# COMMISSIONER OF INCOME TAX (CENTRAL)-1, NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED

- **Citation:** [2014] 12 S.C.R. 1037
- **Court:** Supreme Court of India
- **Decided:** 2014-09-15
- **Case number:** Civil Appeal No. 8750 of 2014
- **Bench:** R.M. Lodha, Jagdish Singh Khehar, J. Chelameswar, A.K. Sikri, R.F. Nariman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-central-1-new-delhi-v-vatika-township-private-limited-29474
- **Pages:** 43

## Headnote

A
B
Income Tax Act, 1961 - s. 113 proviso (insertion by the
C
Finance Act, 2002) - Surcharge Qn block assessment - Block
assessment for the period from 01.04.1989 to 10.02.2000 :-
Levy of surcharge under the proviso inserted in s. 113 by the
Finance Act, 2002, with effect from 01.06.2002 - Prospective
or retrospective in operation ..,.. Held: Is to be construed D
prospective in nature - The intention of the legislature was to
make proviso in s. 113 prospective in nature - This proviso
cannot be treated as declaratory/statutory or curative in
nature.
Answering the referred question, the Court
E
HELD: 1 The intention of the legislature was to make
proviso in Section 113 of the Income -Tax Act, 1961
prospective in nature. This proviso cannot be treated as
·declaratory/statutory or curative in nature. [Para 38) (1069F
C, DJ
2.1. A legislation be it a statutory Act or a statutory
Rule or a statutory Notification, differs in its provenance,
lay-out and features as also in the implication as to its G
meaning that arise by presumptions as to the intent of the
maker thereof. As to the interpretation of the legislation,
one established rule is that unless a contrary intention
appears, a legislation is presumed not to be intended to
1037
H
1038
SUPREME COURT REPORTS
[2014) 12 S.C.R.
A have a retrospective operation. The idea behind the rule
is that a current law should govern current activities. The
basis of the principle against retrospectivity is the
principle of 'fairness', which must be the basis of every
legal rule. Thus, legislations which modified accrued
B rights or which impose obligations or impose new duties
or attach a new disability have to be treated as
prospective unless the legislative intent is clearly to give
the enactment a retrospective effect; unless the
legislation is for purpose of supplying an obvious
c omission in a former legislation or to explain a former
legislation.[Paras 30,31 and 32) [106~-F, HJ
2.2. Retrospectively is attached to benefit the
persons in contradistinction to the provision imposing
some burden or liability where the presumption attaches
D towards prospectivity. In the instant case, the proviso
added to Section 113 of the Act is not beneficial to the
assessee. On the contrary, it is a provision which is
onerous to the assessee. Therefore, in a case like this,
the normal rule of presumption is against retrospective
E operation. Thus, the rule against retrospective. operation
is a fundamental rule of law that no statute shall be
construed to have a retrospective operation unless such
a construction· appears very clearly in the terms of the
Act, or arises by necessary and distinct i.mplication. [Para
F 34) [1065-F-G; 1066-A, B]
Government of India & Ors. v. Indian Tobacco
Association 2005 (2) Suppl. SCR 859 :(2005) 7 SCC 396;
Vijay v. State of Maharashtra & Ors. (2006) 6 SCC 286;
G Controller of Estate Duty Gujarat-Iv. M.A. Merchant 1989 (
2 ) SCR 987 :1989 Supp (1) SCC 499; Govinddas v.
Income-tax Officer 1976 (3) SCR 44 : (1976) 1 SCC 906;
C.I. T., Bombay v. Scindia Steam Navigation Co. Ltd. 1962 (1)
SCR 788 - referred to.
H
Phillips v Eyre (1870) LR 6 QB 1; L'Office Cherifien des
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1039
VATIKA TOWNSHIP PVT. LTD.
Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd.
A
(1994) 1 AC 486 - referred to.
Principles of Statutory Interpretation by Justice G.P.
Singh, LexisNexis Butterworths Wadhwa, Nagpur 13th
Edn 2012 - referred to.
3.1. The rate at which the tax is to be imposed is an
essential component of tax and where the rate is not
stipulated or it cannot be applied with precision, it would
B
be difficult to tax a person. In absence of certainty about
the rate because of uncertainty about the date with C
reference to which the rate is to be applied, it cannot be
said that surcharge as per the existing provision was
leviable on block assessment qua undisclosed' income.
Therefore, it cannot be said that the proviso added to
Section 113 defining the sai

## Text

_Characters 0–39,881 of 80,912. This is a partial read: ask again with offset=39881 for what follows._

[2014] 12 S.C.R. 1037
COMMISSIONER OF INCOME TAX (CENTRAL)-1, NEW
DELHI
v.
