Supreme Court of India
COMMISSIONER OF INCOME TAX (CENTRAL)-1, NEW DELHIversusVATIKA TOWNSHIP PRIVATE LIMITED
- Citation
- 2014 INSC 629
- Decided
- 15 September 2014
- Disposal
- Disposed off
- Bench
- RAJENDRA MAL LODHA
Holding
The proviso to Section 113 inserted by the Finance Act 2002 is prospective in nature and cannot be treated as declaratory, clarificatory or curative.
Summary
The case concerned a block assessment of undisclosed income for the period 01‑04‑1989 to 10‑02‑2000, where the Assessing Officer failed to levy surcharge under Section 113 of the Income‑Tax Act. The Commissioner of Income Tax sought to levy surcharge retrospectively, relying on a proviso inserted in Section 113 by the Finance Act 2002. The assessees challenged the levy, arguing that the proviso was clarificatory and therefore retrospective. The Supreme Court examined the legislative intent, principles of statutory interpretation, and the presumption against retrospective operation, noting that the proviso was expressly made prospective, was not beneficial to the assessee, and was supported by the Finance Act 2002 notes, a CBDT circular, and the Finance Act 2003. The Court held that the proviso must be construed prospectively and cannot be treated as declaratory or curative. Consequently, the surcharge could not be levied for periods before 1 June 2002, the Department’s appeals were dismissed and the assessees’ appeals allowed, deleting the surcharge.
Issues considered
- The proviso inserted in Section 113 of the Income‑Tax Act by the Finance Act 2002 is to be construed as prospective or as a clarificatory/curative amendment having retrospective effect.
- Whether surcharge on block assessment of undisclosed income can be levied for periods prior to 1 June 2002.
Legislation cited
- Constitution of Indias. Article 271
- Finance Act, 2002s. 113
- Finance Act, 2003s. 2(3)
- Income Tax Act, 1961s. 113, s. 1588, s. 15888, s. 1588A, s. 1588B, s. 1588C, s. 1588H, s. 158BA, s. 158BC, s. 4
Subjects
Income TaxSurchargeBlock assessmentRetrospective legislationProspective legislationStatutory interpretationFinance Act 2002Section 113Constitutional law
Judgment
[2014] 12 S.C.R. 1037
COMMISSIONER OF INCOME TAX (CENTRAL)-1, NEW A
DELHI
v.
VATIKA TOWNSHIP PRIVATE LIMITED
(Civil Appeal No. 8750 of 2014)
B
SEPTEMBER 15, 2014
[R.M. LODHA, CJI, JAGDISH SINGH KHEHAR,
J. CHELAMESWAR, A.K. SIKRI AND R.F. NARIMAN, JJ.]
Income Tax Act, 1961 - s. 113 proviso (insertion by the C
Finance Act, 2002) - Surcharge Qn block assessment - Block
assessment for the period from 01.04.1989 to 10.02.2000 :-
Levy of surcharge under the proviso inserted in s. 113 by the
Finance Act, 2002, with effect from 01.06.2002 - Prospective
or retrospective in operation ..,.. Held: Is to be construed D
prospective in nature - The intention of the legislature was to
make proviso in s. 113 prospective in nature - This proviso
cannot be treated as declaratory/statutory or curative in
nature.
E
Answering the referred question, the Court
HELD: 1 The intention of the legislature was to make
proviso in Section 113 of the Income -Tax Act, 1961
prospective in nature. This proviso cannot be treated as
·declaratory/statutory or curative in nature. [Para 38) (1069- F
C, DJ
2.1. A legislation be it a statutory Act or a statutory
Rule or a statutory Notification, differs in its provenance,
lay-out and features as also in the implication as to its G
meaning that arise by presumptions as to the intent of the
maker thereof. As to the interpretation of the legislation,
one established rule is that unless a contrary intention
appears, a legislation is presumed not to be intended to
1037 H
1038 SUPREME COURT REPORTS [2014) 12 S.C.R.
A have a retrospective operation. The idea behind the rule
is that a current law should govern current activities. The
basis of the principle against retrospectivity is the
principle of 'fairness', which must be the basis of every
legal rule. Thus, legislations which modified accrued
B rights or which impose obligations or impose new duties
or attach a new disability have to be treated as
prospective unless the legislative intent is clearly to give
the enactment a retrospective effect; unless the
legislation is for purpose of supplying an obvious
c omission in a former legislation or to explain a former
legislation.[Paras 30,31 and 32) [106~-F, HJ
2.2. Retrospectively is attached to benefit the
persons in contradistinction to the provision imposing
some burden or liability where the presumption attaches
D towards prospectivity. In the instant case, the proviso
added to Section 113 of the Act is not beneficial to the
assessee. On the contrary, it is a provision which is
onerous to the assessee. Therefore, in a case like this,
the normal rule of presumption is against retrospective
E operation. Thus, the rule against retrospective. operation
is a fundamental rule of law that no statute shall be
construed to have a retrospective operation unless such
a construction· appears very clearly in the terms of the
Act, or arises by necessary and distinct i.mplication. [Para
F 34) [1065-F-G; 1066-A, B]
Government of India & Ors. v. Indian Tobacco
Association 2005 (2) Suppl. SCR 859 :(2005) 7 SCC 396;
Vijay v. State of Maharashtra & Ors. (2006) 6 SCC 286;
G Controller of Estate Duty Gujarat-Iv. M.A. Merchant 1989 (
2 ) SCR 987 :1989 Supp (1) SCC 499; Govinddas v.
Income-tax Officer 1976 (3) SCR 44 : (1976) 1 SCC 906;
C.I. T., Bombay v. Scindia Steam Navigation Co. Ltd. 1962 (1)
SCR 788 - referred to.
H Phillips v Eyre (1870) LR 6 QB 1; L'Office Cherifien des
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1039
VATIKA TOWNSHIP PVT. LTD.
Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. A
(1994) 1 AC 486 - referred to.
Principles of Statutory Interpretation by Justice G.P.
Singh, LexisNexis Butterworths Wadhwa, Nagpur 13th
Edn 2012 - referred to. B
3.1. The rate at which the tax is to be imposed is an
essential component of tax and where the rate is not
stipulated or it cannot be applied with precision, it would
be difficult to tax a person. In absence of certainty about
the rate because of uncertainty about the date with C
reference to which the rate is to be applied, it cannot be
said that surcharge as per the existing provision was
leviable on block assessment qua undisclosed' income.
Therefore, it cannot be said that the proviso added to
Section 113 defining the said date was only clarificatory D
in nature. From the table showing the different rates of
surcharge in different years, it would be clear that choice ·
of date has to be formed as in some of the years,' there
would not be any surcharge at all. [Para 39) [1072-C, E-G]
E
3.2. If the concerned provision of the taxing statute
is ambiguous and vague and is susceptible to two
interpretations, the interpretation which favours the
subjects, as against there the revenue, has to be
preferred. This is a well established principle of statutory F
interpretation, to help finding out as to whether particular
category of assessee are to pay a particular tax or not.
No doubt, with the application of this principle, Courts
make endeavour to find out the intention of the
legislature. At the same time, this very principle is based
on "fairness" doc.trine as it lays down that if it is not very G
clear from the provisions of the Act as to whether the
particular tax is to be levied to a particular class of
persons or not, the subject should not be fastened with
any liability to pay tax. [Para 39) [1075-B-E]
H
1040 SUPREME COURT REPORTS [2014] 12 S.C.R.
A 3.3. It was a conscious decision of the legislature,
even when the legislature knew the implication thereof
and took note of the reasons which led to the insertion
of the proviso, that the amendment is to operate
prospectively. The legislature while effecting amendment
B not only in the same Finance Act but Finance Acts
pertaining to other years where the legislature specifically
provided the amendment to be either retrospective or
clarificatory. As regards the amendment to Section 113,
there is no such language used and on the contrary,
_c specific stipulation is added making the provision
effective from 1st June, 2002. [Para 39] [1077-G-H; 1078-
A-B]
3.4. In the circular CBDT circular No.8 of 2002 dated
27 .08.02, with the subject "Finance Act, 2002 -
D Explanatory Notes on provision relating to Direct Taxes"
issued after the passing of the Finance Act, 2002, by
which amendment to Section 113 was made, as regards
amendment to Section 113, the circular provides that the
said amendment along with amendments in Section
E 158BE, would be prospective i.e. it will take effect from
1st June, 2002. [Para 39] (1078-C-F]
3.5. Finance Act, 2003, second proviso to sub-section
(3) of Section 2 makes the position clear that surcharge
in respect of block assessment of undisclosed income
F was made prospective. Addition of this proviso clarifies
that such a provision was necessary to provide for
surcharge in the cases of block assessments and
thereby making it prospective in nature. The charge in
respect of the surcharge, having been created for the first
G time by the insertion of the proviso to s. 113, is clearly a
substantive provision and hence, is to be construed
prospective in operation. The amendment neither
purports to be merely clarificatory nor is there any
material to suggest that it was intended by Parliament.
