V.R Krishna Iyer, J.— A nascent chapter (Chapter 19-A) in the Income Tax Act, 1961, enacted by the Taxation Laws (Amendment) Act, 1975, whose beneficiaries are ordinarily those whose tax liability is astronomical and criminal culpability perilous, falls for decoding by this Court in this appeal by the CIT(Central), Calcutta, against an adverse order made by the Settlement Commission. Functionally speaking, this Chapter, engrafted in partial implementation of the Wanchoo Committee Report, provides for settlement of huge tax disputes and immunity from criminal proceedings by a Commission to be constituted by the Central Government when approached without objection from the Tax Department. It is based on the debatable policy, fraught with dubious potentialities in the context of Third World conditions of political peculium and bureaucratic abetment, that composition and collection of public revenue from tycoons is better than prosecution of their tax-related crime and litigation for total revenue recovery. A social audit of the working of this chapter in action and its fall-out may benefit the nation by information about who the true beneficiaries of this legislation are and whether there is more than meets the eye. The Wanchoo Committee which recommended this step titled its chapter meaningfully as “Black Money and Tax Evasion” and the Act itself was passed and brought into force during the era of Emergency which was marked by speed and silence and hushed politico-official operations.
2. Be that as it may, fiscal philosophy and interpretative technology must be on the same wavelength if legislative policy is to find fulfilment in the enacted text. That is the challenge to judicial resourcefulness the present appeals offer, demanding, as it does, a holistic perspective and harmonious construction of a whole chapter, especially a complex provision therein, so that a balance may be struck between purpose and result without doing violence to statutory language and social values. The chapter is fresh and the issue is virgin; and that makes the judicial adventure hazardous, compounded by the involved and obscure drafting of the bunch of provisions in Chapter 19-A.
3. A few facts must be narrated and the anatomy of the chapter projected at this stage so that a hang of the controversy may be got and its just resolution sought.
4. The respondent, an elderly but apparently immense businessman, was the cynosure of suspicion of the Income Tax officials which led to search and seizure of around Rs 30 lakhs in cash from him. A chain reaction set in and assessments from 1962-63 to 1972-73 were reopened. The total tax burden so fixed ran into well over Rs 60 lakhs plus around Rs 35 lakhs assessed for 1973-74. The stakes thus ran into a crore or so plus awesome prosecutions under Section 277 of the Act with unpredictable prospects of sentences. The respondent-assessee and his version or explanation had hopes of averting the Waterloo, but the Income Tax Officer (ITO) rejected his case. Indeed, we are neither called upon nor disposed to examine the merits of either side and, maybe, the assessee has a presentable case. Appeals to the Appellate Assistant Commissioner (AAC) were carried by the assessee against the colossal imposts, which marginally brought down the assessable income by around Rs 10 lakhs. Both the dissatisfied assessee and the partially injured Department appealed to the Income Tax Appellate Tribunal (ITAT) against the AAC's decisions. During their pendency, prudence dawned on the respondent to seek sanctuary before the Settlement Commission abandoning his appeal to the Tribunal attended with litigative uncertainties and penal potentialities. At seventy, with understandable high blood pressure to boot, he preferred negotiated peace to judicial justice heartful of quest for quiet although hopeful of winning his cases. These motivations do not call for our comment but are being mentioned as part of the narrative which ostensibly induced him to go before the Commission under Chapter 19-A.
5. To compress the long story without crippling the foundational facts, what happened after the assessee decided upon offering himself to the Settlement Commission was to prepare the ground to enable him to institute a proceeding in this behalf.
6. The deck had to be cleared before moving the Settlement Commission. The conditions for entitlement to make an application to the Settlement Commission are set out in Section 245-M. We may have to examine closely the connotation of the expressions used in this section but for the nonce it is sufficient to state that it is obligatory for the assessee to withdraw any appeal that may be pending at his instance before being qualified to make an application to the Settlement Commission. Another condition stipulated in the same section is that an assessee shall not be entitled to make an application “in a case where the ITO has preferred an appeal under sub-section (2) of Section 253 against the order to which the assessee's appeal relates”. Without meticulous dissection of the provision, we may broadly draw the conclusion that the assessee must withdraw his appeal before the Tribunal before moving the Settlement Commission. Likewise, the ITO should not have preferred an appeal. Therefore, the respondent-assessee engaged himself in complying with these conditions. He expected to achieve this objective by moving for withdrawal of the own 12 appeals before the Tribunal and by persuading the Income Tax Department to withdraw its 10 appeals pending before the Tribunal. At the moment, we do not discuss the finer issue of crucial significance as to whether an appeal preferred by the Revenue but later withdrawn by it would have the effect of total obliteration so as to fulfill the condition of no appeal having been preferred by the Income Tax Department. The narrative alone need be continued. On August 23, 1976 the assessee addressed a letter to the Appellate Tribunal seeking to withdraw his appeals under Section 245-M of the Act. On the same day he moved Mr Kuruvilla, Member, Central Board of Direct Taxes requesting the Board to instruct the concerned officer of the department to withdraw all the pending appeals filed by the department before the Tribunal. The letter stated:
“Though I am sure that I shall win all these appeals filed by me with the Court of the Appellate Tribunal but just to buy peace at my old age I wanted to place myself in the hands of the Settlement Commission and seek full justice and mercy.
In view of all these facts explained above I pray for undernoted point for your kind consideration and necessary action. I shall be grateful, if you would kindly ask your department to withdraw all the pending applications filed by the department with the ITAT. (emphasis added)”
7. The somewhat ambivalent terminology and incongruous stances taken in the letter are striking. For instance, he asserted that he was sure to win all his appeals but still he sought mercy from the Commission. He put forward old age and hypertension for desisting from litigation and gratefully desired the department to cooperate with him by withdrawing its appeals. Before knowing the open response of the department, he addressed the Tribunal for withdrawal of his appeals which, perhaps, suggests that he was sure of the reaction of the department or did not lose much by withdrawing his appeals. However, when the ITAT posted the withdrawal application for hearing on September 24, 1976, the assessee wrote a letter asking for adjournment wherein he stated:
“With regard to the above I beg most respectfully to submit that one petition was filed for withdrawing all the above appeals only to have those cases settled before the Settlement Commission, New Delhi but the department had also preferred appeals for those years. Unless the department also withdraw their appeals there will be no purpose for our withdrawal of appeals. As such my client is persuading the Central Board of Direct Taxes to do something effectively in the matter, but for consultations with their counsels, etc., it would take at least two months' time.”
