9911796707
TMI Blog2006 (4) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 charged in a block assessment in terms of section 158BA(2) of the Income-tax Act read with section 113 of the said Act. 1. The undisclosed income of the Block Period is charged to tax at the rate of 60 per cent stipulated under section 113, section 113 of the Act reads as under:- 'The total undisclosed income of the block period, determined under section 158BC, shall be chargeable to tax at the rate of sixty per cent.' The following proviso to section 113 was inserted only by the Finance Act, 2002, with effect from 1-6-2002:- "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." It may also be observed that there is no reference to rate of surcharge in section 113. Surcharge is prescribed only in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 particular assessment year, as specified in the Finance Act. The basis for levy of such tax on regular income is contained in section 4 of the Income-tax Act in which the charge of tax is linked to any Central Act and such a Central Act in this case is the Finance Act. In the case of a block assessment, there are two problems in relation to the levy of surcharge. The first is that section 113 does not mention a Central Act. In the absence of a reference to another Central Act in the charging section, it becomes difficult to justify levy of surcharge. Even if it is assumed that reference in the Finance Act to section 113 is sufficient authority to levy surcharge, the second problem is that the Finance Act levies surcharge on the amount of income-tax of a particular assessment year whereas in the block assessment tax is levied on the undisclosed income of the block period. Absence of a specific assessment year in the bloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfluenced 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 case of Microland Ltd. v. ACIT (67 ITD 446) Bang. In this case, the Bangalore Bench observed as under:- "38. The learned counsel for the assessee also objects to levy of surcharge separately in addition to tax at the rate of 60 per cent on the undisclosed income. We agree with him that as per the provisions of section 113, separate surcharge cannot be levied in respect of search and seizure assessments made under Chapter-XIV-B. However, in view of the fact that we have held the entire assessment to be liable to cancellation, this particular ground becomes academic in nature." There are two more decisions of the Tribunal in favour of the assessee, which are as under:- (a) Principal Officer, Builcon Towers (P.) Ltd. v. Asstt. CIT [2000] 113 Taxman 74 (Cal.) (Mag.) (b) D.G.P. Windsor (India) Ltd v. Dy. CIT [2002] 74 TTJ (Mum.) 291 There is however, another decision of the Delhi Bench of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, so that at the level of Tribunal, there can be uniformity of approach on this issue." 3. Thus and therefore, this Special Bench has been constituted under section 255(3) of the Income-tax Act, 1961, by the Hon'ble the President of the Tribunal on a reference made by the Division Bench at Hyderabad, to answer its following question:- "Whether on the facts and in the circumstances of the case, the levy of surcharge on the tax charged under section 113 in respect of the undisclosed income of the block period from 1-4-1989 to 18-11-1999, which is prior to insertion of proviso to section 113, is valid in law?" 4.1 The learned counsel Shri K.V.S. Bhaskara Rao, on behalf of the M/s. Merit Enterprises, appellant-assessee submitted that:- (a) The charging section for block assessment is section 158BA(2) of the Income-tax Act, 1961, according to which tax is to be charged at the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-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 Finance Act had no power to levy surcharge in a block assessment. (m) The National Conference of Chief Commissioners of Income-tax [2001] 252 ITR 49 (Journal) made a suggestion to amend section 113 retrospectively, after recognising the difficulty, but despite the specific recommendation, the amendment was brought into force only with effect from 1-6-2002. 4.2 Referring to the stand of the Revenue that Parliament has legislative power which is derived from Entry 82 in the Union List and Articles 265, 270 and 271 of the Constitution of India, and that once it is accepted that the Legislature has the competence to introduce a new charge, then it is immaterial whether that power is exercised by incorporating the charge either in the Income-tax Act or any other statute, it should not be lost sight of that the legislative competence of Parliament is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent 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 different rates in respect of assessments in pursuance of the same search as between cases under sections 158BC and 158BD, though arising out of one search or even with reference to the date of notice or the date of assessment. There is bound to be a time lag involving different assessment years. Reliance is placed on the order of the Calcutta Bench of the Tribunal in the case of Principal Officer, Builcon Towers (P.) Ltd v. Asstt. CIT [2000] 113 Taxman 74, for the proposition that in the definition of 'tax' in section 2(43) and 'rate of tax' in section 113, there is no reference to 'surcharge' and that there is arbitrary levy of surcharge with reference to date of assessment as the surcharge has been levied at varying rates from year to year. Further reliance is placed on the decision of the Bangalore Bench of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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] 128 ITR 294, specifically at page 299. A comparative chart of the provisions of the Income-tax Act, 1961, other than Chapter XIVB and the provisions of Chapter XIVB is furnished to bring out the ingredients therein, so as to demonstrate that they operate in different fields. 