http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

CASE NO.: Appeal (crl.)  736-737 of 1998

PETITIONER: Ashirvad Enterprises and Ors.

RESPONDENT: State of Bihar & Anr.

DATE OF JUDGMENT: 22/03/2004

BENCH: DORAISWAMY RAJU & ARIJIT PASAYAT.

JUDGMENT: J U D G M E N T

ARIJIT PASAYAT, J.

       Prosecution was launched against the appellants for  alleged concealment of income and thereby willfully  attempting to evade tax, and for making false statement on  verification in terms of Sections 276C of the Income Tax  Act, 1961 (in short the ’Act’) relating to the assessment  year 1988-89.  Cognizance was taken by the Special Court,  Economic Offences, Muzaffarpur, Bihar in complaint case no.  50 of 1992 instituted by the Income Tax Authorities.   Petitions under Section 482 of the Code of Criminal  Procedure, 1973 (in short ’the Code’) were filed by  appellant no.1 (hereinafter referred to as ’the firm’) and  L.N. Poddar, a partner of the assessee firm before the Patna  High Court.  The specific stand of the petitioners before  the High Court was that the proceedings should not continue  as applications for settlement were filed and pending before  the Settlement Commission, Income Tax and Wealth Tax  (hereinafter referred to as ’the Commission’).  The High  Court did not accept the stand as no order granting any  immunity had been passed by the Commission. Referring to the  factual position also it was held that no case for  interference was made out at the relevant stage.

       Mr. S.K. Gupta, learned counsel for the appellants  submitted that in the meantime Settlement Commission has  passed necessary orders in the matter and, therefore,  proceedings should not be continued. Reference was made to  Order No. 3/3/5/91-IT dated 20.9.1999 passed by the  Commission.

       Mr. H.L. Agrawal, learned senior counsel for the  respondents submitted that the immunity if granted by the  Commission is a conditional one, and unless there is  fulfillment of the conditions stipulated, the proceedings  have to be continued.  According to him, it is open to the  appellants to appear before the Trial Court and bring to its  notice any order which has relevance in the matter.

       In order to appreciate the rival stands, it would be  necessary to take note of Section 245 (H) of the Act. It  reads as under:

"SECTION 245H: POWER OF SETTLEMENT  COMMISSION TO GRANT IMMUNITY FROM  PROSECUTION AND PENALTY.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

(1) The Settlement Commission may, if it is  satisfied that any person who made the  application for settlement under section  245C has co-operated with the Settlement  Commission in the proceedings before it and  has made a full and true disclosure of his  income and the manner in which such income  has been derived, grant to such person,  subject to such conditions as it may think  fit to impose, immunity from prosecution for  any offence under this Act or under the  Indian Penal Code (45 of 1860) or under any  other Central Act for the time being in  force [and also (either wholly or in part)  from the imposition of any penalty] under  this Act, with respect to the case covered  by the settlement :  [Provided that no such immunity shall be  granted by the Settlement Commission in  cases where the proceedings for the  prosecution for any such offence have been  instituted before the date of receipt of the  application under section 245C.]  [(1A) An immunity granted to a person under  sub-section (1) shall stand withdrawn if  such person fails to pay any sum specified  in the order of settlement passed under sub- section (4) of section 245D within the time  specified in such order or within such  further time as may be allowed by the  Settlement Commission, or fails to comply  with any other condition subject to which  the immunity was granted and thereupon the  provisions of this Act shall apply as if  such immunity had not been granted.]  (2) An immunity granted to a person under  sub-section (1) may, at any time, be  withdrawn by the Settlement Commission, if  it is satisfied that such person had, in the  course of the settlement proceedings,  concealed any particulars material to the  settlement or had given false evidence, and  thereupon such person may be tried for the  offence with respect to which immunity was  granted or for any other offence of which he   appears  to  have  been guilty in connection   with the settlement and shall also become  liable to the imposition of any penalty  under this Act to which such person would  have been liable, had not such immunity been  granted."  

       The proviso to sub-section (1) was introduced by  Finance Act, 1987 (11 of 1987) with effect from 1.6.1987,  excluding grant of immunity in cases where proceedings for  the prosecution have been instituted before the date of  receipt of the application under Section 245C of the Act.   

Section 245C of the Act deals with application of  settlement of cases. As noted above no immunity can be  granted by the Commission in cases where the proceedings for  prosecution under the Act or under the Indian Penal Code,  1860 (in short ’the IPC’) or under any Central Act for the  time being in force have been instituted before the date of  receipt of application under Section 245C after 1.6.1987.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

There is logic in the prohibition.  It is intended to  discourage filing of belated applications after prosecution  is launched and also reasons envisaged in CIT v. B.N.  Bhattachargee (1979) ITR 461, wherein it was observed that  Section 245H is a magnet which attracts large tax-dodgers,  and it was emphasised that power of immunisation against  criminal prosecution should be used in deserving cases.   Whether grant of immunity is called for in a given case is  to be decided by the Commission on the facts of each case  and no straight-jacket formula for any universal application  can be laid down. In the instant case, the Commission has   been satisfied that grant of immunity is called for.  Since  that decision has not been questioned by the Income Tax  Authorities it has attained finality. Conditions required to  be fulfilled before immunity can be granted are that the  Commission has to be satisfied that the applicant (a) has  made full and true disclosure of his income and the manner  in which such income has been derived and (b) has co- operated with the Commission in the proceedings before it.  In the instant case as the records reveal the application  for settlement in terms of Section 245C was filed on  27.5.1991. The prosecution was launched on 27.2.1992.  Obviously, therefore, application for settlement was filed  before prosecution was launched. The order of the Commission  refers to the immunity granted in the following terms:

"IMMUNITY:           In view of the full and true disclosure  of his income made and the cooperation  extended by the applicant in the settlement  of his income tax liabilities, his prayer  for immunity from penalty and prosecution  under the I.T. Act and the corresponding  provisions of the IPC in respect of the  assessment years covered by the settlement  period is granted."

       Above being the position, the proceedings before the  Special Court are quashed. However, at this stage, the  apprehension of Mr. Agrawal, learned senior counsel for the  respondent no.1 about consequences flowing from non- compliance with Commission’s order needs to be taken note  of.  Sub-section (1A) of Section 245H deals with the  consequences of non-compliance with the orders and  sufficiently takes care of such apprehensions. In case,  there is non-compliance of the Commission’s order,  provision of sub-section (1A) of Section 245H shall be  operative and the appellants are rendered liable,  notwithstanding the earlier immunity granted as if such  immunity was not granted at all. It shall be open to the  Income Tax Authorities to ask for restoration of  proceedings before the Special Court if there is non- compliance with Commission’s order or withdrawal of  immunity in terms of Section 245H(2).

       It may be noted here that High Court had declined to  quash the proceedings on ground that proceedings were  pending before the Commission.  The view of the High Court  is on terra firma.  This Court in P. Jayappan v. S.K.  Perumal, First I.T.O. (1984) 149 ITR 696 (SC) observed that  merely because the application for settlement is pending  before the Commission that cannot be a ground to quash the  pending prosecution.  But the position has changed in this

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

case as after High Court’s judgment final orders have been  passed by the Commission according immunity on an  application presented, apparently before the institution of  the proceedings for prosecution.    

       Appeals are allowed and disposed of accordingly on the  above terms.