THE COMMISSIONER OF INCOMET AX vs. B NAGENDRA BALIGA

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ITA/334/2007HC KarnatakaKAHC01023381200704 February 2014Bench: B.MANOHAR,DILIP B.BHOSALE7 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the substantial question of law is answered in favour of the Revenue and against the assessee. The Court relied on the judgment in CIT v. K.C.Puttaswamy Gowda, which in turn followed the Apex Court's decision in CIT v. Suresh N.Gupta. The Apex Court had held that the proviso to Section 113, inserted by the Finance Act, 2002, was clarificatory and curative, establishing that the relevant financial year for the applicability of the Finance Act for surcharge purposes is the year in which the search was initiated under Section 158BC. Consequently, the order of the Tribunal was set aside, and the orders of the Assessing Authority and Appellate Commissioner were restored. However, the Assessing Officer was directed to await the decision of a larger Bench of the Apex Court in CIT v. Vatika Township (P) Ltd. and give effect to the order based on that decision. The appeal was disposed of with these observations.

What were the facts?

The Revenue, comprising the Commissioner of Income-Tax and the Assistant Commissioner of Income-Tax, filed an appeal under Section 260A of the Income Tax Act, 1961, challenging an order dated September 22, 2006, passed by the Income Tax Appellate Tribunal (ITAT), Bangalore. The ITAT had set aside the orders of the Commissioner of Income-Tax (Appeals) and the Assessing Authority concerning the levy of surcharge for the block assessment period from April 1, 1989, to January 28, 2000. The assessee is Shri.B.Nagendra Baliga, Jewelers.

What were the issues?

1. Whether the Tribunal was correct in setting aside the order of the Appellate Commissioner that no surcharge can be levied despite the assessee having admitted that the surcharge is payable for the assessment year 2000-2001 before the Appellate Commissioner corresponding to the said Financial year? (Question of law) Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The Revenue argued that the substantial question of law is covered by the High Court's judgment in CIT v. K.C.Puttaswamy Gowda, which relied on the Apex Court's decision in CIT v. Suresh N.Gupta. This decision held that the proviso to Section 113, inserted by the Finance Act, 2002, was clarificatory and curative in nature, making the surcharge leviable based on the financial year in which the search was initiated.

Which sections of the Income-tax Act were involved?

Section 260A,Section 113,Section 158BC

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IN THE HIGH COURT OF KARNATAKA AT BANGALORE

DATED THIS THE 4TH DAY OF FEBRUARY 2014

PRESENT

THE HON'BLE MR.JUSTICE DILIP B.BHOSALE

AND

THE HON'BLE MR.JUSTICE B.MANOHAR

ITA.No.334/2007 BETWEEN:

1.

The Commissioner of Income-Tax, Central Circle, C.R.Building, Queens Road, Bangalore.

2.

The Assistant Commissioner of Income-Tax, Central Circle, C.R.Building, Nandigudda Road, Mangalore.

…Appellants

(By Sri.K.V.Aravind, Advocate)

AND:

Shri.B.Nagendra Baliga, Jewelers, Main Road, Bantwal.

…. Respondent

(By Smt.Vani.H. Advocate)

This ITA filed under Section 260A of the Income Tax Act, 1961 arising out of order dated 22/09/2006 passed in IT(SS)A.No.7/Panj/2002 for the Block Assessment Year 01-04-1989 to 28-01-2000, praying that this Hon’ble Court may be pleased to

i. formulate the substantial questions of law stated therein.,

ii. allow the appeal and set aside the order passed by the ITAT, Bangalore in IT(SS)A.No.7/Panj/2002 dated 22-09-2006 confirming the order of the Appellate Commissioner & confirm the order passed by the Asst. Commissioner of Income Tax, Central Circle, Mangalore, in the interest of justice and equity.

