TMI Blog2006 (4) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... icultural income-tax under the Kerala Agricultural Income-tax Act, 1950, for the assessment year 1957-58. In the assessment, a surcharge at the rate of 5 per cent on the agricultural income-tax and super-tax was also levied and collected from the company under the provisions of the Kerala Surcharge on Taxes Act, 1957 (XI of 1957). The company objected to the imposition of surcharge on the ground that the law in force on April 1, 1957, should be the law applicable to the assessment for 1957-58. The Surcharge on Taxes Act came into force only from 1-9-1957, and did not have any retrospective effect. Even if the argument of the revenue that the concepts of 'previous year', 'assessment year' as well as 'determination of income for each of the previous years' are not disturbed by the scheme of Chapter XIVB, is to be accepted, then it would logically follow that in such a situation, the total income determined in each of the previous years should be subject to levy of surcharge at the rates applicable to those very previous years only. Such a construction is against the proposition sought to be put forward by the revenue that the date of search is the triggering e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HON'BLE N.D. RAGHAVAN, VICE PRESIDENT, D. MANMOHAN, JUDICIAL MEMBER AND J. SUDHAKAR REDDY, ACCOUNTANT MEMBER For the Appellant : K.V.S. Bhaskar Rao, Adv. For the Respondent : S.R. Ashok, Department's Senior Standing Counsel, Y.R. Rao, DR-CIT and S. Venkatesearlu, Senior DR ORDER J. Sudhakar Reddy, Accountant Member. 1. This reference arises out of the appeal, against the assessment order passed by the DCIT, Central Circle-I, Hyderabad under section 158BC of the Income-tax Act for the block period from 1-4-1989 to 18-11-1999, dated Nil, stated in the brief facts of the case by the assessee as completed on 27-4-2001, filed with the Tribunal on 13-12-2001, challenging the levy of surcharge of Rs. 8,65,680 on the tax of Rs. 86,56,800 levied at the special rate of 60 per cent. 2. At the outset, it would be appropriate to refer to the reasons furnished by the Division Bench, which led to the constitution of the Special Bench. Its reasons are extracted below:- 2. The short issue in this appeal is whether the levy of surcharge in terms of the provisions of the Finance Act, 2002, is valid in a block assessment made under section 158BC of the Income-tax Act. The tax has to be charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 is invalid. It is further pleaded that it is exactly because of this invalidity that the proviso to section 113 has been inserted. But, this proviso has no retrospective effect, and so, the levy of surcharge for the earlier-years, in a block assessment, as in the case before us, is invalid. 4. Our attention has also been invited to certain proposals mooted by the National Conference of Chief Commissioners, which may be seen at pages 49-50 of the Journal section of ITR Vol. 252. The discussion relating to levy of surcharge in a block assessment is at pages 49 and 50. The conference proposed amendment of section 113 of the Income-tax Act, which ultimately resulted in the insertion of proviso in section 113. Remarks of the conference in this behalf are as under:- 3. Section 113: Tax on undisclosed income (Levy of Surcharge on tax on undisclosed income. Section 113 provides for tax on undisclosed income at the rate of 60 per cent. The Finance Act stipulates that the amount of income-tax shall be increased by a surcharge, as applicable to the assessee. Levy of surcharge on tax on regular income does not pose a problem since the amount of income-tax is determined with reference to a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the annual Finance Acts are quite clear, and they mandated the levy of surcharge. In this context, he referred to the provisions of annual Finance Act, 1999, Schedule-I, which clearly mandated that the income-tax levied in terms of section 113 shall be increased by a surcharge. It is also contented that the annual Finance Act has as much legal authority as the Income-tax Act, and when it mandates the levy of surcharge, it has to be implemented, even if there is no reference to the levy of surcharge in a block assessment in section 113. It is also contended that the proviso to section 113 is only of a clarificatory nature, and it applies to all block assessments, and even for earlier years. It is also made out that the proposals made by the National Conference of the Chief Commissioners have no relevance, in the context of statutory interpretation of the provisions, and the Tribunal should not be influenced or bound by extraneous matters like Commissioner's recommendations, remarks of the commentators, etc. 6. We find that there are conflicting decisions of the Tribunal on this issue. The first available decision is that of the Bangalore Bench of the Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Act, 1995, specifically provides that the amount of income-tax computed in accordance with the provisions of section 112 or 113 shall be increased in the case of a domestic company by a surcharge as provided in Para-E of Part-III to First Schedule . It is thus clear that the Legislature clearly intended applicability of surcharge even on tax computed under section 113 of the Income-tax Act. In this view of the matter we sec no substance in submissions of the assessee, and accordingly, reject the same. 24. Accordingly, assessee's ground of appeal against levy of surcharge, on income-tax computed under section 113 is dismissed. Thus, there are conflicting decisions of the Tribunal on the point at issue. 7. The matter is of substantial revenue implication in all search cases. It has wide ramifications, and it required an in depth examination of the position of the annual Finance Acts vis-avis the Income-tax Act, 1961, and also an in depth analysis of the principles of statutory interpretation. For these reasons, and as there are conflicting decisions mi this issue, we are of the view that the appeal in question in a lit and proper appeal to be heard by a Special Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reas undisclosed income is charged by section 158BA(2) at the rate prescribed in section 113 and there is no reference to 'Central Act' in section 113 which is the charging section. (g) According to the definition of 'tax' in section 2(43), tax includes income-tax and super tax. (h) Section 158BA(2) refers to 'tax' only. (i) Surcharge is neither referred to in section 158BA(2) nor in section 113. (j) 'Tax' according to section 4 includes additional income-tax which is in the nature of a surcharge; Finance Act has the power to levy tax on the total income of the previous year determined in the regular assessment and the power to levy surcharge on the tax determined in regular assessment; the power to levy 60 per cent tax as given in section 113 in the case of block assessment does not include the power to levy additional income-tax which is in the nature of surcharge as the Finance Act cannot be made applicable to a block assessment without specific mandate in section 113. (k) The specific mandate to levy additional income-tax found in section 4 is not found in section 113 prior to amendment with effect from 1-6-2002. (l) Earlier to 1-6-2002, the Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issued in a subsequent year or the respective years to which the income relates or (iii) the year in which the assessment is made. While under section 4(1), the charge of tax arises for the assessment year, there is no indication in section 158BA(1) as to when exactly the liability to block assessment arises, i.e., whether initiation of search or the last day of execution of the last warrant of authorisation as recorded in Panchnama or a date when the Assessing Officer is satisfied after receipt of search materials under section 132(9A) from the authorised officer and initiates action by issue of notice under section 158BC. It could not be the year of initiation of search or the last date of warrant, as the Finance Act, 1995, did not provide for inclusion under Part E of the First Schedule. The problem would arise if the above dates fall in different assessment years. Further if notice under section 158BD is issued at the fag end of time-limit specified in section 158BE(1), then the question is as to whether it would be the year of satisfaction and issue of such notice by the Assessing Officer or the date of search, etc. A question arises posing as to whether there could be dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the provision and it is not the question of legislative competence. Reliance is placed on the judgment of the Hon'ble Supreme Court in the case of State of Punjab v. Niranjandas Doomra Rice General Mills AIR 1998 SC 537. After analysing the facts of that case, Hon'ble Supreme Court laid down that the