H Furthermore, an amendment made to a taxing ~tatute can
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1041
VATIKA TOWNSHIP PVT. LTD.
be said to be intended to remove 'hardships' only of the A
assessee, not of the Department. On the contrary,
imposing a retrospective levy on the assessee would
have caused undue hardship and for that reason
Parliament specifically chose to make the proviso
effective from 1.6.,2002. [Para 39] [1078-G-H; 1079-C-E] B
CIT v. Sanjiv Bhatara (2009) 310 ITR 105 (SC);
Govindasaran Gangasaran v. CIT 155 ITR 144; C./. T.,
Bangalore v. B.C. Srinivasa Sheffy 125 ITR 294 - referred
to.
c
Billings v. U.S. 232 U.S. 261; United States v. Merriam
263 U.S. 179; Partington v. Attorney-General (1869) LR 4 HL
100 - referred to.
Commissioner of Income Tax, Central II v. Suresh N. D
Gupta 2008 (1 ) SCR 157:(2008) 4 sec 362 - overruled.
Case Law Reference:
2008 (1) SCR 157 Referred to Para 40
(2009) 310 ITR 105 (SC); Referred to Para 25 E
(1994) 1 AC 486 Referred to Para 32
2005 (2) Suppl. SCR 859 Referred to Para 33
(2006) 6 sec 286 Referred to Para 33 F
1989 (2) SCR 987 . Referred to Para 36
1976 (3) SCR 44 Referred to Para 36
1962 (1) SCR 788 Referred to Para 37
G
155 ITR 144 Referred to Para 39
125 ITR 294 Referred to Para 39
263 U.S. 179 Referred to Para 39
H
1042 SUPREME COURT REPORTS [2014] 12 S.C.R.
A (1869) LR 4 HL 100 Referred to Para 39
2008 (1) SCR 157 Overruled Para 40
. CIVIL APPELLATE JURISDICTION : Civil Appeal No.
8750 of 2014.
B
From the Judgment & Order dated 17.04.2007 of the High
Court of Delhi at New Delhi in LT.A. No. 375 of 2007.
WITH
C C.A. Nos. 8764, 8762, 8773, 8763, 8755, 8775, 8779, 8780,
8774, 8765,8760,8756, 8759,8772, 8777,8770,8752-8753,
8754, 8768, 8758, 8776, 8769, 8766-8767 of 2014 & 1160
of 2007.
P.S. Narsimha, A.S.G., Rupesh Kumar, Arijit Prasad, H.R.
0
Rao, Anil Katiyar, K. Parameshwar, B.V. Balaram Das, Vikram
Gulati, Ashwani Bhardwaj, Preetesh Kapur, Govind Manoharan,
Shruti Iyer, Senthil Jagadeesan, A. Shankar, Bhargave V.
Desai, A. Subhashini for the appearing parties.
E The Judgment of the Court was delivered by
A.K. SIKRI, J'. 1. Delay condoned.
2. Leave granted in all these matters.
F 3. In these batch of appeals, most of which are preferred
by the Commissioner(s) of Income Tax (hereinafter referred to
as 'the Department'), with the exception of few appeals filed
by the assessees, the question of law which has fallen for
consideration is as to whether the proviso appended to Section
G 113 of the Income Tax Act (hereinafter referred to as 'the Act')
which was inserted in that Section by the Finance Act, 2002 is
to operate prospectively or is clarificatory and curative in nature
and, therefore, has retrospective operation.
H
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1043
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
The Background Facts: A
4. This question has been referred to the Constitution
Bench in the Civil Appeal arising out of S.L.P. No.540/2009
and, therefore, to start with, we would be justified in referring
to facts of that case. In fact the answer to the aforesaid question B
would lead to the sealing of the fate of all these appeals one
way or the other. The facts in this appeal, which need
recapitulation, are that there was a search and seizure
operation under Section 132 of the Act on the premises of the
assessee on 10.02.2001. Notice under Section 158BC of the C
Act was issued to the assessee on 18.06.2001 requiring him
to file his return of income for the block period ending
10.02.2000. In compliance, the assessee 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 under
Section 158BA on 28.02.2002 at a total undisclosed income D
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 E
was passed under Section 154 of the Act on 30.06.2003. This
order under Section· 154 of the Act, by which surcharge was
levied by the Assessing Officer, was challenged in appeal by
the assessee. The said order was cancelled by the CIT
(Appeals)-!, New Delhi vide order dated 10.12.2003 on the F
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. The undisclosed income was
revised under Section 250BC/158BC by the Assessing Officer
vide order dated 09.09.2003 to Rs.10,90,000/- to give effect G
to the above order of the CIT (Appeals), and thereby removing
the component of the surcharge.
5. As the Department wanted the surcharge to be levied,
the Commissioner of Income Tax (Central-I), New Delhi issued H
1044 SUPREME COURT REPORTS [2014) 12 S.C.R.
A a notice under Section 263 of the Act to the assessee and
sought to revise the order dated 09.09.2003 passed by the
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
B escaped the assessment. According to the CIT, in view of the
provisions of Section 113 of the Act as inserted by the Finance
Act, 1995 and clarified by the Board Circular No. 717 dated
14.08.1995, surcharge was leviable on the income assessed.
According to the CIT the charging provision was Section 4 of
c the Act which was to be read with Section 113 of the Act that
prescribes the rate and tax for search and seizure cases and
rate of surcharge as specified in the Finance Act of the relevant
year was to be applied. 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.
0
6. The CIT, accordingly, cancelled the order dated
09.09.2003 not 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
E @ 10% and the amount of income tax computed and issue
revised notice of demand. The order covered block· period
01.04.1989 to 10.02.2000. This order of the CIT under Section
263 of the Act was passed on 23.03.2004. The assessee .filed
the app~al before the Income Tax Appellate Tribunal
F (hereinafter referred to as 'the Tribunal') against the said order
of the CIT. The Tribunal vide its order dated 23.06.2006 allowed
the appeal of the assessee. The Tribunal held that the insertion
of the proviso to Section 113 of the Income Tax Act cannot be
held to be declaratory or clarificatory in nature and was
G prospective in its operation. Against the order of the Tribunal
dated 23.06.2006 the revenue 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 has
been dismissed vide order dated 17.04.2007 by the High
H
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1045
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
Court. It is this order of the High Court which is the subject A
matter of the appeal in question.
7. It is clear from the aforesaid narration that the High Court
has taken the view that proviso inserted in Section 113 of the
Act by the Finance Act, 2002 was prospective in nature and B
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 Reference Order c
8. It so happened that this very issue about the said
proviso to Section 113, viz., whether it is clarificatory and
curative in nature and, therefore, can be applied retrospectively
or it is to take effect from the date i.e. 01.06.2002 when it was D
inserted by the Finance Act, 2002, attracted the attention of this
Court and was considered by the Division Bench in the case
of Commissioner of Income Tax, Central II v. Suresh N.
Gupta 1 • The Division Bench held that the said proviso is
clarificatory in nature. When the instant appeal came up before E
another Division Bench on 06.01.2009 for hearing, the said
Division Bench expressed its doubts about the correctness of
the view taken in Suresh N. Gupta and directed the Registry
to place the matter before Hon'ble the Chief Justice of India
for constitution of a larger Bench. We reproduce order dated
06.01.2009 in its entirety as under: F
"Delay condoned.
The question which fell for consideration before the High
Court was as to whether the proviso appended to Section G
113 of the Income Tax Act is clarificatory and/or curative
in nature. The said provision had come into force with effect
from 01.06.2002. It reads as under:
1. c2oos> 4 sec 362. H
1046 SUPREME COURT REPORTS [2014] 12 S.C.R.
A "Provided that the tax chargeable under this section shall
be increased by a surcharge, if any, levied by any Central
Act and applicable in the assessment year relevant to the
previous year in which the search is initiated under Section
132 or the requisition is made under Section 132-A.
B
In this case, the search and seizure took place on
06.10.2001. An order of block assessment in terms of
Section 158BC was made in respect of the assessment
years 1984 to 2003. The surcharge was levied on
30.06.2003.
c
In support of its contention that the said proviso was
retrospective in nature, the learned Additional Solicitor
General relies upon a Division Bench decision of this Court
in Commissioner of Income Tax, Central II v. Suresh N.
D Gupta, (2008) 4 SCC 362 wherein it has been held:
"37. According to the assessee, prior to 01.06.2002, the
position was ambiguous as it was not clear even to the
Department as to which year's FA would be applicable.