VATIKA TOWNSHIP PRIVATE LIMITED
(Civil Appeal No. 8750 of 2014)
SEPTEMBER 15, 2014
[R.M. LODHA, CJI, JAGDISH SINGH KHEHAR,
J. CHELAMESWAR, A.K. SIKRI AND R.F. NARIMAN, JJ.]
A
B
Income Tax Act, 1961 - s. 113 proviso (insertion by the
C
Finance Act, 2002) - Surcharge Qn block assessment - Block
assessment for the period from 01.04.1989 to 10.02.2000 :-
Levy of surcharge under the proviso inserted in s. 113 by the
Finance Act, 2002, with effect from 01.06.2002 - Prospective
or retrospective in operation ..,.. Held: Is to be construed D
prospective in nature - The intention of the legislature was to
make proviso in s. 113 prospective in nature - This proviso
cannot be treated as declaratory/statutory or curative in
nature.
Answering the referred question, the Court
E
HELD: 1 The intention of the legislature was to make
proviso in Section 113 of the Income -Tax Act, 1961
prospective in nature. This proviso cannot be treated as
·declaratory/statutory or curative in nature. [Para 38) (1069F
C, DJ
2.1. A legislation be it a statutory Act or a statutory
Rule or a statutory Notification, differs in its provenance,
lay-out and features as also in the implication as to its G
meaning that arise by presumptions as to the intent of the
maker thereof. As to the interpretation of the legislation,
one established rule is that unless a contrary intention
appears, a legislation is presumed not to be intended to
1037
H
1038
SUPREME COURT REPORTS
[2014) 12 S.C.R.
A have a retrospective operation. The idea behind the rule
is that a current law should govern current activities. The
basis of the principle against retrospectivity is the
principle of 'fairness', which must be the basis of every
legal rule. Thus, legislations which modified accrued
B rights or which impose obligations or impose new duties
or attach a new disability have to be treated as
prospective unless the legislative intent is clearly to give
the enactment a retrospective effect; unless the
legislation is for purpose of supplying an obvious
c omission in a former legislation or to explain a former
legislation.[Paras 30,31 and 32) [106~-F, HJ
2.2. Retrospectively is attached to benefit the
persons in contradistinction to the provision imposing
some burden or liability where the presumption attaches
D towards prospectivity. In the instant case, the proviso
added to Section 113 of the Act is not beneficial to the
assessee. On the contrary, it is a provision which is
onerous to the assessee. Therefore, in a case like this,
the normal rule of presumption is against retrospective
E operation. Thus, the rule against retrospective. operation
is a fundamental rule of law that no statute shall be
construed to have a retrospective operation unless such
a construction· appears very clearly in the terms of the
Act, or arises by necessary and distinct i.mplication. [Para
F 34) [1065-F-G; 1066-A, B]
Government of India & Ors. v. Indian Tobacco
Association 2005 (2) Suppl. SCR 859 :(2005) 7 SCC 396;
Vijay v. State of Maharashtra & Ors. (2006) 6 SCC 286;
G Controller of Estate Duty Gujarat-Iv. M.A. Merchant 1989 (
2 ) SCR 987 :1989 Supp (1) SCC 499; Govinddas v.
Income-tax Officer 1976 (3) SCR 44 : (1976) 1 SCC 906;
C.I. T., Bombay v. Scindia Steam Navigation Co. Ltd. 1962 (1)
SCR 788 - referred to.
H
Phillips v Eyre (1870) LR 6 QB 1; L'Office Cherifien des
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1039
VATIKA TOWNSHIP PVT. LTD.
Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd.
A
(1994) 1 AC 486 - referred to.
Principles of Statutory Interpretation by Justice G.P.
Singh, LexisNexis Butterworths Wadhwa, Nagpur 13th
Edn 2012 - referred to.
3.1. The rate at which the tax is to be imposed is an
essential component of tax and where the rate is not
stipulated or it cannot be applied with precision, it would
B
be difficult to tax a person. In absence of certainty about
the rate because of uncertainty about the date with C
reference to which the rate is to be applied, it cannot be
said that surcharge as per the existing provision was
leviable on block assessment qua undisclosed' income.
Therefore, it cannot be said that the proviso added to
Section 113 defining the said date was only clarificatory D
in nature. From the table showing the different rates of
surcharge in different years, it would be clear that choice ·
of date has to be formed as in some of the years,' there
would not be any surcharge at all. [Para 39) [1072-C, E-G]
3.2. If the concerned provision of the taxing statute
E
is ambiguous and vague and is susceptible to two
interpretations, the interpretation which favours the
subjects, as against there the revenue, has to be
preferred. This is a well established principle of statutory
F
interpretation, to help finding out as to whether particular
category of assessee are to pay a particular tax or not.