cess in question had been imposed without authority of law. There should be consistency in the provisions and that a slight technical flaw would invalidate the levy. 4.5 On the argument of the Department that harmonious construction has to be adopted as otherwise the provision relating to surcharge has to be declared ultra vires or otiose, which cannot be done by the Tribunal, it was never the argument of the assessee that the provision is unconstitutional. It should be enacted in an appropriate manner consistent with other charging provisions and not by making a provision for levy of surcharge in the Finance Act in a highly incongruous and ambiguous way. The provision simply becomes unworkable and incapable of implementation and for this proposition reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. B.S. Srinivasa Setty [1981] 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year to which the income pertains, and on the contrary, the undisclosed income is assessed as income of the block period comprising more than one assessment year which is presently six assessment years and part of the year in which search is conducted, which was earlier 10 years and part of the assessment year in which the search is conducted. The provisions of Chapter XIVB postulate taxing of undisclosed income of a block period as distinct from previous year relevant to an assessment year and that undisclosed income computed for the block period in terms of sub-section (2) of section 158BA is required to be taxed at a special rate which is specified in section 113 of the Act. 5.3 On the applicability of Finance Act, reference to the provisions of Finance Act is not found in the self-contained scheme of undisclosed income in Chapter XIVB. Referring to section 4 of the Act, reference to Finance Act is contained in sub-sect ion (1) of section 4. The proviso to section 4(1) carves out an exception to the normal rule in sub-section (1) and that it provides that where under any provisions of the Act, income-tax is charged in respect of income of a period other than the previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a non obstante clause overriding the other provisions of the Act. Referring to the proviso to section 113, introduced by Finance Act, 2002, with effect from 1-6-2002, and the argument of the Revenue that the proviso is clarificatory in nature and enables the Revenue to levy surcharge prior to 1-6-2002, it is to be seen that the surcharge is levied in terms of an authority provided under Article 271 of the Constitution of India, to increase any of the duties or taxes imposed. Reference may be had to the decision of the Hon'ble Supreme Court in the case of CIT v. K. Srinivasan [1972] 83 ITR 346, to emphasise that surcharge is in the nature of additional imposition/enhancement of tax, which has all the characteristics of tax. Unlike section 4(1), section 113 does not speak of additional income-tax and it is not permissible to read such words in section 113. Courts cannot supply any omission in the language of a statute where it is clear and unambiguous. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Elphinstone Spg. Wvg. Mills Co. Ltd. [1960] 40 ITR 142, specifically at page 150, to appreciate that it is for the Legislature to avoid the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the proviso is not an independent charging section. Reference may be had to the judgment of the Summit Court to appreciate that the ratio of that decision squarely applies to the issue in question. 5.9 Further reliance is placed on the judgment of the Hon'ble Supreme Court in the case of Kesoram Industries Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 and in the case of State of Kerala v. Alex George [2004] 271 ITR 290 (SC) for the following propositions:- (a) The Income-tax Act is a permanent Act while the Finance Acts are passed every year; (b) The function of the Finance Act primarily is to prescribe the rate of tax and the manner of calculation of tax; (c) The Finance Act is not intended to incorporate the entire procedural and substantive law relating to tax; (d) The Finance Act has to be read in consonance with the provisions of the charging section. The levy of surcharge for the purpose of section 113 by the relevant Finance Act is de hors the scheme of the Act and that the imposition of such levy does not mesh in with either proviso to section 4(1) or the provisions of section 158BA, read with section 113 of the Act. When the Finance Act seeks to impose any additional l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Finance Act for the assessment year immediately preceding the previous year in which the search was initiated should be adopted - why not the surcharge applicable for the first year of the block period or any year in between or the year in which the search was conducted? (d) Until the amendment in section 113 with effect from 1-6-2002 there was inconsistency with regard to levy of surcharge. The question which usually bothered tax authorities was whether surcharge is to be levied with reference to the rates provided for in the Finance Act of: - the year in which search was initiated; or - the year in which the search was concluded; or - the year in which the block assessment proceedings under section 158BC were initiated; or - the year in which the block assessment order was passed. Further complexity regarding the application of the relevant provisions of the Finance Act used to arise in a case where proceedings were initiated under section 158BD of the Act since there was no time-limit for initiation of proceedings under that section. (e) Lastly if it is to be held that the surcharge would even be leviable in respect of search carried out on or before 31-5-2002, the ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the block period. Section 113 determines the rate of tax for income brought to tax in terms of section 158BA(2) Finance Act for each of the assessment years has no application. (c) Prior to the insertion of the proviso to section 113 of the Income-tax Act, 1961, the question of levy of surcharge on the tax computed under section 113 of the Income-tax Act, 1961, does not even arise for consideration. (d) There has been no valid levy of surcharge under any Central Act/Finance Act during the period 1-7-1995, the date on which Chapter XIVB was first inserted by the Finance Act, 1995, to 1-6-2002 the date on which the proviso was inserted in section 113 of the Income-tax Act, 1961 authorising levy of surcharge, for the reasons that neither sub-section (8) of section 2 of the Finance Act nor the first proviso refers to Chapter XIVB. (e) The language employed in Chapter II of the Finance Act normally specifies the rates of tax applicable for the income of the previous year relevant to the assessment year commencing on the 1st April of the relevant year and these provisions are not applicable to search cases under Chapter XIVB for which the rates are provided in section 113. (f) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough a peripheral view of Chapter XIVB might give an impression that it is a self-contained code for assessing the undisclosed income, an in depth study of the provisions of the Act make it clear that it is not so. Chapter XIVB does not even provide for rate of tax leviable on the undisclosed income and section 158BA(2) looks to section 113, which is in Chapter XII, for the purpose of rate of tax, on the undisclosed income. This itself proves that Chapter XIVB is not a self-contained code. 8.2 It is not correct to say that, the induction of theory of block period excludes the concept of assessment year and previous years from the whole scheme of Chapter XIVB since clause (a) of section 158B defines block period as meaning certain number of assessment years preceding previous year in which search was conducted. This necessarily demonstrates that the concept of assessment year and the income relatable thereto, is not given a go by altogether in Chapter XIVB. On the other hand, it is only in the context of getting over the possible technical difficulties that g might be arising in fixing taxable assessment year, the Parliament, in its wisdom, has provided for integration of the undisc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the provision. Further, reliance is placed on the judgment of the Hon'ble Supreme Court in the case of State of West Bengal v. Madan Mohan Ghosh [2002] 9 SCC 177 to enlighten that It was held that non obstante clause was intended to confer primacy only to the statutory provisions in existence as on that date and that primacy would not extend to future laws. The non obstante clause figuring in section 158BA(1) is a restrictive one and it cannot be given wider effect as it gives primacy to Chapter XIVB over the other provisions of the Act and, at any rate, does not confer overriding effect over the provisions of the Finance Act. Even if it is to be assumed that surcharge in Finance Act. 1999, is inconsistent with section 158BA(2) read with section 113 Finance Act, 1999, being a subsequent enactment, the same has to be given effect to and the question of Finance Act, 1999, yielding to section 158BA(2) of the Act does not arise. 