5.1 The learned counsel Shri Ajay Vohra on behalf of Shri Shiv Nadar and Shri Subroto Bhattacharya, assessee-Interveners submitted that: The legislative intent behind the introduction of special procedure for assessment of undisclosed income found during search by introduction of Chapter XIVB by Finance Act, 1995, with effect from 1-7-1995, as well as the findings of the Special Bench of the Tribunal in the case of Nawal Kishore & Sons Jewellers v. Dy. CIT [2003] 87 ITD 407 (Luck.) (SB) at page 423 may be seen. Chapter XIVB was introduced as a self contained chapter consist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 previous year, income-tax shall be charged accordingly. Thus, he argued when p income-tax is specifically charged on the income of a period other than the previous year, notwithstanding the provisions of sub-section (1) of section 4, tax has to be levied as may be specifically provided under such special provisions of the Act. The proviso to section 4(1) introduces a caveat to the applicability of the relevant Finance Act and where the case falls under the proviso, the relevant Finance Act does not come into play. 5.4 Thus, under the scheme of taxation under the Income-tax Act, if tax is levied on total income of an assessee, of a previous year, then in terms of sub-section (1) of section 4, the rate of tax is as specified by the relevant Finance Act and if tax is levied on the income of an assessee for a period other than the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 anomaly which arises from interpretation of the language employed. The charging provisions of section 158BA, read with section 113 containing the rate of taxation, do not contain a mandate to collect surcharge prior to the amendment by Finance Act, 2002. 5.7 For the proposition that the charging provision, which imposes tax, must be construed strictly, reliance is placed on the following decisions:- (a) CWT v. Ellis Bridge Gymkhana [1998] 229 ITR 1 at page 4(SC) (b) Associated Cement Co. v. CTO 48 STC 466, 476, 478 (SC) (c) Liquor Enterprises v. CTO [1986] 62 STC 88, 98 (AP)(FB) Reliance is placed on the provisions of section 158BA to emphasise that the charge to taxation under the special provisions of Chapter XIVB get attracted once the search is carried out under section 132 or books are requisitioned under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 liability to tax, there must be a mandate under the charging provisions of the Act and that in the absence of the same, no additional liability can be charged by the Finance Act and further the imposition of surcharge independently with reference to the provisions of the Finance Act is not in consonance with the provisions of section 4 of the Act which clearly mandates that the tax shall be levied in accordance with the special provisions governing charge of tax in respect of income of a period other than the previous year. 5.10 Further, the levy of surcharge prior to 1-6-2002 on the basis of the provisions of the Finance Act would be anomalous for the following reasons: (a) Finance Act contains the proposals for the following financial year e.g., Finance Act, 2001 contains the proposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 amendment made in section 113 of the Act would be rendered futile/irrelevant, and such a construction would be against the well accepted principles of interpretation of the statutes. For all the aforesaid reasons, imposition of surcharge in respect of search conducted prior to 1-6-2002 would not be in consonance with the Scheme of the Act. 5.11 Reference is also made to the recommendations of the Conference of Chief Commissioner of Income-tax as well as the proviso introduced by Finance Act, 2002, to emphasise that the Legislature in its wisdom thought it fit not to bring such proviso to section 113 retrospectively as recommended by the Conference. Any amendment made to the statute has prospective effect unless stated otherwise expressly or by necessary implication. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 only provision which, if at all, has some relevance to a particular assessment year, is the proviso specified in sub-section (3) of section 2 under Chapter II of the Finance Act, and the provision was inserted in the context of specifying the rates under section 2 for the assessment year commencing on 1st day of April, 2001. The rates are confined only for the assessment year 2001-02. Sub-section (3) of section 2 only deals with the tax chargeable with reference to the rates imposed under sub-section (1) of section 2 or to rates specified in that Chapter or section for a particular assessment year, i.e., 2001-02. Reference to section 113 in sub-section (3) of section 2 of the Finance Act does not convey any meaning as in all sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 undisclosed income of all the assessment years as relatable to one block period and levying fixed rate of tax. That does not necessarily mean that the theory of assessment year has been given a total go by. Form 2B prescribed in terms of the Income-tax Rule 12(1a), which is meant to be used for returning income for block assessment, takes into account the break-up of undisclosed income of each of the assessment years included in the block period. The total income including undisclosed income computed under section 158BB, is expected to be disclosed in Part - II with reference to each of the assessment years. Undisclosed income for the block period is aggregated only towards the end of the form. Relying on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent 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 page 275, para 23. Thus, the Parliament, being fully conscious of the existence of Chapter XIVB and especially section 158BA(1) with non obstante clause, provided for levy of surcharge by Finance Act, 1999, in the case of all assessees and Finance Acts of 1996 to 1998 provide for levy of surcharge on non-domestic companies. 