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2021 (1) TMI 481 - HC - Income TaxEnhanced rate of tax @60% u/s 158BBE on Unexplained / Undisclosed income - Effect of Amendment enhancing the rate of tax incorporated in the I T Act and that of surcharge in the Finance Act - prospectively or retrospectively - petitioner sought for a declaration that the amendments made by the Taxation Laws (Second Amendment) Act, 2016, to Section 115BBE of the Income Tax Act, 1961 enhancing the rate of income tax, for specified incomes which are unexplained, to 60% and the surcharge provided in the Finance Act, 2016 to 25% for income covered under Section 69A, to be prospective - consequential relief is sought against Ext.P2 assessment order levying tax at the enhanced rate of 60% and surcharge @25% on the 'advance tax'. HELD THAT - The subject amendments which are relevant for our consideration have no direct link with the demonetization introduced or the taxation and investment regime of Pradhaan Mantri Garib Kalyan Yojana 2016 brought in under Chapter IX A of the 2nd amendment Act. The 2nd amendment Act as is clear from the Statements of Objects and Reasons, was to curb, evasion of tax and black money as also plug loopholes in the IT Act and to ensure that defaulting assessees are subjected to higher tax and stringent penalty provision. Both the measures spoken of herein were to further the said objects and there cannot be any nexus assumed nor is it discernible. Section 115 BBE was inserted by Finance Act 2012 w.e.f 01.04.2013. As on 01.04.2016 the financial year in which the subject seizures occurred Section 155BBE provided for 30% tax on income refereed to in Sections 68, 69, 69A, 69B, 69C and 69D. The same was amended by the 2nd Amendment Act; w.e.f. 01.04.2017, enhancing the rate to 60%. Hence there was no new liability created and the rate of tax merely stood enhanced which is applicable to the assessments carried on in that year. The enhanced rate applies from the commencement of the assessment year, which relates to the previous financial year. Likewise it was by Chapter II with heading 'Rates of Income Tax', as provided in the Finance Act 2016, that a surcharge was introduced by way of the 3rd proviso of Section 2(9) of that Finance Act. This comes into effect from the Financial Year 2016-2017; which is the year in which the subject seizures were occasioned - By the 2nd Amendment Act Section 2 of the Finance Act, 2016 stood amended by which 115BBE was omitted from the 3rd proviso. After the 6th proviso yet another proviso was inserted which provided for the 'advance tax' computed under the first proviso, in respect of any income chargeable to tax under Section 115BBE(1)(i), to be increased by a surcharge for the purposes of the Union, calculated @25%. Hence there is no new liability of surcharge created and it is a mere enhancement of the rate of surcharge. Income Tax at the rate or rates specified, as prescribed in any Central Act to be charged for any assessment year, shall be so charged in respect of the total income of the previous year as per Section 4 Of the IT Act - There is no such provision to enable a surcharge to be so taxed, on the Finance Act prescribing an enhanced rate at the commencement of an year. The said contention however, cannot be sustained especially looking at the decision in CIT Kerala v. K Srinivas. 1971 (11) TMI 2 - SUPREME COURT . The facts are not relevant to the issue raised here and we need only look at the declaration as to the nature of a surcharge imposed in the Finance Act. The legislative history with respect to the concept of surcharge was traced by the Court, which, for the first time was found to have been recommended, in the report of the Committee on Indian Constitutional Reforms Volume I Part I. In the instant case surcharge was imposed by Finance Act, 2016 and the rate stood enhanced by Finance Act, 2017. The Income Tax even as per the Finance Act was to be at the rate specified in Part I of the 1st Schedule which shall be increased by surcharge for purposes of the Union. Surcharge hence partakes the character of Income-tax and Article 271 itself empowers the Parliament, at any time to increase any of the duties or taxes by a surcharge for the purpose of the Union and it forms part of the Consolidated fund. So when a surcharge is imposed it is in effect an enhancement of the tax or duty. The provision in the Finance Act also employs the words 'the income tax computed shall be increased by a surcharge'. Section 4 of the IT Act squarely applies to the surcharge imposed.
Issues Involved:
1. The prospective or retrospective application of amendments made by the Taxation Laws (Second Amendment) Act, 2016, to Section 115BBE of the Income Tax Act, 1961. 2. The applicability of the enhanced tax rate and surcharge to the assessments of the previous financial year. 3. The nature and imposition of surcharge under the Finance Act. Detailed Analysis: 1. Prospective or Retrospective Application of Amendments: The appellant sought a declaration that the amendments made by the Taxation Laws (Second Amendment) Act, 2016, to Section 115BBE of the Income Tax Act, 1961, which enhanced the rate of income tax for unexplained incomes to 60% and the surcharge to 25%, should be applied prospectively. The court referenced the decision in Karimtharuvi Tea Estate Ltd. v. State of Kerala (AIR (1966) SC 1385) and other Supreme Court decisions, which established that an amendment effective from the 1st of April of any financial year would apply to the assessments of that year. The court concluded that the enhancement of the tax rate and surcharge was not a new liability but merely an increase in the rate, thus applicable to assessments carried out in the financial year 2017-2018, relating to the previous financial year. 2. Applicability to Assessments of the Previous Financial Year: The appellant argued that the amendments should not apply to the financial year 2016-2017, during which the seizures occurred. The court examined various precedents, including Kesoram Industries v. Commissioner of Wealth Tax [AIR 1966 SC 1385], which clarified that while the Finance Act prescribes the rate of tax, the liability arises on the last day of the accounting year. The court determined that the enhanced tax rate and surcharge, effective from 01.04.2017, apply to assessments made in the assessment year 2017-2018 for the previous financial year 2016-2017. The court emphasized that the amendments did not create a new liability but merely enhanced the existing rate, thus applicable to the assessments of the previous year. 3. Nature and Imposition of Surcharge: The appellant contended that there was no provision to enable a surcharge to be taxed retrospectively. The court referenced CIT Kerala v. K Srinivas [(1972) 4 SCC 526], which established that the term "Income tax" includes surcharge, and Article 271 of the Constitution empowers the Parliament to increase taxes by a surcharge for the Union. The court concluded that the surcharge, as part of the income tax, is applicable from the commencement of the assessment year 2017-2018 and applies to the previous financial year. The surcharge imposed by the Finance Act, 2016, and enhanced by the Finance Act, 2017, was thus applicable to the assessments of the financial year 2016-2017. Conclusion: The court affirmed the judgment of the learned Single Judge, dismissing the writ appeal without any order as to costs. The amendments enhancing the tax rate and surcharge were applicable to the assessments made in the financial year 2017-2018, relating to the previous financial year 2016-2017, as they did not create new liabilities but merely increased the existing rates.
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