8.4 Even otherwise, when there is a conflict between prior law and subsequent law, it is the latter that prevails. For this proposition, reliance is placed on the decision of the Hon'ble Supreme Court in Sarwan Singh v. Kasturi Lal AIR 1977 SC 265 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that surcharge is not leviable for the period anterior to 1-6-2002 cannot be accepted as that would be making the relevant Finance Acts to the extent of levy of surcharge as dead letters and that such an interpretation cannot be termed as a harmonious construction. It amounts to ignoring the relevant piece of legislation, which is found in the statute book, specifically when the assessees have not argued that the said provisions of the relevant Finance Act to the extent of levy of surcharge are ultra vires the Constitution of India and, in law, such an. issue cannot be raised before this Tribunal. If the proviso to section 113 introduced by the Finance Act, 2002, is construed prospectively and is made inapplicable to period before 1-6-2002, it would tantamount to ignoring the provisions in the Finance Acts of 1995, 1996, 1997, 1998, 1999 and 2000, which is not permissible in law. Reliance is placed on the judgment of the Hon'ble Supreme Court in the case of CIT v. Hindustan Bulk Carriers [2003] 3 SCC 57 at page 74, paragraphs 14 to 21. The intention to levy surcharge, especially under section 113 of the Income-tax Act, 1961, was made explicit in the Finance Act, 1999, and hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain of the expressions found, viz., total income , profits liable to tax , dividends payable out of such profits and an additional income-tax , of their natural and real meaning. Fully being conscious of the said state of legal position, some of those words may be ignored as being surplusage or a drafting error, and accordingly prayed the Hon'ble Supreme Court to accept Revenue's interpretation, by construing the said expressions as surplusage. This contention of the revenue did not find favour with the Supreme Court. 8.10 The comparison sought to be made between Elphinstone Spg. Wvg. Mills Co. Ltd.'s case on the one hand and the present case on the other, is not warranted. In Elphinstone Spg. Wvg. Mills Co. Ltd.'s case specific provision was made under section 3 of the Finance Act, 1963, with a non obstante clause only because the Parliament was levying surcharge on certain items of income, which otherwise were not assessable to income-tax. It is on account of this, a specific provision in section 3 was made with a non obstanle clause. Merely because such a section with similar language has not been found in all these Finance Acts, it does not mean that those Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock assessment. 8.13 The proviso to section 113 introduced by the Finance Act, 2002, is a piece of declaratory legislation and is applicable to all assessment years anterior to 1-6-2002. In effect, the said proviso to section 113 is nothing but a proviso to each of the Finance Acts, which introduced levy of surcharge on the income taxable under section 113 of the Act. As seen from the Finance Acts of 1995 to 1997 (in the case of domestic companies) and Finance Acts of 1999 and 2000 (in the case of all assessees), the Parliament provided for levy of surcharge on the incomes assessable under section 113 of the Act, but did not stipulate the rate of surcharge perhaps because the Parliament opined that it was not specifically required to be returned. The assessee's counsel rightly pointed out that since the search is the triggering point for the ensuing assessments under Chapter XIVB, it is the law as on the date of search that should be applied for all aspects including rate of tax and surcharge. Thus, whatever rate of surcharge that substituted as on the date of search would govern the assessees concerned. While admitting that the issue is capable of debate, Parliament intervened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectivity does not corne to the rescue of the assessee and also that the declaratory legislation can be made by a proviso to avert a possible ambiguity. For this proposition, reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Shelly Products [2003] 261 ITR 367. In that case Hon'ble Supreme Court has held that the real meaning of the original provision in the statute was implicit and the same was made explicit by the declaratory legislation. Extending these principles to the case on hand, the proviso to section 113 is only a declaratory piece of legislation intended to remove obscurity, if any, found in the relevant Finance Acts. 8.16 Regarding the reliance placed by the assessee on the resolutions passed at the Chief Commissioners' Conference, the National Conference of Chief Commissioners of Income-tax cannot be said to have any statutory authority under the Income-tax Act, nor is it vested with any power or jurisdiction to interpret the provisions of the Income-tax Act. There is no provision in the Income-tax Act constituting such a body, much less vesting with it any power to make any suggestion, and that the doubts expressed in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing fresh levy by way of income-tax or by way of a Central Act. (b) It is also not disputed that such imposition can be effected by amendment either in the provisions of the Act or by way of amendment in the Finance Act or any other Central enactment. (c) There is no mandate in the Finance Act to impose surcharge in respect of search conducted prior to 1-6-2002 and that the provisions in the Finance Act do not justify imposition of surcharge. (d) The Revenue has quoted the judgment of the Supreme Court in the case of Madurai District Central Co-operative Bank Ltd. Reliance placed by the Revenue on this judgment is totally out of context. The ratio of the decision should be read in the context of, and with reference to the facts on which such decision was based, and not otherwise. It is well-settled that it is neither desirable nor permissible to pick out a word or a sentence from the judgment, divorced from the context of the question under consideration and treat it to be complete law. In this regard, reliance is placed on the following judgments:- (a) CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297 (SC). (b) Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC). (c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility to pay tax on 'undisclosed income' for the 'block period'; (b) The rate for imposition of surcharge was unknown since the relevant date for imposition of surcharge, as admitted by the revenue's standing counsel during the course of hearing, was in doubt. It was not known as to which date was relevant for determining the imposition of surcharge. (c) In the case of proceedings under section 158BD, there was ambiguity insofar as it was not known as to what was the rate of surcharge that was applicable, in addition to the ambiguity that was already existing in the case of proceedings under section 158BD. The ambiguity as to the rate applicable was as follows: (i) The rate applicable for the year in which the search was initiated; or (ii) The rate applicable for the year in which the search was concluded; or (iii) The rate applicable for the year in which the block assessment proceedings under section 158BC were initiated; or (iv) The rate applicable for the year in which the block assessment order was passed. (v) There was contradiction in the provisions of the Finance Act(s) inasmuch as both Part I of First Schedule and Part III of First Schedule referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Madurai District Central Co-operative Bank Ltd., relied upon by the revenue, is not applicable to the facts of this case and that, on the other hand, the judgment of the Hon'ble Supreme Court in the case of Elphistone Spg. Wvg. Mills Co. Ltd. is very much applicable. The judgments of the Tribunal in the cases of Raya R. Govindarajan, Raghunandan Modi and Sri Subhash Kumar Bhunia are distinguishable. They do not lay down the correct position of law. The department was wrong in submitting that the amendment to section 113 would operate retrospectively and that Chapter XIVB is not a sell contained code. 10.1 The learned counsel Shri P. Muralikrishna, on behalf of Shri M. Yugandhar, assessee-intervener in his rejoinder submitted that: The replies of the learned counsel Sri Ajay Vohra for the assessee-intervener-I, Shri Shiv Nadar, are adopted. The decisions quoted by the learned senior standing counsel for the Revenue reveal that most of the judgments are not relevant to the issue under consideration. Reference may be had to Hindustan Ideal Insurance Co. Ltd. v. LIC of India AIR 1963 SC 1083, at paragraph 28 of that judgment. The proviso in the Finance Act does not conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt in a manner favourable to the taxpayer . He relied on the judgment of the Hon'ble Supreme Court in Union of India v. Onkar S. Kanwar [2002] 258 ITR 761, at page 769. It is laid down therein that where two views are possible then the one which is in favour of the assessee must be adopted . For this proposition, reliance is also placed on the judgments in the cases of CIT v. Quantas Airways Ltd. [2002] 256 ITR 843 (Delhi) and A.P. State Civil Supplies Corpn. Ltd. v. Dy. CIT [2002] 83 ITD 398 (Hyd.), and CWT v. Ellis Bridge Gymkhana [1998] 229 ITR 1 (SC) 1. 