Income-Tax Settlement Commission scrapped

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  Income-Tax Settlement Commission scrapped

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1. Budget announcement: The Finance Bill 2021 made a proposal to scrap, from February 1, 2021, the Income-Tax Settlement Commission (ITSC) that offers one-time life opportunity to errant taxpayers. It consists of a Chairman and as many Vice-Chairmen and other Members as the Central Government thinks fit.
2. Details of ITSC: The Direct Taxes Enquiry Committee (commonly known as 'Wanchoo Committee') had recommended the settlement machinery. The objective was to ensure that the door for compromise for an errant taxpayer should not remain closed for ever. An assessee may, at any stage of a case relating to him/her, make an application in the prescribed form.
3. Extant rules: It should contain a 'full' and 'true' disclosure of - (a) income which has not been disclosed before the Assessing Officer, (b) the manner in which such income has been derived, (c) the additional amount of income-tax payable on such income, and (d) other prescribed particulars. The Settlement Commission may either admit the application for consideration or reject it. Once the application for settlement is admitted, the Settlement Commission will have exclusive jurisdiction to deal with the case. No other Income Tax authority will have such jurisdiction. Till the time the matter is pending before the Settlement Commission, the Assessing Officer cannot proceed in the matter, in any manner.
4. Recent proposals: The Income-Tax Settlement Commission (ITSC) shall cease to operate on or after 1st February, 2021. This means that no application under section 245C of the Income Tax Act 1961 for settlement of cases shall be made on or after 1st February, 2021. In respect of pending application, the Central Government shall constitute one or more "Interim Board" for Settlement, as may be necessary. Every Interim Board shall consist of three members, each being an officer of the rank of Chief Commissioner, as may be nominated by the Board.
5. Why scrap: The Settlement Commission is said to have outlived its utility value with the government encouraging voluntary compliance. The power of the Settlement Commission was challenged. The commission was also facing other administrative issues. Moreover, the government had invoked several other provisions and proposals to settle cases by reducing litigation through ‘Vivad Se Vishwas’ scheme. The government thus expects that the move will simplify tax administration, ease compliance and reduce litigation.
6. Constitutional stand: Some have termed the proposal as 'unconstitutional'. Institutions like ITSC cannot be scrapped until the Bill is passed and becomes a law. That apart, ITSC is a quasi-judicial body independent of CBDT (Central Board of Direct Taxes). All applications filed till January 31, 2021, must be settled by the same body. Bringing the cases under the purview of an interim board which reports to CBDT would be unfair.
7. Other concerns: The proposal would be a gross injustice to applicants whose cases are pending before ITSC as on January 31, 2021. There are assessees who have filed applications before the Commission. They settle their disputes by paying taxes and interest and in return, get immunity from penalty and prosecution. They will now have to fight the case before multiple layers of appellate and judicial bodies. The discriminatory treatment meted out to such applicants is impermissible under Article 14 of the Constitution. There is a wrong perception that the ITSC is a window for compulsive tax evaders.
8. Summary: The Covid-19 pandemic has had a huge impact on the financial health of the country and its economy. The finance ministry may reconsider the decision of scrapping ITSC from February 1, 2021. The government can contemplate allowing ITSC to receive fresh applications till March 31, 2021, and settle the pending cases within a stipulated time frame.

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