Civil Appeal No. 8750 of 2014 (Arising out of SLP (C) No. 540 of 2009), Civil Appeal No. 8764 of 2014 (Arising out of SLP (C) No. 1362 of 2009), Civil Appeal No. 8762 of 2014 (Arising out of SLP (C) No. 1339 of 2009), Civil Appeal No. 8773 of 2014 (Arising out of SLP (C) No. 19319 of 2008), Civil Appeal No. 8763 of 2014 (Arising out of SLP (C) .... Case: Commissioner of Income Tax Vs Vatika Township Private Limited. Supreme Court (India)
Case Number Civil Appeal No. 8750 of 2014 (Arising out of SLP (C) No. 540 of 2009), Civil Appeal No. 8764 of 2014 (Arising out of SLP (C) No. 1362 of 2009), Civil Appeal No. 8762 of 2014 (Arising out of SLP (C) No. 1339 of 2009), Civil Appeal No. 8773 of 2014 (Arising out of SLP (C) No. 19319 of 2008), Civil Appeal No. 8763 of 2014 (Arising out of SLP (C) ...
Judges R.M. Lodha, C.J.I., J.S. Khehar, Jasti Chelameswar, Arjan Kumar Sikri and Rohinton Nariman, JJ.
Issue Income Tax Act - Sections 2(34), 2(45), 3, 4, 4(1), 5, 32(2), 68, 69, 69A, 69B, 69C, 92F, 113, 113(1), 132, 132A, 132B, 135, 139, 139(1), 142, 142(1), 143, 143(1), 143(1B), 143(2), 143(3), 144, 145, 147, 148, 154, 156BA(2), 158B, 158BA, 158BA(2), 158BB, 158BC, 158BE, 158BFA, 158BH, 171(6), 245D(4), 250BC, 260A, 263; Finance Act, 1996; Finance ...
Judgement Date September 15, 2014
Court Supreme Court (India)
Arjan Kumar Sikri, J.
1. Delay condoned.
2. Leave granted in all these matters.
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 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.
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 to facts of that case. In fact the answer to the aforesaid question 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 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 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 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)-I, New Delhi vide order dated 10.12.2003 on the 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 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 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 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 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 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 @ 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 appeal before the Income Tax Appellate Tribunal (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 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 260A 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 Court. It is this order of the High Court which is the subject 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 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 or it is to take effect from the date i.e. 01.06.2002 when it was 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. Gupta (2008) 4 SCC 362. The Division Bench held that the said proviso is clarificatory in nature. When the instant appeal came up before 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.
The question which fell for consideration before the High Court was as to whether the proviso appended to Section 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:
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 rate of tax in case of block assessment at 60% was prescribed by Section 113 but the year of 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 FA would be the year in which the search stood initiated Under Section 158-BC.
As the said proviso was introduced with effect from 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 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 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.
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...