To clear this doubt precisely, the proviso has been inserted
E
in Section 113 by which it is indicated that FA of the year
in which the search was initiated would apply. Therefore,
· in our view, the said proviso was clarificatory in nature. In
taxation, the legislation of the type indicated by the proviso
has to be read strictly. There is no question of retrospective
F effect. The proviso only clarifies that out of the four dates,
Parliament has opted for the date, namely, the year in
which the search is initiated, which date would be relevant
for applicability of a particular FA. Therefore, we have to
read the proviso as it stands.
G
38. There is one more reason for rejecting the above
submission. Prior to 01.06.2002, in the 1961 Act
and sometimes in FA and often in both. This made
liability uncertain. In the present case, however, the
H rate of tax in case of block assessment at 60% was
COMMNR. OF INCOME TAX(CENTRAL)-1, NEW DELHI v. 1047
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
prescribed by Section 113 but the year of FA A
imposing surcharge was·not stipulated. This
resulted in the above four ambiguities. Therefore,
clarification was needed. The proviso was curative
in nature. Hence, the proviso inserted in Section
113 merely clarifies that out of the above four dates, B
the relevant date for applicability of FA would be the
year in which the search stood initiated under
Section 158-BC."
As the said proviso was introduced with effect from C
01.06.2002, i.e. with prospective effect and by reason
thereof, tax chargeable under Section 135 of the Income
Tax Act is to be increased by surcharge levied by a Central
Act, we are of the opinion that keeping in view the
principles of law that the taxing statute should be construed
strictly and a statute, ordinarily, should not be held to have D
any retrospective effect, it is necessary that the matter be
considered by a larger Bench.
We, while issuing notice, direct the Registry to place the
matter before Hon'ble the Chief Justice for constitution of E
a larger Bench."
9. A three Member Bench was constituted before which
the matter came up for hearing on 08.04.2010. On that date,
the said Bench passed the following order :
F
"Vide order dated 06.01.2009 the lead matter was referred
to be listed before a larger Bench and consequently the
matter, along with connected matters, were listed before
a three Judge Bench:
G
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 H
1048 SUPREME COURT REPORTS [2014) 12 S.C.R.
A
..
before Five Judges Bench. Matter be placed accordingly."
10. This is precisely raison d'etre for hearing the matter
by the present Constitution Bench. We may observe here that
after the aforesaid reference, other connected appeals raising
the identical issue have been tagged with direction to be heard
8
along with this appeal.
The Statutory Provisions
11. Before adverting to the submissions of the
c Department, as argued by Mr. P.S. Narsimha, learned
Additional Solicitor General and rebuttal thereto given by
various counsel appearing for the assessees, we deem it
apposite to take note of the relevant statutory provisions, having
bearing over the matter, along with proviso to Section 113,
0 which is the bone of contention and subject mater of
interpretation. As is well known, Section 4 of the Act is the
charging Section in the Act. It reads as under:
"S.4(1) Where any Central Act enacts that income-tax shall
be charged for any assessment year at any rate or rates,
E income-tax at that rate or those rates shall be charged for
that year in accordance with, and subject to the provisions
(including provisions for the levy of additional income-tax)
of, this Act in respect of the total income of the previous
year of every person :
F
Provided that where by virtue of any provision of this Act
income-tax is to be charged in respect of the income of a
period other than the previous year, income-tax shall be
charged accordingly.
G (2) In respect of income chargeable under sub-section (1 ),
income-tax shan be deducted at the source or paid in
advance, where it is so deductible or payable under any
provision of this Act."
H 12. Though, Section 4 of the Act is the charging Section,
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1049
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.)
it is well known that rate or rates at which the income tax is to A
be charged is specified each year by enacting a Finance Act
at the time of presentation of the annuar Budget.
13. While Section 4 of the Act deals with the charge of
income tax, the Parliament also has the power to levy surcharge 8
on income tax. Power to levy a surcharge is contained in Article
271 of the Constitution of India which read as under:
"271. Surcharge on certain duties and taxes for purposes
of the Union Notwithstanding anything in Articles 269 and
270, Parliament may at any time increase any of the duties C
or taxes referred in those articles by a surcharge for
purposes of the Union and the whole proceeds of any such
surcharge shall form part the Consolidated Fund of India."
14. The surcharge on the income tax was introduced for o
the first time by the Finance Act, 1995, in Section 2 (3) thereof.
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 E
Finance Act, 1997. In the next two Finance Acts i.e. 1998 and
1999, there was r:io 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,
801, AOP as well as co-operative societies, partnership firms,
F
local authorities and also the companies. In subsequent years,
the rates at which the surcharge is levied on the aforesaid
entities are of varying nature. A tabulated form showing
surcharge in respect of different category of assessees in
different assessment years, levied under each Finance Act,
shall be reproduced at the relevant stage. G
15. 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 H
1050 SUPREME COURT REPORTS [2014) 12 S.C.R.
A Chapter XIV-8 . 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. We reproduce hereinbelow the
provisions of Section 1588, 1588A, 15888, 1588C and
8 1588H of that Chapter, which have bearing on the issue at hand:
"1588. In this Chapter, unless the context otherwise
requires,-
(a) 'block period' means the period comprising previous
c years relevant to six assessment years preceding the
previous year in which the search was conducted under
Section 132 or any requisition was made under Section
132A and also includes the period up to the date of the
commencement of such search or date of such requisition
D in the previous year in which the said search was
conducted or requisition was made.
Provided that where the search is initiated or the requisition
is made before the 1st day of June, 2001, the provisions
of this clause shall have effect as if for the words "six
E
assessment years" the words "ten assessment years" had
been substituted.
(b) "undisclosed income" includes any money, bullion,
jewellery or other valuable article or thing or any income
F based on any entry in the books of account or other
documents or transactions, where such money, bullion,
jewellery, valuable article, thing, entry in the books of
account or other document or transaction represents wholly
or partly income or property which has not been or would
G not have been disclosed for the purposes of this Act.
1588A. Assessment of undisclosed income as a result
of search.- (1) Notwithstanding anything contained in any
other provisions of this Act where after the 30th day of
June, 1995, a search is initiated under Section 132 or
H
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v.1051
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.)
books of account, other documents or any assets are A
requisitioned under Section 132A in the case of any
person, then, the Assessing Officer shall proceed to
assess the undisclosed income in accordance with the
provisions of this Chapter~
B
(2) The total undisclosed income relating to the block
period shall be charged to tax. at the rate specified in
Section 113. as income of the block period irrespective
of the previous year or years to which such income relates
and irrespective of the fact whether regular assessment for C
any one or more of the relevant assessment years is
pending or not.
Explanation- For the removal of doubts! it is hereby
declared that-
D
(a) the assessment made under this Chapter shall be in
addition to the regular assessment in respect of each
previous year included in the block period;
(b) the total undisclosed income relating to the block period
shall not include the income assessed in any regular E
assessment as income of such block period;
(c) the income assessed in this Chapter shall not be
included in the regular assessment of any previous year
included in the block period. F
(3) Where the assessee proves to the satisfaction of the
Assessing Officer that any part of income referred to in
sub-section (1) relates to an assessment year for which
the previous year has not ended or the date of filing the
return of income under sub-section (1) of section 139 for G
any previous year has not expired, and such income or the
transactions relating to such income are recorded on or
before the date of the search or requisition in the books
of account or other documents maintained in the normal
H
1052 SUPREME COURT REPORTS [2014] 12 S.C.R.
A course relating to such previous years, the said income
shall not be included in the block period.
15888. Computation of undisclosed income of the block
period.- (1) The undisclosed income of the block period
shall be the aggregate of the total income of the previous
8
years falling within the· block period computed, in
accordance with the provisions of Chapter IV, on the basis
of evidence found as a result of search or requisition of
books of account or documents and such other materials
or information as are available with the Assessing Officer,
c as reduced by the aggregate of the total income, or, as
the case may be, as increased by the aggregate of the
losses of such previous years, determined,-
(a) where assessments under section 143 or section 144
D or section 147 have been concluded, on the basis of such
assessments;
(b) where returns of income Have been filed under section
139 or section 147 but assessments have not been made
till the date of search or requisition, on the basis of the
E
income disclosed in such returns;
(c) where the due date for filing a return of income has
expired but no return of income has been filed, as nil;
F (d) where the previous year has not ended or the date of
filing the return of income under Sub-section (1) of Section
139 has not expired, on the basis of entries relating to such
income or transactions as recorded in the books of
account and other documents maintained in the normal
G course on or before the date of the search or requisition
relating to such previous years;
(e) where any order of settlement has been made under
sub-section (4) of section 2450, on the basis of such order;
H (f) where an assessment of undisclosed income had been
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1053
VATIKA TOWNSHIP PVT. LTD. [AK. SIKRI, J.]
made earlier under Clause (c) of section 158BC, on the A
basis of such assessment.
