REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE/ORIGINAL JURISDICTION

CIVIL APPEAL Nos. 516-527 OF 2004

Brij Lal & Ors. … Appellants

     versus

Commissioner of Income Tax, Jalandhar               …  Respondents

with

Civil Appeal Nos. 280-286/2005, Civil Appeal  No.  8324/2004,  Civil  Appeal  Nos.8325- 8328/2004, Civil Appeal No. 603/2005, Civil  Appeal  No.  990/2005,  Civil  Appeal  No.  925/2005,            Civil Appeal No.  924/2005,  Writ  Petition  (C)  No.  556/2004,  Writ  Petition(C)No.  555/2004,  Civil  Appeal  Nos.  2247-2250/2005,  Civil  Appeal  No.  923/2005,  Civil  Appeal  No.  995/2005,  Civil Appeal No. 994/2005, Writ Petition (C)  No. 63/2005,        Writ Petition (C) No.  61/2005,   Writ  Petition  (C)  No.  62/2005,  Writ Petition (C) No. 60/2005, Civil Appeal  No. 2246/2005,     Civil Appeal Nos. 3231- 3232/2005, Civil Appeal No. 3091/2004, Civil  Appeal  No.  3087/2004,  Civil  Appeal  No.  3092/2004,        Civil  Appeal  Nos.4599- 4601/2004, Civil Appeal Nos. 528-531/2004,  Writ  Petition (C) No. 325/2004, Writ Petition (C)  No.  324/2004,  Writ  Petition  (C)  No.  326/2004,   Civil  Appeal  No.  992/2007,  Civil  Appeal  No.9174/2010  @  SLP  (C)  No.  20373/2009,          Civil  Appeal  No.  532/2004, and Civil Appeal No. 604/2005.

J U D G M E N T

S.H. KAPADIA, CJI

1. Leave granted.

2. Vide referral orders dated 14.12.2004 and 20.1.2005  

the following questions have been referred to the Constitution  

Bench of this Court:

(i) Whether sections 234A, 234B and 234C  

of  the  Income  Tax  Act,  1961  (for  short  

“the  Act”)  are  at  all  applicable  to  

proceedings  of  the  Settlement  

Commission under Chapter XIX-A of the  

Act?

(ii) Whether the Settlement Commission can  

reopen  its  concluded  proceedings  by  

having recourse to section 154 of the Act  

so  as  to  levy  interest   under  sections  

234A, 234B and 234C of the Act, though  

it  was  not  so  done  in  the  original  

proceedings?

(iii) Whether  in  the  absence  of  period  of  

limitation prescribed for making the order  

of  the  Settlement,  the  relevant  date  for  

determining  the  quantum  of  interest  

could be the date of the said order?

3. For  the  sake  of  convenience,  after  hearing  learned  

counsel on both sides, we reframe the above questions.

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(I) Whether  section  234B  applies  to  

proceedings  of  the  Settlement  

Commission under Chapter XIX-A 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?

Relevant provisions of the Income Tax Act, 1961:

4.  In  order  to  answer  the  reframed  questions,  quoted  above,  it  would  be  necessary  for  us  to  cite  the  relevant  provisions of the Act and the Income Tax Rules, as they stood  at the material time, which are as under:  

Definitions

2(40) “regular  assessment”  means  the  

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assessment  made  under  sub-section  (3)  of  section 143 or section 144 ;

2(45) “total  income”  means  the  total  amount  of  income  referred  to  in  section  5,  computed in the manner laid down in this Act;

Chapter XIV – Procedure for Assessment Self-assessment 140A.  (1)  Where  any  tax  is  payable  on  the  basis  of  any return required to be furnished  under  section 139 or  section 142 or as the case  may be,  section 148,  after taking into account  the amount of tax, if any, already paid under  any provision of this Act, the assessee shall be  liable  to  pay  such tax  together  with  interest  payable under any provision of this Act for any  delay in furnishing the return or any default or  delay  in  payment  of  advance  tax,  before  furnishing the return and the return shall be  accompanied by proof of payment of such tax  and interest.

Explanation.—Where the amount paid by the  assessee under this sub-section falls short of  the  aggregate  of  the  tax  and  interest  as  aforesaid,  the  amount  so  paid  shall  first  be  adjusted  towards  the  interest  payable  as  aforesaid  and  the  balance,  if  any,  shall  be  adjusted towards the tax payable.

(2) After a regular assessment under section 143  or section 144 has been made, any amount paid  under sub-section (1) shall be deemed to have  been paid towards such regular assessment.

Assessment 143.  (1)(a)  Where  a  return  has  been  made  

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which has been so considered and decided. (2)  Subject  to  the  other  provisions  of  this  section, the authority concerned—

(a) may  make  an  amendment  under sub-section (1) of its own motion, and

(b) shall make such amendment  for rectifying any such mistake which has been  brought  to  its  notice  by  the  assessee,  and  where the authority concerned is the Deputy  Commissioner (Appeals), or the Commissioner  (Appeals) by the Assessing Officer also. (3)  An  amendment,  which  has  the  effect  of  enhancing an assessment or reducing a refund  or  otherwise  increasing  the  liability  of  the  assessee, shall not be made under this section  unless  the  authority  concerned  has  given  notice to the assessee of its intention so to do  and  has  allowed  the  assessee  a  reasonable  opportunity of being heard.

Chapter XVII – Collection and Recovery of  Tax

Liability for payment of advance tax.

207. Tax shall be payable in advance during  any  financial  year,  in  accordance  with  the  provisions  of  sections  208  to  219  (both  inclusive), in respect of the total income of the  assessee which would be chargeable to tax for  the assessment year immediately following the  financial year, such income being hereafter in  this Chapter referred to as “current income”.

Computation of advance tax.

209. (1) The amount of advance tax payable by  an assessee in the financial year shall, subject  

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to the provisions of sub-sections (2) and (3), be  computed as follows, namely:—

(a)  where  the  calculation  is  made  by  the  assessee  for  the  purposes  of  payment  of  advance  tax  under  sub-section  (1)  or  sub- section (2) or sub-section (5) or sub-section (6)  of  section  210,  he  shall  first  estimate  his  current income and income-tax thereon shall  be  calculated  at  the  rates  in  force  in  the  financial year;

Payment of advance tax by the assessee of  his own accord or in pursuance of order of  Assessing Officer.

