Commissioner Of Income Tax, Ajmer v. Sh. Dharam Chand Jain, M/S. D.n Steels, 276/23, Tikam Ganj, Ajmer

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR 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 GoyalFor Respondent(s) : _____________________________________________________HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 09/01/2018 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the department. 2.This Court while admitting the matter framed the followingsubstantial questions of law:- “i) Whether the findings of the Tribunal areperverse in deleting the additions of Rs.16,00,465/- made on the basis of material andstatements recorded during the course of search? ii) Whether the findings of the Tribunal areperverse in upholding the order of CIT(A) ofdeleting the addition of Rs. 9,91,825/- made onaccount of unexplained jewellery specifically whenthe same was surrendered by the assessee by wayof specific statements made during the course ofsearch? iii) Whether the findings of Tribunal are perverse inupholding the order of CIT(A) of deleting theaddition made of Rs. 4,61,340/- on account of excess stock without any evidence? iv) Whether the findings of the Tribunal areperverse in deleting the addition of Rs. 1,47,300/-made on account of undisclosed interest beingwithout any material. v)Whether under the facts and circumstances ofthe case and law the Tribunal was justified inupholding the order of CIT(A) for deleting theaddition of interest levied u/s 158BFA (1) beingcontrary to the provisions of law. vi) Whether under the facts and circumstances ofthe case and in law the Tribunal was justified inentertaining the additional ground of appeal anddeleting the levy of surcharge contrary to theprovisions of Section 113?” 3.Counsel for the appellant contended that the Tribunal andCIT(A) have seriously committed an error in reversing the viewtaken by the AO. 4.Taking into consideration the reasoning adopted by the AO,it is contended that the issues which are framed regardingunexplained amount of jewellery of Rs. 9,91,825/- was wronglyconsidered by the CIT(A) and wrongly upheld by the Tribunal.Similarly, the amount of Rs. 4,61,340/- the stock which wasexcess was not deleted by the CIT(A) and the Tribunal wronglyconfirmed the same. Likewise, the undisclosed interest incomeon investment ought to have been deleted by the Tribunal andthe reasoning adopted by the Tribunal is contrary to evidence onrecord. 4.1Regarding issue no. 5, counsel for the appellant contendedthat the interest levied under Section 158 BFA (1) was imposedafter taking into consideration the provision of law. However, theTribunal while considering the same has wrongly given benefit tothe assessee. For issue no. 6, it is contended that the same was taken up for the first time before the Tribunal and it was neverraised before the CIT(A) and AO. 5.We have heard counsel for the appellant. 5.1In 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 additionof Rs.9,91,825/- in respect of jewellery found at thetime of search. The appellant has disputed thequantity as well as value of the jewellery which hasbeen held as unexplained by ld. AO. Total jewelleryfound during the course of search is as under:- (a) From the room of (b) From the room ofSmt. BhavanaW/o Shri Atin Jain744.160 grms. Net (c) From the room ofSmt. PratibhaW/o Shri Dharam Chand Jain1208.300 grms. Net 5.We have heard counsel for the appellant. 5.1In 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 additionof Rs.9,91,825/- in respect of jewellery found at thetime of search. The appellant has disputed thequantity as well as value of the jewellery which hasbeen held as unexplained by ld. AO. Total jewelleryfound during the course of search is as under:- (a) From the room of (b) From the room ofSmt. BhavanaW/o Shri Atin Jain744.160 grms. Net (c) From the room ofSmt. PratibhaW/o Shri Dharam Chand Jain1208.300 grms. Net (d) From the room ofSmt. Renu W/o Shri Dilip Jain1351.660 grms. NetTotal3984.04 grms. Net 10. Ld AO has referred to the statement of theappellant taken at the time of search in which 1945grams of gold jewellery @ 445 per gram valued atRs.8,65,525/- has been surrendered for tax. At thetime of assessment appellant filed explanationabout the jewellery from VDIS and WT returns of Smt. Renu Jain, married daughter-in-law and othermembers of the family were also taken resultinginto total availability of 4120.620 grams. Ld. AO didnot accept the explanation of the appellant on thefollowing grounds:- (a) Total Jewellery (Gold ornaments)found 3984+135 gms4119.000 gmsfound 3984+135 gms4119.000 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 Jain35 tola (Married daughter in law) (d)Smt. Varsha Jain 25 tola650.000 (Married daughter in law)60 tola (e) Sh. Nitin Jain60.000 (Married Son) received from relatives (f)Atin Jain (Married son) received from50.000 relatives) (g) 4 daughter of Smt. Renu Jain Prachi Deepti, Madulika & Ragini480.00 (h)Miss. Poja Jain D/o