Explanation.- For the purposes of determination of
undisclosed income,
(a) the total income or loss of each previous year shall, for B
the purpose of aggregation, be taken as the total income
or loss computed in accordance with the provisions of
Chapter IV without giving effect to set off of brought forward
losses under Chapter VI or unabsorbed depreciation
under sub-section (2) of section 32; C
(b) of a firm, returned income and total income assessed
for each of the previous years falling within the block period
shall be the income determined before allowing deduction
of salary, interest, commission, bonus or remuneration by D
whatever name called to any partner not being a working
partner:
Provided that undisclosed income of the firm so
determined shall not be chargeable to tax in the hands of
the partners, whether on allocation or on account of E
enhancement;
(c) assessment under Section 143 includes determination
of income under .sub-section (1) or sub-section (1 B) of
section 143. F
(2) In computing the undisclosed income of the block
period, the provisions of sections 68, 69, 69A, 698 and
69C shall, so far as may be, apply and references to
financial year in those sections shall be construed as
references to the relevant previous year falling in the block G
period including the previous year ending with the date of
search or of the requisition.
(3) The burden of proving to the satisfaction of the
H
1054 SUPREME COURT REPORTS . [2014] 12 S.C.R.
A Assessing Officer that any undisclosed income had
already been disclosed in any return of income filed by the
assessee before the commencement of search or of the
requisition, as the case may be, shall be on the assessee.
(4) For the purpose of assessment under this Chapter,
B
losses brought forward from the previous year under
Chapter VI or unabsorbed depreciation under sub-section
(2) of section 32 shall not be set off against the undisclosed
income determined in the block assessment under this
Chapter, but may be carried forward for being set off in
c the regular assessments.
158BC. Procedure for block assessment.- Where any
search has been conducted under section 132 or books
of account, other documents or assets are requisitioned
D · under section 132A, in the case of any person, then,-
(a) the Assessing Officer shall-
(i) in respect of search initiated or books of account or
other documents or any assets requisitioned after the 30th
E day of June, 1995, but before the 1st day of January, 1997,
serve a notice to such person requiring hil)1 to furnish
within such- time not being less than fifteen days;
(ii) in respect of search initiated or books of account or
F other documents or any assets requisitioned on or after
the 1st day of January, 1997, serve a notice to such person
requiring him to furnish within such time not being less than
fifteen days but not more than forty-five days,
as may be specified in the notice a return in the prescribed
G form and verified in the same manner as a return under
clause (i) of sub-section (1) of section 142, setting forth
his total income including the undisclosed income for the
block period:
H Provided that no notice under Section 148 is required to
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1055
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
be issued for the purpose of proceeding under this A
Chapter:
Provided further that a person who has furnished a return
under this clause shall not be entitled to file a revised
return; 8
(b) the Assessing Officer shall proceed to determine the
undisclosed income of the block period in the manner laid
down in section 15888 and the provisions of section 142,
sub-sections (2) and (3) of section 143 and section 144
shall, so far as may be, apply; C
(c) the Assessing· Officer, on determination of the
undisclosed income of the block period in accordance with
this Chapter, shall pass an order of assessment and
determine the tax payable by him on the basis of such D
assessment;
(d) the assets seized under section 132 or requisitioned
under section 132,A. shall be retained to the extent
necessary and the provisions of section 1328 shall apply
subject to such modifications as may be necessary and E
the references to 'regular assessment' or 'reassessment'
in section 1328 shall be construed as references to 'block
assessment'.
1588H. Application of other provisions of this Act.~ Save F
as otherwise provided in this Chapter, all other provisions
of this Act shall apply to assessment made under this
Chapter."
16. It would be of some significance to point out at this
stage that in so far as rates of tax chargeable in case of block G
assessment is concerned, that is not provided in the Finance
Act. Pertinently, the provision to this effect has been made in
the Income Tax Act itself and is contained in Section 113 of the
Act. This Section, before insertion of proviso thereto, read as
under: H
1056 SUPREME COURT REPORTS [2014) 12 S.C.R.
A "113. Tax in the case of block assessment of search
cases. - The total undisclosed income of the block period,
determined under section 158BC, shall be chargeable to
tax at the rate of sixty per cent."
8 17. The proviso to Section 113 was inserted by Finance
Act, 2002 with effect from June, 2002 and is to the following
effect:
"Provided that the tax chargeable under this section shall
be increased by a surcharge, if any, levied by any Central
c Act and applicable in the assessment year relevant to the
previous year in which the search is initiated under section
132 or the requisition is made under section 132A."
18. From the reading of the aforesaid statutory provisions
0 in abstract, particularly relating to surcharge, it is clear that
though provision for surcharge under the Finance Act has been
in existence since 1995, in so far as levy of surcharge for block
assessment is concerned, it is introduced by insertion of
aforesaid proviso of Section 113. It is in this background, the
-E question has arisen as to whether this surcharge on block
assessment has been levied for the first time by the aforesaid
proviso coming into effect from 01.06.2002 or it is only
clarificatory in nature because of the reason that the provision
for surcharge was made in the Finance Act in the year 1995 ·
F and that covered surcharge on block assessment as well.
Judgment in Suresh N. Gupta
19. As already noticed above, this very proviso to Section
113 of the Act came up for interpretation in Suresh N. Gupta
G and the Division Bench of this Court took the view that this
proviso is clarificatory in nature as it simply clarifies the date
with reference to which the rate of surcharge is payable,
namely, the surcharge levied by the Central Act and applicable
in the assessment year relevant to the previous year in which
H the search is initiated. It would be advisable to take note of the
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1057
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
reasons which prevailed with the Bench to come to the A
aforesaid conclusion, inasmuch as it is the ratio of this judgment
which was doubted by the Bench making the reference to the·
larger Bench.
20. The Court in Suresh N. Gupta formulated two points B
for consideration, viz.;
"1. Whether on. the facts and circumstances of
this case, the Finance Act, 2001 was
applicable to "block assessment" under
Chapter XIVB in respect of search carried C
out on January 17, 2001?
2. Whether the proviso inserted in Section 113
by the Finance Act, 2002, is clarificatory?"
Dealing with the first question, the Court noted the D
contention of the assessee that Chapter XIVB, which was
inserted by the Finance Act, 1995 with effect from July 1, 1995
was a self-contained chapter as it lays down a special
procedure for assessment of undisclosed income found during
search for the "block period". It was argued by the assessee E
that this Chapter contains a charging section (158BA), a
computation section (158BB), a procedural section for block
assessment (1 SBBC), limitation provision for completion of
block assessment ( 1SBBE) and the provisions for imposition
of interest and penalty (158BFA). It was also argued that the F
scheme of assessment of "undisclosed income" under Chapter
XIV-B is different from the scheme of assessment of "total
income" of any person in terms of Section 4(1) of the Act. In
support of this argument, it was submitted that whereas
Chapter XIV-B deals with assessment of "undisclosed income", G
Section 4 of the Act relates to the assessment of "total income".
Moreover, "block period" mentioned in Chapter XIV-B was
different from the assessment of income of the "previous year"
under Section 4(1) of the Act. Even the rate of tax at which the
"undisclosed income" is assessed is different inasmuch as it H
,.·.,,
1058 SUPREME COURT REPORTS [2014] 12 S.C.R.
A is 60% as specified in Section 158BA(2) read with section 113
of the Act, in contradistinction to the taxation of normal income
which is at the rates specified in the relevant Finance Act. In
nutshell, it was argued that block assessment falls in Chapter
XIV-B for which charging section was section 158BA and for
B assessment of block period, charging section was not section
4(1) of the Act. On that basis, the assessee wanted the Court
to hold that it was not open to the Assessing Officer to levy
surcharge prior to June 1, 2002, i.e. before the insertion of
proviso to Section 113 of the Act.
c 21. This argument was rejected by the Court. The Bench
took note of Article 271 of the Constitution along with Entry 82
of List 1 of the Seventh Schedule to the Constitution of India
and Section 4 of the Act which is the charging section. It held
that the power to levy surcharge on income tax is traceable to
D Article 271 read with Entry 82 and not to Section 4 of the Act.
The rate at which the charge on total income on the previous
year is imposed is not laid down in the Income Tax Act but in
the Finance Act indicated every year by the Parliament to give
effect to the financial proposals of the Central Government. It
E further held that since Income Tax Act deals with tax on income
and nothing else, nor with charge should be a legal charge under
Section 4, it must be a tax on the income of the assessee.
