an appeal against the order to the High Court provided that (i) a substantial question of law is involved in the appeal & (ii) the amount is dispute in the appeal is ` 300/- or more.

  2. Such appeal must be filed within 60 days.

  3. If the party preferring such appeal happens to be an employer, he must first deposit with the Commissioner the amount payable under the order appealed against.

List of Injuries Deemed to Result in Permanent Total Disablement

Sr. No

Description of Injury

Percentage of Loss of Earning Capacity

1

Loss of both hands or amputation at higher sites

100

2

Loss of hand and a foot

100

3

Double amputation through leg or thigh, or amputation through leg or thigh on one side and loss of other foot

100

4

Loss of sight to such an extent as to render the claimant unable to perform any work for which eye-sight is essential

100

5

Very severe facial disfigurement

100

6

Absolute deafness

100

List of Injuries Deemed to Result in Permanent Partial Disablement

Sr. No

Description of Injury

Percentage of Loss of Earning Capacity

1

Amputation through shoulder joint

90

2

Amputation below shoulder with stump less than 3[20.32] cm from tip of acromion

80

3

Amputation from 3[20.32] cms from tip of acromion to less than 3[11.43] cms below tip of olecranon

70

4

Loss of a hand or of the thumb and four fingers of one hand or amputation from 3[11.43] cms below tip of olecranon

60

5

Loss of thumb

30

6

Loss of thumb and its metacarpal bone

40

7

Loss of four fingers of one hand

50

8

Loss of three fingers of one hand

30

9

Loss of two fingers of one hand

20

10

Loss of terminal phalanx of thumb

20

*10-A

Guillotine amputation of tip of thumb loss of bone

10

Amputation Cases – Lower Limbs

11

Amputation of both feet resulting in end bearing stumps

90

12

Amputation through both feet proximal to the metatarso phalangeal joint

80

13

Loss of all toes of both feet through the metatarso phalangeal joint

40

14

Loss of all toes of both feet distal to the proximal interphalangeal joint

30

15

Loss of all toes of both feet distal to the proximal interphalangeal joint

20

16

Amputation at hip

90

17

Amputation below hip with stump not exceeding 312.70 cms in length measured from tip of great treanchanter

80

18

Amputation below hip with stump not exceeding 312.70 cms in length measured from tip of great treanchanter but not beyond middle thigh

70

19

Amputation below middle thigh to 18.89 cms below knee

60

20

Amputation below knee with stump exceeding 18.89 cms but not exceeding 112.70 cms

60

21

Amputation below knee with stump exceeding 112.70 cms

2[50]

22

Amputation of one foot resulting in end bearing stump

2[50]

23

Amputation through one foot proximal to the metacarpophal-angeal joint

2[50]

24

Loss of all toes of one foot through the metacarpophal-angeal joint

20

Other Injuries

25

Loss of one eye, without complication, the other being normal

40

26

Loss of vision of one eye, without complications or disfigurement of eye-ball, the other being normal

30

226 A

Loss of partial vision of one eye

10

LOSS OF

A.

Finger of right or left hand Index Finger

27

Whole

14

28

Two phalanges

9

29

One phalanx

9

30

Guillotine amputation of tip without loss of bone

5

Middle Finger

31

Whole

12

32

Two phalanges

9

33

One phalanx

7

34

Guillotine amputation of tip without loss of bone

4

Right or Little Finger

35

Whole

7

36

Two phalanges

6

37

One phalanx

5

38

Guillotine amputation of tip without loss of bone

2

B.

Toes of right or left foot

Great Toe

39

Through metatarso-phalangeal joint

14

40

Part, with some loss of bone

3

Any Other Toe

41

Through metatarso-phalangeal joint

3

42

Part, with some loss of bone

1

Two Toes of One Foot, Excluding Great Toe

43

Through metatarso-phalangeal joint

5

44

Part, with some loss of bone

2

Three Toes of One Foot, Excluding Great Toe

45

Through metatarso-phalangeal joint

6

46

Part, with some loss of bone

3

Four Toes of One Foot, Excluding Great Toe

47

Through metatarso-phalangeal joint

9

48

Part, with some loss of bone

3

SCHEDULE IV

Factors for working out Lumpsum Equivalent of Compensation Amount in case of permanent disablement and death

Completed years of age on last birthday of the workman immediately preceding the date on which the compensation fell due

Factors

Completed years of age on last birthday of the workman immediately preceding the date on which the compensation fell due

Factors

Not more than 16

228.54

41

181.37

17

227.49

42

178.49

18

226.38

43

175.54

19

225.22

44

172.52

20

224.00

45

169.44

21

222.71

46

166.29

22

221.37

47

163.07

23

219.95

48

159.80

24

218.47

49

156.47

25

216.91

50

153.09

26

215.28

51

149.67

27

213.57

52

146.20

28

211.79

53

142.68

29

209.92

54

139.13

30

207.98

55

135.56

31

205.95

56

131.95

32

203.85

57

128.33

33

201.66

58

124.70

34

199.40

59

121.05

35

197.06

60

117.41

36

194.64

61

113.77

37

192.14

62

110.14

38

189.56

63

106.52

39

186.90

64

102.93

40

184.17

65 or more

99.37]

Bar upon Contracting out:- Any workman relinquishing his right for personal injury not permissible.

Penalties:-

Non – Compliance with sections 10(3), 10(1A), 10B or 16

Fine which may extend to ` 5000/-

Recent Court Judgment

1) In order to cast liability for compensation on the employer it must be shown that the accident arose within and in the course of employment.

The deceased was in the employment of the owner of an auto rickshaw. On 23-9-2005 while proceeding by the road in the rickshaw, another rickshaw came from the opposite side and dashed against the rickshaw of the deceased. The deceased then questioned that driver of the opposite rickshaw as to why he was driving the vehicle so rashly and negligently. Then there was a quarrel between the two and in that quarrel the deceased fell down on the road and sustained head injury. He was removed to the hospital where he succumbed to the injuries. The respondents who are the legal heirs of the deceased filed a claim petition for compensation and the Commissioner of Workmen’s Compensation allowed that petition against which order the insurance company preferred an appeal in the High Court. The High Court referred to the decision in Rashida Haroon’s case 2010 (1) TN MAC 131 (SC) wherein it was held that the accident must arise within and in the course of employment. The claimant should prove the nexus between the death and the accident. The High Court held that in the instant case the deceased sustained his injuries not due to the accident but on account of the assault made by the driver of the opposite auto rickshaw following a quarrel. Thus there was no nexus between the accident and the death of the deceased. Consequently the insurance company cannot be fastened with any liability to pay compensation. Hence the appeal was allowed.

H.C. LL> (4) 2011 P. 106, New India Assurance Co. Ltd. V. Noorjahan Begum & 8 ors.

2) Insurer will not be liable if the act of workman was in breach of condition of the policy

The appellant is Insurance Company and the third respondent is the owner of the rice mill. The deceased workman was in the employment of the 3rd respondent as a driver and he died in an accident which took place upon the premises of the rice mill. There was an electricity transformer within the compound of the rice mill. There was failure of electricity supply of rice mill due to burning of one fuse in the transformer. The deceased workman attempted to put fuse wire during that attempt he suffered an electric shock, due to which he fell down and died on the spot. Respondent no.1 and 2 are his legal heirs and they filed a claim petition before the Commissioner for Workmen’s Compensation contending that respondent 3 who is the owner of the rice mill has instructed the deceased to install the fuse wire to the transformer located within the rice mill premises. The Commissioner for Workman’s Compensation allowed the claim petition and granted total compensation of ` 4,17,586/- to be paid to the respondent nos.1, and 2. Feeling aggrieved thereby the Insurance company filed an appeal in the High Court contending that replacing fuse wire in the transformer is outside the duty of driver of rice mill and that is not authorised by law and therefore it cannot be said that the accident in question occurred during the course of employment of the deceased workman.

The High Court observed that if the accident has occurred on account of a risk which is an incident of the employment, the claim for compensation must succeed, unless of course the workman has exposed himself to an added peril by his own imprudent act. The High Court referred to the provisions of Indian Electricity Rules 195 and pointed out that on a combined reading of the relevant rules, it emerges that the consumer can either undertake himself or permit to undertake repairs or adjustments or additions to installations which are anterior to the electricity meter and such repairs are not permissible in respect of installations which are posterior to the electricity meter. It was held that the deceased tried to do repaid work by way of applying electricity fuse to the transformer which was impermissible under the rules. Therefore there was violation of condition No. 3, of the insurance policy with the result that the insurance company cannot be saddled with the compensation. Hence the appeal was allowed.

H.C.A.P. LLJ III P. 835, United India Insurance Co. Ltd., Hyderabad v. Elkachenu Kistamma & Ors.

3) Employees Compensation Act, 1923 – Section 3 (Claim for compensation is not sustainable if the death of workman is not shown to be due to injury in accident arising in the course of employment)

Deceased Bholakal was working as Asstt. – Cum – Cleaner of a truck employed by respondent No. 1, on 10-3-2000 the said vehicle, carrying loads was on its way to Agartala. On the way the vehicle was parked near Dharamnagar Police station and the driver of the vehicle went to sleep in a nearby hotel. Deceased Bholakal however remained in the vehicle and was supposed to sleep in the cabin of the vehicle. On the next morning the driver found Bholakal lying dead inside the vehicle. He therefore informed the incident to Dharamnagar police station which registered a case under sec. 174 of Cr. P. Code. In the petition filed by his legal heirs for compensation, it was contended that the deceased performed strenuous job of cleaning and loading the vehicle in full day and due to heavy exertion he died because of heart failure. Respondent No.1, the owner of the vehicle filed his written statement that the deceased died due to drinking excessive quantity of alcohol and there was no accident at all in the course of employment and therefore the claim of compensation was not maintainable. Respondent no.2, the insurance company also took the same stand. The tribunal after considering the evidence on record including the post mortem reports held that the deceased died due to consumption of excessive quantity of ethyl alcohol and his death was not incidental to the nature of his work. Feeling aggrieved thereby the appellant filed the present appeal.

The High Court analysed the provisions of Section 3 of the Employees’ Compensation Act and observed that there is practically no iota of evidence that the deceased suffered any injury because of any accident arising out of or in the course of his employment and therefore no liability could be fixed on the employer for the death of the deceased. Consequently the appeal was dismissed.

H.C. Gau. CLR II 2012 P. 613, Sankar Kal, Tripura v. Sunil Kumar Saha & Anr.

Summary

The Employees’ Compensation Act applies to railways (other than those) employed in administrative work and persons employed in factories, mines, plantations, mechanically propelled vehicles, construction work, and certain other hazardous occupations. There is no wage limit for coverage under the Act. The Act, however, is not applicable to the persons who are covered under the Employees’ State Insurance Act, 1948. The Act provides for payment of compensation to workmen or their dependants, as the case may be, for industrial accidents (including prescribed occupational diseases) arising out of and in the course of employment and resulting in disablement or death. It is administered by the respective State governments / Union Territory administrations. The State Governments are required to appoint Commissioners for Employees’ Compensation for (a) settlement of disputed claims; (b) disposal of cases of injuries involving death; and (c) revision of periodical payments. The Compensation payable to the workman or to his dependants cannot be assigned, attached or charged.

Query

  1. The client of the Querist is an ex-director of M/s. Modern Cinema & Technology (I) Pvt. Ltd., (hereinafter “Modern Cinema”) a private limited company registered under the Companies Act, 1956. Modern Cinema is in the business of equipment leasing and movie distribution and is registered under the Maharashtra Value Added Tax Act, 2002.

  2. An Assessment Order has been passed against Modern Cinema under the Maharashtra Value Added Tax Act, 2002 on 27-9-2013 raising a total demand of ` 11,65,208/- for the Financial Year 2011-12. The Assessment Order notes that due tax is being paid on the rentals received from the lease of equipments by Modern Cinema to various theatres and the Assessing Authority has not contested Modern Cinema’s tax treatment of the same.

  3. On the other hand, no sales tax was being paid on the “Movie Distribution Charges”. The Assessing Authority has demanded tax on the same with consequent demand of interest and penalty under the Act. The Querist broadly seeks an opinion on whether these Movie Distribution Charges are amenable to sales tax/VAT under the Maharashtra Value Added Tax Act, 2002.

  4. A brief factual matrix, relevant to the controversy pertaining to the Movie Distribution Charges, is set out herein-below:

Brief Facts

  1. Modern Cinema provides services of movie distribution to the Producers/Distributors of cinematographic films. The Querist has informed me that the following transactions take place as between the Producer, Distributor, Modern Cinema and one M/s. Media Technology :

    1. The Producer and Distributor now a days are
      mostly the same. However, in some cases the Producer will be
      different from the Distributor. In those cases, the Distributor gets
      a distribution rights from the Producer.

    2. Since most Producers/Distributors do not have
      advanced technology for advanced encoding and decoding of film
      content on digital media, they engage third party service providers
      like M/s. Media Technology which has the requisite technology.

    3. The Producer/Distributor gives the film content
      to Media Technology who encode it on a secure digital format in a
      hard disk. A “Key Delivery Message” is also generated at this time
      which is like a password to decode the film content.

    4. Media Technology then sends the hard disk to
      Modern Cinema, which subsequently makes copies of the same. The Key
      Delivery Message is not given by Media Technology to Modern Cinema
      at this stage.

    5. Based on the instructions of the
      Producers/Distributors, Modern Cinema downloads the film content at
      the specified theatre from the hard disk copy to the QUBE server
      which is installed in the theatre.

    6. As and when the Producer/Distributor gives the
      “Release Order”, Media Technology gives the Key Delivery Message to
      Modern Cinema, who then uses the Key Delivery Message to decode the
      film content and to allow it to be broadcast by the theatres.

    7. Modern Cinema raises tax invoices on the
      Producer/Distributor and the Producer/Distributor pays the “Movie
      Distribution Charges”. Modern Cinema is charging service tax and not
      sales tax/VAT on these Movie Distribution Charges.

  2. I have been informed that there is no written contract between Modern Cinema and the Producers/Distributors.

  3. The Querist has forwarded an agreement between Media Technology and Modern Cinema for lease of the “QUBE server”. Modern Cinema rents out the QUBE server from Media Technology and installs it in various theatres and uses this QUBE server to download film content from the hard disk copy as outlined in Para 5(v) of this opinion. Media Technology charges certain rentals to Modern Cinema and recovers sales tax/VAT on those rentals from Modern Cinema. Since, no liability to sales tax can arise directly on this transaction in the hands of Modern Cinema and the Assessment Order has also not sought to assess these rentals to tax in hands of Modern Cinema, this particular transaction of lease of QUBE server between Media Technology and Modern Cinema is not relevant in so far as the question of taxability of Movie Distribution Charges goes.

Opinion

  1. I have gone through the documents and papers forwarded to me by the Querist. I have also seen the Assessment Order dated 27-9-2013 and the Show Cause Notice 10-9-2013 along with the report of the Business Audit Officer. The facts noticed therein, on the basis of which the Assessment Order is passed, are broadly similar to what has been set out in the summary in Para 5. At some places, the Assessment Authority seems to have been confused about the various transactions and facts, but those are irrelevant for most part as far as the question of Movie Distribution Charges goes.

  2. The Assessment Order suffers from an obvious fallacy. The taxable event of “sale of goods” under the Sales Tax laws has to fulfil the criterion laid down in the general law relating to the sale of goods in India. Sales Tax can be charged on the sale of goods “by the seller to the buyer” and “for a price” under the Maharashtra Value Added Tax Act, 2002. The sale price is generally taken as the taxable value under the Act.

  3. In the present case, the Movie Distribution Charges are paid by the Producer/Distributor to Modern Cinema for the services provided by it to the Producer/Distributor. The Assessment Order makes a bald assumption that the Movie Distribution Charges are consideration for “sale of software packages” or “sale of copyright” without really making any necessary findings of fact to support such conclusions.

  4. It is apparent that no software package is being sold by Media Technology to the Producer/Distributor. Similarly, no sale of copyright has taken place. Modern Cinema did not have any copyright in the film content or any other rights which the Copyright Act recognises
    qua cinematographic films. Modern Cinema simply could not have sold what it never had.

  5. The Producer is the author and first owner of all rights in the cinematographic work. Sometimes, the Producer grants “distribution rights” to the Distributor which are needed to distribute the cinematographic works without infringing the copyright of the Producer. Indeed the Copyright Act, 1957 does not contemplate that a complete third party service provider like Modern Cinema can get any copyright in a cinematographic work at all unless the Producer/Distributor gives the same to it in the first place. Consequently, the proposition that a third party service provider like Modern Cinema could have sold a copyright to a Producer or Distributor is absurd and lacks all commercial sense.

  6. The Assessing Authority has, thus, treated the existence of monetary consideration as conclusive of an assumed sale without bothering to investigate whether such sale took place – or could have taken place – at all.

  7. The Assessing Authority has wrongly relied on the provisions of Schedule Entry 39 (and as I will have to presume), the notification issued under that entry. In fact, the callous attitude of the Assessing Authority is apparent from the fact that he has quoted the provisions of the notification issued under Schedule Entry C-39 without noting the amendments to the same in the year 2011 which are relevant for the period 2010-11. Furthermore, the very fact that the Assessing Authority sought to alternatively tax the Movie Distribution Charges under two distinct heads of “sale of software packages” and “sale of copyright” is indicative of the fact the Assessment Order is nothing but a determined attempt to simply assess the Movie Distribution Charges to tax for the sake of it.

  8. To conclude, I am of the firm opinion that, since Modern Cinema did not have any copyright which it could sell, there could be no sale of copyright by Modern Cinema to anyone, much less to the Producer or the Distributor. Therefore, no liability for sales tax/VAT arises
    qua the Movie Distribution Charges.

Query
Please explain position of intra-state / interstate sale for Motor Vehicles, with reference to recent judgment.

Reply: Section 4(2) was introduced in the CST Act, 1956, to decide situs of sale.

Section 4(2) of the CST Act

Section 4(2) of the CST Act reads as under:

“S.4. When is a sale or purchase of goods said to take place outside a State.

(1) …

(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State

  1. In the case of specific or ascertained goods, at the time of the contract of sale is made; and

  2. In the case of unascertained or future goods, at the time of their appropriation to contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.

Explanation – Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each places.”

It can be seen that the sale is deemed to have taken place in only one State, where the ascertainment of the goods is done to a particular sale contract. This is situs of sale. Once sale is determined to be in a particular State based on above section, it remains outside the taxation scope of all other states. The tax will be attracted in such State under Local Act or CST Act based on fact whether it is intra-state sale or interstate from such State.

Recently, Hon’ble Supreme Court had an occasion to deal with issue about situs of sale and whether sale of Motor Vehicle is intra state or interstate, in case of
Commissioner of Commercial Taxes, Thiruvananthapuram, Kerala v. M/s K.T.C. Automobiles (Civil Appeal No. 2446 of 2007 dated 29th January, 2016). This case is specifically in relation to Motor Vehicles, which are subject matter of registration of Motor Vehicles Act. The relevant facts noted by Hon’ble Supreme Court can be reproduced below for ready reference.

“2. The undisputed facts disclose that the respondent is in the business of purchase and sale of Hyundai cars manufactured by Hyundai Motors Limited, Chennai. As a dealer of said cars, bothat Kozhikode (Calicut), Kerala where their head office is located and also at Mahe within the Union Territory of Pondicherry where they have a branch office, they are registered dealer and an assessee under the KGST Act, the Pondicherry Sales Tax Act as well as the Central Sales Tax Act. The dispute relates to assessment year 1999-2000. Its genesis is ingrained in the inspection of head office of the respondent on 1-6-2000 by the Intelligence Officer, IB, Kozhikode. After obtaining office copies of the sale invoices of M/s. K.T.C. Automobiles, Mahe (branch office) for the relevant period as well as some additional period and also cash receipt books, cash book etc. maintained in the head office, he issued a show cause notice dated 10-8-2000 proposing to levy ` 1 crore by way of penalty under Section 45A by the KGST Act on the alleged premise that the respondent had wrongly shown 263 number of cars as sold from its Mahe Branch, wrongly arranged for registration under the Motor Vehicles Act at Mahe and wrongly collected and remitted tax for those transactions under the provisions of Pondicherry Sales Tax Act. According to the Intelligence Officer, the sales were concluded at Kozhikode and hence the vehicles should have been registered within the State of Kerala. Therefore, by showing the sales at Mahe the respondent had failed to maintain true and complete accounts as an assessee under the KGST Act and had evaded payment of tax to the tune of ` 86 lakhs and odd during the relevant period. The respondent submitted a detailed reply and denied the allegations and raised various objections to the proposed levy of penalty. The Intelligence Officer by his order dated 30-3-2001 stuck to his views in the show cause notice but instead of ` 1 crore, he imposed a penalty of ` 86 lakhs only.”