11. The learned counsel Shri Ajay Gandhi, on behalf of Unix Electronics and Smt. Priti Bhushan Mehta, assessee-interveners adopted the same arguments as other assessee-interveners above. 12.1 Rival submissions heard and relevant orders read besides going through the facts of the case on record and the written submissions filed on record by the assessee-appellant, Department and assessee-interveners. After doing so and duly considering the various aspects of the issue involved in our long and due deliberations, even for and against, amongst us, giving due care and meticulous attention to the complexities involved, while cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate of surcharge applicable, explicitly prior to the introduction of the proviso to section 113 and that this issue is capable of debate, though while stating so the revenue's argument is that the rate of surcharge applicable as on the date of search, should be the rate applicable to the block, as such an interpretation would be harmonious and the proviso to section 113 is as declaratory legislation and this proviso clarifies and reiterates the intention of Legislature as it always was. 12.3 Though the resolution of the National Conference of Chief Commissioners of Income-tax cannot be considered as an aid to interpretation of a statute, nor as a guideline for decision in this case, we find that the resolution has aptly and precisely put the problem of levy of surcharge prior to the insertion of the proviso to section 113 in the proper perspective. The comments and suggestions of the Conference are as follows: 3. Section 113: Tax on undisclosed income (Levy of Surcharge on tax on undisclosed income). Section 113 provides for tax on undisclosed income at the rate of 60 per cent. The Finance Act stipulates that the amount of income-tax shall be increased by a surcharge, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes of calculating income-tax under the first proviso to sub-section (5) of section 132, or computing the income-tax chargeable under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of section 176 or deducting income-tax under section 192 from income chargeable under the head 'Salaries' or computation of the 'advance tax' payable under Chapter XVII-C in a case not falling under section 115A or section 115B or section 115BB or section 115E or section 164 or section 164A or section 167B, the rates or rate of income-tax specified in this behalf in the Finance Act of the relevant year, and for the purposes of computation of the 'advance tax' payable under Chapter XVII-C in a case falling under section 115A or section 115B or section 115BB or section 115E or section 164 or section 164A or section 167B, section 115B or section 164, the rate or rates specified in section 115A or section 115B or section 115BB or section 115E or section 164 or section 164A or section 167B, as the case may be, or the rate or rates of income-tax specified in this behalf in the Finance Act or the relevant year, whichever is appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2002, with effect from 1-6-2002, reads as under: 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. Chapter XIVB - Special Procedure for assessment - 158B. Definitions. In this Chapter, unless the context otherwise requires,- (a) ' block period' means the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A and also includes the period up to the date of the commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made : Provided that where the search is initiated or the requisition is made before the 1st day of June, 2001, the provisions of this clause shall have effect as if for the words 'six assessment years', the words 'ten assessment years' had been substituted; (b) 'undisclosed income' includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putation 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.... Section 158BC: 158BC. 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, ... ... ... (c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment. Section 158BH: 158BH. Application of other provisions of this Act. Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter. 12.5 The issues that arise for our consideration are framed as under: (a) Whether the proviso to section 113 introduced by the Finance Act, 2002, with effect from 1-6-2002, can be considered as a piece of clarificatory legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ikalpa) axiom is that where there is a real contradiction, one of the contradictory matters may be adopted at one's option. Maxwell on interpretation of statutes says that a construction which would leave without effect any part of the language of the statute would normally be rejected, and further that it is reasonable to presume that the same meaning is employed by the use of the same expression in several parts of the Act. Thus, in the light of the principles laid down by various famous Jurists like Maharshi Jaimini, Craies, Maxwell on Interpretation of Statutes, we begin to dissect as below the various arguments advanced by the assessee, department and interveners referred to above, for dealing with the issues as follows: 12.7 The first issue for consideration as to whether the proviso to section 113 inserted by the Finance Act, 2002, is a declaratory legislation and thus retroactive in nature. The contention of the Revenue is that the insertion of the proviso has to be held as having retroactive operation in view of the mention of section 113 in the various Finance Acts, and that this piece of legislation can be considered a clarificatory or declaratory legislation, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Act itself. 12.10 In this context, we may refer to the decision of Hon'ble Kerala High Court in the case of N.T. John v. CIT [1997] 228 ITR 314 wherein considering the question whether section 158BA contained in Chapter XIV-B is retrospective or prospective in operation, Hon'ble Kerala High Court held, as per relevant position of the head note as under- Normally, a change in the law of procedure operates retrospectively. In the case of Chapter XIV-B, there was no change of procedure, but a special procedure was provided. Section 158BA would not apply in a case where a search was initiated under section 132 before June 30,1995. In that view, it cannot be said that Chapter XIV-B has retrospective operation. 12.11 Similarly, in the case of Jayalakshmi Leasing Co., In re. [1997] 228 ITR 1 (At) the Special Bench of the IT Settlement Commission, examining the jurisdiction to admit and deal with applications in respect of cases of block periods arising under Chapter XIV-B of the Income-tax Act, on the interpretation of statutory provisions observed, vide relevant portion of the head note on pages 2 and 3, as follows:- ... The failure to specifically bar the application of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability is governed by the normal presumption that it is not retrospective and the settled principle of law is that the law to be applied is that which is in force in the assessment year unless otherwise provided expressly or by necessary implication. Even a procedural provision cannot, in the absence of clear contrary intendment expressed therein be given greater retrospectivity than is expressly mentioned so as to enable the authorities to affect finality of tax assessments or to reopen liabilities which have become barred by lapse of time. (Emphasis supplied) In the light of the observations of the Apex Court underlined above, the law that governs the levy of tax on the undisclosed income determined in a block assessment in terms of section 113 is the provisions of section 113 as it stood prior to 1-6-2002, and not the provisions of that section, as amended by the insertion of proviso thereunder, which came into effect only from 1-6-2002, in the absence of any express or implied indication in the amended provisions imputing retrospective operation to the same. 12.13 We may also refer to the decision of Apex Court in CIT v. Dhadi Sahu [1993] 199 ITR 610, wherein considering the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Society Ltd. and held that the exemption