Therefore, Section 4(1) of the Act was the charging section and
the rate of tax is prescribed under that very Act i.e. Section 113.
F As long as the charge is on the "total income" of the previous
year and so long as the rate relates to the subject matter of the
tax, there is nothing to prevent the Parliament from fixing the
date. What is to be seen is that the rate is applied to the "total
income" and the tax which the assessee has to pay must be at
G the rate in respect of the total income of the previous year.
22. The Bench was of the view that the concepts of
"previous years" as well as "total income" in Chapter XIV-B
were retained. Therefore Section 158BB was to be read with
Section 4 of the Act implying thereby that Section 4 remains
H
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1059
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
the charging section. The procedure contained in Section 4 was A
not ruled out from block assessment procedure even in the case
of assessment of block period. It was, nevertheless, an
assessment on the total income of the previous years falling
within the block period including returned/assessed incomes
as per regular returns and regular assessment. As a fortiori, B
the provisions of the relevant Finance Act have got to be read
into the block assessment scheme under Chapter XIV-B, even
prior to June 1, 2002. As a sequential, even without the proviso
to section 113, which was inserted by the Finance Act, 2002
with effect f •m June 1, 2002, the Finance Act 2001, was c
applicable to block assessment under Chapter XIV-B and
accordingly surcharge was leviable.
23. Adverting to the second question formulated by the
Bench, namely, whether insertion of the proviso in section 113
by the Finance Act, 2002 was applicable to search of the D
earlier period as well i.e. upto May 31, 2002, the Court pointed
out that in view of its answer to the first question, second
question did not even require any examination. It, however,
proceeded to answer this question as well having regard to the
submission of the assessee that before the said proviso, there E
was inconsistency with regard to levy of surcharge and the
position was ambi_guous as H was not clear even to the
Department as to which year's Finance Act would be
applicable. Brushing aside this argument, the Court held that
to clear this very doubt precisely, the proviso had been inserted F
in section 113 and therefore it was only clarificatory in nature.
The Court specifically noted that before the proviso was
inserted, there was some doubts in the mind of the Department
and the taxpayers about the date with reference to which the .
rate at which surcharge is payable. The confusion was as to G
whether surcharge was leviable with reference. to the rates
provided for in the Finance Act of the year in which the search
was initiated or the year in which the search was concluded or
the year in which block assessment proceedings under Section
158BC were initiated or the year in which block assessment H
1060 SUPREME COURT REPORTS [2014] 12 S.C.R.
A order was passed. The Court opined that proviso only clarifies
that out of the aforesaid 4 dates, the Parliament has opted for
the date in which the search is initiated, as the date relevant
for applicability of a particular Finance Act.
B 24. Aforesaid were the reasons to arrive at a conclusion
that the proviso was clarificatory and/or curative in nature.
25. It would be our duty to point out at this stage that
another Division Bench in the case of CIT v. Sanjiv Bhatara 2 ,
has followed the aforesaid judgment by giving same reasons
C in support.
26. It is not necessary to take note of the arguments
advanced by the learned ASG for the Department and various
counsel who appeared for the assessees in these appeals, in
0 detail. The reason for making these remarks by us is that Mr.
Narasimha, learned ASG, had argued on the same lines which
formed the basis of rendering the decision of the Division
Bench in Suresh N. Gupta that have already been
summarised above. Of course, it was his incessant effort with
E all effervescence, to persuade this Court to accept the
conclusion arrived at in the said judgment. Learned counsel for
the assessees also emphasised those very submissions
advanced in that case which did not find favour with the Division
Bench. In addition, these counsel articulated some more
F arguments with all enthusiasm and temerity, reference to which
would be made while giving our analysis to the various
provisions leading up to the answer to the issue involved.
Scheme of Chapter XIVB
G 27. Before we proceed to answer the question, it would
be necessary to keep in mind the scheme of block assessment
introduced in Chapter XIVB to Finance Act, 1995 w.e.f. 1st July,
1995. As already mentioned in brief by us, Chapter XIVB of
the Act which deals with block assessment lays down a special
H 2. (2009) 310 ITR 105 (SC).
COMMNR. OF INCOME TAX (CENTRAL}-1, NEW DELHI v. 1061
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
procedure for search cases. The main reason for adding these A
provisions in the Act was to curb tax evasion and expedite as
well as ·Simplify the assessments in such search cases.
Undisclosed incomes have to be related in different years in
which income was earned under block assessment. This is
because in such cases, the "block period" is for previous years 8
relevant to 10/6 assessment years and also the period of the
current previous year up to the date of the search, i.e., form
April 1, 2000, to January 17, 2001, in this case. The essence
of this new procedure, therefore, is a separate single
assessment of the "undisclosed income", detected as a result c
of search and this separate assessment has to be in addition
to the normal assessment covering the same period. Therefore,
a separate return covering the years of the block period is a
pre-requisite for making block assessment. Under the said
procedure, the Explanation is inserted in section 15888, which
0
is the computation section, explaining the method of
computation of "undisclosed income" of the block period. It is
now well accepted that this Chapter is a complete code in itself
providing for self-contained machinery for assessment of
undisclosed income for the block period of 1Oyears or 6 years,
as the case may be. In case of regular assessments for which E
returns are .filed on yearly basis, Section 4 of the Act is the
charging section. However, at what rate the income is to be
taxed is specified every year by the Parliament in the Finance
Act. In contradistinction, when it comes to payment of tax on
the undisclosed income relating to the block period, rate is F
specified in Section 113 of the Act. It remains static at 60% of
the undisclosed income which is the categorical stipulation in
the Section 113 of the Act. Section 1588A(2} of the Act clearly
states that the total undisclosed income relating to the block
period "shall be charged to tax" at the rates specified under G
Section 113 as income of the block period irrespective of
previous year or years. Under Section 113 of the Act, the
undisclosed income is chargeable to tax at the rate of 60%.
28. From the above, it becomes manifest that Chapter H
1062 SUPREME COURT REPORTS [2014] 12 S.C.R.
A XIVB comprehensively takes care of all the aspects relating to
the block assessment relating to undisclosed income, which
includes Section 156BA(2) as the charging section and even
the rate at which such income is to be taxed is mentioned in
Section t 13 of the Act. No doubt, Section 4 of the Act is also
B a charging section which is made applicable on 'total income
of previous year'. As per Section 2 (45), 'total income' means
the total amount of income referred to in Section 5, computed
in the manner laid' down in the Act. Section 5 of the Act
enumerates the scope of total income and prescribes, inter
c a/ia, that it would include all income which is received or is
deemed to receive in India in any previous year by or on behalf
of a person who is a Resident. No doubt, undisclosed income
referred to in Chapter XIVB is also an income which was
received but not disclosed, therefore, in the first blush, argument
of the Department that undisclosed income referred to in
0
Chapter XIVB is also a part of total income and consequently
Section 4 becomes the charging section in respect thereof as
well. However, a little closer scrutiny leads us to conclude that
that is not the position as per the scheme of Chapter XIVB. In
the first place, income referred to in Section 5 talks of total
E income of any 'previous year'. As per Section 2 (34) of the Act,
'previous year' means previous year as defined in Section 3.
Section 3 lays down that previous year means 'the financial year
immediately preceding the assessment year'. Undisclosed
income referred to in Chapter XIVB is not relateable to the
F previous year. On the contrary, it is for the block period which
may be 6 years or 10 years, as the case may be. Consequently,
as already mentioned, while analyzing the scheme of Chapter
XIVB, such Chapter is a complete code in respect of
assessments of 'undisclosed income'. Not only it defines what
G is undisclosed income, it also lays down the block period for
which undisclosed income can be taxed. Further, it also lays
down the procedure for taxing that income. It is very pertinent
to note at this stage that for this purpose, specific provision in
the form of Section 158BA(2) is inserted making it a charging
H section. Thus, a diagnostic of Chapter XIVB of the Act leads
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1063
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
to irresistible conclusion that it contains all the provisions A
starting from charging section till the completion of assessment,
by prescribing special procedure in relation thereto, making it
a complete Code by itself. Looking it from this angle, the
character and nature of 'undisclosed income' referred to in
Chapter XIVB becomes quite distinct from 'total income' B
referred to in Section 5. It is of some significance to observe
that when a separate charging section is introduced
specifically, to assess the undisclosed income, notwithstanding
a provision in the nature of Section 4 already on the statute
book, this move of the· legislature has to be assigned some c
reason, otherwise, there was no necessity to make a provision
in the form of Section 158BA(2). It could only be that for ·
assessing undisclosed income, charging provision is Section
158BA(2) alone.