Thus, the issue before Hon’ble Supreme Court was about determination of situs for sale of cars. The fact considered by Hon’ble Supreme Court is about ascertainment of car to a particular sale, so as to determine situs of sale.

In this respect, Hon’ble Supreme Court has observed and decided as under:

“15. Article 286(2) of the Constitution of India empowers the Parliament to formulate by making law, the principles for determining when a sale or purchase of goods takes place in the context of clause (1). As per Section 4(2) of the Central Sales Tax Act, in the case of specific or ascertained goods the sale or purchase is deemed to have taken place inside the State where the goods happened to be at the time of making a contract of sale. However, in the case of unascertained or future goods, the sale or purchase shall be deemed to have taken place in a State where the goods happened to be at the time of their appropriation by the seller or buyer, as the case may be. Although on behalf of the respondent, it has been vehemently urged that motor vehicles remain unascertained goods till their engine number or chassis number is entered in the certificate of registration, this proposition does not merit acceptance because the sale invoice itself must disclose such particulars as engine number and chassis number so that as an owner, the purchaser may apply for registration of a specific vehicle in his name. But as discussed earlier, on account of statutory provisions governing motor vehicles, the intending owner or buyer of a motor vehicle cannot ascertain the particulars of the vehicle for appropriating it to the contract of sale till its possession is handed over to him after observing the requirement of Motor Vehicles Act and Rules. Such possession can be given only at the registering office immediately preceding the registration. Thereafter only the goods can stand ascertained when the owner can actually verify the engine number and chassis number of the vehicle of which he gets possession. Then he can fill up those particulars claiming them to be true to his knowledge and seek registration of the vehicle in his name in accordance with law.

Because of such legal position, prior to getting possession of a motor vehicle, the intending purchaser/owner does not have claim over any ascertained motor vehicle. Apropos the above, there can be no difficulty in holding that a motor vehicle remains in the category of unascertained or future goods till its appropriation to the contract of sale by the seller is occasioned by handing over its possession at or near the office of registration authority in a deliverable and registrable state. Only after getting certificate of registration the owner becomes entitled to enjoy the benefits of possession and can obtain required certificate of insurance in his name and meet other requirements of law to use the motor vehicle at any public place.

16. In the light of legal formulations discussed and noticed above, we find that in law, the motor vehicles in question could come into the category of ascertained goods and could get appropriated to the contract of sale at the registration office at Mahe where admittedly all were registered in accordance with Motor Vehicles Act and Rules. The aforesaid view, in the context of motor vehicles gets support from sub-section (4) of Section 4 of the Sale of Goods Act. It contemplates that an agreement to sell fructifies and becomes a sale when the conditions are fulfilled subject to which the properties of the goods is to be transferred. In case of motor vehicles the possession can be handed over, as noticed earlier, only at or near the office of registering authority, normally at the time of registration. In case there is a major accident when the dealer is taking the motor vehicle to the registration office and vehicle can no longer be ascertained or declared fit for registration, clearly the conditions for transfer of property in the goods do not get satisfied or fulfilled. Section 18 of the Sale of Goods Act postulates that when a contract for sale is in respect of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained. Even when the contract for sale is in respect of specific or ascertained goods, the property in such goods is transferred to the buyer only at such time as the parties intend. The intention of the parties in this regard is to be gathered from the terms of the contract, the conduct of the parties and the circumstances of the case. Even if the motor vehicles were to be treated as specific and ascertained goods at the time when the sale invoice with all the specific particulars may be issued, according to Section 21 of the Sale of Goods Act, in case of such a contract for sale also, when the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. In the light of circumstances governing motor vehicles which may safely be gathered even from the Motor Vehicles Act and the Rules, it is obvious that the seller or the manufacturer/ dealer is bound to transport the motor vehicle to the office of registering authority and only when it reaches there safe and sound, in accordance with the statutory provisions governing motor vehicles it can be said to be in a deliverable state and only then the property in such a motor vehicle can pass to the buyer once he has been given notice that the motor vehicle is fit and ready for his lawful possession and registration.”

Thus Hon’ble Supreme Court has arrived at the conclusion that in case of motor vehicle, the vehicle gets ascertained to the contract of sale only when it is approved by the Registration Authority under Motor Vehicles Act and that happens at the office of the registration authority. Therefore, Hon. Supreme Court has held that the place of sale of motor vehicle is such State of registration of vehicle.

This may have effect upon interstate sale nature of motor vehicle. Due to above interpretation that the ascertainment towards sale of motor vehicle takes place at the place of registration authority, it is possible to say that when the vehicle is sold to individual customer, which is liable for registration in its name, there will not be interstate sale even if such vehicle is dispatched from one State to another State. The sale will be local sale in the State of registration of vehicle in the name of buyer.

Thus, there are number of intricate issues before coming to decision about situs of sale. The above judgment though relates to sale of cars can also be guidance for other goods also.

Query No. 1: (Penalty u/s. 271(1)(c) for not disclosing Long Term Capital Gain)

An assessee did not declare the LTCG on sale of plot of land under the bona fide impression that it will be exempt if he invests the proceeds in acquisition of plot, as such he kept the amount deposited in FD for purchase of plot. He purchased the plot in subsequent year by encashing the FD but did not purchase flat or construct the house. Now penalty u/s. 271(1)(c) also levied. – Any way out?

Answer

From the fact, it is clear that the assessee did not comply with the conditions mentioned under section 54F of the Act.

No doubt under bona fide belief he had invested in fixed deposits instead of depositing, net consideration before furnishing return of income under section 139(1), in Capital Gain Accounts Scheme, 1988.

Now therefore, it is on assessee to prove, how he bona-fidely believe that long term capital gains on sale of plot would be exempt, if he has invested in acquisition of plot instead of residential house. Further, he has also to prove, how, investment in fixed deposit instead of depositing the net consideration in Capital Gains Account Scheme was in order to comply with section 54F.

Therefore, unless he proves his bona fide, he is liable for penalty u/s. 271(1)(c ) of the Act, for concealing the particulars of his income by not disclosing the long term capital gain on sale of plot of land.

Query No. 2: [(Second generation income, not to be clubbed with u/s. 64(2)]

The member of HUF gifts her plot of land to HUF & the HUF, thereafter sells the plot & utilise the proceeds in acquisition of Residential House within the prescribed time to claim the benefit of section 54F. The house will be partly SOP and partly let out:

  1. Applicability of section 64(2) in the case of Donor member.
  2. Is there any problem to claim exemption u/s. 54F by HUF/Member?
  3. Taxability of rental income – income from income as well as LTCG

Answer

From the query, it is clear that a female member has gifted her plot of land to HUF, wherein she is a member. Therefore section 64(2) is clearly applicable.

On the facts of the case, after receipt of gift the HUF sells the plot and utilises the proceeds in acquisition of residential house within prescribed time. The HUF would be entitled to claim benefit of section 54F and thereby no income would be taxed in the hands of female member.

However, rental income and in the event of sale of such house property, the capital gain would be taxed only in the hands of HUF, as per CIT v. MSS Rajan [252 ITR 126 (Mad.) and not in the hands of donor member.

Query No. 3 [Reopening of assessment for disallowance of expenses u/s. 40a(ia)]

Non-deduction of TDS in financial years 2008/09 / 2009-10, hence reopening of assessment u/s. 147 only for disallowing claim u/s. 40a(ia). Assessee depositing TDS now, can he save himself from reassessment proceeding by intimating / replying to information? The recipient is not traceable / non-cooperative otherwise he could file information about his paying tax on said sum.

  1. Whether action u/s. 147 valid in law when the assessment
    u/s. 143(3)?
  2. Whether the payment of TDS with interest can save himself from action u/s. 147?

Answer

Under section 40a(ia), if the assessee fails to deduct tax at source for any sum paid towards the specified business expenditure, it shall not be allowed as deduction. Now from the above fact, it is clear that while completing the assessment, the business expenses mentioned under section 40a(ia) were allowed, though no tax was deducted. Therefore, notice under section 147 can be issued for disallowing the business expenses, unless the said notice is after four years from the end of the relevant assessment year and at the time of assessment under section 143(3), the assessee had disclosed fully and truly all material facts necessary for the assessment of that assessment years.

Now payment of tax with interest would not save the assessee from reopening the assessment of those years.

Query No. 4: [Capital expenditure can be claimed as application of income u/s. 11(1)(a)]:

Where the amount was given with specific direction for construction of Wadi, it shall be treated as having been made for corpus [CIT v. Sthanakvasi Vardhman Vanik Jain Sangh 260 ITR 366 (Guj.)]. See also [CIT v. Bharatiya Samskriti Vidyapith Trust 43 taxman.com 295 (Ker)]

In connection with above, whether the amount actually spent on construction of Wadi will qualify as application of income? Will it amount to double deduction as corpus donation would be exempt u/s. 11(1)(d) and construction cost of Wadi (capital expenditure) will be treated as applicable u/s. 11(1)(a)?

Answer

There is no question of double deduction. Section 11 of the Act deals with application of income different from revenue expenditure or allowance.

The exemption entitlement under section 11 of the Act is based on “application of income” and “permissible accumulation”. The ”balance of income”, if any, is treated as income which is not applied for the objects of the trust and is brought to tax under Chapter III of the Act. Chapter IV is no way is applicable to section 11
[DIT(E) v. AL- Ameen Charitable Fund Trust – 383 ITR 517 (Karn)].

So, even though, corpus donation is directly credited to corpus account, the construction cost of Wadi can be claimed as application of income [see
DIT(E) v. Govindu Naicker Estate – 315 ITR 237 (Mad.).

Query No. 5: [Investment in F. D. be treated as application of income u/s. 11(1)(a):

Application of surplus funds in construction of additional buildings with the purpose of letting them out and utilising the rent for the objects of the trust would amount to applying funds for religious and charitable purposes [St. George Forana Church – 170 ITR 62 (Ker.)]

As per the principle applied in above decision, can investment in fixed deposits be treated as application of income as income generated from the said fixed deposit will be applied for carrying out the object of trust?

Answer

Yes, section 11(1A) of the Act reads as under:

“For the purpose of sub section (1), –

  1. Where a capital asset, being property held under trust wholly for charitable or religious purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes …..”

In CIT v. Hindustan Welfare Trust [206 ITR 138], the Calcutta High Court held that :

“the Tribunal was right in law in holding that investment by the assessee – trust in fixed deposit in scheduled banks for a period of 60 days made in the previous year out of sale proceeds of the shares of companies amounted to acquiring of “another capital asset” in terms of section 11(1A)”

Similar view has been taken by the Calcutta High Court in CIT v. East India Charitable Trust [206 ITR 152] and Delhi High Court in
DIT(E) v. D.L.F. Qutab Enclave Complex Medical Charitable Trust [248 ITR 41).

Note: Please send your queries relating to Direct, Indirect & International taxation, Accounting & Auditing Standards and Company Law, FEMA etc., to AIFTP, having interest to the Members.

February 29th 2016, the Hon’ble Finance Minister announced “I propose to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June 2016. Input Tax credit of this cess will be available for payment of this cess.” Para 152 of the Budget Speech with the introduction of Krishi Kalyan Cess (KKC) the effective rate of tax on services has increased to 15%.

KKC is a levy on all taxable services. The relevant provision made in S.161 of the Finance Act, 2016 (which received the President’s assent on 14th May 2016) is as follows:

“There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Krishi Kalyan Cess, as service tax on all or any of the taxable services at the rate of 0.5 percent. on the value of such services…”

Subsequently the notifications making the necessary amendments to the CENVAT Credit Rules, 2004 issued on 26th May 2016 were issued. The highlights of the same are as below:

  1. Rule 3(1a) – The cenvat credit of Krishi Kalyan Cess can be availed.

  2. New proviso (tenth) to Rule 3(4) – The cenvat credit of any other levy cannot be utilized for payment of KKC. The cenvat credit of KKC can be utilized only for the payment of KKC.

  3. New Clause 3(7) (d) – The cenvat credit of KKC can be utilized only for the payment of KKC.

CENVAT credit of KKC can be availed by output service provider only

On combined reading the aforementioned provisions, it appears that an output service provider shall be entitled to take credit of KKC on any of the services received and the same can be utilized for payment of the output liability of KKC on provision of output service without the added burden of maintaining a co-relation between the input service and output service.

Whether KKC is a cost to the manufacturers?

Firstly, the promise that the CENVAT credit of KKC would be available is not really consistent with the existing value addition based taxation system. This is because the CENVAT credit of KKC can be utilized only for payment of KKC on output services, thereby restricting the availability of CENVAT credit of the same only to service providers. The manufacturers who bear the charge of such KKC are at a loss since the credit of the same cannot be utilized for payment of Excise duty or any other levy. Further there is a specific restriction that the credit of any other levy cannot be utilized towards payment of KKC. It is interesting to note that such a restriction was absent in case of Education Cess (EC) or Secondary and Higher Education Cess (SHEC) which in fact enabled the use of credit of basic excise duty towards payment such EC and SHEC by many assesses. Such lack of fungibility makes KKC a cost for the manufacturers. This does not seem to be in sync with the promises of the Govt. to make India a manufacturing hub.

A probable solution to this issue could be to create a refund mechanism akin to the one in existence under Rule 5A (refund of CENVAT credit to units in specified areas) or Rule 5B (refund of CENVAT credit to service providers providing services taxed under reverse charge mechanism) of the CENVAT Credit Rules, 2004, unless it is a clear intention of the Government not to extend the benefit to manufacturers.

Point of taxation – Whether KKC can be levied for service prior to 1-6-2016 ?

There appears to be some confusion due to amendment to R.5 of Point of Taxation Rules, 2011. The amendment by way of insertion of Explanation 1 (from 1.3.2016) suggests that the new levy of services shall also be governed by this rule. The new levy of service in this context would be KKC. R.5 applies to where a service is taxed for the first time or there is a new levy on services, then, no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date (or to the extent the invoice has been issued and the payment received) when the service is taxed for the first time.

A possible interpretation of negative worded provision could be that it exempts services which are provided or to be provided after the new levy, if payment is received and the invoice is issued prior to the levy comes into existence. To that extent it can be said to be an exception of general R.3 of POTR. The harmonious reading of S.67A also suggest this interpretation. In any case, the rule framed under any provision of the law should sub-serve the provisions and cannot be sustained if it goes against the provision of the law.

Point of Taxation Rules, 2011 are accorded power u/s.67A as amended from 14.5.2016 which provides that rate of service tax in force or as applicable at the time when the taxable service has been provided or agreed to be provided. Thus, the FA, 1994 provides for levy of service tax only at the time when services are provided or agreed to be provided.

It is therefore clear that applicability of tax depends on the time when services are provided. In the present case, in respect of services provided on or before 31st May 2016, tax applicable on the date of provision of service will only have to be paid. Since KKC is applicable from 1st June 2016, it cannot be made applicable on services provided on or before 31st May 2016 by means of rule 5 of POTR since it is a settled legal principle that rule cannot override Section.

In case of payment under reverse charge mechanism KKC is payable in all taxable services. The point of taxation would be the date of issue of invoice though the payment is not made to the service provider. Thus, in respect of service provided up to 31st May 2016 and invoice is issued, KKC would not be levied even if payment is made on or after 1st June 2016 (R.7 of POTR refers).

Points to be noted in nutshell

  • KKC needs to be collected on the invoice separately, to be accounted separately in the books of account and paid separately under the accounting codes:

Accounting Code

Interest

Penalty

1509

1509

1512

  • KKC will also apply for the purpose of abatements and composition rates.

  • Eligibility of Refund on KKC :- Refund of this K KC shall also be allowed as the cenvat credit is there. Further, refund of this cess shall be allowed to Exporter of Service as well as Exporter of Goods as there is no restriction of its availment.

Service provided by Government and local authorities

Though the amendment was made by the Finance Act, 2015, any service provided by government or local authority has become taxable by virtue of substitution of word ‘Support Services’ by ‘any service’ in the negative list of service u/s. 66D(a) and deletion of the definition of support service in S.65B(49) made effective from 1.4.2016:

However, the under mentioned service provided by government or local authority remains taxable in the hands of the government or local authorities even if provided to a business entity:

  1.  Specified postal services (speed post, express parcel post, life insurance, and agency services provided).

  2. Service in relation to an aircraft or a vessel, service of transportation of goods or passengers (transportation of passengers by non air-conditioned stage carriage is now been placed under mega exemption notification). Thus, transportation of passengers by air-conditioned buses of State government or local authorities will now become taxable.
    Above services are exempt if provided to a non business entity or a business entity having turnover up to ` 10 Lakhs in the preceding financial year.

  3. Service tax is now liable to be paid on services provided by the government or local authority to a business entity having turnover above ` 10 lakhs in the preceding financial year and the liability of service tax is on the business entity under reverse charge mechanism. In view of the liability of payment of service tax the business entity needs to be very careful about applicability of service tax on government services. The TRU has come out with a detailed circular on 13th April 16 clarifying the leviability of service tax on certain services provided by the government / local authority as guidelines. Some of such services to be kept in mind are as follows:

Services not covered –

  • Passport, visa, travelling license, birth or death certificate;

  • Taxes, Cesses, duties, fines, penalties, composition fees which are not consideration for any particular service;

  • Services provided by government or local authority by way of tolerating non performance of a contract for which consideration in form of fines or liquidated damages is payable to government or local authority under such contract;

  • Registration fees for registration required under any law, testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large, required under the law;

  • Services where the gross amount charged does not exceed ` 5,000/- including continuous supply of such service;

  • Assignment of right to use any natural resource where such right to use was assigned by the government or local authority before 1st April 2016, provided the consideration for such service is payable on one time charge basis in full upfront or installments;

  • Regulation of land use including change of such use, building approvals, utility services etc, as listed in Twelfth Schedule of the Constitution under the provisions of Article 243W (as exempted under Entry No.39 of Notification No. 25/2012 – ST);

  • Services provided by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution (as exempted under Entry No.60 of Notification No. 25/2012 – ST);

  • Services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import export cargo on payment of Merchant Overtime charges (MOT).”.

Services covered –

  • Activity undertaken by government / local authority for a consideration or performance of any activity for which an amount is charged (any amount, charges or fees charged as quid – pro – quo for any service rendered);

  • Any permission or license granted by the government or local authority on application of a business entity or payment of fees;

  • Assignment of any right for use of any natural resource (for e.g spectrum assignment, coal mine extraction etc) on periodical payment of royalty, other than consideration payable on one time charge payable up front or in installments (as exempted under Entry No.61 of Notification No. 25/2012 – ST);

  • Services provided by Government or a local authority by way of allowing a business entity to operate as a telecom service provider or use radio frequency spectrum from 1st April 2016 on payment of license fee or spectrum user charges;

Point of taxation in case of assignment of right in case of natural resource –

  1. When any payment in respect of such service becomes due as per the invoice or any other document issued by the government or local authority demanding such payment, or b) actual payment, whichever earlier, shall be the point of taxation. [Therefore, if the assignee / allottee opts for upfront payment then service Tax would be payable on the full value upfront. However, if the assignee opts for part upfront and remainder under deferred payment option, then service tax would be payable as and when the payments are due or made, whichever is earlier, however, the bills or invoice etc from the government / local authority should have been issued on such periodical basis].

Services tax on interest on deferred payment for use of natural resources

Where service tax is payable on interest charged by government or local authority where payment of assignment of natural resources is allowed to be made under deferred payment option, such interest will also be included for the purpose of considering taxable value (however, though clarified in the impugned circular, the inclusion of interest in the taxable value can be contested in view of the writer).