No doubt, with the application of this principle, Courts
make endeavour to find out the intention of the
legislature. At the same time, this very principle is based
on "fairness" doc.trine as it lays down that if it is not very G
clear from the provisions of the Act as to whether the
particular tax is to be levied to a particular class of
persons or not, the subject should not be fastened with
any liability to pay tax. [Para 39) [1075-B-E]
H
1040
SUPREME COURT REPORTS
[2014] 12 S.C.R.
A
3.3. It was a conscious decision of the legislature,
even when the legislature knew the implication thereof
and took note of the reasons which led to the insertion
of the proviso, that the amendment is to operate
prospectively. The legislature while effecting amendment
B not only in the same Finance Act but Finance Acts
pertaining to other years where the legislature specifically
provided the amendment to be either retrospective or
clarificatory. As regards the amendment to Section 113,
there is no such language used and on the contrary,
_ c specific stipulation is added making the provision
effective from 1st June, 2002. [Para 39] [1077-G-H; 1078A-B]
3.4. In the circular CBDT circular No.8 of 2002 dated
27 .08.02, with the subject "Finance Act, 2002 -
D Explanatory Notes on provision relating to Direct Taxes"
issued after the passing of the Finance Act, 2002, by
which amendment to Section 113 was made, as regards
amendment to Section 113, the circular provides that the
said amendment along with amendments in Section
E 158BE, would be prospective i.e. it will take effect from
1st June, 2002. [Para 39] (1078-C-F]
3.5. Finance Act, 2003, second proviso to sub-section
(3) of Section 2 makes the position clear that surcharge
in respect of block assessment of undisclosed income
F was made prospective. Addition of this proviso clarifies
that such a provision was necessary to provide for
surcharge in the cases of block assessments and
thereby making it prospective in nature. The charge in
respect of the surcharge, having been created for the first
G time by the insertion of the proviso to s. 113, is clearly a
substantive provision and hence, is to be construed
prospective in operation. The amendment neither
purports to be merely clarificatory nor is there any
material to suggest that it was intended by Parliament.
H Furthermore, an amendment made to a taxing ~tatute can
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1041
VATIKA TOWNSHIP PVT. LTD.
be said to be intended to remove 'hardships' only of the
A
assessee, not of the Department. On the contrary,
imposing a retrospective levy on the assessee would
have caused undue hardship and for that reason
Parliament specifically chose to make the proviso
effective from 1.6.,2002. [Para 39] [1078-G-H; 1079-C-E]
B
CIT v. Sanjiv Bhatara (2009) 310 ITR 105 (SC);
Govindasaran Gangasaran v. CIT 155 ITR 144; C./. T.,
Bangalore v. B.C. Srinivasa Sheffy 125 ITR 294 - referred
to.
Billings v. U.S. 232 U.S. 261; United States v. Merriam
263 U.S. 179; Partington v. Attorney-General (1869) LR 4 HL
100 - referred to.
Commissioner of Income Tax, Central II v. Suresh N.
Gupta 2008 (1 ) SCR 157:(2008) 4 sec 362 - overruled.
Case Law Reference:
2008 (1) SCR 157
Referred to
Para 40
(2009) 310 ITR 105 (SC);
Referred to
Para 25
(1994) 1 AC 486
Referred to
Para 32
2005 (2) Suppl. SCR 859
Referred to
Para 33
(2006) 6 sec 286
Referred to
Para 33
1989 (2) SCR 987 .
Referred to
Para 36
1976 (3) SCR 44
Referred to
Para 36
1962 (1) SCR 788
Referred to
Para 37
155 ITR 144
Referred to
Para 39
125 ITR 294
Referred to
Para 39
263 U.S. 179
Referred to
Para 39
c
D
E
F
G
H
A
B
1042
SUPREME COURT REPORTS
[2014] 12 S.C.R.
(1869) LR 4 HL 100
2008 (1) SCR 157
Referred to
Overruled
Para 39
Para 40
. CIVIL APPELLATE JURISDICTION : Civil Appeal No.
8750 of 2014.
From the Judgment & Order dated 17.04.2007 of the High
Court of Delhi at New Delhi in LT.A. No. 375 of 2007.
WITH
C C.A. Nos. 8764, 8762, 8773, 8763, 8755, 8775, 8779, 8780,
8774, 8765,8760,8756, 8759,8772, 8777,8770,8752-8753,
8754, 8768, 8758, 8776, 8769, 8766-8767 of 2014 & 1160
of 2007.
0
P.S. Narsimha, A.S.G., Rupesh Kumar, Arijit Prasad, H.R.