Sh. Dharmesh Jain 120.00 (I)Smt. Pratibha Devi Jain (a) As per W.T. return filed720.00 (copy enclosed) (b)Declared in VDIS (copy of certificate enclosed) 554.3004120.620 10. We heard the rival submissions and perused thematerials available on record. We find that the issueof jewellery is to be decided in three parts as under:-a) Jewellery declared by the family members inwealth tax return/VDIS2760.620 gmsb) Jewellery of two daughters-in-law650.000 gms. c) Jewellery of other family members 710.000 gms First of all, we take up the issue of jewellery declaredby the family members in wealth tax return/VDIS at2760.620 gms. We find that the said jewellery isdeclared in the wealth tax return/VDIS for which thereis no dispute. The only objection of the AO is that inwealth tax return the itemwise list of jewellery (1683 gms) is not furnished and the jewellery disclosedunder VDIS (1077.620 gms) is not the same jewelleryas found in search. We find that quantity of jewellerydeclared in wealth tax return is accepted by theDepartment. Further there is jewellery of other familymembers where itemwise list is not before theDepartment. Under VDIS, the list of jewellery is filedbut item to item correlation cannot be the reason fornot accepting the jewellery since in the inventoryprepared by the Department, the list is not made asper the VDIS declaration and further on account ofmarriages or other occasions, there is probability ofchange in jewellery. We further find that on similarissue ITAT, Jaipur Bench in case of Ashok Katariya vs.DCIT(supra) has held that jewellery which alreadystands declared in the return of wealth as well as inVDIS cannot be added as undisclosed income underblock assessment. In view of the above discussion, wefind that the jewellery declared in wealth tax andVDIS totaling 2760.620 gms stands explained beforethe lower authorities.” Issue No.3: Issue No.3: 41. I have carefully considered rival submissions. Theappellant is proprietor of M/s D.N. Steels and his HUFis proprietor of M/s Padam Chand Daram Chand. Thestock of both the concerns were kept at the opengodown at Naka Madar, Ajmer. The stock of M/sPadam Chand Daram Chand was also kept in thefactory of M/s Bajaj Industries at Palra. This stock wasfound at 87.159 mtr. Tons. Therefore, the stock of M/sD.N. Steels and M/s Padam Chand Daram Chand istaken in totality then there is no excess stock foundduring the course of search. In fact there is shortageof 49.376 tons of stock. At the oepn godown at NakaMadar, the possibility of mixing up of the stock of ironscrap belonging to both the firms in very likely. It ispossible because the godown is an open one with nodemarcation for M/s D.N. Steels or for M/s PadamChand Daram Chand. In view of these facts it is heldthat the appellant firm did not have any excess stock.In fact the short stock of 49.376 tons is taken asstock 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 onaccount of excess stock is deleted. (Relief – Rs4,86,020/- Rs.24,680/- = Rs.4,61,340/-). 23. We heard the rival submissions and perused thematerials available on record. We find that stock ofM/s. D.N. Steels and M/s. Padam Chand DharamChand, HUF is stored at Naka Madar, Ajmer. The stockof M/s. Padam Chand Dharam Chand, HUF is also keptat Palra which is the factory premises of M/s. Bajaj Industries. Shri Dhamam Chand Jain in reply to .No.3of his statement under section 132(4) has stated thatthe stock of both the concerns M/s. D.N. Steels andM/s. Padam Chand Dharam Chand is kept at NakaMadar, Ajmer godown. We also find that the stock ofM/s. Padam Chand Dharam Chand was inventorised atthe factory of M/s. Bajaj Industries at Palra as perPanchnama dated 16.08.2000 (PB 96-97). This is alsosupported by the Sales Tax Registration Certificate ofPadam Chand Dharam Chand in which N.H. No.8, bypass Road, V&P Palra (Ajmer) is declared as place ofGodown (PB-105). The inventory of 87.159 MT isprepared for the same place. We are, therefore, of theopinion that 87.159 MT of stock inventorised at thefactory premises at Palra is to be considered as stockof M/s. Padam Chand Dharam Chand. Further stock ofboth M/s. D.N. Steels and M/s. Padam Chand DharamChand should be considered together to arrive at theexcess/shortage of stock. The ld. CIT(A) has,therefore, rightly worked out the position ofexcess/shortage in stock in sustaining theaddition/deleting the addition. In view of this, weuphold the finding of the ld. CIT(A) alongwith thereasons mentioned therein. Hence, Ground Nos. 6&7of revenue’s appeal in case of Dharam Chand Jain,Ground No.1&2 of revenue’s appeal in case of DharamChand Jain (HUF), Ground No.1&2 of revenue’s appealin case of Smt. Renu Jain and Ground No.1 taken bythe assessee in her Cross Objection are herebydismissed. Ground No.8: The ld. CIT(A) erred in law and on factsin giving benefit of telescoping without properjustification. C.O. No.3 of the assessee:(ITSSA No.83) The ld.CIT(A) has erred in facts and in law in confirming theseparate