Court allows interim stay on tax assessment notices amid settlement law changes

Get the full picture - access the original judgement of the court order here

Case Name

Blossom Gold Collection P. Ltd. vs. Union of India (Rep. by the Finance Secretary, Department of Revenue, Ministry of Finance) and Others (High Court of Kerala)

WA.No.405 of 2021

Date: 1st March 2021

Key Takeaways

• The court granted an interim stay on tax assessment notices (Exts.P1 and P2) during the pendency of the writ petition.
• The stay does not restrict the authorities from processing the petitioner’s application for settlement under Section 245C of the Income Tax Act, 1961, as per Chapter XIX-A.
• The case highlights the legal uncertainty caused by the repeal of Section 245C (settlement of cases) by the Union Finance Bill 2021, effective 01.02.2021.
• The court balanced the interests of both the taxpayer and the tax department, ensuring neither party is unfairly prejudiced while the main dispute is resolved.

Issue

Did the petitioner (Blossom Gold Collection P. Ltd.) deserve an interim stay on tax assessment proceedings after the repeal of the legal provision allowing settlement of tax cases, and should their application for settlement still be considered?

Facts

• Parties: Blossom Gold Collection P. Ltd. (petitioner) vs. Union of India and others (respondents).
• Background: The petitioner received tax notices under Sections 153C and 143(2) of the Income Tax Act on 14.01.2020 and 23.11.2020.
• Legal Change: The Union Finance Bill 2021 repealed Section 245C (which allowed taxpayers to settle cases before the Settlement Commission) effective 01.02.2021.
• Problem: After the repeal, the petitioner could no longer apply for settlement, and the Settlement Commission stopped accepting applications.
• Action: The petitioner filed a writ petition seeking directions to allow their settlement application and to stay the assessment proceedings (Exts.P1 and P2).
• Single Judge’s Order: The court directed the authorities to accept the settlement application but refused to stay the assessment proceedings.
• Appeal: The petitioner appealed, arguing that without a stay, their right to settlement would be lost if the assessment was finalized.

Arguments

Petitioner (Blossom Gold Collection P. Ltd.)

• Cited interim orders from the Telangana and Madras High Courts, where similar stays were granted to protect taxpayers’ rights.
• Argued that if the assessment is completed before the settlement application is considered, they would lose the benefit of settlement under Chapter XIX-A.
• Requested both acceptance of their settlement application and a stay on the assessment proceedings to prevent irreparable harm.

Respondent (Union of India/Tax Department)

• Pointed out that the court had already directed acceptance of the settlement application, which would be processed according to law.
• Argued that granting a stay on the assessment notices would prevent the Settlement Commissioner from summoning necessary files from the Assessing Officer, complicating the process.
• Cited the Supreme Court case “Commissioner of Income Tax v. Express Newspapers Ltd” (1994 SC 443), which held that once a settlement application is admitted, the Settlement Commission takes over the case from the assessing authority.

Key Legal Precedents

• Commissioner of Income Tax v. Express Newspapers Ltd (1994 SC 443):
• Held that once a settlement application under Section 245C is admitted, the Settlement Commission must withdraw the case from the assessing authority and handle it entirely.
• Section 245C, Chapter XIX-A, Income Tax Act, 1961:
• Allowed taxpayers to apply for settlement of tax disputes (now repealed).
• Section 153B Explanation (i), Income Tax Act, 1961:
• Protects the interests of the Revenue during the pendency of settlement proceedings.

Judgement

• The High Court modified the earlier order:
• Granted an interim stay on the assessment notices (Exts.P1 and P2) during the pendency of the writ petition.
• Clarified that this stay does not restrict the authorities from processing the settlement application or summoning files as needed.
• Stated that the interim order is subject to the final outcome of the writ petition.
• The appeal was allowed to this extent, balancing the interests of both parties and ensuring the petitioner’s right to settlement is not lost due to procedural delays or legal changes.

FAQs

Q1: What does this judgment mean for Blossom Gold Collection P. Ltd.?

A: The company’s tax assessment proceedings are temporarily on hold, and their application for settlement will be considered under the old law, pending the final decision in the case.

Q2: Does this mean all taxpayers can still apply for settlement after the law was repealed?

A: No, this is a specific interim arrangement for this case, based on its unique facts and timing. The general right to apply for settlement under Section 245C was repealed from 01.02.2021.

Q3: What happens if the court eventually rules against the petitioner?

A: The interim stay will be lifted, and the tax department can proceed with the assessment. The outcome of the settlement application will also depend on the final judgment.

Q4: Why did the court not just stay the assessment without conditions?

A: The court wanted to ensure that the authorities could still process the settlement application and access necessary files, avoiding procedural deadlocks.

Q5: What is the significance of the “Commissioner of Income Tax v. Express Newspapers Ltd” precedent?

A: It established that once a settlement application is admitted, the Settlement Commission takes over the case from the assessing officer, which was central to the court’s reasoning here.

The writ petitioner is the appellant. The intra-Court appeal is directed against interim order dated 22.02.2021 refusing to grant interim stay of Exts.P1 and P2 series.