under section 80P(2)(a)(iii) was not restricted only to primary societies and that produce of its members in that provision had to be construed as including the produce belonging to a member-society. Immediately thereafter, in 1999 the provisions of section 80P(2)(a)(iii) were amended by the Income-tax (Second Amendment) Act, 1998 (No. 11 of 1999) with retrospective effect from 1-4-1968, by substituting sub-clause (iii) to read the marketing of agricultural produce grown by its members . When the validity of the retrospective amendment to section 80P(2)(a)(iii) is challenged, the Apex Court affirming the view taken by the High Court upholding the validity, held, vide relevant portion of head-note on page 550 of the Reports (260 ITR), as follows- The legislative power either to introduce enactments having retrospective effect for the first time or to amend an enacted law with retrospective effect is not only subject to the question of competence but is also subject to several judicially recognized limitations. The first is the requirement that the words used must expressly provide for or clearly imply retrospective operation. The second is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head-note on p. 83, as follows- An amendment must have in its language something pointing towards its retrospectivity. In order to hold a statute retrospective, it should be specifically so provided. In order to hold the provision to be having retrospective operation, it would have to be shown that it is of a procedural nature. (Emphasis supplied) On the procedural or substantive nature of the provision under consideration in that case, the High Court held as per relevant portion of head-note as follows- Held: (ii) That it was clear from the language of section 40A(3) that the language did not in any manner suggest retrospectivity. Considering the tense used in the section, the amendment was prospective. The amendment limiting the discretion of the assessing authorities and creating a right on the assessee to plead for the remaining eighty per cent, expenditure as allowable expenditure could not be viewed as a mere procedural provision. It would have to be held as a provision dealing with substantive right of the assessee. Thus, the amended provision was not of retrospective nature. The Tribunal was right in holding that the amended provision was only prospective. In the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (No. 2) Act, 1991 with effect from 1-10-1991, the Hon'ble Rajasthan High Court held that: The proviso inserted by the Finance (No.2) Act, 1991 with effect from 1-10-1991, to section 272A(2) of the Income-tax Act, 1961, has not been given retrospective effect. In the absence of any retrospective effect to such provisions, this proviso cannot have any impact with regard to any default relating to the assessment year 1989-90 requiring the assessee to file the return on or before 30-4-1989, for the period ending on 31-3-1989. No law can have retrospective effect unless it is so provided specifically by the law itself. 12.20 In CWT v. B.R. Theatres Industrial Concerns (P.) Ltd. [2005] 272 ITR 177 (Mad.) examining the retrospective or otherwise nature of amendment of section 40 of Finance Act, 1983 by Finance Act, 1988, for purposes of Wealth-tax Act, the Hon'ble Madras High Court held- The test to be applied for deciding as to whether a later amendment should be given retrospective effect, despite a legislative declaration specifying a prospective date as the date from which the amendment is to come into force, is as to whether without the aid of the subsequent amendment, he u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent the language renders it necessary. 12.23 Further, in the case of Uppala Peda Venkataramanaiah (1964 LII ITR Short Notes of Current Cases-2), examining the retrospective or otherwise nature of the provisions of section 155 of the Income-tax Act, 1961, Hon'ble Andhra Pradesh High Court held as follows- (ii) that in the absence of express words or necessary implication to the contrary a statute which was not purely procedural had only prospective and not retrospective operation; section 155 of the Income-tax Act, 1961 had only prospective operation. (iii) that as the appellate orders were passed before the coming into force of the Income-tax Act, 1961, the statutory provisions which were in force at the time when the appellate orders were passed covered those rectification proceedings and the Act of 1961 did not in any manner destroy the rights and privileges acquired under these statutory provisions or the liabilities incurred thereunder, (Emphasis supplied) 12.24 Similarly, in the case of Harlal v. Lala Prasad AIR 1931 Nag. 138, the then Hon'ble Nagpur High Court examining the retrospective or otherwise nature of the amendment made to the Transfer of Property Act, ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment made to the statute, Hon'ble Madras High Court held as follows- The general rule is, when an amendment is introduced in the statute governing the case already pending, the rights and obligations of parties should be decided only according to the law, which existed when the action was begun, unless a clear contrary intention is evident in the Amending Act. There could not be imputation of retrospective operation to an Amending Act and that could be done only by the Amending Act either expressly or by necessary implication. In the instant case the Amending Act has indicated that the amendments introduced 'shall have only prospective operation and pending proceedings should continue as if the Amending Act had not been passed. (Emphasis supplied) 12.28 Similarly in the case of Maharaja Chintamani Saran Nath Sahdeo v. State of Bihar AIR 1999 SC 3609, considering retrospective or otherwise nature of amendment made to Bihar Land Reforms Act, Hon'ble Supreme Court held that the amending provision restricting compensation to three times of net income has no retrospective application, as amendment affects substantive right. It was also held that substituted legislation can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Since the order recognizing the appellant Trust as a charitable trust under section 12A(a) of the Income-tax Act was passed on 29-4-1977 by ITAT, the appellant could not claim the benefit of that order as the exemption of the land from payment of urban land tax was claimed only for the period 1965 to l976. The said order could not be given retrospective effect. (Emphasis supplied) 12.32 This Hyderabad Bench of the Tribunal in the case of A.P. State Civil Supplies Corpn. Ltd. v. Dy. CIT [2002] 83 ITD 398 had occasion to consider the applicability of the amended provisions of section 254(2A) inserted by the Finance Act, 2001 with effect from 1-6-2001, to the matters where stay had already been granted prior to that date. After discussing at length the case-law on the point in the light of K.J. Aiyer's Judicial Dictionary; commentaries by Sampath Iyengar on Law of Income-tax, Eighth Edition (revised by Hon'ble Supreme Court Justice Mr. S. Ranganathan) Vol. I at page 57 under section 38 with the head note 'Retroactive Legislation' and Chaturvedi Pithisaria's 'Income-tax Law' Fourth Edition, 1990 Vol. I at page 239, the Tribunal concluded that no retrospectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) The above ratio decidendi squarely applies to the facts of the present case wherein the Revenue seeks to press into service the proviso of section 113 brought on to the statute book with effect from 1-6-2002, so as to levy surcharge enabled by the insertion of proviso below section 113 by the Finance Act, 2002, expressly with effect from 1-6-2002 on tax levied in block assessments, wherein search has commenced prior to 1-6.2002. 12.33 On the issue whether the Legislature in question is retroactive or declaratory in nature, we may examine the case law on the subject. In the case of Shyam Sunder v. Ram Kumar [2001] 8 SCC 24, Hon'ble Supreme Court held as under- 37. We are in respectful agreement with the view taken in Moti Ram v. Suraj Bhan. The right of pre-emption may be a weak right but nonetheless the right is recognised by law and can be allowed to be defeated within the parameters of law. A statute which affects the substantive right has to be held prospective unless made retrospective either expressly or by necessary intendment. Explaining the legal position of retroactive and declaratory legislation at length, the Hon'ble Supreme Court in that case at paragraphs 39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well-settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended.' 42. In Keshvalal Jethalal Shah v. Mohanlal Bhagwandas AIR 1968 SC 1336 this Court while interpreting section 29(2) of the Amending Act, held thus: 'An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. Section 29(2) before it was enacted was precise in its implication as well as in its expressed; the meaning of the words used was not in doubt, and there was no omission in its phraseology which was required to be supplied by the amendment.' 