Rao, Anil Katiyar, K. Parameshwar, B.V. Balaram Das, Vikram
Gulati, Ashwani Bhardwaj, Preetesh Kapur, Govind Manoharan,
Shruti Iyer, Senthil Jagadeesan, A. Shankar, Bhargave V.
Desai, A. Subhashini for the appearing parties.
E
The Judgment of the Court was delivered by
A.K. SIKRI, J'. 1. Delay condoned.
2. Leave granted in all these matters.
F
3. In these batch of appeals, most of which are preferred
by the Commissioner(s) of Income Tax (hereinafter referred to
as 'the Department'), with the exception of few appeals filed
by the assessees, the question of law which has fallen for
consideration is as to whether the proviso appended to Section
G 113 of the Income Tax Act (hereinafter referred to as 'the Act')
which was inserted in that Section by the Finance Act, 2002 is
to operate prospectively or is clarificatory and curative in nature
and, therefore, has retrospective operation.
H
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1043
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
The Background Facts:
4. This question has been referred to the Constitution
Bench in the Civil Appeal arising out of S.L.P. No.540/2009
and, therefore, to start with, we would be justified in referring
A
to facts of that case. In fact the answer to the aforesaid question
B
would lead to the sealing of the fate of all these appeals one
way or the other. The facts in this appeal, which need
recapitulation, are that there was a search and seizure
operation under Section 132 of the Act on the premises of the
assessee on 10.02.2001. Notice under Section 158BC of the
C
Act was issued to the assessee on 18.06.2001 requiring him
to file his return of income for the block period ending
10.02.2000. In compliance, the assessee filed its return of
income for the block period from 01.04.1989 to 10.02.2000.
The Block Assessment in this case was completed under
Section 158BA on 28.02.2002 at a total undisclosed income
D
of Rs.85, 18,819/-. After sometime, the Assessing Officer, on
verification of working of calculation of tax, observed that
surcharge had not been levied on the tax imposed upon the
assessee. This was treated as a mistake apparent on record
by the Assessing Officer and accordingly a rectification order
E
was passed under Section 154 of the Act on 30.06.2003. This
order under Section· 154 of the Act, by which surcharge was
levied by the Assessing Officer, was challenged in appeal by
the assessee. The said order was cancelled by the CIT
(Appeals)-!, New Delhi vide order dated 10.12.2003 on the
F
ground that the levy of surcharge is a debatable issue and
therefore such an order could not be passed taking umbrage
under Section 154 of the Act. The undisclosed income was
revised under Section 250BC/158BC by the Assessing Officer
vide order dated 09.09.2003 to Rs.10,90,000/- to give effect
G
to the above order of the CIT (Appeals), and thereby removing
the component of the surcharge.
5. As the Department wanted the surcharge to be levied,
the Commissioner of Income Tax (Central-I), New Delhi issued
H
1044
SUPREME COURT REPORTS
[2014) 12 S.C.R.
A a notice under Section 263 of the Act to the assessee and
sought to revise the order dated 09.09.2003 passed by the
Assessing Officer by which he had given effect to the order of
the CIT (Appeals) and in the process did not charge any
surcharge .. In the opinion of CIT, this led to income having
B escaped the assessment. According to the CIT, in view of the
provisions of Section 113 of the Act as inserted by the Finance
Act, 1995 and clarified by the Board Circular No. 717 dated
14.08.1995, surcharge was leviable on the income assessed.
According to the CIT the charging provision was Section 4 of
c the Act which was to be read with Section 113 of the Act that
prescribes the rate and tax for search and seizure cases and
rate of surcharge as specified in the Finance Act of the relevant
year was to be applied. In this particular case the search and
seizure operation took place on 14.07.1999 and treating this
0 date as relevant, the Finance Act 1999 was to be applied.
6. The CIT, accordingly, cancelled the order dated
09.09.2003 not levying surcharge upon the assessee, as being
erroneous and prejudicial to the interests of the revenue. The
Assessing Officer was directed by the CIT to levy surcharge
E @ 10% and the amount of income tax computed and issue
revised notice of demand. The order covered block· period
01.04.1989 to 10.02.2000. This order of the CIT under Section
263 of the Act was passed on 23.03.2004. The assessee .filed
the app~al before the Income Tax Appellate Tribunal
F (hereinafter referred to as 'the Tribunal') against the said order
of the CIT. The Tribunal vide its order dated 23.06.2006 allowed
the appeal of the assessee. The Tribunal held that the insertion
of the proviso to Section 113 of the Income Tax Act cannot be
held to be declaratory or clarificatory in nature and was
G prospective in its operation. Against the order of the Tribunal
dated 23.06.2006 the revenue approached the High Court of
Delhi by way of an appeal filed under Section 260 A of the Act
for the block period 01.04.1989 to 10.02.2000. This appeal has
been dismissed vide order dated 17.04.2007 by the High
H
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1045
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
Court. It is this order of the High Court which is the subject
A
matter of the appeal in question.
