Jai Guru Jewelers vs UOI

We have heard Shri S.D. Singh, Shri S.K. Garg, Shri Ashish Bansal, Shri R.R. Agarwal and Shri Suyash Agarwal, learned counsels appearing for the petitioners. Shri Shambhu Chopra and Shri R.K. Upadhyay appear for the Income Tax department.

In all these writ petitions the petitioners have prayed for directions to declare the amendments made by the Finance Act, 2007 in Chapter XIX-A of the Income Tax Act, 1961 (by which it has been provided that the applications for settlement filed prior to the amendment shall abate on 1.4.2008, provided u/s 245-D(4A) and 245-HA of the amending Act) ultra vires the Constitution of India and to direct the Income Tax Settlement Commission, New Delhi to decide the applications on merits on or before 31.3.2008. A further prayer is made to direct the respondents to exclude all materials on the file of the Settlement Commission arising from the application for settlement filed by the petitioner from any proceedings initiated/continued against the petitioners by any Income Tax Authority.

By interim orders passed in all these writ petitions the provision for abatement of proceeding relating to the petitioners pending before the Settlement Commissioner was stayed with a clarification that the pendency of the writ petition will not come in the way of the Settlement Commission in disposing the matter before it in accordance with law.

In some of the cases, which were connected to this batch of the writ petitions, the Settlement Commission had passed orders on the applications in favour of such petitioners, and thus the petitioners did not press those writ petitions, which were dismissed on 8.7.2013 and today i.e. 16.7.2013, without entering into the merits of their claims.

The validity of the amendments made by the Finance Act, 2007 to Chapter XIX-A of the Income Tax Act, by which it was provided that all applications for settlement filed prior to the amendment shall abate on 1-4-2008 vide Sections 245-D(4A) and 245-HA of the amending Act, was challenged in various High Courts. The Bombay High Court, by its judgment dated 7-8-2009 in Star Television News Limited Vs. Union of India (UOI) and Direector of Income Tax (International Taxation), considered the matter at length and instead of striking down the provisions of section 245-D(4A) and 245-HA, as amended by Finance Act, 2007, preferred in the circumstances of the case to read them down and to save them from the vice of arbitrariness.

It was held by the Division Bench of the Bombay High Court, that where the plain literal interpretation of a statutory provision produces a discriminatory or incongruous or manifestly absurd or unjust result which could never have been intended by the legislature, the Court may modify the language used by the legislature or even do some violence to it, so as to achieve the obvious intention of the legislature and produce a rational construction. An interpretation leading to an unjust, inequitable, harsh and absurd result must be rejected. It further held that since the purported objective of the amendments introduced in Chapter XIX-A by the 2007 Act is to streamline the proceedings before the Settlement Commission and to ensure expeditious disposal of pending cases, the amendments cannot be construed so as to punish an applicant for the inability or failure of the Settlement Commission to dispose of its application within the period specified in section 245D(4A), where such delay in disposal is not attributable to the applicant. The time limit for disposal of an application u/s 245D(4A)(I) will have to be read as "may" to the extent that it is not on account of the fault of the applicant. Consequently, Section 245HA(1)(iv) must apply only where the applicants have, by some willful act or omission, prevented the Settlement commission from fulfilling its statutory mandatory duty u/s 245D(4A), and only such applications will abate. A harmonious interpretation of sections 245D(4A) and 245HA(1)(iv) would remove the vice of arbitrariness and save the provisions from being struck down as unconstitutional.

The operative portion of the judgment of the Bombay High Court is quoted for benefit as follows:--

By reading the words "any other application made u/s 245C" in section 245HA(1)(iv) as "any other application made u/s 245C, where due to reasons attributable to the assessee" this Court would avoid rendering any part of either section 245D(4A)(i) or section 245HA(1)(iv) otiose, meaningless or redundant. The two provisions, read in such a harmonious manner, would mean that the Settlement Commission must fulfill its mandatory statutory duty in disposing of such applications as are referred to in section 245D(4A)(i) by the date specified therein except where prevented from doing so due to any reason attributable on the part of the applicant, and that an application in respect of which the Settlement Commission has been prevented from fulfilling the aforesaid mandatory statutory duty due to any reasons attributable on the part of the applicant shall abate on the specified date u/s 245HA(1)(iv). In this manner both section 245D(4A)(i) and section 245HA(1)(iv) will have applicability, meaning and effect. We may also clarify that the expression "reasons attributable" should be reasonably construed. While so dealing, the Settlement Commission shall also to consider whether in the petition before this court the petitioner had averred that the proceedings were delayed not on account of any reason attributable to him, and whether the State had denied the same, if there be no denial then to reconsider that circumstances in favour of the petitioner.

From the above discussion having arrived at a conclusion that fixing the cut off date as 31-3-2008, was arbitrary the provisions of section 245HA(1)(iv) to that extent will be also arbitrary. We have also held that it is possible to read down the provisions of section 245HA(1)(iv) in the manner set out earlier. This recourse has been taken in order to avoid holding the provisions as unconstitutional. Having so read, we would have to read section 245HA(1)(iv) to mean that in the event the application could not be disposed of for any reasons attributable on the part of the applicant who has made an application u/s 245C. Consequently, only such proceedings would abate u/s 245HA(1)(iv). Considering the above, the Settlement Commission to consider whether the proceedings had been delayed on account of any reasons attributable on the part of the applicant. It comes to the conclusion that it was not so, then to proceed with the application as if not abated. Respondent no. 1 if desirous of early disposal of the pending applications, to consider the appointment of more Benches of the Settlement Commission, more so at the Benches where there is heavy pendency like Delhi and Mumbai.

Rules made absolute accordingly. There shall be no order as to costs.

The High Court of Jharkhand at Ranchi has relied on the reasoning; followed the conclusions drawn in the judgment of Bombay High Court and has preferred to read down the offending provisions instead of declaring them unconstitutional. The judgment was delivered in Writ Petition (T) No. 1623 of 2008 (Md. Sanaul Haque v. Union of India and others) and other connected writ petitions by Division Bench on 21-3-2012.

Following the judgment of the Bombay High Court, with which we respectfully agree, and against which the department could not cite any judgment of any other High Court of Apex Court, which may have taken a different view and on the same reasoning we hold that by reading down the provisions of section 245D(4A)(i) and section 245HA(1)(iv) the constitutional validity of the amendments providing abatement of proceedings may be saved and protected from the vice of discrimination, and issue same directions to find out, if the delay is attributable to the applicants before making final order.

We further direct that in carrying out the directions of this Court in the pending applications, the Settlement Commission will, in arriving at a finding on the question whether the delay in disposal is attributable to the applicants, follow the same guidelines, which have been set out in the judgment in Star Television News Ltd. (supra).

All the writ petitions are accordingly disposed of.