43. In R. Rajagopal Reddy v. Padmini Chandrasekharan [1995] 2 SCC 630 it was held thus: 'Declaratory enactment declares and clarifies the real intention of the Legislature in connection with an earlier existing transaction or enactment, it does not create new rights or obligations. If a statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above, states that the rate of tax on undisclosed income in block assessment is only 60 per cent. There is no whisper of surcharge. 12.35 The learned Senior Standing Counsel for the Department, stated as follows:- As seen from the Finance Acts of 1995, 1996 and 1997 (in the case of domestic companies) and Finance Acts of 1999 and 2000 (in the case of all assessees), the Parliament provided for levy of surcharge on the incomes assessable under section 113 of the Act, but did not stipulate the rate of surcharge may be because the Parliament opined that it was not specifically required to be returned. As has been rightly pointed out by the assessees, since the search is the triggering point for the ensuing assessments under Chapter XIVB, it is the law as on the date of search that should be applied for all aspects including rate of tax and surcharge. Therefore, whatever rate of surcharge that subsisted as on the date of search, would govern the assessees concerned. However, since the issue is capable of debate, the Parliament intervened to make a declaratory law, clarifying that the surcharge shall be levied at the rate prevalent on the date of search. By this, the Parliament only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is that de hors the reference to the proviso to section 113 introduced by the Finance Act, 2002, or to the Income-tax Act itself, there are specific provisions incorporated in the various Finance Acts referred to above, and as it is conceded that the Parliament may choose either the Income-tax Act or the Finance Act or any other Central Act to levy surcharge, the surcharge has been rightly levied under the Finance Acts and such a levy is a valid levy. The contention of the assessee is that the Finance Act is lacking in creation of the charge and that, at any rate, there is ambiguity as to the rate of surcharge to be applied, and thus it was unworkable and impractical and hence the charge, if any, fails. 12.38 The relevant portion of the Finance Act, 1999, which is the basis upon which the learned Standing Counsel submits that the surcharge is leviable through Finance Act, reads as under:- (8) Subject to the provisions of sub-section (9), in cases in which income-tax has to be charged under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of section 176 of the Income-tax Act or deducted under section 192 of the said Act from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a surcharge for purposes of the Union calculated at the rate of ten per cent of such income-tax: Paragraph B Rates of Income-tax XXXXXXX Surcharge on income-tax The amount of income-tax computed in accordance with the preceding provisions of this Paragraph, or in section 112 or section 113, shall, in the case of every co-operative society, be increased by a surcharge for purposes of the Union calculated at the rate of ten per cent of such income-tax. Paragraph C Rates of Income-tax XXXXXXXX Surcharge of Income-tax The amount of income-tax computed at the rate hereinbefore specified or in section 112 or section 113, shall, in the case of every firm, be increased by a surcharge for purposes of the Union calculated at the rate of ten per cent of such income-tax: Provided that no such surcharge shall be payable by a nonresident. Paragraph D Rates of Income-tax XXXXXXX Surcharge on Income-tax The amount of income-tax computed at the rate hereinbefore specified or in section 112 or section 113, shall, in the case of every local authority, be increased by a surcharge for purposes of the Union Calculated at the rate of ten per cent of such income-tax: Paragraph E Rates of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod as distinct from total income of a previous year . Now the question is, whether the Finance Acts which are enacted to prescribe the rate or rates of income-tax on total income of a previous year , have also prescribed levy of surcharge on undisclosed income of a block period . 12.42 The first limb of the argument of the Revenue is that Chapter XIVB is not a self-contained code and that the concepts of 'assessment year' and 'previous year' are not excluded from the scheme of Chapter XIVB. The decision relied upon is in the case of Venkatagiri Raja (2003) (6) ALD 463. In this case, the Hon'ble jurisdictional High Court laid down the proposition that the statutory forms also constitute integral part of the statutory scheme and that it is no longer in dispute and they could be taken as an aid for the purpose of interpreting the statutory provision in the enactment. This proposition has been put forward to state that Form 2B prescribed in terms of the Income-tax Rule 12(1)(a) provides for calculating undisclosed income for each assessment year included in the block period and thus the concepts of 'assessment year' and 'previous year' have not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the present scheme, valuable time is lost in trying to relate the undisclosed incomes to the different years. Tax evaders generally manage to divert the focus to procedural and legal issues and often invent evidence to explain undisclosed income. By the time search-related assessments are completed, the effect of search is considerably diluted. Legal battles continue for years to decide which income is assessable in which assessment year. No finality is reached and the seized assets remain with the Department for a long time. In order to make the procedure of assessment of search cases cost effective, efficient and meaningful, it is proposed to introduce a new scheme of assessment of undisclosed income determined as a result of search under section 132 or requisition under section 132A. Under this scheme, the undisclosed income detected as a result of any search initiated, or requisition made, after 30th June, 1995, shall be assessed separately as income of a block of years. Where the previous year has not ended or the due date for filing a return of income of any previous year has not expired, the income recorded on or before the date of search or requisition in the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 132A in the case of any person, then,- - the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B (containing sections 158B to 158BH) . 12.49 A close reading of the above clearly brings out the fact that Chapter XIVB is a self-contained code and undisclosed income relatable to the block period is different from total income of a previous year relatable to any assessment year. The Legislature had in fact brought in these special provisions to overcome the difficulties that were arising in search cases due to the concepts of Previous Year and Assessment Year . Statutory forms may be an aid to interpretation, but these forms or even rules do not override the Act. Block Period as defined in section 158B(a) is different from Previous year or Assessment Year as defined in section 2(9) and section 2(34) respectively. Even the subsequent enactment i.e., the Finance Act does not change the concept of Block assessment. The mention of section 113 in sub-section (2) of section 158BA as well as the provisions of section 158BH are 'legislation by incorporation'. Chapter XIVB has specifically been incorporated with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted in the case of a block assessment is other than for the period of a previous year, in our considered opinion the proviso to section 4(1) only applies. In this proviso, there is no reference to any 'Central Act', unlike in section 4(1). 