Income Tax Act, 1961: ss. 158BC, 158BD, 158 BFA(1) – Block assessment – Undisclosed income of any other person – Levy of interest – Assessee belatedly filed return for block period in response to notice u/s. 158BD by including undisclosed income – Absence of any notice u/s. 158BC – Liability for period prior to 01.06.1999 – Levy of interest u/s. 158BFA(1) by the assessing officer – Sustainability of – Held: Persons other than searched persons’ liable to pay interest on late filing of the return u/s.158BC even in the absence of notice u/s. 158BC and even for the period prior to June 1999 –Chapter XIV-B prescribes a special procedure for computation of income for the block period in search and seizure cases – It is a complete code in itself providing for self-contained machinery for assessment of undisclosed income for the block period – s.158BD would be applicable in case of any person other than a person with respect to whom search was made – Thus, in case of the person other than searched person the notice u/s. 158BD would be required and in case of late filing of the return u/s. 158BC, the interest would be leviable u/s. 158BFA – Any other interpretation would lead to s.158BD nugatory – By inserting the words “under Section 158BC” in s. 158BD, the Parliament intended to clarify that the assessment for the block period in case of the persons other than searched persons would also be as per the procedure u/s. 158BC – In the instant case, the persons searched were issued notice u/s. 158BC and in case of the appellant-director of the Company, who is the “other person”, the notice u/s. 158BD was issued – It cannot be said that the in absence of any notice u/s. 158BC served upon the persons other than searched persons for the period prior to the amendment in s. 158BD vide Finance Act, 2002, there would not be any liability to pay interest u/s. 158BFA. s.113 proviso – Surcharge – Levy of – Held: Assessee not liable to pay the surcharge under proviso to s.113 – Order passed by the High Court and the assessment order qua the surcharge under proviso to s. 113 quashed and set aside.
Partly allowing the appeals, the Court
HELD: 1. As regards, the levy of the surcharge under proviso to Section 113 of the Income Tax Act is held in favour of the assessee and against the revenue. The assessee is not liable to pay the surcharge under proviso to Section 113 of the Income Tax Act. To that extent the impugned judgment and order passed by the High Court and the assessment order qua the surcharge under proviso to Section 113 of the Income Tax Act is quashed and set aside.[Para 9.2][710-C-D]
2.1 Chapter XIV-B which deals with block assessment lays down a special procedure for searched cases. The main reason for adding the said provisions in the Act was to curb tax evasion and expedite as well as simplify the assessment in such searched cases. The essence of the new procedure under Chapter XIV-B is a separate single assessment of the “undisclosed income”, detected as a result of search and this separate assessment has to be in addition to the normal assessment covering the said period. Therefore, a separate return covering the years of the block period is a pre-requisite for making block assessment. Chapter XIV-B is a complete code in itself providing for self-contained machinery for assessment of undisclosed income for the block period of 10 years or 6 years as the case may be. [Para 10][710-F-H]
2.2 With respect to assessment of undisclosed income for the block period including the filing of the return etc., the normal assessment proceedings including under Section 140 of the Income Tax Act shall not be applicable. Therefore, the submission on behalf of the assessee that interest under Section 158BFA for the period prior to 01.06.1999 in view of insertion of the words “Section 158BC” in Section 140A w.e.f. 01.06.1999, shall not be chargeable, cannot be accepted. It is the case on behalf of the assessee that the interest only follows the principal and in this case the principal being the tax payable, there was no liability to ANR.
pay the tax along with the return prior to 01.06.1999 which came to be introduced by insertion of the words “Section 158BC” in Section 140A and therefore the liability to pay interest cannot arise if there was no liability to pay the tax itself along with the return at the relevant time, has no substance. At this stage, it requires to be noted that neither Section 158BC nor Section 158BFA required the assessee to pay tax along with the return. Liability to deposit the tax along with return arises only under Section 140A. However, at the relevant point of time Section 140A did not apply to Section 158BC and hence there was no liability to deposit tax along with the return. The said lacunae was noticed by the Parliament and by the Finance Act, 1999, the words “Section 158BC” have been inserted in Section 140A w.e.f. 01.06.1999. That does not mean that interest under Section 158BFA would not be leviable in case of late filing of return. The return under Section 158BC was required to be filed as per Chapter XIV-B and on the delay in filing the return, there shall be liability to pay interest leviable under Section 158BFA(1). [Para 10.1][713-D-H; 714-A-B]
2.3 On conjoint reading of the Notes on Clauses and Memorandum, it is very clear that the Legislature originally intended to make the assessee liable to pay taxes and interest when the return was filed under Section 139 or under Section