This appeal coming on for hearing this day, B.Manohar.J., delivered the following:

J U D G M E N T

The Revenue has filed this appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) challenging the order dated 22-09-2006 made in IT(SS)A No.7/PANJ/2002 passed by the Income Tax Appellate Tribunal, Bangalore ‘B’ Bench (for short ‘the Tribunal’),

setting aside the order passed by the Commissioner of Income-Tax (Appeals)-VI, Bangalore (for short ‘the First Appellate Authority’) and the Assessing Authority insofar as levy of surcharge for the block assessment period from 01-04-1989 to 28-01-2000.

2.

The appeal was admitted for considering the following substantial question of law:

Whether the Tribunal was correct in setting aside the order of the Appellate Commissioner that no surcharge can be levied despite the assessee having admitted that the surcharge is payable for the assessment year 2000-2001 before the Appellate Commissioner corresponding to the said Financial year?

3.

The learned counsel appearing for both the parties submit that the substantial question of law raised in this appeal is covered by the judgment of this court reported in (2011) 202 Taxman 661 (Kar) in the case of COMMISSIONER OF INCOME-TAX v/s K.C.PUTTASWAMY GOWDA, wherein the Division

Bench of this Court relying upon the judgment of the Apex Court held as under: “The Revenue has preferred this appeal challenging the order passed by the Income Tax Tribunal which held that proviso to Section 113 which was inserted by Finance Act, 2002 with effect from 1-6-2002 does not have retrospective application, therefore, the surcharge levied on the assessee is not leviable and therefore, it preferred to delete surcharge. Aggrieved by the said order, Revenue has preferred this appeal.

2.

The Apex Court in the case of CIT v. Suresh N.Gupta (2008) 166 39 Taxman 313 at paragraph Nos.37 and 38 has held as under:

“37. According to the assessee, prior to 1st June, 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 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 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.

38.

There is one more reason for rejecting the above submission. Prior to 1st June, 2002, in several cases, tax was prescribed sometimes in the 1961 Act and sometimes in FA and often in both. This made liability uncertain. In the present case, however, the rate of tax in case of block assessment at 60 per cent was prescribed by S.113 but the year of FA 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, the relevant date for applicability of FA would be the year in which the search stood initiated under section 158BC.”

Therefore, the Apex Court, has said that such proviso is curative in nature and it merely clarifies that for a relevant date for applicability of the financial year would be the year in which the search is initiated under section 158BC. Therefore, the order of the Tribunal is contrary to the order passed by the Assessing Officer and it is hereby set aside.

3.

However, in the case of CIT v. Vatika Township (P) Ltd.,(2009)314ITR 338 / 178 Taxman 3 22 after referring to the aforesaid Supreme Court judgment, the larger Bench of the Apex Court was at the view that the aforesaid judgment requires to be considered by a larger Bench and accordingly, a direction was issued by the Registry to place the matter before the larger Bench. It was submitted that, now the matter is before the larger Bench.

4.

Under these circumstances, as the law stands today surcharge is payable by the assessee. In the event of the larger Bench of the Supreme Court reversing the aforesaid judgment of the Apex Court and holding surcharge is not leviable, the assessee is absolved of the liability to pay surcharge. Therefore, in our view the proper order to be passed is to set aside the order of the Tribunal and remit the matter to the Assessing Authority with the direction to await the judgment of the Apex Court and consequent to the order passed by the larger Bench to give effect to our order. Hence, the following order:

1.

Appeal is allowed . 2. The impugned order passed by the Tribunal is hereby set aside.

3.

The orders passed by the Assessing Authority and the Appellate Commissioner is restored.

4.

However, the Assessing Officer shall await the decision of the larger Bench of the Apex Court and depending on the decision to be rendered by the Apex Court to give effect to the order. Matter remanded.”

4.

In view of the authoritative pronouncement, the substantial question of law is answered in favour of the Revenue and against the assessee. However, the

Assessing Officer shall await the decision of the larger bench of the Hon’ble Supreme Court and may proceed subject to the outcome of the decision that will be rendered by the Supreme Court.

5.

With the above observations, this appeal is disposed of.

Sd/-

JUDGE

Sd/-

JUDGE

mpk/-*

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