8. Probably the assessee felt that the Central Board could be persuaded “to do something effectively in the matter”, given some time. The anticipations of the assessee were not belled because the addressee-Member of the Central Board, with celerity, consulted the Commissioner, who, in turn, sought and got affirmative reports from those below him and at the end of this rapid departmental exercise, reached the conclusion in October/November (i.e in about a month) that the appeals of the department were very weak, even frivolous and that, therefore, nothing was lost by withdrawing them from the Tribunal. In keeping with this conclusion, the tempo was accelerated by the Board Member issuing necessary instructions to withdraw its appeals and the CIT hastened to write to the assessee-respondent in December 1976:
“I am to inform you that the Departmental appeals pending before the Income Tax Appellate Tribunal, Calcutta against you will be withdrawn provided all the appeals filed by you for Assessment Year 1962-63 to 1973-74 are withdrawn by you.”
9. A consequential representation was made before the ITAT:
“I have been directed to withdraw the above departmental appeals on condition that the assessee's appeals for Assessment Years 1962-63 to 1973-74 are also withdrawn.”
ITAT, was persuaded to pass orders dismissing the appeals from both sides as withdrawn. The obvious purpose of the department's withdrawal of its appeals was to enable the assessee to move the Settlement Commission. From the Member of the Central Board down to the ITO they conveniently discovered, at this critical stage late in 1976, that their appeals were weak and frivolous.
10. The plea of the appellant that the decision to withdraw the appeals by the Revenue was independent of the respondent's request that he be helped to move the Commission needs for its acceptance a degree of naivete which we do not possess, as we will later show.
11. We revert to the further factual developments to catch up with the legal questions argued before us. On the Tribunal dismissing all the appeals as withdrawn, the assessee-respondent applied to the Settlement Commission on January 6, 1977 under Section 245-C. The Commission in its order, has recorded that as a prelude to this application
“CIT and the applicant had arrived at an understanding or an arrangement, mutually satisfactory and in the public interest to settle the tax liability in a forum where decisions would be conclusive and not drag on for years”.
12. Secret understandings between high tax officials and big assessee-businessmen are potential pollutants and convert Settlement Commissions into cover-ups—a consummation farthest from the Wanchoo Committee's intentions and Parliament's expectations! Is it not demoralising that the hierarchy of officials in the Income Tax Department declared their assessments and appeals “weak” and self-condemned themselves before the Commission by confessing that the Central Government's appeals were frivolous? “But if the salt hath lost its savour wherewith shall it be salted”.
13. Once the statutory operation for settlement was switched on, the machine moved on. The Settlement Commission, on receipt of the application under Section 245-C, acted under Section 245-D(1) and called for a report from the Commissioner, mindless of the movement of the calendar. For, the ides of March came in the meanwhile and the CIT, for reasons we do not know, took a stiff look at the case and reported on April 1, 1977,
“that prosecution proceedings for concealment of income and also false verification in the return were already pending before the Chief Metropolitan Magistrate, and that he did not consider this as a fit case to be proceeded with by the Settlement Commission”.
14. After some correspondence with the applicant, and without giving a hearing, the Settlement Commission by its Order dated February 3, 1978 informed the applicant that, as the Commissioner had objected under Section 245-D(1), Settlement Commission did not allow the application to be proceeded with.
15. Parenthetically though, it must be stated that on the first rejection of the application by the Settlement Commission, the Revenue moved the ITAT for restoration of its appeals although no specific provision enables such a restoration. The assessee can apply for restoration of his appeals since Section 245-M enables it.
16. This order of the Commission shows that some correspondence with the applicant did take place before the order not to proceed with his composition petition. No hearing as such was given to him though, before making this adverse decision of February 3, 1978. The assessee urged that the order be reviewed as natural justice had not been complied with. The Settlement Commission yielded to this submission and, after elaborate argument and reasoning, reached the reverse conclusion that the CIT's opposition to the composition notwithstanding, the application for settlement shall be considered on the merits.
17. The Union of India, through the CIT concerned, has challenged the Settlement Commission's decision on jurisdictional and other legal grounds. The statutory scheme, the semantics of the expressions used, the jurisdictional limitations of the Settlement Commission and allied issues, have been debated at the Bar and the declaration of law on these aspects has seminal significances because it relates to a sensitive area where big business may operate at high politico-official levels and the court must invigilate so that the law keeps its promises.
18. This perspective of the litigation brings into focus the high points of the debate before us, largely reflected in the Tribunal's long order. Sri S.T Desai, for the appellant-Revenue concentrated his fire on three vulnerable aspects of the judgment under attack. There was no power of review for the Commission, once it had declined to proceed with the application for settlement. Therefore, he argued that the reopening of the Settlement proceedings was invalid. Secondly, he submitted that even though the CIT had withdrawn his appeals and thus facilitated the filing of an application under Section 245-C no bar of estoppel could at all be spelt out to forbid the Commissioner from exercising his statutory power of withholding consent to the settlement proceedings. Thirdly, he pressed the position that the CIT's veto was not subject to review or invalidation by the Settlement Commission and so the order under appeal was bad and beyond power. Of course, subsidiary issues did crop up and Shri A.K Sen, appearing for the respondent-assessee, not only joined issue with Shri Desai but also took a preliminary objection that Article 136 was unavailable against an order of the Settlement Commission. It is necessary to mention that an argument which was mooted at our instance as the arguments proceeded viz. that withdrawal by the Revenue of an appeal once filed did not have the effect of not preferring an appeal, was not pursued by the appellant before us but we are not bound by counsel pressing or cold-shouldering a point of law if attention of the advocates has been drawn thereto, as in this case it was.