7. It is clear from the aforesaid narration that the High Court
has taken the view that proviso inserted in Section 113 of the
Act by the Finance Act, 2002 was prospective in nature and
B
the surcharge as leviable under the aforesaid proviso could not
be made applicable to the block assessment in question of an
earlier period i.e. the period from 01.04.1989 to 10.02.2000
in the instant case.
The Reference Order
8. It so happened that this very issue about the said
proviso to Section 113, viz., whether it is clarificatory and
curative in nature and, therefore, can be applied retrospectively
c
or it is to take effect from the date i.e. 01.06.2002 when it was
D
inserted by the Finance Act, 2002, attracted the attention of this
Court and was considered by the Division Bench in the case
of Commissioner of Income Tax, Central II v. Suresh N.
Gupta1• The Division Bench held that the said proviso is
clarificatory in nature. When the instant appeal came up before
E
another Division Bench on 06.01.2009 for hearing, the said
Division Bench expressed its doubts about the correctness of
the view taken in Suresh N. Gupta and directed the Registry
to place the matter before Hon'ble the Chief Justice of India
for constitution of a larger Bench. We reproduce order dated
06.01.2009 in its entirety as under:
"Delay condoned.
F
The question which fell for consideration before the High
Court was as to whether the proviso appended to Section
G
113 of the Income Tax Act is clarificatory and/or curative
in nature. The said provision had come into force with effect
from 01.06.2002. It reads as under:
1.
c2oos> 4 sec 362.
H
A
B
c
D
E
F
G
1046
SUPREME COURT REPORTS
[2014] 12 S.C.R.
"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 132-A.
In this case, the search and seizure took place on
06.10.2001. An order of block assessment in terms of
Section 158BC was made in respect of the assessment
years 1984 to 2003. The surcharge was levied on
30.06.2003.
In support of its contention that the said proviso was
retrospective in nature, the learned Additional Solicitor
General relies upon a Division Bench decision of this Court
in Commissioner of Income Tax, Central II v. Suresh N.
Gupta, (2008) 4 SCC 362 wherein it has been held:
"37. According to the assessee, prior to 01.06.2002, 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 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.
38.
There is one more reason for rejecting the above
submission. Prior to 01.06.2002, in the 1961 Act
and sometimes in FA and often in both. This made
liability uncertain. In the present case, however, the
H
rate of tax in case of block assessment at 60% was
COMMNR. OF INCOME TAX(CENTRAL)-1, NEW DELHI v. 1047
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
prescribed by Section 113 but the year of FA
A
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,
B
the relevant date for applicability of FA would be the
year in which the search stood initiated under
Section 158-BC."
As the said proviso was introduced with effect from
C
01.06.2002, i.e. with prospective effect and by reason
thereof, tax chargeable under Section 135 of the Income
Tax Act is to be increased by surcharge levied by a Central
Act, we are of the opinion that keeping in view the
principles of law that the taxing statute should be construed
strictly and a statute, ordinarily, should not be held to have
D
any retrospective effect, it is necessary that the matter be
considered by a larger Bench.
We, while issuing notice, direct the Registry to place the
matter before Hon'ble the Chief Justice for constitution of
E
a larger Bench."
9. A three Member Bench was constituted before which
the matter came up for hearing on 08.04.2010. On that date,
the said Bench passed the following order :
"Vide order dated 06.01.2009 the lead matter was referred
to be listed before a larger Bench and consequently the
matter, along with connected matters, were listed before
a three Judge Bench:
F
G
After having heard learned counsel on both sides at length,
looking to the important questions of law involved having
wide ramifications and pendency of several matters on the
same issue before several High Courts and Tribunals, we
deem it appropriate to refer the matters for being placed
H
1048
SUPREME COURT REPORTS
[2014) 12 S.C.R.
A
before Five Judges Bench. Matter be placed accordingly."
. .
10. This is precisely raison d'etre for hearing the matter
by the present Constitution Bench. We may observe here that
after the aforesaid reference, other connected appeals raising
8 the identical issue have been tagged with direction to be heard
along with this appeal.