210. (1)  Every  person  who  is  liable  to  pay  advance tax under section 208 (whether or not  he  has  been  previously  assessed  by  way  of  regular assessment) shall,  of his own accord,  pay,  on  or  before  each  of  the  due  dates  specified  in  section  211,  the  appropriate  percentage,  specified  in  that  section,  of  the  advance tax on his current income, calculated  in the manner laid down in section 209.

(2)  A  person  who  pays  any  instalment  or  instalments of advance tax under sub-section  (1),  may  increase  or  reduce  the  amount  of  advance  tax  payable  in  the  remaining  instalment or  instalments to accord with his  estimate  of  his  current  income  and  the  advance  tax  payable  thereon,  and  make  payment of the said amount in the remaining  instalment or instalments accordingly.

Interest payable by assessee.

215.  (1) Where,  in  any  financial  year,  an  assessee has paid advance tax under section  

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209A or section 212 on the basis of his own  estimate (including revised estimate), and the  advance tax so paid is less than seventy-five  per cent of the assessed tax, simple interest at  the rate of fifteen per cent per annum from the  1st  day  of  April  next  following  the  said  financial  year  up  to  the  date  of  the  regular  assessment shall  be payable by the assessee  upon the amount by which the advance tax so  paid falls short of the assessed tax: Provided that in the case of an assessee, being  a company, the provisions of this sub-section  shall have effect as if for the words “seventy- five per cent’, the words “eighty-three and one- third per cent” had been substituted. (2)  Where before the date  of  completion of  a  regular  assessment,  tax  is  paid  by  the  assessee under section 140A or otherwise,— (i)  interest  shall  be  calculated  in  accordance  with the foregoing provision up to the date on  which the tax is so paid; and (ii)  thereafter,  interest  shall  be  calculated  at  the rate aforesaid on the amount by which the  tax as so paid (in so far as it relates to income  subject  to  advance  tax)  falls  short  of  the  assessed tax. (3) Where as a result of an order under section  147 or section 154 or section 155 or section  250 or section 254 or section 260 or section  262 or section 263 or section 264 or an order  of  the  Settlement  Commission  under  sub- section  (4)  of  section  245D,  the  amount  on  which interest was payable under sub-section  (1) has been increased or reduced, as the case  may  be,  the  interest  shall  be  increased  or  reduced accordingly, and— (i) in a case where the interest is increased, the  Assessing Officer shall serve on the assessee, a  notice  of  demand  in  the  prescribed  form  specifying the sum payable, and such notice of  

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section and sub-section (2A) to (2D) of Section  245D,  the  additional  amount  of  income-tax  payable in respect of the income disclosed in  an application made under sub-section (1) of  this section shall be the amount calculated in  accordance with the provisions of sub-sections  (1B) to (1D).  (1B)  Where  the  income  disclosed  in  the  application relates to only one previous year,—

(i) if  the  applicant  has  not  furnished  a  return  in  respect  of  the  total  income  of  that  year  (whether  or  not  an  assessment has been made in respect of  the  total  income of  that  year),  then,  except  in  a  case  covered  by  clause  (iii),  tax  shall  be  calculated  on  the  income  disclosed  in  the  application  as  if  such income were  the  total  income;

(ii) if the applicant has furnished  a return in respect of the total income of that  year (whether or not an assessment has been  made in pursuance of such return), tax shall  be  calculated  on  the  aggregate  of  the  total  income returned and the income disclosed in  the application as if such aggregate were the  total income; (iii)  if  the  proceeding  pending  before  the  income-tax  authority  is  in  the  nature  of  a  proceeding  for  reassessment  of  the  applicant  under  section  147  or  by  way  of  appeal  or  revision  in  connection  with  such  reassessment,  and  the  applicant  has  not  furnished  a  return  in  respect  of  the  total  income  of  that  year  in  the  course  of  such  proceeding  for  reassessment,  tax  shall  be  calculated on the aggregate of the total income  as  assessed  in  the  earlier  proceeding  for  assessment under section 143 or section 144  or section 147 and the income disclosed in the  application as if such aggregate were the total  

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income.   

FORM NO. 34B [See rules 44C and 44CA]

Form of application for settlement of case under section 245C(1) of the  Income-tax Act, 1961

IN THE SETTLEMENT COMMISSION…………………………………………. Settlement application No. ………………………..19…….-19……….

1. Full name and address of the applicant …………………….

2. Permanent Account Number …………………… 3. Status [See Note 4] …………………… 4. The Commissioner having jurisdiction over the  

applicant …………………… 5. Assessment year(s) in connection with which the  

application for settlement is made …………………… 6. Date of filing the return of income for  

assessment year(s) referred to in column 5 …………………… 7. Proceedings to which application for settlement  

relates, the date from which the proceedings are  pending and the income-tax authority before  whom the proceedings are pending [See Note 6] ……………………

8. Where any appeal or application for revision has  been preferred after the expiry of the period  specified for the filing of such appeal or  application for revision, as the case may be,  whether such appeal or revision has been  admitted. ……………………

9. Date of seizure, if any, under section 132 of the  Income-tax Act ……………………

10. Particulars of the issues to be settled, nature  and circumstances of the case and complexities  of the investigation involved [See Note 7] ……………………

11. Full and true disclosure of income which has not  been disclosed before the Assessing Officer, the  manner in which such income has been derived  and the additional amount of income-tax  payable on such income [See Notes 9 and 10]

……………………

…………………..     Signed (Applicant)

Verification I, ………………………….., son/daughter/wife of ……………………………. do  hereby solemnly declare that  to the best of  my knowledge and belief,  

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assessee,  that  he  is  unable  for  good  and  sufficient  reasons  to  pay  the  additional  amount  of  income  tax  referred  to  in  sub- section (2A)  within the time specified in that  sub-section,  it  may  extend  the  time  for  payment of the amount which remains unpaid  or allow payment thereof by instalments if the  assessee  furnishes  adequate  security  for  the  payment thereof.  (2C) Where the additional amount of income- tax is not paid within the time specified under  sub-section  (2A),  then,  whether  or  not  the  Settlement Commission has extended the time  for  payment  of  the  amount  which  remains  unpaid  or  has  allowed  payment  thereof  by  instalments  under  sub-section  (2B),  the  assessee shall be liable to pay simple interest  at fifteen per cent per annum on the amount  remaining  unpaid  from the  date  of  expiry  of  the period of thirty-five days referred to in sub- section (2A).