19. The scheme of Chapter 19-A must be grasped before we embark on the discussion.
20. The incarnation of Chapter 19-A was in the wake of the Wanchoo Committee Report. The vampirish vices of black money and colossal tax evasion, both together using money power to prevent action against white collar offender, had been a terrible menace to the health and wealth of the nation. In particular, black money, whose constant companion was tax evasion, posed a challenge to the country's economy and the Wanchoo Committee was appointed to make recommendations with a view to arrest this evil. That Committee made a wealth of recommendations, but we are concerned only with Chapter 2 of the Report which, under the title “Black Money and Tax Evasion”, proposed a compromise measure of a statutory settlement machinery where the big evader could make a disclosure, disgorge what the Commission fixes and thus buy quittance for himself and accelerate recovery of taxes in arrears by the State, although less than what may be fixed after long protracted litigation and recovery proceedings. We are not concerned with the merits of the recommendation except to state that if it works according to plan, it may “ensure that the settlement is fair, prompt and independent”, given “a high level machinery for administering the provisions”. The risk of adverse criticism of escape by tax dodgers was adverted to by the Committee, but was silenced by the counter-argument that if the Commission was composed of officers with integrity, wide knowledge and experience and high status and emoluments, the risk was minimal. A precautionary step against possible misuse by evaders of the settlement machinery was thought of by the Wanchoo Committee which made the circumspect observation:
“However, we wish to emphasize that the Tribunal will proceed with the petition filed by a taxpayer only if the Department raises no objection to its being so entertained. We consider that this will be a salutary safeguard, because otherwise the Tribunal might become an escape route for tax evaders who have been caught and who are likely to be heavily penalised or prosecuted.”
21. (“The Tribunal” in the Wanchoo Committee Report was re-christened “the Settlement Commission” in the Act when it was passed by Parliament). The Commission was vested with full powers to investigate cases on its jurisdiction being invoked and to quantify the amount of tax, penalty and interest that it may eventually fix as payable. A strategic provision which held out fascination for the criminal tax evaders was contained in the report. The Wanchoo Committee recommended conferment on the Settlement Commission of a discretion to “grant immunity from criminal prosecution in suitable cases”. The detailed mechanics of application, investigation, consideration, hearing and disposal are contained in the report and have eventually been translated into statutory provisions in Chapter 19-A.
22. This legislative history leads us on to a broad unfoldment of the actual provisions of Sections 245-A to 245-M which constitute a fasciculus of provisions designed for settlement of taxes in dispute. Section 245-A is the definition clause even as Section 245-B is the clause constituting the Settlement Commission. Applications for settlement of cases by assessees are regulated by Section 245-C which reads:
“245-C. Application for settlement of cases.—(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.”
23. Its meaning can be understood fully only when we read the definition of “case”. According to the definition in Section 245-A(a), a “case” means any proceeding under the income tax law in connection with the assessment or reassessment of any person which may be pending be fore an Income Tax Authority on the date of application under Section 245-C(1). It is common knowledge that ITAT is not an Income Tax Authority, which expression, it is settled, includes the ITO and AAC and others. Therefore, when an appeal pends before the Tribunal, it cannot be said that a case pends before an Income Tax Authority. In the present case, we are concerned with a stage when appeals are pending before the Tribunal. Section 245-C(1) may not enable an assessee to move the Commission in such cases but for the provision in Section 245-M. Indeed, we are intimately concerned with the express provisions in and implications of Section 245-M which specifically deal with persons who have filed appeals to the Appellate Tribunal and seek to apply to the Settlement Commission, Sub-section (6) of Section 245-M is a deeming provision. Any application under Section 245-M will be deemed to be an application under Section 245-C(1) and all provisions of Chapter 19-A, except Section 245-D(7) shall apply to such proceedings.
24. The question then arises whether and subject to what conditions can an assessee take advantage of Section 245-M and move the Commission. Only if he can validly move the Commission under Section 245-M can his application be processed under Sections 245-C, 245-D and other sections of the chapter. An intensive examination of Sections 245-M(1) to (5) and (7) thus becomes imperative.
25. Any assessee may make an application to have his case settled, but it is one thing to make an application proceeded with. For, on receipt of an application the Commission is not empowered automatically to proceed with it. The mechanics of Section 245-D must be remembered in this context. The application for settlement, when filed, shall be forwarded to the Commissioner for a report and it is only on the basis of the material contained in such report that the Settlement Commission may allow the application to be proceeded with or reject the application. To reject an application is to refuse relief outright and affects the applicant adversely. So it is provided “that an application shall not be rejected unless an opportunity has been given to the applicant of being heard”. We are clearly of the view that an applicant before the Settlement Commission is entitled to a hearing before his application for composition is rejected. In the present case, on the facts stated earlier, the Settlement Commission in the first instance rejected the application because the CIT objected to it. Maybe, the objection of the Commissioner has lethal potency but the rule of fair play incorporated in the first proviso to Section 245-D(1) obligates the Commission to hear the applicant before rejection. Even apart from any specific provision, it is legal fair-play not to hurt any party without hearing him unless the Act expressly excludes it. One may conceive of many reasons why a hearing, even at this stage, may be useful. The Commissioner or his representative may, in the light of the circumstances which the applicant may point out, withdraw his objection. Likewise, the applicant may point out that what appears to the Settlement Commission to be an objection by the Commission is not an objection to proceed with the application, but only a clarification of some aspect or other. Nothing is lost by hearing a petitioner whose application for settlement is being rejected and much may be gained by such hearing in properly processing the application in the spirit of Chapter 19-A. Anyway, Section 245-D(1) does not negate natural justice and in the absence of an express exclusion of the rule of audi alteram partem, it is fair, indeed fundamental, (has no man is prejudiced by action without opportunity to show to the contrary. Without expounding any inflexible rule of natural justice of universal validity we cannot fault the Settlement Commission for what it hat done. We take the view that, having regard to the rulings of this Court in M.S Gill case (1978) 1 SCC 405 and Maneka Gandhi case (1978) 1 SCC 248 the Settlement Commission's decision to re-hear and pass a de novo order cannot be said to be illegal. The Commissioner's objection to the application being proceeded with may prove fatal or may not, but without entering into that controversy we think it correct to hold that the Settlement Commission did not act without jurisdiction by affording a hearing and passing a fresh order in the presence of both parties. Whether that fresh order is valid or not depends on the consideration of the merits which we will presently examine. Law leans in favour of natural justice where statutory interdict does not forbid it.
26. The question now arises as to the course of the exercise of the Settlement Commission on receipt of an application for composition. The second proviso to Section 245-D(1) is compulsive in tone and import for it mandates
“that an application shall not be proceeded with under this sub-section 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 evading any tax ... has been established or is likely to be established by any Income Tax Authority, in relation to the case.”
