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PETITIONER: R.B. SHREERAM DURGA PRASAD & FATEHCHANDNURSING DAS

       Vs.

RESPONDENT: SETTLEMENT COMMISSION (IT & WT) & ANR.

DATE OF JUDGMENT27/01/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) PANDIAN, S.R. (J)

CITATION:  1989 AIR 1038            1989 SCR  (1) 335  1989 SCC  (1) 628        JT 1989 (1)   234  1989 SCALE  (1)247  CITATOR INFO :  RF         1992 SC 248  (79)

ACT:     Income  Tax  Act,  1961: ss. 245C, 245D(1)  &  245D(1A)- Application       for       Settlement--Objections        by Commissioner--Whether Settlement Commission should hear  the applicant on the objections made by the Commissioner.     Constitution   of  India,   Article   136:  Decision  of Settlement Commission under Income Tax Act--Judicial  review of--Court concerned with legality of procedure followed  and not with validity of order.     Administrative  Law: Natural justice--Violation of  rule of  audi  alteram partem--Effect  of--Judicial  review--Con- cerned  not with the decision but with the  decision  making process.

HEADNOTE:     Sub-section  (1) of section 245C of the Income Tax  Act, 1961 entitles an assessee, at any stage of the case, to make an application to the Settlement Commission to have his case settled.  Sub-section (1) of section 245D requires the  Set- tlement Commission, as and when such an application is  made to  call for a report from the Commissioner of  Income  Tax. The first proviso thereto interdicts rejection of the appli- cation under that sub-section unless an opportunity has been given  to the applicant of being heard. The  second  proviso thereto provides that no application shall be proceeded with under  that sub-section if the Commissioner objects  to  the same on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax has been established or is likely to  be established.  Sub-section (IA) inserted in section  245D  by the Finance Act, 1979 empowered the Settlement Commission to overrule the objections of the Commissioner.     The appellant made a composite application under section 245C  of the Act for settlement of his assessments  for  the assessment  years 1948-49 to 1975-76. The  Commissioner  ob- jected to the proposals under sec- 336 tion  245D(1) for settlement for the years 1948-49 to  1959- 60,  but agreed to the settlement for the later  years.  The

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Commission  accordingly made an order an 24th  August,  1977 rejecting  the  application  for settlement  for  the  years 1948-49  to 1959-60. The appellant thereupon applied to  the Commission to recall its order since the same had been  made without  furnishing  him any opportunity  of  hearing.  That application was pending. When sub-section (IA) was  inserted to section 245D, the appellant applied to the Commission  to permit  him  to contest the objections of  the  Commissioner contending  that  these should be dealt with  in  accordance with  the  amended provisions of section  245D(IA).  On  7th August,  1987 the Settlement Commission accepted  the  first part  of  the  contentions holding that  the  applicant  was entitled  to  a re-hearing since its order of  24th  August, 1977 had been made in violation of the principles of natural justice and also express provision of section 245D(1) provi- so,  but rejected the second part of the submission  on  the view  that the application for settlement would have  to  be disposed  of in accordance with law which prevailed on  24th August,  1977. It further held that since  the  Commissioner had objected only to some of the years under settlement  the entire application would have to be rejected. Allowing the appeal by Special Leave,     HELD: 1. It is necessary as a concomitant of the fulfil- ment of natural justice that an applicant before the Settle- ment Commission should be heard before his application under Section  245C of the Act is rejected. The order made by  the Commission  on  24th  August, 1977 in the  instant  case  in violation  of the principles of natural justice was,  there- fore, of no value. If that is so, then the application  made for settlement was still pending before the Commission  when the  amendment  made by the Finance Act of  1979  came  into effect  and  the said amendment being procedural,  it  would govern the pending proceedings and the Commission would have the  power to overrule the objections of  the  Commissioner. [342E; 341E, G-H]     Income  Tax (Central), Calcutta v. B.N. Bhattachargee  & Anr., [1979] Vol. 118 ITR 461; M.S. Gill. v. Chief  Election Commissioner,  [1978] 1 SCC 405; Maneka Gandhi v.  Union  of India,  [1978]  1  SCC 248; State of Orissa  v.  Dr.  (Miss) Binapani  Dei  & Ors., [1967] 2 SCR 625; Ridge  v.  Baldwin, [1964]  A.C.  40;  Anisminic Ltd.  v.  Foreign  Compensation Commission,  [1969]  2 A.C. 147 and Administrative  Law,  by H.W.R. Wade,5th Edn. pp. 310-311 referred to. 2.1 The appellant had a right to be heard on the  objections of the 337 Commissioner.  But no clear opportunity was given to him  to make  submissions in the sense to demonstrate that the  Com- missioner  was  not justified in making the  objections  and that  the  Commission  should not accept or  accede  to  the objections.  He  should,  therefore, be heard  on  the  said objections. [342D-E].     2.2  Though  for the relevant orders for the  years  for which the Commissioner had objected the concealment had been upheld in the appeal before the appropriate authorities, but in  spite  of this it may be possible for the  appellant  to demonstrate  or  to submit that in disclosure  of  concealed income  for  a spread over period settlement of  the  entire period  should be allowed and not bifurcated in  the  manner sought  to be suggested for the  Commissioner’s  objections. This  objection  the appellant should  have  opportunity  to make. [342F-G]     3.  In exercise of its power of judicial review  of  the decision  of the Settlement Commission under Article 136  of the Constitution the Court is concerned with the legality of

