Settlement Commission
The Income Tax Settlement Commission (ITSC) was a quasi-judicial body under Chapter XIX-A (Sections 245A to 245M) of the Income Tax Act, 1961 that allowed taxpayers to disclose additional income not reported earlier, pay taxes on such undisclosed income, and obtain immunity from prosecution and penalty — a mechanism that was discontinued from February 1, 2021 by the Finance Act 2021.
The Income Tax Settlement Commission was established in 1976 following recommendations of the Direct Taxes Enquiry Committee (popularly known as the Wanchoo Committee). Its mandate was to provide a forum where taxpayers with complex assessments or undisclosed income could make a clean breast of their affairs, pay taxes along with interest, and receive immunity from penalty and prosecution — while simultaneously reducing the litigation burden on regular appellate forums.
To invoke ITSC jurisdiction, a taxpayer had to file an application disclosing additional income of at least ₹10 lakh not previously declared in return, along with the tax payable on such income. The application was made while the regular assessment was pending before the assessing officer — meaning ITSC proceedings ran parallel to and then superseded the regular assessment process. Once an application was admitted, the case was withdrawn from the assessing officer's jurisdiction.
The ITSC proceedings were broadly of two types: those involving genuine voluntary disclosure of previously unreported income (its intended purpose), and those used tactically to delay or derail regular assessments — a usage that courts frequently criticised. The Commission had powers to examine books of accounts, request third-party information, and conduct hearings before passing a settlement order, which was final and conclusive and could not be reopened except in cases of fraud or misrepresentation.
The Finance Act 2021 discontinued the ITSC, prohibiting the acceptance of fresh applications from February 1, 2021. The decision was taken as part of broader reforms streamlining the dispute resolution framework, alongside the introduction of faceless assessments and the Dispute Resolution Panel mechanism for international tax cases. Existing pending applications were transferred to a newly constituted Interim Board for Settlement to be wound up.
For historical context, several significant corporate tax disputes and high-profile undisclosed income cases were resolved through the ITSC between 1976 and 2021. The ITSC built an important body of jurisprudence on the computation of undisclosed income, the quantum of immunity from penalty, and the conditions under which a settlement order could be challenged.