CENVAT credit of service tax paid on natural resources

In case service provided on one time charge basis (whether paid upfront or in installment), the credit shall be allowed in equal installments over a period of three years (amendment to cenvat credit rules by Notification No. 24/2012 – CE (NT) dtd. 13.4.2016)

In case service tax is paid on user charges, license fees, transfer fees, royalty etc the credit would be allowable in the year of payment.

Changes in CENVAT Credit Rules w.e.f. 1.4.2016

Amendments have also been made in CENVAT Credit Rules, 2004 so as to allow CENVAT credit to be taken on the basis of the documents specified in sub-rule (1) of rule 9 of CENVAT Credit Rules, 2004 even after the period of one year from the date of issue of such document in case of services provided by the government / local authority or any other person by way of assignment of right to use any natural resource [Fifth Proviso to sub-rule (7) of Rule 4 of CENVAT Credit Rules, 2004].

I. Introduction

The real estate sector in India has witnessed a remarkable growth over the years in terms of volume of construction activities driven by the rise in demand both of the home seekers and the investors. However, the real estate market lacked regulatory framework, transparency and professionalism. There was a long felt need for a regulated market where the investor or end user consumer is protected and simultaneously, results in boost in investments in this sector.

The Real Estate (Regulatory and Development) Act, 2016 (in short ‘the Act’) was passed by Parliament and it received the assent of the President on 25th March, 2016. The Act came into effect from 1st May, 2016.

This Act establishes the Real Estate Regulatory Authority for regulation and promotion of the real estate sector and to ensure sale of plot, apartment or building, as the case may be, or sale of real estate project, in an efficient and transparent manner and to protect the interest of consumers in the real estate sector and to establish an adjudicating mechanism for speedy dispute redressal and also to establish the Appellate Tribunal to hear appeals from the decisions, directions or orders of the Real Estate Regulatory Authority and the adjudicating officer and for matters connected therewith or incidental thereto.

Thus, this Act is a positive step towards the development and regulating the real estate sector by making disclosures of various information mandatory, thereby bringing in transparency, and protect not only the home buyers but also the investors and in turn increase the investments in this sector. However, there shall be many hurdles faced in the implementation of this Act which will be discussed hereinafter.

II. Scope of the Act

The Act applies to not only residential apartments but to all apartments, plots and buildings whether residential or commercial. The Real Estate Project as defined in the Act, states that it shall include:

  1. Development of buildings;

  2. Development of buildings consisting of apartments;

  3. Converting existing buildings or part thereof into apartments (e.g.:- converting a bungalow or hotel into apartment);

  4. Development of land into plots or apartments for the purpose of selling all or some of the said apartments or plots or buildings.

Thus, it is pertinent to note that the Act is wide enough to cover within its scope development of land for buildings, apartments as well as plots. Further, the Act covers not only residential projects but also commercial projects.

Moreover, upon interpretation of the definition of the term allottee under section 2(d), it can be said that this Act shall also apply to or govern transactions wherein the allottee resells the flats, plots or apartments to another person but will not include transactions wherein the allottee gives the said plot or apartment or building on rent.

III. Who is a Promoter?

As per the Act, the promoter is:

  1. A person who constructs or causes to be constructed an independent building or a building consisting of apartments, or converts an existing building or a part thereof into apartments, for the purpose of selling all or some of the apartments to other persons and includes his assignees; or

  2. A person who develops land into a project, whether or not the person also constructs structures on any of the plots, for the purpose of selling to other persons all or some of the plots in the said project, whether with or without structures thereon; or

  3. Any development authority or any other public body in respect of allottees of—

    1. Buildings or apartments, as the case may be, constructed by such authority or body on lands owned by them or placed at their disposal by the Government; or

    2. Plots owned by such authority or body or placed at their disposal by the Government, for the purpose of selling all or some of the apartments or plots; or

  4. An apex State level co-operative housing finance society and a primary co-operative housing society which constructs apartments or buildings for its Members or in respect of the allottees of such apartments or buildings (The allotment herein, even though it is not sale in technical sense, is taken to be so for the purpose of this Act); or

  5. Any other person who acts himself as a builder, coloniser, contractor, developer, estate developer or by any other name or claims to be acting as the holder of a power of attorney from the owner of the land on which the building or apartment is constructed or plot is developed for sale; or

  6. Such other person who constructs any building or apartment for sale to the general public;

  7. Where the person who constructs or converts a building into apartments or develops a plot for sale and the persons who sells apartments or plots are different persons, both of them shall be deemed to be the promoters and shall be jointly liable as such for the functions and responsibilities specified, under this Act or the rules and regulations made thereunder.

Who is an allottee?

The term ‘allottee’ is of noteworthiness as the Act revolves around the obligations and responsibilities of the promoters towards the allottee and vice-versa. The term occurs at several places; almost in every provision dealing with such obligations. The term has been defined as –

“Allottee” in relation to a real estate project means the person to whom a plot, apartment or building, as the case may be, has been allotted, sold (whether as freehold or leasehold) or otherwise transferred by the promoter, and includes the person who subsequently acquires the said allotment through sale, transfer or otherwise but does not include a person to whom such plot, apartment or building, as the case may be, is given on rent.

Thus, it can be said that the term ‘allottee’ is used for the transferee of the building, apartment or plot from the Promoter who gets the property, by whatever mode including by way of allotment, sale, as consideration for services, exchange for development rights or by any other means. Moreover, the building, apartment or plot transferred can be a freehold property as well as leasehold property. Therefore, an allottee of a building, apartment or plot on a leasehold land is also an allottee. However, tenants are excluded from the definition of ‘allottee’

Real Estate Regulatory Authority

The Act mandates for the appropriate Government to establish Real Estate Regulatory Authorities (in short ‘RERAs’), appoint adjudicating authorities and to establish Real Estate Appellate Tribunals in all the States and Union Territories (except Jammu & Kashmir) within a period of 1 year of its notification, to exercise the powers conferred on it and to perform the functions assigned to it under the Act.

The RERA shall be a Body Corporate by name ‘Real Estate Regulatory Authoirty’, having perpetual succession and a common seal, with the power to acquire, hold and dispose off property, and to enter into contract. RERA can sue and be sued in its corporate name. RERA comprises of chairperson and minimum of two members.

The function of the RERA apart from acting as a regulatory authority, is also to function as policy advisor to the appropriate Government and to ensure promotion of the real estate sector in a manner provided in section 32 of the Act. This includes, inter-alia, to recommend to the appropriate Government to create single window system for ensuring time bound project approvals and clearances for timely completion of project and also to recommend measures to encourage construction of environmentally sustainable and affordable housing, promoting standardisation and use of appropriate construction materials, fixtures, fittings and construction techniques.

Any aggrieved person can file a complaint against the promoter before RERA for the contraventions and violations of the provisions of this Act. If any party is aggrieved with the Order passed by the RERA then it can file an appeal within 60 days to the Real Estate Appellate Tribunal.

The function of the adjudicating authority is to adjudge the compensation/damages for loss sustained due to

  1. Incorrect, false, misleading statement in the advertisement or prospectus,

  2. Failure of the promoter to rectify the structural defect or any other defect in workmanship, quality or provision of service or any other obligations of promoter under the agreement for sale within 30 days.

  3. Failure of promoter to complete or inability to give possession of the apartment within stipulated period as mentioned in section 18(1) of the Act or due to defective title of the promoter to the land and failure of promoter to discharge his obligations under the Act, Rules or Regulations and in terms of the Agreement for sale.

IV. Registration of Real Estate projects

The Act requires the Promoter to compulsorily register the real estate projects in planning area, with the RERA, where the area of land proposed to be developed exceeds 500 square meters or where the number of apartments proposed to be developed exceeds eight apartments inclusive of all phases (where phase-wise development is proposed).

Where phase-wise development is proposed, the Act also requires every phase of a project to be registered separately as a standalone real estate project, and the promoter shall obtain registration under this Act for each phase separately. Moreover, Projects cannot be advertised, booked or sold in any form prior to registration and obtaining the necessary construction approvals.

The RERA is required to either grant or reject registration applications within 30 days and on failure of the RERA to grant or reject such applications within 30 days will result into deemed registration of such project.

In the case of existing projects i.e. ongoing projects as on the date of commencement of this Act, which have not received completion certificate, the Promoter shall make an application to RERA for registration of the said Project within 3 months of such commencement of the Act.

Let’s consider a scenario wherein the project is completed but completion Certificate is not received by the Promoter and more than half of the plots or flats are already sold. Does the Promoter still have to register the project under this Act? As per first proviso to Section 3 of the Act, if the two-fold conditions are fulfilled i.e. a) project is ongoing and b) commencement certificate for the said project is not yet received; then the Promoter shall get the project registered with the RERA under this Act. Moreover, upon perusal of Section 2 and 3 of the Act, it can be said that the project shall be deemed to be ongoing if completion certificate is not received by the promoter of the project. Therefore, in the given scenario, the promoter needs to get his project registered with RERA within 3 months of the commencement of this Act.

V. Disclosures/Transparency

Publicly accessible disclosures of the project and promoter details, along with a self-declared timeline within which the Promoter is required to complete the project, are mandatory. Quarterly project related disclosures are also required. The disclosures are to be made available online on the website of RERA.

For this purpose, the RERA shall create a web-based online system for receiving applications from promoters for registration of their projects. After the project is registered, the promoter will be given a registration number, login ID and a password for accessing the website. The promoter upon receiving the said details, shall create his web page on the said website and enter all details (i.e. as mentioned in Section 4(2) and Section 11(1) of the Act) of the proposed project, including his other ongoing and completed projects during last 5 years, in all the fields as provided, for public viewing.

VI. Standardising by defining various terms

The Act defines key terms such as ‘apartment’, ‘carpet area’, ‘interest’, etc., which will bring about uniformity in sector practices and prevent abuse of consumers due to biased classifications such as ‘super built-up area’, etc.

Clause (h) of sub-section (2) of section 4 mandatorily requires the Promoter to provide the number, type and the carpet area of apartments for sale of the Project along with the area of the exclusive balcony or verandah areas and the exclusive open terrace areas with the apartment, if any, while making the application for registration of his real estate project. This will help the Buyer to know,what is the price per square feet that he is paying for the actual usable area and, in turn, make an informed and right decision.

VII. Functions & Duties of Promoters

Endeavour is made in the Act to protect the interest of allottees, by casting various obligations and restrictions on the Promoter to ensure fairness and transparency in their dealings with them, empowering the regulatory authority to enforce such obligations and restrictions and providing deterrence by way of stringent penal consequences for defaults. Following are the functions and duties of the Promoter:

  1. To get the proposed real estate project registered with the RERA (as discussed earlier);

  2. To create a webpage and display the project on the website of RERA so as to make the details therein available on public domain;

  3. Not to advertise or make offer for sale without registering the project;

  4. The Promoter shall make available certain documents at the time of booking and issue of allotment letter such as:

    1. Sanctioned plans, layout plans, along with specifications, approved by the competent authority, by display at the site or such other place as may be specified by the regulations made by the Authority;

    2. The stage wise time schedule of completion of the project, including the provisions for civic infrastructure like water, sanitation and electricity.

  5. To obtain the completion certificate and the occupancy certificate from the relevant competent authority as per local laws or other laws for the time being in force and to make it available to the allottees individually or to the association of allottees, as the case may be.

  6. To obtain lease certificate, where the real estate project is developed on a leasehold land, specifying the period of lease, and certifying that all dues and charges in regard to the leasehold land has been paid, and to make the lease certificate available to the association of allottees;

  7. To refund the amount received in case of failure to give possession on time;

  8. To compensate the allottees for loss due to defective title of the land etc. (supra);

  9. No deposit of advance can be taken without first entering into agreement for sale:
    The Act states that the Promoter shall not accept a sum more than ten per cent of the cost of the apartment, plot, or building as the case may be, as an advance payment or an application fee, from a person without first entering into a written Agreement for sale, in prescribed form, with such person.

  10. Consequences in case of misleading advertisements/prospectus

    The Act provides that if any person (who has made an advance or a deposit based on the notice, advertisement, prospectus or model apartment to the promoter) suffers any loss or damages by reason of any incorrect, false statement included in the notice, advertisement or prospectus, or on the basis of any model apartment plot or building, then he shall be compensated by the promoter. Further, if he desires to withdraw from the proposed project then he shall be returned his entire investment.

  11. No structural alteration:
    After the execution of an Agreement for Sale, the Promoter is not authorised to alter plans, structural designs and specifications of the land, apartment or building without prior consent of two-third of the allottees.

  12. The Promoter is also not allowed to transfer or assign majority of its rights and liabilities in a project to a third party, without prior consent of two-third of the allottees, along with the RERA’s prior written approval.

  13. The Promoter is responsible for structural defects or other deficiencies for a period of 5 years from the date of delivery of possession.

  14. Cannot mortgage or create charge after the execution of Agreement for Sale:
    The Promoter is prohibited from creating any charge or encumbrance on any apartment after executing an Agreement for the same. In the event such charge or encumbrance is created, it will not affect the right and interest of the concerned consumer.

  15. Usage of Project Realizations
    Seventy per cent of the amount realised for the real estate project from the allottees from time-to-time shall be deposited in the separate account to be maintained in a Schedule Bank to cover the cost of land and construction. The amount from this account shall be utilised for payment of land cost and for cost of construction. The safeguard is provided for proper utilisation of such project receivables, by permitting its withdrawal by the promoter only after certification by the Engineer, Architect or Chartered Accountant and that the withdrawal is in proportion to the percentage of the completion of the project. This is one of the best measures for protection of interest of the allottee. The fund from this account can be utilised for completing the project by the RERA or authorities or agency appointed by it.

    According to the author, the Act does not specify that the fund obtained by mortgaging the property also needs to be deposited in such separate account. This is the main drawback of this provision and may affect the interest of the allottee.

  16. No deposit or advance (more than 10% of the cost of apartment) can be taken by the promoter without first entering into an Agreement for Sale
    A promoter can accept only up to 10% of the cost of the apartment, plot or building, as the case may be as advance money or deposit or an application fee prior to entering into a written Agreement for Sale with the consumer.
    According to the Author, this cost of apartment refers to the agreed sale price of the apartment and not the cost price of constructing the apartment as is clear from co-joint reading of section 13 and section 19(6) of the Act. If it is literally to be taken as cost of apartment then it shall result in absurd conclusions.

  17. Various assurances and insurance
    The promoter is required to declare that it has legal title to the project land or authenticate validity of title, if such land is owned by another person. The promoter is also required to obtain insurance for title and buildings along with construction insurance.

  18. To provide essential services till handing over to the association of allottees
    Promoter shall be responsible for providing and maintaining the essential services, on reasonable charges, till the taking over of the maintenance of the project by the association of the allottees.

  19. To execute conveyance in favour of allottees and their association
    Promoter shall execute a registered Conveyance Deed of the apartment, plot or building, as the case may be, in favour of the allottee along with the undivided proportionate title in the common areas to the association of allottees or competent authority, as the case may be, as provided under section 17 of this Act.

  20. Pay all outgoings till transfer of physical possession
    The promoter shall Pay all outgoings until he transfers the physical possession of the real estate project to the allottee or the associations of allottees, as the case may be, which he has collected from the allottees, for the payment of outgoings (including land cost, ground rent, municipal or other local taxes, charges for water or electricity, maintenance charges, including mortgage loan and interest on mortgages or other encumbrances and such other liabilities payable to competent authorities, banks and financial institutions, which are related to the project).

  21. Moreover, if the promoter fails to discharge any other obligations imposed on him under the proposed legislation or the rules or regulations made thereunder, he shall be liable to pay such compensation to the allottees, in the manner as provided under the proposed legislation.

VIII. Real Estate Agents

As per the Act, Real Estate Agent means any person:

  1. Who negotiates or acts on behalf of one person in a transaction of transfer of his plot, apartment or building, as the case may be, in a real estate project:

    1. By way of sale, with another person or

    2. Transfer of plot, apartment or building, as the case may be, of any other person to him and

  2. Receives remuneration or fees or any other charges for his services whether as commission or otherwise and

  3. Includes a person who introduces, through any medium, prospective buyers and sellers to each other for negotiation for sale or purchase of plot, apartment or building, as the case may be, and

  4. Includes property dealers, brokers, middlemen by whatever name called.

The Real Estate Agents play a significant role in Real Estate transactions by being the link or acting as middlemen between the promoter and the allottee. They not only bring both the parties together but also induce the prospective buyer to buy the plot, apartment or building by informing about or making representations of the promoter and his project.

The Act prohibits real estate agents from facilitating any sale or purchase of plots/apartments in projects without obtaining registration with the RERA. Moreover, the agents are, inter-alia, required to facilitate access of project information to consumers at the time of booking and refrain from making false statements, misleading representations and indulging in unfair trade practices.

IX. Standard format of Agreement for Sale

The Act provides that a specified form of agreement for sale between promoters and consumers may be prescribed. This will help in preventing inclusion of biased provisions in it and thereby protect the interest of the allottees. Consumers have also been granted the right to seek relief from unilateral termination of such agreements by promoters without cause. The Agreement for Sale shall contain the following details:

  1. Specify the particulars of development of the project including the construction of building and apartments, along with specifications and internal development works and external development works,

  2. The dates and the manner by which payments towards the cost of the apartment, plot or building, as the case may be, are to be made by the allottees and

  3. The date on which the possession of the apartment, plot or building is to be handed over.

  4. The rates of interest payable by the promoter to the allottee and the allottee to the promoter in case of default, and

  5. Such other particulars, as may be prescribed.

X. Rights and Duties of Allottees

This Act is a comprehensive legislation which regulates the activities of all stakeholders namely, the promoters, the agents and the allottees. The allottee being one of the parties to the transaction is bound by the terms and conditions of the Agreement for Sale executed in accordance with the Act. The Chapter IV of the Act lays down the rights and duties of the allottee vis-à-vis the promoter and which are to be enforced by the Regulatory Authority.

Rights of the Allottees

  1. To obtain information in relation to the promoter and the real estate project.

  2. To know stage-wise time schedule of completion of the project and in relation to various services as agreed to be provided by the promoter to the allottee in accordance with the terms and conditions of the Agreement for Sale.

  3. To claim possession once the project is completed by the promoter. Also, the Association of Allottees can claim possession of common areas.

  4. To claim refund along with interest at prescribed rate and compensation as provided under the Act in the event the Promoter fails to comply with or due to non-completion of the project as per the terms of Agreement for Sale or due to discontinuance of his business as a developer on account of suspension or revocation of his registration under the provisions of this Act or the rules or regulations made thereunder.

  5. To obtain documents and plans, including that of common areas, after handing over the physical possession of the apartment or plot or building as the case may be, by the promoter.

Duties of allottees

  1. To make payments as per the Agreement for Sale.

  2. To pay interest at prescribed rate in case of delay in payments as specified in (a) above.

  3. To participate towards formation of society/association.

  4. To take physical possession of the apartment, plot or building as the case may be, within a period of two months of the occupancy certificate issued for the said apartment, plot or building, as the case may be.

  5. To participate in registration of Conveyance Deed.

  6. Penal consequences in case of failure.

XI. Central Advisory Council

The Central Government may, by notification, establish with effect from such date as it may specify in such notification, a Council to be known as the Central Advisory Council. The functions of the Central Advisory Council shall be to advise and recommend the Central Government:

  1. On all matters concerning the implementation this Act;

  2. On major questions of policy;

  3. Towards protection of consumer interest;

  4. To foster the growth and development of the real estate sector;

  5. On any other matter as may be assigned to it by the Central Government.

The Central Government may specify the rules to give effect to the recommendations of the Central Advisory Council on matters as provided above.

XII. Real Estate Appellate Tribunal/ Appellate procedure

As mentioned earlier, the appropriate Government shall, within a period of one year from the date of coming into force of this Act, by notification, establish an Appellate Tribunal to be known as the — (name of the State/Union Territory) Real Estate Appellate Tribunal.