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procedure  followed and not with the validity of the  order. [342G]     Chief  Constable  of the North Wales  Police  v.  Evans, [1982] 1 W.L.R. 1155 referred to.     4. The order dated 7th August, 1987 is set aside and the matter is remanded hack to the Settlement Commission to hear and  dispose of the settlement petition in  accordance  with law. [343A]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 528  (NT) of 1989.     From  the Judgment and Order dated 7.8.1987 of the  Set- tlement Commission (IT & WT), New Delhi in Settlement Appln. No. 22/1/3/ 77-IT. Harish N. Salve and Miss Bina Gupta for the Appellant. Dr. V. Gauri Shankar and Miss A. Subhashini for the Respond- ents. The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J. Special leave granted. This  is  an appeal against the judgment and  order  of  the Settle- 338 ment  Commission  dated 7th August, 1987. The fact  that  an appeal  under Article 136 of the Constitution  lies  against the Order of the Settlement Commission is now beyond pale of any  controversy  in view of the decision of this  Court  in Commissioner  of  Income  Tax (Central),  Calcutta  v.  B.N. Bhattachargee  and another, [1979] Vol. 118 Income  Tax  Re- ports  461.  The  appellant had applied  to  the  Settlement Commission for settlement of his assessment for the  assess- ment years 1948-49 to 1975-76 under the Income-tax Act,  196 1  (hereinafter referred to as ’the Act’). That  application had  to be proceeded in accordance with section 245C of  the Act which is as follows:               "245C. (1) An assessee may, at any stage of  a               case  relating to him, make an application  in               such  form and in such manner  and  containing               such  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." Sub-sections (2) and (3) of section 245C of the Act are  not relevant for our present purpose.     The  application made by the appellant was  a  composite one  for  settlement of his assessments for  the  assessment years 1948-49 to 197576. The purpose for the introduction of the  Settlement Commission has been explained by this  Court in  the aforesaid decision. This Court observed  that  these are contained in Chapter XIX-A of the Income-tax Act,  1961. The  said Chapter was enacted by the Taxation  Laws  (Amend- ment)  Act, 1975 whose beneficiaries were  ordinarily  those whose tax liability was astronomical and criminal culpabili- ty  perilous.  As has been observed that  this  Chapter  was introduced  with the debatable policy, fraught with  dubious potentialities  in the context of Third World conditions  of political peculium and bureaucratic abetment, that  composi- tion and collection of public revenue from tycoons is better than  prosecution of their tax-related crime and  litigation for total revenue recovery. The Wanchoo Committee  appointed by the Government of India had recommended this step.     It appears that on 12th August, 1977 the Commissioner of Income-tax  objected to the proposal of the appellant  under

