TMI Blog2008 (1) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... and often in both. This made liability uncertain. In the present case, however, the rate of tax in case of block assessment at 60 per cent. was prescribed by section 113 but the year of the Finance Act imposing surcharge was not stipulated. This resulted in the above four ambiguities. Therefore, clarification was needed. The proviso was curative in nature. Hence, the proviso inserted in section 113 merely clarifies that out of the above four dates, the relevant date for applicability of the Finance Act would be the year in which the search stood initiated under section 158BC. The impugned judgment of the High Court dated February 13, 2006, in Tax Appeal No. 1042 of 2005 and, accordingly, we allow the Department's civil appeal - Appeal (civil) 32 of 2008 - - - Dated:- 7-1-2008 - Judge(s) : S. H. KAPADIA., B. SUDERSHAN REDDY JUDGMENT The judgment of the court was delivered by S.H. KAPADIA I.- Leave granted. Whether the Assessing Officer had erred in imposing surcharge at 17 per cent. on the tax amount of Rs. 97,456 under section 113 of the Income-tax Act, 1961 ("the 1961 Act") for the "block period" comprising of previous years relevant to 10 assessment years, i.e., 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the "block period" as against assessment of income of the "previous year" under section 4(1) of the Act; that, under Chapter XIV-B "undisclosed income" is assessed at 60 per cent. in terms of section 158BA(2) read with section 113 as against taxation of normal income at the rates prescribed in the relevant Finance Act; that, the provisions of the Finance Act are not found in the block assessment scheme under Chapter XIV-B up to June 1, 2002, and, therefore, according to the assessee, the Finance Act, 2001, was not applicable to Chapter XIV-B. According to the assessee, the proviso to section 4(1) of the 1961 Act carves out an exception to the normal rule in section 4(1) and provides that, where under any provision of the 1961 Act, tax is to be charged in respect of the income of a period other than "the previous year", such tax shall be levied as may be specifically provided under special provision of the 1961 Act. According to the assessee, Chapter XIV-B is such special provision as it concerns assessment of undisclosed income for the "block period" which is the period other than the previous year referred to in section 4(1). Therefore, according to the assessee, block assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in mind that the Income-tax Act deals with tax on income and nothing else. Therefore, in order that the charge should be a legal charge under section 4, it must be a tax on the income of the assessee. If the charge is a tax on anything else, then it would not be a valid charge. This is the only limitation upon the power or authority of Parliament to fix any rate it pleases. 50 long as the charge is on "total income" of the previous year, there is no limitation upon the power or authority of Parliament to fix any rate it pleases. However, if "rate" is understood to mean the fixing of the tax irrespective of "total income" and unconnected with "total income", then, in our view, Parliament would be travelling outside the ambit of section 4(1). The Income-tax Act, therefore, contains an elaborate machinery for ascertaining "total income" of an assessee. If Parliament has power to fix tax at a rate which has no connection with the "total income", then the machinery set up under the 1961 Act becomes infructuous. In our view, section 4(1) prescribes the subject-matter of the tax and the rate of that tax is prescribed by the Legislature, either under the Act as in the case of section 113 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s '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 represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act." "158BA. Assessment of undisclosed income as a result of search.- (1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995, a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under 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 this Chapter. (2) The total undisclosed income relating to the block period shall be charged to tax, at the rate specified in section 113, as income of the block period irrespective of the previous year or years to which such income relates and ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years; (e) where any order of settlement has been made under sub-section (4) of section 2450, on the basis of such order; (f) where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment. Explanation.- For the purposes of determination of undisclosed income, (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32; (b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income including the undisclosed income for the block period: Provided that no notice under section 148 is required to be issued for the purpose of proceeding under this Chapter: Provided further that a person who has furnished a return under this clause shall not be entitled to file a revised return; (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143 and section 144 shall, so far as may be, apply; (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; (d) the assets seized under section 132 or requisitioned under section 132A shall be retained to the extent necessary and the provisions of section 132B shall apply subject to such modifications as may be necessary and the references to 'regular assessment' or 'reassessment' in section 132B shall be construed as references to 'block assessment'." "158BH. Application of other provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod" to mean the period comprising the previous years relevant to 10/6 assessment years preceding the previous year in which the search was conducted under section 132. It also includes the period up to the date of commencement of such search or date of requisition. Under section 4, the subject of charge is the income of the previous year and not the income of the assessment year. Thus, tax is levied on the actual income of the previous year. Each "previous year" is a distinct unit of time for the purposes of assessment. However, when we come to section 158BA, we find that Parliament has taken the block period to mean the period comprising previous years relevant to 10/6 assessment years preceding the previous year in which the search is conducted. In other words, Parliament has in search cases expanded the unit of time for block assessment purposes from 1 year to 10/6 previous years. However, it is important to note that the unit of time remains constant. It is open to Parliament to treat the unit of time as one year in normal assessment cases and, at the same time, it is also open to Parliament to treat 10/6 previous years as a unit of time for the block assessment period. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single assessment of undisclosed income, detected as a result of a search. This separate assessment is in addition to normal or regular assessment covering the same period. A separate return is a pre-requisite for making a "block assessment". However, in the matter of computation, the principle of aggregation of total incomes, is inbuilt into section 158BB. We have to subtract one aggregate from the other. Further, while applying the principle of aggregation of the total incomes, computation is required to be done in accordance with the provisions of Chapter IV. Therefore, in our view, section 4 has to be read with section 158BB. That section is not ruled out by section 158BB. If section 4 has to be read with section 158BB for computing undisclosed income then the provisions of the relevant Finance Act have got to be read into the block assessment scheme under Chapter XIV-B, even prior to June 1, 2002. Under section 158BB, there is the theory of "block period". It is based on "the principle of aggregation of total incomes". Under that section, the first aggregate to be computed is the total income of the previous years falling within the block period including returned/assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. It is true that under Chapter XIV-B, computation of regular income and computation of undisclosed income has to be worked out separately. However, to arrive at the figure of undisclosed income, the said parallel calculations have to converge in order to work out the difference between the first and the second aggregates of the total incomes/losses of the previous year, in which undisclosed income is taxed under section 113. Therefore, in our view, the concept of a charge on the "total income" of the previous year under the 1961 Act is retained even under Chapter XIV-B. Therefore, section 158BB which deals with computation of undisclosed income of the block period has to be read with computation of total income under Chapter IV of the 1961 Act. Once section 158BB is required to be read with section 4 of the 1961 Act, then the relevant Finance Act of the concerned year would automatically stand attracted to the computation under Chapter XIV-B. Section 158BB looks at section 113. That section fixes the rate of tax at 60 per cent. In the present case, e.g., the Assessing Officer assigned the value of Rs. 2,70,000 to unaccounted investment in household valuables. That am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge as provided in paragraph A, B, C, D or E, as the case may be, of Part I of the First Schedule: Provided further that in respect of any income chargeable to tax under sections 115A, 115AB, 115AC, 115ACA, 115AD, 115B, 115BB, 115BBA, 115E and 115JB of the Income-tax Act, the amount of income-tax computed under this sub-section shall be increased,- (a) by a surcharge for purposes of the Union, calculated,- (i) in the case of a co-operative society, a firm and a local authority, at the rate of twelve per cent. of such income-tax; (ii) in the case of a person other than a company, a co-operative society, a firm and a local authority,- (A) at the rate of twelve per cent. of such income-tax where the total income exceeds sixty thousand rupees but does not exceed one lakh fifty thousand rupees; or (B) at the rate of seventeen per cent. of such income-tax where the total income exceeds one lakh fifty thousand rupees; and (b) by a surcharge calculated at the rate of thirteen per cent. of such income-tax in the case of a domestic company." Paragraph A of Part I of the First Schedule reads as follows: "THE FIRST SCHEDULE [S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me exceeding sixty thousand rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of sixty thousand rupees by more than the amount of income that exceeds sixty thousand rupees: Provided further that in case of persons mentioned in sub-item (B) of item (i) above having a total income exceeding one lakh fifty thousand rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of one lakh fifty thousand rupees by more than the amount of income that exceeds one lakh fifty thousand rupees." The Finance Act, 2001, stood enacted by Parliament to give effect to the financial proposals of the Central Government for the financial year 2001-02. It is important to note that every Finance Act prescribes a graduated scale for payment of tax, i.e., different rates for different slabs of income. As a general concept, income-tax includes surcharge. Under section 4 of the 1961 Act, income-tax is assessed and paid in the next succeeding year upon the results of the year before. Section 2(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1961 Act itself. That rate has been stipulated by Parliament not with a view to oust the levy of surcharge but to make the levy cost-effective and easy. Therefore, a flat rate is prescribed. The difficulty in block assessment is that one has to correlate the undisclosed income to different years in which income is earned, hence, Parliament has fixed a flat rate of tax in section 113. On the contrary, a bare perusal of various Finance Acts starting from 1999 indicates that Parliament was aware of the rate of tax prescribed by section 113 and yet in the various Finance Acts, Parliament has sought to levy surcharge on the tax in the case of block assessment. In the present case, the Assessing Officer has applied the rate of surcharge at 17 per cent. which rate finds place in paragraph A of Part I of the First Schedule to the said Finance Act of 2001, therefore, surcharge leviable under the Finance Act was a distinct charge, not dependant for its leviability on the assessee's liability to pay income-tax but on assessed tax. For the afore stated reasons, we hold that even without the proviso to section 113 (inserted vide Finance Act, 2002, with effect from June 1, 2002), the Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is doubt precisely, the proviso has been inserted in section 113 by which it is indicated that the Finance Act of the year in which the search was initiated would apply. Therefore, in our view, the said proviso was clarificatory in nature. In taxation, legislation of the type indicated by the proviso has to be read strictly. There is no question of retrospective effect. The proviso only clarifies that out of the four dates, Parliament has opted for the date, namely the year in which the search is initiated, which date would be relevant for applicability of a particular Finance Act. Therefore, we have to read the proviso as it stands. There is one more reason for rejecting the above submission. Prior to June 1, 2002, in several cases, tax was prescribed sometimes in the 1961 Act and sometimes in the Finance Act and often in both. This made liability uncertain. In the present case, however, the rate of tax in case of block assessment at 60 per cent. was prescribed by section 113 but the year of the Finance Act imposing surcharge was not stipulated. This resulted in the above four ambiguities. Therefore, clarification was needed. The proviso was curative in nature. Hence, the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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