The appropriate Government may, if it deems necessary, establish one or more Benches of the Appellate Tribunal, for various jurisdictions, in the State or Union territory, as the case may be. Every Bench of the Appellate Tribunal shall consist of at least one Judicial Member and one Administrative to Technical Member. The appropriate Government of two or more States or Union Territories may, if it deems fit, establish one single Appellate Tribunal.

Any person aggrieved by any direction or decision or order made by the Authority or by an adjudicating officer under this Act may prefer an appeal (within 60 days of the passing of the Impugned Order) before the Appellate Tribunal having jurisdiction over the matter.

Provided that where a promoter files an appeal with the Appellate Tribunal, it shall not be entertained, without the promoter first having deposited with the Appellate Tribunal at least thirty per cent of the penalty, or such higher percentage as may be determined by the Appellate Tribunal, or the total amount to be paid to the allottee including interest and compensation imposed on him, if any, or with both, as the case may be, before the said appeal is heard. Moreover, the term “person” shall include the association of allottees or any voluntary consumer association registered under any law for the time being in force.

The Act also provides for composition of Appellate Tribunal, qualification for appointment of chairperson and members, their term of office and salary and allowances payable, removal of chairperson and members, etc.

The Appellate Tribunal shall have, for the purpose of discharging its functions under this Act, the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908.

Every order made by the Appellate Tribunal under this Act shall be executable by the Appellate Tribunal as a decree of Civil Court, and for this purpose, the Appellate Tribunal shall have all the powers of a Civil Court.

Right to legal representation

It is pertinent to note that before the RERA, Adjudicating Authority and Appellate Tribunal the party may either appear in person or authorise one or more Chartered Accountants or Company Secretaries or Cost Accountants or legal practitioners to present his or its case.

XIII. Appeal to High Court

Any person aggrieved by any decision or order of the Appellate Tribunal, may, file an appeal to the High Court, within a period of sixty days from the date of communication of the decision or order of the Appellate Tribunal, to him, on any one or more of the grounds specified in section 100 of the Code of Civil Procedure, 1908.

XIV. Penalties & Punishment

The Act, inter-alia, imposes monetary penalties on the promoter of up to 5% of the ‘estimated cost of the project’ (as determined by the RERA) for disclosure related defaults, and up to 10% for other defaults, along with a maximum imprisonment of 3 years. Allottees are liable to a fine of up to 10% of the apartment cost or imprisonment up to 1 year for non-compliance with orders of the Real Estate Appellate Tribunal.

XV. Repeal of Maharashtra Housing Regulation & Development Act

The Act expressly repeals the Maharashtra Housing (Regulation and Development) Act, 2012 (in short ‘MHRDA’). Section 56 of the said repealed Act provides that on and from the appointed day the Maharashtra Ownership of Flats Act, 1963 (in short ‘MOFA’) shall stand repealed. It is pertinent to note that the said section 56 was not brought into force before the repeal of the said MHRDA and therefore, the MOFA continues to remain in force in State of Maharashtra. If any provision of MOFA is inconsistent with any provision of this Act, then such provision of MOFA will not apply by virtue of section 89 of the Act. Moreover, with the provisions of MOFA which are consistent with the Act, they continue to remain in force.

XVI. Act to have overriding effect

The provisions of this Act, shall have effect notwithstanding anything inconsistent therewith contained in any other law for time being in force. However, Section 88 makes it clear that this Act shall be in addition to and not in derogation of any other law for the time being in force.

XVII. Difficulties faced in implementation of the Act/lacunae in the Act

Though the passing of the Act itself is a significant move, however, it does not holistically regulate the real estate sector and also fails to address some of the fundamental issues associated with it. Further, even if the Act is considered to be a comprehensive legislation yet hurdles will be faced in its implementation. A few deficiencies or limitations are highlighted below:

The mandatory requirement to deposit 70% of the project receivables i.e., sale proceeds in a separate account is good measure to protect the allottees interest but same will have an impact on the utilisation of project receivables and increase promoter’s reliance on institutional capital such as private equity or bank finance, which can be expensive. This could lead to an escalation in project costs, which may then be passed on to the consumers.

Further, the difficulty may arise as to who will ensure as to how much will be 70%? Under the Act, the burden or onus is on the promoter to inform. Moreover, how will cash transactions be accounted? The Accountants or architects or engineers being paid by the promoters, the probability of them making the reports suitable and convenient to the promoter or builder is very high. Also, this clause resulting in ring-fencing of the project receivables may also result in delays and disputes in withdrawal of amounts and in turn result in delays in completion of project and litigations may come up, jeopardising the construction projects.

Under the Act, all necessary approvals are required to be obtained prior to project launch, instead of certain specific approvals as previously required. This may delay project initiation and restrict supply of new properties.

The Act neither establishes a conclusive title system for land, nor addresses the issue of availability of housing stock across all income categories or the practice of using black money in real estate transactions.

XVIII. Conclusion

The Act is a standard-setting instrument for the real estate sector and performs the critical task of identifying and allocating risks associated with construction and development projects. The current approach of the Act is to uniformly regulate and promote different types and sizes of projects and its implementation will require significant capacity building at the state-level. The Act disrupts existing sector practices to raise efficiency of the real estate market and is likely to benefit all stakeholders by imposing financial and operational discipline, accountability and diligence.

1. Introduction

1.1 Chapter XIX – A of Income Tax Act, 1961 provides for settlement of cases. Income Tax Settlement Commission (referred to as ITSC hereafter) was set up in the year 1976 on the recommendation of Direct Tax Enquiry Committee headed by former Chief Justice of India, Shri K. N. Wanchoo. The purpose, intent and necessity of Settlement Commission is revealed by recommendation in para 2.32 to 2.34 of Chapter of the report:

“2.32 This, however, does not mean that the door for compromise with the errant tax payer should forever remain closed. In the administration of fiscal laws, whose primary objective is to raise revenue, there has to be room for compromise and settlement. A rigid attitude would not only inhibit a onetime tax evader or an un intending defaulter from making a clear breast of his affairs, but would also unnecessarily strain the investigational resources of the department in cases of doubtful benefit to revenue, while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in the law for a settlement with the taxpayer at any stage of the proceedings. In the United Kingdom, the confession method has been in vogue since 1923. In the U. S. law also, there is a provision for compromise with the taxpayer as to his tax liabilities. A provision of this type facilitating settlement in individual cases will have this advantage over general disclosure scheme that misuse thereof will be difficult and the disclosure will not normally breed further tax evasion. Each individual case can be considered on its merits and full disclosures not only of the income but of the modus operandi of its build up can be insisted on thus sealing off chances of continued evasion through similar practice.

2.33 To ensure that the Settlement is fair, prompt and independent, we would suggest that there should be a high level machinery for administering the provisions, which would also incidentally relieve the field officer of an onerous responsibility and risk of having to face adverse criticism which, we are told, has been responsible for the slow rate of disposal of disclosure petitions.”

1.2 The Income Tax Settlement Commission has certain unique features, such as:

  1. An institution, though within the Tax Department, but independent of the same to settle tax liability to give quietus to a dispute.

  2. The ITSC is empowered to grant immunity from prosecution for any offence and also to grant immunity from imposition of any penalty under the Act.

  3. The proceedings before the ITSC are confidential.

  4. The orders of the ITSC are final and not appealable. The orders are only subject to judicial review in terms of Articles 136 and 226 of the Constitution.

  5. The constitution of the ITSC is done by the Central Government from amongst “persons of integrity and outstanding ability, having special knowledge of, and experience in, problems relating to direct taxes and business accounts” as specifically laid down in the statute itself.

1.3 The process of settlement is set rolling by the assessee making an application for settlement, which must have a true & full disclosure of income concealed from the Department and the manner in which such income is earned. This admission of assessee helps the department in:

  1. Avoiding long drawn investigation and litigation to prove that income was earned and concealed by the assessee,

  2. Immediate recovery of taxes as the assessee is liable to pay tax on admitted income before filing the application for settlement, and

  3. Plugging loopholes due to in depth knowledge gained about manner of earning of income concealed.

The assessee gains by way of immunity from penalty and prosecution. Also, putting a quietus to disputed matters helps in avoiding long drawn and ruinous litigation.

2. Important amendments from time to time

2.1 Provisions of Chapter XIX A have undergone amendment from time to time. The present note explains law as applicable to applications filed on or after 01.10.2014. Following amendments over a period of time, which are crucial to understand the provisions of Chapter XIXA, are discussed.

3. Amendment of section 245C – offer of additional income

3.1 S. 245C(1) as originally enacted in the year 1976 read as follows:

“(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 of in the manner hereinafter provided.”

Provisions of sub section (1) were amended by Taxation Laws (Amendment) Act, 1984 w.e.f. 1-10-1984 and words as follows were inserted in section 245C(1): “a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income”.

3.2 The provisions as enacted in the year 1976 did not require an applicant to disclose income which had not been disclosed to the Assessing Officer along with the application for settlement. Form 34B prior to the said amendment did not have clause 11 and the confidential annexure thereto. Instead, Rule 7 of ITSC Rules provided for calling for statement of facts from the applicant after the commission passed an order admitting the application. Prior to the year 1984, applicant was required to make full and true disclosure of income only after application was admitted for settlement.

3.3 After the amendment in the year 1984, the statement of facts and declaration of income is required to be made along with application for settlement. As the same is now required to be filed with the application, Rules provided for confidentiality of the statement of facts till the time application is admitted for settlement.

4. Amendment of section 245D – objection of department to the application being admitted for settlement

4.1 S. 245D(1) deals with admission of application filed for settlement. As originally enacted, it provided that an application may be admitted having regard to complexities of investigation involved or the nature and circumstances of the case. Conditions prescribed in section 245D(1) were in addition to conditions prescribed u/s. 245C for a valid application.

4.2 Second proviso to sub section (1) of S. 245D as originally enacted in 1976 and till its deletion by Finance Act, 1979 w. e. f. 1.4.1979 provided that objection of the Commissioner of Income Tax to admission of the application on the ground that concealment has been established or is likely to be established would be fatal and application could not be admitted at all. The proviso read as follows:

“Provided further that an application shall not be proceeded with under this sub-section if the Commissioner 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 or other sum chargeable or imposable under the Indian Income–tax Act, 1922 (11 of 1922), or under this Act, has been established or is likely to be established by any Income–tax authority, in relation to the case.”

4.3 The observation of the hon’ble Supreme Court in B. N. Bhattacharjee’s case, 118 ITR 461, that purpose of Settlement Commission is not to provide shelter for big tax dodgers, was in context of the said second proviso to S. 245D(1).

4.4 Simultaneous with the deletion of second proviso as above in 1979, sub-section (1A) was inserted which provided that such an objection of the Commissioner of Income Tax could be overruled by ITSC if satisfied that such an objection was not correct and accordingly pass an order admitting the application after giving an opportunity of being heard. Subsection (1A) was on statute book from 1.4.1979 till its deletion by Finance (No.2) Act, 1991 w. e. f. 27.9.1991 and it read as follows:

‘(1A) Notwithstanding anything contained in sub-section (1), an application shall not be proceeded with under that sub-section if the Commissioner 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 or other sum chargeable or imposable [****] under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case:

Provided that where the Settlement Commission is not satisfied with the correctness of the objection raised by the Commissioner, the Settlement Commission may, after giving the Commissioner an opportunity of being heard, by order, allow the application to be proceeded with under sub-section (1) and send a copy of its order to the Commissioner.’

4.5 The judgment of the Hon’ble Supreme Court in Express Newspaper’s case, 206 ITR 443 is in context of provisions of S. 245D(1A) as above.

4.6 After amendment in 1991, the only conditions that remained for admission of application was that ITSC had to be satisfied that “having regard to the nature and circumstances of the case or complexities of investigation involved”. These conditions were on the statute book since inception in 1976.

4.7 In the year 2007, even this requirement has been done away with. The provisions relating to the admission u/s. 245D(1) can be briefly summarized as follows:

  1. From 1976 to 1979 – application could be admitted having regard to nature and circumstances of the case or complexities of investigation involved. If Commissioner of Income Tax objected that concealment has been established or is likely to be established, application could not be proceeded with at all – objection was fatal.

  2. From 1979 to 1991 – application could be admitted having regard to nature and circumstances of the case or complexities of investigation involved. If Commissioner of Income Tax objected that concealment has been established or likely to be established, than ITSC could examine whether the said objection of the CIT is correct. If ITSC satisfied that the objection was correct, application could not be admitted and if objection was incorrect, than application could be admitted.

  3. From 1991 to 2007 – application could be admitted having regard to nature and circumstances of the case or complexities of investigation involved.

  4. 2007 till date – there is no specific and separate condition prescribed for admission of an application.

4.8 It is only an application that satisfies conditions prescribed by S. 245C that can be considered for admission. Whether an application satisfied conditions of S. 245C was always examined by the ITSC before the admission of application. Conditions prescribed by S. 245D(1) were considered only in case of an application which satisfied conditions of S. 245C. For applications filed before 01.06.2007, hearing to determine whether application satisfied conditions of a valid application u/s. 245C(1) were held in camera, in absence of department, as statement of facts and annexure to the application was confidential till case was admitted by order u/s. 245D(1). For applications filed after 01.06.2007, the applications are admitted u/s. 245D(1) and allowed to be further proceeded with u/s. 245D(2C) considering whether the application satisfies conditions of section 245C. They are the only conditions which are considered for admission of an application after amendment of law in the year 2007.

5. Application for settlement – S. 245C

5.1 Section 245C deals with application for settlement and the provisions of section 245C can be briefly summarized as follows:

  1. Application can be filed for a case,

  2. Application must contain full and true disclosure of income not disclosed before the Assessing Officer,

  3. Manner of earning such income has to be disclosed,

  4. Additional tax payable on income declared should exceed the prescribed limit,

  5. Additional tax and interest payable on income declared has been paid before filing of application,

  6. Intimation is given to the Assessing Officer about application filed for settlement.

5.2 Section 245K provides for certain disqualifications to filing of application for settlement.

5.3 In Rohit Puri v. Settlement Commission 74 Taxman 306 (ITSC-Bom) it has been held that section 245C is only a machinery provision and not a charging one and hence, all the conditions as specified in section 245C(1) and the proviso thereto should be complied with for a valid application for settlement. Similar view taken in
Raja Ram Industries v. Settlement Commission (1995) 81 Taxman 506 (ITSC-Del)

6. Case – meaning thereof

6.1 Sub-section (1) of section 245C provides that an assessee can prefer an application at any stage of a case relating to him. The term “case” is defined by clause (b) to section 245A. Clause (b) was substituted by Finance Act, 2007 w. e. f. 01.06.2007 and the term had undergone major change as compared to earlier provisions. Even post amendment in the year 2007, the definition has undergone two major changes widening the meaning of the term case, once in the year 2010 and second time in the year 2014.

6.2 Case is defined as “any proceeding for assessment … in respect of any assessment year or years which may be pending before an assessing officer on the date on which an application … is made.” The words used are assessment year or years and therefore case can mean more than one assessment year. Therefore, a single application can be filed for any number of years as long as each of those assessment years satisfies condition of being a case.

6.3 In respect of application filed on or after 01.06.2007, only assessment proceedings pending before Assessing Officer is case.

6.4 As originally enacted by Finance Act 2007, the definition by clause (b) to S. 245A had a proviso which provided that certain specified type of reassessment proceedings are not case. The said proviso was amended in the year 2010 when proceedings u/s. 153A and 153C were included within case and now by Finance (No 2) Act 2014, the proviso has been altogether omitted.

6.5 The provisions were amended by Finance Act, 2010 and proceedings for assessment or reassessment in accordance with S. 153A or 153C were also included in meaning of case and years for which notice u/s. 153A or 153C have been issued are also valid proceedings for the purposes of filing application for settlement.

6.6 The provisions have further been amended by Finance (No. 2) Act, 2014 w. e. f. 01.10.2014 and the meaning of term case has been widened to include even reassessment proceedings or proceedings on set aside within the meaning of term case.

6.7 Explanation to clause (b) of S. 245A specifically provide for dates on which specified proceedings are deemed to commence and date on which they are deemed to conclude. Simultaneous with amendment of proviso to enlarge the scope of case in the year 2010 and 2014, amendments have been made to define when specified proceedings commence and conclude.

6.8 After the amendment in the year 2014, proceedings are case when the same are pending before the Assessing Officer, whether by issue of notice u/s. 143(2), 148, 153A or 153C or on set aside by appellate authorities or by CIT by order u/s. 263 or 264. The amendment widens the scope of a case to all assessment years for which assessment proceedings are pending before the Assessing Officer; whether assessment, reassessment or on set aside by higher authorities.

6.9 However, even after amendment in 2014, one issue still remains. The issue is whether assessment years for which none of the notices u/s. 143(2), 148, 153A or 153C have been issued till date, and assessment has not been made u/s. 143(3) for the said assessment year, whether application can be filed for such a year.

6.10 The issue had arisen under provisions enacted in the year 2007 prior to amendments in the year 2010 and 2014. Explanation to clause (b) of S. 245A in its clause (iv) provides as follows:

“A proceeding for assessment of any assessment year, other than …, shall be deemed to have commenced from the first day of the assessment year and concluded on the date on which assessment is made.”

6.11 In view of use of the words “deemed” and also “from the first date of assessment year”, the question arises whether proceedings are pending till an assessment u/s. 143(3) is made or merely because time to make an assessment u/s. 143(3) has expired, it can be said that proceedings are not pending though an assessment u/s. 143(3) has not been made. If assessment proceedings are said to be pending if 143(3) assessment is not made, than an application can be filed for any assessment year for which scrutiny assessment u/s. 143(3) has not been made even if notice u/s. 143(2), 148, 153A or 153C has not been issued.

6.12 The issue first arose before Bombay Bench of ITSC in an unreported case (please refer to case of Dr Pradip Talwalkar and Shagun Enterprises) and it was held that merely because 143(3) assessment has not been made, it cannot be said that assessment proceedings are pending before Assessing Officer, once time to issue notice u/s. 143(2) has expired.

6.13 In a subsequent case, Special Bench was constituted at Calcutta in case of
Rescuwear Corpn., In re [2009] 177 Taxman 281 (ITSC-Kol.) and it was held that if assessment has not been made u/s. 143(3) than assessment proceedings are pending before Assessing Officer even if time to issue notice u/s. 143(2) or time to make assessment u/s. 143(3) has expired.

6.14 The issue than came up before Hon’ble Calcutta High Court in a case reported in (2012) 1 CAL LT 309 and it was held that if time to make assessment u/s. 143(3) has expired than proceedings are not pending and application for settlement for such an year cannot be filed. Similar issue arose before Hon’ble Delhi High Court in a case reported in
CIT v. ITSC 212 Taxmann 511/ 259 CTR 318 (Del) and same view was expressed.

6.15 Before the Hon’ble Gujarat High Court in case reported in 210 Taxman 529 and 259 CTR 329, issue before ITSC was of both types of cases – one where time to make assessment u/s. 143(3) had expired and second where time to issue notice u/s. 143(2) had expired but time to make 143(3) had not expired and notice u/s. 143(2) had not been issued. The ITSC had admitted both types of assessment years for settlement. The department had before the Hon’ble Gujarat High Court challenged admission only those years where time for 143(3) had expired and did not challenge admission where only time to issue notice u/s. 143(2) had expired. The Hon’ble Gujarat High Court held that proceedings are not pending where time to make assessment u/s. 143(3) had expired.

6.16 Before the Hon’ble Bombay High Court in CIT v. ITSC 364 ITR 410, the only issue was whether when notice u/s. 143(2) has not been issued and time to issue 143(2) expired, whether assessment proceedings can be said to be pending merely on the ground that time to make assessment u/s. 143(3) has not expired. After referring to all the earlier judgments, the Hon’ble Bombay High Court agreeing with the earlier judgments held that as time to make assessment u/s. 143(3) has not expired, assessment proceedings are pending, even though notice u/s. 143(2) was not issued and time to issue notice u/s. 143(2) has expired. (Followed in
Shriniwas Machine Craft P Ltd.(2014) 361 ITR 313 (Bom).

6.17 As per law laid down by Hon’ble Bombay High Court, even if notice u/s. 143(2) has not been issued, if assessment has not been made u/s. 143(3) and time to make assessment u/s. 143(3) has not expired, application can be filed for settlement.

