Search and seizure — Surcharge is leviable on income assessed under Chapter XIV-B and the proviso to S. 113 inserted by Finance Act, 2002 was only clarificatory in nature.

13 Search and seizure — Surcharge is leviable on income assessed under Chapter XIV-B and the proviso to S. 113 inserted by Finance Act, 2002 was only clarificatory in nature.

[CIT v. Suresh N. Gupta, (2008) 297 ITR 322 (SC)]

On January 17, 2001, a search u/s.132 of the 1961 Act was carried out at the premises of the representative-assessee, an individual. The search unearthed an unexplained investment of Rs.65,000 being the value of household valuables and Rs.97,427 on account of unexplained marriage expenses (undisclosed income). Accordingly, in the block assessment, the Assessing Officer determined the assessee’s undisclosed income at Rs.1,62,427. He computed tax thereon at 60% in terms of S. 113 of the 1961 Act amounting to Rs.97,456, on which surcharge was levied at 17%, 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) was confirmed by the Tribunal and the High Court.

On civil appeal, the Supreme Court held that the concept of a charge on the ‘total income’ of the previous year under the 1961 Act is retained even under Chapter XIV-B. Therefore, S. 158BB which deals with computation of undisclosed income of the block period has to be read with computation of total income under Chapter IV of the 1961 Act and once S. 158BB is required to be read with S. 4 of the 1961 Act, then the relevant Finance Act of the concerned year would automatically stand attracted to the computation under Chapter XIV-B. S. 158BB looks at S. 113.

The Section fixes the rate of tax of 60%. Bare perusal of various Finance Acts starting from 1999 indicates that Parliament was aware of the rate of tax prescribed by S. 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 had applied the rate of surcharge at 17% 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 dependent for its leviability on the assessee’s liability to pay income-tax but on assessed tax.

The Supreme Court held that even without proviso to S. 113 (inserted vide the Finance Act, 2002, with effect from June 1, 2002), of paragraph A of Part I of the First Schedule to the Finance Act 2001, was applicable to block assessment under Chapter XIV-B. The Supreme Court further held that the said proviso to S. 113 inserted vide the Finance Act, 2002 was clarificatory in nature.