addition of Rs.3,87,403/- made on accountof income on the basis of loose papers by not offsetting such income against investment offered by theassessee in block return. Issue No.4 24. I have carefully considered rival submissions. Thedifference in the income computed by ld. AO and theappellant is mainly because no interest has beencomputed by the appellant on pronotes, UTI MasterGain and UTI Rajlaxmi scheme. As far as the pronotesare concerned, the interest income has not beenestimated by the ld. AO on the ground that therecovery of the advance itself was difficult. Argumentsof ld. AR are not acceptable. I find that the appellanthas not been able to establish before AO or before me Issue No.4 24. I have carefully considered rival submissions. Thedifference in the income computed by ld. AO and theappellant is mainly because no interest has beencomputed by the appellant on pronotes, UTI MasterGain and UTI Rajlaxmi scheme. As far as the pronotesare concerned, the interest income has not beenestimated by the ld. AO on the ground that therecovery of the advance itself was difficult. Argumentsof ld. AR are not acceptable. I find that the appellanthas not been able to establish before AO or before me about the efforts taken by him in the recovery of theadvance of Rs.2 Lakhs made by him which is outsidethe books of account. Ld. AO has estimated theinterest on pronotes at the given rate of interest forthe said period at Rs.48,300/- which is justified.However, as far as the yield from UTI Master Gain isconcerned, it is not proper to conclude notionalincome of Rs 57,792/-. However, if any dividend hasbeen declared during the period for which the mastergain units were held by the appellant, the actualamount of dividend is liable to be included. As regardsthe Rajlaxmi scheme of UTI, the estimation of incomeat Rs 99,000/- has been estimated by ld. AO. It isargued by ld. AR that the investment and the incomewas receivable only on completion of 20 years ofschem and the amount received will be liable to betaxed on its maturity. The arguments of ld. AR are notacceptable because the scheme offers for an assuredreturn which is payable on its maturity. Therefore, theincome accrues year after year which is receivable onmaturity only. The entire money received orreceivable after 20 years cannot be held as income ofone year only. The entire benefit is for the period forwhich the units were retained by the appellant i.e. 20years. Therefore, the income accrued yearly is liablefor taxation. Ld. AO is justified in including theamount on its accrual at Rs.99,000/-. Therefore, theaddition on account of interest on prenotes atRs48,300/- and Rs99,000/- on account of Rajlaxmiunits of UTI are confirmed. The addition of Rs57,792/-on account of UTI Master Gain is deleted subject toinclusion of actual amount of dividend declared duringthe block period. As regards the interest from IVP,KVP and FDR the actual amount is required to betaken on the basis of coupen rate and no estimation isrequired to be made. 36. We heard the rival submissions and perused thematerials available on record. We find that Raj LaxmiUnit were not found maturing within the block period.They are issued for a fixed period and maturing onlyafter the expiry of block period. The assessee did nothave any enforceable right to receive the interestthereon within the block period. Income, therefore,cannot be said to have been accrued to him. Thedecision of Hon’ble Apex Court in case of E.D.Sassoon & Co. Ltd. And others Vs. CIT, 26 ITR 27supports such a view. The case of Vishnu KhandelwalVs. DCIT (supra) supports the case of the assessee.Accordingly, income on accrual basis in respect of RajLuxmi Unit at Rs.99,000/- cannot be treated asundisclosed income of block period. The same isdirected to be deleted. 36. We heard the rival submissions and perused thematerials available on record. We find that Raj LaxmiUnit were not found maturing within the block period.They are issued for a fixed period and maturing onlyafter the expiry of block period. The assessee did nothave any enforceable right to receive the interestthereon within the block period. Income, therefore,cannot be said to have been accrued to him. Thedecision of Hon’ble Apex Court in case of E.D.Sassoon & Co. Ltd. And others Vs. CIT, 26 ITR 27supports such a view. The case of Vishnu KhandelwalVs. DCIT (supra) supports the case of the assessee.Accordingly, income on accrual basis in respect of RajLuxmi Unit at Rs.99,000/- cannot be treated asundisclosed income of block period. The same isdirected to be deleted. 