6.18 However, if time to make assessment u/s. 143(3) has expired than proceedings cannot be said to be pending for the purposes of S. 245A(b). One of the major arguments that was considered by the Hon’ble High Courts in coming to the above conclusion was that proviso clearly excluded reassessment proceedings u/s. 148. Now that the proviso has been omitted and also that application can be filed for reassessment proceedings u/s. 148, can it be said that the law has changed calling for a fresh view?

6.19 In Varinder K. Arora, In re [2009] 180 Taxman 412 (ITSC-Mum) it was held that assessment proceedings would be treated to be pending till the assessment order is served on the applicant. In the said case, the assessment order had been served on the applicant on 02.04.2009 after the application was filed on 31.03.2009. It was that the proceeding for assessment were pending on 31.03.2009 as per clarification issued by the CBDT in the Circular No.3 of 2008 dated 12.03.2008 and as such the assessee’s application deserved to be admitted u/s.245D(1).

6.20 Only assessment proceedings are case within meaning of S. 245A and failure to comply with provisions relating to TDS does not come within purview of 245C(1). (See Shaw Wallace & Co. Ltd. v. Settlement Commission (2003) 263 ITR 285 (Cal))

7. Full and true disclosure of income not disclosed before the Assessing officer

7.1 Sub-section (1) of section 245C requires that the application must contain a full and true disclosure of income, not disclosed before the Assessing officer. This is one of the important conditions for a valid application for settlement and one of the most litigated issues under Chapter XIXA of the Act.

7.2 In Raja Ram Industries v. Settlement Commission (1995) 81 Taxman 506 (ITSC-Del) it has that it is the obligation of the assessee making an application u/s.245C to make a full and true disclosure of the income, notwithstanding that the department has not detected the said income. The argument that an applicant was not required to disclose that part of his income which had not been detected by revenue, is wholly unacceptable and is to be rejected.

Confidentiality of Statement of Facts

7.3 As discussed in paragraph 3.2 hereinabove, the condition of making full and true disclosure was always prescribed, but prior to the year 1984, statement of facts and full and true disclosure of income had to be furnished by the assessee after the application was admitted. After amendment in the year 1984, such a statement has to be filed along with application for settlement.

7.4 From the year 1984 till very recently, the Statement of facts was treated as confidential till the time the application was allowed to be further proceeded with by order u/s. 245D(2C). Recently, in January 2014, Rule 44CA of Income Tax Rules has been amended to provide that if application is admitted by order u/s. 245D(1), than the application and statement of facts shall be forwarded to department for its report u/s. 245D(2B).

Income does not include withdrawal of claim for set off of losses/deduction of expenses

7.5 The term “income” has not been specifically defined for the purpose of Chapter XIXA. The Hon’ble Supreme Court in
CIT v. Express Newspapers Ltd 203 ITR 443 (SC) has held that offer of income for this purpose would not include withdrawal of claim for losses or expenses. As such, to constitute a valid offer of income in application for settlement, income offered must be income as earned, and not the extended meaning thereof u/s 147 which includes withdrawing of claim for losses, expenses and deductions.

7.6 Similar view taken has been taken in CIT v. ITSC [2008] 170 Taxman 172 (Mad).

Offer of income need not be new source of income

7.7 Though income not disclosed to the Assessing Officer has to be offered, it is not necessary it should be a new source of income. In
DIT (International Taxation) v. ITSC (2014) 365 ITR 108 (Bom), it is held that:

“Section 245C of the Act only requires full and true disclosure of income which has not been disclosed earlier. There is no requirement that for an application to be entertained by the Commission, the applicant must declare a new source of income from that disclosed earlier to the department. The Act does not provide for any such requirement and it is not open to the Court to read such a requirement into the Act.”

7.8 Settlement is not only of income offered and even income which requires to be added will have to be considered and the application will not be restricted to income as earned. The application must have disclosure of income as earned to satisfy the condition of offer of income not known to the Assessing Officer, but computation of total income is not restricted to the said income and total income will have to be computed in accordance with provisions of the Act, considering full and true disclosure of facts relating to the case.

Condition of full and true disclosure prescribed twice – section 245C and 245H

7.9 The need to make full and true disclosure in an application for settlement cannot be over emphasized. Though an assessee has to make full and disclosure even in return of income as required by section 139, the said condition in Chapter XIX A is prescribed twice. Section 245C prescribes conditions for a valid application and one of the main conditions is full and true disclosure of income. The same condition is again prescribed in S. 245H. S. 245H prescribes immunities that may granted by the ITSC and the conditions on satisfaction of which the said immunities may be granted. One of the prescribed conditions in section 245H is that applicant has made full and true disclosure of income.

What does full and true disclosure mean

7.10 What constitutes full and true disclosure can be determined on facts of each case. One can say that requirement of section 245C(1) are fulfilled if:

  1. All material facts are disclosed, and

  2. Computation of income offered on the basis of such primary material facts is bonafide, fair and reasonable.

Whether offer of income can be revised

7.11 Having said that applicant has to make full and true disclosure, question arises whether assessee can revise offer of income originally made in the application.

7.12 In Ajmera Housing Corporation v. CIT 326 ITR 642 (SC), it is held:

“A “full and true” disclosure of income, which had not been previously disclosed by the assessee, being a precondition for a valid application under section 245C(1) of the Act, the scheme of Chapter XIXA does not contemplate revision of the income so disclosed in the application against item No.11 of the Form. Moreover, if an assessee is permitted to revise his disclosure, in essence, he would be making a fresh application. In this regard, section 245C(3) of the Act which prohibits the withdrawal of an application once made under subsection (1) of the said section is instructive inasmuch as it manifests that an assessee cannot be permitted to resile from his stand at any stage during the proceedings. Therefore, by revising the application, the applicant would be achieving something indirectly what he cannot otherwise achieve directly and in the process rendering the provision of subsection (3) of section 245C of the Act otiose and meaningless. In our opinion, the scheme of the said Chapter is clear and admits of no ambiguity.”

“We are convinced that, in the instant case, the disclosure of ` 11.41 crores as additional undisclosed income in the revised annexure, filed on September 9, 1994 alone was sufficient to establish that the application made by the assessee on September 30, 1993 under section 245C(1) of the Act could not be entertained as it did not contain a ‘true and full’ disclosure of their undisclosed income and ‘the manner’ in which such income had been derived. However, we say nothing more on this aspect of the matter as the Commissioner, for reasons best known to him, has chosen not to challenge this part of the impugned order.”

7.13 The case of Ajmera had a chequered history of litigation. The department had challenged order u/s. 245D(4) and the Hon’ble Bombay High Court held that admission of the application itself needs to decided afresh (see
CIT v. ITSC 246 ITR 63 (Bom)). Both the assessee and the department filed appeal against the said judgment of Hon’ble Bombay High Court and the Hon’ble Supreme Court set aside the issue to the Hon’ble Bombay High Court for decision afresh. (see
Chottalal S Ajmera v. CIT 289 ITR 1 (SC)). The Hon’ble Bombay High Court decided the issue afresh as reported in
CIT v ITSC 326 ITR 626 (Bom) which was the judgment affirmed by Hon’ble Supreme Court, discussed in para 7.12 hereinabove.

7.14 However, not every revision of income has been frowned upon by Hon’ble Courts. The condition of true and full disclosure of income does not in any manner suggest that no further income can be added by the Settlement Commission at the stage of final hearing u/s.245D(4). In this context, the Hon’ble Bombay High Court has laid down certain important principles in DIT (International Taxation) v. ITSC (2014) 365 ITR 108 (Bom). In this case, at the conclusion of hearing before the Settlement Commission u/s. 245D(1), the assessee made an additional offer of ` 150 crores with an intention to buy peace and avoid protracted litigation. It was particularly mentioned in the application that the income disclosed in the applications represented true and full disclosures and that additional income was declared without any evidence and with an intention to put quietus to the matter. The Special Bench of the Commission was of the view that prima facie that the disclosure was true and full. The department had challenged admission on the ground of revision of income and it was held that the assessee in no way detracted from their earlier application representing full and true disclosure of its income. This further amount was offered as goodwill gesture and did not establish that the original application did not contain a full and true disclosure of its income by the assessees. The Revenue had not led any evidence to show so. Thus, the further disclosure would not be hit by section 245C to make the entire exercise bad for failure to make full and true disclosure unless a specific finding to that effect is arrived at by the Commission at the time of final hearing stage u/s. 245D(4).

7.15 The Hon’ble Bombay High Court referred to judgment of Hon’ble Supreme Court in Ajmera’s case, 326 ITR 642 and held in para 11 & 12 as follows:

“11. If, therefore, one juxtaposes, the facts in the Ajmera Housing case (supra) and the facts of the respondents in the present case and the context in which the additional income of ` 150 crores was offered to tax, the decision rendered and observations made in the Ajmera Housing (supra) may have no application to the present facts. None the less, the observations of the Apex Court in Ajmera Housing (supra) would have to be followed by us as this would ensure certainty of the legal position. However, we note that the additional income offered on 10 September 2007 by the respondents in no way detracted from their earlier application representing full and true disclosure of its income. This further amount was offered more as a gesture of bona fide / good faith as indicated above and with a desire to bring the dispute between the revenue and the respondents to an early end.

12 In the above context, the additional offer of ` 150 crores of income in no way establishes that the original application did not contain a full and true disclosure of its income by the respondents. The petitioner before us has not led any evidence to show that there has not been a full and true disclosure by the respondents before the Commission of its income in its application dated 5 March 2007. In the context in which the additional offer of ` 150 crores was made and particularly the statements made in their application dated 10 September 2007, it cannot be said that there was a failure to make full and true disclosure of its income on the part of the respondents when they filed their application on 5 March 2007. This additional income offered does not disclose any variance from the manner in which the additional income had been earned. This also lends credence to the respondents’ submission that the same was made at the instance of the Commission as evidence of its
bona fides.”

7.16 Following the judgment of the Hon’ble Bombay High Court in
DIT (Int. Tax.) v. ITSC 365 ITR 108 (Bom), the Hon’ble Kerala High Court in
CIT v. ITSC 369 ITR 606 (Ker) held that the additional income offered by the applicant at later stage was only to put quietus to the litigation and in a spirit of settlement. All the relevant material was already before the Settlement Commission in respect of the additional income offered and that the Department participated in verification proceeding u/s.245D(3) and no timely objection was raised. It was thus held that there was no violation of procedure by the Settlement Commission.

7.17 In CIT v. ITSC (2015) 375 ITR 483 (Bom) & also in
CIT v. Smt. Leonie M. Almeida (2015) 374 ITR 304 (Bom) it has been held that where the applicant disputes the claim, but offers the additional income in the interest of putting an end to litigation and in a spirit of settlement, due to insufficiency of material to substantiate their contentions, the same cannot be faulted. The consent by the applicant to forgo such amounts, at the suggestion of the Settlement Commission, cannot have the effect of rendering the original disclosure dubious for the purposes of settlement. It is only in those cases where an assessee resales from his original declaration of undisclosed income, by
suo moto effecting revisions thereto, that he renders his application invalid for the purposes of settlement.

7.18 Therefore, not every revision of quantum of income means that original offer of income was not full and true disclosure. It will have to be determined on facts of each case whether revision of quantum of income leads to conclusion that original offer of income was not full and true.

Stage at which to consider whether full and true disclosure made

7.19 The next question that arises is at what stage of proceedings before ITSC, the condition of full and true disclosure is required to be considered. Is it to be considered at the initial stage of 245D(1) or 245D(2C) or the same can be considered at the time of final hearing u/s.245D(4) stage. A few years back, in a few cases the Hon’ble Settlement Commission had taken a view that whether full and true disclosure has been made will be determined at the stage of final settlement u/s. 245D(4). The said practice has been uniformly rejected by various Hon’ble Courts and some of the judgments are as follows.

7.20 The Hon’ble Bombay High Court in the case of
CIT v. ITSC (No.1) (2014) 365 ITR 68 (Bom) has held as under:

“The error in the order of the Settlement Commission lay in permitting the application to proceed without that satisfaction being recorded by it, which is a fundamental aspect which goes to the root of its jurisdiction to entertain an application u/s. 245C. The Settlement Commission had proceeded on the basis that at this stage it could not hold a view that the income offered in the statement of facts was not a true and full disclosure. In holding so, the Settlement Commission had moved over to the stage of section 245D(4) without entering upon the fundamental issue as to whether the application was or was not invalid. The Settlement Commission was completely in error in holding that unless it was established by a competent authority that the purchases were all bogus, the application at this stage could not be held to be invalid, though the Department may have in its possession certain evidence indicating the fact that the income had not been truly and fully disclosed.” Similar view is taken in
CIT v. ITSC (No.1) (2014) 365 ITR 87 (Bom).

7.21 In CIT (Central), Pune v. Income-tax Settlement Commission (ITSC), Additional Bench, Mumbai, W.P. No.3900 of 2013, Bombay HC, order dated 13.06.2013, it is held-

“In order to constitute a valid application under Section 245C(1), there must be a full and true disclosure of income which has not been disclosed and of the manner in which it has been derived besides a computation of the income tax payable on such undisclosed income. It is only upon the satisfaction of the Commission that the application meets the prerequisites of a valid application that the Commission shall have the jurisdiction to proceed. The Commission is bound to determine in the course of its proceedings under sub-section 2C of Section 245D as to whether the application is invalid. The Commission has to be satisfied from the report of the Commissioner and upon hearing the applicant that the application is not invalid. For, it is only then that the Commission has the jurisdiction to proceed.

The requirement that the applicant must make a full and true disclosure of the income; of the manner in which it has been derived and of the additional amount of income tax payable on such income, is a condition precedent to a valid application for settlement under sub-section 1 of Section 245C. The jurisdiction of the Commission to proceed can be invoked on the basis of an application which strictly complies with the provisions of Section 245C(1). An applicant who comes before the Commission has to make a clean breast of the income which has not been disclosed before the assessing officer; the manner in which it was derived and the additional amount of income tax payable on the income. Before conferring upon an applicant a locus to apply for a settlement of a case, Parliament has mandated a full and true disclosure. An applicant cannot make a partial disclosure of his undisclosed income by taking a chance that the rest will escape scrutiny or, if it does not escape scrutiny of then making another disclosure. The forum of the Settlement Commission cannot be used to employ such strategies. The requirements contained in sub-section 1 of Section 245C must be fulfilled so that the jurisdiction of the Commission can be invoked. Unless the Applicant fulfills the jurisdictional requirements, the application would not be maintainable. In fact, the proviso to Section 245C also requires the payment of tax and interest which would have been paid under the Act had the income disclosed in the application been declared in the return of the income before the assessing officer. This payment has to be effected before the date of making the application and proof of such payment must be attached with the application.

The Commission could not have declined to determine as to whether the application fulfilled the requirements or prerequisites of a valid application under Section 245C(1). We may clarify, however, that we are not for the purposes of this case inclined to hold that the Commission cannot at a later stage of the proceedings reject the application where facts come to its knowledge even subsequently that there is either a suppression of full and true material facts, a misstatement or failure on the part of the assessee to make a full and candid disclosure. The existence of such a power at a subsequent stage cannot obviate the discharge of a statutory duty to determine whether the jurisdictional requirements are fulfilled, once a report is received under sub section 2C of Section 245D. The Commission has to consider as to whether or not the application is invalid.”

7.22 In Hassan Ali Khan v. Settlement Commission [2008] 299 ITR 127 (Bom)
it has been held:

“If the phraseology of sec.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 sum has been derived. On complying with those requirements, the next step would be to follow the procedure u/s.245D. It is not as if the moment an application is made and there is compliance of the requirements of sec.245D, the Commission is bound to entertain the application and allow it. The Commission has then to consider whether the application is invalid u/s.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 applicant 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 full and true 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.”

Nature of finding at stage of 245D(1) or 245D(2C)

7.23 Having said that whether full and true disclosure has to be seen at every stage whether 245D(1), 245D(2C) and 245D(4), question arises what is the nature of finding to be recorded at interim stage of 245D(1) and 245D(2C). At the stage of 245D(1) only the application of the applicant is before the Hon’ble Settlement Commission and at stage of 245D(2C) though the report of the department is available, but the time available to pass the order is only of a fortnight. The legislature has provided three stages when an application is examined but it is only at the final stage of 245D(4) the Settlement Commission determines the issues arising for settlement considering the application of the assessee and reports filed by the department. Also, it can exercise its powers of investigation and verification u/s. 245D(3) only after application is held to be valid by order u/s. 245D(2C). Therefore, a proper and final finding is given only at stage of final settlement u/s. 245D(4) and orders u/s. 245D(1) and 245D(2C) are interim in nature.

7.24 Though a finding on whether application has made full and true disclosure has to be given at the interim stages the same are preliminary findings based on facts available. Following judgments deal with said aspect of the issue.

7.25 In CIT v. ITSC [2014] 360 ITR 407 (Delhi)
it has been held in para 13 as follows:

“13. From the above provisions, it is apparent that the settlement application passes through several stages before the final order providing for the terms of settlement is passed by the Settlement Commission. The first stage is under Section 245D(1). This is followed by the next step under Section 245D(2C) and finally by the order passed under Section 245D(4). In the present case, the final order under Section 245D(4) is yet to be passed. The orders under Section 245D(1) and 245D(2C) are not final orders and they are subject to the final orders that may be passed under Section 245D(4). It is, therefore, clear that the issue of full and true disclosure on the part of the applicants and the manner in which the undisclosed income was derived is still open for discussion and debate and the Settlement Commission would have to give its final decision on these aspects before an order of settlement is passed under Section 245D(4) of the said Act. Therefore, on a plain reading of the provisions, it is apparent that the submission made by the learned counsel for the respondents 2 to 5 merits acceptance insofar as it was contended by him that the entire issue remains open and at any stage of the proceedings till the order under Section 245D(4) is passed by the Settlement Commission, the issue with regard to full and true disclosure and the manner in which the undisclosed income had been derived would be open and can be raised by the Revenue. In fact, it was clarified by the learned counsel for the respondents 2 to 5 that the said respondents do not even contend that once an application has been proceeded with under Section 245D(1) and has not been held to be invalid under Section 245D(2C), the validity of the same in terms of the requisite conditions stipulated in Section 245C(1) cannot be gone into at the subsequent stages up to the passing of the order under Section 245D(4) of the said Act.”

7.26 The above decision of the Hon’ble Delhi High Court in
CIT v. ITSC [2014] 360 ITR 407 (Delhi) is followed in decision of Hon’ble Gujarat High Court in Principal
CIT v. ITSC, Sp. Civil Appln. No. 12209 of 2015, order dated 08.12.2015 and held that the findings of the Settlement Commission on the fulfillment of the requirements of a valid offer at the stage of 245D(1) and 245D(2C) are mere tentative, and it will be open for the Settlement Commission to examine these aspects before passing final order u/s.245D(4) of the Act. The Hon’ble Gujarat High Court in this case also referred to certain observations made in the case of
Vishnubhai Mafatlal Patel v. Assistant Commissioner of Income Tax, reported in [2013] 31 taxmann.com 99 (Gujarat) – in particular, para 12 of the order, which also took in to consideration the decision of Hon’ble Supreme Court in Ajmera Housing Corporation v. CIT 326 ITR 642 (SC). Similar proposition has been laid down in CIT v. ITSC (2013) 216 Taxman 246 (Guj).

7.27 In CIT (Central), Pune v. Income-tax Settlement Commission (ITSC), Additional Bench, Mumbai, W.P. No.3900 of 2013, Bombay High Court, order dated 13.06.2013, summarized in para 7.21 hereinbefore it has been concluded that:

“We may clarify, however, that we are not for the purposes of this case inclined to hold that the Commission cannot at a later stage of the proceedings reject the application where facts come to its knowledge even subsequently that there is either a suppression of full and true material facts, a misstatement or failure on the part of the assessee to make a full and candid disclosure. The existence of such a power at a subsequent stage cannot obviate the discharge of a statutory duty to determine whether the jurisdictional requirements are fulfilled, once a report is received under sub section 2C of Section 245D. The Commission has to consider as to whether or not the application is invalid.”

