C I T AJMER vs. DHARM CHAND JAIN

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 337 / 2005 Commissioner of Income Tax, Ajmer ----Petitioner Versus Sh. Dharam Chand Jain, M/s. D.N Steels, 276/23, Tikam Ganj, Ajmer ----Respondent _____________________________________________________ For Petitioner(s) : Ms. Parinitoo Jain with Ms. Shiva Goyal For Respondent(s) : _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 09/01/2018

(2 of 16) excess stock without any evidence? iv) Whether the findings of the Tribunal are perverse in deleting the addition of Rs. 1,47,300/- made on account of undisclosed interest being without any material. v)Whether under the facts and circumstances of the case and law the Tribunal was justified in upholding the order of CIT(A) for deleting the addition of interest levied u/s 158BFA (1) being contrary to the provisions of law. vi) Whether under the facts and circumstances of the case and in law the Tribunal was justified in entertaining the additional ground of appeal and deleting the levy of surcharge contrary to the provisions of Section 113?” 3. Counsel for the appellant contended that the Tribunal and CIT(A) have seriously committed an error in reversing the view taken by the AO. 4. Taking into consideration the reasoning adopted by the AO, it is contended that the issues which are framed regarding unexplained amount of jewellery of Rs. 9,91,825/- was wrongly considered by the CIT(A) and wrongly upheld by the Tribunal. Similarly, the amount of Rs. 4,61,340/- the stock which was excess was not deleted by the CIT(A) and the Tribunal wrongly confirmed the same. Likewise, the undisclosed interest income on investment ought to have been deleted by the Tribunal and the reasoning adopted by the Tribunal is contrary to evidence on record. 4.1 Regarding issue no. 5, counsel for the appellant contended that the interest levied under Section 158 BFA (1) was imposed after taking into consideration the provision of law. However, the Tribunal while considering the same has wrongly given benefit to the assessee. For issue no. 6, it is contended that the same was

(3 of 16) taken up for the first time before the Tribunal and it was never raised before the CIT(A) and AO. 5. We have heard counsel for the appellant. 5.1 In view of the fact that issue no. 1 is interlinked with issue nos. 2, 3 & 4, and while considering the same, the CIT(A) & Tribunal have issuewise observed as under:- “Issue No.2: 9. The second ground of appeal is against addition of Rs.9,91,825/- in respect of jewellery found at the time of search. The appellant has disputed the quantity as well as value of the jewellery which has been held as unexplained by ld. AO. Total jewellery found during the course of search is as under:- (a) From the room of Smt. Varsha W/o Shri Nitin Jain 679.920 grms. Net (b) From the room of

Smt. Bhavana W/o Shri Atin Jain 744.160 grms. Net (c) From the room of

Smt. Pratibha W/o Shri Dharam Chand Jain 1208.300 grms. Net (d) From the room of Smt. Renu W/o Shri Dilip Jain 1351.660 grms. Net Total 3984.04 grms. Net On person Shri D.C. Jain 35 gms Smt. Pratibha 30 gms Smt. Renu 30 gms Shri Nitin 20 gms Shri Atin 20 gms Total 135 gms 10. Ld AO has referred to the statement of the appellant taken at the time of search in which 1945 grams of gold jewellery @ 445 per gram valued at Rs.8,65,525/- has been surrendered for tax. At the time of assessment appellant filed explanation about the jewellery from VDIS and WT returns of

(4 of 16) Smt. Renu Jain, married daughter-in-law and other members of the family were also taken resulting into total availability of 4120.620 grams. Ld. AO did not accept the explanation of the appellant on the following grounds:- (a) Total Jewellery (Gold ornaments) found 3984+135 gms 4119.000 gms (b) Explanation about the same (i)Smt. Renu Jain (a) As per W.T. return filed (copy enclosed) 963.000 (b)As per VDIS disclosure (copy of Certificate enclosed) 523.320 (c)Smt. Bhawan Jain 35 tola (Married daughter in law) (d)Smt. Varsha Jain 25 tola 650.000 (Married daughter in law)60 tola (e) Sh. Nitin Jain 60.000 (Married Son) received from relatives (f)Atin Jain (Married son) received from 50.000 relatives) (g) 4 daughter of Smt. Renu Jain Prachi Deepti, Madulika & Ragini 480.00 (h)Miss. Poja Jain D/o Sh. Dharmesh Jain 120.00 (I) Smt. Pratibha Devi Jain (a) As per W.T. return filed 720.00 (copy enclosed) (b)Declared in VDIS (copy of certificate enclosed) 554.300 4120.620 10. We heard the rival submissions and perused the materials available on record. We find that the issue of jewellery is to be decided in three parts as under:- a) Jewellery declared by the family members in wealth tax return/VDIS 2760.620 gms b) Jewellery of two daughters-in-law 650.000 gms. c) Jewellery of other family members 710.000 gms First of all, we take up the issue of jewellery declared by the family members in wealth tax return/VDIS at 2760.620 gms. We find that the said jewellery is declared in the wealth tax return/VDIS for which there is no dispute. The only objection of the AO is that in wealth tax return the itemwise list of jewellery (1683