37. As regards accrued interest income on promissorynotes, we find that there is no material brought by theAO to conclude that interest has accrued on it. Nopapers relating to receipt/accrual of interest wasfound. The claim of the assessee that the principalitself is bad, has not been negatived by the lowerauthorities. The principal of real income has to betaken into account for assessing income. The decisionin the case of Puysha Oxygen(P) Ltd. Vs. DCIT(supra), relied by the ld. AR supports this view. Hencethe accrued interest on promissory notes which hasbecome bad cannot be brought to tax. Thus, theaddition made by the AO is, directed to be deleted.Ground No.2: The ld. CIT(A) has erred in facts and inlaw in not allowing Deduction/exemption u/s80L/10(33) in respect of interest/dividend income. Issue No.5 50. I have carefully considered rival submissions. Ipartly agree with the arguments of ld. AR of theappellant that the interest u/s 158BFA should beimposed for the period of delay in the supply ofphotocopy of the seized material to the appellant.However, the charging of interest is justified for thedelay in filing of the return of income after thephotocopies were supplied to the appellant. The AO isdirected to exclude the delay not attributable to theappellant in supply of photocopies in determiningperiod for charging of interest u/s 158BFA(1). 31. After appreciation of the facts of the case, we findthat the ld. CIT(A) at para 50 of his order held thatinterest u/s 158BFA should not be imposed for theperiod of delay in supply of photocopies of seizedmaterial to the appellant. However, charging ofinterest was held justifiable for the delay in filing ofthe return after photocopies were supplied. We agreewith that the levy of interest under section 158BFA(1)is mandatory but it is only for that period for whichdelay is attributable to the assessee. This view washeld in the case of DCIT Vs. Ratan Lal, 73 TTJ, 364Patna 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 orderof the CIT(A), directing the AO to exclude thechargeability of interest u/s 158 BFA(1) for the delaynot attributable to the assessee. -C.O.52/JP/2003Assessee Ground No.1: The ld. CIT(A) has erred in facts and inlaw in confirming the addition of Rs.48,300/- andRs.99,000/- on account of interest on pronotes andinvestment in Raj Laxmi Units of UTI respectively. Issue No.6 40. Under the facts and circumstances of the case,the ld. AO has erred in levying surcharge on the taxcalculated under section 113. 5.2In view of concurrent finding, we are of the opinion thatthe view taken by the Tribunal is just and proper. The issue no. 6is covered by the decision of Supreme Court in case of CIT vs.Vatika Township 2015 (1) SCC 1 wherein it has been held asunder:- -C.O.52/JP/2003Assessee Ground No.1: The ld. CIT(A) has erred in facts and inlaw in confirming the addition of Rs.48,300/- andRs.99,000/- on account of interest on pronotes andinvestment in Raj Laxmi Units of UTI respectively. Issue No.6 40. Under the facts and circumstances of the case,the ld. AO has erred in levying surcharge on the taxcalculated under section 113. 5.2In view of concurrent finding, we are of the opinion thatthe view taken by the Tribunal is just and proper. The issue no. 6is covered by the decision of Supreme Court in case of CIT vs.Vatika Township 2015 (1) SCC 1 wherein it has been held asunder:- 39. (a) The first and foremost poser is as towhether it was possible to make the blockassessment with the addition of levy of surcharge,in the absence of proviso to Section 113? In SureshN. Gupta itself, it was acknowledged and admittedthat the position prior to the amendment of Section113 of the Act whereby the proviso was added,whether surcharge was payable in respect of blockassessment or not, was totally ambiguous andunclear. The Court pointed out that some assessingofficers had taken the view that no surcharge isleviable. Others were at a loss to apply a particularrate of surcharge as they were not clear as towhichFinance Act, prescribing such rates, wasapplicable. It is a matter of common knowledge andis also pointed out that the surcharge varies fromyear to year. However, the assessing officers werein-determinative about the date with reference towhich rates provided for in the Finance Act were tobe made applicable. They had four dates beforethem viz.: (i) Whether surcharge was leviable with reference tothe rates provided for in the Finance Actof the yearin which the search was inititated; or (ii) the year in which the search was concluded; or (iii) the year in which the block assessmentproceedings under Section 158 BC of the Act wereinitiated; or (iv) the year in which block assessment order waspassed. Thepositionwhichprevailedbeforeamending Section 113 of the Act was that someAssessing Officers were not levying any surchargeand others who had a view that surcharge ispayable were adopting different dates for the application of a particular Finance Act, whichresulted in different rates of surcharge in theassessment orders. In the absence of a specifieddate, it was not possible to levy surcharge andthere could not have been an assessment without aparticular rate of surcharge. As stated above, inSuresh N. Gupta itself, the Court has pointed outfour different dates which were bothering theassessees as well as the Department. The choice ofa particular date would have material bearing onthe