2003 (8) TMI 206 - AT - Income Tax

Surcharge on Undisclosed Income Not Retrospective, Applies From June 2002; Appeal Accepted, Surcharge Quashed.

The ITAT concluded that the proviso to s. 113 of the IT Act, which imposes a surcharge on undisclosed income, is not retrospective and applies ... Block assessment in search cases - levy of surcharge on tax calculated on undisclosed income for the block period - whether proviso to s. 113 inserted by Finance Act, 2002, w.e.f. 1st June, 2002, is to be made applicable retrospectively or prospectively - HELD THAT:- It is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. It is a cardinal principle of construction that every statute prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. In the absence of the words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only. On the other hand, in contrast to statutes dealing with substantive rights, statutes dealing with merely matters of procedure are presumed to be retrospective unless such a construction is textually inadmissible. If the new Act affects matters of procedure only, then, prima facie, it applies to all actions pending as well as future. In stating the principle that a change in the law of procedure operates retrospectively and unlike the law relating to vested right is not only prospective and legislation imposing liability is generally governed by the normal presumption that it is not retrospective and it is a cardinal principle of the tax law that the law to be applied is that in force unless otherwise provided expressly or by necessary implication. So far as fiscal statutes are concerned, the position is not different and imposition of liability is generally governed by the normal presumption that it is not retrospective and it is a cardinal principle of the tax law that the law to be applied is that in force unless otherwise provided expressly or by necessary implication. The above rule applies to the charging section and other substantive provisions and does not apply to machinery or procedural provisions of a taxing Act which are generally retrospective and apply even to pending proceedings. A taxing statute is to be strictly construed. A good summary of the principles about retrospectivity has been given by the Hon’ble Supreme Court in the case of Mahadeo Prasad Singh vs. Ram Lochan[1980 (9) TMI 294 - SUPREME COURT]. Considering the language of the relevant provisions in the light of elucidation and discussion as held above, the insertion of proviso to s. 113, which is a part of charging provision as it imposes additional liability upon the assessee for payment of surcharge in addition to tax chargeable on the undisclosed income, the same, being not a beneficial provision nor meant to remedy any unintended consequences and having been made effective from a particular date i.e., 1st June, 2002, cannot be held to be either procedural, declaratory or clarificatory in nature. Therefore, in my considered view, it is prospectively effective. Since search in this case was conducted prior to 1st June, 2002, therefore, charging of surcharge by the AO and its confirmation by the learned CIT(A) is found to be not legally correct. As such, levy of surcharge in the case of the assessee is quashed. As a result, the appeal of the assessee gets accepted. Issues involved:The appeal concerns the levy of surcharge on tax calculated on undisclosed income for the block period u/s 113 of the IT Act.Summary:The case involved an appeal by the assessee against the order passed by the CIT(A) confirming the levy of surcharge on undisclosed income for the block period. The AO had levied surcharge in addition to tax under s. 113 of the IT Act, which was contested by the assessee. The CIT(A) upheld the AO's action, citing the introduction of block assessment by the Finance Act, 1995, and the necessity to levy surcharge as per the provisions. The assessee further appealed, arguing against the retrospective application of the proviso to s. 113 inserted by the Finance Act, 2002.During the proceedings, the assessee emphasized the strict construction of charging provisions and cited relevant case laws to support their contention that the proviso to s. 113 should not be applied retrospectively. The Departmental Representative supported the levy of surcharge, stating that the proviso was clarificatory in nature and meant to provide further clarification on the existing provisions.After considering the arguments and legal principles, it was concluded that the proviso to s. 113, imposing surcharge, was not meant to be retrospective and should be prospectively effective from 1st June, 2002. Since the search in this case was conducted before this date, the levy of surcharge was deemed legally incorrect. Consequently, the appeal of the assessee was accepted, and the surcharge levied was quashed.