Holding

The Settlement Commission cannot waive or reduce statutory interest under Sections 234A, 234B and 234C, except to the extent of relief granted by Board circulars issued under Section 119.

Summary

The Supreme Court examined whether the Income‑Tax Settlement Commission, created under Section 245B of the Income‑Tax Act, 1961, could waive or reduce the statutory interest payable under Sections 234A, 234B and 234C when passing settlement orders under Section 245D(4). The Court held that the term "terms" in Section 245D(6) only allows the Commission to prescribe payment conditions such as instalments, and does not confer power to waive or reduce tax, penalty or interest, which are governed by separate statutory provisions. The Commission cannot invoke the Board’s power under Section 119 because it is a quasi‑judicial body, not an administrative authority, and the Board’s circulars have statutory force only when issued under Section 119. Consequently, the Commission may grant relief only to the extent permitted by Board circulars, not by its own statutory authority. The appeal was dismissed.

Issues considered

Whether the Settlement Commission under Section 245B has jurisdiction to waive or reduce interest under Sections 234A, 234B and 234C while passing settlement orders under Section 245D(4).
Whether the expression "terms" in Section 245D(6) includes power to waive or reduce interest.
Whether the Commission can rely on the Board’s power under Section 119 and its circulars to waive or reduce interest.

Legislation cited

Income Tax Act, 1961s. 119, s. 119(2)(a), s. 158B, s. 220(2A), s. 234A, s. 234B, s. 234C, s. 2(43), s. 2450(4), s. 2450(6), s. 245A(d), s. 245B, s. 245C, s. 245D(4), s. 245D(6), s. 245F, s. 245H, s. 245L

Subjects

Income‑Tax Settlement CommissionStatutory interestSection 245DSection 119Board circularsRule of constructionInherent powerWaiver of interestInterpretation of statutes

Judgment

COMMISSIONER OF INCOME TAX, MUMBAI A
v.
ANJUM M.H. GHASWALA AND ORS.

OCTOBER 18, 2001

[DR. A.S. ANAND, C.J., K.T. THOMAS, R.C. LAHOTI, B
N. SANTOSH HEGDE AND S.N. VARIAVA, JJ.]

lnocme Tax Act, 1961 :

.l Sections 245D(4) and (6)-AY 1989-90 onwards-Interest-Reduction
or waiver of-By Settlement Commission-Powers regarding-Held: The Com-
c
mission can only stipulate the conditions of payment like instalments, last date
for payment etc.-Hence, the Commission d_oes not have the power to reduce
or waive interest statutorily payable under Sections 234A, 234B and 234C
except to the extent of granting relief under the Circulars issued by the Board
s.
under 119. D
Section 119-Central Board of Direct Taxes-Circulars issued b~Statu
tory force of-Held: Such Circulars have statutory force and are binding on
every income-tax authority-Clarificatory Notes or Press Release issued by the
Board do not have such statutory force. E
Interpretation ,of Statutes :

Rule of construction-Statute-Vesting of pow{!r-ln an authority-Ex-
ercise of-Held: Has to be exercised only in the manner provided in the statute
itself. F
Purposive Interpretation-Exercise of-By looking into object and scheme
ofAct-Held: Would arise only if the language is either ambiguous or conflic:t-
ing or gives a meaning leading to absurdity.

External aids-Reliance on-Held: ls not pennissible if the language of G
a statute is clear and unambiguous. .

Practice and Procedure :

Inherent Power-Exercise of-Held: Cannot be exercised contrary to
express provisions of the Act. H
303
304 SUPREME COURT REPORTS [2001) SUPP. 4 S.C.R.
;' A Words and Phrases :

"Tenns" and:i'ihterest"-Meaning of-Iii the contextofS.245D(6) ofthe
Income Tax Act, 1961.
\:

"Settlement"-;Meariing of-:-:-In the context of S.245D(4J. of the Income
Tax Act, 196L 1 · · ••• . • : •
1
B . •. • ••

In this appeal the following question arose before the Court :-

Whether the Settlement Commission constituted under Section 245B •
of the Income Tax Act; 1961 has the Jurisdiction to ·reduce or ·waive the
c
';

interest chargeable urider Sections 234A, 234B and 234C of the Act, while
passing orders of settlement under Section 245D(4) of the Act?
. ,·•
Disposing of the appea:ls, the Court ,
.'
·D HELD: 1. The expression "terms" used in Section 245D(6).of the
Income Tax Act, 1961 does not refer to the power of the Settlement
Commission.to waive or reduce tax, penalty or interest because quantifi·
, cation of amount payable under each of those expressions are dealt with J.

· under. .separate provisions of the Act ·like the payment of the tax is
governed by various provisions of the Act as defined in Section 2(43);of.
E the Act while penalty is covered by Section 245H and interest under
Sections 234A, 2340 and 234C of the Act. Therefore, all that the expres-
. sion "terms" in Section 2450(6) means. is that the Co,mmission can stipu-
late th~ conditions of payment like instalments, last date for payment etc.
Bey~nd that Section USD(6) does not authorise the waiver or reduction of
·:p tax, penalty or interest settled under Section 2450(4). (314-H; 315-A-B]
' t •.•., • ' ~ I \ • ' \ • • ' I f, '. ~
CIT v. Express. Newspapers 4td., 206 (1?94) ITR 443 (SC), held inap·
pli~able. ' · · · · · ·

, (\.s!iwwii f<umar Aggarn:~l, In re 195 ITR ~61, referred, ,to.

