The Income Tax Settlement Commission (ITSC) is an important Alternate Disputes Resolution (ADR) mechanism for resolving tax disputes relating to Direct Taxes. At present, The Principal Bench of the Commission is in New Delhi with 6 additional Benches (two each at New Delhi and Mumbai and one each at Chennai and Kolkata respectively.)
The Commission was constituted w.e.f. 01.04.1976, on the recommendation of the Wanchoo Committee (1971). The Committee conceived the Commission as a mechanism for providing room for settlement and compromise for one-time tax evaders or unintending defaulters. The Commission has settled over 15000 tax disputed in its life-time, which include 4778 tax disputes in the last 11 years. One ‘Case’ settled by the Commission, reduces litigation in respect of an applicant for several years relating to proceedings of various nature, such as assessment, penalty, prosecution, tax collection, etc. Each such proceeding before an Assessing Officer of the Income Tax Department is appealable before Commissioner (Appeals) and later before the Income Tax Appellate Tribunal and where it involves question of law, even up to High Courts and the Supreme Court.
Later in 1996, a review of the mechanism of the Settlement Commission was done by a committee led by Justice Duggal, which found that the Commission has been substantially successful in achieving the objects for which it was set up. It also acknowledged that in the revenue matters, the Commission has contributed in moving from conflict to consensus approach.
In 2009, the Hon’ble Supreme Court, while delivering its decision in the of Star Television Ltd., has observed the advantages of the Settlement Commission in settling liabilities across the board in complicated cases having doubtful benefits to Revenue.
I. Existing Organisation and Procedure
Each Bench comprises of one Presiding Officer (Chairman/ Vice-chairman) and two Members, who are retired IRS officers. Each bench of the Settlement Commission is supported by Two Senior IRS officers of the level of Joint Secretary, i.e., a Secretary and a Director (Investigation). The Secretary provides administrative support, while the Director (Investigation) and the Additional Directors of (Investigation) provide technical support to the Commission in deciding the Settlement applications
Recent Statutory Changes
The key statutory changes that have recently affected the functioning of the Commission are as under:
Prior to 1.6.2007, there was no time limit prescribed for the Commission for passing the settlement order. However, the Finance Act, 2007 prescribed a time limit of 12 months for the Commission to pass Settlement orders for applications filed after 1.6.2007. The Finance Act 2010 has now enhanced the limit to 18 months in respect of applications filed after 1.6.2010. (The same time limit of 18 months has been proposed in the Direct Tax Code 2010 as well.)
Scope of the Commission
(i) The Finance Act, 2007 had excluded the Search and Seizure cases from the purview of the Commission.. However, the Finance Act, 2010 has again brought back the Search cases within the ambit of the Commission.
(ii) Till 1.6.2007, only those cases could be admitted by the Commission, where the additional income disclosed was more than Rs 1 lakh. The Finance Act 2007 raised this limit to Rs 3 lakhs. However the Finance Act 2010 had further raised this limit and now, only those applications can be admitted, where the additional tax (over and above returned income) is Rs 10 lakhs or more. This limit has been fixed at Rs. 50 lakhs in case of Search and Seizure cases. However, the Finance Act, 2011 has restricted this limit for only the main person of the group where search operation had taken place (Specified person) while for other cases of the same group the normal limit of Rs. 10 Lakh applies.
3.The Finance Act, 2007 had also made it mandatory for the applicant to make payment of tax and interest on additional income disclosed before the Commission before filing the application. An application not accompanied with the evidence of payment of additional tax is liable to be rejected
Efficacy of the Commission:-
The Settlement Commission disposes of several proceeding for several assessment years in respect of an applicant conclusively within 18 months. its orders are final and conclusive. In regular channel of assessment and appeal for each such proceeding, it may routinely take at least 5 years for each such proceeding to conclusively end.
The incremental revenue again through Settlement mechanism is considerably substantial compared to the regular channel of assessment and appeal. In Financial Year 2010-11, the Commission disposed of 400 Cases, in which against the aggregate returned Income of Rs.206 Crores, the aggregate amount of Income settled was Rs.595 Crores, which is 187% above the aggregate returned Income
While, the actual collection of additional tax in the regular appellate channel is uncertain and may take several years to realise, full amount of additional tax is to be paid before the Settlement Commission before filling the application and therefore, the tax paid before the Commission has high net present value of money.