Case: Commr.Of Income Central-Ii Vs. Suresh N.Gupta

prescribed in the Finance Act, 2001, but he cannot claim that the amount of income-tax so determined should not be increased by addition of the surcharge. Therefore, in our opinion, the AO has rightly imposed surcharge at 17% on the undisclosed income of the assessee in this case, particularly when the search was carried out on 17.1.2001. 23. As stated above, Section 158BA(2) read with Section 4 of the 1961 Act looks at Section 113 for the imposition rate at which tax has to be imposed in the case of block assessment. That rate is 60%. That rate is fixed by 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 [See: (1995) 212 ITR (St.) 69]. On the contrary, a bare perusal of various Finance Acts starting from 1999 indicates that Parliament was aware of 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 AO has applied the rate of surcharge at 17% which rate finds place in Para A of Part I of the First Schedule to the said FA of 2001, therefore, surcharge leviable under the FA was a distinct charge, not dependant for its leviability on the assessee’s liability to pay income-tax but on assessed tax.24. For the aforestated reasons, we hold that even without the proviso to Section 113 (inserted vide FA 2002 w.e.f. 1.6.2002), the FA 2001 was applicable to block assessment under Chapter XIV-B in relation to the search initiated on 17.1.2001 and accordingly surcharge was leviable on the tax amounting to Rs.97,456/- at 17% amounting to Rs.16504/-. We accordingly answer the above question in favour of the revenue and against the assessee.Whether insertion of the proviso in Section 113 by the Finance Act, 2002 was applicable to search up to 31.5.2002:25. In view of our findings on the first point, strictly speaking, we are not required to examine this question. However, it has been vehemently urged on behalf of the assessee that the said proviso cannot operate retrospectively. This argument is founded on the basis that until the amendment in Section 113 w.e.f. 1.6.2002, there was inconsistency with regard to levy of surcharge. According to the assessee, the question which usually bothered both the assessee and the Department was whether surcharge was leviable with reference to the rates provided for in the FA of the year in which the 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 block assessment order was passed. According to the assessee, there was a conference of Chief Commissioners which had suggested to the Central Government to amend Section 113 with retrospective effect. However, despite such recommendations, the Central Government inserted the proviso in Section 113 only with effect from 1.6.2002. Therefore, according to the assessee, the proviso cannot be interpreted as retrospective.26. We find no merit in the above arguments. Both, the Finance Acts of 2000 and 2001, indicated that a substantive charge was created in respect of the income-tax to be levied. Both these Acts prescribed the rates of surcharge. The said surcharge did not depend for its leviability on the assessee’s liability to pay income-tax but on the assessed tax. The assessee has relied upon the above anomalies in support of their contention that such anomalies made the charge ineffective. In our view, such submission amounts to begging the question. According to the assessee, prior to 1.6.2002, the position was ambiguous as it was not clear even to the Department as to which year’s FA would be applicable. To clear this doubt precisely, the proviso has been inserted in Section 113 by which it is indicated that the FA of the year in which the search was initiated would apply. Therefore, in our view, the said proviso was clarificatory in nature. In taxation, the 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 FA. Therefore, we have to read the proviso as it stands.27. There is one more reason for rejecting the above submission. Prior to 1.6.2002, in several cases, tax was prescribed sometimes in the 1961 Act and sometimes in the FA and often in both. This made liability uncertain. In the present case, however, the rate of tax in case of block assessment at 60% was prescribed by Section 113 but the year of the FA 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 FA would be the year in which the search stood initiated under Section 158BC.28. In the case of Allied Motors (P) Ltd. v. Commissioner of Income-tax [(1997) 224 ITR 677 (SC)] this Court observed as follows: “A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole.”

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]23. As stated above, Section 158BA(2) read with Section 4 of the 1961 Act looks at Section 113 for the imposition rate at which tax has to be imposed in the case of block assessment. That rate is 60%. That rate is fixed by 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 [See: (1995) 212 ITR (St.) 69]. On the contrary, a bare perusal of various Finance Acts starting from 1999 indicates that Parliament was aware of 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 AO has applied the rate of surcharge at 17% which rate finds place in Para A of Part I of the First Schedule to the said FA of 2001, therefore, surcharge leviable under the FA was a distinct charge, not dependant for its leviability on theliability to pay income-tax but on assessed tax.24. For the aforestated reasons, we hold that even without the proviso to Section 113 (inserted vide FA 2002 w.e.f. 1.6.2002), the FA 2001 was applicable to block assessment under Chapter XIV-B in relation to the search initiated on 17.1.2001 and accordingly surcharge was leviable on the tax amounting to Rs.97,456/- at 17% amounting to Rs.16504/-. We accordingly answer the above question in favour of the revenue and against the assessee.Whether insertion of the proviso in Section 113 by the Finance Act, 2002 was applicable to search up to 31.5.2002:25. In view of our findings on the first point, strictly speaking, we are not required to examine this question. However, it has been vehemently urged on behalf of the assessee that the said proviso cannot operate retrospectively. This argument is founded on the basis that until the amendment in Section 113 w.e.f. 1.6.2002, there was inconsistency with regard to levy of surcharge. According to the assessee, the question which usually bothered both the assessee and the Department was whether surcharge was leviable with reference to the rates provided for in the FA of the year in which the 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 block assessment order was passed. According to the assessee, there was a conference of Chief Commissioners which had suggested to the Central Government to amend Section 113 with retrospective effect. However, despite such recommendations, the Central Government inserted the proviso in Section 113 only with effect from 1.6.2002. Therefore, according to the assessee, the proviso cannot be interpreted as retrospective.26. We find no merit in the above arguments. Both, the Finance Acts of 2000 and 2001, indicated that a substantive charge was created in respect of the income-tax to be levied. Both these Acts prescribed the rates of surcharge. The said surcharge did not depend for its leviability on theliability to pay income-tax but on the assessed tax. The assessee has relied upon the above anomalies in support of their contention that such anomalies made the charge ineffective. In our view, such submission amounts to begging the question. According to the assessee, prior to 1.6.2002, the position was ambiguous as it was not clear even to the Department as to whichFA would be applicable. To clear this doubt precisely, the proviso has been inserted in Section 113 by which it is indicated that the FA of the year in which the search was initiated would apply. Therefore, in our view, the said proviso was clarificatory in nature. In taxation, the 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 FA. Therefore, we have to read the proviso as it stands.27. There is one more reason for rejecting the above submission. Prior to 1.6.2002, in several cases, tax was prescribed sometimes in the 1961 Act and sometimes in the FA and often in both. This made liability uncertain. In the present case, however, the rate of tax in case of block assessment at 60% was prescribed by Section 113 but the year of the FA 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 FA would be the year in which the search stood initiated under Section 158BC.28. In the case of Allied Motors (P) Ltd. v. Commissioner of Income-tax [(1997) 224 ITR 677 (SC)] this Court observed asproviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a