2. Undoubtedly, the Central Board of Direc.t Taxes is an· e~ec~ti~e 'au-
·,
thority being a part of the Ministry of Finance. Us actions are amenable to
scrutiny by the said Ministry as also by audit bodies and also the Parliament
whereas the Commission constituted under Section 2458 of the Act is a quasi-
'H judicial body (Section 245L) and its orders are not amenable to either super-
C.l.T. v. ANJUM M.H. GHASWALA 305
visory or appellate jurisdiction of the Ministry of Finance or any of the audit A
bodies and for that matter even by the Parliament. Its orders under Section
245I are conclusive which cannot be reopened in any proceedings under the
Act or under any other law for the time being in force. Therefore, it cannot
be said that in the context in which the power under Section 119 could be
exercised by the Board, the Commission could either equate itself with the
B
Board or claim the right to exercise the power vested in the Board under
Section 119, which is an administrative power. [316-G~~]

3.1. It is no doubt true that the terminology 'settlement' has a very
wide dictionary meaning and in the absence of a statutory definition
generally the word 'settlement' in Section 2450(4) 'would give the Com- C
mission sufficient power to arrive at a settlement which it deems fit, but
when the statute qualifies such an expression like 'settlement' with man-
datory words like 'in accordance with the provisions of this Act' the
width of the term 'settlement' becomes subject to the mandate found in
that Section, which would mean that while a Commission has sufficient
elbow-room in assessing the income of the applicant under Section 2450(4)
it cannot make any order with a term of the settlement which would be in
conflict with the mandatory provisions of the Section like in the quantum
and payment of tax and/or interest. Assuming that there is any room for
interpretation of the provisions of Part F of Chapter XVII and Chapter
XIX-A, it would not in any manner empower the Commission to either JE
waive or reduce interest, which is statutorily payable under the provisions
of Part F of Chapter XVII. [319-B-0]

3.2. Assuming that the Commission has any inherent power, it is a
well-established legal principle that any inherent power vested Wt 1 ai\
authority cannot be exercised contrary to the express provisionsit>f ·td~
Act. In the instant case, there being express provisions in regari:f'Jt" ttfle
levy of interest under Part F of Chapter XVII even if there is any1in~1tt
power in the Commission such power cannot be exercised contraryhto1the
ptovisions of.the said Chapter. [319-F] .nq h:bibui, lti
\~)f!lI noitn2 ni o.
4. Under Section 245-H the Commission has the power to grant
immunity to the assessee (rom prosecution and penalty,Zllhislimfutnity is
not confined on~y to the penal provisions of the Act b.utrit1iS1l.dliJl' aJiitila~lif
gral\~ed by the Commission to offence.s under tl.J.f·.~~ J/J}qW~/HJ~rftf
under any other Central Act for the time bei1,1.gli!ttffili~d\P~l~~~ !JM H,._
306 SUPREME COURT REPORTS [2001) SUPP. 4 S.C.R.
A benefit of waiver or reduction in tlie imposition of penalty under the Act
with respect to the cases covered by the settlement. Merely because the
Settlement Commission has not been vested with the power of waiving or
reducting the interest, Chapter XIX-A would not either become otiose or
serve any purpose. [320-G-H]
B
5.1. Every Clarificatory Note or Press Release issued by the Board
does not have the statutory force like the Circulars issued by the Board
under Section 119 of the Act. Only those Circulars issued by the Board
under the provisions of Section 119 of the Act will have the statutory force
and will be binding on every income-tax authorities. [320-A]
c
5.2. The Circulars of the Board are legally binding on the Revenue.
Since these Circulars are beneficial to the assessees, such benefit can be
conferred also on the assessees who have approached the Settlement Com-
:m'ission under Section 245C of the Act on such terms and conditions as
D contained in the Circular. It is for this purpose that section 245F of the Act
has empowered the Settlement Commission to exercise the power of an in·
come-tax authority under the Act. While exercising the power derived un·
.der the Circulars of the Board, the Commission does not act as a subordinate
to the Board but will be enforcing the relaxed provisions of the Circulars for
E the benefit of the assessee in the process of settlement. [321·D~E]

UCO Sank v. GIT. 1(1999) 237 ITR 889 (SC), relied on.

6.1. It is a normal rule of construction that when a statute vests
certain power in an authority to be exercised in a particular manner then
F the said authority .has to exercise it only in the manner provided in the
statute itself. If that be so since the Commission cannot exercise the power
of relaxation found in Section· 119(2)(a) in the manner provided therein it
cannot invoke that power under Section 119(2)(a) to exercise the same in
its judicial proceedings by following a procedure;contrary to that provided
G in Section 119(2). [317-C] / ·

.: 6.2. The exercise of purposive interpretation by looking into the
object and scheme of the Act and legislative intendment would arise if the
language of the Statute is either ambiguous or conflicting or gives a mean·
H ing leading to absurdity. [318-CJ
C.I.T. v. ANJUM M.H. GHASW ALA 307
6.3. The question of the Commission relying upon external aids for the A
purpose of interpretation is purposeless because of the clear and unambigu~
ous language used in Sections 234A, 234B and 234C and Sections 245D(4)
and (6). If only the Commission were to follow the golden rule of interpreta-
tion by giving the words of the Statute their natural and ordinary meaning
without unnecessarily going into a forensic exercise of trying to find out the B
object of the introduction of Chapter· XIX-A or Part F of Chapter XVII, the
Commission would not have fallen in error. [318-H; 319-A]

Jaywant S. Kulkarni v. Minochar Dosabhai Shroff, AIR (1988) SC
1817, relied on.