In the present case, the Commission did raise an objection on April 1, 1977 that
“prosecution proceedings for concealment of income and also false verification in the returns were pending before the Chief Metropolitan Magistrate and that in the circumstances he did not consider this as a fit case to be proceeded with by the Settlement Commission”.
27. This objection was in the normal course neither foolish nor futile but fatal, being in functional fulfilment of the requirements of the second provision to Section 245-D(1). Indeed, when we observe that the CIT had, with full responsibility, prosecuted the assessee in a number of cases then pending for offences which attract the conditions required by the second proviso, there is little difficulty in holding that the application for settlement, having been rejected by the Commissioner, could not be proceeded with. The veto of the Commissioner was the Waterloo of the application.
28. The Settlement Commission, however, took the view that the Commissioner was estopped from exercising his power to object and for this reason ignored the veto of the Commissioner and proceeded to process the application in terms of sub-sections (2) to (5) of Section 245-D. The core controversy in this appeal is as to whether the view of the Settlement Commission that the veto is unavailable for the Commissioner in view of his earlier stand in, regard to the withdrawal of appeals is valid or not.
29. After setting out the course of events and earlier readiness of this Department to withdraw its appeals to enable the Commission to be moved by the assessee notwithstanding the pendency of the criminal cases and having regard to the absence of any new material having being discovered justifying a reversal of the CIT's stand, the Commission took the view that the rule of estoppel forbade the appellant from objecting to the Commission's proceedings with the application of this assessee. It argued itself into that conclusion thus:
“In this particular case, in view of the withdrawal of the Departmental appeals before the Income Tax Appellate Tribunal, the Commissioner is estopped from making a report under Section 245-D(1) Proviso 2 to the Settlement Commission objecting to the application from being proceeded with. The objection raised by the Commissioner is thus invalid in law and any objection which is invalid in law, for the reason discussed earlier, is no objection under the second proviso to Section 245-D(1) and the Commission is competent to ignore it applying the principles of law, equity and natural justice. The Settlement Commission is, therefore, entitled to proceed with the application.
In this case it is not shown before us nor it is the Department's case that between December 24, 1976 and January 7, 1977, the Commission had brought on record any fresh materials to come to the conclusion under which he could legitimately raise the objection under the second proviso to Section 245-D(1) once having entitled the assessee to make the application under Section 245-M(1) proviso. Filing of a complaint for launching a prosecution earlier is not a relevant matter for the exercise of jurisdiction under the second proviso to Section 245-D(1) at this stage in the light of the facts brought before us and elaborately discussed in the earlier paragraphs. This is a clear case in which the applicant was prevailed upon to withdraw the appeals for the additional two Assessment Years 1972-73 and 1973-74 where very large and substantial sums were involved compared to the ten assessments from 1962-63 to 1971-72 where cross-appeals were agreed to be withdrawn by either side. On the admission of the learned Departmental Representative himself, the Departmental appeals were frivolous and not likely to succeed on appeal. We are, therefore, of the opinion that for a harmonious construction of the statute, in a case falling under Section 245-M the second proviso to Section 245-D(1) cannot be read in isolation but only in conjunction with Proviso 1 to Section 245-M(1). Under Section 245-D(1) the Commission has to decide the admission on the basis of the materials contained in the report of the Commissioner and having regard to the nature and circumstances of the case or the complexity of investigation involved therein. The entire facts of the case clearly indicate that the Revenue came to an understanding with the applicant to have the subsequent exercise of the power under the second proviso to Section 245-D(1) without any fresh material is, therefore, no ground to dislodge the right of the assessee to come before the Commission.”
30. We have earlier clarified that an ITAT is not an Income Tax Authority and proceedings pending before such tribunals are not cases. But Section 245-M takes care of assessees whose appeals pend before the ITAT but are anxious to square up their litigation through the Settlement Commission. A close-up of this provision is necessitous and a reading of its full range of meaning is decisive of the subject of this appeal.
31. We may skip Sections 245-E, F and G but dwell for a moment on Section 245-H which is of great moment from the angle of public interest and public morals as it immunises white collar offenders against criminal prosecutions and, in unscrupulous circumstances, becomes a suspect instrument of negotiable corruption. More than the prospect of monetary liability and mounting penalty is the dread of traumatic prison tenancy that a tax-dodging tycoon is worried about. And if he can purchase freedom from criminal prosecution and incarceratory sentence he may settle with the Commission; and, towards this end, try to buy those who remotely control the departmental echelons whose veto or green signal closes or opens the jurisdiction of the Settlement Commission and hushes or pushes the prosecutions. Thus, Section 245-H, which clothes the Commission with the power to grant immunity from prosecution for “any offence under this Act or under the Indian Penal Code or under any other Central Act....” is a magnet which attracts large tax-dodgers and offers, indirectly an opportunity to the highest departmental and political authorities a suspect power to bargain.
32. We may now move straight on to Section 245-M which we reproduce:
“245-M. Certain persons who have filed appeals to the Appellate Tribunal entitled to make application to the Settlement Commission.—(1) Notwithstanding anything contained in this chapter, any assessee who has filed an appeal to the Appellate Tribunal under this Act which is pending before it shall, on withdrawing such appeal from the Appellate Tribunal, be entitled to make an application to the Settlement Commission to have his case settled under this Chapter:
Provided that no such assessee shall be entitled to make an application in a case where the Income Tax Officer has preferred an appeal under sub-section (2) of Section 253 against the order to which the assessees appeal relates.
(2) Any assessee referred to in sub-section (1) may make an application to the Appellate Tribunal for permission to withdraw the appeal.
(3) On receipt of an application under sub-section (2), the Appellate Tribunal shall grant permission to withdraw the appeal.
(4) Upon the withdrawal of the appeal, the proceeding in appeal immediately before such withdrawal shall, for the purposes of this Chapter, be deemed to be a proceeding pending before an Income Tax Authority.
(5) An application to the Settlement Commission under this section shall be made within a period of thirty days from the date on which the order of the Appellate Tribunal permitting the withdrawal of the appeal is communicated to the assessee.
