Rajiv Bhatara  INSC 369 (19 February 2009)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1121 OF 2009 (Arising
out of SLP (C) No. 16862 of 2008) Commnr. of Income Tax, .....
Versus Shri Rajiv Bhatara ....Respondent
Dr. ARIJIT PASAYAT, J
in this appeal is to the judgment of a Division Bench of the Punjab and Haryana
High Court dismissing the appeal filed under Section 260(A) of Income Tax Act,
1961 (in short the `Act'). In the said appeal, challenge was to the order dated
01.7.2006 passed by the Income Tax Appellate Tribunal Amritsar Bench, Amritsar
(in short the `Tribunal'). The dispute related to the block period 1.4.1990 to
3.7.2000. The question which arose for consideration is as follows:
"Whether, on the
facts and in the circumstances of the case, the ITAT was right in law in
confirming the CIT (A)'s order directing not to levy surcharge on the tax
worked out on the undisclosed income as the case pertains to a search conducted
period to 1.6.2002?".
position in a nutshell reads as follows:
Search was conducted
on 6.4.2000. The Assessing Officer in his order dated 22.5.2002 imposed
surcharge and an application under Section 154 of the Act filed by the assessee
for rectification was dismissed vide order dated 17.9.2003 with the observation
that the surcharge was levied as per the provisions of Part I of the Ist
Schedule appended to Finance Act, 2000. On the ground that there was no mistake
apparent on the record, the application under Section 154 of the Act was
rejected. However, the Commissioner of Income Tax (Appeals), Ludhiana, (for
brevity the CIT (A)') reversed the order passed by the Assessing Officer and
took the view that surcharge was not leviable in cases where the search has
taken place prior to 1.6.2002. In that regard, reliance was placed on a
Division Bench judgment of this Court in the case of CIT v. Ram Lal Bahu Lal
(148 CTR 643).
On further appeal by
the Revenue the Tribunal upheld the order dated 12.9.2005 passed by the CIT (A)
holding that the search in the present case took place on 6.4.2000 which was
much prior to the date of amendment made in Section 113. The amendment was
incorporated on 1.6.2002 by inserting proviso to Section 113 by Finance Act,
2002. It was by the amendment that levy of surcharge on the disclosed income
was specifically provided w.e.f. 1.6.2002. The provision has not been given
retrospective effect, and therefore, the Tribunal held that it applied only to
cases where searches were carried out after 1.6.2002.
The High Court
dismissed the appeal relying on its decision in the case of CIT v. Roshan Singh
Makkar (2006) 287 ITR 160 and also referred to two other decisions of the
Madras High Court in CIT v. Neotech Company [(2007) 291 ITR 27] and CIT v. S.
Palanivel [(2007) 291 ITR 33].
counsel for the appellant submitted that the case at hand is squarely covered
by a decision of this court in Commissioner of Income Tax, Central II v. Suresh
N. Gupta [2008(4) SCC 362].
power to levy a surcharge on income tax is traceable to Article 271 read with
Entry 82 of List I of Schedule VII to the Constitution of India, 1950 (in short
the `Constitution'). That power is not traceable to Section 4 of the Act. Every
year the Finance Act is enacted by Parliament to give effect to the financial
proposals of the Central Government. The rate at which a charge on the total
income of the previous year is imposed under Section 4(1) of the Act is not
laid down in the Income Tax Act and, therefore, the said Section provides that
the charge has to be fixed by the Central Act. It is because of this, that
income tax is levied at different rates under the Finance Act.
order that the charge should be a legal charge under Section 4, it must be a
tax on the income of the assessee. If the charge is the tax on anything else,
then it would not be a valid charge. That is the only limitation upon the power
or authority of Parliament to fix any rate it pleases. So long as the charge is
on `total income' of the previous year, there is no limitation upon the power
or authority of Parliament to fix any rate if pleases. The Income Tax Act,
therefore, contains an elaborate machinery for ascertaining "total
income" of an assessee. Section 4(1) prescribes the subject matter of the
tax and the rate of that tax is prescribed by the legislature, either under the
Act as in the case of Section 113 or vide the Finance Act.
purpose of Chapter XIV is to lay down a special procedure for assessment of
surcharge cases with a view to combat tax evasion and also to expedite and
simplify assessments in search cases. Undisclosed incomes have to be related in
different years in which income was earned under block assessment. This is
because in such cases, the "block period" is for previous years
relevant to 10/6 assessment years and also the period of the current previous
year up to the date of the search. The essence of this new procedure, therefore,
is a separate single assessment of the "undisclosed income", detected
as a result of search and this separate assessment has to be in addition to the
normal assessment covering the same period.