7. The Commission, therefore, in exercise of its power under Sections
c
245(4) and (6) does not have the power to reduce or waive interest statutorily
payable under Sections 234A, 234B and 234C except to the extent of
granting relief under the Circulars issued by the Board under Section 119
of the Act. [321-F]
D
CIVIL APPELLATE JURISDICTiON : Civil Appeal Nos. 4126-50 of
2000.

From the Judgment and Order dated 12.12.97 of the Income Tax
Settlement Commission Special Bench, Mumbai in Settlement Application
Nos. 5/XIIl/59-63/94.-95-IT, 6/11/024-025/94-95/IT, 10/C/040/95~96/IT, 10/ E
C/037, 038, 039 & 047/95-96/IT, 10/111/005/94-95/IT, 10/111/150/91-92/IT,
10/111/035/95-96/IT, 10/111/029/92-93/IT, 101111/017-018 & 71193-94/IT, 10/
C/135 & 149/91-92/IT, 5NIII/II/91-92/IT & 5/VIII/81/91-92/IT, 5/NER/70
and 72/91/IT.

WITll F

C.A. Nos. 6275-86/98, 1561, 3859/99, SLP(C) Nos. 17832-34, 16404-
05,16407-11/2000, C.A. Nos. 6414-15, 3744/98, 5655-59/99, 16810/96 and
1858 of 1999.

· Harish N. Salve, Solicitor General, M.L. Verma, J. Ramamurti, S. G
Ganesh, R.P. Agarwal, Joseph Vellapally, Ranbir Chandra, Rajiv Tyagi, K.C.
Kaushik, Rajiv Nanda, Pritesh Kapur, S. Goswami, Ms. Neera Gupta, Siddharth
Chowdhury, Ms. Aprajita Singh, Ms. Gayatri Goswami, B.V.B. Das, Ramesh
Goenka, Vijay Hansaria, Sunil K. Jain, Amitesh Lal, Ms. Priya Kumar for P.N.
Puri, S. Rajappa, Sameer Parekh, Ms. Sonali Basu Parekh, P.H. Parekh, U.A. H
308 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A Rana, Ms. Shalini Mittal, Mrinal Bhatti, A.T.M. Sampath for the appearing
parties.

The Judgment of the Court was delivered by

SANTOSH HEGDE, J. CA Nos. 4126-5012000 :
B
In these appeals, the question that arises for our consideration is:
whether the Settlement Commission (for short 'the Commission') constituted
under Section 245B of the Income-tax Act, 1961 (hereinafter referred to as 'the
Act') ha;; the jurisdiction to reduce or waive the interest chargeable under
Sections 234A, 234B and 234C of the Act, while passing orders of settlement
c under Section 245D( 4) of the Act?

Earlier, thiS question arose before the Commission in the case of
Ashwani Kumar Aggarwal, In re (195 ITR 861) wherein a 5-Member Special
Bench of the Commission held that under Section 245D(4) or sub-section (6),
the Commission does not have the power either to waive or reduce the
D statutory interest payable under the Act.

This view of the 5-Member Bench of the Commission was overruled
by a larger Bench comprising of 7 Members of the Commission which held
otherwise by the impugned order. It held that the Commission is vested with
E the power to waive or reduce the interest chargeable under Section 234A,
234B and 234C of the Act in cases pending before it for the assessment year
1989-90 and onwards (i.e. the year in which Chapter XVII-F was introduced
in the Act). It further held that this power can be exercised by any of the
Benches constituted to settle cases under Section 245BA of the Act. While
coming to this conclusion, the Commission held that the constitution of the
F Commission is based on the concept of "compromise and settlement", hence,
it has the necessary power to waive or reduce the interest, even if statutorily
mandated, in view of the wordings of Section 245D(6) of the Act.

It also held that in view of the definition of the term "income-tax
authority" under Section 245A(d), the Commission being an income-tax au-
G thority it has ail the powers of the Board which are incidental to the functions
of the Commission, which includes the Boards powet under Section 119 of
the Act to relax the rigors of Sections 234A, 234-B and 234C of the Act.

By applying the rule of construction, the Commission further held that
H taking into consideration the object for which the Commission is constituted,
C.l.T. v. ANJUM M.H. GHASWALA [HEGDE, J.] 309
it should be held by the process of purposive interpretation that it has the power A
of waiver or reduction of statutory interest because the object of the Legislature
was to settle the case without there being any restriction on Commission's
power to settle the case.

For the purpose of deciding the above issue, it is necessary for us to
examine the various provisions of the Act which are germane to the contro-
versy in hand.

The constitution of the Commission and its powers are traceable to the
provisions of Chapter XIX-A of the Act. As noted above, Section 245B pro-
vides for the constitution of a Commission by the Central Government for ':C
settlement of cases under that Chapter. It also provides for appointment of a
Chairman, Vice-Chairman and members of the Commission, the Constitution
of various Benches of the Commission and empowers those Benches to
exercise power and authority vested in the Commission under Chapter XIX-
A of the Act. Section 245A defines various expressions under sub-clauses (a) Cb
to (g) but does not define the expression 'settlement'.