(4)  After  examination  of  the  records  and the  report  of  the  Commissioner,  received  under  sub-section (1), and the report, if  any, of the  Commissioner received under sub-section (3),  and  after  giving  an  opportunity  to  the  applicant  and  to  the  Commissioner  to  be  heard,  either  in  person  or  through  a  representative duly authorised in this behalf,  and after examining such further evidence as  may be placed before it or obtained by it, the  Settlement  Commission  may,  in  accordance  with the provisions of this Act, pass such order  as it thinks fit on the matters covered by the  application  and  any  other  matter  relating  to  the  case  not  covered by  the  application,  but  referred to in the report of the Commissioner  under sub-section (1) or sub-section (3).

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(6)  Every order  passed under  sub-section (4)  shall  provide  for  the  terms  of  settlement  including any demand by way of tax, penalty  or interest, the manner in which any sum due  under  the  settlement  shall  be  paid  and  all  other matters to make the settlement effective  and shall also provide that the settlement shall  be  void  if  it  is  subsequently  found  by  the  Settlement  Commission  that  it  has  been  obtained  by  fraud  or  misrepresentation  of  facts. (6A) Where any tax payable in pursuance of an  order under sub-section (4) is not paid by the  assessee within thirty-five days of the receipt  of a copy of the order by him, then, whether or  not the Settlement Commission has extended  the  time  for  payment  of  such  tax  or  has  allowed  payment  thereof  by  instalments,  the  assessee shall be liable to pay simple interest  at fifteen per cent per annum on the amount  remaining  unpaid  from the  date  of  expiry  of  the period of thirty-five days aforesaid. (7)  Where  a  settlement  becomes  void  as  provided  under  sub-section  (6),  the  proceedings  with  respect  to  the  matters  covered by the settlement shall be deemed to  have been revived from the stage at which the  application was allowed to be proceeded with  by  the  Settlement  Commission  and  the  income-tax  authority  concerned,  may,  notwithstanding  anything  contained  in  any  other  provision  of  this  Act,  complete  such  proceedings  at  any time  before  the  expiry  of  two years from the end of the financial year in  which the settlement became void.

Power of Settlement Commission to reopen  completed proceedings. 245E. If the Settlement Commission is of the  

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substituted  by  Finance  Act,  2007  w.e.f.  1.6.2007,  reads  as  

under:

245C. (1) An assessee may, at any stage of a  case relating to him, make an application in  such  form  and  in  such  manner  as  may  be  prescribed,  and  containing  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  and  such  other  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:   Provided  that  no  such  application  shall  be  made unless,—

(i)the additional amount of income tax  payable on the income disclosed in the  application exceeds three lakh rupees;  and

(ii) such tax  and the  interest  thereon,  which would have been paid under  the  provisions  of  this  Act  had  the  income disclosed in the application  been  declared  in  the  return  of  income before the Assessing Officer  on the date of application, has been  paid on or before the date of making  the  application  and  the  proof  of  such payment is attached with the  application.

Analysis of the Act

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7. Liability to pay advance tax arises under section 207.  

The said section is based on the principle “pay as you earn”.  It  

requires tax to be paid during the financial year.  It has to be  

in respect of the total income of the assessee which would be  

chargeable to tax under the Act.  The said total income is not  

as understood in section 2(45) but it  is equated to “current  

income” for the purposes of Chapter XVII.  After the Amending  

Act of 1987, advance tax is to be paid on the current income  

which  would  be  chargeable  to  tax  for  the  assessment  year  

immediately  following the financial  year.   Section 210 casts  

the responsibility of payment of advance tax on the assessee  

without  requiring  the  assessee  to  submit  his  estimate  of  

advance tax payable.  Provision for payment of advance tax is  

mode of  quick collection  of  tax.   Thus,  section 207 defines  

liability to pay advance tax in respect of incomes referred to in  

section 208.  However, advance tax paid is adjustable towards  

the tax due.  Advance tax is collected even before the income  

tax becomes due and payable.  By its very nature, advance tax  

is pre-assessment collection of taxes either by deduction of tax  

at  source  or  by  payment  of  advance  tax  which  has  to  be  

adjusted towards income tax levied on the total income.  The  

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above two methods of realization even before any assessment  

is authorized by section 4(2) are incorporated in Chapter XVII  

which deals  with “collection and recovery”.   In fact,  section  

190(1)  clarifies  that  this  method of  payment  of  tax will  not  

prejudice the charge of tax under section 4(1) nor will it modify  

the liability of the assessee to pay income tax pursuant to an  

assessment order. [See Modi Industries Limited, Modinagar  

and  Others  v.  Commissioner  of  Income  Tax,  Delhi  and  

Another, 216 ITR 759 at 780]  At one point of time, section  

209(1)(a)(iii) (relating to computation of advance tax) provided  

that  the  income  tax  calculated  on  the  total  income  with  

reference  to  which  the  demand  for  advance  tax  was  made  

should be reduced by the amount of income tax deductible in  

accordance with sections 192 to 194, 194A and 195 on any  

income  included  in  the  total  income.   The  levy  of  interest  

under section 215 is part of the process of assessment.  If the  

income tax liability on the first day of the assessment year is  

larger than the amount of advance tax standing to the credit of  

the assessee then interest will have to be paid under section  

215 on 75% of the deficit amount of tax from the first day of  

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the assessment year to the date of computation of total income  

vide  assessment  order.   Interest  under  section  215  is  

chargeable  from  the  first  day  of  April  next  following  the  

financial year wherein the advance tax was paid up to the date  

of regular assessment, if no tax has been paid under section  

140A  or  otherwise.   However,  section  215(2)  provides  that  

where advance tax paid is less than 75% of the “assessed tax”,  

but the assessee has paid tax under section 140A or otherwise  

before the date of completion of regular assessment then the  

interest shall be limited to the interest on the shortfall between  

the “assessed tax”  and the advance tax paid for  the period  

from the first April next following the financial year up to date  

of payment under section 140A plus interest on the shortfall  

between “assessed tax” and “total tax paid” for the period from  

the  day  following  the  date  of  such  payment  under  section  

140A up to the date of regular assessment.  Coming to section  

140A,  as  a  result  of  the  amendment  of  section  140A(1)  by  

Direct  Tax Laws Amendment Act,  1987 w.e.f.  1.4.1989 and  

vide Finance Act of 1999, the assessee is required to calculate  

the  tax payable  on the  basis  of  the  return to  be  furnished  

under section 139 or under section 142 or under section 148  

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after taking into account the amount of tax paid under the  

Act; to calculate also interest payable under section 234A or  

under section 234B/234C for any default or delay in payment  

of  advance  tax;  to  pay  such  tax  with  interest  before  the  

assessee  furnishes  his  return.   The  Explanation  to  section  

140A(1) inter alia provides that where the amount paid by the  

assessee under section 140A(1) falls short of the aggregate of  

the  tax  and  interest  thereon  the  amount  so  paid  is  first  

adjusted towards interest payable and the balance, if any, is  

adjusted  towards  the  tax  payable.   Thus,  amount(s)  paid  

under  section  140A  is  deemed  to  have  been  paid  towards  

regular assessment.