2. Chapter XIX-A of the Income Tax Act deals with settlement of cases. The Union Finance Bill 2021, with effect from 01.02.2021 repealed Section 245C of Chapter XIX-A of Income Tax Act, 1961 (for short 'the Act'). The petitioner received notices dated 14.01.2020 and 23.11.2020 under Sections

153C and 143(2) of the Act. The petitioner, with effect from 01.02.2021, since is denied the statutory right available to an assessee to move for settlement of cases under Chapter XIX-A and also that the Settlement Commissioner from 01.02.2021 was not receiving the applications from the assessee, has filed the instant writ petition for appropriate directions, including direction to receive the application of petitioner under Section

245C of the Act. The petitioner refers to and relies on the interim order of the High Court for the State of Telangana in Writ Petition No.3181 of 2021, the Interim Order of Madras High Court in W.P.(C) No.3001 of 2021 and W.M.P. No.3365 of 2021 in support of petitioner's case for grant of interim stay of Exts.P1 and P2 notices, stated supra. The learned Single Judge, through

order under appeal, directed the 2nd respondent to receive application of petitioner for settlement filed under Section 245C of the Act, however, declined to grant stay of Exts. P1 and P2 series. Hence the appeal.

3. Senior Counsel Sri.Aravind P Datar appearing for the appellant argues that the interim orders granted by the High Court for the State of Telangana and High Court of Madras protected the interest of assessee and the respective assessing officers in those cases are either precluded from finalising the assessment or that the consequence upon acceptance of

application for settlement is preserved to the assessee. In the case on hand, the rejection of prayer for interim stay and simultaneously issuing direction to receive the application of petitioner for settlement would result in hardship and become self-contradictory. He explains by arguing that the assessing officer if completes the assessment on or before 31.03.2021, then the petitioner is denied of the remedies available for

settlement of case under Chapter XIX-A of Income Tax Act. On the contrary, the assessing officer is precluded from finalizing the assessment, Section 153B Explanation (i) protects the interest of Revenue and subject to the outcome of writ petition the consideration of application filed for settlement could be proceeded with by the Assessing Officer. Therefore, it is argued that the petitioner satisfies the prima facie case. Hence,

direction for accepting application for settlement of issue and as continuation thereto, appropriate stay or status quo orders on Exts.P1 and P2 could have been made by the learned Single Judge. He prays for allowing the appeal.

4. Learned Senior Advocate P.K.R. Menon appearing for

respondent argues that the direction is issued to accept the

application of petitioner for settlement under Chapter XIX-A. It

presupposes that the acceptance and consideration thereon is

in accordance with law and further orders that may be made in

this behalf by the Commissioner for Settlement from time to

time. The Court considers granting stay of Exts.P1 and P2, then

the Settlement Commissioner even if desires to summon the

files, notices referred to above from the Office of Assessment

Officer for comprehensively dealing with the application made

by the petitioner would be precluded. He refers to and relies on

the judgment of the Supreme Court reported in Commissioner of

Income Tax v. Express Newspapers Ltd1

, in support of his argument

that once the application made under Section 245C is admitted

for consideration (after giving notice to and considering the

report of the Commissioner of Income-tax as provided by

Section 245D) the Commission shall have to withdraw the case

relating to that assessment year (or years, as the case may be)

from the assessing/appellate/revising authority and deal with

the case, as a whole, by itself (emphasis added). Therefore, it is

argued that there is no need to order stay of all further

proceedings pursuant to Exts.P1 and P2.

5. We have heard the learned Senior Counsel appearing

for the parties and perused the record.

6. In the case on hand, the learned Single Judge while

prima facie accepting the case of petitioner directed acceptance

of the application of petitioner under Section 245C of the Act.

1 1994 SC 443

The appeal raises limited grievance of petitioner against not

granting interim stay of Exts.P1 and P2. The scheme provided

for under Chapter XIX-A envisages different steps and this

Court bears in perspective Section 245A(b) defining what 'case'

means. The argument of learned Senior Counsel is that in the

event the assessment order is made on Exts.P1 and P2 notices,

the petitioner would be dis-entitled from working out the right

accepted by Chapter XIX-A of the Act. As rightly argued by

Senior Advocate Aravind P Datar the consideration of stay vis-a-

vis Exts.P1 and P2 by this Court would not also cause prejudice

or hardship to the Department, in view of Section 153B

explanation (i). At this junction Exts.P1 and P2 result in

assessment orders, then the claim or right of petitioner is

adversely affected. The Department, as on date, has not

challenged the order of learned Single Judge directing receipt of

application of petitioner under Section 245C of the Act.

Further we also appreciate the objections raised by Advocate

P.K.R. Menon appearing for the Department that the application

of petitioner is taken on file, and in such an event the

Settlement Commissioner has to withdraw the case relating to

the subject Assessment Year from the assessing officer, but the

stay on Exts.P1 and P2 would preclude the Commissioner from

summoning the file and this is an avoidable situation as well in

the total circumstances of the case. Keeping the above in

perspective, we are satisfied that the order under appeal could

be modified and is accordingly modified as follows:

(a) There shall be an interim stay of Exts.P1 and P2 series

during the pendency of the writ petition, subject to the

following:

(b) The interim order granted by this Court shall not be

understood as, in any manner, restricting the discretion

available to the authorities under Chapter XIX-A of the Income

Tax Act, either to admit or process the application of petitioner

for settlement, and/or withdraw and summon the subject

assessment files to the Office of the Settlement Commissioner

from the Office of the Assessing Officer.

(c) Interim order and corollary thereof are subject to the

final outcome of the writ petition.

The writ appeal is allowed as indicted above.