Section 245C provides for filing of an application by an assessee at any
stage of the case relating to him in a prescribed manner giving full and true
disclosure of his income which has not been disclosed before the assessing
officer and further informing the manner in which such income has been
derived by him and the quantum of additional amount of income-tax payaqJe
on such income amongst other particulars that may be prescribed withq a
prayer to the Commission to have the case settled.

The word case has been defined under Section 245-A(b) thus :

"case" means any proceeding under this Act for the assessment or
reassessment of any person in respect of any year or years, or by way
of appeal or revision in connection with such assessment or reassess-
ment, which may be pending before an income-tax authority on the
date on which an application under sub-section (l) of section 245C is
made:

Provided that where any appeal or application for revision has been
preferred after the expiry of the period specified for the filing of such
appeal or application for revision under this Act and which has not l-H
310 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A been admitted, such appeal or revision shall not be deemed to be a
proceeding pending within the meaning of this clause;"

Under the provisions of Chapter XIX-A, on such application being
made, the Commission is empowered to dispose of the same in the manner
B provided thereunder. Section 2450 provides for the procedure and exercise of
power to be followed by the Commission on receipt of an application under
Section 245C. Under this provision, the Commission has the authority to call
for the report from the Commissioner of Income Tax (for short 'the Commis-
sioner) and on the basis of the material contained in such report and having
regard to the nature and circumstances of the case or the complexity of the
c investigation involved therein, it may by order allow the application to be
proceeded with or reject the application.

If the Commission allows the application filed under Section 245C then
under sub-section (3) of Section 2450 it can call for the relevant records from
D the Commissioner and if it forms any opinion that any further inquiry or
investigation in the matter is necessary, it may direct the Commissioner to
make or cause to be made such further inquiry or investigation and furnish a
report on the matters· covered by the application and other matters relating to
the case.
E
Sub-sections (4) and (6) of Section 2450 being of importance for the
purpose of our discussion, the same are extracted in verbatim hereunder :

(4) After examination of the records and the report of the Commis-
sioner, received under sub-section (1), and the report, if any, of the
F Commissioner received under sub-section (3), and after giving an
opportunity to the applicant and to the Commissioner to be heard,
either in person or through a representative duly authorised in this
behalf, and after examining such further evidence as may be placed
before it or obtained by it, the Settlement Commission may, in accord-
G ance with the provisions of this Act, pass such order as it thinks fit on
the matters covered by the application and any other matter relating to
the case not covered by the application, but referred to in the report
of the Commissioner under sub-section (1) or sub-section (3).

H x x x
C.I.T. v. ANJUM M.H. GHASWALA [HEGDE, J.] 311
(6) Every order passed under sub-section (4) shall provi~e for the A
terms of settlement including any demand by way of [tax, penalty or
interest], the manner in which any sum due under the settlement shall
be paid and all other matters to make the settlement effel.tive and
shall also provide that the settlement shall be void if it is subsequently
found by the Settlement Commission that it has been obtained by
B
fraud or misrepresentation of facts. (emphasis supplied).

From the above provisions of law, it is seen that the Commission after
examination of the records and reports submitted to him and after giving an
opportunity to the applicant and to the Commissioner of being heard, may
pass such order as it thinks fit on the matters covered by the application. c
Though Section 245D(4) confers wide power on the Commission in the
process of settling a case, the Act still mandates that the same will be done
in accordance with the provisions of the Act.

While that is the mandate which is given to the Commission, a perusal
of sub-section (6) of Section 245D shows that it has also empowered the D
Commission to provide for the terms of settlement including any demand by
way of tax, penalty or interest; the manner in which any sum due under the
settlement shall be paid and all other matters to make the settlement effective.
It is an admitted position that by its plain language sub-section (4) of Section
245D does not empower the Commission to waive or reduce statutory interest
E
payable under the provisions of Sections 234A, 234B or 234C.

The moot question, therefore, for our consideration is: does sub-section
(6) which contemplates providing for the terms of settlement of tax, penalty
or interest empowers the Commission, in any manner, either to waive or
reduce interest payable under Sections 234A, 234B or 234C in any case that F
arises for settlement before the Commission ? If so, would this waiver of
interest be in accordance with the provisions of the Act as mandated in sub-
section (4) of the Act ?

For answering the above question, we will have to examine the char-
acter of interest payable under the provisions of Sections 234A, 234B and G~
234C. A perusal of these Sections shows that the interest for default in
furnishing return of income, default in payment of advance tax and interest
for deferment of advance-tax are mandatory in nature. Section 234A which
refer to the payment of interest for default in furnishing the return of income-
tax mandates : H
312 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A "234A. ( 1) Where the return of income for any assessment year under
sub-section (1) or sub-section (4) of section 139, or in response to a
notice under sub-section (1) of section 142, is furnished after the due
date, or is not furnished, the assessee shall be liable to pay simple
interest at the rate of [one and one-half] {Substituted for "two" by the
B Finance Act, 1999 w.e.f. 1.6.1999} per cent for every month or part
of a month comprised in the period commencing on the date imme-
diately following the due date, and, ----" (emphasis supplied).