8. The liability to pay income tax is founded on sections  

4 and 5 which are the charging sections.  Sections 143, 144  

and 147 are machinery sections to determine the amount of  

tax  payable.   Thus,  whereas  section  143(3)  signifies  

computation of income, section 147 signifies computation of  

escaped  income.   As  held  in  the  case  of  C.A.  Abraham v.  

Income-Tax Officer, Kottayam and Another [(1961) 41 ITR  

425 (SC)],  the expression “assessment” in a given provision  

2

must  be  determined  on  an  examination  of  the  relevant  

provisions  in  question  and  the  fact  that  it  is  used  in  the  

narrower sense elsewhere will not mean that it is so used in  

the provision under examination.  The word can be used to  

cover the whole procedure to ascertain the liability  and the  

machinery  for  enforcement.   Prior  to  1.6.1999,  section  

143(1A)(a) inter alia provided that where the total income as a  

result  of  any  adjustments  made  exceeded  the  total  income  

declared in the return by any amount then it was open to the  

A.O.  to  increase  the  amount  of  tax  payable  under  section  

143(1)  by  additional  income  tax  calculated  at  the  specified  

rate.   In  brief,  section  143(1A)  provided  for  the  levy  of  

additional income tax of an amount equal to 20% of the tax  

payable on the amount of difference between the total income  

determined under section 143(1) and total income declared in  

the return.  Where the additional income tax was increased,  

the A.O. had to serve a notice under section 156.  Even under  

section  143(1B),  as  it  stood  before  1.6.1999,  where  an  

assessee furnished a revised return under section 139(5) after  

service of intimation, the assessee was liable to pay additional  

income  tax  in  relation  to  adjustments  made  under  section  

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143(1)(a) read with the proviso.

9. Now,  Chapter  XVII  deals  with  “collection  and  

recovery”.   It  covers  Tax Deduction at  Source  and Advance  

Payment  of  taxes  (see  section  190).   Section  C  deals  with  

advance payment of taxes.  Section 207 refers to liability to  

pay advance tax whereas section 209 deals with computation  

of advance tax.  Section 215 refers to interest payable by the  

assessee.  Section 210(1) inter alia provides that every person  

who is liable to pay interest under Section 208, shall of his  

own accord pay, on each of the due dates specified in section  

211, the appropriate percentage of advance tax on his current  

income calculated in the manner under section 209.  Under  

section 209(1)(a),  the amount of advance tax payable by the  

assessee in any financial year is as follows:    

(a) where  calculation  is  made  by  the  assessee  for  the  

purposes of payment of advance tax under section 209(1), he  

shall  first  estimate his current income and the tax shall  be  

computed at the rates in force in the financial  year.  Thus,  

liability and computation of advance tax is done under section  

C of Chapter XVII.  On the other hand, interest for defaults in  

payment of advance tax falls under section 234B, apart from  

3

sections 234A and 234C, in section F of Chapter XVII.  Thus,  

levy of interest is incidental to the liability and computation of  

advance tax.  It is interesting to note that section 234A(4) in  

turn refers to the increase or reduction of interest subsequent  

to  the  Order  of  the  Commission  under  section  245D(4)  

increasing or reducing the amount of tax payable and so also  

section 234B(4).  Under section 234B, where in any financial  

year  an  assessee  who  is  liable  to  pay  advance  tax  under  

section 208 fails to pay such tax or where the advance tax  

paid under section 210 is less than 90% of the assessed tax  

the assessee shall pay interest from the first day of April next  

following such financial year to the date of determination of  

total  income under  section 143(1)  or  to  the  date  of  regular  

assessment on the amount equal to the assessed tax which  

has been defined in Explanation 1 to mean tax on the total  

income as determined under section 143(1) as reduced by the  

amount of tax deducted at source in accordance with Chapter  

XVII on income which is subject to deduction and which is  

taken into account in computing total income.  By Explanation  

3, it is clarified that for default of short payment interest will  

be  charged  on  the  difference  between  “assessed  tax”  (as  

3

defined) and the advance tax paid by the assessee and that for  

the  above  purpose  “additional  income  tax”  if  any  payable  

under section 143 is not to be taken into account.  However,  

section 234B(2) covers a situation where, before the date of  

determination  of  total  income  under  section  143(1)  or  

completion of regular assessment, tax is paid by the assessee  

under section 140A or otherwise, interest shall be calculated  

under section 234B(1) up to the date on which tax was so paid  

and reduced by the interest, if any, paid under section 140A  

towards interest chargeable under section 234B.

10. Coming to Chapter XIX-A which deals with Settlement  

of  Cases,  it  may  be  stated  that  the  word  “case”  is  defined  

under  section 245A(b).   It  is  an exhaustive definition.   The  

definition  makes  it  clear  that  an  application  for  Settlement  

shall  lie  only  when  any  proceedings  for  assessment  or  re-

assessment is pending or an appeal or revision in connection  

with such assessment or re-assessment is pending before the  

Income  Tax  Authority.   Under  section  245C(1),  such  

application for settlement will not be maintainable without full  

and  true  disclosure  of  the  income  by  the  applicant,  the  

manner in which such undisclosed income was derived and  

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that the applicant had furnished his return of income and that  