The Statutory Provisions
11. Before adverting to the submissions of the
c Department, as argued by Mr. P.S. Narsimha, learned
Additional Solicitor General and rebuttal thereto given by
various counsel appearing for the assessees, we deem it
apposite to take note of the relevant statutory provisions, having
bearing over the matter, along with proviso to Section 113,
0 which is the bone of contention and subject mater of
interpretation. As is well known, Section 4 of the Act is the
charging Section in the Act. It reads as under:
E
F
G
H
"S.4(1) Where any Central Act enacts that income-tax shall
be charged for any assessment year at any rate or rates,
income-tax at that rate or those rates shall be charged for
that year in accordance with, and subject to the provisions
(including provisions for the levy of additional income-tax)
of, this Act in respect of the total income of the previous
year of every person :
Provided that where by virtue of any provision of this Act
income-tax is to be charged in respect of the income of a
period other than the previous year, income-tax shall be
charged accordingly.
(2) In respect of income chargeable under sub-section (1 ),
income-tax shan be deducted at the source or paid in
advance, where it is so deductible or payable under any
provision of this Act."
12. Though, Section 4 of the Act is the charging Section,
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1049
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.)
it is well known that rate or rates at which the income tax is to
A
be charged is specified each year by enacting a Finance Act
at the time of presentation of the annuar Budget.
13. While Section 4 of the Act deals with the charge of
income tax, the Parliament also has the power to levy surcharge
8
on income tax. Power to levy a surcharge is contained in Article
271 of the Constitution of India which read as under:
"271. Surcharge on certain duties and taxes for purposes
of the Union Notwithstanding anything in Articles 269 and
270, Parliament may at any time increase any of the duties
C
or taxes referred in those articles by a surcharge for
purposes of the Union and the whole proceeds of any such
surcharge shall form part the Consolidated Fund of India."
14. The surcharge on the income tax was introduced for o
the first time by the Finance Act, 1995, in Section 2 (3) thereof.
However, initially, this surcharge was levied only on the income
of companies i.e. corporate entities incorporated under the
Indian Companies Act by specified surcharge at the rate of 15%
in the Finance Act, 1996, which was reduced to 7.50% in the
E
Finance Act, 1997. In the next two Finance Acts i.e. 1998 and
1999, there was r:io surcharge levied even in the cases of .
companies. However, by Finance Act, 2000, surcharge at a flat
rate of 10% came to be levied in respect of individuals, HUF,
801, AOP as well as co-operative societies, partnership firms,
local authorities and also the companies. In subsequent years,
F
the rates at which the surcharge is levied on the aforesaid
entities are of varying nature. A tabulated form showing
surcharge in respect of different category of assessees in
different assessment years, levied under each Finance Act,
shall be reproduced at the relevant stage.
G
15. In the present case, since we are concerned with the
surcharge on the block assessment, it also becomes
imperative to take note of the relevant provisions pertaining to
the block assessment. These provisions are contained in
H
1050
SUPREME COURT REPORTS
[2014) 12 S.C.R.
A Chapter XIV-8 .. The purpose of this Chapter is to lay down a
special procedure for assessment of search cases with a view
to combat tax evasion and also to expedite and simplify
assessments in search cases. We reproduce hereinbelow the
provisions of Section 1588, 1588A, 15888, 1588C and
8 1588H of that Chapter, which have bearing on the issue at hand:
c
D
E
F
G
H
"1588. In this Chapter, unless the context otherwise
requires,-
(a) 'block period' means the period comprising previous
years relevant to six assessment years preceding the
previous year in which the search was conducted under
Section 132 or any requisition was made under Section
132A and also includes the period up to the date of the
commencement of such search or date of such requisition
in the previous year in which the said search was
conducted or requisition was made.
Provided that where the search is initiated or the requisition
is made before the 1st day of June, 2001, the provisions
of this clause shall have effect as if for the words "six
assessment years" the words "ten assessment years" had
been substituted.
(b) "undisclosed income" includes 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.
1588A. 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
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v.1051
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.)
books of account, other documents or any assets are
A
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
B
and irrespective of the fact whether regular assessment for
C
any one or more of the relevant assessment years is
pending or not.
Explanation- For the removal of doubts! it is hereby
declared that-
(a) the assessment made under this Chapter shall be in
addition to the regular assessment in respect of each
previous year included in the block period;
D
(b) the total undisclosed income relating to the block period
shall not include the income assessed in any regular
E
assessment as income of such block period;
(c) the income assessed in this Chapter shall not be
included in the regular assessment of any previous year
included in the block period.
F
(3) Where the assessee proves to the satisfaction of the
Assessing Officer that any part of income referred to in
sub-section (1) relates to an assessment year for which
the previous year has not ended or the date of filing the
return of income under sub-section (1) of section 139 for G
any previous year has not expired, and such income or the
transactions relating to such income are recorded on or
before the date of the search or requisition in the books
of account or other documents maintained in the normal
H
A
8
c
D
E
1052
SUPREME COURT REPORTS
[2014] 12 S.C.R.
course relating to such previous years, the said income
shall not be included in the block period.
