Settlement Commission’s orders final: High Court quashes attempts to revise settled cases

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Case Name

V. Pandi Vs Settlement Commissioner (IT & WT) (High Court of Madras)

W.P.No.8580 of 2005

Date: 10th August 2016

Key Takeaways

1. Settlement Commission orders are final and conclusive unless there’s fraud or misrepresentation.
2. The Commission lacks the power to review or revise its own orders without specific statutory authority.
3. Subsequent changes in law or court decisions cannot be grounds for revising earlier Settlement Commission orders.
4. The High Court’s decision reinforces the finality of Settlement Commission orders, providing certainty to settled cases.

Issue

Does the Settlement Commission have the authority to revise or reopen its own final orders in the absence of fraud or misrepresentation?

Facts

The Settlement Commission passed some final orders way back on June 19, 1998. Everything seemed settled, right? But then, on August 27, 2002, the Commission decided to revise its own order. They did this on their own, without anyone asking them to. Then, they issued another order on March 11, 2003.

The petitioner wasn’t happy about this. They felt the Commission didn’t have the power to change its mind like that, especially after so much time had passed. So, they took the matter to the High Court, challenging these new orders.

Arguments

The petitioner’s side was pretty straightforward. They said, “Hey, the Settlement Commission can’t just go back and change its decisions whenever it wants. That’s not how it’s supposed to work!”

On the other hand, the revenue department (that’s the tax folks) tried to justify the Commission’s actions. They probably argued that the Commission should be able to correct mistakes or apply new legal interpretations.

Key Legal Precedents

This is where it gets a bit technical, but I’ll try to keep it simple:

1. The court referred to a case called “Brij Lal and Ors. vs. Commissioner of Income Tax [(2010) 328 ITR 447 (SC)]” . This was a big deal because it came from the Supreme Court and was decided after the Settlement Commission’s original order.
2. They also mentioned a case from the Andhra Pradesh High Court about someone named Smt. U. Narayanamma . This case also dealt with the Settlement Commission’s power to change its orders.
3. The court talked about Section 245-I of the Income Tax Act, which basically says that the Commission’s orders are final .

Judgement

The High Court said, “Nope, the Settlement Commission can’t do this.” They quashed (that’s legal speak for “cancelled”) the orders from 2002 and 2003.

The court’s reasoning was pretty clear:

1. The Settlement Commission’s orders from 1998 were supposed to be final.
2. There wasn’t any claim of fraud or misrepresentation that might justify reopening the case.
3. The Commission doesn’t have the power to review its own decisions unless the law specifically says it can.
4. Even if new court decisions come up later (like that Brij Lal case), that’s not a good enough reason to change old orders.

So, the original 1998 order stands. The tax department can only ask for interest based on what the Commission said in that original order.

FAQs

Q: Can the Settlement Commission ever change its orders?

A: Generally, no. Unless there’s a specific law allowing it or there’s proof of fraud or misrepresentation, their orders are meant to be final.

Q: What if a new Supreme Court decision changes how we interpret the law?

A: Even then, the Settlement Commission can’t go back and change its old orders. New interpretations apply to future cases, not past ones.

Q: Does this mean the tax department can never collect more than what was decided in 1998?

A: That’s right. The court made it clear that the department can only collect interest as per the original 1998 order.

Q: What’s the big deal about this decision?

A: It provides certainty. Once the Settlement Commission decides something, people can rely on that decision without worrying it might change years later.

Q: Could the revenue department appeal this decision?

A: They could try to appeal to a higher court, but based on this judgment, they’d have a tough time arguing against the finality of Settlement Commission orders.

1. Heard Dr. A. Thiyagarajan, learned Senior counsel, for Mr. S. Ramesh Kumar, learned counsel for the petitioner and Mr. T. Pramod kumar Chopda, learned counsel for the respondents and with their consent, the the writ petition itself is taken up for disposal.

2. In this writ petition, the petitioner seeks for quashing the order passed by the Settlement Commission dated 27.08.2002 suo-motu revising its final order dated 19.06.1998 and the second suo-motu order dated 11.03.2003. The impugned orders are challenged on the ground of lack of jurisdiction and there is no authority for the Commission to rectify such mistake that too by way of suo-motu action.