8.5 Furthermore, it is one of the elementary rules of interpretation that there should be harmonious construction of the statutes. The Court's duty is to construe the provisions of the various statutes as to harmonize them, so that the purpose of the statutes may be given effect to. For this proposition reliance is placed on the judgment of Hon'ble Supreme Court in the case of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... napplicable 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 hence the same cannot be allowed to fail. 8.7 While Parliament's power to levy surcharge on income-tax is traceable to its power under Article 271 read with Entry 82 of List I of VII Schedule to the Constitution of India, the power of Parliament to levy surcharge is not traceable to section 4 of the Income-tax Act, 1961. Section 4, according to the learned Senior Standing Counsel of the Revenue, only stipulates that income-tax shall be charged at the rates that may be specified by any Central Act, for varying periods, and for the working of income-tax one has to look into the relevant Finance Act. Thus, one need not look into section 4 of the Income-tax Act as Parliament has got the prerogative to levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Finance Acts have not created charge. 8.11 While there is no controversy with regard to the proposition of the assessee that if the charge fails the question of taxing the assessee does not arise, the Hon'ble Supreme Court in Elphinstone Spg. & Wvg. Mills Co. Ltd.'s case construed the relevant provisions as amounting to not creating a charge and that decision turned on the peculiar facts of that case and it cannot be treated as an authority for the proposition that surcharge cannot be levied by a Finance Act. While Elphinstone Spg. & Wvg. Mills Co. Ltd.'s case was decided by a Division Bench (of two Judges), the case of Madurai District Central Co-operative Bank Ltd.'s was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to make a declaratory law, clarifying that the surcharge shall be levied at the rate prevalent on the date of search. Thus, his case is that Parliament only clarified the pre- g existing legal position and has not made any new provision, much less did it enhance the liability. Thus, it is wrong to argue that surcharge has been introduced for the first time in respect of undisclosed income by Finance Act, 2002, by introducing proviso to section 113 of the Income-tax Act, 1961 and it was contemplated by the various Finance Acts. 8.14 Reliance is placed on the judgment of the Hon'ble Supreme Court in the case of Hindustan Ideal Insurance Co. Ltd. v. Life Insurance Corpn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conference or suggestions made there, cannot be taken as an aid to the interpretation of statutes. Reliance is placed on the judgment of the Hon'ble Supreme Court in Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd. AIR 1983 SC 239, wherein it was held that once the statute leaves the Parliament House, it is not open to even Government to interpret the law and it is only for the courts to state what Parliament meant to say and none else. Even otherwise, the theory of "contemporaneous exposition" cannot be applied to ongoing statutes and the understanding of the Chief Commissioners of Income-tax cannot be looked at as an aid for construction of the statutes. Thus, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision 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) J.T. (India) Exports v. Union of India [2003] 262 ITR 269 (Delhi) (FB). 9.2 The judgment of the Hon'ble Supreme Court in the case of Madurai District Central Co-operative Bank Ltd. may be (a) The Court in that case was concerned only with the levy of 'additional surcharge' and not with 'surcharge' and 'special surcharge', (b) To determine the validity of imposition of such additional surcharge, enquiry must first be made as regards the scope of a Finance Act and then as regards the interpretation of the Finance Act of 1963, and (c) The Court has concluded that a new and independent charge could be validly introduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 levy of surcharge. The applicability of either of the rates would have resulted in absurdity. 