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1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 26th DAY OF FEBRUARY, 2013 P R E S E N T THE HON’BLE MR.JUSTICE D V SHYLENDRA KUMAR AND THE HON’BLE MR.JUSTICE B SREENIVASE GOWDA Income Tax Appeal No.359 of 2007
BETWEEN:
THE COMMISSIONER OF INCOME – TAX,
C.R. BUILDING, QUEENS ROAD,
BANGALORE.
THE INCOME – TAX OFFICER,
CENTRAL CIRCLE – 1 (2),
C.R. BUILDING, QUEENS ROAD,
BANGALORE.
…APPELLANTS (BY SRI. K.V. ARAVIND, ADV.)
AND:
M/S. J.P. NARAYANASWAMY, NO.190, SANKEY ROAD, SADASHIVANAGAR, BANGALORE – 560 080. ... RESPONDENT (BY SRI. ASHOK A KULKARNI, ADV. FOR M/S. K.R. PRASAD, ADVS)
2 THIS APPEAL IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961 ARISING OUT OF ORDER DATED 31-08-2006 PASSED IN IT (SS)A NO.160/BANG/2004 FOR THE BLOCK ASSESSEMENT PERIOD 01-04-1991 TO 27-04-2001, PRAYING TO SET ASIDE THE SAID ORDER OF THE TRIBUNAL ETC.,
THIS APPEAL COMING ON FOR HEARING, THIS DAY, SHYLENDRA KUMAR, J., DELIVERED THE FOLLOWING:
J U D G M E N T
This appeal is by the Revenue in respect of block assessment period 01.04.1991 to 27.04.2001 in respect of respondent Assessee. While certain other aspects of quantification of tax liability for the income of Block period in terms of the provisions of Section 158BFA(1) of the Income Tax Act (for short ‘the Act’) is not in dispute the Revenue has sought to raise the following substantial questions of law to be examined: “1. Whether the Tribunal was correct in holding that no surcharge for the block assessment period 01.04.1991 to 27.04.2001 could be levied as proviso to Section 113 of the Act came into effect from 1.06.2002 and as the search in the present had taken place on 27.04.2001 before the proviso was introduced?
3 2. Whether the proviso to Section 113 of the Act should be read along with the Finance Act for each of the earlier assessment years for the entire block period and surcharge should be levied from the inception of Chapter XIVB of the Act?
Whether the Tribunal was correct in holding that interest under Section 158BFA(1) of the Act is compensatory in nature and cannot be levied if the ret urn of income is not fled within the due date as contemplated in the notice?
As the question arising out of the order passed by the Tribunal in the context of it having dismissed the appeal of the Revenue by holding that not only levy of surcharge was not justified as the search was conducted on 27.11.2001 i.e., prior to introduction of proviso to Section 113 of the Act with effect from 1st June 2002 and also declined to interfere with the view taken by the Commissioner of appeal holding that the levy of interest under Section 158B(a) can only be after giving credit to the amount of cash seized during the
4 search and retained by the Revenue with them from the date of seizure.
The Tribunal also opined that levy of interest under Section 158BFA(1) one being basically a measure of compensatory levy and the extent of seized amount was available with the Revenue and on such part of the seized amount no interest could have been levied. Even assuming there is delay in filing the return in terms of notice issued under Section 158BC of the Act.
Sri K.V. Aravind, learned Counsel appearing for the appellant Revenue submits that the Section relating to levy of surcharge in terms of proviso to Section 113 and though the proviso no doubt has been inserted by Finance Act, 2002 with effect from 1st July, 2002 which was more in the nature of clarificatory amendment as the provision of levy of surcharge has already been made in the Finance Act of the year relevant for the
5 search period and had provided for levy of surcharge which is now otherwise reflected in the proviso to Section 113 of the Act.
On this question it is submitted that the law as if existed in terms of the judgment of the Apex Court in the case of Commissioner of Income Tax vs Suresh N. Gupta 297 ITR 322 (SC) and extracted in CTR Encyclopaedia on Indian Tax Laws and the said decision has been referred to a Larger Bench of the Supreme Court and therefore this Court has, when such question had arisen for answer answered in favour of the Revenue but has nevertheless made it subject to decision of the Larger Bench of the Supreme Court on the question and till such time giving effect to the order of the Court by the Assessing Officer is to be withheld and to await the decision of the Supreme Court and to act accordingly.
6 6. Therefore, we answer the 1st and 2nd question in the negative against the Assessee and in favour of the Revenue as indicated above.
