2015 (8) TMI 550 - AT - Income Tax

Tax Surcharge Dispute: Prospective vs. Retrospective Application of Section 113 Proviso

Dashrathbhai V Patel, Gujarat Multi Gas Base Chemicals Pvt Ltd, Manek Chemicals Pvt LTD, Kirit V Patel, Gujarat Minechem Versus Deputy Commissioner Of Income Tax

The case involved challenges to the levy of surcharge under Section 113 of the Income Tax Act. The primary issue was the retrospective or prospective ... Challenging the levy of surcharge u/s 113 - block assessment - Held that:- The Hon'ble Supreme Court in the case of Vatika Township Pvt. Ltd. (2014 (9) TMI 576 - SUPREME COURT) has held that the proviso appended to Section 113 by Finance Act, 2002 is to operate prospectively w.e.f. 1st June, 2002. As in this case the search was conducted on 16th of December, 1999; therefore, surcharge is not to be levied. We accordingly allow this Application of the Assessee. - Decided in favour of assessee. Issues:1. Challenge to levy of surcharge under section 113 of the Income Tax Act.2. Interpretation of the proviso to Section 113 regarding the retrospective or prospective application.3. Application of subsequent Supreme Court decisions on earlier judgments.4. Rectification of Tribunal's decision based on subsequent Supreme Court ruling.Issue 1: The primary issue in this case revolves around the challenge to the levy of surcharge under section 113 of the Income Tax Act. The assessee contended that the surcharge was not applicable during the relevant assessment year as the search was initiated prior to the introduction of the relevant provision. The CIT(A) relied on the decision in CIT vs. Suresh N. Gupta, where it was held that the proviso to Section 113 was clarificatory and curative in nature, thus applying it retrospectively. The Tribunal upheld this decision against the assessee.Issue 2: The interpretation of the proviso to Section 113 was a crucial aspect of the case. The assessee argued that the proviso, introduced by the Finance Act 2002, should be construed prospectively from 1st June 2002. However, the Tribunal initially dismissed the appeal based on the decision in Suresh N. Gupta. Subsequently, the Supreme Court in the case of Vatika Township Pvt. Ltd. held that the proviso was a substantive provision and should operate prospectively. This decision led to the allowance of the assessee's appeal and deletion of the surcharge levied prior to 1st June 2002.Issue 3: The application of subsequent Supreme Court decisions on earlier judgments was raised by the assessee. The assessee cited the case of CIT vs. Vatika Township (P) Ltd., where the Supreme Court overruled the decision in Suresh N. Gupta and held in favor of the assessee. The Tribunal, however, had followed the earlier decision. The subsequent Supreme Court ruling was deemed binding on the Tribunal, leading to the rectification of the Tribunal's decision in favor of the assessee.Issue 4: The rectification of the Tribunal's decision based on the subsequent Supreme Court ruling was pivotal in this case. The Tribunal acknowledged the binding nature of the Supreme Court's decision in Vatika Township Pvt. Ltd. and rectified its earlier decision. The Tribunal allowed the assessee's application, deleting the surcharge levied by the assessing officer for the block assessment period before 1st June 2002. Ultimately, all the applications of the assessees were allowed based on the revised interpretation of the proviso to Section 113 and the subsequent Supreme Court ruling.