Similarly, Sections 234B and 234C also use similar mandatory words in
regard to payment of int<?rest. At this stage, it is ofimportance to notice sub-
c section (4) of Section 234A which reads thus : ·

"(4) Where as a result of an order under section 154 or section 155 or
section 250 or section 254 or section 260 or section 262 or section 263
or section 264 or an order of the Settlement Commission under sub-
section (4) or section 245D, the amount of tax on which interest was
·D
payable under sub-section (1) or sub-section (3) of this section has
been increased or reduced, as the.case may be, the interest shall be
increased or reduced accordingly, and -

(i) in a case w~ere the interest is increased.• the Assessing Officer
E shall serve on the assessee a notice of demand in the prescribed
form specifying the sum payable, and such notice of demand
shall be deemed to be a notice under section 156 and the
provisions of this Act shall apply accordingly;

(ii) in a case where the interest is reduced, the excess interest paid,
F
if any, shall be refunded." (emphasis supplied)
A perusal of this sub-section which refers to sub-section (4) of Section
245D mandates that if by virtue of an order passed under Section 245D, the
amount of tax on which interest was payable under sub-section (1) or sub-
G section (3) of this Section has been increased or reduced, as the case may be,
the interest shall be increased or reduced accordingly. This Section is an
indicator of the fact that so far as the interest falling due by virtue of default
in furnishing a return of income, default in payment of advance-tax or interest
for deferment of advance-tax are concerned. Part F of Chapter XVII has been
H obligated with the duty of levy of interest, as also to make the necessary
C.I.T. v. ANJUM M.H. GHASWALA [HEGDE, J.] 313
changes in the payment of interest dependent on the change that may occur A
consequent to the order of settlement under Section 245D(4).

It is also to be noted that wherever the Act contemplated power of waiver
or reduction of interest to be entrusted with any particular authority in any
particular situation, it has done so like in Section 220(2A) of the Act. It is also B
worthwhile to note that the Act wherever it contemplated that there should be
no levy of interest, it has clearly made provision for the same as could be seen
from Section 158BF which mandates that no interest under the provisions of
Section 234A, 234B or 234C shall be levied or imposed upon the assessee in
respect of the undisclosed income determined in the block assessment.
c
If the scheme of levy of interest is thus to be analysed on the anvil of
the provisions referred to hereinabove, it shows that the interest contemplated
under Sections 234A, 234B and 234C is mandatory in nature and the power
of waiver or reduction having not been expressly conferred on the Commis-
sion, the same indicates that so far as the payment of statutory interest is D
concerned, the same is outside the purview of the settlement contemplated in
Chapter XIX-A of the Act.

The Commission, however, traced its power to waive or reduce interest
to the objects of the Act and to what it termed as schematic rationalisation of
E
the provisions of Chapter XIX-A. It also based its finding on the statutory
provisions i.e. Sections 245D(4) and (6) and Section 119(2) of the Act.

From amongst the above grounds on which the impugned order is founded,
we will examine the correctness of the statutory basis of the ordet first.
F

- The Commission in the impugned order placed strong reliance on the
wording of Section 245D(6) the language of which, according to the Commis-
sion, empowers it to waive or reduce statutory interest because of the reintro-
duction of the expression "interest" in that sub-section. According to the
findings of the Commission, the. inclusion of the expression interest clearly G
indicates that the Statute has permitted it to pass such orders as it deems fit in
regard to payment of interest when an order under sub-section (4) of Section
245D is made by it. This assumption of the Commission proceeds on the
hypothesis that sub-section (6) of Section 245D is a substantive provision. We
are unable to agree with this view of the Commission. The substantive provi- H
314 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A sion in regard to settlement in Chapter XIX-A, in our opinion, is sub-section
(4) of Section 2450. It is under this provision of the Act that the Commission
will have to pass orders as it thinks fit on the matters covered by the application.
In our opinion, sub-section (6) of Section 2450 is only procedural in nature.
It provides for fixing the terms by which the amount settled in sub-section (4)
B will have to be paid. It is not a Section which empowers the Commission either
to waive or reduce the interest. At the cost of repetition, we must point out that
apart from the fact that there is no specific empowerment of waiver or reduc-
tion of tax in Chapter XIX-A, it is also ·Cleat from the use of .the expression
"in accordance with the provisions of this Act" found in sub-section (4) of
C Section 2450, the settlement will have to be in conformity with the Act and
not contrary to or in conflict with it. There is yet another factor to be taken note
of while interpreting sub-section (6) of Section 2450. The said sub-section al.so
provides for terms of settlement in regard to the tax. If ihe interpretation given
by the Co!llmission is to be accepted, it would mean that under the provisions
of Section 2450(6), the Commission also has the power of waiving or reducing
D the tax payable on the income set.tied by the Commission. If this position in
law is presumed to be correct then the very purpose of the settlement contem-
plated in Chapter XIX-A would defeat the object of the principal Act itself. As
held by the Commission itself, Chapter XIX-A was included for the purpose
of quick settlement of the cases before it so that the tax due to the Revenue
E is collected at the earliest. The object of Chapter XIX-A is not to give amnesty
to a tax evader from paying the tax due. Hence, it would be preposterous to
hold that the Commission has been conferred with the power of either reducing
or waiving the tax due. We are aware that the Commission in the impugned
order has not gone to the extent of holding that it has the power of either
F waiving or reducing the tax payable but then that would be the logical conclu-
sion if we accept the interpretation given by the Comrrission in regard to the
expression "interest" in Section 2450(6) of the Act. A proper reading of sub-
section (6) would show that all that it contemplates is that while the Commis-
sion makes an order of settlement under sub-section (4) it will also have to
G provide for the terms under which the amount payable by way of tax, penalty
or interest shall be paid by the assessee. The expression "term8" used in that
·sub-section does not refer to the power of the Commission to waive or reduce
tax, penalty or interest because·quantification of amount payable under each
of those expressions are dealt with under separate provisions of the Act like
H the payment of the tax is governed by various provisions of the Act as defined
C.l.T. v. ANJUM M.H. GHASWALA [HEGDE, J.] 315
in Section 2(43) of the Act while penalty is covered by Section 245H and A
interest under Sections 234A, 234B and 234C -of the Act. Therefore, all that
the expression "term" in Section 245D(6) means is that the Commission can
stipulate the conditions of payment like instalments, last date for payment etc.
Beyond that, in our opinion, sub-section (6) does not authorise the waiver or
reduction of tax, penalty or interest settled under sub-section (4) of Section B
245D.