The third question is one relating to levy and quantification of interest under Section 158BFA(1) and on this aspect submission of Sri K.V. Aravind, learned Counsel for the appellant is that Section 158BFA(1) reads as under: 158BFA(1) Where the return of total income including undisclosed income for the block period, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A on or after the 1st day of January, 1997, as required by a notice under clause (a) of section 158BC, is furnished after the expiry of the period specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of (one) percent of the tax on undisclosed income, determined under clause (c) of section 158BC, for every month or part of a month comprised in the
7 period commencing on the day immediately following the expiry of the time specified in the notice, and-
(a) Where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or
(b) Where no return has been furnished, on the date of completion of assessment under clause (c) of section 158BC.
(2) The Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Chapter, may direct that a person shall pay by way of penalty a sum which shall not be less than the amount of tax leviable but which shall not exceed three times the amount of tax so leviable in respect of the undisclosed income determined by the Assessing Officer under clause (c) of section 158BC.”
And therefore it is a statutory levy and there is no scope for the Tribunal or other authorities to interpret the
8 statutory levy of interest as one not warranted in the present case as it is only a compensatory levy and there being no loss to the revenue, to the extent of the cash and jewellary seized during search and held with the department.
It is obvious from this, that levy of interest is not linked to the question of levy being compensatory or penal as discussed by the Tribunal, but it is linked to there being delay in filing of the return pursuant to notice under Section 158BC of the Act and if the return is not filed within the stipulated time, interest becomes leviable from the date of expiry of the notice till the date of filing of return or if no return is filed then till the date of payment of tax.
We notice, in the present case, notice was dated 21.12.2001 and return was filed on 05.03.2002. The Assessing Officer has proceeded on the premises of
9 delay in filing the return beyond the notice of two months i.e. part of February and part of March and therefore has proceeded to levy interest for two months period on the tax liability as determined in terms Assessment Order dated 30.04.2003.
Submission of Sri K.V. Aravind, learned Counsel for the Revenue is that it is statutory levy of interest and cannot be set aside on any other consideration or is amenable to any other interpretation etc.
On the other hand, Sri Kulkarni, learned Counsel appearing on behalf of the Assessee has vehemently urged that levy of interest being compensatory in nature as has been held in many judicial pronouncements
involving tax matters and also having regard to the fact that certain amounts of the Assessee had been seized on 27.04.2001 date of search and the Revenue having retained the amount though there is no express
10 provision for retaining the same with them and therefore at any rate even assuming it is towards PDF amount that amount could have been adjusted against the tax liability and it is only for the balance amount interest should have been levied etc.
In this regard attention is also drawn to the provision of Section 132B of the Act providing application of seized or requisitioned assets against tax liability of the Assessee. It reads as under:
132A (1) Where the (Director General or Director) or the (Chief commissioner or Commissioner) in consequence of information in his possession, has reason to believe that –
(a) any person to whom a summons under sub-section (1) of section 37 of the Indian Income – tax Act, 1922 (11 of 1992), or under sub-section (1) of section 131 of this Act, or a notice under sub – section
11 (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents, as required by such summons or notice and the said books of account or other documents have been taken into custody by any officer or authority under any other law for the time being in force, or
(b) any books of account or other documents will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act and any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, such books of account or other documents have been taken into custody under any other law for the time being in force, or
12 (c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act by any person from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force,
then, the (Director General or Director) or the (Chief Commissioner or Commissioner) may authorize any (Additional Director, Additional Commissioner) (Joint Director), (Joint Commissioner) (Assistant Director or Deputy Director) (Assistant Commissioner (or Deputy Commissioner) or Income-tax Officer} (hereafter in this section and in sub- section (2) of section 278D referred to as the requisitioning officer) to require the officer or authority referred to in clause (a) or clause (b) or clause (c), as the case may be, to deliver such books of account, other documents or assets to the requisitioning officer.
13 (2) On a requisition being made under sub- section (1), the officer or authority referred to in clause (a) or clause (b) or clause (c), as the case may be, of that sub-section shall deliver the books of account, other documents or assets to the requisitioning officer either forthwith or when such officer or authority is of the opinion that it is no longer necessary to retain the same in his or its custody.
(3) Where any books of account, other documents or assets have been delivered to the requisitioning officer, the provisions of sub-sections (4A) to (1A) (both inclusive) of section 132 and section 132B shall, so far as may be, apply as if such books of account, other documents or assets had been seized under sub-section (1) of section 132 by the requisitioning officer from the custody of the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of this section and as if for the words “the authorized officer’’ occurring in any of the aforesaid
14 sub-sections (4A) to (14) the words “the requisitioning officer’’ were substituted).