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section 245D(1) of the Act. The Commissioner objected to the settlement  for the years 1948-49 to 1959-60, but agreed  to the  settlement  for later years. The Commissioner,  it  ap- pears,  accordingly made an order on 24th August,  1977  re- jecting the application for settlement for the years 339 1948-49  to 1959-60. The appellant on 20th  September,  1977 applied to the Commission to recall its earlier order  dated 24th  August,  1977  since the same had  been  made  without furnishing any opportunity of hearing to the appellant. Section 245D(1) provides as follows:                     "245D. PROCEDURE ON RECEIPT OF AN APPLI-               CATION UNDER SECTION 245C               (1) On receipt of an application under Section               245C, the Settlement Commission shall call for               a  report  from the Commissioner  and  on  the               basis  of  the  materials  contained  in  such               report  and  having regard to the  nature  and               circumstances of the case or the complexity of               the  investigation involved therein, the  Set-               tlement  Commission may, by order,  allow  the               application to be proceeded with or reject the               application:                         Provided  that an application  shall               not be rejected under this sub-section  unless               an opportunity has been given to the applicant               of being heard.                         Provided further that an application               shall not be proceeded under this  sub-section               if the Commissioner objects to the application               on  being  proceeded with on the  ground  that               concealment  of particulars of income  on  the               part of the applicant or perpetration of fraud               by  him  for  evading any  tax  or  other  sum               chargeable  or  impassable  under  the  Indian               Income-tax  Act, 1922 (XI of 1922),  or  under               this Act, has been established or is likely to               be established by any Income-tax authority, in               relation to the case."     About  hearing the applicant prior to the  rejection  of the application this Court in the aforesaid decision at page 472 of the report held that an applicant before the  Settle- ment Commission was entitled to a hearing before his  appli- cation  for  composition was rejected. This  Court  observed that section 245D(1) does not negate natural justice and  in the  absence  of an express exclusion of the  rule  of  audi alteram partem, it is fair, and indeed fundamental, that  no man  be prejudiced by action without opportunity to show  to the contrary. Natural justice must be followed. This also is the natural corollary of the decisions of this Court in M.S. Gill v. Chief Election Commissioner, [1971] 1 SCC 340 405 and Maneka Gandhi v. Union of India, [1978] 1 SCC 248.     The Finance Act, 1979, however, was amended with  effect from  ist April, 1979 and sub-section (1A) was  inserted  to section  245D which empowered the Settlement  Commission  to overrule the objection of the Commissioner. Sub-section (1A) of section 245D reads as follows:               "Notwithstanding  anything contained  in  sub-               section  (1),  an  application  shall  not  be               proceeded  with under that subsection  if  the               Commissioner objects to the application  being               proceeded with on the ground that  concealment               of  particulars of income on the part  of  the               applicant or perpetration of fraud by him  for

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             evading  any  tax or other sum  chargeable  or               impassable  under  this Act, has  been  estab-               lished  or is likely to be established by  any               Income-tax Authority in relation to the case:                         Provided  that where the  Settlement               Commission is not satisfied with the  correct-               ness  of the objection raised by  the  Commis-               sioner  the Settlement Commission  may,  after               giving  the  Commissioner  an  opportunity  of               being  heard, by order, allow the  application               to be proceeded with under sub-section (1) and               send a copy of its order to the Commissioner." Though the Commission is empowered not to accept the  objec- tion of the Commissioner yet the Commissioner’s objection is of "lethal potency" as described by Krishna Iyer, J. in  the aforesaid decision. From the facts of this case, however, it has to be noted that the appellant applied to the Settlement Commission  to permit him to contest the objections  of  the Commissioner on the proviso now inserted as mentioned above. It  has  to be borne in mind that this was  done  after  the proceedings had proceeded to a certain extent. As  mentioned hereinbefore,  the appellant had applied to  the  Settlement Commission  as  aforesaid  on 22nd January,  1977.  On  12th August, 1977 the Commissioner had tendered the objections as mentioned hereinbefore. On 24th August, 1977, the Settlement Commissioner  made  an order rejecting the  application  for settlement for the assessment years 194849 to 1959-60.  This had  been  done  without hearing the appellant.  On  ,  20th September, 1977 the appellant applied to the Commission to recall  its order dated 24th August, 1977 since it had  been passed  without  giving  an opportunity of  hearing  to  the appellant. That application 341 was pending. In the meantime, as mentioned hereinbefore,  on Ist April, 1979, the Finance Act, 1979 inserted  sub-section (1A)  to section 245(D) which empowered the Settlement  Com- mission  to overrule the objections of the Commissioner.  On 29th  May,  1979  the appellant applied  to  the  settlement Commission  to permit him to contest the objections  of  the Commissioner under the said proviso now inserted. The matter was taken up after a long gap in June 1987 and it was  heard on  18th June, 1987 and Ist July, 1987. The  appellant  con- tended  that  the order of 24th August, 1977 should  be  re- called and the objections of the Commissioner be dealt  with in  accordance  with  the  amended  provisions  of   section 245D(1A)  and it also contended that if  the  Commissioner’s objections  were not to be interfered with then  the  entire application should be dismissed. On 7th August, 1987,  which is the date of impugned order in this appeal, the Settlement Commission  accepted the first part of the  contentions  and held  that the applicant was entitled to a  reheating  since its order of 24th August, 1977 had been made in violation of the principles of natural justice and also express provision of section 245D(1) proviso, but rejected the second part  of the  submission that the application for settlement made  by the  petitioner would have to be disposed of  in  accordance with  law which prevailed on 24th August, 1977. The  Commis- sion, however, held that since the Commissioner had objected only  to  some  of the years under  settlement,  the  entire application  would  have to be rejected. It  is  this  order which is under challenge before us.     We  are definitely of the opinion that on  the  relevant date when the order was passed, that is to say, 24th August, 1977 the order was a nullity because it was in violation  of principles  of natural justice. See in this connection,  the