12.52 Having held so, we examine as to whether the proviso to section 4(1) and/or section 158BA(2) enables levy of surcharge. The answer, in our considered opinion, is in the affirmative. It is well-settled that 'income-tax' includes 'surcharge' which is a receipt in the nature of additional income-tax, as held in the case of CIT v. Maharaja Pratapsingh Bahadur of Gidhaur [1961] 41 ITR 421 (SC). The assessee's argument that the term tax has been defined under section 2(43) and that it includes only g income-tax and super-tax and not surcharge, is against the proposition laid down by the Hon'ble Supreme Court, as surcharge has been interpreted as nothing but additional income-tax. The only requirement is that the levy should have been under the Income-tax Act itself as there is no reference to any Central Act in this proviso or in section 15 8BA(2). Thus, the argument that section 158BA(2) and the proviso to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of those components of the levy will be fatal to its validity. [Emphasis ours] Their Lordships held that there are four components in the concept of tax: (a) the character of imposition, (b) a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, (c) the rate at which the tax is imposed and (d) the measure or value to which the rate will be applied for computing the tax liability. We have now to examine as to whether the Finance Act satisfies all the above components so as to enable us to hold that there is a valid levy. 12.54 The bedrock of the argument of the Revenue is that the judgment of the Hon'ble Supreme Court in the case of Madurai District Central Co-operative Bank Ltd. v. ITO [1975] 101 ITR 24, is applicable to the facts of this case and that the judgment in the case of CIT v. Elphinstone Spg. Wvg. Mills Co. Ltd. [1960] 40 ITR 142 (SC), does not apply to the facts of this case. The assessee argues on the contrary and distinguishes the judgment in the case of Madurai District Central Co-operative Bank Ltd. and submits that the judgment in the case of Elphinstone Spg. Wvg. Mills Co. Ltd. applies to the case. We will first disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nas per rupee and the rate which the excess dividend had actually borne. In that case, the undisputed fact was that the sum of Rs. 3,29,062, which the company declared as dividend, was undistributed profit of the preceding years and was not out of the income which g constitutes total income of the current year. In that context, the Hon'ble Court observed that additional income-tax must postulate first the total income liable to tax, and secondly an income-tax which has been levied on the total income. As these two essential conditions were absent, that is, there was neither a total income liable to tax nor was there any income-tax which was assessed on the total income, the Hon'ble Court came to the conclusion that the Department was not justified in taxing the subject. While holding so, the Hon'ble Court specifically stated that the Finance Act could have provided that in the income of the previous year certain income which was not made or has not accrued in that particular year should be included and that to accede to that contention, they would require much clearer and much stronger language in the Finance Act. Their Lordships went on to observe: It is always with so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be determined in accordance with the Income-tax Act, and that when there is no total income, the second paragraph of the proviso, as it is worded, ceases to be workable. In that case, Their Lordships also considered the contention of the CIT that this should be treated as an independent charging section and observed: There are no words here making the excess dividend into income or subjecting it to lax independently of the charge to tax on the total income . In the concluding remarks, it was held: We respectively agree with the learned Chief Justice that though the interpretation we have placed upon the proviso might lead to some anomalies, it is for the Legislature to avoid the anomalies which, according to us, spring not from our interpretation but from the language employed. It was further stated: The Income-tax Act creates an assessment year and a corresponding previous year. Assessment to tax in any assessment year can only be in respect of the profits of the immediately preceding previous year. While observing so, the Hon'ble Supreme Court held the fiction in that enactment, which brings profits of back years into the immediately preceding previous years, so that the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Justice in the extract quoted, and made the profits a part of the total income of the previous year under assessment, but it did not do so. The Finance Act could have also resorted to some other fiction, which might conceivably have met the case; but it has failed to do so. Thus, the argument that a Finance Act could independently levy a tax has never been negatived by the Hon'ble Supreme Court in the case of Elphinstone Spg. Wvg. Mills Co. Ltd. or in the case of Khatau. 12.58 Coming to the case of Madurai District Central Co-operative Bank Ltd., the judgment of the Hon'ble Madras High Court in 73 ITR 479 was affirmed by the Hon'ble Supreme Court, Hon'ble Madras High Court had considered the judgment in the case of Khatau Makanji Spg. Wvg. Mills Co. Ltd. which in turn had considered the judgment in the case of Elphinstone Spg. Wvg. Mills Co. Ltd., and distinguished these judgments in the following words:- The petitioner relies on Commissioner of Income-tax v. Khatau Makanji Spinning and Weaving Company, but we fail to see what assistance it gives to him in the instant case. All that was decided in that case was that, in view of the terms of section 3 of the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompetence to introduce a new charge of tax and it may exercise that power either by incorporating the charge in the Income-tax Act or by introducing it in the Finance Act or, for that matter, in any other statute. In the case of Madurai District Central Co-operative Bank Ltd., the question considered was whether the Finance Act, 1963, authorises by its terms the levy of additional surcharge on income which is exempt from tax under the Income-tax Act, 1961, but at the same time, the said income undisputedly constitutes total income of the previous year and the Finance Act prescribed rates for such total income of the previous year. The Court was considering a case of levy of additional surcharge on residual income and it did not accept the contention of the assessee that the same cannot be dissociated from the main charge of income-tax. In Madurai District Central Co-operative Bank Ltd. v. Third ITO [1975] 101 ITR 24,33 (SC), it was observed that: (a) Section 2(1)(a)(ii) of the Finance Act, 1963, provided that income-tax shall further be increased by an additional surcharge for the purposes of the Union calculated in the manner provided in the First Schedule. (b) Clause (c) of Parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was in fact part of total income of the previous year, though exempt, and thus the wording in the Finance Act was sufficient to uphold the levy. In the case on hand, the undisclosed income for a block period is different from total income of a previous year and as the Finance Act only refers to total income of a previous year , the ratio of the judgment in the case of Elphinstone Spg. Wvg. Mills Co. Ltd. applies on all fours. 12.61 What has to be seen in this case is whether a distinct and independent charge has been created in the Finance Act de hors the Income-tax Act, that is, proviso to section 4(1) and section 158BA(2), and whether any of the Finance Acts levy surtax on any income, which is expressly not part of total income of a previous year . A plain reading of the Finance Acts shows that nowhere the concept of undisclosed income or block period has been mentioned and the rates are only regarding total income of a previous year . 12.62 Coming to section 2(8) of the Finance Act, relied upon by the learned Senior Standing Counsel of the Revenue, at page 8 of the written submissions, after reproducing the provision, it is stated as follows:- From the above, it is evident t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law is supported by the case laws following:- (a) Asstt. CIT v. A.R. Enterprises [2005] 274 ITR 110 (Mad.) (b) Dr. Mrs. Alaka Goswami v. CIT [2004] 268 ITR 178 (Gau.) (c) CIT v. Mrs. Kumkum Kohli [2005] 276 ITR 589 (Delhi) 12.63 The very fact that the proposal to levy surcharge has found a place for the first time in Part-III of the First Schedule read with section 2(8) of the Finance Act, clearly demonstrates that the mention of section 113 therein, is in direct conflict with the provisions of Chapter-XIVB of the Income-tax Act. Such a mention in the Finance Act is against the concept of assessment of undisclosed income for a block period . As the question of payment of advance tax on undisclosed income simply does not arise, there is no question of levy of surcharge on such assumed advance tax liability on undisclosed income. This clearly shows that the reference to section 113 in section 2(8) of the Finance Act is unintended and is also a drafting error. Section 2(1) of the Finance Act, 1999, reads as under:- 2. (1) Subject to the provisions of sub-sections (2) and (3), for the assessment year commencing on the 1st day of April, 1999, income-tax shall be charged at the rates sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstrued strictly. If a person has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all 12.65 In the case of CIT v. Shahzada Nand Sons [1966] 60 ITR 392, at 399 to 401, Hon'ble Supreme Court observed as follows:- Mr. Palkhivala, learned counsel for the respondents, answered this criticism thus. In a taxing Act one has to look merely