(6) An application made to the Settlement Commission under this section shall be deemed to be an application made under sub-section (1) of Section 245-C and the provisions of this Chapter [except sub-section (7) of Section 245-D] shall apply accordingly.
(7) Where an application made to the Settlement Commission under this section is not entertained by the Settlement Commission, then, the assessee shall not be deemed to have withdrawn the appeal from the Appellate Tribunal and the provisions contained in Section 253, Section 254 and Section 255, shall, so far as may be, apply accordingly.”
33. Briefly, the section (a) enables withdrawal of appeals before Tribunals by assessees as condition precedent to applications for composition by the Settlement Commission, (b) applies, by a legal fiction, Sections 245-C and D to such applications, and (c) where the proceeding before the Commission is not entertained, allows revival of the withdrawn appeals thus restoring the status quo ante. This is but fair because the assessee should not suffer if the Settlement Commission bars its doors.
34. The facts of our case show that the assessee had filed appeals before the Tribunal and had later moved for their withdrawal in terms of Sections 245-M(1), (2) and (3). Sub-section (4) thereupon opened and by virtue of sub-section (6) the mechanics of Sections 245-C and D sprang into action. It would have been smooth sailing but for the proviso to Section 245-M(1), which runs thus:
“Provided that no such assessee shall be entitled to make an application in a case where the Income Tax Officer has preferred an appeal under sub-section (2) of Section 253 against the order to which the assessee's appeal relate.”
35. Thus there is an embargo on the right of the assessee to move the Commission “where the Income Tax Officer has preferred an appeal under sub-section (2) of Section 253 against the order to which the assessee's appeal relates”. The Revenue had preferred appeals here but later withdrawn them. Does such withdrawal amount to not having preferred an appeal at all?
36. The crucial question, therefore, is as to whether the assessee is disentitled altogether to make an application before a Commission because the Income Tax Officer has already preferred an appeal to the ITAT although he has subsequently withdrawn it.
37-38. Does filing the appeal ipso facto imply that the die is cast and withdrawal thereof cannot whittle down its preventive impact? We will presently discuss this point.
39. We must clarify that this legal bar to the Settlement Commission's jurisdiction contained in the proviso to Section 245-M was not urged by the applicant's (sic appellants) counsel before us consistently with the stand the Department had throughout taken in this case. But law, as laid down by this Court, transcends the facts of a given case or stances of parties or counsel.
40. Here the Department did file appeals and later withdrew them before the application for settlement was made. At ihe time the application before the Settlement Commission was moved no departmental appeal was pending. Indeed, the documents in this case clearly point to the assumption by the CIT and the assessee that if the Revenue withdrew its appeal the disentitlement in the proviso would disappear. Even so, when an appeal is filed by ihe ITO, does not the prohibition operate? This turns on the meaning of the words “preferred an appeal”. “Preferred” is a word of dual import; its semantics depend on the scheme and the context; its import must help, not hamper, the object of the enactment even if liberty with language may be necessary.
41. There is good ground to think that an appftal means an effective appeal. (1973) 4 SCC 216 An appeal withdrawn is an appeal non est as judicial thinking suggests. AIR 1968 SC 488, (1968) 1 SCR 505- (1964) 52 ITR 780 (All)
42. Black's Law Dictionary gives the following meaning:
“PREFER: To bring before; to prosecute; to try to proceed with. Thus, preferring an indictment signifies prosecuting or trying an indictment.
To give advantage, priority, or privilege; to select for first payment, as to prefer one creditor over others.”
Thus it may mean “prosecute” or effectively pursue a proceeding or merely institute it. Purposefully interpreted, preferring an appeal means more than formally filing it but effectively pursuing it. It a party retreats before the conest begins it is as good as not having entered the fray. After all, Chapter 19-A is geared to promotion of settlement and creation of road-blocks in reasonable compositions. The teleological method of interpretation leads us to the view that early withdrawal of the ITO's appeal removes the bar of the proviso.
43. The problem that troubles us arises from Section 245-M(7). If a settlement application is not entertained and is rejected in limine there is a statutory revival of the assessee's appeal before the ITAT because of the deeming provision, but what happens to the appeal of the ITO which he withdraws to enable the assessee to file an application before the Commission? Literally read, Section 245-M(7) covers the revival of the assessee's appeals but not the ITO's appeals. The inference from this omission is that no occasion arises for revival of the ITO's appeals because once he files an appeal no application for setlltment can be made. That is to say, the proviso to Section 245-M(1) interdicts entertainment of a settlement application if departmental appeals are filed.
44. This interpretation narrows the benign amplitude of the chapter of attracting as many big assessees with disputed claims as are ready to settle their liabilities through the Commission. There may be cases where the AA has given partial relief to the assessee and both sides may be aggrieved. Both sides may have filed appeals. There is no understandable ground to exclude the possibility of such cases being settled merely because the ITO has, perhaps for good reasons, filed an appeal. The purpose of substituting the method of investigative negotiation, just settlement and early exigibility by a high-powered Commission for a tier-upon-tier of long-protracted litigation, where victory may be phyrrhic and futile, is ill-served by keeping out cases solely for the reason that departmental appeals have been filed. To truncate the operation of the salutary provisions of Chapter 19-A more substantial reasons must be present. Of course, if no alternative interpretation is possible, it is not for the court to explore the intendment of the legislation beyond the language in which the section is couched.
45. However, there is an alternative meaning which reconciles the rationale of settlement with the embargo of the proviso. If we read into the words “prefer an appeal” the sense of effectively prosecuting an appeal, then mere institution followed by withdrawal will cancel the effect, result in non-prosecution and obliteration of the appeal, which is the same as not preferring an appeal. The meaning of “prefer” as given in the Black's Law Dictionary supports this construction. Among available semantic options law prefers that which furthers the statutory objective.