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principles  enunciated by this Court in State of  Orissa  v. Dr.  (Miss) Binapani Dei and Ors., [1967] 2 SCR 625 as  also the  observations in Administrative Law by H.W.R. Wade,  5th Edition,  pages  3 10-311 that the act in violation  of  the principles  of  natural justice or a quasi-judicial  act  in violation of the principles of natural justice is void or of no value. In Ridge v. Baldwin, [1964] A.C. 40 and  Anisminic Ltd.  v. Foreign Compensation Commission, [1969] 2 A.C.  147 the House of Lords in English has made it clear that  breach of  natural justice nullifies the order made in  breach.  If that  is so then the order made in violation of the  princi- ples of natural justice was of no value. If that is so  then the  application made for the settlement under section  245C was  still pending before the Commission when the  amendment made  by Finance Act of 1979 came into effect and  the  said amendment  being  procedural, it would  govern  the  pending proceedings  and  the  Commission would have  the  power  to overrule the objec- 342 tions  of the Commissioner. Dr. V. Gauri Shanker,  appearing for the Revenue, did not seriously contest that position. He accepted  the  position  that the law as it  is,  after  the amendment authorises the Commission to consider and overrule the  Commissioner’s objection. He also very fairly,  in  our opinion,  and rightly accepted the position that the  appel- lant  was entitled to be heard on the Commissioner’s  objec- tions. It appears to us, therefore, if that is the  position then, in our opinion, the appellant was entitled to be heard on the objections of the Commissioner. As mentioned  herein- before,  the only short ground which was sought to  be  con- vassed before us was whether after the amended Act the order had  been rightly set aside and whether the appellant had  a fight to be heard on the objections of the Commissioner. Mr. Harish Salve, counsel for the appellant contends that it had a  right to be heard. On the other hand, Dr. V. Gauri  Shan- kar, learned counsel for the respondents submitted that  the order  proceeded on the assumption that the  objections  had been  heard. He did not, in fairness to him it must be  con- ceded, contest that in a matter of this nature the appellant had  a fight to be heard. Reading the order, it  appears  to us,  that though the appellant had made submissions  on  the Commissioner’s objections. but there was no clear opportuni- ty given to the appellant to make submissions on the Commis- sioner’s  objections  in the sense to demonstrate  that  the Commissioner was not justified in making the objections  and secondly, the Commission should not accept or accede to  the objections  in  the facts and circumstances  of  he  present case.  We are of the opinion that in view of the  facts  and circumstances of the case and in the context in which  these objections  had been made, it is necessary as a  concomitant of  the  fulfilment of natural justice  that  the  appellant should be heard on the objections made by the  Commissioner. It  is true that for the relevant orders for the  years  for which the Commissioner had objected the concealment had been upheld in the appeal before the appropriate authorities. But it may be that in spite of this concealment it may be possi- ble  for the appellant to demonstrate or to submit  that  in disclosure  of  concealed income for a  spread  over  period settlement  of the entire period should be allowed  and  not bifurcated  in  the manner sought to be  suggested  for  the Commissioner’s  objections.  This  objection  the  appellant should have opportunity to make. In exercise of our power of judicial review of the decision of the Settlement Commission we are concerned with the legality of procedure followed and not with validity of the order. See the observations of Lord

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Hailsham  in  Chief Constable of the North Wales  Police  v. Evans,  [1982] 1 W.L.R. 1155. Judicial Review  is  concerned not with the decision but with the decision making process. 343     We therefore allow the appeal. We set aside the order of 7th  August, 1987 and remand the matter back to the  Settle- ment Commission to hear and dispose of the settlement  peti- tion  made by the appellant dated 22nd January, 1977  taking into  consideration objections made by the Commissioner  and the  objections made by the appellant to the  Commissioner’s objections and after giving the appellant an opportunity  of showing reasons and causes why the Commissioner’s objections should not be accepted by the Commission. After  considering the  said  objections  of the Commissioner as  well  as  the objections  to  the Commissioner’s objections  made  by  the appellant,  the Settlement Commission would be free to  pass such  orders  as it considers fit and proper  in  accordance with  the law. Since the matter is pending for a long  time, we  do hope that the Settlement Commission will  dispose  of the matter as expeditiously as possible. It is not necessary for us in this appeal to express any opinion on the correct- ness or otherwise of the Commissioner’s objections or on the validity of the appellant’s objections to the Commissioner’s objections.     The appeal is disposed of accordingly. There will be  no order as to costs. P.S.S.                                   Appeal disposed of. 344