142 or Section 148. By virtue of the amendment, the Legislature thus proposed to make those assessees who are filing the return under Section 158BC also liable to pay tax and interest under Section 140A. The memorandum explaining the provisions of the Finance Bill further makes it clear that the existing provisions of Section 140A were not applicable to Chapter XIV-B relating to assessment of income of the block period in search and seizure cases. It further recognizes that the admitted tax declared in the return cannot be collected till the assessment is completed. Therefore, the Legislature intended to amend Section 140A by incorporating Section 158BC so as to make liable those persons who are filing return under Section 158BC also. Thus, by virtue of the amendment, a new class of assessee was brought onto the statute-book whose income are subject to be assessed under Chapter XIV-B, in section 140A compelling them to pay self-assessment tax. Thus, the interest under Section 158BFA is leviable on standalone basis for late or non-filing of return, which ceases on the day return is filed. In the impugned judgment and order, the High Court has elaborately and comprehensively explained the rationale behind introduction of Section 158BC in Section 140A and has specifically observed and held that the liability of payment of interest does not stop merely on filing of the return but is attracted in terms of Section 140A till payment of tax in terms of the section and even now the provisions of Section 158BFA(1) and Section 140A operate independently. The view taken by the High Court is concurred with. [Para 10.3][715C-H]
2.4 The submission on behalf of the assessee that in absence of any notice under Section 158BC served upon the concerned assessee and in view of insertion of the words “Section 158BC” in Section 158BD inserted vide Finance Act, 2002, there shall not be any liability to pay interest under Section 158BFA is concerned, the aforesaid submission is absolutely erroneous and has no substance. Prior to amendment in Section 158BD vide Finance Act, 2002 and even thereafter, the provisions of Section 158BC would be applicable in case of “searched persons”. Section 158BD would be applicable in case of persons “other than searched persons”. Therefore, in case of a person “other than searched person”, no notice under Section 158BC which is required to be issued in case of “searched persons” was required to be issued. For a person “other than searched person”, notice under Section 158BD is sufficient. [Para 10.4][716-A-C]
2.5 The submission on behalf of the assessee that the words “under Section 158BC” has been inserted in Section 158BD vide Finance Act, 2002 and therefore, in absence of any notice under Section 158BC prior to the amendment, there shall not be any liability to pay interest under Section 158BFA is concerned, a perusal of the Notes on Clauses appended to Clause 64 of the Finance Bill, 2002, it appears that the same is clarificatory in nature. [Para 10.5][716-D-E]
2.6 Chapter XIV-B prescribes a special procedure for computation of income for the block period in search and seizure cases. Section 158BD shall be applicable in case of any person ANR.
other than a person with respect to whom search was made. As observed Chapter XIV-B is a complete code in itself providing for self-contained machinery for assessment of undisclosed income for the block period. Therefore, in case of the person other than searched person the notice under Section 158BD would be required/sufficient and in case of late filing of the return under Section 158BC, the interest will be leviable under Section 158BFA. Any other interpretation would lead to Section 158BD nugatory. It can be seen that by inserting the words “under Section 158BC” in Section 158BD, the Parliament intended to clarify that the assessment for the block period in case of the persons other than searched persons would also be as per the procedure under Section 158BC of the Income Tax Act. In the instant case as such K Company – the persons searched were issued notice under Section 158BC and in case of the appellantdirector of K Company, who is the “other person”, the notice under Section 158BD has been issued. [Para 10.6][716-H; 717A-D]
2.7 The submission on behalf of the assessee that in absence of any notice under Section 158BC served upon the assessee – persons other than searched persons for the period prior to the amendment in Section 158BD vide Finance Act, 2002, there shall not be any liability to pay interest under Section 158BFA, has no substance and the same is required to be rejected and the said question is required to be answered in favour of the revenue and against the assessee. [Para 10.7][717-E]
3. The respective assessees are not liable to pay the surcharge under proviso to Section 113 of the Income Tax Act. The impugned judgment and order passed by the High Court is required to be modified to the aforesaid extent. So far as the liability to pay the interest under Section 158BFA of the Income Tax Act for late filing of the return under Section 158BC of the Income Tax Act, in absence of any notice under Section 158BC upon the assessee-persons other than searched persons, the said question is held in favour of the brevenue and against the assessee. The impugned judgment and order passed by the High Court is confirmed and it is observed and held that the assesseepersons other than searched persons would be liable to pay the interest on late filing of the return under Section 158BC even in absence of a notice under Section 158BC of the Income Tax Act and even for the period prior to 01.06.1999. To that extent, the impugned judgment and order passed by the High Court is confirmed. [Para 11][717-F-H; 718-A]
Commissioner of Income Tax (Central)–I, New Delhi v. Vatika Township Private Limited 2015 (1) SCC 1 : [2014]
12 SCR 1037; Commissioner of Income Tax v. Suresh N. Gupta (2008) 297 ITR 322 (SC) ; Mathuram Agrawal v. State of Madhya Pradesh, (1999) 8 SCC 667 : [1999]
4 Suppl. SCR 195; Commissioner of Income Tax
(Central)-I, New Delhi Vs. Vatika Township Private Limited 2015 (1) SCC 1 : [2014] 12 SCR 1037; Assistant Commissioner of Income Tax and Anr. v. Hotel Blue Moon (2010) 3 SCC 259 : [2010] 2 SCR 282;
P.P.Umerkutty v. ACIT (2005) 279 ITR 213 Kerala – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.