7.28 In case of CIT v. K Jayaprakash Narayan 184 Taxman 85 (SC)
the Hon’ble Supreme Court refused to interfere with order of admission on the ground that it is an interim order and all the issues will be revisited at the stage of final settlement u/s. 245D(4).

7.29 The consequence of finding at the stage of 245D(4) that application did not contain full and true disclosure is discussed hereinafter in para 18 hereinafter.

8. Manner in which income derived

8.1 The application should also disclose manner in which income disclosed is derived. The modus operandi of earning income has to be disclosed. Disclosure of manner of earning income offered is as important as the condition of making full and true disclosure.

8.2 In the case before the Hon’ble Gujarat HC in Vishnubhai Mafatlal Patel v. ACIT [2013] 31 Taxmann.com 99 (Gujarat), the application filed by the assessee was rejected at the stage of 245D(1) itself on the ground that the assessee was not able to explain the manner in which the income disclosed before the settlement commission has been derived. The relevant part of the order of the settlement commission rejecting the application is reproduced hereunder-

“20. Thus we hold that the admissibility of an application under section 245C(1) of the Income-tax Act, 1961 and 22C(1) of the Wealth tax Act, 1957 is dependent upon fulfilling the twin requirements of true and full disclosure of income and the manner in which such income has been derived. In fact, unless and until the manner in which the income has been derived is properly disclosed, it would not be just and appropriate to arrive at the conclusion as to whether the disclosure of additional income is true and full or all the primary facts have been brought before the Commission. In view of this settled position of law and facts and circumstances of the case we hereby hold that the requirements mentioned in section 245D(1) of the Income-tax Acts, 1961/ Wealth tax Act, 1957 have not been fulfilled in the case of both the applicants. For this reason we do not allow the applications to be proceeded with under section 245D(1) of the Income-tax Act, 1961/ Wealth tax Act, 1957 in the case of both the applicants.”

8.3 Considering the above findings and the scope of judicial review in exercise of writ jurisdiction, the Hon’ble Gujarat High Court declined to interfere in the order passed by the commission and held in para 19 of the order as under-

“19. When the Settlement Commission examines an application in terms of statutory powers and finds that such application does not satisfy the legal requirements, as contained in section 245C(1) of the Act, in our view, unless such decision of the Commission is contrary to the statutory provisions contained in the Act, interference in exercise of writ jurisdiction under Article 226 of the Constitution of India would not be warranted. The counsel for the petitioners, as recorded earlier, made strenuous efforts to convince us that the Commission ought not to have summarily dismissed the application. We are afraid this cannot be the ground on which we would reverse the Commission’s order. If on the basis of material on record, the Commission could have come to the conclusion that application was not valid, it had every authority to reject the same even at the stage of first screening under section 245D(1) of the Act. We are not convinced with the petitioners’ contention that if such application was allowed to be proceeded, the petitioners would have produced additional materials in support of the requirement that the petitioner made true and full disclosure of undisclosed income and the manner of deriving the same. The petitioners were required to make an application and make such declarations as required under section 245C(1) of the Act. They could not have hoped for or insisted upon a second innings to do so beyond the stage of section 245D(1) of the Act. If other-wise such requirements of the Act were not fulfilled, the Commission was well within the powers to terminate such application.”

9. Additional tax payable should exceed ` 10,00,000/-

9.1 The additional tax payable on additional income offered must exceed ` 10,00,000/-. If the case is in pursuance of notice u/s. 153A or 153C, the additional tax payable has to exceed ` 50,00,000/-. If however, despite being a case in pursuance of notice u/s. 153A or 153C, if the case is connected to a case for which application has been filed, and such connection is as prescribed under the Act, than the additional tax payable has to exceed ` 10,00,000/-. The mode of computation of additional tax is provided by sub-section (1A) to (1D) of section 245C.

9.2 If the application is for more than one assessment year, than additional tax shall be determined as prescribed for each of the assessment year and the aggregate thereof shall be treated as additional tax payable as per the application.

9.3 Issue arises that whether the application must contain some disclosure of additional income for each year forming part of the case. The said issue was considered by Special Bench of
Hon’ble Settlement Commission in Airtech P. Ltd. (1999) 209 ITR (AT) 21 (ITSC-Del)(SB)
and it was held that there is no requirement that the application u/s.245C must contain some disclosure of additional income for each and every assessment year comprised in it. The additional tax liability is for the application as a whole. Thus, several years comprised in an application should together aggregate the minimum additional tax liability prescribed. It is not necessary that there should be additional tax liability for each of the years comprised in the application. The only requirement is that the additional tax liability should be overall to the extent of minimum amount prescribed.

9.4 With reference to the computation of additional tax, the issue also arose as to whether the additional income disclosed in Settlement application is to be netted out with losses, if any, as per return of income so as to compute the additional tax liability on the net total income after adjusting losses. In this context, there are two decision of the High Courts, which are contrary to each other.

9.5 The Hon’ble Bombay High Court in Gobind Builders & Developers v. ITSC (2009) 309 ITR 167 (Bom) held that the computation of additional tax would have to be done after allowing set off of the unabsorbed depreciation against the income disclosed in the application for settlement. In other words, while computing income on which tax is payable u/s.245C, carried forward losses are to be set off.

9.6 The said judgment was differed by the Hon’ble Gujarat High Court in
Union (India) Ltd. v. ITSC, order dated 09-16/04/2014 and a different view has been upheld:

“26. Under the circumstances, the contention of the counsel for the petitioner that the term “total income” should be construed as defined under section 5 of the Act for the purpose of calculation additional tax of an applicant for settlement of a case cannot be accepted. This is for multiple reasons. Firstly, as discussed earlier clause (ii) of sub section (1B) of section 245C of the Act gives rise to deeming fiction where total income has to be considered as if the aggregate of the total income returned and the income disclosed would be the total income. Such deeming fiction must be allowed its full effect. Secondly, the very same clause uses the term “total income” returned in a different context and the aggregate of the total income returned and the income disclosed which would partake the character of a total income for this limited purpose. Thirdly, such deeming fiction cannot be discarded by bringing into consideration such term used elsewhere by the legislature. It is well known the legislature provides for definition of various terms frequently used in the statutes. The definition section usually comes with the expression “unless the context otherwise provides” or “unless there is anything repugnant to”. Such definition section defines various terms repeatedly used in a statute which would carry the meaning as contained in the definition. It is also well known that the statute defines often times terms for the special purpose of a section or even for a subsection. Examples are replete in the Act itself where the definitions are provided only for the purposes of a particular section or even a subsection. In the present case, this formula which contains a special definition for a special purpose would, therefore, have its effect only for section 245C. Being a special provision it would prevail over any other general term of a concept contained in the Act. Section 245C(1) of the Act also requires the applicant to provide besides other details, true and full disclosure of his income which has not be disclosed before the Assessing Officer and amount of income tax payable on “such income”. Reference to “such income” thus is the income disclosed in the settlement application which was not disclosed before the Assessing Officer.

27. The reason for the legislature to provide a simple formula is not far to seek. As noted, the different stages before the settlement commission once an application is made by the assessee for settlement of his case, comes with time frame. Even the final order which the settlement commission may pass has a deadline beyond which if no order is passed, the proceedings would abate. At a stage where the settlement commission is required to ascertain where an assessee applicant has paid the additional tax with interest thereon only upon which application can be allowed to proceed further, no complex exercise or verification is envisaged. If the concept of total income contained in the Act is imported at such a stage, it can give rise to multiple disputes and lengthy debates with respect to the total income of an assessee and whether full tax on such income has been paid or not. At such a stage, the legislature does not envisage the commission to go into a complex exercise of ascertaining the total income of the assessee and further ascertaining his tax liability on such income. The legislature has, therefore, provided for a simple formula possible of a simple arithmetical application. It may be that in a given case the assesse may be entitled to a refund once the Settlement Commission passes its final order. Such isolated case, however, would not govern the interpretation of sub sections (1B) and (1C) of Section 245C. Any such interpretation would give rise to complex consideration by the Settlement Commission of the assessee’s total income not as defined in sub section (1B) to but as otherwise understood and referred to in Section 5 of the Act. Likewise, the computation of the tax on such total income and the resultant liability of the assessee for paying additional tax also would become a complex exercise. In income tax proceedings multiple claims, of deductions and exemptions give rise to often times complex considerations. Often the liability itself is fluctuating due to court pronouncements. Sometimes a legal question or interpretation of a provision may be in the virgin field not covered by any Court judgment. The legislature never intended that at the stage of ascertaining whether the assessee has deposited the additional tax on an application made for settlement of the case, such complex exercise should be undertaken by the Settlement Commission. Further, in our opinion, accepting any such interpretation would defeat the very purpose of introducing the simplicity of computation of “total income” of an assessee for the purpose of the said provision and his liability to pay additional tax with interest thereon.

28. The Bombay High Court in case of Gobind Builders and Developers vs. Income Tax Settlement Commission and Ors. (supra) has adopted somewhat different approach. The court has held that what is payable under sub section (1) of section 245C is the tax on total income which would mean whatever allowance or disallowance that the assessee was entitled to the same would also be available. We are unable to persuade ourselves to adopt this interpretation. In our opinion bringing the concept of total income for computing the assessee’s liability to deposit additional tax while making application for settlement would amount to ignoring the deeming fiction created by the legislature in Clause (ii) of sub section (1B) of Section 245C. For the computation of such additional tax payable the total income would be the total returned income added by the disclosed income by the assessee.”

10. Payment of additional tax and interest thereon

10.1 Though under the old provisions existing before 01.06.2007, additional income was required to be disclosed in the application, tax thereon was payable only after application was admitted and allowed to be proceeded with in accordance with S. 245D(1). There was no provision for payment of interest u/s. 234A, etc except when final order was passed u/s. 245D(4) r. w. s. 245D(6).

10.2 Under the new scheme, proviso to s. 245C(1) provides that tax along with interest has to be paid along with application itself and proof of payment has to be attached. Interest has to be computed as if such income has been disclosed in return of income and date of filing application for settlement is date of filing return for the purpose of calculation of interest.

10.3 The Hon’ble Bombay High Court in Gobind Builders & Developers v. ITSC (2009) 309 ITR 167 (Bom) has held that condition of payment of additional tax and interest is mandatory and the application does not satisfy the prescribed conditions if admitted tax and interest is not paid before filing the application.

11. Intimation to the Assessing Officer

11.1 Sub-section 4 of section 245C requires that the assessee has to give intimation of having filed the settlement application to the Assessing Officer on the date of filing settlement application itself. 11.2 The purpose of said condition is to give effect to amendment of S. 245F. Before amendment in the year 2007, exclusive jurisdiction vested in the ITSC from the date of admission of application by order u/s. 245D(1). Under the amended provisions, exclusive jurisdiction vests in the ITSC from the date of filing settlement application. By the said intimation, the assessing officer is informed that exclusive jurisdiction over the case now vests in the ITSC.

11.3 It has been held by Hon’ble Bombay Bench of ITSC in case of Viraki Bros that if intimation is not given to the Assessing Officer in prescribed Form 34BA on the same day as filing application, the application does not satisfy the conditions and the same was rejected at the stage of 245D(1) itself.

12. Disqualification for filing an application

12.1 Section 245K provides for disqualifications from making an application for settlement. The disqualifications prior to amendment made by the Finance Act, 2015, w.e.f. 1.6.2015 apply only to persons who have earlier made an application and do not apply to persons who are filing application for the first time. However, after the amendment made by the Finance Act, 2015, w.e.f. 1.6.2015, any person related to such person also shall not be entitled to apply settlement application, even if it is first time for such related person.

12.2 Clause (i) provides that where the order u/s 245D(4), passed in the case of the said assessee in an earlier application, provided for levy of penalty for concealment of income, the said assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) can never make an application for any case.

12.3 Clause (ii) provides that if after passing of an order u/s 245D(4), the assessee has been prosecuted under chapter XXII of Income Tax Act for any offence in relation to the said case, the said assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) cannot apply for settlement for any other matter.

12.4 Clause (iii) provides that where in case of an asseessee, the case has been sent back in accordance with provisions of section 245HA before 01.06.2002, the assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) cannot thereafter make an application.

12.5 In respect of application made on or after 01.06.2007, if application is allowed to be proceeded with u/s. 245D(1), assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) shall not be entitled to make an application ever again.

12.6 If an assessee had earlier made an application prior to 01.06.2007, disqualification from filing second application applies only if any of the 3 conditions are satisfied. Where the earlier application was filed after 01.06.2007, once the said application is admitted by order u/s. 245D(1), assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) cannot file second application.

12.7 In Varinder K. Arora, In re [2009] 180 Taxman 412 (ITSC-Mum) it has been held that where first application for settlement filed by applicant had abated under operation of law and second application was not allowed to be proceeded with on technical reason, there was no bar under law against filing of third application.

Related Person

12.8 As per the Explanation to section 245K of the Act, the related person with respect to a person (assessee) means-

Cl. No.

Person / Assessee

Related Person

(i)

Individual

a) any company in which such person (i.e. the individual assessee) holds more than 50% of shares or voting rights at any time; or

b) any firm or AOP or BOI in which such person (i.e. the individual assessee) is entitled to more than 50% of the profits at any time; or

c) HUF in which such person (i.e. individual assessee) is Karta.

(ii)

Company

a) any individual who held more than 50% of shares or voting rights in such company at any time before the date of settlement application by the company.

(iii)

Firm, AOP or BOI

a) any individual who was entitled to more than 50% of profits in such firm, AOP or BOI at any time before the date of settlement application by such firm, AOP or BOI.

(iv)

HUF

Karta of such HUF

12.9 Thus, all the aforesaid related persons in connection with such assessee are disqualified w.e.f. 01.06.2015 once any of the conditions as stipulated in section 245K of the Act is applicable to such assessee thereby restricting all such related person from filing settlement application.

13. Other issues relating to application

13.1 Fees of ` 500/- are payable as settlement fees and the paid challan has to be enclosed with the application as proof of payment. Fees payable are per application irrespective of number of assessment years for which application is preferred.

13.2 Sub-section (3) of section 245C provides that an application cannot be allowed to be withdrawn by the assessee.

13.3 Under the old scheme prior to 01.06.2007, proviso to S. 245C(1) provided that application for settlement could be filed only if assessee has filed return of income which was due. It was subject to lot of criticism and the proviso has been done away with and it is no more necessary that assessee has filed return of income before he is eligible to file application for settlement. As pendency of proceedings is from first day of assessment year, an assessee may instead of filing return of income due u/s. 139(1) and even before such time expires, directly file an application for settlement.

14. Admission of application

14.1 Under the old scheme prior to 01.06.2007, S. 245D(1) provided that an application for settlement may be admitted having regard to complexities of investigation involved or nature and circumstances of the case. It created lot of litigation as to which applications are fit for admission and led to uncertainty as to whether a case would be admitted or not.

14.2 The scheme for admission of a case has been completely altered w.e.f. 01.06.2007 and admission of an application would now be in two stages.

14.3 Section 245D(1) is substituted and it provides that a notice be issued by the ITSC to the applicant within 7 days of filing of application, to explain as to why his application be allowed to be proceeded with. Within 14 days of filing an application, ITSC has to decide whether to admit the application or to reject the same. If no order is passed within 14 days, application shall be deemed to be admitted. No conditions or criteria have been prescribed for deciding whether an application is fit for settlement. Therefore, only conditions prescribed in S. 245C(1) are relevant for deciding whether to allow an application to be proceeded with. At the first stage, no report or communication from department is required for ITSC to decide whether or not to allow an application to be proceeded with.

14.4 In the second stage of admission of an application for settlement, S. 245D(2B) provides that if application is allowed to be proceeded with in first stage, a report has be called from the Commissioner of Income Tax (referred to as CIT hereafter) within 30 days of filing of application and CIT has to furnish report within 30 days of receipt of communication. If report u/s. 245D(2B) is received within time, than on the basis of report, the ITSC may declare the application as invalid in accordance with S. 245D(2C). Such an order has to be on the basis of the report and within 15 days of receipt of the report. Opportunity of being heard is to be allowed to applicant if application is to be declared as invalid. If report is not received within specified time, ITSC has to proceed without the report. Again no condition or criteria have been prescribed to decide whether application is invalid, therefore only if condition prescribed by S.245C(1) not satisfied, that an application can be declared as invalid.

14.5 Orders of the Hon’ble ITSC u/s. 245D(1) and 245D(2C) have been challenged in a few recent cases. The judgments deal with the issue of nature of enquiry and finding required to be recorded by the ITSC in such orders. At each of the above two stages, the ITSC has to examine whether the conditions of a valid application are satisfied, but at both the interim stages, the finding of ITSC is tentative in that at a subsequent stage on the basis of evidence available, it may arrive at a finding that conditions of a valid application are not satisfied. The issue has been discussed in detail in para 7 hereinbefore.

15. Powers of Settlement Commission

15.1 S. 245F(1) of the Act provides that in addition to provisions of Chapter XIXA, the ITSC has all the powers of an Income Tax Authority.

15.2 Sub section (2) thereof gives exclusive jurisdiction to ITSC over the case from the date of filing of an application till order is passed u/s. 245D(4). The Assessing Officer cannot pass assessment order once an application is filed and intimation of filing application has been served.

15.3 Further, sub-section (3) of section 245F provides that in absence of express direction to the contrary by the ITSC, the provisions of this section shall not effect the operation of provisions requiring an assessee to pay self-assessment tax.

15.4 Sub-section (4) of section 245F provides that nothing contained in this section shall effect the operation of any provisions of the Act in relation to matters not before the commission.

15.5 From the date of filing application till the date of final order u/s. 245D(4), exclusive jurisdiction vests in the ITSC relating to the case. Therefore, during pendency of application it is ITSC which has to decide about release of jewellery seized as held in AMS Jewelers 139 taxman 34 (Del).

15.6 The jurisdiction of the Settlement Commission is confined only to the matters covered by the application before it and cannot proceed to give its decision on the matters or issues, which were not before the Commission (see
CIT v. Paharpur Cooling Towers P. Ltd. (1996) 219 ITR 618 (SC))

15.7 In Ashwani Kumar Goel v. ITSC 364 ITR 492 (Del) a peculiar contention was raised by the assessee. In this case, Settlement application was admitted to be proceeded further u/s.245D(1). At the time of final hearing u/s.245D(4), the applicant raised contention that at the time of admission of the application, the time limit for passing the block assessment had expired and in view of the same, no order can be passed by Settlement Commission. It was held that at the time of admission of the case u/s.245D(1), due opportunity was given to the applicant and no such plea of time barring assessment was raised. Hence, at stage of final hearing u/s.245D(4), the Settlement Commission cannot revisit and review its order passed u/s.245D(1) admitting the application to be proceeded with. Once the applicant is admitted to be proceeded with, the exclusive jurisdiction lies with the Settlement Commission.

15.8 In Dr. Mahesh D. Singhvi (1998) 97 Taxman 58 (ITSC) it has been held as follows:

“The sweep of the powers of the Settlement Commission u/s.245F(1) has been extended to cover the powers of various income tax authorities from the Board down to the Inspector. An unqualified exercise of powers may not be possible when section 245F(1) is read in consonance with section 245F(2), whereby the exclusive jurisdiction of the Settlement Commission ‘to exercise the powers and perform the functions of an income-tax authority under this Act’ is circumscribed by certain limits, viz, it should be ‘in relation to the case’ and that this would be available only up to the date of Order u/s.245D(4).”

15.9 U/s. 245H of the Act, Settlement Commission has power to grant immunity to the applicant from penalty and prosecution. However, it does not have any power to grant immunity to any third person. In
Gupta Perfumers (P.) Ltd. v. ITSC [2012] 348 ITR 86 (Del) it was held that where in a settlement application u/s.245C certain seized papers were referred to, which belonged to third persons, assessee cannot claim immunity against penalty and prosecution for and on behalf of third persons and such seized papers can be used and utilised against third persons.