at what is clearly stated and, if the interpretation is open to doubt, the construction most beneficial to the subject must be adopted. Section 34(1)(a), before it was amended in 1956, provided for the genus out of which, by the Income-tax (Amendment) Act, 1959, the species of section 34(1A) was carved out. While section 34(1)(a) was a general provision, section 34(1A) was a special provision. On the principle of generalia specialibus non derogant the field covered by section 34(1A) should be excluded from that covered by section 34(1)(a). If that was the legal position before the 1956 amendment, the argument proceeded, the same position would continue thereafter, as Parliament retained section 34(1A), along with its provisos, as it stood before the amendment and amended only section 34(1)(a). The liftin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning and intention of a statute must be collected from the plain and unambiguous expression used D therein rather than from any notions which may be entertained by the court as to what is just or expedient'. The expressed intention must guide the court. Another rule of construction which is relevant to the present enquiry is expressed in the maxim, generalia specialibus non derogant which means that when there is a conflict between a general and a special provision, the latter shall prevail. The said principle has been stated in Craies on Statute Law, 5th edition, at page 205, thus: The rule is, that whenever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply . But this rule of construction is not of universal application. It is subject to the condition that there is nothing in the general provision expressed or implied, indicating an intention to the contrary: see Maxwell on the Interpretation of Statutes, 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that as neither section 2(1) nor section 2(8) of the Finance Acts brings to tax, by way of a distinct and separate charge, the undisclosed income of a block period computed as per Chapter-XIVB and as levy of surcharge in block assessments cannot be brought within the ambit of these charging sections, the levy has to fail. Charging section has to be construed strictly. Proviso to section 4 and section 158BA(2), which are charging sections for undisclosed income of a block period computed under Chapter-XIVB, do not authorise levy of surcharge or even tax by any Central Act. The Finance Acts deal with only total income of a previous year. Thus, unless there is a distinct and separate levy under the Central Act, on undisclosed income of a block period which satisfies the tests laid down by the Hon'ble Supreme Court in the case of Govind Saran Ganga Saran, the levy cannot be upheld. 12.68 The Revenue relied on the judgment of the Hon'ble Supreme Court in the case of CIT v. Hindustan Bulk Carriers [2003] 3 SCC 57 at page 74, paragraphs 14 to 21, wherein it was stated as follows:- 14. A construction which reduces the statute to a futility has to be avoided. A statute or any enact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute cannot be used to defeat the other provisions unless the court, in spite of its efforts, finds it impossible to effect reconciliation between them. (c) It has to be borne in mind by all the courts all the time that when there are two conflicting provisions in an Act, which cannot be reconciled with each other, they should be so interpreted that, if possible effect should be given to both. This is the essence of the rule of harmonious construction . (d) The courts have also to keep in mind that an interpretation which reduces one of the provisions as a dead letter or useless lumber is not harmonious construction. (e) To harmonise is not to destroy any statutory provision or to render it otiose. 12.70 It is true that a construction which reduces a statute to a futility, has to be avoided. But, if the taxing statute fails in reflecting its intendment clearly, courts cannot help the draftsmen by a favourable construction, as observed by the Apex Court in the case of Elphinstone Spg. Wvg. Mills Co. Ltd. In the instant case, the language in the Finance Act, 1999, unhesitatingly goes to show that it was a drafting error and levy of surcharge on undisclosed income of a block period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of time and was enacted with the knowledge of the non obstante clauses in the earlier law, we have come to the conclusion that the provisions of section 14A and Chapter IIA of the Rent Control Act must prevail over those contained in sections 19 and 39 of the Slum clearance Act. This proposition was relied upon for submitting that the Finance Acts being subsequent laws, as section 158BA(1) was introduced by the Finance Act, 1995, whereas the levy of surcharge was introduced by the Finance Acts, 1996 to 1998, and hence the subsequent laws have to be given effect to. This contention of the Revenue cannot be accepted for the reason that it was by the Finance Act, 1995, that Chapter XIVB of the Income-tax Act, 1961, was introduced and it is in the same Finance Act, under section 2(7) reference to section 113 has appeared for the purpose of payment of advance tax as well as deduction of tax at source. Thus, the Finance Act though a subsequent legislation, it does not have an independent charging sections and thus the argument that subsequent legislation overrides earlier legislation does not hold water. No doubt the Income-tax Act does not override the Finance Act. Even otherwise, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was to be adopted. (vi) If the revenue's contention that the concept of Previous Year and Assessment Year are to be applied to block assessments, is to be accepted, then, whether the rate of surcharge of a particular assessment year is to be applied to the undisclosed income relatable to that particular assessment year in a block period, thereby applying different rates of surcharge to undisclosed income after apportioning it to different assessment years? Further, in case of proceedings under section 158BD of the Act it was ambiguous whether either of the above rates was relevant or rate applicable on the date of initiation of the proceedings under that section or on the date on which block assessment order was passed under that section was relevant. Since the relevant date for imposition of surcharge was in doubt, the relevant rate for imposition of surcharge was also in doubt prior to amendment in section 113 of the Act. (c) There was contradiction in basis in the provisions of the Finance Act(s) inasmuch as both Part I of First Schedule and Part III of First Schedule referred to levy of surcharge. 12.73 The applicability of either of the rates would have resulted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02, whereas the assessment year relevant to the date 1-8-2001 is 2002-03. In such circumstances, the levy of surcharge as per the rate specified in Part I of the First Schedule is clearly illegal as held by the Hon'ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262. In that case, the assessee-company was assessed to agricultural income-tax under the Kerala Agricultural Income-tax Act, 1950, for the assessment year 1957-58. In the assessment, a surcharge at the rate of 5 per cent on the agricultural income-tax and super-tax was also levied and collected from the company under the provisions of the Kerala Surcharge on Taxes Act, 1957 (XI of 1957). The company objected to the imposition of surcharge on the ground that the law in force on April 1, 1957, should be the law applicable to the assessment for 1957-58. The Surcharge on Taxes Act came into force only from 1-9-1957, and did not have any retrospective effect. Their Lordships of the Supreme Court observed as under: Now, it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year. Prior to insertion of section 2(29C), the said term 'Maximum Marginal Rate' was defined on the very same lines, under the relevant provisions of sections 161 to 164A itself. Similarly, even in the matter of quantification of penalties for concealment of income, etc. leviable under the Income-tax Act, Department goes by only the tax sought to be evaded and for that purpose does not take into account the tag of surcharge in relation to such tax sought to be evaded. The Department, which is very correctly going by the wording of the statute while quantifying the penalties for concealment of income leviable under the Act, is unjustifiably seeking to add the levy of surcharge while computing the lax in relation to undisclosed income determined in a block assessment. 12.77 Thus, we conclude that the levy of surcharge, prior to introduction of proviso to section 113 with effect from 1-6-2002, is riddled with complexity to the extent of making it unworkable and impossible to harmonise and, therefore, the levy fails. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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