payment of surcharge. Not only the surcharge isdifferent for different years, it varies according tothe category of assessees and for some years, thereis no surcharge at all. This can be seen from thefollowing table prescribing surcharge for differentassessment 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| | | |1998 |Section 2|- |- |- |- |- | | |(3) | | | | | | |1999 |Section 2|- |- |- |- |- | | |(3) | | | | | | |2000 | | |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| | | |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 |Section2|5% |5% |5% |5% |5% | | |(3) | | | | | | Rate atwhich tax, or for that matter surcharge is to belevied is an essential component of the tax regimein Govindasaran Gangasaran v. Commissioner ofIncome Tax[12], this Court, while explaining theconceptual meaning of a tax, delineated fourcomponents therein, as is clear from the followingpassage from the said judgment : “The components which enter into the concept of atax are well known. The first is the character of theimposition known by its nature which prescribes thetaxable event attracting the levy, the second is aclear indication of the person on whom the levy isimposed and who is obliged to pay the tax, the thirdis the rate at which the tax is imposed, and thefourth is the measure or value to which the rate willbe applied for computing the tax liability. If thosecomponents are not clearly and definitelyascertainable, it is difficult to say that the levyexists in point of law. Any uncertainty or vaguenessin the legislative scheme defining any of thosecomponents 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 oftax and where the rate is not stipulated or it cannotbe applied with precision, it would be difficult to taxa person. This very conceptualisation of tax wasrephrased in C.I.T., Bangalore v. B.C. SrinivasaShetty[13], in the following manner: “The character of computation of provisions in eachcase bears a relationship to the nature of thecharge. Thus, the charging section and thecomputation provisions together constitute anintegrated code. When there is a case to which thecomputation provisions cannot apply at all, it isevident that such a case was not intended to fallwithin the charging section.” In absence of certaintyabout the rate because of uncertainty about thedate with reference to which the rate is to beapplied, it cannot be said that surcharge as per theexisting provision was leviable on block assessmentqua undisclosed income. Therefore, it cannot besaid that the proviso added to Section 113 definingthe said date was only clarificatory in nature. Fromthe aforesaid table showing the different rates ofsurcharge in different years, it would be clear thatchoice of date has to be formed as in some of theyears, there would not be any surcharge at all. (b) Pertinently, the Department itself acknowledgedand admitted this fact which is clear from themanner the issue was debated in a Conference ofChief Commissioners which was held sometime inthe year 2001. In this Conference, some proposalsrelating to simplification and rationalisation ofprocedures and provisions were noted in respect ofblock assessment. The foofaraw made in theConference by those who had to apply theprovision, was not without substance because of thegarboil situation which this provision had createdand in amply reflected in the proposals which wassubmitted in the following terms: (b) Pertinently, the Department itself acknowledgedand admitted this fact which is clear from themanner the issue was debated in a Conference ofChief Commissioners which was held sometime inthe year 2001. In this Conference, some proposalsrelating to simplification and rationalisation ofprocedures and provisions were noted in respect ofblock assessment. The foofaraw made in theConference by those who had to apply theprovision, was not without substance because of thegarboil situation which this provision had createdand in amply reflected in the proposals which wassubmitted in the following terms: “In the case of a block assessment, there are twoproblems in relation to the levy of surcharge. Thefirst is that Section 113 does not mention a CentralAct. In the absence of a reference toanother Central Act in the charging section, itbecomes difficult to justify levy of surcharge. Even ifit is assumed that reference in the FinanceAct to section 113 is a sufficient authority to levysurcharge, the second problem is that the FinanceAct levies surcharge on the amount of income-taxon the income of a particular assessment yearwhereas in the block assessment tax is levied onthe undisclosed income of the block period. Absenceof a specific assessment year in the blockassessment may render the levy suspect. Yet another problem is the rate of surcharge applicable.To illustrate, if the search took place on, say, April4, 1996, whether the rate of surcharge is to beadopted as applicable to the assessment year 1996-97 or the assessment year 1997-98, the rate ofsurcharge