(5 of 16) gms) is not furnished and the jewellery disclosed under VDIS (1077.620 gms) is not the same jewellery as found in search. We find that quantity of jewellery declared in wealth tax return is accepted by the Department. Further there is jewellery of other family members where itemwise list is not before the Department. Under VDIS, the list of jewellery is filed but item to item correlation cannot be the reason for not accepting the jewellery since in the inventory prepared by the Department, the list is not made as per the VDIS declaration and further on account of marriages or other occasions, there is probability of change in jewellery. We further find that on similar issue ITAT, Jaipur Bench in case of Ashok Katariya vs. DCIT(supra) has held that jewellery which already stands declared in the return of wealth as well as in VDIS cannot be added as undisclosed income under block assessment. In view of the above discussion, we find that the jewellery declared in wealth tax and VDIS totaling 2760.620 gms stands explained before the lower authorities.” Issue No.3: 41. I have carefully considered rival submissions. The appellant is proprietor of M/s D.N. Steels and his HUF is proprietor of M/s Padam Chand Daram Chand. The stock of both the concerns were kept at the open godown at Naka Madar, Ajmer. The stock of M/s Padam Chand Daram Chand was also kept in the factory of M/s Bajaj Industries at Palra. This stock was found at 87.159 mtr. Tons. Therefore, the stock of M/s D.N. Steels and M/s Padam Chand Daram Chand is taken in totality then there is no excess stock found during the course of search. In fact there is shortage of 49.376 tons of stock. At the oepn godown at Naka Madar, the possibility of mixing up of the stock of iron scrap belonging to both the firms in very likely. It is possible because the godown is an open one with no demarcation for M/s D.N. Steels or for M/s Padam Chand Daram Chand. In view of these facts it is held that the appellant firm did not have any excess stock. In fact the short stock of 49.376 tons is taken as stock sold outside the books of account @ Rs10,000/- per ton and the profit is required to be taken at 5% which works out at Rs24,680/-. The addition on account of excess stock is deleted. (Relief – Rs 4,86,020/- Rs.24,680/- = Rs.4,61,340/-). 23. We heard the rival submissions and perused the materials available on record. We find that stock of M/s. D.N. Steels and M/s. Padam Chand Dharam Chand, HUF is stored at Naka Madar, Ajmer. The stock of M/s. Padam Chand Dharam Chand, HUF is also kept at Palra which is the factory premises of M/s. Bajaj

(6 of 16) Industries. Shri Dhamam Chand Jain in reply to .No.3 of his statement under section 132(4) has stated that the stock of both the concerns M/s. D.N. Steels and M/s. Padam Chand Dharam Chand is kept at Naka Madar, Ajmer godown. We also find that the stock of M/s. Padam Chand Dharam Chand was inventorised at the factory of M/s. Bajaj Industries at Palra as per Panchnama dated 16.08.2000 (PB 96-97). This is also supported by the Sales Tax Registration Certificate of Padam Chand Dharam Chand in which N.H. No.8, by pass Road, V&P Palra (Ajmer) is declared as place of Godown (PB-105). The inventory of 87.159 MT is prepared for the same place. We are, therefore, of the opinion that 87.159 MT of stock inventorised at the factory premises at Palra is to be considered as stock of M/s. Padam Chand Dharam Chand. Further stock of both M/s. D.N. Steels and M/s. Padam Chand Dharam Chand should be considered together to arrive at the excess/shortage of stock. The ld. CIT(A) has, therefore, rightly worked out the position of excess/shortage in stock in sustaining the addition/deleting the addition. In view of this, we uphold the finding of the ld. CIT(A) alongwith the reasons mentioned therein. Hence, Ground Nos. 6&7 of revenue’s appeal in case of Dharam Chand Jain, Ground No.1&2 of revenue’s appeal in case of Dharam Chand Jain (HUF), Ground No.1&2 of revenue’s appeal in case of Smt. Renu Jain and Ground No.1 taken by the assessee in her Cross Objection are hereby dismissed. Ground No.8: The ld. CIT(A) erred in law and on facts in giving benefit of telescoping without proper justification. C.O. No.3 of the assessee:(ITSSA No.83) The ld. CIT(A) has erred in facts and in law in confirming the separate addition of Rs.3,87,403/- made on account of income on the basis of loose papers by not off setting such income against investment offered by the assessee in block return. Issue No.4 24. I have carefully considered rival submissions. The difference in the income computed by ld. AO and the appellant is mainly because no interest has been computed by the appellant on pronotes, UTI Master Gain and UTI Rajlaxmi scheme. As far as the pronotes are concerned, the interest income has not been estimated by the ld. AO on the ground that the recovery of the advance itself was difficult. Arguments of ld. AR are not acceptable. I find that the appellant has not been able to establish before AO or before me