the  additional  tax  payable  on  such  income  exceeds  the  

specified amount.  This was the position prior to Finance Act  

of 2007.  However, section 245C(1A) inter alia provides that  

additional  amount  of  income  tax  payable  in  respect  of  the  

income disclosed shall  be calculated in accordance with the  

provisions of section 245C(1B).  Under sub-section (1B) if the  

applicant  has  furnished  his  return  in  respect  of  his  total  

income and no assessment is made, the tax shall be calculated  

on the aggregate of the total income returned and the income  

disclosed in the application as if such aggregate was the total  

income.   The  words  “regular  assessment”  are  not  there  in  

section 245C(1B)(ii).  However, under section 245C(1C)(b), it is  

provided  that  the  additional  tax  calculated  under  section  

245C(1B)(ii)  shall  be  reduced  by  the  aggregate  of  the  tax  

deducted at source or tax paid in advance and the amount of  

tax paid under section 140A.  The resultant amount is  the  

additional tax payable by the assessee.  Thus, section 245C  

incorporates within it the provisions of Chapters XVIIB, XVIIC  

and section 140A of the Act.   It  may be noted that section  

245C(1B)(iii), as it stood before 1.6.1987, required income tax  

3

to  be  calculated  on  the  aggregate  of  the  total  income  as  

assessed plus  the  income disclosed in  the  application  as  if  

such aggregate was the total income.  But after 1.6.1987, the  

tax is required to be worked out on the returned total income  

plus the income disclosed in the application as if the aggregate  

is the total income.  Under section 245D(2A) the applicant is  

required to pay the additional amount of income tax payable  

on the income disclosed in the application within 35 days of  

the receipt of the copy of the order passed by the Settlement  

Commission under section 245D(1) allowing such application  

to be proceeded with.  Under section 245D(2A) the applicant  

shall, within 35 days of the receipt of the order under section  

245D(1) allowing the application to be proceeded with, pay the  

additional  amount  of  income  tax  payable  on  the  income  

disclosed.  Under section 245D(4) on compliance of sections  

245D(2A) and (2C) and on examination of relevant records and  

reports, the Settlement Commission may pass such orders as  

it thinks fit on the matters covered by the application and any  

other matter relating to the “case” referred to in the report of  

the Commissioner of Income Tax.  If one carefully analyses the  

provisions  of  sections  245D(1)  and  245D(4),  one  finds  two  

3

distinct stages – one allowing the application to be proceeded  

with (or rejected) and the other of disposal of the application  

by  appropriate  orders  being  passed  by  the  Settlement  

Commission.  In between the two stages, we have provisions  

which require the applicant to pay the additional income tax  

and interest.  Even under section 245D(7) it is provided that  

where the settlement becomes void under section 245D(6) the  

proceedings  with  respect  to  the  matters  covered  by  the  

settlement shall be deemed to have revived from the stage at  

which the application was allowed to be proceeded with by the  

Settlement  Commission  and  the  income  tax  authority  may  

complete the proceedings within the period mentioned therein.  

Thus,  section  245D(7)  brings  out  the  difference  between  

section  245D(1)  stage  and  section  245D(4)  stage.   Under  

section 245D(6), it is laid down that every order under section  

245D(4)  shall  provide for  the Terms of  Settlement including  

any demand by way of tax, penalty or interest.  In the case of  

C.I.T.  v.  Damani  Brothers reported  in  259  ITR  475,  a  3-

Judge  Bench  of  this  Court,  while  analyzing  the  scheme  of  

Chapter XIX-A, has held that section 234B, section 245D(2C)  

and section 245D(6A) operate in different fields. Section 234B  

3

comes  into  operation  when  there  is  default  in  payment  of  

advance  tax  whereas  liability  to  pay  interest  under  section  

245D(2C) arises when the additional amount of income tax is  

not paid within time specified under section 245D(2A). Section  

245D(6A), on the other hand, imposes liability to pay interest  

only  when  the  tax  payable  in  pursuance  of  an  order  of  

Settlement  Commission  under  section  245D(4)  is  not  made  

within the specified time. Consequently, section 234B, section  

245D(2C) and section 245D(6A) in Chapter XIX-A operate in  

different  fields.  To  this  extent,  we  agree  with  the  view  

expressed in Damani Brothers case (supra).  Descriptively, it  

can  be  stated  that  assessment  in  law  is  different  from  

assessment by way of settlement.  If one reads section 245D(6)  

with  section  245I,  it  becomes  clear  that  every  order  of  

settlement  passed under  section 245D(4)  shall  be  final  and  

conclusive as to the matters contained therein and that the  

same shall not be re-opened except in the case of fraud and  

misrepresentation.  Under section 245F(1), in addition to the  

powers  conferred  on  the  Settlement  Commission  under  

Chapter  XIX-A,  it  shall  also  have  all  the  powers  which are  

vested  in  the  income tax  authority  under  the  Act.   In  this  

3

connection, however, we need to keep in mind the difference  

between “procedure for assessment” under Chapter XIV and  

“procedure for settlement” under Chapter XIX-A (see section  

245D).  Under section 245F(4), it is clarified that nothing in  

Chapter XIX-A shall affect the operation of any other provision  

of the Act requiring the applicant to pay tax on the basis of  

self-assessment  in relation to matters  before  the  Settlement  

Commission.  The point to be noted on the basis of the above  

analysis is that several provisions of the Act like section 140A;  

furnishing  of  the  return  of  income  by  the  applicant  as  

indicated in the proviso (a) to section 245C(1);  provisions of  

the Act governing liability and computation to pay additional  

income  tax  as  indicated  by  proviso  (b)  to  section  245C(1);  

aggregation of total income inter alia in terms of sections 143,  

144 or 147 as indicated by section 245C(1B)(iii); aggregation of  

total  income  as  returned  plus  income  disclosed  in  the  

application for settlement as indicated in section 245C(1B)(ii);  

the deductions in section 245C(1C); increase of interest under  

section  215(3)  pursuant  to  the  orders  of  the  Settlement  

Commission and the levy of interest under sections 234A(4)  

and 234B(4) all bring into Chapter XIX-A various provisions of  

3

the Act.  Thus, when we read the provisions of Sections 245C  

and 245D one has to keep in mind various above provisions of  

the  Act  and  the  concepts  of  self-assessment,  assessment,  

regular  assessment  and  computation  of  total  income which  

have been engrafted in Chapter XIX-A.

(I) Whether  Sections  234A,  234B  and  234C  are  applicable to Chapter XIX-A proceedings?

11. Our detailed analysis shows that though Chapter XIX-

A is a self-contained Code, the procedure to be followed by the  

Settlement Commission under sections 245C and 245D in the  

matter of computation of undisclosed income; in the matter of  

computation of additional income tax payable on such income  

with  interest  thereon;  the  filing  of  settlement  application  

indicating  the  amount  of  income  returned  in  the  return  of  

income  and  the  additional  income  tax  payable  on  the  

undisclosed income to be aggregated as total  income shows  

that Chapter XIX-A indicates aggregation of incomes so as to  

constitute  total  income  which  indicates  that  the  special  

procedure  under  Chapter  XIX-A  has  inbuilt  mechanism  of  

computing  total  income  which  is  nothing  but  assessment  

(computation  of  total  income).   To  elaborate,  under  section  

3

245C(1B), if the applicant has furnished a return in respect of  

his total income, tax shall be calculated on the aggregate of  

total  income  returned  and  the  income  disclosed  in  the  

settlement application as if such aggregate were total income.  

