Statutory computation under a settlement scheme cannot be altered by administrative instructions in capital gains cases.

Under the Kar Vivad Samadhan Scheme, 1998, disputed income for a capital gains case had to be computed by applying the statutory capital gains rate to the unpaid tax, and the payable amount then calculated at 35% of that disputed income. Administrative instructions from the Ministry of Finance could not override or amend the statutory scheme, because subordinate clarification cannot change the benefit created by legislation. The marginal-rate method was therefore rejected as inconsistent with the Finance Act, 1998, and the disputed income and resulting liability had to be recomputed in accordance with the statutory formula.

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Issues: Whether, for purposes of the Kar Vivad Samadhan Scheme, 1998, disputed income was to be computed by applying a marginal rate to the unpaid tax where the underlying income arose from capital gains, and whether the Ministry of Finance instructions could alter the statutory method of computation.

Analysis: The scheme defined disputed income with reference to disputed tax and prescribed the amount payable at 35% of the disputed income. The Court held that the Ministry's clarification could not modify the statutory scheme, since administrative instructions issued under the enabling provision cannot override or amend a benefit created by statute. It further held that the Finance Act, 1998 did not contemplate the use of a marginal rate for computing disputed income in a capital gains case, because capital gains were taxable at a uniform rate and not at slab rates. The proper computation was therefore to first identify the unpaid tax, then determine the disputed income by applying the applicable capital gains rate, and thereafter calculate the payable amount at 35% of that disputed income.

Conclusion: The petitioners' method of computation was accepted in substance, the contrary administrative computation was rejected, and the respondents were directed to recompute the disputed income and consequential tax liability accordingly.

Ratio Decidendi: Administrative instructions issued under a fiscal scheme cannot override its statutory terms, and a marginal-rate method cannot be imported for computing disputed income where the statute does not provide for it and the income is subject to a uniform tax rate.

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