9.4 Rates referred in Part III of First Schedule could not apply to 'undisclosed income' since the said part contains rates for payment of advance tax. Part III could have no application in any situation since on 'undisclosed income' no advance tax is paid. In fact, if advance tax has been paid on certain income, it cannot be held to be 'undisclosed income'. In this regard, reference can be had to the following decisions wherein it has been held that if advance tax had been paid but no return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 convey the meaning that the surcharge is leviable on the tax payable under section 113 as the main provisions of the Finance Act refer to the rates for the assessment years commencing on the first day of April and not block assessment and that proviso cannot expand the scope of the main section. This decision of the Hon'ble Supreme Court in fact supports the case of the assessee. As regards the judgment in D. Sanjeevayya v. Election Tribunal AIR 1967 SC 1211, reference to paragraph 4 thereof is made. The proposition therein is not applicable to the facts of this case as it is impossible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel 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 closely analysing the facts and circumstances, of the instant case roped with the issue in adjudication before us and in the light of the various provisions of law under different enactments and copious case-laws showering non-stop like torrential rain overflowing even to the subsequent month heard from the previous month of hearing, tremendous arguments put forth with their untiring efforts and zeal had by the learned representatives of the assessee-appellant with those of the assessee-interveners entering appearance from different States in the country, and of the Department with p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners 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 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 particular assessment year, as specified in the Finance Act. The basis for levy of such tax on regular income is contained in section 4 of the Income-tax Act, in which the charge of tax is linked to any Central Act and such a Central Act in this case is the Finance Act. In the case of a block assessment, there are two problems in relation to the levy of surcharge. The first is that section 113 does not men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64A 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 applicable; (ii) for the purposes of deduction of tax under sections 193, 194, 194A, 194B, 194BB, and 194D and 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year; (iii) for the purposes of deduction of tax under section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, whichever is applicable by virtue of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck 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 any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represent wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act.". Section 158BA: "158BA. Assessment of undisclosed income as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther 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 legislation or declaratory legislation and, thus, retroactive in nature? (b) Whether the Finance Acts, 1995 to 2000 imposed an independent and distinct levy/charge of surcharge on block assessment prior to insertion of the proviso to section 113 of the Income-tax Act, 1961? (c) Whether there is ambiguity or unworkability in the provisions of the Finance Act by which the levy fails? (d) Whether it can be held that there was an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 is retroactive in nature and thus has to be considered retrospective. 12.8 The primary contention of the Revenue is that the amendment is only procedural, and thus retroactive. We do not find merit in this argument, for the reason that the proviso to section 113 enabling the increase of 'tax chargeable under this section by a surcharge', is a substantive amendment. At this juncture, we may ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Chapter XIXA to proceedings under Chapter XIV-B could be taken to indicate a legislative intend not to exclude the provisions of Chapter XIXA to block assessment proceedings. Section 158BH would also support this view. The conclusion that a later enactment repeals an earlier enactment is to be resorted to only if the two enactments are so inconsistent with or repugnant to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 effect of amendment to the provisions of section 274(2) by the Taxation Laws (Amendment) Act, 1970 with effect from 1-4-1971, the Apex Court vide relevant portion of the head-note on pages 611-612 of the Report (199 ITR) held as follows- "The general principle is that a law which brings about a change in the forum does not affect pending actions unless an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 that the retrospectivity must be reasonable and not excessive or harsh, otherwise it runs the risk of being struck down as unconstitutional. The third is where the legislation is introduced to overcome a judicial decision, here the power cannot be used to subvert the decision without removing the statutory basis of the decision." (Emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case, the proviso to section 113 enabling the enhancement of tax determined under section 113 by the amount of surcharge is clearly a substantive provision, and cannot be said to be a mere procedural one, and in the absence of specific provision in the statute providing for retrospective operation, the same can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 unamended provision is capable of being so construed as to take within its ambit the subsequent amendment. The exclusion of stock-in-trade from the ambit of levy of wealth-tax on assets of closely held companies in section 40(3) of the Finance Act, 1983 could not per se be regarded as an "obvious omi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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, observed as under- "Unless an intention to the contrary is clear, an Act is to be construed as operating only on cases or facts which come into existence after the Act, and not retrospectively on cases or facts which had come into existence before