2015 (1) TMI 197 - HC - Income Tax

Levy of surcharge on undisclosed income assessed as block assessment Whether the Tribunal is justified in deleting levy of surcharge at the rate of 10% on undisclosed income for the block period 1990-91 to 1999-2000 in light of the provisions contained in Part I of the First Schedule to the Finance Act, 2000 - 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 wherein it has been held that the surcharge on the income tax was introduced for the first time by the Finance Act, 1995, in Section 2 (3) - However, initially, this surcharge was levied only on the income of companies i.e. corporate entities incorporated under the Indian Companies Act by specified surcharge at the rate of 15% in the Finance Act, 1996, which was reduced to 7.50% in the Finance Act, 1997 - in the next two Finance Acts i.e. 1998 and 1999, there was no surcharge levied even in the cases of companies - However, by Finance Act, 2000, surcharge at a flat rate of 10% came to be levied in respect of individuals, HUF, BOI, AOP as well as co-operative societies, partnership firms, local authorities and also the companies - in subsequent years, the rates at which the surcharge is levied on the entities are of varying nature. Where a benefit is conferred by a legislation, the rule against a retrospective construction is different - If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect thus, the Tribunal was justified in deleting the surcharge levied by the AO - the Tribunal rightly followed the decision in CIT Versus OHM DEVELOPERS 2005 (6) TMI 542 - GUJARAT HIGH COURT and came to the conclusion that for the block period under consideration there was no proviso to section 113 of the Act Decided against revenue.

Summary

Issues:
- Appeal against the impugned order passed by the Income Tax Appellate Tribunal
- Challenge to the deletion of surcharge levied by the Assessing Officer
- Consideration of substantial questions of law regarding the levy of surcharge
- Interpretation of the Finance Act provisions related to surcharge on undisclosed income
- Comparison with relevant legal precedents and decisions

Analysis:
1. The appellant, dissatisfied with the Income Tax Appellate Tribunal's order, filed Tax Appeals challenging the deletion of surcharge levied by the Assessing Officer. The substantial questions of law revolved around the correctness of the Tribunal's decision in deleting the surcharge.

2. The case involved an assessee firm engaged in land development facing a search and seizure operation under section 132 of the Income Tax Act. The Assessing Officer imposed income tax and surcharge on the undisclosed income for the block period. However, the CIT (Appeals) partially allowed the appeals by deleting certain additions and surcharge.

3. Upon appeal before the Tribunal, the impugned order upheld the CIT (Appeals) decision, leading to the appellant filing the present Tax Appeals. The issue centered around the interpretation of the Finance Act provisions regarding the levy of surcharge on undisclosed income.

4. The High Court referred to the Supreme Court's decision in Commissioner of Income Tax vs. Vatika Township P. Ltd, clarifying the provisions related to surcharge. The Court highlighted the ambiguity regarding the applicability of surcharge rates based on different dates and Finance Acts, emphasizing the necessity of a specified date for surcharge levy.

5. The Court noted that the Finance Act of 2000 introduced a flat rate of 10% surcharge on various entities, including individuals and companies. The retrospective nature of the surcharge provision in block assessments was clarified in subsequent Finance Acts, emphasizing the prospective application of surcharge provisions.

6. The appellant's advocate could not dispute the Supreme Court's decision or present contrary arguments. Considering the legal precedents and the legislative intent behind surcharge provisions, the Court concluded that the Tribunal was justified in deleting the surcharge levied by the Assessing Officer.

7. Ultimately, the High Court confirmed the impugned orders passed by the Tribunal and dismissed the Tax Appeals in favor of the assessees. The decision aligned with the legal principles established by the Supreme Court and previous High Court judgments, providing clarity on the retrospective application of surcharge provisions in block assessments.