Under the Act, tax is payable on the total income as computed  

in accordance with the provisions of the Act.  Thus, section  

143(3) provision is sought to be incorporated in section 245C.  

When Parliament uses the words “as if such aggregate would  

constitute total income”, it presupposes that under the special  

procedure the aggregation of the returned income plus income  

disclosed would result in computation of total income which is  

the basis for the levy of tax on the undisclosed income which  

is  nothing  but  “assessment”.   Similarly,  section  245C(1C)  

provides  for  deductions  from the  total  income  computed  in  

terms of section 245C(1B).  Thus, the special procedure under  

sections  245C  and  245D  in  Chapter  XIX-A  shows  that  a  

special type of computation of total income is engrafted in the  

said provisions which is nothing but assessment which takes  

place at section 245D(1) stage.  However, in that computation,  

one finds that provisions dealing with a regular assessment,  

self-assessment  and  levy  and  computation  of  interest  for  

4

default  in  payment  of  advance  tax,  etc.  are  engrafted.  [See  

sections 245C(1B), 245C(1C), 245D(6), 245F(3) in addition to  

sections 215(3), 234A(4) and 234B(4)]  

(II) Terminal  point  for  the  levy  of  interest –  Whether  

interest is payable under Chapter XIX-A up to the date of  

the order under section 245D(1) or up to the date of the  

order under section 245D(4)?

12. In our view the answer to the above question lies in  

the  provisions  of  the  proviso  to  Sections  245C(1),  245C(1B)  

and  245C(1C),  245D(4)  and  245F(3)  which  bring  in  the  

concepts of returned income, self-assessment, aggregation of  

income returned and income disclosed as if it is total income;  

levy of interest under section 215(3) read with section 245D(4);  

increase of interest under sections 234A(4) and 234B(4) read  

with section 245D(4) as also sections 140A(1A) and (1B) read  

with  sections  234A and  234B.   For  example,  section  140A  

deals  with  self-assessment  which  is  different  from  regular  

assessment.  Under section 140A(1) where tax is payable on  

the basis of any return furnished by the assessee [see proviso  

(a) to section 245C(1)], after taking into account tax paid, the  

assessee shall be liable to pay such tax with interest payable  

4

for  default  under  section  234B  in  payment  of  advance  tax  

before  furnishing  the  return.   This  position  is  clarified  by  

sections  140A(1A)  and  (1B)  under  which  inter  alia  interest  

payable for default in payment of advance tax under section  

234A shall  be computed on the amount of  tax on the total  

income as declared in the return minus the advance tax paid.  

Similarly, it is clarified vide sub-section (1B) to section 140A  

that  interest  payable  under  section  234B  for  default  in  

payment  of  advance  tax  shall  be  computed  on  an  amount  

equal  to  the  assessed tax  [same words  are  used  in  section  

234B(1)]  or  on  the  amount  by  which  the  advance  tax  falls  

short of the assessed tax.  However, what is “assessed tax” for  

the purposes of section 140A is explained by Explanation.  It  

says  that  assessed  tax  will  be  tax  on  the  total  income  as  

declared in the return minus the amount of tax deducted at  

source or collected at source in accordance with the provisions  

of Chapter XVII (which covers sections 207, 209 and 215 of  

the Act).  Now, section 245C(1) is voluntary disclosure by the  

assessee of his undisclosed income.  Under section 245C(1),  

the assessee has to mention in his settlement application the  

additional amount of tax payable by him on such undisclosed  

4

income.  Under proviso (a), the application for settlement shall  

not be entertained till the assessee has furnished the return of  

income which he  was required to  file  under  the  Act  to  the  

extent of his income.  Under proviso (b), the assessee has to  

declare the additional amount of tax payable.  Thus, the two  

provisos to section 245C(1) show that Chapter XIX-A, which  

prescribes a special procedure for assessment by settlement,  

contemplates  a  pre-assessment  collection  of  tax.   With  the  

filing of the settlement application and after such application  

is  allowed  to  be  proceeded  with  under  section  245D(1),  

intimation  under  section  143(1),  regular  assessment  under  

sections 143(3)/144 and re-assessment under section 147 lose  

their existence as under sections 245C(1A) and (1B) it is only  

the income disclosed in the return of income before the A.O.  

alone  which  survives  for  consideration  by  the  Settlement  

Commission for settling the amount of income which is not  

disclosed  in  the  return.   Under  section  245C(1B)(ii),  if  the  

applicant  has  furnished  a  return  in  respect  of  the  total  

income, whether or not assessment is made in pursuance of  

the return,  the additional  amount of  income tax payable  in  

respect of the total income disclosed shall be on the aggregate  

4

of the total income returned and the income disclosed in his  

application for settlement as if  such aggregate was his total  

income.  This is pre-assessment collection of tax.  Such pre-

assessment is based on the estimation of the current income  

and  tax  thereon  by  the  applicant  himself.   Now,  when  the  

Settlement Commission accepts the Voluntary Disclosure vide  

the application for settlement, section 234B(2) steps in.  It is  

important  to  remember  that  the  assessee  is  liable  to  pay  

advance tax, he commits default in payment to the extent of  

the undisclosed income but he offers to pay additional income  

tax  then  interest  has  to  be  calculated  in  accordance  with  

sections 207, 208 and 234B(2) up to the date on which such  

tax is paid.  This is not the interest which assessee has to pay  

after  assessment  under  section  245D(4).   Under  sections  

245C(1B)  and  (1C)  the  additional  amount  of  income  tax  

payable  on  the  undisclosed  income  shall  be  on  the  total  

income  as  calculated  under  section  245C(1B).   On  

computation  of  total  income  under  sections  245C(1B)  and  

(1C),  interest  follows  such computation.   It  is  important  to  

note that interest follows computation of total income.  Once  

such computation takes place under  section 245C(1B)  then  

4

section 234B(2) applies.  The said sub-section deals with the  

situation  where  before  determination  of  total  income  under  

section 143(1)  or  143(3)  tax  is  paid  under  section  140A or  

otherwise  interest  shall  be  calculated  in  accordance  with  

section 234B(1) up to the date on which tax is so paid.  In that  

sense  an  application  under  section  245C(1)  is  a  return.  