the Act." (Emphasis supplied) 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cannot be said to have retrospective operation as Golden Rule of construction applies even to a substituted legislation and a substituted legislation cannot be held to be retrospective in the absence of anything in the enactment to show that it is to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 retrospectivity could be read into those amended provisions. Relevant portion of the head-note of the said decision reads as under- "Sub-sections (2A) and (2B) have been inserted by the Finance Act, 1999 with effect from 1-6-1999 and the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 to 44 of that judgment, observed as follows- "39. Lastly, it was contended on behalf of the appellants that the Amending Act whereby new section 15 of the Act has been substituted is declaratory and, therefore, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is curative or merely declaratory of the previous law retrospective operation is generally intended..... A clarificatory amendment of this nature will have retrospective effect and, therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment, 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 clarified the pre-existing legal position and has not made any new provision much less did it enhance the liability." This argument is not supported by the express language used by the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income chargeable F under the head "Salaries" or in which the "advance tax" shall be so charged, deducted or computed at the rate or rates specified in Part III of the First Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 XXXXXXX Surcharge on Income-tax The amount of income-tax computed in accordance with the preceding provisions of item I o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been given a go-by in Chapter XIVB. Another argument is that section 113 is outside Chapter XIVB and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 of account or other documents maintained in the normal course relating to such p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 an intention to do away with the requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 4(1) are charging c provisions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy 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 discuss these two judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pee 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 some rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income is to 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 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further, as pointed out by the learned Chief 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In fact, it is clearly laid down that the Parliament has legislative competence 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 calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fails. (c) In the case of Madurai District Central Co-operative Bank Ltd., the income in question 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 pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h effect from 1-7-1995 by insertion of clause (c) to section 158BD(1) of the Act as well as from section 158BA(3). This interpretation of 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he falls within the ambit of the charging section by clear words used in the section. No one can be taxed by implication. A charging section has to be construed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject is to be adopted. But even so, the fundamental rule of construction is the same for all statutes, whether fiscal or otherwise. "The underlying principle is that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise". 12.67 Applying the above ratio decidendi to the case on hand, we have to hold 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 Carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urts to avoid a head-on clash between two sections of the Act and to construe the provisions which appear to be in conflict with each other in such a manner as to harmonise them. (b) The provisions of one section of a statute 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng priority to the provisions of the Delhi Rent Act is not that the Slum Clearance Act stands impliedly repealed pro tanto. Bearing in mind the language of the two laws, their object and purpose, and the fact that one of them is later in point 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) The rate applicable for the year in which the block assessment order was passed; or (v) As a block period consists of an aggregate of several previous years and as each previous year had a separate rate of surcharge, whether the rate most favourable to the 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to Part III of the First Schedule. 12.74 In the case of search initiated/conducted on 1-8-2001, the revenue relies upon the proviso to section 2(3) of the Finance Act, 2001 to levy surcharge, which refers to Part I of the First Schedule. Part I of the Finance Act, 2001, contains the rates of tax for the assessment year 2001-02, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain circumstances were subject to tax at maximum marginal rate. The term 'Maximum Marginal Rate' has been defined in section 2(29C), brought on to the Statute Book, by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989, as the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest 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 sur ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
