Understanding Section 245 of Income Tax Act: Meaning, Scope and Implications
Section 245 of the Income Tax Act, 1961, deals with the concept of Settlement Commission. The provisions of this section empower the Settlement Commission to resolve disputes relating to income tax, wealth tax and other tax-related matters. This blog will discuss the various aspects of Section 245, including its meaning, scope, and implications.
Meaning of Section 245
Section 245 of the Income Tax Act, 1961, provides for the establishment of the Settlement Commission. This Commission is a quasi-judicial body that is empowered to settle tax disputes between taxpayers and the Income Tax Department. The Commission has the power to grant immunity from prosecution and penalty to taxpayers who disclose their undisclosed income.
Scope of Section 245
The Settlement Commission can settle disputes relating to income tax, wealth tax, and other tax-related matters. The Commission can settle disputes that arise from assessments made by the Income Tax Department, appeals filed against such assessments, or any other tax-related matter. The Commission has the power to grant immunity from prosecution and penalty to taxpayers who disclose their undisclosed income. The Commission can also pass orders to provide for the distribution of assets in cases where the taxpayer is not able to pay the entire tax liability.
Implications of Section 245
The provisions of Section 245 have significant implications for taxpayers and the Income Tax Department. The Commission provides taxpayers with an opportunity to settle their tax disputes and avoid lengthy and costly legal proceedings. The Commission has the power to grant immunity from prosecution and penalty to taxpayers who disclose their undisclosed income. This provides a strong incentive for taxpayers to come forward and disclose their undisclosed income.
On the other hand, the Income Tax Department may not be able to recover the entire tax liability in cases where the taxpayer is not able to pay the entire amount. The Commission can pass orders to provide for the distribution of assets in such cases. This may lead to a loss of revenue for the government.
Benefits of Section 245
The Settlement Commission provides taxpayers with an opportunity to resolve their tax disputes in a quick and efficient manner. The Commission has the power to settle disputes by making a binding order, which is final and cannot be appealed. This provides certainty to taxpayers and reduces the risk of future litigation.
Another significant benefit of Section 245 is the power of the Settlement Commission to grant immunity from prosecution and penalty to taxpayers who disclose their undisclosed income. This provides a strong incentive for taxpayers to come forward and disclose their undisclosed income, leading to increased compliance with tax laws.
Procedure for approaching the Settlement Commission
The procedure for approaching the Settlement Commission is laid out in Section 245B of the Income Tax Act. Any taxpayer can approach the Commission by filing an application in the prescribed format. The application must be filed within six months from the end of the month in which the assessment order was received by the taxpayer.
The application must contain details of the tax dispute, the grounds for settlement, and the amount of tax in dispute. The taxpayer must also pay a fee of Rs. 1,000 along with the application.
Once the application is filed, the Settlement Commission will examine it and may call for additional information or documents. The Commission will then issue a notice to the taxpayer and the Income Tax Department to appear before it on a specified date.
The Settlement Commission will hear both parties and may call for any additional information or documents. After considering all the facts and circumstances, the Commission will pass an order, which is binding on both parties.
Limitations of Section 245
Despite the benefits of Section 245, there are also some limitations to the Settlement Commission’s powers. For example, the Commission cannot settle cases where the disputed tax liability exceeds Rs. 50 lakhs, or where the tax liability arises out of search and seizure proceedings. Additionally, the Commission cannot entertain cases where the tax liability is pending before any appellate authority.
Another limitation of Section 245 is the lack of transparency in the settlement process. The Settlement Commission operates in a closed-door environment, and its proceedings are not open to the public. This has led to concerns about potential abuse of power and lack of accountability.
Recent Developments
In recent years, there have been some changes to the Settlement Commission’s functioning. For example, in 2019, the government introduced a new scheme, the Vivad se Vishwas Scheme, aimed at reducing litigation and settling disputes related to direct taxes. Under this scheme, taxpayers can settle their tax disputes by paying a reduced amount of tax, interest, and penalty.
The scheme has been well-received and has resulted in a significant reduction in the number of pending cases before various appellate forums. However, it remains to be seen whether the Settlement Commission’s role will be affected by the new scheme.
Conclusion
Section 245 of the Income Tax Act, 1961, provides for the establishment of the Settlement Commission. The Commission is a quasi-judicial body that is empowered to settle tax disputes between taxpayers and the Income Tax Department. The Commission has the power to grant immunity from prosecution and penalty to taxpayers who disclose their undisclosed income. The provisions of Section 245 have significant implications for taxpayers and the Income Tax Department. The Commission provides taxpayers with an opportunity to settle their tax disputes and avoid lengthy and costly legal proceedings. At the same time, it may lead to a loss of revenue for the government in cases where the taxpayer is not able to pay the entire tax liability.
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Frequently Asked Questions (FAQ’s)
- What is Section 245 of the Income Tax Act, 1961?
Section 245 of the Income Tax Act, 1961, provides a mechanism for resolving tax disputes through the Settlement Commission.
2. Who can approach the Settlement Commission under Section 245?
Any taxpayer who is aggrieved by an order of the Income Tax Department can approach the Settlement Commission under Section 245.
3. What is the fee for filing an application before the Settlement Commission?
The fee for filing an application before the Settlement Commission is Rs. 1,000.
4. Can the Settlement Commission settle cases where the disputed tax liability exceeds Rs. 50 lakhs?
No, the Settlement Commission cannot settle cases where the disputed tax liability exceeds Rs. 50 lakhs.
5. Can the Settlement Commission entertain cases where the tax liability is pending before any appellate authority?
No, the Settlement Commission cannot entertain cases where the tax liability is pending before any appellate authority.
6. Can the Settlement Commission grant immunity from prosecution and penalty to taxpayers?
Yes, the Settlement Commission has the power to grant immunity from prosecution and penalty to taxpayers who disclose their undisclosed income.
7. Are the Settlement Commission’s proceedings open to the public?
No, the Settlement Commission’s proceedings are not open to the public.
8. What is the time limit for filing an application before the Settlement Commission?
The application must be filed within six months from the end of the month in which the assessment order was received by the taxpayer.
9. Can the Settlement Commission settle cases related to search and seizure proceedings?
No, the Settlement Commission cannot settle cases related to search and seizure proceedings.
10. Is the Settlement Commission’s order final and binding?
Yes, the Settlement Commission’s order is final and binding on both parties and cannot be appealed.
