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TMI Blog1997 (12) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... was discriminatory. It is further stated that no distinction has been made between those cases where nothing was discovered during the search and cases where anything is seized and this also amounted to discrimination. Reference is also made to the circular issued by the Central Board of Direct Taxes stating that in the case of survey, there is no bar to the making of disclosure for the earlier years and the benefit of such departure should not be denied to the petitioners as otherwise it will be discriminatory. Counter-affidavit of the second respondent.---The Commissioner of Income-tax has filed a counter-affidavit stating that the power to make a search under Chapter XIII-C of the Income-tax Act has not been kept in abeyance and, therefore, a search was conducted in the premises of the petitioner and his five brothers when unaccounted cash of Rs. 20.15 lakhs and pawned jewellery of Rs. 1,89,500 was found. It is also stated that the total disclosure of the family was Rs. 1.30 crores including Rs. 27.15 lakhs in the hands of the petitioner. It is stated that the assessees, who have been identified as tax evaders by search, were not entitled to the benefit of the Scheme. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven and available to the petitioner, was denied arbitrarily. It is, therefore, contended that if the scheme is not to be applied arbitrarily and discriminatorily, there should be an implied bar on all searches during the scheme period. Secondly, it was argued that the object of the Scheme was to unearth the undisclosed income and if the persons in whose cases searches were conducted, are barred from making a disclosure, it would be defeating the object as there was no intelligible differentia which distinguishes them from the rest of those who are eligible to make a disclosure. Thirdly, it was submitted that the Central Board of Direct Taxes had issued circulars stating that the bar in respect of all previous years under section 64(2)(ii) of the Finance Act will not apply to the cases of survey which was clearly contrary to the plain language of the section and in order not to discriminate against those whose cases were subject to search, the section must be read down to allow disclosure for all previous years in respect of those people also. Fourthly, it was submitted that the answers to the questions given out by the Department reveal the understanding of the Department and in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 35. The assessment procedure under the Income-tax Act.---The Income-tax Act as it now stands provides for a voluntary return of income under section 139 and self-assessment under section 140A. An enquiry before an assessment can be made by the Assessing Officer and for that purpose he may call for information by issuing a notice under section 142(1). In case no return has been filed, he may also issue a notice under section 142(1) calling upon the assessee to file a return. Thereafter, he will make an assessment under section 143. If no self-assessment has been made, or no assessment has been made under section 143 for any assessment year and the Income-tax Officer has reason to believe that income has escaped assessment, he may issue notice under section 148 calling upon the assessee to file a return. If the income which escaped is likely to be more than Rs. 1 lakh, such a notice can be issued if more than 10 years have not elapsed from the end of the relevant assessment year. If the assessee does not respond to that notice or files a return, an assessment will be made under the usual procedure referred to in sections 142 and 143. The consequence will be that the assessee wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not filed a return under section 139 or which he has not disclosed in a return filed earlier. The income so disclosed is chargeable to tax at the rate of 35 per cent. in respect of a company or firm and at the rate of 30 per cent. in the case of others. But nothing in that scheme is to apply to income assessable for any assessment year for which notice under section 142 or section 148 has been served and the return has not been filed before the commencement of the scheme and the income in respect of the previous year in which a search was initiated under section 132, a requisition was made under section 132A, or a survey was conducted under section 133A and in respect of any earlier previous years. The voluntarily disclosed income is not to be included in the total income where tax is paid in respect of it and such tax is not refundable. The Central Government has power to remove difficulties and the Board has the power to make rules. The Voluntary Disclosure of Income Rules of 1997 contain only three rules (1) short title and commencement, (2) definitions, and (3) the form of declaration. The prescribed form contains a statement of voluntarily disclosed income in column No. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expanded so as to include cases where--- (a) action under sections 132, 133A has been taken. (b) appeal is withdrawn, as this will reduce litigation. Answer : This is not possible. In respect of survey under section 133A, the declarants are debarred for that previous year only. Question No. 35 : Action under section 132 of the Income-tax Act, was taken in the case of Mr. A on March 30, 1992, and the same was concluded on April 5, 1992. Can he take advantage of the Voluntary Disclosure of Income Scheme for the assessment year 1993-94 and subsequent years? Answer : Section 64(2)(ii) of the Finance Act, 1997, lays down that no disclosure of income can be made in respect of the previous year in which a search is initiated or in respect of any earlier previous year. In the case cited above, search was initiated in assessment year 1992-93. Therefore, disclosure can be made (except for the income/assets discovered or seized during the search referred to), in respect of the assessment year 1993-94 and subsequent years. Question No. 52 : Whether a declaration can be made in respect of an assessment year for which assessment has been set aside? Answer : Where an assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned standing counsel also has not placed before us any provision of the statute or notification authorising the issue of these clarifications except pointing out the sentence in the counter-affidavit of the 2nd respondent that no circular has been issued inconsistent with the Scheme and also asserting that, that counter-affidavit was filed on instructions of the Government. Faced with the situation that the counter-affidavit of the Chief Commissioner cannot be taken as an affidavit on behalf of the Government, because under article 299 of the Constitution of India only a person specifically authorised can represent the Government, learned standing counsel offered to file a counter-affidavit by the concerned officer adopting the counter-affidavit of the Chief Commissioner, if given time. The ad campaign states "This is your last chance. Declare your income before it becomes your lost chance. The Voluntary Disclosure of Income Scheme, 1997, closes on December 31, 1997. Now or never." Since only a few days are left, this case may well become a lost cause, and hence, we could not grant any further time. Learned counsel for the petitioner submitted that judicial notice should be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson and the return has not been furnished before the commencement of this Scheme; (ii) the income in respect of the previous year in which a search under section 132 of the Income-tax Act was initiated or requisitioned under section 132A of the Income-tax Act was made, or survey under section 133A of the Income-tax Act was carried out or in respect of any earlier previous year." The principal effect of this provision is that if a person declares income which has escaped assessment, that income will be charged at a concessional rate. Sub-section (1) identifies that income as (a) income in respect of which no return has been filed under section 139, (b) income which is not disclosed in any return filed, and (c) income which has escaped assessment either because no return has been filed or because full and true disclosure was not made for the purpose of making an assessment. It will be seen that these three categories are in the nature of income in respect of which notices can be issued under section 142 or section 148. Consequently, sub-section (2)(i) provides that if notices have been issued under section 142 or section 148 and no return has been filed before the commencement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch there was some detection of the concealed income. Where a search has been made, the concealed income will be assessed under Chapter XIV-B of the Income-tax Act. Where a requisition is made under section 132A, a process has been initiated for discovering the data relating to concealed income. Where a survey has been made under section 133A, there is a discovery of the available assets of the assessee which will lead to the discovery of the concealed income. When the concealed income is so discovered, it ceases to be concealed income in respect of which the assessee can get the benefit of concessional rate by making a declaration. Since the procedure for making an assessment in search cases is to take a block of 10 years, it will stand to reason that such income of the earlier years also cannot be declared under the Voluntary Disclosure of Income Scheme. It was pointed out that the assessment of a block of 10 years was related only to search cases but in the case of survey it can refer only to the income of the previous year in which the survey is conducted or the year in respect of which information is gathered and the ban on disclosure for all the previous years will be inapprop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the ban is with reference to the assessee and not the income. But we are unable to accept this interpretation because of two reasons. Firstly, sub-section (2) of section 64 states that nothing in sub-section (1) shall apply in relation to the cases mentioned in that sub-section. Since sub-section (1) only relates to the income eligible for concessional rate of tax and immunity income referred to in sub-section (2) can also relate to only that income and not the assessee. Secondly, section 78 specifically lists the persons to whom the scheme shall not apply and since the assessees, who were subject to search or survey, are not listed under section 78, it underlines the position that section 64(2)(ii) refers only to income and not to persons. Learned standing counsel also referred to the Memorandum Explaining the Bill which is as follows : "(v) A person in whose case a search under section 132 of the Income-tax Act has been initiated or where books of account, other documents or other assets have been requisitioned under section 132A will not be entitled to make a declaration in respect of the previous year in which the search was made or any earlier previous year. Discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the existence of income which has not been or which would not be disclosed as "the undisclosed income" as the reason for the search itself. It has been held in the case of CWT v. Hashmatunnisa Begum [1989] 176 ITR 98 (SC) that "the literal rule of statutory interpretation demands that if the statute is plain, the courts must apply it regardless of result." But, if the other view canvassed by standing counsel