The Commission in support of its view on this score has placed reliance
on the judgment of this Court in the case of Commissioner qf Income-Tax v.
Express Newspapers Ltd., 206 (1994) ITR 443 wherein this Court observed
thus :
c
"Sub-section (4) of section 245D provides for passing of final orders
by the Commission. It is not necessary to refer to the other provisions
in the Chapter except to mention that the Commission is empowered
to direct the waiver of penalty as well as interest and to direct that D
the tax payable shall be paid in prescribed instalments. It is further
empowered to direct that the assessee whose case has been decided
by it shall not be proceeded with or prosecuted under the Income-tax
Act or under the Indian Penal Code or under any other Central Act
for the time being in force with respect to the case covered by the E
settlement. The orders of the Commission are final, subject of course
to constitutional remedies."

In our opinion, this observation in the Express Newspapers' case (supra)
does not help the Commission in support of its conclusion in regard to its
power under Sections 245D(4) and (6). It is to be noted that in that case the F
settlement sought was with regard to assessment years 1985-86, 1986-87 and
1987-88. It is an admitted fact that during those assessment years, Sections
234A, 234B and 234C were not in the statute book. On the contrary, the
corresponding provisions existing in the Statute, namely, Sections 139(8),
215(4) and 216 in terms empowered the income~tax authorities to waive or G
reduce interest. It is in that context that this Court observed, in the paragraph
extracted hereinabove, that under Section 245D(4), the Commission has the
power to direct the waiver of penalty as well as interest because that was within
the scope of the provisions of the Act, as then existing, whereas at present and
for the assessment years involved in this case, Sections 234A, 234B and 234C H
316 SUPREME COURT REPORTS [2001) SUPP. 4 S.C.R.
A being applicable that observation does not apply to the cases in hand. The
sentence "except to mention that the Commission is empowered to direct the
waiver of penalty as well as interest. .. " is used in that judgment on the basis
of the then existing law and to apply the same to the facts of the present case
with the mandatory change in law would amount to applying those principles
B in the Express Newspapers' case (supra) out of context.

Nextly, the Commission also traced its power either to waive or reduce
the interest .to Section 119(2) of the Act. In our opinion, this process of tracing
Commission's power to Section 119(2) of the Act is rather convoluted. It first
relied upon Section 245F which conferred on it the powers vestelt in an
C income-tax authority. Next it relied upon the definition of the expression
'income-tax authority' as found in Section 245A(d) of the Act which in turn
referred to Section 116 of the Act which included the Board as one of the
income-tax authorities for the purpose of the Act. Having equated itself with
the Board, it traced the power of the Board to Section 119(2) to relax the rigor
D of Sections 234A, 234B and 234C. Thus, by this process the Commission
came to the conclusion that it can also relax the rigor of Sections 234A, 234B
and 234C while passing the order of settlement without really considering
whether in the context in which this power is conferred on the Board, the
Commission could equate itself with the Board for the purpose of exercising
E power under Section 119(2). Therefore, we will first examine whether the
Commission can be construed as a Board for the purpose of Section 119 or
in the alternative by virtue of Section 245F(d) read with Section 245A(d) read
with Section 116 can the Commission exercise the power conferred on the
Board under Section 119 of the Act? For this purpose it is necessary to examine
the nature of power exercised by the Board under Section 119 of the Act.
F Undoubtedly, the Board is an executive authority being a part of th·e Ministry
of Finance. Its actions are amenable to scrutiny by the said Ministry as also by
audit bodies and also the Parliament whereas the Commission constituted under
Section 245B of the Act is a quasi-judicial body (see Sec.245L) and its orders
are not amenable to either supervisory or appellate jurisdiction of the Ministry
G of Finance or any of the audit bodies and for that matter even by the Parliament.
·Its orders under Section 245-1 are conclusive which cannot be reopened in any
proceedings under the Act or under any other law for the time being in force.
Therefore; it cannot be said that in the context in which the power under
Section 119 could be exercised by the Board, the Commission could either
H equate itself with the Board or claim the right to exercise the power vested in
C.I.T. v. ANJUM MfH. GHASWALA [HEGDE, J.] 317
the Board under Section 119 which is an administrative power. A