29. Notwithstanding the aforesaid position clarified with us, D
we are of the opinion that dehors this discussion, in any case
on the application of general principles concerning
retrospectivity, the proviso to Section 113 of the Act cannot be
treated as clarificatory in nature, thereby having retrospective
effect. To make it clear, we need to understand the general E
principles concerning retrospectivity.
General Principles concerning retrospectivity
30. A legislation, be it a statutory Act or a statutory Rule
F
or a statutory Notification, may physically consists of words
printed on papers. However, conceptually it is a great deal more
than an ordinary prose. There is a special peculiarity in the
mode of verbal communication by a legislation. A legislation
is not just a series of statements, such as one finds in a work
of fiction/non fiction or even in a judgment of a court of law. G
There is a technique required to draft a legislation as well as
to understand a legislation. Former technique is known as
legislative drafting and latter one is to be found in the various
principles of 'Interpretation of Statutes'. Vis-~-vis ordinary
prose, a legislation differs in its provenance, lay-out and H
1064 SUPREME COURT REPORTS [2014] 12 S.C.R.
A features as also in the implication as to its meaning that arise
by presumptions as to the intent of the maker thereof.
31. Of the various rules guiding how a legislation has to
be interpreted, one established rule is that unless a contrary
B intention appears, a legislation is presumed not to be intended
to have a retrospective operation. The idea behind the rule is
that a current law should govern current activities. Law passed
today cannot apply to the events of the past. If we do something
today, we do it keeping in view the law of today and in force
C and not tomorrow's backward adjustment of it. Our belief in the
nature of the law is founded on the bed rock that every human
being is entitled to arrange his affairs by relying on the existing
law and should not find that his plans have been retrospectively
upset. This principle of law is known as lex prospicit non
respicit : law looks forward not backward. As was observed in
D Phillips vs. Eyre 3 , a retrospective legislation is contrary to the
general principle that legislation by which the conduct of
mankind is to be regulated when introduced for the first time
to deal with future acts ought not to change the character of past
transactions carried on upon the faith of the then existing law.
E
32. The obvious basis of the principle against
retrospectivity is the principle of 'fairness', which must be the
basis of every legal rule as was observed in the decision
reported in L'Office Cherifien des Phosphates v. Yamashita-
F Shinnihon Steamship Co.Ltd4 • Thus, legislations which
modified accrued rights or which impose obligations or impose
new duties or attach a new disability have to be treated as
prospective unless the legislative intent is clearly to give the
enactment a retrospective effect; unless the legislation is for
purpose of supplying an obvious omission in a former
G legislation or to explain a former legislation. We need not note
the cornucopia of case law available on the subject because
aforesaid legal position clearly emerges from the various
3. (1870) LR 6 QB 1.
H 4. (1994) 1 AC 486.
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1065
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
decisions and this legal position was conceded by the counsel A
for the parties. In any case, we shall refer to few judgments
containing this dicta, a little later.
33. We would also like to point out, for the sake of
completeness, that where a benefit is conferred by a legislation,
8
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 C
purposive construction, would warrant it to be given a
retrospective effect. This exactly is the justification to treat
procedural provisions as retrospective. In Government of India
& Ors. v. Indian Tobacco Association5 , the doctrine of fairness
was held to be relevant factor to construe a statute conferring D
a benefit, in the context of it to be given a retrospective
operation. The same doctrine of fairness, to hold that a statute
was retrospective in nature, was applied in the case of Vijay
v. State of Maharashtra & Ors6 . It was held that where a law is
enacted for the benefit of community as a whole, even in the E
absence of a provision the statute may be held to be
retrospective in nature. However, we are confronted with any
such situation here.
34. In such cases, retrospectively is attached to benefit the F
persons in contradistinction to the provision imposing some
burden or liability where the presumption attaches towards
prospectivity. In the instant case, the proviso added to Section
113 of the Act is not beneficial to the assessee. On the
contrary, it is a provision which is onerous to the assessee. G
Therefore, in a case like this, we have to proceed with the
normal rule of presumption against retrospective operation.
Thus, the rule against retrospective operation is a fundamental
5. (2005) 1 sec 396.
6. (2006) 6 sec 286. H
1066 SUPREME COURT REPORTS [2014] 12 S.C.R.
A rule of law that no statute shall be construed to have a
retrospective operation unless such a construction appears very
clearly in the terms of the Act, or (!rises by necessary and
distinct implication. Dogmatically framed, the rule is no more
than a presumption, and thus could be displaced by out
B weighing factors.
35. Let us sharpen the discussion a little more. We may
note that under certain circumstances, a particular amendment
can be treated as clarificatory or declaratory in nature. Such
statutory provisions are labeled as "declaratory statutes". The
C circumstances under which a provision can be termed as
"declaratory statutes" is explained by Justice G.P. Singh7 in the
following manner:
"Declaratory statutes
D
The presumption against retrospective operation is not
applicable to declaratory statutes. As stated in CRAIES
and approved by the Supreme Court : "For modern
purposes a declaratory Act may be defined as an Act to
remove doubts existing as to the common law, or the
E
meaning or effect of any statute. Such Acts are usually held
to be retrospective. The usual reason for passing a
declaratory Act is to set aside what Parliament deems to
have been a judicial error, whether in the statement of the
common law or in the interpretation of statutes. Usually, if
F not invariably, such an Act contains a preamble, and also
the word 'declared' as well as the word 'enacted'. But the
use of the words 'it is declared' is not conclusive that the
Act is declaratory for these words may, at times, be used
to introduced new rules of law and the Act in the latter case
G will only be amending the law and will not necessarily be
retrospective. In determining, therefore, the nature of the
Act, regard must be had to the substance rather than to
the form. If a new Act is 'to explain' an earlier Act, it would
7. Principles of Statutory Interpretation, 13th Edition 2012 published by
H LexisNexis Butterworths Wadhwa, Nagpur.
COMMNR. OF INCOME TAX (CENTRAL}-!, NEW DELHI v. 1067
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
be without object unless construed retrospective. An A
explanatory Act is generally passed to supply an obvious
omission or to clear up doubts as to the meaning of the
previous Act. It is well settled that if a statute is curative or
merely declaratory of the previous law retrospective
operation is generally intended. The language 'shall be B
deemed always to have meant' is declarcitory, and is in
plain terms retrospective. In the absence of clear words
indicating that the amending Act is declaratory, it would not
be so construed when the pre-amended provision was
clear and unambiguous. An amending Act may be purely c
clarificatory to clear a meaning of a provision of the
principal Act which was already implicit. A clarificatory
• amendment of this nature will have retrospective effect
and, therefore, if the principal Act was existing law which
the Constitution came into force, the amending Act also D
will be part of the existing law."
The above summing up is factually based on the judgments
of this Court as well as English decisions.
A Constitution Be.nch of this Court in Keshavlal Jetha/al E
Shah v. Mohan/a/ Bhagwandas & Anr. 8 , while considering
the nature of amendment to Section 29(2) of the Bombay
Rents, Hotel and Lodging House Rates Control Act as
amended by Gujarat Act 18of1965, observed as follows:
F
"The amending clause does not seek to explain any pre-
existing legislation which was ambiguous or defective. The
power of the High Court to entertain a petition for
exercising revisional juris-diction was before the
amendment derived from s. 115, Code of Civil Procedure,
and the legislature has by the amending Act attempted to G
explain the meaning of that provision. An explanatory Act
is generally passed to supply an obvious omission or to
clear up doubts as to the meaning of the previous Act."
8. (1968) 3 SCR 623. H
1068 SUPREME COURT REPORTS [2014) 12 S.C.R.
A 36. It would also be pertinent to mention that assessment
creates a vested right and an assessee cannot be subjected
to reassessment unless a provision to that effect inserted by
amendment is either expressly or by necessary implication
retrospective. (See Controller of Estate Duty Gujarat-I v. M.A.
B Merchant9. We would also like to reproduce hereunder the
following observations made by this Court in the case of
Govinddas v. Income-tax Officer10 , while holding Section 171
(6) of the Income- Tax Act to be prospective and inapplicable
for any assessment year prior to 1st April, 1962, the date on
c which the Income Tax Act came into force:
"11. Now it is a well settled rule of interpretation
hallowed by time and sanctified by judicial decisi?ns
that, unless the terms of a statute expressly so
provide or necessarily require it, retrospective
D operation should not be given to a statute so as to
take away or impair an existing right or create a
new obligation or impose a new liability otherwise
than as regards matters of procedure. The general
rule as stated by Halsbury in Vol. 36 of the Laws of
E England (3rd Edn.) and reiterated in several
decisions of this Court as well as English courts is
that all statutes other than those Which are merely
declaratory or which relate only to matters of
procedure or of evidence are prima facie
F prospectively and retrospective operation should
not be given to a statute so as to affect, alter or
destroy an existing right or create a new liability or
obligation unless that effect cannot be avoided
without doing violence to the language of the
G enactment. If the enactment is expressed in
language which is fairly capable of either
interpretation. it ought to be constued as
prospective only."