Section 245C(1) deals with computation of total income.  There  

is one more way of looking at the Act.  Chapter XIX-A refers to  

procedure  of  settlement  (see  section  245D(1)).   As  stated  

above, section 245D(1) provides for expeditious recovery of tax  

by way of  pre-assessment collection.   Interest on default  in  

payment of  advance tax comes under  sections 234A,  234B,  

234C, which fall in Chapter XVII which deals with collection  

and  recovery  of  tax.   It  is  important  to  note  that  interest  

follows  computation  of  additional  payment  of  income  tax  

under sections 245C(1B) and (1C).  This is how sections 234A,  

234B and 234C get engrafted into Chapter XIX-A at the stage  

of section 245D(1).  As stated, till the Settlement Commission  

decides  to  admit  the  case  under  section  245D(1)  the  

proceedings under the normal provisions remain open.  But,  

once the Commission admits the case after being satisfied that  

4

the disclosure is full and true then the proceedings commence  

with the Settlement Commission.  In the meantime, applicant  

has to pay the additional amount of tax with interest without  

which  the  application  for  settlement  would  not  be  

maintainable.   Thus,  interest  under  section 234B would be  

payable  up  to  the  stage  of  section  245D(1).   Our  view  is  

supported by the amendment made by Finance Act of 2007  

w.e.f.  1.6.2007  in  which interest  is  required  to  be  paid  for  

maintainability of the Application for Settlement.

13. The question is – what happens in cases where 90% of  

the assessed tax is paid but on the basis of the Commission’s  

order under section 245D(4) the advance tax paid turns out to  

be  less  than  90%  of  the  assessed  tax  as  defined  in  the  

Explanation to Section 234B(1)?

14. As held hereinabove, under section 245C(1) read with  

section  245C(1B)(ii)  and  section  245C(1C)(b),  the  additional  

amount  of  income  tax  payable  is  to  be  calculated  on  the  

aggregate of total income returned and the income disclosed in  

the  settlement  application  as  if  such aggregate  is  the  total  

income.  Thus, the scheme of the said sections is based on  

computation of total income and in that sense we have stated  

4

that  such  application  for  settlement  is  akin  to  a  return  of  

income.  The said provision deals with “total income”.  Thus,  

as stated above, sections 234A, B and C are applicable up to  

the stage of section 245D(1) order passed by the Settlement  

Commission.   However,  Parliament  has  not  extended  the  

provisions and the liability to pay interest beyond the date of  

application  for  settlement.   This  is  the  position  even  after  

Finance Act of 2007.  Once this position is taken, section 140A  

is  attracted.   When  an  assessee  has  paid  interest  under  

sections  234A,  B  and  C  in  self-assessment  under  section  

140A, which is similar to the scheme of section 245C(1), and  

once  the  Settlement  Commission  admits  the  application  for  

settlement,  one  finds  that  even  under  section  140A(1B)  

interest payable under section 234B has to be computed on an  

amount  equal  to  the  assessed  tax  as  defined  in  the  

Explanation to mean tax on the total income as declared in the  

return.   Under  sub-section  (1B)  to  Section  140A  interest  

payable  under  section  234B  can  also  be  computed  on  an  

amount  by  which  the  advance  tax  paid  falls  short  of  the  

assessed  tax  as  defined  in  the  Explanation  thereto.   Thus,  

there  is  no  provision  under  Chapter  XIX-A  or  even  under  

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section 140A (dealing with self-assessment) to charge interest  

beyond the date of application for settlement after the same is  

admitted  by  the  Commission  under  Section  245D(1).  

Moreover, as stated above, under the Act, there is a difference  

between assessment in law [regular assessment or assessment  

under  section  143(1)]  and  assessment  by  settlement  under  

Chapter XIX-A.  The order under section 245D(4)  is  not an  

order  of  regular  assessment.   It  is  neither  an  order  under  

section 143(1) or 143(3) or 144.  Under sections 139 to 158,  

the  process  of  assessment  involves  the  filing  of  the  return  

under section 139 or under section 142; inquiry by the A.O.  

under  sections  142  and  143  and  making  of  the  order  of  

assessment by the A.O. under section 143(3) or under section  

144 and issuing of notice of demand under section 156 on the  

basis of the assessment order.   The making of the order of  

assessment is an integral part of the process of assessment.  

No  such  steps  are  required  to  be  followed  in  the  case  of  

proceedings  under  Chapter  XIX-A.   The  said  Chapter  

contemplates  the  taxability  determined  with  respect  to  

undisclosed  income  only  by  the  process  of  settlement/  

arbitration.   Thus,  the  nature  of  the  orders  under  sections  

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143(1),  143(3)  and  144  is  different  from  the  orders  of  the  

Settlement  Commission  under  section  245D(4).   Even  in  

Commissioner of Income Tax v. Anjum M.H. Ghaswala and  

others [252 ITR 1] there is no finding by this Court that the  

order of Settlement Commission under section 245D(4) is an  

order  of  assessment  under  section  143(3)  or  under  section  

144.  In  Ghaswala’s case the only question decided by this  

Court is that the interest under section 234B is mandatory in  

nature  and  that  Settlement  Commission,  therefore,  had  no  

authority to waive it.  Further, as stated above, the jurisdiction  

of the A.O. is not fettered merely because the applicant has  

filed the Settlement Application.  The Act does not contemplate  

stay  of  the  proceedings  during  that  period,  i.e.,  when  the  

Settlement  Commission  is  deciding  whether  to  proceed  or  

reject  the  settlement  application.   The  jurisdiction  of  the  

Settlement Commission to proceed commences only after an  

order is passed under section 245D(1).  That, after making an  

application  for  settlement  the  applicant  is  not  allowed  to  

withdraw  it  [see  section  245C(3)].   Once  the  case  stands  

admitted,  the  Settlement  Commission  shall  have  exclusive  

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jurisdiction  to  exercise  the  powers  of  the  Income  Tax  

Authority.  The order of Settlement Commission under section  

245D(4)  shall  be  final  and  conclusive  under  section  245I  

subject to two qualifications under which it can be recalled,  

viz., fraud and misrepresentation but even here it is important  

to  note  that  under  section  245D(7)  where  the  settlement  

becomes void on account of fraud and misrepresentation the  

proceedings  with  respect  to  the  matters  covered  by  the  

settlement  shall  be  deemed  to  have  been  revived  from  the  

stage at which the application was allowed to be proceeded  

with by the  Settlement  Commission.   This  further  supports  

our view that there are two distinct stages under Chapter XIX-

A and that the Legislature has not contemplated the levy of  

interest  between  order  under  section  245D(1)  stage  and  

section 245D(4) stage.  Thus, interest under section 234B will  

be  chargeable  till  the  order  of  the  Settlement  Commission  

under section 245D(1), i.e., admission of the case.  Lastly, the  

expression “interest” in section 245(6A) fastens the liability to  

pay interest  only when the tax payable  in pursuance  of  an  

order under section 245D(4) is not paid within the specified  

time and which levy is different from liability to pay interest  

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under section 234B or under section 245D(2C).  [See Damani  

Brothers (supra) at page 485]

III. Whether the Settlement Commission can re-open its  concluded proceedings by having recourse to Section  154 of the Act so as to levy interest under section  234B, if it was not done in the original proceedings?

