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TMI BlogSpecial procedure for calculating tax liability on income discovered during search operations : Clause 192 of the Income Tax Bill, 2025 Vs. Section 113 of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... se provisions are crucial in the context of combating tax evasion, ensuring that income concealed from the tax authorities is brought to tax at a higher, punitive rate. The legislative framework governing block assessments reflects the evolving policy approaches and judicial interpretations relating to undisclosed income and the imposition of special rates of tax. This commentary provides a detailed analysis of Clause 192 of the Income Tax Bill, 2025, its objectives, structure, and implications, followed by a comparative analysis with the existing Section 113 of the Income-tax Act, 1961, highlighting the similarities, differences, and legislative intent behind the changes. The analysis further explores the practical implications for taxpay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chanism for determination u/s 294 (presumably the equivalent of the current block assessment provisions) signifies that this clause is applicable only in cases where a search action has been undertaken, and a block assessment is being made. * The crucial change is the use of the term "total income" rather than "undisclosed income" (as was the case in the earlier version of Section 113). This broadens the scope of the provision, as it now applies to the total income assessed for the block period, regardless of whether it is characterized as "undisclosed." 2. Rate of Tax * The clause prescribes a flat rate of 60% on the total income of the block period. This is a significant departure from the progressive rate structure applicable to reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies on the definition and determination of the "block period" u/s 294. Any ambiguity in the definition or computation u/s 294 could impact the application of Clause 192. * Omission of "Undisclosed Income": By taxing the "total income" rather than just "undisclosed income," the clause could, in theory, lead to double taxation if income already assessed in regular assessments is again taxed under the block assessment. The procedural safeguards in section 294 will be critical in this regard. * Absence of Marginal Relief or Graduated Rate: The provision applies a flat rate, with no room for marginal relief or a graduated rate structure. This could be seen as unduly harsh in cases where the income involved is not the result of deliberate co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on will likely be subject to judicial scrutiny, particularly in cases where taxpayers allege double taxation or challenge the inclusion of income already assessed in regular proceedings. Comparative Analysis with Section 113 of the Income-tax Act, 1961 1. Tax Base: "Undisclosed Income" vs. "Total Income" * Section 113, as originally enacted, applied only to "undisclosed income" of the block period. This was consistent with the policy objective of targeting income concealed from the tax authorities and discovered during search operations. However, the term "undisclosed income" has been subject to litigation, particularly regarding its definition and scope. * Clause 192 omits the word "undisclosed," opting instead to tax the "total inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he search was initiated for the purpose of determining the applicable surcharge. This led to litigation regarding whether the surcharge rate should be as per the year of search or the year of assessment. The Supreme Court, in Commissioner of Income Tax v. Suresh N. Gupta and subsequent cases, addressed this ambiguity, leading to legislative amendments. Clause 192 omits any such reference, potentially reducing scope for such disputes. 4. Legislative Evolution and Judicial Interpretation * Section 113 has been the subject of considerable litigation, particularly regarding: * The meaning of "undisclosed income" * The year for determining applicable surcharge * The interplay between block assessment and regular assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 294 Earlier ambiguities regarding "undisclosed income" and surcharge year Potential Issues and Areas for Clarification While the simplification is welcome, the broader tax base could give rise to new disputes, particularly regarding the potential for double taxation. The procedural provisions in section 294 will need to be carefully crafted to ensure that only income not already assessed is brought to tax under the block assessment, consistent with the original policy intent. Additionally, the application of surcharge will continue to be an area of interest, especially if future Central Acts impose varying surcharge rates. Conclusion Clause 192 of the Income Tax Bill, 2025, represents a streamlined and simplified approach to the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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