Income Tax Appellate Tribunal - Pune
Mrs. Aruna M. Katara vs Deputy Commissioner Of Income Tax on 4 August, 2003
Equivalent citations: (2004)82TTJ(PUNE)363
ORDER
U.B.S. Bedi, J.M.
1. This is appeal of the assessee directed against the order passed by the learned CIT(A) 1, Pune, dt. 28th June, 2002, relevant to the block period 1st April, 1989 to 24th Nov., 1999, wherein the following ground has been raised.
"On the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming the levy of surcharge on tax calculated on undisclosed income for the block period amounting to Rs. 14,924 by rejecting the appellant's contention that the surcharge was not leviable."
2. Facts indicate that an action under Section 132(1) of the Act was carried out on 24th Nov., 1999, and in pursuance of the same, notice under Section 158BC was served on the assessee. The assessee filed the block return showing undisclosed income of Rs. 2,48,734. The undisclosed income so returned was accepted in the assessment and the block assessment was completed at the returned undisclosed income. However, the AO levied surcharge also in addition to tax under Section 113 of the IT Act, besides interest under Section 158BFA(1), against which the assessee filed an appeal before the learned CIT(A).
3. During the course of appellate proceedings before the learned CIT(A), the assessee filed written submissions against levy of surcharge. But the learned CIT(A), while considering and not accepting the plea of the assessee, has concluded to confirm the action of the AO as per para 2.3 to 2.6 of his order as under:
"Facts of the case were duly considered. The concept of block assessment was introduced by Finance Act, 1995. Circular No. 717 dt. 14th Aug., 1995, gives explanatory notes of various amendments. Coming to the block assessment, it clearly says that surcharge has to be levied (refer para 39(3)(f) of the said circular).
Further it is noted that amendment to Section 113 brought in by Finance Act, 2002, is classificatory in nature since there were some problem in adopting the rate of surcharge as applicable when the order was passed as if posed unintended tax liability depending the date when the order was passed. The proviso to Section 113 merely clarifies this issue and says that surcharge rate applicable will be the rate as applicable when the search was carried out.
Further it is noted that second proviso to Section 2(7) both under Finance Act, 1995, and Finance (No. 20) Act, 1996 provided for surcharge on tax leviable under Section 113 by making a specific cross reference to Section 113 and this will vindicate the doubt arising from the fact that para E of Part I of the First Schedule did not provide for surcharge in Finance Act, 1995.
The plea raised by the learned counsel, though, logical is not held correct in my humble opinion. Action taken by the AO is upheld and the ground taken falls."
4. Still aggrieved, the assessee is in further appeal and while reiterating the submissions as made before the lower authorities, it was pleaded for deletion of surcharge levied in the block assessment under Section 113 of the Act which only imposes tax at the rate of 60 per cent on undisclosed income for the year under consideration which is the charging provision for the purposes of Chapter XIV-B and so far as Section 4(1) is concerned, same is meant for regular assessment and proviso to said sub-section does not mention about amendment Act. Since charging provisions are to be strictly construed and reliance in this regard was placed on KM. Sharma v. ITO (2002) 254 ITR 772 (SC), and if no sanction is there, if cannot be levied CIT v. Alpino Soluex Ltd.- (2003) 259 ITR 719 (SC), charging and penalty provisions are to be strictly construed and reliance was placed on CWT v. Ellis Bridge Gymkhana (1998) 229 ITR 1 (SC) and CIT v. National Taj Traders (1980) 121 ITR 535 (SC), It was next submitted that since proviso to Section 113 is made effective from a particular date, it cannot be construed to be retrospectively effective. Reliance was placed on CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165 (SC). It was next clarified that proviso has a limited scope and even otherwise, it is not an exception non-explanatory but restrictive and is only applicable for the searches conducted on or after 1st June, 2002. So far as tax or levy-interpretation is concerned there should be clear words showing intention to impose burden. Reliance was placed on Vikrant Tyres Ltd. v. ITO (2001) 247 ITR 821 (SC), CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 (SC). Without prejudice, alternatively, it was pleaded that if two opinions are possible, the one, which is favourable to the assessee, should be applied. Reliance was placed on CIT v. Podar Cement (P) Ltd. (1997) 226 ITR 625 (SC). It was also emphasised that the proviso does not suggest it to be clarificatory in nature and moreover, other amendments in Section 158BC and 158BC though made by the same Finance Act, 2002, yet these were made effective from 1st July, 1995, whereas the proviso to Section 113 was inserted by Finance Act, 2002, w.e.f. 1st June, 2002. Therefore, the said amendment neither can be said to be clarificatory in nature nor can retrospective effect be given to the same. It was also submitted that the learned CIT(A) is banking upon the Board's Circular and while finding the arguments of the assessee to be logical, he did not accept the same. Since all the Board's circulars are not binding and there is a proviso inserted w.e.f. 1st June, 2002, therefore, no retrospectivity can be given to the same and as per the said proviso, no doubt, surcharge is leviable but not from retrospective date, that means, for the searches conducted on or after 1st June, 2002, and not before. Even the Boards Circular No. 717 states about domestic company and not individuals. Therefore, the plea of the learned CIT(A) in this regard is also of no consequence. It was thus finally concluded to plead for deletion of the surcharge levied/confirmed.
