CIT vs. Vatika Township P. Ltd. [2014] 367 ITR 466 (SC)
There was a search and seizure operation u/s. 132 of the Act on the premises of the assessee on 10th February, 2001. Notice u/s. 158BC of the Act was issued to the assessee on 18th June, 2001, requiring him to file his return of income for the block period ending 10th February, 2000. In compliance, the assessee filed its return of income for the block period from 1st April, 1989 to 10th February, 2000. The block assessment in this case was completed u/s. 158BA on 28th February, 2002, at a total undisclosed income of Rs. 85,18,819. After sometime, the Assessing Office on verification of working of calculation of tax, observed that surcharge had not been levied on the tax imposed upon the assessee. This was treated as a mistake apparent on record by the Assessing Officer and, accordingly, a rectification order was passed u/s. 154 of the Act on 30th June, 2003. This order u/s. 154 of the Act, by which surcharge was levied by the Assessing Officer, was challenged in appeal by the assessee. The said order was cancelled by the Commissioner of Income Tax (Appeals)-I, New Delhi, vide order dated 10th December, 2003, on the ground that the levy of surcharge is a debatable issue and therefore, such an order could not be passed resorting to section 154 of the Act. The undisclosed income was revised u/s. 158BA/158BC by the Assessing Officer, vide his order dated 9th September, 2003, to Rs.10,90,000, to give effect to the above order of the Commissioner of Income Tax (Appeals), and thereby removing the component of the surcharge.
As the Department wanted the surcharge to be levied, the Commissioner of Income Tax (Central-I), New Delhi, issued a notice u/s. 263 of the Act to the assessee and sought to revise the order dated 9th September, 2003, passed by the Assessing Officer by which he had given effect to the order of the Commissioner of Income Tax (Appeals), and in the process did not charge any surcharge. In the opinion of the Commissioner of Income Tax, this led to income having escaped the assessment. According to the Commissioner of Income Tax, in view of the provisions of section 113 of the Act as inserted by the Finance Act, 1995, and clarified by the Board Circular No. 717, dated 14th August, 1995, surcharge was leviable on the income assessed. According to the Commissioner of Income Tax, the charging provision was section 4 of the Act which was to be read with section 113 of the Act that prescribes the rate and tax for search and seizure cases and rate of surcharge as specified in the Finance Act of the relevant year was to be applied. In this particular case, the search and seizure operation took place on 14th July, 1999, and treating this date as relevant, the Finance Act, 1999, was to be applied.
The Commissioner of Income Tax, accordingly, cancelled the order dated 9th September, 2003, not levying surcharge upon the assessee, as being erroneous and prejudicial to the interests of the Revenue. The Assessing Officer was directed by the Commissioner of Income Tax, to levy surcharge at 10 % on the amount of income-tax computed and issue revised notice of demand. The order covered the block period 1st April, 1989, to 10th February, 2000. This order of the Commissioner of Income Tax u/s. 263 of the Act was passed on 23rd March, 2004. The assessee filed the appeal before the Income-tax Appellate Tribunal (hereinafter referred to as “the Tribunal”) against the said order of the Commissioner of Income Tax. The Tribunal, vide its order dated 23rd June, 2006, allowed the appeal of the assessee. The Tribunal held that the insertion of the proviso to section 113 of the Income-tax Act cannot be held to be declaratory or clarificatory in nature and was prospective in its operation. Against the order of the Tribunal dated 23rd June, 2006, the Revenue approached the High Court of Delhi by way of an appeal filed u/s. 260A of the Act for the block period 1st April, 1989 to 10th February, 2000. This appeal was been dismissed, vide order dated 17th April, 2007 by the High Court.
The High Court took the view that the proviso inserted in section 113 of the Act by the Finance Act, 2002, was prospective in nature and the surcharge as leviable under the aforesaid proviso could not be made applicable to the block assessment in question of an earlier period, i.e., the period from 1st April, 1989, to 10th February, 2000, in the instant case.
On further appeal, the Supreme Court noted that the issue about the said proviso to section 113, viz., whether it is clarificatory and curative in nature and, therefore could be applied retrospectively or it is to take effect from the date, i.e., 1st June, 2002, when it was inserted by the Finance Act, 2002, was considered by its Division Bench in the case of CIT vs. Suresh N. Gupta [(2008) 297 ITR 322 (SC)]. The Division Bench held that the said proviso was clarificatory in nature. However, when the instant appeal came up before another Division Bench on 6th January, 2009, for hearing, the said Division Bench expressed its doubts about the correctness of the view taken in Suresh N. Gupta and directed the Registry to place the matter before the Hon’ble the Chief Justice of India for constitution of a larger Bench.
A five judge Bench was constituted to hear the matter. The Supreme Court held that on examining the insertion of the proviso in section 113 of the Act, it was clear that the intention of the Legislature was to make it prospective in nature. This proviso could not be treated as declaratory/statutory or curative in nature. The Supreme Court observed that in Suresh N. Gupta itself, it was acknowledged and admitted that the position prior to amendment of section 113 of the Act whereby the proviso was added, whether surcharge was payable in respect of block assessment or not was totally ambiguous and unclear. The court pointed out that some Assessing Officers had taken the view that no surcharge was leviable. Others were at a loss to apply a particular rate of surcharge as they were not clear as to which Finance Act, prescribing such rates, was applicable. The surcharge varied from year to year. However, the Assessing Officers were not clear about the date with reference to which rates provided for in the Finance Act were to be made applicable. They had four dates before them, viz.:
(i) Whether surcharge was leviable with reference to the rates provided for in the Finance Act of the year in which the search was initiated;
(ii) The year in which the search was concluded; or
(iii) The year in which the block assessment proceedings u/s.158BC of the Act were initiated; or
(iv) The year in which block assessment order was passed.
In the absence of a specified date, it was not possible to levy surcharge and there could not have been an assessment without a particular rate of surcharge. The choice of a particular date would have material bearing on the payment of surcharge. Not only the surcharge was different for different years, it varied according to the category of assesses and for some years, there was no surcharge at all.
According to the Supreme Court, the rate at which the tax is to be imposed is an essential component of tax and where the rate is not stipulated or it cannot be applied with precision, it could be difficult to tax a person. In the absence of certainty about the rate because of uncertainty about the date with reference to which the rate is to be applied, it could not be said that surcharge as per the existing provision was leviable on block assessment qua undisclosed income. Therefore, it could not be said that the proviso added to section 113 defining the said date was only clarificatory in nature. The Supreme Court took note of the fact that the Chief Commissioners at their conference in 2001 accepted the position, that as per the language of section 113, as it existed, it was difficult to justify the levy of surcharge.
The Supreme Court held that the charge in respect of the surcharge, having been created for the first time by the insertion of the proviso to section 113, was clearly a substantive provision and, hence, has to be construed prospective in operation. The amendment was neither clarificatory nor was there any material to suggest that it was so intended by Parliament. Furthermore, an amendment made to a taxing statute could be said to be intended to remove “hardships” only of the assessee, not of the Department. On the contrary, imposing a retrospective levy on the assessee would have caused undue hardship and for that reason Parliament specifically chose to make the proviso effective from 1st June, 2002.
The Supreme Court overruled the Judgment of the Division Bench in Suresh N. Gupta treating the proviso as clarificatory and giving it retrospective effect.