Therefore, a separate
return covering the years of the block period is a prerequisite for making
block assessment. Under the said procedure, Explanation is inserted in Section
158-BB, which is computation Section, explaining the method of computation of
"undisclosed income" of the block period.
the "block period", as defined in Section 158-B(a), comprises
previous years relevant to 10/6 assessment years is treated by Parliament as
one unit of time for assessment purposes, one has to correlate
"undisclosed income" to each of the years in which income was earned
by the assessee.
158-BB is required to be read with Section 4 of the Act, then the relevant
Finance Act of the year concerned would automatically stand attracted to the
computation under Chapter XIV-B. Section 158-BB looks at Section 113. That
Section fixes the rate of tax.
the present case undisputedly Para A was applicable at the given point of time.
As a general concept, income tax includes surcharge.
Reading Section 2(1)
of the Finance Act, 2001, it is clear that the term `income tax' as used in
Section 2(1) and proviso to Section 2(3) of the said Act did not include the
amount of surcharge. Surcharge was a separate item of taxation, different from
income tax. This was made clear vide Section 2 (1)(a), proviso to Section 2(3)
and Para A of Part I to Schedule I.
158-BA(2) read with Section 4 of the Act looks at Section 113 for the
imposition rate at which tax has to be imposed in the case of block assessment.
That rate is 60%. That rate is fixed by the Act itself. That rate has been
stipulated by Parliament not with a view to oust the levy of surcharge but to
make the levy cost effective and easy. Therefore, a flat rate is prescribed.
The difficulty in block assessment is that one has to correlate the undisclosed
income to different years in which income is earned, hence, Parliament has
fixed a flat rate of tax in Section 113.
Parliament was aware of rate of tax prescribed by Section 113 and yet in the
various Finance Acts, Parliament has sought to levy surcharge on the tax in the
case of block assessment. In the present case, the assessing officer has
applied the rate of surcharge at 17% which rate finds place in Para A of Part I
of Schedule I to the said Finance Act of 2001, therefore, surcharge leviable
under Finance Act was a distinct charge, not dependent for its leviability on
the assessee's liability to pay income tax but on assessed tax.
even without the proviso to Section 113 (inserted vide Finance Act, 2002 w.e.f.
1.6.2002), Finance Act, 2001 was applicable to block assessment under Chapter
XIV-B in relation to the search initiated on 6.4.2000 and accordingly surcharge
was leviable on the tax.
to the assessee, prior to 1.6.2002, the position was ambiguous as it was not
clear even to the Department as to whether surcharge was leviable with
reference to the rates provided for in Finance Act of the year in which the
search was initiated or the year in which the search was concluded or the year
in which the block assessment proceedings under Section 158 BC were initiated
or the year in which block assessment order was passed. To clear that doubt
precisely, the proviso has been inserted in Section 113 by which it is
indicated that Finance Act of the year in which the search was initiated would
apply. Therefore, it has to be held that the proviso to Section 113 was
clarificatory in nature. It only clarifies that out of the four dates,
Parliament was opted for the date, namely the year in which the search was
initiated, which date would be relevant for applicability of a particular
Finance Act. Therefore, the proviso has to be read as it stands.
above position was highlighted in Suresh N. Gupta's Case (supra).
is no appearance on behalf of the Assessee-respondent in spite of service of
view of what has been stated in the aforesaid case the inevitable result is
that the appeal deserves to be allowed, which we direct. The impugned order of
the High Court in Tax Appeal No.587 of 2006 is set aside and the departmental
Civil appeal is allowed with no order as to costs.
(Dr. ARIJIT PASAYAT)