Then it is to be seen that the Act requires the Board to exercise the power
under Section 119 in a particular manner i.e. by way of issuance of orders,
instructions and directions. These orders, instructions and directions are meant
to be issued to other income-tax authorities for proper administration of the
Act, the Commission while exercising its quasi-judicial power of arriving at a
B
settlement under Section 2450 cannot have the administrative power of issuing
directions to other income-tax authorities. It is a normal rule of construction
that when a statute vests certain power in an authority to be exercised in a
particular manner then the said authority has to exercise it only in the manner
provided in the statute itself. If that be so since the Commission cannot exercise c
the power of relaxation found in Section 119(2)(a) in the manner provided
therein it cannot invoke that power under Section 119(2)(a) to exercise the
same in its judicial proceedings by following a procedure contrary to that
provided in sub-section (2) of Section 119.
D
There is one other reason why Section 119(2) is not available to the
Commission, because if we examine the provisions of Section 245A through
which the Commission has traced its power to be equated with the Board
which defines the expression "case" to mean "any proceeding under this Act
for the assessment or reassessment of any person in respect of any year or
years.... which may be pending before an income-tax authority on the date on E
which an application under sub-section ( 1) of Section 245 is made". As per
this definition, it is clear that the power of settlement is vested in the
Commission in regard to a particular case pertaining to an assessee, may be
for one or. more years while the_ power of relaxation contemplated under
Section l 19(2)(a) can be exercised only in regard to class of cases or class F
of incomes. It is not open to be used in regard to any particular person or case
contemplated under the definition of the expression 'case' in Section 245A
(supra). Therefore, we are of the opinion that the context in which the power
under Section 119 is vested in the Board and the context in which the power
of settlement is vested with the Commission under Section 245C indicates G
that the Parliament did not intend that the power under section 119 of the Act
could be used by the Commission for granting the said relief, and the Com-
mission cannot be equated with the Board for the purpose of exercise of the
power under Section 119 of the Act. Having noticed this difference, the Com-
mission in the impugned order holds that it is not exercising the administrative H
318 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A power of issuing directions or instructions, hence, it relied upon the legislative
intent of giving relief of waiver or reduction of interest to the assessee while
arriving at a settlement.

Nextly, the Commission has elaborately discussed the object of introduc-
tion of Chapter XIX-A in the Act, the history behind the introduction and
B schematic rationalisation of the provisions of Chapter XIX-A brought about
through Finance Act, 1987 to hold that in exercising its power under Chapter
XIX-A it has almost an unbridled power to arrive at a settlement. This
exercise of purposive interpretation by looking into the object and scheme of
the Act and legislative intendment would arise, in our opinion, if the language
C of the Statute is either ambiguous or conflicting or gives a meaning leading
to absurdity. We do not find any such problem in the provisions of the Act
to which we have already referred to. Sections 234A, 234B and 234C in clear
terms impose a mandate to collect interest at the rates stipulated. therein. The ·
expression 'shall' used in the said Section cannot by any stretch ofimagi_nation.
D be construed as 'may'. There are sufficient indications in the scheme of the Ad
to show that the expression 'shall' used in Sections 234A, 234B and 234C is
used by the Legislature deliberately and it has not left any scope for inter-
preting the said expression as 'may'. This is clear from the fact that prior to
the Amendment brought about by the Finance Act, 1987, the Legislature in the
corresponding Section pertaining to imposition of interest used the expression
E
'may' thereby giving a discretion to the authorities concerned to either reduce
or waive the interest. The change brought about by the Amending Act (Finance
Act, 1987) is a clear indication of the fact that the intention of the Legislature
was to make the collection of statutory interest mandatory. In this connection,
we may usefully refer to the judgment of this Court in Jaywant S. Kulkarni &
F Ors. v. Minochar Dosabhai Shroff & Ors., AIR 1988 SC 1817 wherein this
Court held that when the Legislature changes the expression "may" to "shall"
by amendment of the statute, it is clear that it intended to make the provision
mandatory from the existing directory provision: Therefore, the question of the
Commission relying upon external aids, for the purpose of interpretation like
G Wanchoo Committee Report, Discussions of Select Committee of Parliament
and introduction of Chapter XIX-A in the Act, Press Release of the Board dated
21.5 .1996 etc. are purposeless because of the clear and unambiguous language
used in Sections 234A, 234B and 234C,and Sections 2450(4) and (6). We
notice if only the Commission were to follow the golden rule of interpretation
H by giving the words of the Statute their natural and ordinary meaning without
C.l.T. v. ANJUM M.H. GHASWALA [HEGDE, J.] 319
unnecessarily going into a forensic exercise of trying to find out the object of A
the introduction of Chapter XIX-A or Part F of Chapter XVII, the Commission
would not have fallen in error.

It is no doubt true that the terminology 'settlement' has a very wide
i·
dictionary meaning and in the absence of a statutory definition generally the B
word 'settlement' in sub-section (4) of Section 245D would give the Com-
mission sufficient power to arrive at a settlement which it deems fit, but when
the statute qualifies such expression like 'settlement' with mandatory words
like 'in accordance with the provisions of this Act' the width of the term
'settlement' becomes subject to the mandate found in that Section, which
would mean that while a Commission has sufficient elbow-room in assessing
c
the income of the applicant under Section 245D(4) it cannot make any order
with a term of the settlement which would be in conflict with the mandatory
provisions of the Section like in the quantum and payment of tax and/or
interest. In this view of the matter, we are of the cpinion that assuming that
there is any room for interpretation of the provisions of Part F of Chapter XVII D
and Chapter XIX-A, we would hold that it would not in any manner empower
the Commission to either waive or reduce interest which is statutorily payable
under the provisions of Part F of Chapter XVII.

It was then argued that the Commission having been statutorily consti- E
tuted to arrive at a settlement has also the inherent power which includes the
power to waive or reduce the interest even though it is not specifically
provided for. This argument, in our opinion, cannot be sustained. Assuming
that the Commission has any inherent power, it is a well-established legal
principle that any inherent power vested in an authority cannot be exercised
F
contrary to the express provisions of the Act. In the instant case, there being
express provisions in regard to the levy of interest under Part F of Chapter
XVII even if there is any inherent power in the Commission such power
cannot be exercised contrary to the provisions of the said Chapter.