is possible, then the one which promotes its constitutionality has to be preferred. In this case, any undisclosed income duly declared is eligible for the concession. But if the interpretation that income refers to the entire income of the previous year is adopted, it would discriminate against concealed income left undiscovered in a search without any rational basis. In this connection, learned counsel for the petitioner drew our attention to the scheme introduced in 1976 where there was another section 14 which specifically related to disclosure of income in the case of a search and seizure and granted comparatively lesser benefits to such income. Learned counsel submitted that it was only because of such a sub-classification that the said scheme was upheld by the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, as such questions do not arise. Learned standing counsel for the Revenue submitted that this construction will be difficult to implement because under the special procedure for making an assessment in search cases, notices are to be issued giving 45 days time and assessment can be completed within a period of one year from the date of search and where the search is initiated within the scheme period, the Voluntary Disclosure of Income Scheme will be over before the identification of the concealed income. But we do not envisage any real difficulty except section 70 which provides that the tax paid in pursuance of the declaration shall not be refundable under any circumstances. If this is understood as forfeiting the tax paid in cases where declarations are ineligible under section 64(2) for the benefit of the scheme, such a forfeiture would be confiscatory and unconstitutional unless it is properly qualified. It appears to us that the intention of this section was only to state that there will be no cash refund of the tax paid in pursuance of the declaration made under sub-section (1). It will not, however, stand in the way of adjustment of the amount if the declaration itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s untenable. On a true construction of the scheme, the object is to give concessional rate of tax and immunity in respect of the disclosure of concealed income. Where such concealed income is already detected, it cannot be said that there is concealed income, and hence, excluding it from the benefit of the scheme is clearly reasonable and appropriate to the object of the scheme. The contention that persons equally placed are not treated equally arose from an assumption that the section applies to the persons whereas we have found that the section applies only to incomes. Consequently, the classification of the income as concealed income and discovered income is certainly a valid classification appropriate to the purpose of the scheme. The second contention that a search made during the scheme period is an arbitrary exercise of power to deprive the petitioner of the benefit of the scheme also fails on three grounds. Firstly, as held by the Supreme Court in Tribhovandas Bhimji Zaveri v. Union of India [1993] 204 ITR 368, the income-tax authorities are not debarred from conducting a search. Secondly, the person whose premises are searched is also not debarred from making a disclosure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out, sub-section (2)(ii) still allows undetected income to be declared whereas the opportunity to declare such undetected income is denied under sub-section (2)(i) in respect of those who have not taken the second opportunity in response to the notice under sections 142 and 148 after failing to voluntarily declare the income under section 139. We are, however, constrained to remark that if the Revenue envisaged such difficulties in giving effect to the provisions of the scheme, the Central Government could have removed them by a proper notification or even by prompt attention to this case and clarifying the stand by filing a counter-affidavit. We hope that the construction placed by us would effectuate the scheme in the way in which it was intended to mop up undisclosed income. Other objections of the Revenue.---Learned standing counsel submitted that the circulars issued by the Central Board of Direct Taxes cannot deviate from the law as held in Kerala Financial Corporation v. CIT [1994] 210 ITR 129 (SC), and, therefore, even if they have deviated, they cannot be the basis for interpreting the Act. We have construed the section without reference to the circulars, and hence, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the petitioner could not have had any appropriate and timely clarification from the Government even if he had made any representation because even after the writ petition was filed, no counter-affidavit has been filed to clarify the stand of the Government. In this background, we are of the opinion that the issue raised is not peculiar to the petitioner and is of substantial public importance, and hence, a decision of this court is imperative. Though learned standing counsel was pessimistic about a decision of this court generating any more declarations in the few days left, we are of the view that the decision has to be given regardless of the results. Conclusion.---We declare that : (A) Section 64 of the Finance Act, 1997, grants concession of tax and immunity to the undisclosed income which is declared in the scheme period. (B) The income that was not returned within the time prescribed in the notice issued under section 142 or 148 and which expired before the commencement of the scheme, will be ineligible under section 64(2)(i) for the benefit under section 64(1). (C) That benefit is denied to the income which is detected in a search under section 132, on a requis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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