15. As stated, proceedings before Settlement Commission  

are  similar  to  arbitration  proceedings.   It  contemplates  

assessment  by  settlement  and  not  by  way  of  regular  

assessment  or  assessment  under  section  143(1)  or  under  

section 143(3) or under section 144 of the Act.  In that sense,  

it is a Code by itself.  It does not begin with the filing of the  

return but by filing the application for settlement.  As stated  

above,  under  the  Act,  procedure  for  assessment  falls  in  

Chapter XIV (in which section 154 falls) which is different from  

procedure for settlement in Chapter XIX-A in which sections  

245C and 245D fall.  Provision for levy of interest for default in  

payment of advance tax under section 234B falls in Chapter  

XVII [Section F] which deals with collection and recovery of tax  

which  as  stated  above  is  incidental  to  the  liability  to  pay  

advance tax under section 207 (which is also in Chapter XVII)  

and  to  the  computation  of  total  income  in  the  manner  

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indicated  under  Chapter  XIX-A  vide  sections  245C(1B)  and  

245C(1C)  read  with  the  provisos  to  section  245C(1)  on  the  

additional  income  tax  payable  on  the  undisclosed  income.  

Further, if one examines the provisions of sections 245C(1B)  

and 245C(1C), one finds that various situations are taken into  

account  while  computing  the  additional  amount  of  tax  

payable, viz., if the applicant has not filed his returns, if he  

has filed but orders of assessment are not passed or if  the  

proceedings are pending for re-assessment under section 147  

(again  in  Chapter  XIV)  or  by  way  of  appeal  or  revision  in  

connection with such re-assessment and the applicant has not  

furnished his return of total income in which case tax has to  

be calculated on the aggregate of total income as assessed in  

the earlier proceedings for assessment under section 143 or  

under  section  144  or  under  section  147  [see  section  

245C(1B)].   The point to be noted is that in computation of  

additional  income  tax  payable  by  the  assessee,  there  is  no  

mention of section 154.  On the contrary, under section 245I  

the  order  of  the  Settlement  Commission  is  made  final  and  

conclusive  on  matters  mentioned  in  the  application  for  

settlement  except  in  the  two  cases  of  fraud  and  

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misrepresentation  in  which  case  the  matter  could  be  re-

opened by way of review or recall.  Like ITAT, the Settlement  

Commission is a quasi-judicial  body.  Under section 254(2),  

the ITAT is given the power to rectify but no such power is  

given  to  the  Settlement  Commission.   Thus,  we  hold  that  

Settlement  Commission  cannot  reopen  its  concluded  

proceedings by invoking section 154 of the Act.  Lastly, one  

must keep in mind the difference between review/ recall of the  

order and rectification under section 154.   The Schedule of  

Chapter XIX-A does not contemplate invocation of section 154  

otherwise  there  would  be  no  finality  to  the  assessment  by  

settlement which is different from assessment under Chapter  

XIV  where  there  is  an  appeal,  revision,  etc.   Settlement  of  

liability  and  not  determination  of  liability  is  the  object  of  

Chapter XIX-A.  Even otherwise, invocation of section 154 on  

facts of this batch of cases is not justified.  In this batch of  

cases,  the  situation  which  prevailed  when  the  Settlement  

Commission  waived  or  reduced  interest  chargeable  under  

sections  234A  and  234B  was  that  a  debate  was  on  as  to  

whether the Settlement Commission has the power to reduce  

or waive interest.  It is only after Ghaswala’s case that the law  

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got settled that the nature and the character of the interest  

was compensatory and mandatory and that the Commission  

had no such power.  But even in Ghaswala, the question as to  

whether such interest under section 234B should run up to  

the order under section 245D(1) or up to the date of the order  

under section 234D(4) was not decided.  In fact, that was the  

reason for the Orders of Reference to the Constitution Bench  

of  this  Court  vide  orders  dated  14.12.2004  and  20.1.2005.  

There is one more reason for this Reference.  In the case of  

CIT v. Hindustan Bulk Carrier [(2003) 259 ITR 449], a 3-

Judge Bench of this Court, by majority, held that where, upon  

the  Order  of  the  Settlement  Commission  under  section  

245D(4), there arises a deficit in the payment of advance tax  

under section 208, the end point or the terminus of the period  

for which interest has to be paid under section 234B on the  

deficit is the date on which the Settlement Commission passes  

the order under section 245D(4).  This decision was delivered  

on 17.12.2002 after the judgment of this Court in  Ghaswala  

(supra).   On the same day,  the same Bench in the case of  

Damani  Brothers  (supra)  held  that  interest  charged  under  

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section 234B becomes payable on the income disclosed in the  

return  and  the  income  disclosed  before  the  Settlement  

Commission;  that,  such  interest  is  chargeable  till  the  

Commission acts in terms of section 245D(1) and that after  

the  Settlement  Commission  allows  the  application  for  

settlement to be proceeded with there will be no further charge  

of interest under section 234B.  Thus, even on the question of  

terminus  there  was  lot  of  controversy  and  in  the  

circumstances, we are of the view that invocation of section  

154  (held  to  be  inapplicable  to  Chapter  XIX-A proceedings)  

cannot be justified.               

Conclusions :

16. (1) Sections 234A, 234B and 234C are applicable  

to  the  proceedings  of  the  Settlement  Commission  under  

Chapter XIX-A 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 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  re-open  its  

concluded proceedings by invoking section 154 of the Act so  

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as to levy interest under section 234B, particularly, in view of  

section 245I.

17. Accordingly, Reference to the Constitution Bench vide  

orders dated 14.12.2004 and 20.1.2005 stands duly answered  

and the matters are accordingly disposed of.  

…..……………………….CJI       (S. H. Kapadia)

……………………………..J.        (B. Sudershan Reddy)

……………………………..J.        (K.S. Radhakrishnan)

……………………………..J.         (Surinder Singh Nijjar)

……………………………..J.       (Swatanter Kumar)

New Delhi;  October 21, 2010.

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