REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL Nos.2491­2492  OF 2019 (Arising out of S.L.P.(C) Nos.21139­21140 of 2017)

Kakadia Builders Pvt. Ltd. & Anr.     ….Appellant(s)

VERSUS

Income Tax Officer Ward 1(3) & Anr.       ….Respondent(s)

                 J U D G M E N T

Abhay Manohar Sapre, J.

1. Leave granted.

2. These appeals are directed against the final

judgment and  order  dated  28.07.2016  passed  by

the  High Court  of  Gujarat  at  Ahmedabad  in SCA

Nos.7814 & 7820 of 2014 whereby the High Court

disposed of the petitions(SCAs) filed by the

respondents.  

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3. In order to appreciate the issue involved in

these appeals, it is necessary to set out a few

relevant facts infra.

4. The appellants herein are the respondents

(assessee) and the respondents (Revenue) herein are

the petitioners in the petitions(SCAs) before the

High Court out of which these appeals arise.

5. The  appellant in  S.L.P.  No.21139/2017 is a

Private Limited Company and the appellant in  SLP

No.21140/2017 is the promoter Director of the said

Company.  On 19.01.1994,   a search  and  seizure

operation  was  carried  out in the  premises  of the

appellants (assessee) under the Income Tax Act,

1961 (hereinafter referred to as “the Act” ).  

6. During pendency of the assessment

proceedings, which were initiated for determination

of the tax liability as a result of search and seizure

operation, the appellants on 12.03.1996 and

03.09.1996 filed the settlement applications before

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the Settlement Commission and offered to settle

their tax matter in accordance with the procedure

provided under Chapter XIXA of the Act.

7. On 11.08.2000, the Settlement Commission

passed an order under Section 245D(4) of the Act.

By the said order, the Settlement Commission made

certain additions and waived interest chargeable

under Sections 234A, 234 B and 234C of the Act.

8. The appellants (assessee) felt aggrieved and

filed  rectification applications before the Settlement

Commission on 29.12.2000 for amending its order

dated  11.08.2000.  The  Revenue (Commissioner  of

Income Tax) also felt aggrieved by the order dated

11.08.2000 and filed a rectification application

under Section 154 of the Act before the Settlement

Commission on 26.07.2002.

9. By order dated 11.10.2002, the Settlement

Commission dismissed the applications filed by the

appellants(assessee) and partly allowed the

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application filed by the respondents(Revenue)

rectifying  its  order  dated 11.08.2000  insofar  as  it

pertained to waiver of interest, which was granted to

the appellants  (assessee).  The appellants(assessee)

felt aggrieved by the order dated 11.10.2002 passed

by the Settlement Commission and filed   two

separate petitions (SCA  Nos.15097 and  15101 of

2004) in the High Court of Gujarat.  

10. The  High  Court, by order dated 03.03.2014

allowed the petitions(SCAs) and set aside the order

dated 11.10.2002 passed by the Settlement

Commission and granted liberty to the Revenue to

follow the remedies  as  may  be  available to them

against the order passed by the Settlement

Commission dated 11.08.2000.

11. The Revenue, therefore, felt aggrieved and filed

two petitions (SCA Nos.7814 of 2014 and 7820 of

2014) against the order dated 11.08.2000

questioning its legality.  The High Court though in

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concluding paragraph observed that the petitions

are disposed of yet in substance allowed the

petitions(SCAs) and modified the order dated

11.08.2000 of the Settlement Commission by

passing the following directions in paragraph 13

which reads as under:  

“Under the circumstances, we direct modification of the order of Settlement Commission  dated  11.08.2000 by reversing the waiver of interest in terms of Settlement Commission’s directions contained in its order dated 11.10.2002.   In other words, we adopt the same directions for modification of the Settlement Commissioner’s original order dated 11.08.2000.”

12.  It is against this order, the

appellants(assessee) felt aggrieved and have filed the

present appeals by way of special leave in this

Court.

13. So, the short question which arises for

consideration in these appeals, is whether the High

Court was justified in allowing the petitions(SCAs)

and thereby  was justified in  modifying the order

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dated 11.08.2000 passed by the Settlement

Commission.

14. Heard Mr. R.P. Bhatt, learned senior counsel

for the appellants and Mr. K. Radhakrishnan,

learned senior counsel for the respondents.

15. Having heard the learned counsel for the

parties  and  on  perusal of the record  of the case

including the written submissions filed by the

parties,   we are inclined to allow the appeals and

remand the case to the Settlement Commission for

deciding the  matter in question  afresh  on  merits

keeping in view the observations made infra.

16. At the outset, we consider it apposite to

mention that the issue involved in these appeals is

governed by the law laid down by the decision of two

Constitution Benches of this Court. One was

rendered on 18.10.2001 in  Commissioner of

Income Tax, Mumbai vs. Anjum M.H. Ghaswala &

Ors., (2002) 1 SCC 633 and the other was rendered

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on 21.10.2010 in  Brij Lal & Ors. vs.

