Introduction

In a landmark decision, the Kerala High Court has clarified that Section 245C of the Income Tax Act does not impose any prior cut‑off date for taxpayers seeking to initiate a settlement under Chapter XIX‑A. What matters, the Court affirmed, is that the assessee has a “live and un-adjudicated” notice under Sections 153A/153C at the time of filing the settlement application. A pending notice alone suffices to establish maintainability.

Facts & Procedural History

  • Parties: Union of India (appellant) versus Aayana Charitable Trust (respondent). This case stemmed from the rejection of settlement applications by the Interim Board.
  • Timeline:

The Single Judge had endorsed the CBDT directive, rejecting applications where search proceedings had commenced before March 31, 2021, despite later service of 153A/153C notices.

  1. Does Sec. 245C mandate a cut‑off date for eligibility beyond the deadline for filing applications?
  2. Can a taxpayer with search proceedings initiated before March 31, 2021, but receiving 153A/153C notices afterwards, still file a settlement application?

Remarkable Observations by the Bench

  • The Division Bench, comprising Justices A.K. Jayasankaran Nambiar and P.M. Manoj, emphasized the sacred principle of statutory interpretation. Since Section 245C only stipulates the filing deadline (February 1, 2021, extendable to September 30, 2021), and does not impose any eligibility-based cut-off date, any condition beyond this would be ultra vires.
  • Notably, the Court referred to the 2024 Bombay High Court ruling in Sar Senapati Santaji Ghorpade Sugar Factory Ltd., which likewise struck down any cut-off condition in Section 245C, describing it as “invalid and bad in law”.
  • Applying that ratio, Kerala HC concluded that as long as the taxpayer receives a 153A/153C notice before September 30, 2021, even if post-March 31, 2021, the “case” remains live, and thus the settlement application cannot be dismissed on maintainability grounds.
  • The CBDT instruction directing denial of extension to those without a 153A/153C notice by January 31, 2021, was declared ultra vires of its powers under Section 119(2)(b), which cannot impose substantive conditions beyond the Act’s scope.

Implications for Taxpayers & Authorities

Final Verdict

Kerala High Court decisively held:

  • There is no requirement of a cut‑off date for the eligibility of Section 245C settlement applications.
  • A pending 153A/153C notice, even if received post-March 31, 2021 (but before September 30, 2021), makes the settlement application maintainable.
  • The CBDT’s circular purporting to impose additional eligibility criteria was struck down as arbitrary and legally unsound.

Accordingly, Kerala HC set aside the Single Judge’s ruling and paved the way for reconsidering such applications.

Takeaway

Tax professionals and taxpayers impacted by late 153A/153C notices now have a judicially endorsed pathway to pursue settlement. Authorities must reassess prior rejections and process pending applications without applying invalid cut-off filters.