5. The learned Departmental Representative while relying upon the basis and reasoning as given by the authorities below has pleaded for confirmation of the impugned order it was submitted that leviability of surcharge was already there as on the date of search and proviso inserted to Section 113 which has only elucidated about the already existing provision and is meant for giving further clarification, therefore, it is clarificatory in nature being declaratory. Sections 112 and 113 are pari materia and if Section 112 is seen, there is no such proviso and surcharge is being charged with respect to capital gains because of charging provision. Since proviso is meant for working out of the mechanism and procedural aspect, therefore, the same is clarificatory in nature. Reliance was placed on Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC), Allan Anandilal Jain v. CIT (1997) 224 ITR 753 (SC), at p. 756 which supports the case of the Department. As there is no ambiguity and correct interpretation is to be given, hence surcharge is leviable. Since the proviso has been inserted to clarify the rate of surcharge to be applied at the rate applicable as on the date of search or at the rate applicable for different years. Reliance was placed on the decision reported in (2000) 113 Taxman 74 (Cal). The surcharge is liable in view of already existing provisions, as such, the authorities below are justified in levying/confirming the surcharge. Their action being legally correct, needs further confirmation. The learned Departmental Representative has also filed a portion of the CIT(A)'s order in appeal No. 289/201/202 dt. 1st Nov., 2002, in order to highlight the rules of interpretation of statute, it was urged for confirmation of the impugned order.
6. The learned counsel for the assessee, in order to counter the submissions of the learned Departmental Representative has pleaded that so far as the provisions of Sections 112 and 167 are concerned, Section 4(1) is applicable and as there is no similarity between the block assessment of undisclosed income and taxability of capital gains, therefore, no retrospective effect can be given to the proviso inserted with 'effect from a particular date. It was further submitted that the position can further be seen from the explanatory note on the clauses in Finance Bill 2002, [Clause 41 at p. 149 of 254 ITR (St)) which makes it very clear that tax to be increased by surcharge in the cases of search and amendment has been given effect from 1st June, 2002, specifically in the said clause also. Therefore, surcharge cannot be imposed and moreover, it is not the beneficial provision as such, the said circular, which otherwise is not relevant also, cannot be given any credence. As such, the orders of the authorities below are unjustified and are liable to be quashed. It was thus pleaded for quashment of surcharge charged/confirmed.
7. After having heard both the sides and considering the material on record as well as case law cited, the point for consideration is whether proviso to Section 113 inserted by Finance Act, 2002, w.e.f. 1st June, 2002, is to be made applicable retrospectively or prospectively. Before considering the same, it is imperative to look into the fundamental principles of interpretation. The essential idea of legal system is that current law should govern current activities. Retrospectivity is artificial deeming a thing to be what it is not. It 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 implication. It is a cardinal principle of construction that every statute prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. In the absence of the words in the statute sufficient to show the intention of the legislature to affect existing rights, it is deemed to be prospective only. On the other hand, in contrast to statutes dealing with substantive rights, statutes dealing with merely matters of procedure are presumed to be retrospective unless such a construction is textually inadmissible. If the new Act affects matters of procedure only, then, prima facie, it applies to all actions pending as well as future. In stating the principle that a change in the law of procedure operates retrospectively and unlike the law relating to vested right is not only prospective and legislation imposing liability is generally governed by the normal presumption that it is not retrospective and it is a cardinal principle of the tax law that the law to be applied is that in force unless otherwise provided expressly or by necessary implication. So far as fiscal statutes are concerned, the position is not different and imposition of liability is generally governed by the- normal presumption that it is not retrospective and it is a cardinal principle of the tax law that the law to be applied is that in force unless otherwise provided expressly or by necessary implication. The above rule applies to the charging section and other substantive provisions and does not apply to machinery or procedural provisions of a taxing Act which are generally retrospective and apply even to pending proceedings. A taxing statute is to be strictly construed.
8. A good summary of the principles about retrospectivity has been given by the Hon'ble Supreme Court in the case of Mahadeo Prasad Singh v. Ram Lochan (1980) 4 SCC 354 in the following words.
"We may remind ourselves of some general principles of interpretation in regard to the retrospective operation of statutes. As a general rule, a statute, which takes away or impairs substantive rights acquired under the existing law, is construed to have a prospective operation unless the language of that statute expressly or by inevitable intendment compels a contrary construction. But this presumption as to the prospective operation of a statute does not apply to an enactment affecting procedure or practice such as the CPC. The reason is that no person has a vested right in any course of procedure. The general principle indeed seems to be that alternations in the procedure are always retrospective, unless there be some good reason against it."
9. Considering the language of the relevant provisions in the light of elucidation and discussion as held above, the insertion of proviso to Section 113, which is a part of charging provision as it imposes additional liability upon the assessee for payment of surcharge in addition to tax chargeable on the undisclosed income, the same, being not a beneficial provision nor meant to remedy any unintended consequences and having been made effective from a particular date i.e., 1st June, 2002, cannot be held to be either procedural, declaratory or clarificatory in nature. Therefore, in my considered view, it is prospectively effective. Since search in this case was conducted prior to 1st June, 2002, therefore, charging of surcharge by the AO and its confirmation by the learned CIT(A) is found to be not legally correct. As such, levy of surcharge in the case of the assessee is quashed.
10. As a result, the appeal of the assessee gets accepted.