Commissioner of Income Tax, Jalandhar,  (2011)

1 SCC 1.

17. So far as the decision rendered in   Ghaswala

(supra) is concerned, the question involved therein

was whether the Settlement Commission

constituted under Section 245B of the Act has the

jurisdiction to reduce or waive the interest

chargeable under Sections 234A,  234B and 234C of

the Act while passing the order of settlement under

Section 245D of the Act. After examining the

scheme of the Act in the context of the powers of the

Settlement Commission, Justice Santosh Hegde

speaking for the Bench held as under:

“35.  For the reasons stated above,  we hold that the Commission in exercise of its power under Sections 245­D(4) and (6) does not have the power to reduce or waive interest statutorily payable under Sections 234­A, 234­B and 234­C except to the extent of granting relief under the circulars issued by the Board under Section 119 of the Act.”

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18. So far as the decision rendered in  Brijlal

(supra) is concerned, this Court examined the

following three questions:

“(I) Whether Section 234­B applies to proceedings of the Settlement Commission under Chapter XIX­A of the said Act?

(II) If  answer to the above question is in the affirmative, what is the terminal point for levy of such interest — whether such interest should  be  computed  up to the  date  of the order under  Section  245­D(1) or up to the date of the order of  the Commission under Section 245­D(4)?

(III)  Whether the Settlement Commission could reopen its concluded proceedings by invoking Section 154 of the said Act so as to levy interest under Section 234­B, though it was not so done in the original proceedings?”

19.  After examining these questions, this Court

speaking through  Justice  S.H.  Kapadia, the then

learned CJI, answered the questions as under :

“ (1) Sections 234­A, 234­B and 234­C are applicable to the proceedings of the Settlement Commission under Chapter XIX­A of the Act to the extent indicated hereinabove.

(2)  Consequent  upon  Conclusion (1), the terminal point for the levy of interest under Section 234­B would be up to the date of the

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order under Section 245­D(1) and not up to the date of the order of settlement under Section 245­D(4).

 (3) The  Settlement  Commission cannot reopen its concluded proceedings by invoking Section 154 of the Act so as to levy interest under Section 234­B, particularly, in view of Section 245­I.”

20. Keeping in view the law laid down by this

Court in the aforementioned two decisions, the

question arises for consideration in these appeals is

whether the High Court was justified in allowing the

petitions(SCAs)  filed by the Revenue.

21. It is not in dispute that when the Settlement

Commission passed the  first  order on 11.08.2000

disposing of the application of the

appellants(aseesee), the issue with regard to the

powers of the Settlement Commission was not

settled by any decision of this  Court. These two

decisions were rendered after the Settlement

Commission passed the order in this case.

Therefore, the Settlement Commission had no

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occasion  to  examine the issue in  question  in the

context of law laid down by this Court in these two

decisions. However,   the issue in question was, at

that time, pending before the  High  Court in the

petitions(SCAs).

22. In a situation like the one arising in the case,

the High Court instead of going into the merits of

the issue, should  have  set  aside the  order  dated

11.08.2000 passed by the Settlement Commission

and remanded the case to the Settlement

Commission for deciding the issue relating to waiver

of interest payable under Sections 234A , 234B, and

234C of  the Act afresh keeping in view the scope

and the extent of powers of the Settlement

Commissioner  in relation to waiver of  interest as

laid down in the said two decisions.

23. The High Court, however, committed a

jurisdictional error when it observed in Para 13

(quoted above) that they (High Court) adopt the

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directions contained in the order of the Settlement

Commission dated 11.10.2002 and then went on to

make the said directions as a part of the impugned

order in relation to waiver of interest. This approach

of the High Court is wholly without jurisdiction.  

24. The  High  Court failed to see that the order

dated 11.10.2002 of the Settlement Commission

was already set aside by the High Court itself in the

first round vide order dated 03.03.2014 passed in

S.C.A. Nos. 15097 & 15101 of 2004 in the light of

law laid down by this Court in  Brijlal  (supra)

wherein it is laid down that the Settlement

Commission  has no power to pass orders under

Section 154 (see conclusion III).  

25. Since the order dated 11.10.2002 of the

Settlement Commission was already held bad in law

on the ground that it was passed under Section 154

of the Act, the same was neither in existence for any

purpose and nor it could be relied upon by the High

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Court much less for making it a part of their order

for issuing a writ.

26. In the  light  of  what we have held above,  we

consider it apposite to set aside the impugned order

and the order dated 11.08.2000 passed by

Settlement Commission to the extent it decided the

issue in relation to waiver of  interest and remand

the case to the Settlement Commission to decide the

issue relating to waiver of interest payable by the

assessee (appellants herein) afresh keeping in view

the law laid down by this Court in  Ghaswala

(supra) and  Brijlal  (supra) after affording an

opportunity to the parties concerned.  

27. The appeals are accordingly allowed.   The

impugned order passed by the High Court and the

order  dated 11.08.2000 passed by  the  Settlement

Commission in Settlement Application

Nos.10/S/095/95­96/IT & 10/S/029/95­96/IT are

set aside.

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28. We, however, make it clear that we have not

expressed any opinion on the  merits  of the issue

while having formed an opinion to remand the case

to the Settlement Commission. The Settlement

Commission will accordingly decide the matter

uninfluenced by any observations made by this

Court. Let the matter be decided by the Settlement

Commission within six months from the date of this

order.

           ………...................................J. [ABHAY MANOHAR SAPRE]                           

             ....……..................................J.

       [DINESH MAHESHWARI]

New Delhi; March 05, 2019.

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