15.10 Recently it has been held by Hon’ble Delhi High Court in
Asgon Global Pvt. Ltd. & Ors. v. ITSC, W.P. (C) 2927/2013, order dated 06.01.2016 that ITSC has no power to direct Special Audit u/s.142(2A). In para 21, it is held as under-

“21. We have already expressed a similar view above. The exclusive jurisdiction of the settlement commission to exercise the powers and perform the functions of an income tax authority, in terms of section 245F(2) of the said Act, is to be exercised and performed for the purpose of settlement of the case under Chapter XIX-A and not for assessment under Chapter XIV. That being the case, the powers and functions which are in the exclusive jurisdiction of the settlement commission are circumscribed by the object and role which has been ascribed to the settlement commission, which is to settle the case in terms of the procedure stipulated in Chapter XIX-A. Since assessment of the type contemplated under section 143(3) is outside the purview of settlement proceedings, a special audit under section 142(2A), which is in aid of assessment, would also be beyond the scope of settlement proceedings. The other decisions referred to by the learned counsel for the revenue do not militate against the view we have taken.

22. In sum, we hold that the income tax settlement commission does not have the power to direct a special audit under section 142(2A) in the course of settlement proceedings under Chapter XIX-A of the said Act.

Consequently, the impugned order dated 26.04.2013, to the extent it directs the conduct of a special audit, is quashed.”

16. Powers to direct commissioner to make further enquiry – S. 245D(3)

16.1 Sub-section (3) of Section 245D provides that the ITSC may direct the Commissioner of Income-tax to make further enquiry or investigation and furnish a report if it is of the opinion that further enquiry or investigation is called for.

16.2 Section 245D(3) provides that Settlement Commission may direct Commissioner of Income-tax to make further enquiry or investigation and furnish a report to it if it is of the opinion that further enquiry or investigation is called for. This power is discretionary in nature. ( see
Sushil Kumar Modi v. State of Bihar (1998) 233 ITR 671 (Pat) and CIT v. ITSC [2014] 360 ITR 539 (Bom).

17. Provisional attachment to protect revenue- Section 245DD

17.1 During the pendency of proceedings before it, the Commission may direct provisional attachment of the property belonging to the applicant in accordance with the second Schedule, if it is of the opinion that it is necessary to protect the interest of the revenue. Such order would be valid for a period of six months, though the Commission may extend the period.

18. Settlement – order u/s. 245D(4) r. w. s. 245D(6)

18.1 Sub-section (4) of section 245D provides that after considering the application, reports of the Commissioner of Income-tax and such other materials, the Settlement Commission, may, in accordance with the provisions of the Act, pass such orders as it thinks fit. The provisions grant the widest powers to the Commission to pass an order as it deems fit and the only restriction on the powers is that the order has to be in accordance with the provisions of the Act.

18.2 In CIT v. Godwin Steels P Ltd 353 ITR 353 (Del) the Hon’ble Delhi High Court has laid down detailed guidelines on the nature of proceedings u/s. 245D(4) and meaning and import of the word “considered” used in sub-section (5) of section 245D.

Settlement is of case and not only of income offered

18.3 Though s. 245C requires an application to be “…. containing a full and true disclosure of his income which has not been disclosed before the assessing officer and the manner in which such income is derived …”, it is not an application only relating to undisclosed income but application u/s. 245C(1) is for settlement of case as defined in s. 245A(b). A case means assessment or reassessment proceedings pending before the Assessing Officer; therefore settlement is of case and not only of income not disclosed before the assessing officer.

18.4 Therefore, though disclosure of income is one of the conditions for making an application for settlement, settlement is of the whole case and not merely of undisclosed income.

Terms of Settlement – Section 245D(6)

18.5 Sub-section (6) of section 245D provides that every order u/s 245D(4) shall provide for: –

  1. Terms of Settlement;

  2. Demand by way of tax, interest or penalty;

  3. The manner in which sum due shall be paid;

  4. All other matters to make settlement effective;

  5. That the settlement shall be void, if it is subsequently found by the Commission to have been obtained by fraud or misrepresentation.

18.6 Sub-section 6 ensures that all the aspects of the case are decided and nothing remains pending, as section 245I provides that order u/s. 245D(4) is final in respect of matters stated therein.

18.7 Clause (iiia) has been inserted in sub-section (1) of section 245HA by Finance Act, 2015 w. e. f. 01.06.2015 to provide that if order u/s. 245D(4) does not provide for terms of settlement, the proceedings shall abate.

18.8 Interest u/s. 234A, 234B and 234C are mandatory and even ITSC does not have power to waive said interest except to the extent the CIT/CCIT can waive the same in accordance with circulars of the CBDT. Interest u/s. 234B is chargeable only up to date of order u/s. 245D(1). (see
Anjum Mohammed Ghaswala, 252 ITR 1 (SC), Hindustan Bulk Carriers 259 ITR 449 (SC), Damani Bros (2003) 259 ITR 475 (SC) and Brij Lal & Others v. CIT (2010) 328 ITR 477 (SC).

18.9 Interest is chargeable only upto date of order u/s. 245D(1) and interest is not chargeable u/s. 234C. (see C M Smith and Sons v. ACIT (2014) 367 ITR 701 (Guj)).

Payment of sum due

18.10 The Order u/s 245D(4) also provides for manner of payment and the Commission has power to grant instalments for payment of sum due.

18.11 In Ranjan Kumar Akhaury (Dr.) v. CCIT (2003) 261 ITR 385 (Pat) it has been held that if the order u/s. 245D(4) does not quantify amount of tax and interest but merely gives directions, than the time limit for payment starts only from date on which the Assessing Officer serves notice of demand with working of tax and interest payable.

Immunity withdrawn if taxes not paid as prescribed

18.12 Sub-section (1A) of section 245H provides that where sum due is not paid as prescribed by order u/s 245D(4) or within such further time as may be allowed by the Commission, the immunity granted from penalty and prosecution shall stand withdrawn.

18.13 Sub-section (6A) of section 245D provides for charge of mandatory interest at the rate of 15% per annum on amount remaining unpaid for the period commencing from the end of 35 days from the date of receipt of order and ending with the date of payment. Interest is payable irrespective of time granted by the Commission.

18.14 Section 245J provides that subject to order u/s 245D(4), the sum due by such order may be recovered by the Assessing Officer having jurisdiction over the applicant and penalty for default may be imposed in accordance with the provisions of Chapter- XVII. The jurisdiction to recover amount due as per Order u/s 245D(4) is vested with the Assessing Officer having jurisdiction over the case, though he is bound by the terms of payment prescribed by the Commission.

Finding that no full and true at 245D4 stage – whether to reject application altogether or to settle and consider issue only for immunity u/s. 245H

18.15 As discussed hereinbefore in para 7, full and true disclosure is important condition prescribed for a valid application. Also the said aspect has to be examined at every stage of case though at interim stages of 245D(1) and 245D(2C), the said finding is tentative and final finding is to be given at stage of 245D(4). Also the condition as to full and true disclosure has also been prescribed in section 245H which provides power to Hon’ble Settlement Commission to give immunity from penalty and prosecution. Also not every case in which quantum of income is revised it can be said that applicant had not made full and true disclosure.

18.16 The question therefore arises that if at stage of 245D(4) the finding is that applicant has not made full and true disclosure what is the consequence of the said finding? Whether the application has to be held as invalid and sent back to department or immunity has to be denied to the extent of further addition on account of full and true disclosure not been made.

18.17 In Major Metals Ltd. v. UOI [2012] 25 CTR 385 (Bom) / 207 Taxman 185 (Bom) the Hon’ble Settlement Commission did not reject the application but had levied penalty. The assessee had challenged the said order before the Hon’ble Bombay High Court and it was held:

“Once an assessee moves to the Settlement Commission, the statute expressly mandates that the application cannot be withdrawn. Unless the Commission in a given case decides to reject the application, it is entitled to resolve the case by settlement. An assessee who moves to the Settlement Commission cannot be allowed to be anything other than fair and candid. Nor can he assert an unqualified right that the Settlement Commission should either accept what he discloses or leave him to another round of assessment before the Assessing Officer.”

18.18 In G. Jayaraman v. Settlement Commission (Additional Bench) [2011] 196 Taxman 552 (Mad.) it was held:

“That since the Commission had come to conclusion that the disclosure made by the assessee was not full and true, it should have dismissed the application leaving the option to the assessee to work out his remedies in the manner known to law and also giving liberty to the assessing authority to reopen the assessment u/s.147. Instead of doing that, the Commission itself had taken up the role of the assessing authority and had reassessed the alleged additional income of the assessee for the purpose of tax u/s.147. That was wholly without jurisdiction and, therefore, the same was liable to be quashed. The statute, namely, the Income-tax Act does not confer any jurisdiction on the Settlement Commission to make reassessment of the escaped income for the purpose of income-tax.”

18.19 In Canara Jewellers v. Settlement Commission [2009] 315 ITR 328 (Mad.) it was held:

“When once income disclosed by assessee u/s.245C is not accepted as full and true disclosure on their respective income, application u/s.245C preferred by assessee are not maintainable and, therefore, Settlement Commission has no jurisdiction to pass any order enhancing income showing higher income in respect of assessee.”

18.20 In Rasik Ramji Kamani v. S.K. Tripathi (1993) 202 ITR 74 affirmed in 203 ITR 848 (Bom) it was held that a Settlement, to be effective and meaningful, would require candid co-operation and frankness from the tax-payer, even if such assessee was not candid in the past.

19. Immunities from penalty and prosecution – Section 245H

19.1 Sub-section (1) of section 245H provides that the Settlement Commission may grant immunity from prosecution for any offence under Income Tax, 1961. It may also grant immunity, either wholly or in part, from imposition of any penalty under the Act. The immunity can only be in respect of case covered by the Settlement Commission. Also, the Commission may impose any conditions subject to which immunity is granted.

19.2 Immunity may be granted by the Commission, if following conditions are satisfied: –

  1. The applicant has co-operated with the Commission in proceedings before it; and

  2. The applicant has made full and true disclosure of his income.

Restrictions on powers to grant immunity

19.3 The Commission does not have jurisdiction to grant immunity from prosecution in a case where prosecution proceedings have been instituted before the date of filing of application u/s 245C.

Withdrawal of immunity

19.4 Immunities granted by order u/s 245D(4) may be withdrawn in two circumstances. One being non-compliance with order u/s 245D(4) and second being order is obtained by fraud or misrepresentation of facts.

19.5 Sub-section (1A) of section 245H provides that the immunity shall be withdrawn if amount due as per order u/s 245D(4) is not paid within specified time or such further time as may granted by the Commission or if the applicant fails to comply with other conditions subject to which immunity is granted.

19.6 Sub-section (2) of section 245H provides that the Settlement Commission may withdraw the immunity granted if it is satisfied that the applicant had during settlement proceedings concealed particulars material to settlement or has given false evidence.

19.7 In Ashirvad Enterprises v. State of Bihar (2004) 266 ITR 578 (SC) the assessee filed an application before the Settlement Commission and subsequently prosecution was launched. The assessee approached the High Court to quash the prosecution proceedings and this was rejected by the High Court. The assessee appealed to the Supreme Court. Meanwhile the Settlement Commission accepted the settlement and granted immunity from prosecution. The Hon’ble Supreme Court quashed the prosecution proceedings. It was held that since the application for settlement was filed prior to lodging a complaint, the Settlement commission has the right to grant immunity from prosecution on its discretion, but once the petition is admitted, prosecution proceedings cannot continue.

19.8 In Nirmal & Navin P. Ltd. v. Ravindran (D) (2002) 255 ITR 514 (SC) it was that Settlement Commission can grant immunity from prosecution “in respect of matters arising out of settlement”. This immunity is a total immunity and not confined to specific assessment year. The High Court cannot declare order granting immunity as illegal or void.

19.9 In Kewal Krishna Gupta v. ITO (1992) 104 CTR 321 (P&H) and Super Rubber Industries v. DCIT (1995) 215 ITR 49 (Del) while the settlement application was pending for final settlement, prosecution proceedings were stayed.

20. Order to be conclusive- Section 245I

20.1 Section 245I provides that every order passed u/s 245D(4) shall be conclusive as to matters stated therein. Further, no matter covered by such order can be reopened in any proceedings under the Act or any law for time being in force except as otherwise provided under Chapter XIX-A. The order u/s 245D(4) is final and no appeal or revision is provided under the Act.

20.2 In many instances the orders have been challenged by either the assessee or the department before Hon’ble High Court by way of writ under Article 226. Though such a writ is maintainable, it is not an appeal or review by Hon’ble High Court of order of the Hon’ble Settlement Commission. It has been held that decision cannot be challenged but the decision making process can be examined by the Hon’ble High Court.

20.3 In CIT v. Gopal Gupta [2014] 364 ITR 446 (Del)
it has been held:

“High Court, under Article 226, can interfere/review an order passed by Settlement Commission u/s.245D only if there is fault in decision making process and not with decision itself.”

20.4 In the said case, the Settlement Commission u/s.245D passed order in favour of assessee holding that an amount of ` 6 cr. as mentioned in receipts was principal amount of loan received and not interest on investment as claimed by revenue. The Hon’ble High Court held that it could not substitute its view in place of Settlement Commission, particularly on point of interpretation of a particular document.

20.5 In CIT v. ITSC (2014) 364 ITR 625 (AP) it has been held:

“When due opportunity of hearing is given to the department at the stage of admission of settlement application and at the time of final hearing u/s.245D(4), there can be no judicial review of admission order passed by the Settlement commission. Dismissing the writ petition of revenue against the order passed by the Settlement Commission both at the stage of admission and also at the stage of passing of the final order, as a matter of fact, ample opportunity was given to the Department to file its objections and the representatives of the Department were heard before passing the orders and in that view of the matter, it could not be said that the order was vitiated on account of violation of the principles of natural justice. Inasmuch as it was within the discretion of the Settlement Commission at the stage of section 245D(1) of the Income-tax Act, 1961, to admit a case for consideration based on the prima facie view, the aspect of admission of a case by the Settlement Commission except in exceptional circumstances cannot be the subject matter of a judicial review.”

20.6 In Supreme Agro Foods (P) Ltd v. ITSC (2013) 353 ITR 385 (P&H)
it has been held:

“The Settlement Commission has to consider the material brought on record before it. “Consideration” means independent examination of the evidence and the material on record. It is the duty of the Settlement Commission to take into consideration all the material brought on record irrespective of whether the Commissioner under Rule 9 of the report did not refer to the same. Such order of the Settlement Commission cannot be interfered with.”

20.7 On the issue other judgments are:

Jyotendrasinhji v. S.I. Tripathi & Others 201 ITR 631 (SC)

UOI v. Indoswift Lab Ltd. 265ELT 3 (SC)

Hassan Ali Khan v. Settlement Commission 299 ITR 127 (Bom)

Mahavir Rolling Mills (P.) Ltd. v. ITSC [2010] 191 Taxman 358 (Guj)

Indco Dyes & Chemicals P Ltd v. Settlement Commission (2003) 259 ITR 600 (Del)

N Krishnan v Settlement Commission 180 ITR 585 (Kar)

20.8 Once orders have been passed u/s. 245D(4), the department cannot take any action in respect of assessment years covered by settlement application. Even action to reopen assessment u/s. 147 cannot be taken by the department, whether or not the issue on basis of which notice is issued is dealt with in order u/s. 245D(4). If at all, the department can approach the ITSC with the information it has, seeking appropriate action u/s. 245H(2). (See
Om Prakash Mittal 273 ITR 326 (SC), Omaxe ltd 209 Taxman 443 (Del), CIT v. Diksha Singh 350 ITR 157 (All) and Chandragiri Construction Co 334 ITR 211 (Mad)).

Rectification of mistake apparent from record

20.9 In context of charging interest u/s. 234B, the hon’ble Supreme Court held in case of Brijlal, 328 ITR 477 that the ITSC cannot after passing order u/s. 245D(4) pass rectification order u/s. 154 to charge interest u/s. 234B. After the said judgment, to put the issue beyond doubt, sub-section 6B has been inserted in section 245D to provide that ITSC can rectify any order within a period of 6 months of the month in which order u/s. 245D(4) has been passed.

20.10 In Smriti Properties P. Ltd. v. Settlement Commission (IT and WT) (2005) 278 ITR 274 (Cal)
it has been held that the Bench which passed the original order should ordinarily pass rectification order. It was further held that the Bench consisting of two members cannot rectify an order passed by Bench consisting of three members.

21. 245HA – Abatement of proceedings

21.1 Proceedings before the ITSC shall abate and proceedings shall revive before respective IT authority as if no application was made, if:

  1. Application is rejected u/s. 245D(1),

  2. Application is declared invalid u/s. 245D(2C),

  3. Order u/s 245D(4) is not passed within 18 months of the end of month in which application is filed,

  4. Order passed u/s. 245D(4) does not provide terms of settlement.

21.2 If the proceedings abate, the IT authority shall be entitled to use all material produced by applicant as well as any information gathered by ITSC.

21.3 For determination of time limit for making assessment as well as for computing time for payment of interest on refund, the period from date of application to date of abatement shall be excluded.

245HAA – credit for taxes paid

21.4 Once proceedings abate as above, AO has to give credit for taxes paid in proceedings before the ITSC.

Opportunity of hearing

22.1 It has been held in CIT v. B.N. Bhattachargee (1979) 118 ITR 461 (SC)
that the applicant must be heard before application is rejected. Section 245D(1) does not negate natural justice and in the absence of an express exclusion of the rule of
audi alteram partem, it is fair, indeed fundamental, that no man is prejudiced by action without opportunity to show to the contrary. Similar view taken in –
R.B. Shreeram Durga Prasad & Fatherhand Nursing Das v. ITSC (1989) 176 ITR 169 (SC); Orient Chemical Industries v. ITSC (1979) 96 Taxman 622 (Del); Swadeshi Industries v. ITSC (1993) 199 ITR 293 (Cal).

Must pass reasoned order considering contentions of both the applicant and department

22.2 It has been held in MARC Bathing Luxuries Ltd v. ITSC (2014) 364 ITR 64 (Del) as follows:

“Under section 245D of the Income-tax Act, 1961, once an application is filed, the application must be dealt with in accordance with law, i.e., the Commission must refer to the contentions of the assessees, the contentions of the Revenue and then take an objective, considered and a reasoned decision. This is only when the stand of the two sides are fully noticed and considered before an order under section 245D(2C) is passed. The assessees must be honest and admit its faults and cannot but declare its true and full undisclosed income. However, its plea and explanation that its declarations are genuine and truthful, cannot be rejected without a legitimate and fair consideration. Held, that the order of the Settlement Commission was cryptic and was not focused on the issues and contentions, which were raised by the assessees and by the Commissioner. The Settlement Commission’s order had not referred to any specific issues and documents or made references to the contentions of the Commissioner. The order of the Settlement Commission was not valid and was liable to be quashed.”

22.3 In CIT v. Vyasa Bank Ltd 194 Taxman 533/240 CTR 68 (Kar)
the order granting immunity was set aside to ITSC as speaking order dealing with all issues was not passed by ITSC. The said judgment was affirmed by Hon’ble Division Bench in
ING Vysya Bank Ltd v. CIT (2013) 213 Taxman 115/255 CTR 311 (Kar). (In the said case, even the admission order u/s. 245D(1) was challenged and the Hon’ble Court refused to intervene and held that all the issues will be considered by ITSC at stage of 245D(4) (see
CIT v. Vysya Bank Ltd 282 ITR 185 (Kar).)

22.4 In case of Vascon Engineers Ltd WP no 1800 of 2015, order dated 09.07.2015, before the Hon’ble Bombay High Court, the application was held to be invalid by order u/s. 245D(2C) on the basis of report of CIT that admitted taxes have not been paid. The Hon’ble Bombay High Court held that ITSC should satisfy itself about the stand of CIT before deciding the issue.

Advocate’s profession is service oriented, not trade or commerce or industry and is noble. Maintaining dignity and decorum is essentially based on mutual respect in between members of the Bar and Bench. Dignity, decorum and self-respect of the bar should be maintained as they are counterparts of the Administration of Justice, a divine act. Dispensation of justice is not an individual act of judiciary, but a joint act of the Bar and Bench. The central function of the legal profession is to help promotion of administration of justice. Any misdemeanour or misdeed or misbehaviour can become an act of delinquency. It is desirable to observe written and oral conventions built over long years and followed since time immemorial.