Shri Ramamurti, learned senior counsel appearing for some of the G
respondents, placed strong reliance on the Press Release dated 21st May, 1996
issued by the Board in support of the contentions raised on behalf of the
respondents. It is true that by this Press Release the Board had interpreted the
provisions of the Act .in a particular manner. Be that as it may, we would like
to make it clear that every Clarificatory Note or Press Release issued by the H
320 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A Board does not have the statutory force like the Circulars issued by the Board
under Section 119 of the Act. It is only those Circulars issued by the Board ,
under the provisions o.f Section 119 of the Act, will have the statutory force
and will be binding on every income-tax authorities. Therefore, the Press
Release relied upon by Shri Ramamurti not being a Circular issued under
B Section 119 of the Act will not be of any assistance to the respondents in
support of their contentions.

It is then contended that if it is to be construed that the Commission
has no power of waiver or reduction of interest. then the entire purpose of
Chapter XIX-A would. be defeated since a person making an application to
c the Commission would not be in any way better off than pursuing his remedy-
otherwise provided in the Act. We are unable to accept this argument ad-
vanced on behalf of the respondents because the persons who approach .the
Commission under Chapter XIX-B are admittedly the persons who had not
declared their true incomes to the income-tax authorities as required under the
D Act. Inspite of this default, Section 245C comes to the aid of such assessees
by providing a way out of the statutory implications of their default. The
object of the Legislature in introducing this Section is to see that the pro-
tracted proceedings before the authorities or in courts are avoided by,resorting
to settlement of cases. In this process, an assessee cannot expect any reduction
E in amounts statutorily payable under the Act. While the Settlement Commis-
sion arrives at the taxable income of the assessee on the basis of records
available before it, it has to .levy the mandatorily chargeable tax on su ~n
income arrived (lt by it and wherever interest is due under the mandatory
provisions like Sections 234A, 234B and 234C; ~t has to include the said
interest also in the settlement. But, at the same time,. the assessee who because
F of his non~disclosure would otherwise have been liable for. vari1;ms penal
actions, gets an opportunity of getting immunity from penal proceedings. It
is to be seen that under Section 245H the Commission has the power to grant
immunity to the assessee from prosecution and penalty. This immunity is not
confined only to the penal provisions of the Act but it is also available if
G ,granted by the Commission to offences under the Indian Penal Code or under
any other Central Act for the time being in force and also get the benefit of
waiver or reduction in the imposition of penalty under the Act with respect to
the cases covered by the settlement. Therefore, it is futile to contend that· merely.
because the Settlement Commission has not been vested with the· power of
H waiving or reducing the interest, Chapter XIX-A would either become otiose·
i
C.l.T. v. ANJUM M.H. GHASWALA [HEGDE, J.] 321
1·.
or would not serve any purpose. Hence, this argument has to be rejected. A

Learned Solicitor General has pointed out that by virtue of the power

-
vested in the Board under Section 119(2)(a) of the Act, the Board has issued
Circulars by Notification No.F.No.400/234/95-IT(B) dated 23.5.1996. As per
this Circular, it has empowered that the Chief Commissioner of Income Tax
and Director General of Income-tax may waive or reduce interest charged
B
under Sections 234A, 234B and 234C of the Act in the class of cases or class
of incomes specified in paragraph 2 of the said order for the period and on
conditions which are enumerated therein. He submitted that in view of the
said Circular, the same authority can be exercised by the Commission since
the said Circular would amount to relaxation of the rigor of Sections 234A, c
234B and 234C of the Act. We are in unison with this submission of the
learned Solicitor General. This Court in a catena of cases has held that the
Circulars of the Central Board of Direct Taxes are legally bindinz on the
Revenue. See UCO Bank v. Commissioner of Income Tax, (1999) 237 ITR
889. Since these Circulars are beneficial to the assessees, such benefit can be
D
conferred also on the assessees who have approached the Settlement Commis-
sion under Section 245C of the Act on such terms and conditions as contained
in the Circular. In our opinion, it is for this purpose that Section 245F of the
Act has empowered the Settlement Commission to exercise the power of an
income-tax authority under the Act. We must clarify here that while exercis-
ing the power derived under the Circulars of the Board, the Commission does E
not act as a subordinate to the Board but' will be enforcing the relaxed
provisions of the Circulars for the benefit of the assessee in the process of
settlement.

For the reasons stated above, we hold that the Commission: in exercise
F
of its power under Sections 245(4) and (6) does not have the power to reduce
or waive interest statutorily payable under Sections 234A, 234B and 234C
except to the extent of granting relief under the Circulars issued by the Board
under Section 119 of the Act.

In conclusion, we must note that we have taken up for consideration G
Civil Appeal Nos.4126-50/2000 and have decided the issue pertaining to the
power of the Commission to waive or reduce the inter~st chargeable under
Sections 234A, 234B and 234C of the Act while passing orders of settlement
under Section 2450(4) of the Act. We have not decided any other issue that
might arise in all the appeals/petitions.
H
322 SUPREME COURT REPORTS [2001] SUPP. 4 S.C.R.
A Having decided the abovesaid question of law, we think it proper that all
these matters be placed before a Division Bench of this Court for disposal in
accordance with law. / ·

It is ordered accordingly. No costs.

v.s.s. Appeals disposed of.