15888. Computation of undisclosed income of the block
period.- (1) The undisclosed income of the block period
shall be the aggregate of the total income of the previous
years falling within the· block period computed, in
accordance with the provisions of Chapter IV, on the basis
of evidence found as a result of search or requisition of
books of account or documents and such other materials
or information as are available with the Assessing Officer,
as reduced by the aggregate of the total income, or, as
the case may be, as increased by the aggregate of the
losses of such previous years, determined,-
(a) where assessments under section 143 or section 144
or section 147 have been concluded, on the basis of such
assessments;
(b) where returns of income Have been filed under section
139 or section 147 but assessments have not been made
till the date of search or requisition, on the basis of the
income disclosed in such returns;
(c) where the due date for filing a return of income has
expired but no return of income has been filed, as nil;
F
(d) where the previous year has not ended or the date of
filing the 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
G
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;
H
(f) where an assessment of undisclosed income had been
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1053
VATIKA TOWNSHIP PVT. LTD. [AK. SIKRI, J.]
made earlier under Clause (c) of section 158BC, on the
A
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
B
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;
C
(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 by
D
whatever name called to any partner not being a working
partner:
Provided that undisclosed income of the firm so
determined shall not be chargeable to tax in the hands of
the partners, whether on allocation or on account of
E
enhancement;
(c) assessment under Section 143 includes determination
of income under .sub-section (1) or sub-section (1 B) of
section 143.
F
(2) In computing the undisclosed income of the block
period, the provisions of sections 68, 69, 69A, 698 and
69C shall, so far as may be, apply and references to
financial year in those sections shall be construed as
references to the relevant previous year falling in the block
G
period including the previous year ending with the date of
search or of the requisition.
(3) The burden of proving to the satisfaction of the
H
A
B
c
D
E
F
G
H
1054
SUPREME COURT REPORTS . [2014] 12 S.C.R.
Assessing Officer that any undisclosed income had
already been disclosed in any return of income filed by the
assessee before the commencement of search or of the
requisition, as the case may be, shall be on the assessee.
(4) For the purpose of assessment under this Chapter,
losses brought forward from the previous year under
Chapter VI or unabsorbed depreciation under sub-section
(2) of section 32 shall not be set off against the undisclosed
income determined in the block assessment under this
Chapter, but may be carried forward for being set off in
the regular assessments.
158BC. Procedure for block assessment.- Where any
search has been conducted under section 132 or books
of account, other documents or assets are requisitioned
· under section 132A, in the case of any person, then,-
(a) the Assessing Officer shall-
(i) in respect of search initiated or books of account or
other documents or any assets requisitioned after the 30th
day of June, 1995, but before the 1st day of January, 1997,
serve a notice to such person requiring hil)1 to furnish
within such- time not being less than fifteen days;
(ii) in respect of search initiated or books of account or
other documents or any assets requisitioned on or after
the 1st day of January, 1997, serve a notice to such person
requiring him to furnish within such time not being less than
fifteen days but not more than forty-five days,
as may be specified in the notice a return in the prescribed
form and verified in the same manner as a return under
clause (i) of sub-section (1) of section 142, setting forth
his total income including the undisclosed income for the
block period:
Provided that no notice under Section 148 is required to
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1055
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
be issued for the purpose of proceeding under this
A
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 15888 and the provisions of section 142,
sub-sections (2) and (3) of section 143 and section 144
8
shall, so far as may be, apply;
C
(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
D
assessment;
(d) the assets seized under section 132 or requisitioned
under section 132,A. shall be retained to the extent
necessary and the provisions of section 1328 shall apply
subject to such modifications as may be necessary and
E
the references to 'regular assessment' or 'reassessment'
in section 1328 shall be construed as references to 'block
assessment'.
1588H. Application of other provisions of this Act.~ Save
F
as otherwise provided in this Chapter, all other provisions
of this Act shall apply to assessment made under this
Chapter."
16. It would be of some significance to point out at this
stage that in so far as rates of tax chargeable in case of block
G
assessment is concerned, that is not provided in the Finance
Act. Pertinently, the provision to this effect has been made in
the Income Tax Act itself and is contained in Section 113 of the
Act. This Section, before insertion of proviso thereto, read as
under:
H
1056
SUPREME COURT REPORTS
[2014) 12 S.C.R.
A
"113. Tax in the case of block assessment of search
cases. - The total undisclosed income of the block period,
determined under section 158BC, shall be chargeable to
tax at the rate of sixty per cent."