3. The power of the Settlement Commission to rectify its order much belatedly by way of an application or otherwise came up for consideration before this Court in the case of R.Vijayalakshmi v. Income Tax Settlement, Commission Additional Bench, Chennai, and others (W.P.Nos.5553 to 5558 of 2008, dated 26.07.2016). The contention raised by the revenue to justify their action is identical to that of the contention raised in this writ petition also. This Court, after hearing the parties, allowed the writ petition and set aside the impugned order therein. At this stage, it would be useful to extract the operative portions of the order, which read as under:

“7. After hearing the learned counsel for the parties and perusing the materials placed on record, the first issue to be answered is with regard to the power of the Commission to reopen its proceedings. Section 245-I of the Act states that only order of the Commission passed under Section 245 shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in that Chapter, be reopened in any proceeding under the Act or under any other law for the time being in force. The said provision does not cover the power of review on the commission. It is settled legal position that power of review is to be specifically conferred on the authority by the statute and power of review is not inherent with the authority. However, the statute does not provide power of review with the authority and if it is so, it has to be termed as wholly without jurisdiction. Sub section (1) of Section 245(F) which states that Settlement Commission shall have all powers which are vested in Income Tax Authority under the Act cannot be read in isolation but it should be read in tandem with Section 245(I) and if it is done, then it is to be held that there is no power of review conferred on the Commission to reopen the proceedings. This position held the field till an amendment was inserted under Section 6(b) of Section 245D by Finance Act 2011 with effect from 1.6.2011. Even the said provision is not a power of review. But the phraseology used by the legislation is “rectification” and such rectification can be done on any mistake apparent from the record. Therefore, such power exercisable under sub Section 6D of Section 245D can be exercised only to rectify a mistake and such mistake should be apparent from the record. Thus, even as per the amendment made by Finance Act, 2011, power of review is not conferred on the Settlement Commission.

8. In the case of Smt.U.Narayanamma, Writ Petitions were filed challenging the orders passed by the Settlement Commission on the ground that the Commission has no power to rectify its earlier order even under Section 245D of the Income Tax Act, 1961. The Hon'ble Division Bench of the Andhra Pradesh High Court after taking into consideration the decision of the Hon'ble Supreme Court in Brij Lal, held that the order passed by the Settlement Commission rectifying its earlier order cannot be sustained and must perish. In the said case, rectification was sought for by the commission on the ground that the order passed by the Commission was contrary to the Board's circular. The Court held that even otherwise, it is an error within the jurisdiction of the Commission and it was not an error which went to the root of its jurisdiction and held that if at all revenue had to question the same, it should be by a writ of certiorari. The said decision squarely applies to the facts of the present case.

9. One more observation that is required to be made in the instant case is that the Revenue while rectification/recalling of the order passed by the Commission, referred to a decision of the Hon'ble Supreme Court in the case of Hindustan Bulk Carriers and Damani Bros, with respect to the terminal date for charging of interest under Section 234B. Admittedly, these decisions were rendered by the Hon'ble Supreme Court much after the final order was passed by the Commission under Section 245D(4).

10. Rudimentary legal principle is that subsequent development of law cannot be a ground to exercise review jurisdiction and that cannot be taken into consideration as an error apparent on the face of the record. Hence, on that ground also, the Department should be non suited. Hence for all the above, order of the Settlement Commission is held to be unsustainable and it is accordingly quashed.

Consequently, the orders dated 19.1.2005, 13.12.2004 and 19.1.2005 and order dated 14.7.2005, 4.2.2005, insofar as it relates to the computation of terminal date for charging the interest under Section 234B alone and the order passed by the Settlement Commission dated 8.8.2007 are quashed.

11. After the above order was dictated, the learned Standing Counsel for the respondent Department submitted that if the order passed by the third respondent is quashed, then it would amount to setting aside the rate of interest as ordered by the Commission. The Revenue need not have any apprehension in this regard and this Court has held that the order passed by the Commission dated 16.7.1998,15.10.1998 and 16.7.1998 under Section 245D(4) has become final and the Department will be entitled to interest only as ordered by the commission.”

4. It is clear from the facts of the present case also that what has been done by the Settlement Commission is by virtue of the decision of the Hon'ble Supreme Court in Brij Lal and Ors. vs. Commissioner of Income Tax [(2010) 328 ITR 447 (SC)], which was subsequent to the decision of the Settlement Commission. In fact, the Settlement Commission passed final orders as early as 19.06.1998 and thus, by applying the decision of the Hon'ble Supreme Court in Brij Lal, the order of Settlement Commission has to be taken as final and conclusive and when there is no allegation of fraud or misrepresentation, the question of reopening or revising the order, that too in the manner done in the impugned orders cannot be sustained.

5. Accordingly, the writ petition is allowed and the impugned orders are set aside. However, it is made clear that the order dated 19.06.1998 passed by the Settlement Commission under Section 245D(4) of the Income Tax Act shall become final and the department will be entitled to demand interest as ordered by the Commission in the said order. No Costs. WPMP No.9261 of 2005 is closed.

10.08.2016

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