46. The possible obstacle in adopting this interpretation is that while the assessee's appeal gets revived when the Commission rejects an application, the ITO's appeal is not resuscitated under Section 245-M(7). Even this is more imaginary than real and depends on over-emphasis on verbalism. After all, the clause we have to decode is “the assessee shall not be deemed to have withdrawn the appeal from the Appellate Tribunal”. The obvious object of this clause is to restore the parties to status quo ante, and in fairness, must apply to the Department as to the assessee. This non-discriminatory import can be reasonably read into the clause if we construe the expression the “assessee” in a wider way so as to include all parties affected by the subject-matter of the assessment. In that case, the clause may mean that no one who is aggrieved by the assessment shall “be deemed to have withdrawn the appeal from the Appellate Tribunal”. An equitable and purpose-oriented construction of the clause means that the assessee will be put back in the same position vis-a-vis his appeals and if, to facilitate his moving the Commission, the ITO has withdrawn the departmental appeals, the Commission's rejection of the application shall not prejudice the Revenue. Actus curie neminem gravabit is the principle of wider import and is a tool of construction too. This perhaps may be making up for a lacuna by a restructuring of the clause so as to work out justice to the Department. The scheme of Section 253(4) contemplates filing of memorandum of cross-objections by the ITO on receipt of notice of an appeal by the assessee. So much so, it is also possible, alternatively, to read into Section 245-M(7) the right of the Department to file an appeal de novo on receipt of notice of the revival of the assessee's appeal, within the period specified in Section 253(4). This does not do violence to the language of Section 245-M(7) and affords equitable relief to the Department by enabling it to bring its appeal back to life notwithstanding the earlier withdrawal, when the assessee's appeal reincarnates lender Section 245-M(7).
47. We are mindful that a strictly grammatical construction is departed from in this process and a mildly leigislative flavour is imparted by this interpretation. The judicial process does not stand helpless with folded hands but engineers its way to discern meaning when a new construction with a view to rationalisation is needed. Lord Denning, in his recent book The Discipline of Law made a seminal observation on “ironing out the creases” by quoting a passage from Seaford Court Estates Ltd. v. Asher (1949) 2 KB 481:
“Whenever a statute comes up for consideration it must be remembered that it is not within human powers to foresee the manifold sets of facts which may arise, and, even if were, it is not possible to provide for them in terms free from all ambiguity. The English language is not an instrument of mathematical precision. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have often been unfairly criticised. A Judge, believing himself to be fettered by the supposed rule that he must look to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity. It would certainly save the Judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. In the absence of it, when a defect appears a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and he must do this not only from the language of the statute, but also from a consideration of the social conditions which give rise to it, and of the mischief which it was passed to remedy, and then he must supplement the written word so as to give ‘force and life’ to the intention of the legislature. That was clearly laid down by the resolution of the Judges in Heydon case, and it is the safest guide today. Good practical advice on the subject was given about the same time by Plowden.... Put into homely metaphor it is this: A Judge should ask himself the question: If the makers of the Act had themselves come across this ruck in the texture of it, how would they have straightened it out? He must then do as they would have done. A Judge must not alter the material of which it is woven, but he can and should iron out the creases.”
48. The upshot of the discussion is to hold that if the Department files an appeal which it drops to enable an application before the Commission, then the proviso to Section 245-M(1) does not debar the motion for settlement.
49. The preliminary objection raised by Shri A.K Sen need not detain us because we are satisfied that the amplitude of Article 136 is wide enough to bring within its jurisdiction orders passed by the Settlement Commission. Any judgment, decree, determination, sentence or order in any case or matter passed or made by any court or tribunal, comes within the correctional cognisance and review power of Article 136. The short question, then, is whether the Settlement Commission cannot come within the category of “Tribunals”. To clinch the issue, Section 245-L declares all proceedings before the Settlement Commission to be judicial proceedings. We have hardly any doubt that it is a Tribunal. Its powers are considerable; its determination affects the rights of parties; its obligations are quasi-judicial; the orders it makes at every stage have tremendous impact on the rights and liabilities of parties. When a body is created by statute and clothed with authority to determine rights and duties of parties and to impose pains and penalties on them it satisfies the test laid down in Associated Cement Co. case AIR 1965 SC 1595, (1965) 2 SCR 366, (1965) 1 LLJ 433, (1964-65) 27 FJR 204. A Constitutional Bench of this Court in that case has indicated the quintessential test in this regard and we need only extract a portion of the headnote relevant to this aspect:
“In considering the question about the status of any body or authority as a tribunal under the article, the consideration about the presence of all or some of the trappings of a court is really not decisive. The presence of some of the trappings may assist the determination of the question as to whether the power exercised by the authority which possessed the said trappings, is the judicial power of the State or not. The main and basic test, however, is whether the adjudicating power which a particular authority is empowered to exercise, has been conferred on it by a statute and can be described as a part of the State's inherent power exercised in discharging its judicial function.”
50. The expanding jurisprudence of Administrative Tribunals to which some eminent Judges, cradled in Dicean concepts, in the early days of English law, has come to stay whether we call it the new despotism or the pragmatic instrumentality of dispensing justice untrammelled by the complexities and mystiques which are part of the processual heredity of courts. The Franks Committee rightly said:
“Reflection on the general social and economic changes of recent decades convinces us that tribunals as a system for adjudication have come to stay.”
51. “The advantage which tribunals had over courts” states Seervai in his classic work on the Constitution of India “lay in cheapness, accessibility, freedom from technicality, expedition and expert knowledge of their particular subject”. A casual perusal of Chapter 19-A convinces the discerning eye that the Settlement Commission exercises many powers which affect, for good or otherwise, the rights of the parties before it and vests in it powers to grant immunity from prosecution and penalty, to investigate into many matters and to enjoy conclusiveness regarding its orders or settlement. In short, Settlement Commissions are Tribunals. The preliminary point fails and we proceed to consider the triple substantial questions set out earlier.
52. The two gut issues that must now engage us take us to the turn of events surrounding the withdrawal of appeals by both sides. To complete the story — and this fact has a bearing on one of the legal questions — it must be stated that when the Settlement Commission first acted under the second proviso to Section 245-D(1), the Department, even like the assessees, applied to the ITAT for revival of its appeals although Section 245-M(7) does not make any such provision for revival of the ITO's appeals.