The Indian legal system is the product of the history. It is rooted in our soil; nurtured and nourished by our culture; languages and traditions; fostered and sharpened by our genius and quest for social justice; reinforced by history and heritage; it is not a mere copy of the English common law, though inspired and strengthened, guided and enriched by concepts and precepts of justice, equity and good conscience, which are indeed the hallmark of the common law. Elaborate rules framed by the Bar Council of India provide for the duty of an advocate to the Court, to the client; to the opponent counsel and to his colleagues; to maintain towards the Court a respectful attitude bearing in mind that the dignity of the judicial office is essential for the survival of a free community, that he shall use his best effort to restrain and prevent his client from resorting to sharp or unfair practices or from doing anything in relation to the Court, opposing counsel or parties which the advocate himself ought not to do; to uphold the interests of his client by all fair and honourable means without regard to any unpleasant consequences to himself or to any other; etc.

An advocate is an officer and a Senior advocate is a senior officer of the Court and with that privilege responsibility must follow in its wake. His primary allegiance is to the Court and it is no part of the professional duties of an Advocate to act merely as a mouthpiece of his client. A member of the bar should use best efforts to restrain and prevent his client from resorting to any unfair or sharp practice. He should ‘settle’ i.e. put pleadings in proper form and not ‘cut and paste’ from other cases. Pleadings should be tailored made not stereo-typed. He is expected to argue the case with sense of detachment and non-identification with the cause espoused as he is expected to argue in order to make law and considering the binding precedents and taking care of dissenting judgments.

He is expected to place facts fully, completely and correctly, as available on records. No material fact be concealed. He should raise arguments based on law and support by law laid down by the Hon’ble Supreme Court, the jurisdictional High Court and other High Courts. Only relevant judgments matching to the facts of the case need be cited. On the same proposition large number of judicial precedents need not be placed to burden the Hon’ble Court and to waste precious time of all concerned. Citing judgment of a Court which has been overruled by a larger Bench of the same High Court or Supreme Court without disclosing the fact that it has been overruled is bad and a matter of serious concern. Object is to ensure smooth functioning of the Court. We are architects of society by serving as social engineers. The indispensable role played by us in the dispensation of justice is commendable. When an advocate or a party appearing before the Court requires to conduct himself in a manner befitting to the dignity and decorum of the Court, he cannot have a free licence to indulge in writing in the pleadings the scurrilous accusations or scandalisation.

An advocate should be peaceful and keep atmosphere calm and quiet. Voice need not be too loud, aggressive or agitative. One should argue without any bias, pre-notions and attachment. Advocates are not astrologers or fore-tellers and should not forecast or guarantee. Guarantee briefs should be eschewed. Dignity and honour should not only be maintained but enhanced. We have a bounden duty to assist the Court and not to mislead it. We stand in a loco parentis towards the litigants and it, therefore, follows that the client is entitled to receive disinterested, sincere and honest treatment especially where the client approaches the advocate for succour in times of need.

An advocate shall, at all times, comport himself in a manner befitting his status as an officer of the Court, a privileged member of the community, and a gentleman bearing in mind that what may be lawful and moral for a person who is not a member of the Bar, or for a member of the Bar in his non-professional capacity may still be improper for an advocate. The preamble depicts as to conduct of an advocate and need be read with care and caution. It is the soul and heart of the noble profession of law.

An advocate should not accept brief, file Vakalatnama and put appearance before his father or other close blood relation or friend or an associate and should not accept brief in such case where any other advocate has filed Vakalatnama, without seeking no objection from the existing advocate. Tendency to retain the records and not to return need to be eschewed. No right vests to retain the records even if fees remains as outstanding. Any communication between the client and the counsel is secret and it is the duty of the counsel not to divulge or disclose or discuss without permission of the client. Loose talks deserve to be avoided. Gossips impermissible. Utmost care and caution is essential in proper discharge of duty and trust.

He should at all times pay differential respect to the judge and unscrupulously observe the decorum of the Court room and maintain strict fiduciary relations with the clients under all circumstances. We must act as a ‘model to the juniors’ of the profession. He should know that his first duty is to the Court, he has nothing to fear. “Fear None, Except one, who is above all of us”. He must disregard specific instruction of his client, if they conflict with his duty to the Court. If he breaks it, he is offending against the rules of profession and is subject to its discipline.

An advocate should not hesitate to condemn tyranny or injustice. An advocate stands for justice more than a Judge and he pleads for it. An advocate should continue to enjoy the confidence not only of his client but also of the Court and the Bar by his moral excellence. It is not the duty to follow every instruction of the client friendly / mechanically. That is an entire misapprehension of the duty of a legal practitioner. He must not trick or deceive the Court or attempt to gain for his client an advantage by dishonest means.

Lawyers have no right to go on strike or give a call for boycott, not even on a token strike. The protest, if any is required, can only be by giving press statements, TV interviews, carrying out of Court premises banners and/or placards, wearing black or white or any colour arm bands, peaceful protest marches outside and away from Court premises, going on dharnas or relay fasts etc. It was held that only in the rarest of rare cases where the dignity, integrity and independence of the Bar and/or the Bench are at stake, Courts may ignore (turn a blind eye) to a protest abstention from work for not more than one day. It has been admitted that judiciary is over-burdened with pending litigation. If strikes are resorted to on one or the other ground, litigants would suffer as cases would not be decided for years to come. Therefore, some concrete joint action is required to be taken by the Bench and the Bar to see that there are no strikes any more. Strike by lawyers is illegal and unethical. It infringes fundamental right of litigants for speedy trial. Lawyers abstaining from appearing in Court are also guilty of professional misconduct.

Relationship between an advocate and his client is of trust and therefore sacred. Acts of professional misconduct and the frequency with which such acts are coming to light distressed the Court. Preservation of the mutual trust between the advocate and the client is a must otherwise the prevalent judicial system in the country would collapse and fail. Such acts do not only affect the lawyers found guilty of such acts but erode the confidence of the general public in the prevalent judicial system. It is more so, because today hundred per cent recruitment to the Bench is from the Bar starting from the subordinate judiciary to the higher judiciary. You cannot find honest and hard working Judges unless you find honest and hard working lawyers in their chambers. Time has come when the Society in general, respective Bar Council of the States and the Judges should take note of the warning bells and take remedial steps and nip the evil or the curse, in the bud.

Ordinarily a lawyer should fix his fees at the time when he is engaged by his client. It is improper for a lawyer to leave the determination of the fees till the conclusion of the litigation or dependent upon how the litigation fares. An agreement between an advocate or a lawyer and his client that he will accept as his fees a specified share in the subject-matter of the litigation or claim upon the successful issue of such litigation is void as being opposed to public policy and the conduct of such advocate or lawyer amounts to gross professional misconduct. The fees should commensurate to the labour involved and his standing but it should be just, fair, reasonable and such where an ordinary litigant can also seek the help. It should be as per “need” – not “greed”. As far as possible professional bills be issued, payment be received by cheque, receipt be issued and proper taxes paid.

The high standards of the profession demand that when the moneys of the client come into the possession of an advocate, otherwise than as earmarked fees, he has to treat himself as in the position of a trustee for the client in respect of the said moneys. Even if he has a lien on such moneys, it would be improper for him to retain, i.e., to appropriate the same towards his fees without the consent, express or implied of his client or without any order of the Court.

It is not in accordance with professional etiquette for an advocate while retained by one party to accept the brief of the other. It is unprofessional to represent conflicting interests except by express consent given by all concerned after a full disclosures of the facts. Acceptance of brief for accused after having appeared for complainant amounts to professional misconduct. Giving of improper legal advice may amount to professional misconduct but not wrong legal advice. Mere negligence unaccompanied by any moral delinquency on the part of a legal practitioner in the exercise of his profession does not amount to professional misconduct. However, proper care need be taken while giving an opinion. Cases for and against need be examined and intimated. It is a sacred act – may make or mar your client – reposing utter confidence in you.

Snatching briefs by standing at the door of the Court house and in-fighting for this purpose is too dishonourable, disgraceful and unbecoming to be approved. The canons of ethics and propriety for the legal profession totally taboo conduct by way of soliciting, advertising, scrambling and other obnoxious practices, subtle or clumsy, for betterment of legal business. Law is no trade, briefs no merchandise and so the heaven of commercial competition or procurement should not vulgarise the legal profession.

An advocate stands in a loco parentis towards the litigants. Therefore, he is expected to follow norms of professional ethics and try to protect the interests of his client in relation to whom he occupies a position of trust. Counsel’s paramount duty is to the client. The client is entitled to receive disinterested, sincere and honest treatment. It was further observed that no advocate can take it for granted that he will appear in the Court according to his whim or convenience. It would be against professional ethics for a lawyer to abstain from the Court when the cause of his client is called for hearing or further proceedings.

Some members of the profession have been adopting perceptibly casual approach to the practice of the profession as is evident from their absence when the matters are called out, the filing of incomplete and inaccurate pleadings – many time even illegible and without personal check and verification, the non-payment of Court fees and process fees, the failure to remove office objections, the failure to take steps to serve the parties, et al. They do not realise the seriousness of these acts and omissions. They not only amount to the contempt of the Court but do positive disservice to the litigants and create embarrassing situation in the Court leading to avoidable unpleasantness and delay in the disposal of matters. This augurs ill for the health of our judicial system.

Judicial function cannot and should not be permitted to be stonewalled by browbeating or bullying methodology, whether it is by litigants or by counsel. Judicial process must run its even course unbridled by any boycott call of the Bar or tactics of filibuster adopted by any member thereof. It concluded : “Some Courts might have conducted the cases even during the strike or boycott periods or adjourned due to helplessness for not being in a position to decide the lis in the absence of the counsel but majority of the Courts in the country have been impliedly sympathisers by not rising to the occasion by taking positive stand for the preservation of the high traditions of law and for continued “restoration of the confidence of the common man in the institution of judiciary. It is not too late even now for the Courts in the country to rise from the slumber and perform their duties without fear or favour particularly after the judgment of this Court in Mahabir Singh’s case (supra). Inaction will surely contribute to the erosion of ethics and values in the legal profession. The defaulting Courts may also be contributory to the contempt of this Court.

Both the Bench and the Bar are the two inextricable wings of the judicial forum and therefore the aforesaid mutual respect is the sine qua non for the efficient functioning of the solemn work carried on in Courts of law. But that does not mean that any advocate or a group of them can boycott the Courts or any particular Court and ask the Court to desist from discharging judicial functions. At any rate, no advocate can ask the Court to avoid a case on the ground that he does not want to appear in that Court.

A Vakalatnama need be stamped as per the fees provided under the Court Fees and Suits Valuation Act. A Muktarnama, Vakalatnama or any paper signed by an advocate signifying or intimating that he is retained for a party should carry court fee leviable as per the State Law. Different court fee has been provided for presentation to any court, the Board of Revenue or the High Court. Additional Stamp for Advocates Welfare Fund and for Bar Associations have to be affixed. One must note that Vakalatnama is filed immediately after engagement.

An advocate has to conduct himself as a model for others both in his professional and in his private and public life. The society has a right to expect of him such ideal behaviour. Service to Humanity is Service to God. Let us pledge to do service to humanity after discharging our duties and obligations of this unique institution. Let us search, introspect and correct ourselves.

My beloved and respected brothers and sisters in the Federation and at the Bar.

Summer vacation has come to an end for the High Courts in southern parts of the country, while the High Courts in the other parts of the country would be resuming in the first week of July, 2016. In deference to the mention by us before the first Division Bench of the Hon’ble Supreme Court, the entry tax appeals, around 6000-8000 touching upon the constitutional validity is directed to be listed before Larger constitutional bench comprising of 9 learned judges in the 3rd week of July, 2016 and we are hopeful that when once the reference is answered by the larger bench, there is every possibility of final resolution on the impasse involved therein.

As expected the numerical magic in the Upper House of the Parliament due to certain equations has turned in favour of the Government on account of the State elections recently held. It appears that the Constitutional amendment for adverting GST regime may be once again tried in the winter session of the Parliament to facilitate implementation of the much awaited GST in the country from 1-4-2017. A model draft of GST has been uploaded on the portal of Finance Ministry and it also appears that the same has been transmitted to the Empowerment Committee of State Finance Ministers for necessary discussions and deliberations and we are also given to understand that a preliminary round is complete on 15th and 16th of this month and second round is likely to take place sometime in mid July. We have been receiving many a call and message pointing out defects, infirmities and loose ends in the draft bill which is reported to adversely effect the tax practitioner community in the country which has been in practice since 1922 in terms of Income-tax Act, 1922 and Madras General Sales Tax as well as CP & Bearer tax laws. That apart, to a greater extent legal professionals may also get effected.

Time has come for all categories of tax practitioners throughout the country to unite together and fight their cause for inclusion both as authorised representatives as also for similar extended authorisation for audit along with other professionals as audit in GST, a codification of Indirect Tax laws is entirely different from the Direct Tax law audit under Income Tax Act. We have also directed the Direct Taxes Representation Committee of the Federation to meet and discuss on the bill immediately and gather the views of the members and consolidate such views into a report so as to present the views of the Federation to the Hon’ble Finance Minister Shri Arun Jaitley, Hon’ble Law Minister Sri. D.V. Sadananda Gowda and all the Hon’ble Chief Ministers of the respective States as the tax practitioners fraternity according to the provisions of the Draft bill strongly believe that the GST draft bill shave place nearly 38 lakhs people in the country unemployed which is a serious matter that has to be taken up by the Federation with the concerned Ministries with greater amount of concern.

Friends, as far as the Federation is concerned, we will have a necessary and suitable dialogue with all the stakeholders and meet the Hon’ble Ministries in the Central Government as well as all the Chief Ministers and would employee all sincere and honest efforts to support and safeguard the interest of the tax practitioners community in GST Regime as the Federation is a fabric of all categories of practitioners .

We once again renew our request to all the leaders in the Federation to bring these adversary circumstance arising out of GST draft bill to the notice of their local people representatives for ease out of the situation and also strengthen the hands of the Federation for joining the fold of the Federation which would give encouragement, enthusiasm, moral support and courage to us working for a great cause.

||
Jai Hind ||

Dr. M. V. K. Moorthy
National President

Much awaited draft of the model GST Law have been placed on the Central Govt., Site on 14th June, 2016. The measure is one of the major steps in the proper direction for the March ahead. The measure when brought into force will play a decisive role in the international trade. The basic dominant object of introducing one uniform indirect tax throughout the country is to herald one common market all throughout the nation. It would make the international trade much easier and inculcate greater confidence amongst the entrepreneurs who would be encouraged by a better pro-business environment and thereby “Make in India” a success.

The Empowered Committee of the State Finance Ministers met a few days back and discussed the format of the new law but no unanimity could be achieved. They will be having another meeting sometime in July to take a final look at the important indirect measure.

In the meanwhile, the copy of Model G.S.T. law is placed for suggestions from all quarters. Let us respond positively by offering our contribution towards the development of new law, by suggesting required changes for better compliance with ease.

The first and foremost result that will follow on implementation of the GST Law is the abolition of all the check posts and barriers which were found to be time consuming affair for inter-State trade. While travelling by road, it is a normal site for us to witness a big queue of transport carriers, at such check posts and octroi collection centres. Thus there will be free flow of movement of goods throughout the country as enshrined in Article 246 read with entries 92A and 92B of List I of the Schedule VII appended to the Constitution.

It is reported through an article by Shri Srivatsa Krishna in the Mumbai Edition of The Indian Express of 16th June, 2016 that India has overtaken China for the first time with the largest inflow of foreign direct investment making it one of the most attractive global destinations for capital market. Private equity investment are an all-time high.

Under the above favourable scenario, implementation of the Goods and Services Tax Act, 2016 would be most appropriate for an overall development of the country.

While a detailed comment on the model GST Law will require the study thereof in entirety, we propose to deal with some of the important aspects of the model law. We may recall here that the measure in question can be enforced only after passing of the Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 presently pending before Rajya Sabha. Let us hope that the wiser counsel will prevail amongst the opposition parties for a smooth sailing of the much needed indirect tax reform. Thereafter more than fifty per cent State will have to pass the same.

With the introduction of the new levy, large number of Central and State indirect taxes will get merged into a one levy thereby remove cascading effect of multiple levies. It is claimed that the administration of such a levy would be easier and a transparent one, however we have our doubts about such a version.

The first and foremost advantage to the taxpayers in general would be that each of them will be able to adjust the output tax payable by them against credit of the input tax paid while receiving the services or purchasing goods in questions, irrespective of the place and the location of such service provider or the seller concerned.

The meaning and scope of the term ‘supply’ given in section 3 is all inclusive so as to cover all forms of supply of goods and services in the course of business for a consideration. The proposed enactment contain four Schedules out of which Schedule 1 describe matters to be treated as supply without consideration e.g. permanent transfer of business assets, temporary use of business assets for a non-business purpose etc., the supply by a registered taxable person to a job worker and return thereof after completion of the work provided however that the principal declare the address of the job worker as his additional place of business. The ultimate responsibility of paying tax will however be that of the principal (section 43A).

The heartbeat of the entire measure of Indirect tax is the Council that may be constituted under the proposed Article 279A.

As far as the Tax Practitioners, as a class of profession, are concerned, this is a new enactment affording new avenues for the younger generation to switch over to the practice of GST which will have a very wide scope for them. It should be remembered that there is always a vacancy at the top and crowd in the middle; therefore we would beseech one and all to strive for the best from now onwards.

The usual provisions of registration, submission of monthly return, assessment, audit etc., are also covered under the new enactment however the periodical returns would include the details of inward and outward supplies in such a manner that the same can be matched with the another connected party. In addition to monthly returns there would be annual return for the financial year to be submitted before 31st December.

Like the income tax provisions; section 34 provide for tax return preparers who would be bound by the duties that may be prescribed under the Rules.

The Act provide for audit and special audit by the tax authorities, in addition to the audit by a Chartered Accountant or a Cost Accountant.

As far as the hierarchy of proceedings are concerned; apart from the appeal before the First Appellate Authority there would be appellate tribunal then High Court and Supreme Court as at present. On the top there would be National Goods and Services Tax Appellate Tribunal to be headed by a National President. Such Tribunal shall have branches in all the States under the name of State GST Tribunal which will be headed by the respective State President. The Tribunal apart from judicial member, will also consist of one technical member for CGST and another for SGST. The qualifications, conditions of their appointment have still to be worked out however we strongly commend that the independence of judiciary as propounded by the Supreme Court in the case of
Madras Bar Association v. Union of India Transferred Case (Civil) No. 150 of 2006 decided on 11th May 2010 and another in the case of
State of Gujarat & Ors v. Gujarat Co-op. Bar Association SLP No. 34602 of 2015 decided on 5th Sept, 2011 will be kept in mind. As far as independence of judiciary is concerned, the latest observations about the attributes required to be fulfilled, have been very succinctly stated by Hon’ble Justice Lokur J. in the Constitution Bench Judgment upholding the collegium system for appointment of judges at higher level
[Supreme Court Advocate on record Assn. v. Union of India (In HN – Per Lokur, J.) (2016) 5 SCC]. It is well said that the quality of the tribunal much depend on the personnel manning such Tribunals. It is therefore appropriate time for all concerned, to bear such principles in mind while constituting the proposed tribunals without any iota of doubts about political interference in the administration of justice as well as while appointing any member of the Tribunal. Such independent limb of judiciary will yield better confidence amongst the taxpayers as well as the tax administrators. The tribunals have to hear and decide the appeal within one year from the date on which the appeal was filed [Section 83(4)].

One of the key proposals provide for collection of tax at source on E-business operators at the time of credit of any amount to the account of the supplier of goods and/or services or at the time of payment of any amount towards such taxable events, whichever is earlier; at a rate that may be notified in accordance with the recommendation of the council (section 43C).

We once again request all our readers to apply their own independent mind to the proposed Model GST Law and transmit the benefits of their experience and knowledge for the benefit of taxpayers in general and the Tax Practitioners in particular, by suggesting such improvements as are required to be made before commencement of the GST regime.

P. C. Joshi
Member, Editorial Board

Date : 17th June, 2016.