IMPORTANT POINTS
For section 113 charging section is 158 BA(2) and not section 4. Hence proviso to section 113 is not clarificatory of section 4.
A law enacted for the benefit of community as a whole, even in the absence of a provision the statute, would be presumed to have retrospective effect.
Declaratory Acts or the Acts explaining an earlier Act would be construed retrospective.
Proviso to section 113 is not declaratory and hence retrospective. It is prospective.

Headnote:(a) Income Tax Act, 1961 – Chapter XIVB – Section 158BA(2) and 113, Proviso and section 4 – Section 4 is the general charging section for annual total income of previous year, rates for which vary by Finance Act – Section 158 BA(2) stipulates taxing undisclosed income for block period of 10 or 6 years – Does not relate to any ‘previous year’ – Rate of tax as fixed u/s 113 which is 60% – For section 113 charging section is 158 BA(2) and not section 4 – Hence proviso to section 113 is not clarificatory of section 4. (Para 27, 28, 29)
       (b) Interpretation of statutes – Legislation and ordinary prose – Difference – Legislation differs in its provenance, lay-out and features – Also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof – Technique required to understand a legislation – Principles of interpretation. (Para 30)
       © Interpretation of statute – Retrospectivity – In absence of contrary intention of legislature, legislation is not to be presumed to be retrospective – Law passed today cannot apply to the events of the past – Lex prospicit non respicit : law looks forward not backward – Legislations modifying accrued rights or imposing obligations or new duties or attaching a new disability have to be treated as prospective unless the legislative intent is clearly to give it a retrospective effect – A law enacted for the benefit of community as a whole, even in the absence of a provision the statute, would be presumed to have retrospective effect – Also, a legislation intentionally conferring a benefit on some persons without adversely affecting other persons or the public generally would be retrospective – Purposive construction. (Para 31, 32, 33)
       (1870) LR 6 QB 1; (1994) 1 AC 486; (2006) 6 SCC 286 – Relied upon
       (d) Income Tax Act, 1961 – Section 113 – Retrospectivity – Declaratory Acts or the Acts explaining an earlier Act would be construed retrospective – Assessment creates a vested right – Cannot, later on, be subjected to reassessment without amending the assessment provision making it retrospective, expressly or impliedly – Proviso to section 113 not being declaratory, is prospective. (Para 35, 36, 38)
       (1968) 3 SCR 623; 1989 Supp (1) SCC 499; (1976) 1 SCC 906; (1962) 1 SCR 788 – Relied upon
       (e) Income Tax Act, 1961 – Section 113, Proviso – Charging section and the computation provisions together constitute an integrated code – Prior to amendment inserting the proviso, date of reference to apply rate of surcharge u/s 113 was uncertain – Surcharge as per existing provision could not be levied on block assessment – Proviso was not clarificatory – In block assessment, assessment not being for specific assessment year, levy of surcharge was not justified – Fairness principle – Subject to strict construction, any ambiguity must be resolved against imposition of tax – Amendment made effective specifically from 1st June, 2002 – CBDT circular specifyng that amendment to Section 113 along with amendments in Section 158BE, would be prospective – Second proviso to subsection (3) of Section 2 of Finance Act, 2003 also stipulating proviso to section 113 to be prospective – Proviso to section 113 held prospective. (Para 39)
       155 ITR 144; 125 ITR 294; 232 U.S. 261: 34 S.Ct. 421 (1914); 263 U.S. 179: 44 S.Ct. 69 (1923); (1869) LR 4 HL 100 – Relied upon
       (2008) 4 SCC 362 – Overruled
       Facts of the case:
       The question of law falling for consideration in this batch of appeals is as to whether the proviso appended to Section 113 of the Income Tax Act is to operate prospectively or is clarificatory and curative in nature and, therefore, has retrospective operation.
       There was a search and seizure operation on the premises of the assessee. Notice under Section 158BC of the Act was issued to the assessee 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 at a total undisclosed income of Rs.85,18,819/-. After sometime, the Assessing Officer, on verification of working of calculation of tax, observed that surcharge had not been levied on the tax imposed upon the assessee. This was treated as a mistake apparent on record by the Assessing Officer and accordingly a rectification order was passed under Section 154 of the Act.
       This order 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)-I, New Delhi on the ground that the levy of surcharge is a debatable issue and therefore such an order could not be passed taking umbrage under Section 154 of the Act. The undisclosed income was revised under Section 250BC/158BC by the Assessing Officer to Rs.10,90,000/- to give effect to the above order of the CIT (Appeals), and thereby removing the component of the surcharge.
       The CIT cancelled the order not levying surcharge upon the assessee. The Assessing Officer was directed by the CIT to levy surcharge @ 10% and the amount of income tax computed and issue revised notice of demand. The order covered block period 01.04.1989 to 10.02.2000.
       Against this order of the CIT the assessee filed appeal before the Income Tax Appellate Tribunal. The Tribunal allowed the appeal of the assessee. Against the order of the Tribunal 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 by the High Court.
       Finding of the Court:
       Proviso to section 113 is not clarificatory and retrospective. It is prospective.
       Result: Appeals of the assessees allowed.

Judgement Key Points

Key Points: - The proviso to Section 113 is contested as to whether it operates prospectively or retrospectively, and whether it is clarificatory/curative or substantive. (!) (!) (!) - The case analyzes the charging section (Section 4) versus the block-assessment charging provision (Section 113/158BA(2)) and how surcharge applies to block income under Chapter XIVB. (!) (!) (!) (!) - The judgment discusses the scheme of Chapter XIVB, including block period, undisclosed income, and computation under sections 158BA, 158BB, 158BC, and 113. (!) (!) (!) (!) (!) - Prior to the amendment, there was uncertainty about whether surcharge could be levied on block assessments; the Court overrules prior interpretations and holds proviso is prospective. (!) (!) (!) - The Court references Suresh N. Gupta, CBDT circulars, and Finance Acts to determine the nature and effective date of the proviso. (!) (!) (!) - The final holding: appeals of the department dismissed; surcharge on block assessments prior to 1 June 2002 is deleted. (!)

What is the effect of the proviso to section 113 on block assessments: is it prospective or retrospective?

What is the correct interpretation of section 4, 113, and the surcharge in block assessments under Chapter XIVB for undisclosed income?

What is the legal basis for treating the proviso to section 113 as clarificatory or curative versus prospective, and what is its impact on pre-1 June 2002 block assessments?

JUDGMENT

A.K. Sikri, J.

Delay condoned.

2. Leave granted in all these matters.

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 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. The Background Facts:

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 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 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 of Rs.85,18,819/-. After sometime, the Assessing Officer, on verification of working of calculation of tax, observed that surcharge had not been levied on the tax imposed upon the assessee. This was treated as a mistake apparent on record by the Assessing Officer and accordingly a rectification order was passed under Section 154 of the Act 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)-I, New Delhi vide order dated 10.12.2003 on the ground that the levy of surcharge is a debatable issue and therefore such an order could not be passed taking umbrage under Section 154 of the Act. 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 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 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 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 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.

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 @ 10% and the amount of income tax computed and issu

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2014 Supreme(SC) 670

What is the effect of the proviso to section 113 on block assessments: is it prospective or retrospective?

What is the correct interpretation of section 4, 113, and the surcharge in block assessments under Chapter XIVB for undisclosed income?

What is the legal basis for treating the proviso to section 113 as clarificatory or curative versus prospective, and what is its impact on pre-1 June 2002 block assessments?

Cases Referred (6)

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