53. In ordinary circumstances the second proviso to Section 245-D(1) is easy of construction and the exercise is also simple. The assessee applies to the Commission, thereupon the Commission shall call for a report from the Commissioner. The Commissioner may object to the application being proceeded with on the grounds specified in the second proviso to sub-section (1) of Section 245-D. If he so objects the application “shall not be proceeded with”. This is express, explicit and mandatory. Where an application is allowed to be proceeded with under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner and hold further enquiry. Thus, the Commission's power to proceed with the application can be paralysed by the Commissioner objecting to the application being proceeded with. In our case the Commission called for a report from the Commissioner and the Commissioner objected to the application being proceeded with whereupon the Commission declined to proceed with the application. But on the assessee's motion for review of that order which was passed without hearing him fresh consideration after hearing both sides followed and the Commission decided to proceed with the application holding that the Commissioner was estopped from objecting. The crucial question is whether the Commissioner's statutory power to object to the settlement proceedings on the ground of the presence of grave deviances mentioned in the second proviso to Section 245-D(1) can be nullified by the doctrine of estoppel and if it can be whether there are grounds to hold that a plea of estoppel is sustainable in the circumstances.
54. We must realise that the Commissioner has a duty to the public Revenue and, more importantly, a duty to object to any assessee who is prima facie guilty of grave criminal conduct in the shape of concealment of income or perpetration of fraud getting away with it by invoking Chapter 19-A. The Wanchoo Committee was mindful of the benefits of a policy of collection of tax without protracted litigation through the machinery of the Settlement Commission but the potential for escape by the big whales of economic crime by resort to the Settlement Commission engaged the Committee conscience. So it expressed the view that it was “of paramount importance that only persons who are known for their integrity and high sense of justice and fairness are selected for appointment on the Tribunal (Settlement Commission)”. This was a pious wish and the Committee went further to guard against fraud and to uphold the paramount principles, more important than physical gains and losses, of economic offenders being punished by arming the Commissioner with the right to object to the very entertainment of the application.
“We consider that this will be a salutary safeguard, because otherwise the Tribunal (Settlement Commission) might become an escape route for tax evaders who have been caught and who are likely to be heavily penalised or prosecuted.”
The gravity of this public policy cannot be undermined by interpretative softness of second proviso to Section 245-D(1). To whittle down the imperative nature of this veto power is to undo the expectations of the Wanchoo Committee and amounts to stultify the rule of law an integral part of which is that the law shall not let the greater felon loose. Can the rule of estoppel override a statutory mandate of a prohibitory character calculated to inhibit/ escape from the coils of the law crime?”
55. Moreover, we do have to examine, assuming the application of the rule of estoppel, where the basics of that rule of a clear representation having been made by A to B and the latter on the face of representation acting to his detriment can be spun out of the circumstances before us.
56. Now we come to the meat of the matter — the plea of estoppel or its variants. The CIT's objection to the jurisdiction of the Commission to proceed with the matter has been shot down by the artillery of estoppel. The order under appeal proceeds to hold that a conspectus of the circumstances of the case compels the conclusion that an understanding had been reached between the assessee and the CIT evidenced by mutual withdrawal of their respective appeals before the ITAT, that the Commission would be permitted to explore a settlement; and so, the statutory veto available to the CIT to interdict the enquiry by the Commission could not be exercised because he was estopped from so doing, resiling from his earlier stand. The argument has an attractive veneer of cosmetic charm but law is more than skin-deep and courts peep beneath to see the principle of enquiry and justice thereby promoted.
57. What, in essence, is estoppel? Estoppel is a rule of equity which forbids truth being pleaded or representation, on which faith another has acted to his detriment, being retracted. Even extending the rule into the new-fangled empire of promissory estoppel, it cannot go beyond the limits of the Law Revision Committee in England which Lord Denning allowed to blossom in the High Trees case:
“We therefore recommend that a promise which the promisor knows, or reasonably should know, will be relied upon by the promisee, shall be enforceable if the promisee has altered his position to his detriment in reliance on the promise.”
58. The soul of estoppel is equity, not facility for inequity. Nor is estoppel against statute permissible because public policy animating a statutory provision may then become the casualty. Halsbury has noted this sensible nicety:
“Where a statute, enacted for the benefit of a section of the public, imposes a duty of a positive kind, the person charged with the performance of the duty cannot by estoppel be prevented from exercising his statutory powers.
A petitioner in a divorce suit cannot obtain relief simply because the respondent is estopped from denying the charges, as the court has a statutory duty to inquire into the truth of a petition. 1948 p. 292 and HALSBURYS LAWS OF ENGLAND”
The luminous footnote cites rulings and states that:
“This rule probably also applies where the statute bestows a discretion rather than imposing a duty.”
To sum up, where public duties cast by statute are involved, private parties cannot prevent performance by invoking estoppel. We do not discuss further since the facts here exclude estoppel.
59. In the present statutory situation Section 245-D by the second proviso, casts a public duty on the Commissioner of Income Tax to consider, in the light of the case made out in the assessee's application, whether
“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 imposable under the Indian Income Tax Act, 1922 (11 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,”
and exercise his veto power to prevent escape of macro-criminals prima facie guilty of grave economic crimes. He cannot bargain over this interdict in advance or barter away a legal mandate in anticipation. He may permit or even assist the filing of a conciliation motion by the assessee but when the Commission intimates him under Section 245-D(1) he shall, with statutory seriousness, exercise his discretion. He cannot enter into a “deal” over this power without betraying the statutory trust. We cannot, therefore, accept the plea that the Commissioner of Income Tax, by conduct and “understandings” has “irredeemably, mortgaged” his statutory duty to object, if the case deserves such objection. Estoppel then is both odious and ominous and discretion the door to corruption.
60. Even otherwise, there must be an active representation proceeding from the functionary sought to be muzzled by estoppel and the pleading party must have acted to his detriment on the faith of the said representation or futuristic promise. Here, the CIT made no representations to the assessee. He merely yielded to the latter's persuasion. Nor did the assessee act on any representation of the CIT. The withdrawal of his appeal was not because of or induced by the CIT. The Commissioner never asked him to withdraw his appeals but when asked by the assessee to withdraw the departmental appeals did so on condition that the other also withdrew his appeals. Granting that the CIT did facilitate the motion before the Commission, it did not mean that the assessee did anything to his detriment. Moreover, there was and could not be any representation or even negotiation (except illicit) regarding the exercise of the statutory function under the second proviso in advance of the filing of the application for settlement.
61. Even on grounds of public policy, it will be lending legal colour to hushing up prosecutions of high-placed offenders by an unjust extension of the rule of estoppel. Bargaining between tax authorities and big assessees over criminal prosecutions and the like is beset with corrupt potential that a court of conscience cannot succumb to such a rule of estoppel.
