In a major relief to over 3,000 companies all over India seeking arbitration in tax cases with the Settlement Commission, the Bombay High Court has termed as "unconstitutional" the government’s decision to suggest a cut off date of March 31, 2008, for all cases filed before June 1,2007.
In its judgment in response to a petition filed by STAR Television News Ltd, the high court said the choice of March 31, 2008, as the cut-off date for the settlement of all cases filed before June 1, 2007, is not supported by any rationale.
Tax experts say the decision is important since it will restore immunity to assessees from prosecution from any central Acts or the Indian Penal Code (IPC). Also, the disclosures made to the settlement commission will not be passed on to the income tax department for further enquiry and scrutiny.
This sets to rest a major fear that arose among companies after Budget 2007 announced the commission would be wound up after March 31, 2008 since the Finance Bill had provided cases and disclosures to be passed back to the income tax department if the commission fails to settle the cases.
Earlier, the commission used to clear cases within four years from the date they were filed. After the 2007 amendment, the time was reduced to one year.
While the court has no issue with the new time frame prescribed by the Finance Act 2007, the problem rests with pending cases that were filed before June 1, 2007 and have not been cleared till March 31, 2008.
The income tax department, however, will shortly file a petition with the Supreme Court to restoring the relevant provision in the Finance Act to get back the jurisdiction of the cases filed with the settlement commission before June 1, 2007.
STAR and its group firms approached the settlement commission on September 11, 2007, for several disputes with the I-T department on advertisement and subscription revenue being repatriated from India.
Star approached the high court on March 12, 2008, when it realised the case would not be cleared within the one-year time-frame because of the huge number of pending cases and the fact that the commission followed the principle of “first come-first served” to clear them.
The high court order, passed in the first week of August, stated that the settlement commissioner should hear all cases that are pending because of delays on the part of the income tax department and not for reasons attributable to the assessee. The court also suggested that the government set up more benches to dispose of cases early in cities like Delhi and Mumbai, where the pending caseload is heavy.
The establishment of settlement commission is based on the concept of compromising with an errant tax payer provided he is ready to make a “full and true” disclosure of his assets. This allowed the income tax department to get its dues that would otherwise have been entangled in litigation, but the tax payer could get the benefit of a waiver of penalties and prosecution under all central Acts and IPC. Assessees’ disclosures also remain confidential.
