Case: Commnr. of Income Tax, Jalandhar-I Vs. Shri Rajiv Bhatara

3. Factual position in a nutshell reads as follows:Search was conducted on 6.4.2000. The Assessing Officer in his order dated 22.5.2002 imposed surcharge and an application under Section 154 of the Act filed by the assessee for rectification was dismissed vide order dated 17.9.2003 with the observation that the surcharge was levied as per the provisions of Part I of the Ist Schedule appended to Finance Act, 2000. On the ground that there was no mistake apparent on the record, the application under Section 154 of the Act was rejected. However, the Commissioner of Income Tax (Appeals), Ludhiana, (for brevity the CIT (A)) reversed the order passed by the Assessing Officer and took the view that surcharge was not leviable in cases where the search has taken place prior to 1.6.2002. In that regard, reliance was placed on a Division Bench judgment of this Court in the case of CIT v. Ram Lal Bahu Lal (148 CTR 643).On further appeal by the Revenue the Tribunal upheld the order dated 12.9.2005 passed by the CIT (A) holding that the search in the present case took place on 6.4.2000 which was much prior to the date of amendment made in Section 113. The amendment was incorporated on 1.6.2002 by inserting proviso to Section 113 by Finance Act, 2002. It was by the amendment that levy of surcharge on the disclosed income was specifically provided w.e.f. 1.6.2002. The provision has not been given retrospective effect, and therefore, the Tribunal held that it applied only to cases where searches were carried out afterHigh Court dismissed the appeal relying on its decision in the case of CIT v. Roshan Singh Makkar (2006) 287 ITR 160  and also referred to two other decisions of the Madras High Court in CIT v. Neotech Company [(2007) 291 ITR 27] and CIT v. S. Palanivel [(2007) 291 ITR 33].

Reasoning: 10. In the present case undisputedly Para A was applicable at the given point of time. As a general concept, income tax includes surcharge. Reading Section 2(1) of the Finance Act, 2001, it is clear that the term ‘income tax as used in Section 2(1) and proviso to Section 2(3) of the said Act did not include the amount of surcharge. Surcharge was a separate item of taxation, different from income tax. This was made clear vide Section 2 (1)(a), proviso to Section 2(3) and Para A of Part I to Schedule I.11. Sectionread with Section 4 of the 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 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 113.12. Though 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 assessing officer has applied the rate of surcharge at 17% which rate finds place in Para A of Part I of Schedule I to the said Finance Act of 2001, therefore, surcharge leviable under Finance Act was a distinct charge, not dependent for its leviability on the assessees liability to pay income tax but on assessed tax.13. Therefore, even without the proviso to Section 113 (inserted vide Finance Act, 2002 w.e.f. 1.6.2002), Finance Act, 2001 was applicable to block assessment under Chapterin relation to the search initiated on 6.4.2000 and accordingly surcharge was leviable on the tax.According to the assessee, prior to 1.6.2002, the position was ambiguous as it was not clear even to the Department as to whether surcharge was leviable with reference to the rates provided for in Finance Act 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 158 BC were initiated or the year in which block assessment order was passed.To clear that doubt precisely, the proviso has been inserted in Section 113 by which it is indicated that Finance Act of the year in which the search was initiated would apply. Therefore, it has to be held that the proviso to Section 113 was clarificatory in nature. It only clarifies that out of the four dates, Parliament was opted for the date, namely the year in which the search was initiated, which date would be relevant for applicability of a particular Finance Act. Therefore, the proviso has to be read as it stands.15. The above position was highlighted in Suresh N. Guptas Case (supra).16.There is no appearance on behalf of thein spite of service of notice.