Constitution Bench Lays down law on retrospective taxation, principle of "fairness" the balancing factor [Read the Judgment]

The Constitution Bench of the Supreme Court delivered the judgment in relation to retrospective taxation and held that a statute has to be read prospectively until a contrary intention appears. The Court also applied the doctrine of fairness in the judgment.The litigation in Commissioner of Income Tax, New Delhi v. Vatika Township Private Ltd. arose when there was a search and seizure operation under Section 132 of the Act on the premises of Vatika in 2001.A notice was also issued requiring to file the return of income for the block period ending 10.02.2000.In compliance, Vatika filed its return of income for the block period from 01.04.1989 to 10.02.2000.The Block Assessment in this case was completed at a total undisclosed income of Rs.85, 18,819/-. After sometime, the Assessing Officer, on verification of working of calculation of tax, observed that surcharge had not been levied on the tax imposed upon the assessee. This was treated as a mistake apparent on record by the Assessing Officer and accordingly a rectification order was passed under Section 154 of the Act.This order was challenged by Vatika and the same said order was cancelled by the CIT (Appeals)-I, New Delhi on the ground that the levy of surcharge is a debatable issue and therefore such an order could not be passed taking umbrage under Section 154 of the Act and the component of surcharge was removed.The IT Department then issued a notice under section 263 of the Act and sought to revise the order made by assessing officer by which he had given effect to the order of the CIT (Appeals) and in the process did not charge any surcharge. In the opinion of CIT, this led to income having escaped the assessment. As in in this particular case the search and seizure operation took place on 14.07.1999 and treating this date as relevant, the Finance Act 1999 was to be applied.The CIT, accordingly, cancelled the order dated 09.09.2003not levying surcharge upon the assessee, as being erroneous and prejudicial to the interests of the revenue. The Assessing Officer was directed by the CIT to levy surcharge @ 10% and the amount of income tax computed and issue revised notice of demand.Vatika then filed the appeal before the Income Tax Appellate Tribunal against the said order of the CIT and the Tribunal allowed the appeal. Against the order of the Tribunal, the tax department approached the High Court of Delhi by way of an appeal filed under Section 260 A of the Act for the block period 01.04.1989 to 10.02.2000. This appeal was been dismissed by the High Court.Thereafter, the tax department appealed to the Supreme Court to adjudicate upon the matter.The High Court had taken the view that "proviso inserted in Section 113 of the Actby the Finance Act, 2002 was prospective in nature and the surcharge as leviable under the aforesaid proviso could not be made applicable to the block assessment in question of an earlier period i.e. the period from 01.04.1989 to 10.02.2000 in the instant case."The same issue about the same proviso had reached the Supreme Court as a reference case and was decided in Commissioner of Income Tax, Central II v. Suresh N.Gupta. The Division Bench in that case had held that the said proviso is clarificatory in nature.When the same issue came up before another Division Bench, it doubted the correctness of the judgment in Suresh Gupta case and asked the matter to be placed before a larger Bench.The case was put up before a three judge bench which ordered "After having heard learned counsel on both sides at length, looking to the important questions of law involved having wide ramifications and pendency of several matters on the same issue before several High Courts and Tribunals, we deem it appropriate to refer the matters for being placed before Five Judges Bench."As a result, the matter reached the Constitution Bench consisting of Chief Justice of India Mr. R M Lodha, Justice Khehar, Justice Chelameswar, J. A.K Sikri, and Justice Rohinton Nariman and it is Justice Sikri who authored the judgment, with his brother judges agreeing with his view.The judgment noted that, "the surcharge on the income tax was introduced for the first time by the Finance Act, 1995. "Regarding block assessment, the Court noted, "In the present case, since we are concerned with the surcharge on the block assessment, it also becomes imperative to take note of the relevant provisions pertaining to the block assessment. These provisions are contained in Chapter XIV-B. The purpose of this Chapter is to lay down a special procedure for assessment of search cases with a view to combat tax evasion and also to expedite and simplify assessments in search cases."The Court then discussed the judgment delivered in the Suresh N Gupta case, which had framed two issues1. Whether on the facts and circumstances ofthis case, the Finance Act, 2001 was applicable to "block assessment" under Chapter XIVB in respect of...

Constitution Bench Lays down law on retrospective taxation, principle of "fairness" the balancing factor [Read the Judgment]

Gaurav Pathak

Tags