1997 (12) TMI 101 - HC - Income Tax

Article 14 Of The Constitution, Undisclosed Income, Voluntary Disclosure Of Income, Writ Petition

Summary

Issues Involved:
1. Voluntary Disclosure of Income Scheme (VDIS) and its applicability.
2. Discrimination in the classification of tax evaders.
3. Validity of search operations during the VDIS period.
4. Interpretation of Section 64 of the Finance Act, 1997.

Summary:

1. Voluntary Disclosure of Income Scheme (VDIS) and its applicability:
The petitioner, an income-tax assessee, argued that the search conducted on his premises during the VDIS period (July 1, 1997, to December 31, 1997) arbitrarily deprived him of the right to make a voluntary disclosure. The petitioner claimed that the classification of those who have been searched as ineligible for the scheme was discriminatory.

2. Discrimination in the classification of tax evaders:
The petitioner contended that there was no distinction made between cases where nothing was discovered during the search and cases where something was seized, amounting to discrimination. The petitioner referenced circulars issued by the Central Board of Direct Taxes (CBDT) which allowed disclosures for earlier years in cases of survey, arguing that a similar benefit should not be denied to those subject to search.

3. Validity of search operations during the VDIS period:
The Revenue argued that the search was valid as the provisions of the Finance Act relating to searches and seizures were not kept in abeyance. The Revenue maintained that the intention of the scheme was to benefit only those who come forward voluntarily and with clean hands, and thus, excluding search cases was justified.

4. Interpretation of Section 64 of the Finance Act, 1997:
The court examined the provisions of Section 64, which grants tax concessions and immunity to undisclosed income declared during the scheme period. It was clarified that:
- Sub-section (2)(i) disallows the benefit for income assessable for any assessment year for which a notice u/s 142 or 148 has been served and the return was not filed before the commencement of the scheme.
- Sub-section (2)(ii) disallows the benefit for income in respect of the previous year in which a search u/s 132, a requisition u/s 132A, or a survey u/s 133A was conducted, or in respect of any earlier previous year.

The court concluded that the prohibition in sub-section (2)(ii) applies only to the income detected during such operations, not to the entire income of the previous year. Therefore, undisclosed income not detected in a search can still be declared under the VDIS.

Conclusion:
The court held that:
- Section 64 of the Finance Act, 1997, is constitutionally valid and grants concessions to undisclosed income declared during the scheme period.
- Income not returned within the time prescribed in notices u/s 142 or 148, which expired before the scheme's commencement, is ineligible for the scheme's benefits.
- The benefit is denied to income detected in a search, requisition, or survey, regardless of the previous year to which it relates.
- Undisclosed income other than detected income can still be declared and will be eligible for the scheme's benefits.
- If subsequently assessed as part of the total income, the tax paid under the scheme shall be adjusted against the assessed tax.

The court directed the respondents to entertain voluntary disclosures falling within these parameters and dismissed the writ petition accordingly. The application for leave to appeal to the Supreme Court was rejected.