9. 1989 Supp (1) sec 499.
H 10. (1976) 1 sec 906.
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1069
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
37. In the case of C.I. T., Bombay v. Scindia Steam A
Navigation Co. Ltd., 11 this Court held that as the liability to pay
tax is computed according to the law in force at the beginning
of the assessment year, i.e., the first day of April, any change
in law affecting tax liability after that date though made during
the currency of the assessment year, unless specifically made B
retrospective, does not apply to the assessment for that year.
Anwer to the Reference
38. When we examine the insertion of proviso in Section c
113 of the Act, keeping in view the aforesaid principles, our
irresistible conclusion is that the intention of the legislature was
to make it prospective in nature. This proviso cannot be treated
as declaratory/statutory or curative in nature. There are various
reasons for coming to this conclusion which we enumerate D
hereinbelow:
Reasons in Support
39. (a) The first and foremost poser is as to whether it E
was possible to make the block assessment with the addition
of levy of surcharge, in the absence of proviso to Section 113?
In Suresh N. Gupta itself, it was acknowledged and admitted
that the position prior to the amendment of Section 113 of the
Act whereby t~e proviso was added, whether surcharge was F
payable in respect of block assessment or not, was totally
ambiguous and unclear. The Court pointed out that some
assessing officers had taken the view that no surcharge is
leviable. Others were at a loss to apply a particular rate of
surcharge as they were not clear as to which Finance Act, G
prescribing such rates, was applicable. It is a matter of
common knowledge and is also pointed out that the surcharge
varies from year to year. However, the assessing officers were
11. 1962 (1) SCR 788. H
1070 SUPREME COURT REPORTS [2014) 12 S.C.R.
A in-determinative about the date with reference to which rates
provided for in the Finance Act were to be made applicable.
They had four dates before them viz.:
(i) Whether surcharge was leviable with reference to
B the rates provided for in the Finance Act of the year
in which the search was inititated; or
(ii) the year in which the search was concluded; or
(iii) the year in which the block assessment
c proceedings under Section 158 BC of the Act were
initiated; or
(iv) the year in which block assessment order was
passed.
D
The position which prevailed before amending Section 113
of the Act was that some Assessing Officers were not levying
any surcharge and others who had a view that surcharge is
payable were adopting different dates for the application of a
E particular Finance Act, which resulted in different rates of
surcharge in the assessment orders. In the absence of a
specified date, it was not possible to levy surcharge and there
could not have been an assessment without a particular rate
of surcharge. As stated above, in Suresh N. Gupta itself, the
F Court has pointed out four different dates which were bothering
the. assessees as well as the Department. The choice of a
particular date would have material bearing on the payment of
surcharge. Not only the surcharge is different for different years,
G it varies according to the category of assessees and for some
years, there is no surcharge at all This can be seen from the
following table prescribing surcharge for different assessment
years:
H
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1071
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
PART- I '. A
Relevant
Section of
Finance Act Finance Act Para-A Para-B Para-C Para-D Para-E
IND, HUF, Co- Local Comp- B
BOl,AOP operative Finn Authority -anies
Society
1995 Section 2 (3) - - - -
1996 Section 2 (3) - - - - 15%
- . - -
c
1997 Section 2 (3) - 7.50%
1998 Section 2 (3) - - - - -
1999 Section 2 (3) - - - - -
D
2000 Section 2 (3) 10% 10% 10% 10% 10%
2001 Section 2 (3) 12% 12% 12% 12% 13%
or 17%
2002 Section 2 (3) 2% 2% 2% 2% 2%
E
2003 Section 2 (3) 5% 5% 5% 5% 5%
Rate at which tax, or for that matter surcharge is to be
levied is an essential component of the tax regime in
Govindasaran Gangasaran v. Commissioner of Income Tax 12 ,
this Court, while explaining the conceptual meaning of a tax, F
delineated four components therein, as is clear from the
following passage from the said judgment :
"The components which enter into the concept of a tax are
well known. The first is the .character of the imposition G
known by its nature which prescribes the taxable event
attracting the levy, the second is a clear indication of the
person on whom the levy is imposed and who is obliged
to pay the tax, the third is the fate at which the tax is
12. 155 ITR 144. H
1072 SUPREME COURT REPORTS [2014] 12 S.C.R.
A imposed, and the fourth is the measure or value to which
the rate will be applied for computing the tax liability. If those
components are not clearly and definitely ascertainable, it
is difficult to say that the levy exists in point of law. Any
uncertainty or vagueness in the legislative scheme defining
B any of those components of the levy will be fatal to its
validity."
It is clear from the above that the rate at which the tax is
to be imposed is an essential component of tax and where the
C rate is not stipulated or it cannot be applied with precision, it
would be difficult to tax a person. This very conceptualisation
of tax was rephrased in C./. T., Bangalore v. B.C. Srinivasa
Shetty1 3 , in the following manner:
"The character of computation of provisions in each case
D bears a relationship to the nature of the charge. Thus, the
charging section and the computation provisions together
constitute an integrated code. When there is a case to
which the computation provisions cannot apply at all, it is
evident that such a case was not intended to fall within the
E charging section."
In absence of certainty about the rate because of
uncertainty about the date with reference to which the rate is
to be applied, it cannot be said that surcharge as per the
existing provision was leviable on block assessment qua
F undisclosed income. Therefore, it cannot be said that the
proviso added to Section 113 defining the said date was only
clarificatory in nature. From the aforesaid table showing the
different rates of surcharge in different years, it would be clear
that choice of date has to be formed as in some of the years,
G there would not be any surcharge at all.
(b) Pertinently, the Department itself acknowledged
and admitted this fact which is clear from the
manner the issue was debated in a Conference of
H
-----
13. 125 ITR 294.
COMMNR. OF INCOME TAX (CENTRAL)-1, NEW DELHI v. 1073
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
Chief Commissioners which was held sometime in A
the year 2001. In this Conference, some proposals
relating to simplification and rationalisation of
procedures and provisions were noted in respect
of block assessment. The foofaraw made in the
Conference by those who had to apply the 8
provision, was not without substance because of
the garboil situation which this provision had
created and in amply reflected in the proposals
which was submitted in the following terms:
"In the case of a block assessment, there are two problems C
in relation to the levy of surcharge. The first is that Section
113 does not mention a Central Act. In the absence of a
reference to another Central Act in the charging section,
it becomes difficult to justify levy of surcharge. Even if it is
assumed that reference in the Finance Act to section 113 D
is a sufficient authority to levy surcharge, the second
problem is that the Finance Act levies surcharge on the
amount of income-tax on the income of a particular
assessment year whereas in the block assessment tax is
levied on the undisclosed income of the block period. E
Absence of a specific assessment year in the block
assessment may render the levy suspect. Yet another
problem is the rate of surcharge applicable. To illustrate,
if the search took place on, say, April 4, 1996, whether the
·rate of surcharge is to be adopted as applicable to the F
assessment year 1996-97 or the assessment year 1997-
98, the rate of surcharge being different for the two years?
The provisions of section 113 or the provisions of the
Finance Act do not offer any guidance on the issue.
G
Suggestions :
The foregoing problem indicates that levy of surcharge on
undiscloseq income is a matterof uncertainty and is prone
to litigation. In the circumstances, it is suggested that
section 113 may be amended retrospectively in order to H
1074 SUPREME COURT REPORTS (2014) 12 S.C.R.
A provide for levy of surcharge at the rate applicable to the
assessment year relevant to the financial year in which the
search was concluded."
The Chief Commissioners accepted the position, in no
uncertain terms, that as per the language of Section 113,
B as it existed, it was difficult to justify levy of surcharge. It
was also acknowledged that even if Section 113
empowered to levy surcharge, since block assessment tax
is levied on the undisclosed income of the block period,
absence of specific assessment year in the block
c assessment would render the levy suspect.
(c) We would like to embark on a discussion on some
basic and fundamental concepts, which would shed
further light on the subject matter. No doubt, there
D is no scope for accepting the Libertarian theory
which postulates among others, no taxation by the
State as it amounts to vi9lation of individual liberty
and advocates minimal interference by the State.
The Libertarianism propounded by the Australian-
E bom economist philosopher Friedrich A. Hayek and
American economist Milton Friedman stands
emphatically rejected by all civilised and
democratically governed States, in favour of strongly
conceptualised "welfare state". To attain welfare
state is our constitutional goal as well, enshrined as
F
one of its basic feature, which runs through our
Constitution. It is for this reason, specific provisions
are made in the Constitution, empowering the
legislature to make laws for levy of taxes, including
the income-tax. The rationale behind collection of
G taxes is that revenue generated therefrom shall be
spent by the go%'ernments on various
developmental and welfare schemes, among
others.
