TaxTMI 
TaxTMI 
2008 (1) TMI 396
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....sessing Officer determined the assessee's undisclosed income at Rs. 1,62,427. He computed tax thereon at 60 per cent. in terms of section 113 of the 1961 Act amounting to Rs. 97,456 on which surcharge was levied at 17 per cent., i.e., Rs. 16,504. The levy of surcharge was challenged by the assessee in appeal before the Commissioner of Income-tax (Appeals). The said appeal was allowed. The decision of the Commissioner of Income-tax (Appeals) has been confirmed by the Tribunal and the High Court. Hence, this civil appeal. Points for determination: Two points arise for determination: Whether, on the facts and circumstances of this case, the Finance Act, 2001 ("the FA" for short) was applicable to "block assessment" under Chapter XIV-B in respect of the search carried out on January 17, 2001; secondly, whether the proviso inserted in section 113 by the Finance Act, 2002, is clarificatory? Whether Finance Act, 2001 was applicable to block assessment under Chapter XIV-B up to June 1, 2002: Chapter XIV-B was inserted by the Finance Act, 1995, with effect from July 1, 1995. According to the assessee, the said Chapter is a self-contained Chapter as it lays down a special procedu....
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....low article 271 of the Constitution of India and section 4 of the 1961 Act, which read as follows: "271. Surcharge on certain duties and taxes for purposes of the Union.- Notwithstanding anything in articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for purposes of the Union and the whole proceeds of any such surcharge shall form part of the Consolidated Fund of India." "4. Charge of income-tax.- (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of this Act in respect of the total income of the previous year of every person: Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accordingly. (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so ded....
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....we have to look at some of the relevant provisions of Chapter XIV-B. The purpose of this Chapter is to lay down a special procedure for assessment of search 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, i.e., from April 1, 2000, to January 17, 2001, in this case. 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 pre-requisite for making block assessment. Under the said procedure, the Explanation is inserted in section 158BB, which is the computation section, explaining the method of computation of "undisclosed income" of the block period. We quote hereinbelow sections 158B, 15....
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....y regular assessment as income of such block period; (c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period. (3) Where the assessee proves to the satisfaction of the Assessing Officer that any part of income referred to in sub-section (1) relates to an assessment year for which the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 for any previous year has not expired, and such income or the transactions relating to such income are recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course relating to such previous years, the said income shall not be included in the block period. "158BB. Computation of undisclosed income of the block period.- (1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other mate....
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....ions 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to financial year in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition. (3) The burden of proving to the satisfaction of the Assessing Officer that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee. (4) For the purpose of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter, but may be carried forward for being set off in the regular assessments." 11158BC. Procedure for block assessment.- Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,- (a) the Assessing Officer shall- (i) in respect o....
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....able to tax at the rate of sixty per cent." Proviso inserted vide Finance. Act, 2002, with effect from June 1, 2002, reads as follows: "Provided that the tax chargeable under this section shall be increased by a surcharge, if any, levied by any Central Act and applicable in the assessment year relevant to the previous year in which the search is initiated under section 132 or the requisition is made under section 132A." Reading of the relevant provisions of Chapter XIV-B one finds that section 158BA deals with assessment of "undisclosed income" as a result of search whereas computation of such income falls under section 158BB. The procedure for block assessment falls in section 158BC. Section 158BA begins with a non obstante clause. It states that nothing contained in any other provisions of the 1961 Act, where search is initiated after June 30, 1995, under section 132 or in cases of requisition under section 132A after the cut off date, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. Relying on section 158BA(1) the assessee claims that Chapter XIV-B is a special procedure for assessment of cases; tha....
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....n 158BA whereas computation of undisclosed income of the block period falls in section 158BB and procedure for block assessment falls in section 158BC. In this case, we are mainly concerned with computation of undisclosed income under section 158BB(1). This section incorporates the principle of aggregation of total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV. The important thing to be noted is that the computation has to be done even under section 158BB of "undisclosed income" in the manner provided for in Chapter IV of the 1961 Act which deals with "computation of total income". Chapter IV deals with computation in cases of normal assessment. Chapter IV is not ruled out by the provisions of Chapter XIV-B. In this connection, we may also take note of section 158BH which deals with application of other provisions of the 1961 Act to the block assessment procedure in Chapter XIV-B. Section 158BH makes it clear that save as otherwise provided in Chapter XIV-B, all other provisions of the 1961 Act shall equally apply to block assessment. Therefore, one has to read the non obstante clause in section 158BA in juxtap....
