Commissioner of Income Tax vs Union of India and Others

Heard Sri Govind Krishna, learned counsel for the petitioner, Sri Gaurav Mahajan, Advocate for respondent for respondent No. 3 and Sri Suyash Agrawal, Advocate for respondent No. 1 in Writ Petition No. 1662 of 2008.

All these writ petitions have come up against the orders dated 31.03.2008 passed by Settlement Commission. As requested by learned counsel for the parties, Writ Petition No. 1663 of 2008 is taken as the leading case. Since facts in all the matters are similar and orders impugned in all these petitions are almost verbatim, therefore, counsel for the parties have also addressed the Court referring to pleadings and documents in Writ Petition No. 1663 of 2008.

The facts, in brief, are that during search operations at different premises of respondent No. 3, certain incriminating documents were found and seized. Pursuant thereto the assessment was made under Section 158-BC(c) of Income Tax Act, 1961 (hereinafter referred to as the "Act, 1961").

The assessee-respondent No. 3 moved an application under Section 245-C of Act, 1961, which came to be referred to respondent No. 2. The proceedings before Settlement Commission were pending, whereupon the assessee came to this Court in Writ Petition No. 506 of 2008 and connected matters, wherein an order was passed on 18.03.2008 directing Settlement Commission to decide settlement application filed by assessee by 31st March, 2008. Pursuant thereto the impugned orders have been passed by Commission. It would be interesting to notice the observations made by Commission in para 4 and 5 of the order read as under:

"4. This would involve more than 1500 assessments. The Settlement Commission deals only with the assessments which involve complexity of investigation and the application is intended to provide quietus to litigation. For example, in one group of cases where 23 applications are involved, the paper book which has been filed before the Settlement Commission runs into thirty thousand pages. It goes without saying that sufficient and proper opportunity is required to be given both to the applicant and the Commissioner of Income Tax Department for arriving at a proper settlement.

At this juncture, it is not practicable for the Commission to examine the records and investigate the case for proper settlement. Even giving adequate opportunity to the applicant and the department, as laid down in Section 245D(4) of Income Tax Act, 1961 is not practicable. However, to comply with the directions of the Hon''ble High Court, we hereby pass an order u/s. 245D(4) of Income Tax Act, 1961."

Despite that the Commission has passed an order of settlement granting immunity to the assessee from prosecution and penalty under the Act and directing payment of tax alongwith interest within 35 days. The undisclosed income of assessee is settled in the manner stated in para 6 of the order and the Income Tax Commissioner was directed to compute total income etc. in compliance of said order.

The Commissioner of Income Tax, Allahabad has come up in these writ petitions challenging the aforesaid orders on the ground that without any hearing, without looking to the record and giving opportunity to parties, the Settlement Commission, under the garb of compliance of this Court''s order, has passed orders of settlement without following the procedure prescribed in the statute which makes it obligatory upon the Settlement Commission to examine record and report of Commissioner, give opportunity to the parties, hear them and only thereafter pass an appropriate order. The entire procedure as contemplated in Section 245-D(4) of Act, 1961 has been completely overlooked by Settlement Commission, as is evident from their own order and, therefore, the impugned orders are patently illegal and nullity in the eyes of law.

Learned counsel appearing for respondent No. 3, however, contended that the assessee has already complied with the impugned order of Settlement Commission, deposited the amount of tax as per the Settlement Order and the consequential order has also been passed by Commissioner of Income Tax, since there was no interim order in these writ petitions, therefore, the assessee would be prejudiced in case the impugned orders are now set aside.

The mere fact that the orders impugned in these writ petitions have been complied with since there was no interim order, would not validate a patently illegal and bad order, which has been passed in flagrant violation of statutory provision. It is not a case, where things cannot be restored or where restitution is impossible. This Court while entertaining the writ petition did not grant any interim order to petitioner. For that reason alone petitioner cannot be made to suffer. It is well established that actus curiae neminem gravabit. In Kerala State Electricity Board through its special officer (revenue) and Another Vs. M.R.F. Limited and Others, the Court said:

" ...... it has been held by the Privy Council that one of the first and highest duties of all the Court is to take care that act of the Court does not cause injury to any of the suitors."

"There is no manner of doubt it is an imperative duty of the court to ensure that the party to the lis does not suffer any unmerited hardship on account of an order passed by the Court. The principle of restitution as enunciated by the Privy Council in rodger''s case (Supra) has been followed by the Privy Council in later decisions and such principle being in conformity to justice and fair play be followed."

In Gursharan Singh and others etc. Vs. New Delhi Municipal Committee and others, , it has been held:

"In view of the legal maxim "acts curiae neminem gravidity" which means that an act of court shall prejudice no man, N.D.M.C. is justified in making a claim for interest over the arrears which have remained unpaid for more than 12 years because of the interim orders passed by this Court. This aspect of the matter has been examined by this Court in the case of Raj Kumar Dey and Others Vs. Tarapada Dey and Others, . Although in the interim orders it has not been stated that in event of dismissal of the appeals and the writ petition, the appellants and the writ petitioner shall be liable to pay interest over the arrears of the licence fee, but that shall not debar this Court from passing any order in respect of payment of reasonable interest over the said amount." 10. In South Eastern Coalfields Ltd. Vs. State of M.P. and Others, , the Court recognized the principle that wrong order should not be perpetuated by keeping it alive. Recognizing the maxim actus curiae neminem gravabit, it was held that no one shall suffer by an act of the Court and such a rule is not confined to an erroneous act of the Court but act of the Court embraces within its purview all such acts as to which the Court may form an opinion in any legal proceedings that the Court would not have so acted had it been correctly apprised of the facts and law. It is duty of the Court to apply the restitution putting the parties in the same position as they would have been, had the order, subsequently found to be erroneous by the Court, would not have been passed. In para 28 of the judgment, it was held-

"The injury, if any, caused by the act of the court shall be undone and the gain which the parties would have earned unless it was interdicted by the order of the court would be restored to or conferred on the party by suitably commanding the party liable to do so. Any opinion to the contrary would lead to unjust if not disastrous consequences. Litigation may turn into a fruitful industry. Though litigation is not gambling yet there is an element of chance in every litigation. Unscrupulous litigants may feel encouraged to approach the Courts, persuading the Court to pass interlocutory orders favourable to them by making out a prima facie case when the issues are yet to be heard and determined on merits and if the concept of restitution is excluded from application to interim orders, then the litigant would stand to gain by swallowing the benefits yielding out of the interim order even though the battle has been lost at the end. This cannot be cannot be countenanced." 11. Therefore, the mere fact that impugned orders have been given effect to would make no difference as the said orders are patently illegal for the reasons discussed above. The manner in which impugned orders have been passed by respondent No. 2 clearly show lack of complete sensibility on its part. It has forced an otherwise avoidable litigation. In our view, the petitioner is also entitled for exemplary costs.

In the result, all the writ petitions are allowed. The impugned orders dated 31.03.2008 are hereby quashed. Petitioner shall be entitled to costs of Rs. 50,00/- against respondents No. 1 and 2, for each set of writ petitions.