(7 of 16) about the efforts taken by him in the recovery of the advance of Rs.2 Lakhs made by him which is outside the books of account. Ld. AO has estimated the interest on pronotes at the given rate of interest for the said period at Rs.48,300/- which is justified. However, as far as the yield from UTI Master Gain is concerned, it is not proper to conclude notional income of Rs 57,792/-. However, if any dividend has been declared during the period for which the master gain units were held by the appellant, the actual amount of dividend is liable to be included. As regards the Rajlaxmi scheme of UTI, the estimation of income at Rs 99,000/- has been estimated by ld. AO. It is argued by ld. AR that the investment and the income was receivable only on completion of 20 years of schem and the amount received will be liable to be taxed on its maturity. The arguments of ld. AR are not acceptable because the scheme offers for an assured return which is payable on its maturity. Therefore, the income accrues year after year which is receivable on maturity only. The entire money received or receivable after 20 years cannot be held as income of one year only. The entire benefit is for the period for which the units were retained by the appellant i.e. 20 years. Therefore, the income accrued yearly is liable for taxation. Ld. AO is justified in including the amount on its accrual at Rs.99,000/-. Therefore, the addition on account of interest on prenotes at Rs48,300/- and Rs99,000/- on account of Rajlaxmi units of UTI are confirmed. The addition of Rs57,792/- on account of UTI Master Gain is deleted subject to inclusion of actual amount of dividend declared during the block period. As regards the interest from IVP, KVP and FDR the actual amount is required to be taken on the basis of coupen rate and no estimation is required to be made. 36. We heard the rival submissions and perused the materials available on record. We find that Raj Laxmi Unit were not found maturing within the block period. They are issued for a fixed period and maturing only after the expiry of block period. The assessee did not have any enforceable right to receive the interest thereon within the block period. Income, therefore, cannot be said to have been accrued to him. The decision of Hon’ble Apex Court in case of E.D. Sassoon & Co. Ltd. And others Vs. CIT, 26 ITR 27 supports such a view. The case of Vishnu Khandelwal Vs. DCIT (supra) supports the case of the assessee. Accordingly, income on accrual basis in respect of Raj Luxmi Unit at Rs.99,000/- cannot be treated as undisclosed income of block period. The same is directed to be deleted.

(8 of 16) 37. As regards accrued interest income on promissory notes, we find that there is no material brought by the AO to conclude that interest has accrued on it. No papers relating to receipt/accrual of interest was found. The claim of the assessee that the principal itself is bad, has not been negatived by the lower authorities. The principal of real income has to be taken into account for assessing income. The decision in the case of Puysha Oxygen(P) Ltd. Vs. DCIT (supra), relied by the ld. AR supports this view. Hence the accrued interest on promissory notes which has become bad cannot be brought to tax. Thus, the addition made by the AO is, directed to be deleted. Ground No.2: The ld. CIT(A) has erred in facts and in law in not allowing Deduction/exemption u/s 80L/10(33) in respect of interest/dividend income. Issue No.5 50. I have carefully considered rival submissions. I partly agree with the arguments of ld. AR of the appellant that the interest u/s 158BFA should be imposed for the period of delay in the supply of photocopy of the seized material to the appellant. However, the charging of interest is justified for the delay in filing of the return of income after the photocopies were supplied to the appellant. The AO is directed to exclude the delay not attributable to the appellant in supply of photocopies in determining period for charging of interest u/s 158BFA(1). 31. After appreciation of the facts of the case, we find that the ld. CIT(A) at para 50 of his order held that interest u/s 158BFA should not be imposed for the period of delay in supply of photocopies of seized material to the appellant. However, charging of interest was held justifiable for the delay in filing of the return after photocopies were supplied. We agree with that the levy of interest under section 158BFA(1) is mandatory but it is only for that period for which delay is attributable to the assessee. This view was held in the case of DCIT Vs. Ratan Lal, 73 TTJ, 364 Patna and ITAT Jaipur Bench in the case of ACIT Vs. Balchand Baldawa in ITSSA No.5/JP/2003 dated 15- 10-2003. Therefore, we find no infirmity in the order of the CIT(A), directing the AO to exclude the chargeability of interest u/s 158 BFA(1) for the delay not attributable to the assessee. C.O.52/JP/2003-Assessee Ground No.1: The ld. CIT(A) has erred in facts and in law in confirming the addition of Rs.48,300/- and Rs.99,000/- on account of interest on pronotes and investment in Raj Laxmi Units of UTI respectively.

