Block assessment surcharge applies under the Finance Act, and a later proviso to section 113 was held clarificatory.

In block assessments under Chapter XIV-B, the special scheme for undisclosed income was held not to exclude the general charging and surcharge provisions of the Income-tax Act and the relevant Finance Act. Section 158BB and section 158BH keep the broader computation and charging framework operative, so section 113 fixes only the special rate of tax and does not bar surcharge; surcharge was therefore held leviable. The proviso inserted in section 113 by the Finance Act, 2002 was treated as curative and clarificatory because it removed uncertainty about the applicable Finance Act and the search-year reference point, and it was held applicable to searches up to 31 May 2002.

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Issues: (i) Whether the Finance Act, 2001 applied to block assessment under Chapter XIV-B in respect of a search initiated on 17 January 2001 so as to permit levy of surcharge under section 113 of the Income-tax Act, 1961. (ii) Whether the proviso inserted in section 113 by the Finance Act, 2002 was clarificatory and applicable to searches up to 31 May 2002.

Issue (i): Whether the Finance Act, 2001 applied to block assessment under Chapter XIV-B in respect of a search initiated on 17 January 2001 so as to permit levy of surcharge under section 113 of the Income-tax Act, 1961.

Analysis: The scheme of Chapter XIV-B was held not to be divorced from the general charging and computation framework of the Income-tax Act, 1961. Section 158BB requires computation of undisclosed income by reference to the computation provisions in Chapter IV, and section 158BH makes the other provisions of the Act applicable save as otherwise provided. The charge under section 4 and the rate structure under the relevant Finance Act therefore continue to operate in block assessments, while section 113 fixes only the special rate of tax on undisclosed income. Surcharge under the Finance Act is a distinct levy on assessed tax and is not excluded merely because section 113 prescribes a flat rate of 60 per cent.

Conclusion: The Finance Act, 2001 applied to the block assessment and surcharge at 17 per cent was leviable. This issue is decided in favour of the Revenue.

Issue (ii): Whether the proviso inserted in section 113 by the Finance Act, 2002 was clarificatory and applicable to searches up to 31 May 2002.

Analysis: The proviso was held to remove uncertainty as to the relevant Finance Act for surcharge in block assessments and to identify the search year as the governing reference point. It supplied an obvious omission and made the provision workable. On that basis, the amendment was treated as curative and clarificatory rather than as creating a new liability by way of retrospective operation.

Conclusion: The proviso inserted in section 113 by the Finance Act, 2002 was clarificatory and applicable to searches up to 31 May 2002. This issue is decided in favour of the Revenue.

Final Conclusion: The levy of surcharge on the block assessment was upheld, and the assessee's challenge to the surcharge failed.

Ratio Decidendi: In block assessments, the special scheme for undisclosed income does not exclude the operation of the general charging and surcharge provisions of the Income-tax Act and the relevant Finance Act, and a proviso inserted to remove uncertainty in the applicability of surcharge is clarificatory where it merely makes the provision workable.

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