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....lause (a) of the Explanation to section 158BB clarifies that the total income/loss of each previous years shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under section 32(2) of the 1961 Act. Hence, one has to read section 158BB with section 4 of the 1961 Act. There is no conflict between the computation machinery under Chapter XIV-B and normal computation machinery under Chapter IV. This is the importance behind enactment of section 158BH which inter alia states that if there is no conflict between the provisions of Chapter XIV-B and any other provisions of the 1961 Act, then the latter will operate. There is a fallacy in the argument of the assessee that the concepts of "total income" and "previous year" are given a go by in Chapter XIV-B. The above analysis of section 158BB indicates that both the concepts are retained in Chapter XIV-B. The only difference is that section 4 of the 1961 Act charges the total income of a person of one single previous year (unit of assessment) whereas section 158BA....
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....he rate at which tax is imposed and, lastly, the value to which the rate is applied for computing tax liability. Applicability of the Finance Act, 2001: Applying the law as discussed hereinabove, we find that in the present case, the Assessing Officer has imposed a surcharge of 17 per cent. on the tax calculated at 60 per cent. on the total undisclosed income of Rs. 1,62,427 which tax comes to Rs. 97,456. The Assessing Officer imposed a surcharge of 17 per cent. on Rs. 97,456 amounting to Rs. 16,504 by placing reliance on the Finance Act of 2001. We quote hereinbelow section 2(1) read with paragraph A of Part I of the First Schedule, which read as follows: "2. Income-tax.- (1) Subject to the provisions of sub-sections (2) and (3), for the assessment year commencing on the 1st day of April, 2001, income-tax shall be charged at the rates specified in Part I of the First Schedule and such tax as reduced by the rebate of income-tax calculated under Chapter VIII-A of the Income- tax Act, 1961 (43 of 19.61) (hereinafter referred to as the Income-tax Act), shall be increased,- (a) in the cases to which paragraphs A, B, C and D of that Part apply, by a surcharge for purposes....
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....nbsp; Income-tax Paragraph A In the case of every individual or Hindu undivided family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2 of the Income-tax Act, not being a case to which any other paragraph of this Part applies,- Rates of income-tax (1) where the total income does not: Nil; exceed Rs. 50,000 (2) where the total income exceeds : 10 per cent. of the Rs. 50,000 but does not exceed amount by which the Rs. 60,000 total income exceeds &....
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....ed by a surcharge for purposes of the Union calculated at the rate of twelve per cent. of such income-tax: Provided that in case of persons mentioned in sub-item (A) of item (i) above having a total income exceeding sixty thousand rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of sixty thousand rupees by more than the amount of income that exceeds sixty thousand rupees: Provided further that in case of persons mentioned in sub-item (B) of item (i) above having a total income exceeding one lakh fifty thousand rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of one lakh fifty thousand rupees by more than the amount of income that exceeds one lakh fifty thousand rupees." The Finance Act, 2001, stood enacted by Parliament to give effect to the financial proposals of the Central Government for the financial year 2001-02. It is important to note that every Finance Act prescribes a graduated scale for payment of tax, i.e., different rates for different slabs of inco....
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....tion 158BA(2) read with section 4 of the 1961 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 per cent. That rate is fixed by the 1961 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. On the contrary, a bare perusal of various Finance Acts starting from 1999 indicates that Parliament was aware of the 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 per cent. which rate finds place in paragraph A of Part I of the First Schedule to the said Finance Act of 2001, therefore, surcharge leviable under the Finance Act was a distinct charge, not dependant for its leviability on the assessee's li....
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....o begging the question. According to the assessee, prior to June 1,2002, the position was ambiguous as it was not clear even to the Department as to which year's Finance Act would be applicable. To clear this doubt precisely, the proviso has been inserted in section 113 by which it is indicated that the Finance Act of the year in which the search was initiated would apply. Therefore, in our view, the said proviso was clarificatory in nature. In taxation, legislation of the type indicated by the proviso has to be read strictly. There is no question of retrospective effect. The proviso only clarifies that out of the four dates, Parliament has opted for the date, namely the year in which the search is initiated, which date would be relevant for applicability of a particular Finance Act. Therefore, we have to read the proviso as it stands. There is one more reason for rejecting the above submission. Prior to June 1, 2002, in several cases, tax was prescribed sometimes in the 1961 Act and sometimes in the Finance Act and often in both. This made liability uncertain. In the present case, however, the rate of tax in case of block assessment at 60 per cent. was prescribed by section 113....