We notice from the block assessment order that tax liability for the block period was to be at Rs.12,83,32,399/- and on adding surcharge to this amount at 2% of the tax liability, it works out to a um of Rs.25,74,648/- bringing the total tax liability to Rs.13,45,89,723/-. To this is added interest of two months which is Rs.32,82,676/- .
Contention of Sri Ashok A. Kulkarni, learned Counsel is that even as per the assessment order it is to be noticed that there was cash and jewels and they are with the Revenue pursuant to the seizure and this would have been the factor for reducing tax liability and thereafter only interest should have been levied. 15. We are unable to accept this submission of Sri Ashok A Kulkarni for more than one reason. Firstly, the levy of interest is as per the statutory provision under
15 Section 158BFA(1) of the Act and this is not linked to the date of payment of tax in case of delayed filing of the return after receipt of notice under Section 158BC of the Act and is only linked to delay in filling of return.
The delay in filing the return is not in dispute in the present case. As per quantification of interest the interest is at 2% on the tax as determined for each month.
That means it is with reference to determination of liability towards tax for the block period as per Clause (a) (i) of Section 158BC of the Act and it is thereafter application of the assets seized under Section 132 or requisitioned under Section 132A shall be dealt with. Section 132 and Clause (b) and (c) of Section 158BC of the Act reads as under: “132B (1) The assets seized under section 132 or requisitioned under section 132A may be dealt with in the following manner, namely:-
(i) The amount of any existing liability under this Act, the Wealth-tax Act, 1957 (27 of 1957), the Expenditure-tax Act, 1987 (35 of 1987), the Gift-tax Act, 1958 (18 of 1958) and the Interest- tax Act, 1974 (45 of 1974), and the amount of the liability determined on completion of the assessment (under section 153A and the assessment of the year relevant to the previous year in which search is initiated or requisition is made, or the amount of liability determined on completion of the assessment under Chapter XIV-B for the block period, as the case may be) (including any penalty levied or interest payable in connection with such assessment) and in respect of which such person is in default or is deemed to be in default, may be recovered out of such assets:
(Provided that where the person concerned makes an application to the Assessing Officer within thirty days from the end of the month in which the asset was seized, for release of asset and the nature and source of acquisition of any such asset is explained) to the satisfaction of the Assessing Officer, the amount of any existing
17 liability referred to in this clause may be recovered out of such asset and the remaining portion, if any, of the asset may be released, with the prior approval of the Chief Commissioner or Commissioner, to the person from whose custody the assets were seized:
Provided further that such asset or any portion thereof as is referred to in the first proviso shall be released within a period of one hundred and twenty days from the date on which the last of the authorizations for search under section 132 or for requisition under section 132A, as the case may be, was executed;
158 BC. Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,- Xx xxx xxx xx xx xx (b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of
18 section 143 (section 144 and section 145) shall, so far as may be, apply;
(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 assessment;
The adjustment of liability as determined under Clause (c) follows determination of tax liability and therefore is not in any way providing for reducing tax liability before quantification of the tax liability. Application in terms of Section 132B is thereafter. It is for this reason we cannot accept the contention of learned Counsel for the Assessee that before levying of interest the amount should have been adjusted from out of the tax liability amount as available from the seizure should have been reduced from the tax liability, then balance interest computed.
19 18. While on facts we notice that the amount even if reduced from tax liability hardly make any difference in the present case.
Even according to Sri K.V. Aravind learned Counsel for the appellant the seizure amount amounts to Rs.2,39,732/- as against the tax liability of Rs.13,13,07,047/-, this amount can be significant or insignificant, but nevertheless we are unable to agree with the argument that the levy of interest should have been after reducing the amount in terms of Section 132B of the Act.
Section 132B is for the purpose of realization of the tax liability and not on such levy of interest under Section 158BFA(1) of the Act. It is therefore, we answer this question also in the negative as against the Assessee and in favour of the Revenue.
20 21. In the result, all the substantial questions arising from the order of the Tribunal and which are the subject matter of this appeal are answered against the Assessee and the appeal is allowed, setting aside the finding of the Tribunal on the findings involved these questions of law. But nevertheless make it clear that the answer regarding questions of law 1 and 2 as indicated in para 6 and 7 of the memorandum of appeal is subject to the result of the decision of Larger Bench of the Supreme Court in the referred case involving question of levy on surcharge.
Sd/-
JUDGE
Sd/-
JUDGE
Vb/-