2014 (11) TMI 357 - SC - Income Tax

Levy of surcharge on tax u/s 113 - Block assessment u/s 158BC Effect of amendment w e.f. 2002 - Amendment retrospective or prospective - Held that - Following the decision in Commissioner of Income Tax (Central) -I, New Delhi Versus Vatika Township Private Limited 2014 (9) TMI 576 - SUPREME COURT - the intention of the legislature was to make it prospective in nature - The proviso cannot be treated as declaratory/statutory or curative in nature - 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 be difficult to tax a person - it has no retrospective effect - Decided against revenue.

Issues Involved:
1. Prospective vs. Retrospective Application of Proviso to Section 113 of the Income Tax Act.
2. Ambiguity and Uncertainty in Levying Surcharge Prior to Amendment.
3. Legislative Intent and Interpretation of Tax Statutes.
4. Validity of Surcharge Levy in Block Assessments Prior to 1st June 2002.

Detailed Analysis:

1. Prospective vs. Retrospective Application of Proviso to Section 113 of the Income Tax Act:
The Supreme Court examined the insertion of the proviso in Section 113 of the Income Tax Act and concluded that the intention of the legislature was to make it prospective in nature. The Court emphasized that the proviso cannot be treated as declaratory/statutory or curative in nature. This conclusion was drawn based on several reasons, including the acknowledgment of ambiguity and uncertainty in the levy of surcharge before the amendment.

2. Ambiguity and Uncertainty in Levying Surcharge Prior to Amendment:
The Court noted that prior to the amendment, there was significant ambiguity regarding the levy of surcharge in block assessments. Assessing officers were unclear about which Finance Act's rates to apply, leading to inconsistent application of surcharge. The Court highlighted that the surcharge varied from year to year and was dependent on several dates, such as the initiation or conclusion of the search, the initiation of block assessment proceedings, or the passing of the block assessment order. This uncertainty made it difficult to levy surcharge consistently.

3. Legislative Intent and Interpretation of Tax Statutes:
The Court discussed the importance of clear legislative intent in tax statutes. It emphasized that tax laws, being in derogation of personal rights and property interests, must be strictly construed. Any ambiguity in tax statutes must be resolved in favor of the taxpayer. The Court referred to several precedents and principles of statutory interpretation, including the "fairness" doctrine, which mandates that ambiguous tax provisions should not impose liability on taxpayers.

4. Validity of Surcharge Levy in Block Assessments Prior to 1st June 2002:
The Court examined the legislative history and intent behind the amendment to Section 113. It noted that the "Notes on Clauses" appended to the Finance Bill, 2002, explicitly stated that the amendment would take effect from 1st June 2002. This indicated a clear legislative intent for the amendment to be prospective. The Court also referred to CBDT Circular No.8 of 2002, which clarified that the amendment to Section 113 was prospective. Furthermore, the Finance Act, 2003, reinforced this position by specifying that the surcharge in block assessments would be applicable prospectively.

The Court concluded that the Division Bench's earlier decision in Suresh N. Gupta, which treated the proviso as clarificatory and gave it retrospective effect, was incorrect and overruled it. Consequently, the appeals filed by the Income Tax Department were dismissed, and the appeals of the assessees were allowed, deleting the surcharge levied for block assessments pertaining to the period prior to 1st June 2002.

Conclusion:
Following the decision in "Commissioner of Income Tax (Central)-I, New Delhi vs. Vatika Township Private Limited," the Supreme Court disposed of the special leave petition in the same terms, affirming that the proviso to Section 113 of the Income Tax Act is prospective and not applicable to block assessments prior to 1st June 2002.

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