8
17. The proviso to Section 113 was inserted by Finance
Act, 2002 with effect from June, 2002 and is to the following
effect:
c
"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."
18. From the reading of the aforesaid statutory provisions
0 in abstract, particularly relating to surcharge, it is clear that
though provision for surcharge under the Finance Act has been
in existence since 1995, in so far as levy of surcharge for block
assessment is concerned, it is introduced by insertion of
aforesaid proviso of Section 113. It is in this background, the
-E
question has arisen as to whether this surcharge on block
assessment has been levied for the first time by the aforesaid
proviso coming into effect from 01.06.2002 or it is only
clarificatory in nature because of the reason that the provision
for surcharge was made in the Finance Act in the year 1995 ·
F and that covered surcharge on block assessment as well.
Judgment in Suresh N. Gupta
19. As already noticed above, this very proviso to Section
113 of the Act came up for interpretation in Suresh N. Gupta
G and the Division Bench of this Court took the view that this
proviso is clarificatory in nature as it simply clarifies the date
with reference to which the rate of surcharge is payable,
namely, the surcharge levied by the Central Act and applicable
in the assessment year relevant to the previous year in which
H the search is initiated. It would be advisable to take note of the
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1057
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
reasons which prevailed with the Bench to come to the
A
aforesaid conclusion, inasmuch as it is the ratio of this judgment
which was doubted by the Bench making the reference to the·
larger Bench.
20. The Court in Suresh N. Gupta formulated two points
B
for consideration, viz.;
"1.
Whether on. the facts and circumstances of
this case, the Finance Act, 2001 was
applicable to "block assessment" under
Chapter XIVB in respect of search carried
C
out on January 17, 2001?
2.
Whether the proviso inserted in Section 113
by the Finance Act, 2002, is clarificatory?"
Dealing with the first question, the Court noted the D
contention of the assessee that Chapter XIVB, which was
inserted by the Finance Act, 1995 with effect from July 1, 1995
was a self-contained chapter as it lays down a special
procedure for assessment of undisclosed income found during
search for the "block period". It was argued by the assessee
E
that this Chapter contains a charging section (158BA), a
computation section (158BB), a procedural section for block
assessment (1 SBBC), limitation provision for completion of
block assessment ( 1 SBBE) and the provisions for imposition
of interest and penalty (158BFA). It was also argued that the
F
scheme of assessment of "undisclosed income" under Chapter
XIV-B is different from the scheme of assessment of "total
income" of any person in terms of Section 4(1) of the Act. In
support of this argument, it was submitted that whereas
Chapter XIV-B deals with assessment of "undisclosed income",
G
Section 4 of the Act relates to the assessment of "total income".
Moreover, "block period" mentioned in Chapter XIV-B was
different from the assessment of income of the "previous year"
under Section 4(1) of the Act. Even the rate of tax at which the
"undisclosed income" is assessed is different inasmuch as it
H
,.·.,,
1058
SUPREME COURT REPORTS
[2014] 12 S.C.R.
A is 60% as specified in Section 158BA(2) read with section 113
of the Act, in contradistinction to the taxation of normal income
which is at the rates specified in the relevant Finance Act. In
nutshell, it was argued that block assessment falls in Chapter
XIV-B for which charging section was section 158BA and for
B assessment of block period, charging section was not section
4(1) of the Act. On that basis, the assessee wanted the Court
to hold that it was not open to the Assessing Officer to levy
surcharge prior to June 1, 2002, i.e. before the insertion of
proviso to Section 113 of the Act.
c
21. This argument was rejected by the Court. The Bench
took note of Article 271 of the Constitution along with Entry 82
of List 1 of the Seventh Schedule to the Constitution of India
and Section 4 of the Act which is the charging section. It held
that the power to levy surcharge on income tax is traceable to
D Article 271 read with Entry 82 and not to Section 4 of the Act.
The rate at which the charge on total income on the previous
year is imposed is not laid down in the Income Tax Act but in
the Finance Act indicated every year by the Parliament to give
effect to the financial proposals of the Central Government. It
E further held that since Income Tax Act deals with tax on income
and nothing else, nor with charge should be a legal charge under
Section 4, it must be a tax on the income of the assessee.
Therefore, Section 4(1) of the Act was the charging section and
the rate of tax is prescribed under that very Act i.e. Section 113.
F As long as the charge is on the "total income" of the previous
year and so long as the rate relates to the subject matter of the
tax, there is nothing to prevent the Parliament from fixing the
date. What is to be seen is that the rate is applied to the "total
income" and the tax which the assessee has to pay must be at
G the rate in respect of the total income of the previous year.
H
22.