The petition, filed under article 136 of the Constitution last month, has raised objections to the very authority of the settlement commission to reduce or waive interest.

According to the I-T department, this power is vested only with the Central Board of Direct Taxes (CBDT) and the I-T authorities mentioned in the Act.The settlement commission, Mumbai, had set up a special seven-member bench in September 1997 to decide if it has the power to reduce or waive interest u/s 234A, 234B and 234C of the Act.

Under these sections, the department can levy interest if the asssessee does not furnish the I-T return (Sec 234A) or defaults on payment of advance tax (Sec 234B) or there is deferment of advance tax (Sec 234C).

The issuewas earlier decided by a five-member bench in the case of Ashwani Kumar Aggarwal. The bench ruled that the commission was not vested with the power to reduce or waive interest under these sections.

The five-member bench observed that "the settlement commission is concerned only with the settlement" of a case" in respect of "an application which had been allowed to be proceeded with" and "a case" could not be considered as representing a "a class of cases" u/s 119 of the Act. This section deals with the instructions of the board to subordinates.

Subsequent to the Ashwani Kumar order, the CBDT issued a press note in May 1996 empowering the chief commisssioners/director general of investigation to reduce or waive the penal interest charged u/s 234A, 234B and 234C under five specific circumstances.

Following the amendment, a lot of assessees, whose requests for reduction and waiver of interest were turned down following Ashwani Kumar's order, filed miscellaneous applications.

In this context, theseven-member bench was constituted to answer some pertinent questions. These included: a) is the settlement commission empowered to reduce or waive penal interest chargeable u/s 234A, 234B and 234C of the Act, considering the mandatory nature of these statutory provisions; and b) can the commission prescribe the "class of income" or "class of cases" in which interest under these sections can be waived? The bench observed: "In view of the legislative intent as demonstrated by various statutory amendments and the principles of statutory I-T department interpreptation, the settlement commission can fix the quantum of interest, as per the `terms of settlement' u/s 245D(6) read with section 245D(4) of the Income Tax Act".

Relying on a SC order in the case of CIT vs BN Bhattachargee, the bench noted that it has got the power "to quantify the amount of interest"."Due to the adoption of higher figures of income for relevant assessment year, the quantum of mandatory interest u/s 234A, 234B and 234C may be enormousand may even far exceed the tax demand," states the settlement commission order, adding that this may entail hardship to the applicant while making a settlement application before the commission.