H At the same time, it is also mandated that there
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1075
VATIKA TOWNSHIP PVT. LTD. [AK. SIKRI, J.]
cannot be imposition of any tax without the authority A
of law. Such a law has to be unambiguous and
should prescribe the liability to pay taxes in clear
terms. If the concerned provision of the taxing
statute is ambiguous and vague and is susceptible
to two interpretations, the interpretation which B
favours the subjects, as against there the revenue,
has to be preferred. This is awwell established
principle of statutory interpretation, to help finding
out as to whether particular category of assessee
are to pay a particular tax or not. No doubt, with the c
application of this principle, Courts make
endeavour to find out the intention of the legislature.
At the same time,· this very principle is based on
"fairness" doctrine as it lays down that if it is not very
clear from the provisions of the Act as to whether 0
the particular tax is to be levied to a particular class
of persons or not, the subject should not be
fastened with any liability to pay tax. This principle
also acts as a balancing factor between the two
jurisprudential theories of justice - Libertarian
theory on the one hand and Kantian theory along
E
with Egalitarian theory propounded by John Rawls
on the other hand.
Tax laws are clearly in derogation of personal rights
and property interests and are, therefore; subject to F
strict construction, and any ambiguity must be
resolved against imposition of the tax. In Billings v.
U.S. 14, the Supreme Court clearly acknowledged
this basic and long-standing rule of statutory
construction: G
"Tax Statutes : .. should be strictly construed, and, if any
ambiguity be found to exist, it must be resolved in favor of
the citizen. Eidman v. Martinez, 184 U.S. 578, 583; United
14. 232 U.S. 261, at p.265, 34 S.Ct. 421 (1914). H
1076 SUPREME COURT REPORTS [2014] 12 S.C.R.
A States v. Wigglesworth, 2 Story, 369, 374; Mutual Benefit
Life Ins. Co. v. Herold, 198 F. 199, 201, affd 201 F. 918;
Parkview Bldg. Assn. v. Herold, 203 F. 876, 880; Mutual
Trust Co. v. Miller, 177 N.Y. 51, 57."
Again, in United States v. Merriam 15, the Supreme Court
8
clearly stated at pp. 187-88:
"On behalf of the Government it is urged that taxation is a
practical matter and concerns itself with the substance of
the thing upon which the tax is imposed rather than with
C legal forms or expressions. But in statutes levying taxes
the literal meaning of the words employed is most
important, for such statutes are not to be extended by
implication beyond the clear import of the language used.
If the words are doubtful, the doubt must be resolved
D against the Government ·and in favor of the taxpayer.
Gould v. Gould, 245 U.S. 151, 153"
As Lord Cairns said many years ago in Partington v.
Attorney-Genera/1 6 : "As I understand the principle of all fiscal
E legislation it is this : If the person sought to be taxed comes
within the letter of the law he must be taxed, however great the
hardship may appear to the judicial mind to be. On the other
hand, if the Crown, seeking to recover the tax, cannot bring the
subject within the letter of the law, the subject is free, however
F apparently within the spirit of the law the case might otherwise
appear to be.
(d) There are sotne other circumstances which reflect the
legislative intent. The problem which was highlighted in the
Conference of Chief Commissioners on the rate of surcharge
G applicable is noted above. In view of the aforesaid difficulties
pointed out by the Chief Commissioners in their Conference,
it becomes clear that as per the provisions then enforced, levy
of surcharge in the block assessment on the undisclosed
15. 263 U.S. 179, 44 S.Ct. 69 (1923).
H 16. (1869) LR 4 HL 100.
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1077
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.]
income was a difficult proposition. It is for this reason A
retrospective amendment to Section 113 was suggested.
Notwithstanding the same, the legislature chose not to do so,
as is clear from the discussion hereinafter.
"Notes on Clauses" appended to Finance Bill, 2002 while ·
proposing insertion of proviso categorically states that "this B
amendment will take effect from 1st June, 2002". These
become epigraphic words, when seen in contradistinction to
other amendments specifically stating those to be clarificatory
or retrospectively depicting clear intention ofthe legislature. It
can be seen from the same notes that few other amendments C
in the Income Tax Act were made by the same Finance Act
specifically making those amendments retrospectively. For
example, clause 40 seeks to amend S.92F. Clause iii (a) of
S.92F is amended "so as to clarify that the activities mentioned
in the said clause include the carrying out of any work in D
pursuance of a contract." This amendment takes effect
retrospectively from 01.04.2002. Various other amendments
also take place retrospectively. The Notes on Clauses show that
the legislature is fully aware of 3 concepts:
(i) prospective amendment with effect from a fixed E
date;
(ii) retrospective amendment with effect from a fixed
anterior date; and
(iii) clarificatory amendments which are retrospective in F
nature.
Thus, itwas a conscious decision of the legislature, even
when the legislature knew the· implication thereof and took note
of the reasons which led to the insertion of the proviso, that the
amendment is to operate prospectively. Learned counsel G
appearing for the assessees sagaciously contrasted the
aforesaid stipulation while effecting amendment in Section 113
of the Act, with various other provisions not only in the same
Finance Act but Finance Acts pertaining to other years where
the legislature specifically provided such amendment to be H
1078 SUPREME COURT REPORTS [2014] 12 S.C.R.
A either retrospective or clarificatory. In so far as amendment to
Section 113 is concerned, there is no such language used and
on the contrary, specific stipulation is added making the
provision effective from 1st June, 2002.
(e) There is yet another very interesting piece of
8 evidence that clarifies the provision beyond any pale
of doubt, viz. understanding of C8DT itself
regarding this provision. It is contained in C8DT
circular No.8 of 2002 dated 27th August, 2002, with
the subject "Finance Act, 2002 - Explanatory Notes
c on provision relating to Direct Taxes". This circular
has been issued after the passing of the Finance
Act, 2002, by which amendment to Section 113
was made. In this circular, various amendments to
the Income Tax Act are discussed amply
D demonstrating as to which amendments are
clarificatory/retrospective in operation and which
amendments are prospective. For example,
explanation to Section 15888 is stated to be
clarificatory in nature. Likewise, it is mentioned that
E amendments in Section 145 whereby provisions of
that section are made applicable to block
assessments is made clarificatory and would take
effect retrospectively from 1st day of July, 1995.
When it comes to amendment to Section 113 of the
F Act, this very circular provides that the said
amendment along with amendments in Section
158BE, would be prospective i.e. it will take effect
from 1st June, 2002. ·
(f) Finance Act, 2003, again makes the position clear
G that surcharge in respect of block assessment of
undisclosed income was made prospective. Such
a stipulation is contained in second proviso to sub-
section (3) of Section 2 of Finance Act, 2003. This
proviso reads as under: ·
H
COMMNR. OF INCOME TAX (CENTRAL)-!, NEW DELHI v. 1079
VATIKA TOWNSHIP PVT. LTD. [A.K. SIKRI, J.)
"Provided further that the amount of income-tax computed A
in accordance with the provisions of section 113 shall be
increased by a surcharge for purposes of the Union as
provided in Paragraph A, B, C, D or E, as the case may
be, of Part Ill of the First Schedule of the Finance Act of
the year in which the search is initiated under section 132 B
or requisition is made under section 132A of the income-
tax Act."
Addition of this proviso in the Finance Act, 2003 further
makes it clear that such a provision was necessary to provide C
for surcharge in the cases of block assessments and thereby
making it prospective in nature. The charge in respect of the
surcharge, having been created for the first ti.me by the insertion
of the proviso to Section 113, is clearly a substantive provision
and hence is to be construed prospective in operation. The D
amendment neither purports to be merely clarificatory nor is
there any material to suggest that it was intended by Parliament.
Furthermore, an amendment made to a taxing statute can be
said to be intended to remove 'hardships' only of the assessee,
not of the Department. On the contrary, imposing a retrospective
levy on the assessee would have caused undue hardship and E
for that reason Parliament specifically chose to make the
proviso effective from 1.6~2002.
40. The aforesaid discursive of ours also makes it obvious
that the conclusion of the Division Bench in Suresh N. Gupta F
treating the proviso as clarificatory and giving it retrospective
effect is not a correct conclusion. Said judgment is accordingly
overruled.
41. As a result of thE! aforesaid discussion, the appeals
filed by the Income Tax Department are hereby dismissed. G
Appeals of the assessees are allowed deleting the surcharge
levied by the assessing officer for this block assessment
pertaining to the period prior to 1st June, 2002.
Nidhi Jain Appeals disposed of. H
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