62. Apart from the jural untenability of the contention let us see if the factual matrix supports the claim. A close look at the foundational facts will reveal the fallacy of the plea of estoppel.
63. Is mere “understanding” or ambiguous conduct the stuff of which the fabric of estoppel is made? We find the case of the respondent a rope of sand, a route to fraud, a permit for non-performance of public duties. The assessee takes the initiative and beseeches the Income Tax Department to help him move the Settlement Commission by withdrawing its appeals. The story, when unfurled, shows how the assessee acted on his own, independently of the Department, never had any blanket assurance from the latter about non-objection to the latter stages of the application whatever to the guilt of the assessee vis-a-vis the second proviso to Section 245-D(1), defeating the statutory efficacy of the provision.
64. It all begins chronologically with the assessee-respondent representing to ITAT on August 23, 1976 the following:
“Re: IT appeals in the name of Shri B.N Bhattacharjee for Assessment Years 1962-63, 63-64, 64-65, 65-66, 66-67, 67-68, 68-69, 69-70, 70-71, 71-72, 72-73 and 73-74.
Sub: Prayer under Section 245-M of the Income Tax Act, 1961 for withdrawal of appeals.
With regard to the above I beg to submit that all the above appeals I have filed on September 12, 1975 but, now I like to have my cases settled by the Settlement Commission and as such I may kindly be allowed to withdraw all the above twelve appeals under Section 245-M of the 1T AT, 1961. The matter is very much urgent and the settlement petition is to be filed within a day or two before the Settlement Commission, New Delhi.
Pray that an early order of the Appellate Tribunal permitting the withdrawal of all the above appeals may kindly be issued to me and for this act of kindness I shall ever pray.
Dt. 23-8-1976.Sd/-
S.N Mandal”
65. At this time the Department had done nothing to induce him to withdraw his appeals or move the Commission to that effect. It was a unilateral act of his and if the ITAT allowed him to withdraw, that was not because of the CIT's conduct but the compulsion of Section 245-M(3). If at all, the assessee was chasing the Department and falling at its feet seeking mercy and praying for withdrawal of its appeals as is evident from Annexure E which runs thus:
“Dear Sir,
I have instructed my counsel to withdraw all my Tribunal appeals to enable me to file petition before the Settlement Commission stop 1 seek your mercy and sympathy by withdrawing APPEAL FILE by the Department so that I can file my Settlement Petition here for settlement stop I assure you my full cooperation and I want Settlement bona fide and I am acting in good faith stop I pray for your kind consideration and cooperation stop.
Esteem Regards
25-5-1976.Bhattacharjee
Camp: New Delhi”
How can this craven attitude be converted into a conduct induced by the Department detrimental to the assessee's interest? Even the latter letter to Shri Kuruvilla, Member, Central Board of Direct Taxes is plaintive and supplicative and not indicative of any representation by Department to the assessee leading to the latter's action to his own prejudice. In fact, Annexure F dated September 10, 1976 winds up:
“1. I shall be grateful, if you would kindly ask your department to withdraw all the pending appeals filed by the Department with ITAT.
Lastly if the Department find any technical difficulties I am prepared to swear my affidavit to protect the interests of the department. I assure you my full cooperation with the department in arriving at a reasonable settlement of the cases. I am writing this in a good faith. I am enclosing herewith the photostat copies of the correspondences for your kind and benign consideration.”
66. We have earlier recounted the further developments and all that has happened is a communication from the CIT to the assessee dated December 16, 1976 which is cryptic in terms:
“I am to inform you that the departmental appeals pending before the Income Tax Appellate Tribunal, Calcutta against you will be withdrawn provided all the appeals filed by you for Assessment Year 1962-63 to 1973-74 are withdrawn by you.”
It is incredible that the tone, sequence and the context and pouring subjective wine into the vessel of words used, the Commission should interpret this communication to reflect an understanding of words a representation by the department to the assessee to do a thing to his prejudice whereupon he acted that way laying the basis for a plea of estoppel. Far from the revenue making any positive representation to the assessor it was a case of a concession shown to him to try his chance before the commission. This is clear from the assessee's own petition to the Tribunal dated December 17, 1976 wherein he states:
“... now the learned CIT, Central, Calcutta has very kindly agreed to withdraw their Departmental appeals for Assessment Years 1962-63 to 1971-72 on condition that your petitioner would also withdraw all the appeals for 1962-63 to 73-74 assessments.”
It is true that the CIT withdrew the appeals of the Department, but it is not true that he made any representations to the assessee to act in a particular manner with a promise of doing something to his advantage leading to the assessee in turn acting to his own prejudice by withdrawing his appeals. His withdrawal of the appeals was independently decided upon by him so that he could move the Commission. Thereafter he moved the Department to withdraw its appeals so as to entitle him to make an application to the Commission. The order of the ITAT dated December 24, 1976 makes it clear that it granted permission to withdrew appeals because:
“The learned departmental representative Shri Narayanan also had no objection to permission being granted for withdrawal of the appeal.”
67. We need not overload this judgment with more extracts from letters and petitions because it is abundantly clear that the basics of equitable estoppel are blissfully absent and the canons that govern the application of the principle contradict its extension to a situation like the present. We, therefore, overrule the plea of estoppel which has found favour with the Commission and hold that the objection raised by the CIT is a potent interdict on the jurisdiction of the Commission.
68. It is not inappropriate to state that the policy of the law as disclosed in Chapter 19-A is not to provide a rescue shelter for big tax-dodgers who indulge in criminal activities by approaching the Settlement Commission. The Settlement Commission will certainly take due note of the gravity of economic offences on the wealth of the nation which the Wanchoo Committee had emphasised and will exercise its power of immunisation against criminal prosecutions by using its power only sparingly and in deserving cases; otherwise such orders may become vulnerable if properly challenged.
69. Thus, a holistic perspective in the correct statutory setting makes the conclusion irresistible that the appeal must be allowed, that the Settlement Commission should be inhibited from proceeding with the application of the assessee and the appeals by the assessee before the ITAT must be revived and disposed of expeditiously. The departmental appeals, having been admitted by the CIT himself to be very weak and frivolous, should not be revived as it will be only a waste of public time and public money. The appeals are allowed, but in the circumstances of the case, the parties will bear their costs.
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