(9 of 16) Issue No.6 40. Under the facts and circumstances of the case, the ld. AO has erred in levying surcharge on the tax calculated under section 113. 5.2 In view of concurrent finding, we are of the opinion that the view taken by the Tribunal is just and proper. The issue no. 6 is covered by the decision of Supreme Court in case of CIT vs. Vatika Township 2015 (1) SCC 1 wherein it has been held as under:- 39. (a) The first and foremost poser is as to whether it 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 the proviso was added, whether surcharge was 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 whichFinance Act, 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 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 the rates provided for in the Finance Actof 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 proceedings under Section 158 BC of the Act were initiated; or (iv) the year in which block assessment order was passed. 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

(10 of 16) application of a 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 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, 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: | | |PART – I | |Finance |Relevant |Para - A |Para – B |Para – |Para – D|Para - E | |Act |Section | | |C | of | Finance | Act IND, HUF, | Co-operati | Firm | Local | Companies BOI, AOP | ve Society | Authorit | y 1995 | Section 2 | (3) 1996 | Section 2 | 15% | (3) 1997 | Section 2 | 7.50% | (3) 1998 | Section 2 | (3) 1999 |Section 2|- |- |- |- |- | | |(3) | | | | | | |2000 Section 2 | 10% | 10% | 10% | 10% | 10% | (3) 2001 | Section 2 | 12% or | 12% | 12% | 12% 13% | | |(3) |17% | | | | | |2002 |Section 2|2% | 2% |2% |2% |2% | | |(3) | | | | | | |2003 |Section 2|5% |5% |5% |5% |5% | | |(3) | | | | | | 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, 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 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 rate at which the tax is 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 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

(11 of 16) 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. This very conceptualisation of tax was rephrased in C.I.T., Bangalore v. B.C. Srinivasa Shetty[13], in the following manner: “The character of computation of provisions in each case 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 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 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, 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 Chief Commissioners which was held sometime in 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 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 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 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. Absence of a specific assessment year in the block assessment may render the levy suspect. Yet

(12 of 16) 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 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. Suggestions : The foregoing problem indicates that levy of surcharge on undisclosed income is a matter of uncertainty and is prone to litigation. In the circumstances, it is suggested that section 113may be amended retrospectively in order to 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, 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 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 is no scope for accepting the Libertarian theory which postulates among others, no taxation by the State as it amounts to violation of individual liberty and advocates minimal interference by the State. The Libertarianism propounded by the Australian-born 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 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 taxes is that revenue generated therefrom shall be spent by the governments on various developmental and welfare schemes, among others. At the same time, it is also mandated that there cannot be imposition of any tax without the authority of law. Such a law has to be unambiguous

(13 of 16) 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 favours the subjects, as against there the revenue, has to be preferred. This is a well 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 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 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 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 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: “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 States v. Wigglesworth, 2 Story, 369, 374; Mutual Benefit Life Ins. Co. v. Herold, 198 F. 199, 201, aff'd 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 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 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 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- General[16]: “As I understand the principle of all fiscal legislation it is this : If the

(14 of 16) 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 apparently within the spirit of the law the case might otherwise appear to be. (d) There are some other circumstances which reflect the legislative intent. The problem which was highlighted in the Conference of Chief Commissioners on the rate of surcharge 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 income was a difficult proposition. It is for this reason 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 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 of the legislature. It can be seen from the same notes that few other amendments 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 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 date; (ii) retrospective amendment with effect from a fixed anterior date; and (iii)

clarificatory

amendments

which

are retrospective in nature. Thus, 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

(15 of 16) to operate prospectively. Learned counsel 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 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 evidence that clarifies the provision beyond any pale of doubt, viz. understanding of CBDT itself regarding this provision. It is contained in CBDT circular No.8 of 2002 dated 27th August, 2002, with the subject “Finance Act, 2002 – Explanatory Notes 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 demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective. For example, explanation to Section 158BB is stated to be clarificatory in nature. Likewise, it is mentioned that 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 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 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: “Provided further that the amount of income-tax computed 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 III of the First Schedule of the Finance Act of the year in which the search is initiated under section 132 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

(16 of 16) 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 time by the insertion of the proviso to Section 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. 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 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 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. 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. 6. In view of the above, the issues are answered in favour of the assessee against the department. 7. The appeal stands dismissed. (VIJAY KUMAR VYAS) J. (K.S. JHAVERI)J. A.Sharma/