being different for the two years? Theprovisions of section 113 or the provisions ofthe Finance Act do not offer any guidance on theissue. Suggestions : The foregoing problem indicates that levy ofsurcharge on undisclosed income is a matter ofuncertainty and is prone to litigation. In thecircumstances, it is suggested that section 113maybe amended retrospectively in order to provide forlevy of surcharge at the rate applicable to theassessment year relevant to the financial year inwhich the search was concluded.” The ChiefCommissioners accepted the position, in nouncertain terms, that as per the language of Section113, as it existed, it was difficult to justify levy ofsurcharge. It was also acknowledged that evenif Section 113 empowered to levy surcharge, sinceblock assessment tax is levied on the undisclosedincome of the block period, absence of specificassessment year in the block assessment wouldrender the levy suspect. (c) We would like to embark on a discussion onsome basic and fundamental concepts, which wouldshed further light on the subject matter. No doubt,there is no scope for accepting the Libertariantheory which postulates among others, no taxationby the State as it amounts to violation of individualliberty and advocates minimal interference by theState. The Libertarianism propounded by theAustralian-born economist philosopher Friedrich A.Hayek and American economist Milton Friedmanstands emphatically rejected by all civilised anddemocratically governed States, in favour ofstrongly conceptualised “welfare state”. To attainwelfare state is our constitutional goal as well,enshrined as one of its basic feature, which runsthrough our Constitution. It is for this reason,specific provisions are made in the Constitution,empowering the legislature to make laws for levy oftaxes, including the income-tax. The rationalebehind collection of taxes is that revenue generatedtherefrom shall be spent by the governments onvarious developmental and welfare schemes, amongothers. At the same time, it is also mandated that therecannot be imposition of any tax without theauthority of law. Such a law has to be unambiguous At the same time, it is also mandated that therecannot be imposition of any tax without theauthority of law. Such a law has to be unambiguous and should prescribe the liability to pay taxes inclear terms. If the concerned provision of the taxingstatute is ambiguous and vague and is susceptibleto two interpretations, the interpretation whichfavours the subjects, as against there the revenue,has to be preferred. This is a well establishedprinciple of statutory interpretation, to help findingout as to whether particular category of assesseeare to pay a particular tax or not. No doubt, withthe application of this principle, Courts makeendeavour to find out the intention of thelegislature. At the same time, this very principle isbased on “fairness” doctrine as it lays down that if itis not very clear from the provisions of the Act as towhether the particular tax is to be levied to aparticular class of persons or not, the subject shouldnot be fastened with any liability to pay tax. Thisprinciple also acts as a balancing factor between thetwo jurisprudential theories of justice – Libertariantheory on the one hand and Kantian theory alongwith Egalitarian theory propounded by John Rawlson the other hand. Tax laws are clearly in derogation of personal rightsand property interests and are, therefore, subject tostrict construction, and any ambiguity must beresolved against imposition of the tax. In Billings v.U.S.[14], the Supreme Court clearly acknowledgedthis basic and long- standing rule of statutoryconstruction: “Tax Statutes . . . should be strictly construed, and,if any ambiguity be found to exist, it must beresolved 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; ParkviewBldg. Assn. v. Herold, 203 F. 876, 880; Mutual TrustCo. v. Miller, 177 N.Y. 51, 57.” Again, in UnitedStates v. Merriam[15], the Supreme Court clearlystated at pp. 187-88: “On behalf of the Government it is urged thattaxation is a practical matter and concerns itselfwith the substance of the thing upon which the taxis imposed rather than with legal forms orexpressions. But in statutes levying taxes the literalmeaning of the words employed is most important,for such statutes are not to be extended byimplication beyond the clear import of the languageused. If the words are doubtful, the doubt must beresolved against the Government and in favor of thetaxpayer. Gould v. Gould, 245 U.S. 151, 153” AsLord Cairns said many years ago in Partington v.Attorney- General[16]: “As I understand theprinciple of all fiscal legislation it is this : If the person sought to be taxed comes within the letter ofthe law he must be taxed, however great thehardship may appear to the judicial mind to be. Onthe other hand, if the Crown, seeking to recover thetax, cannot bring the subject within the letter of thelaw, the subject is free, however apparently withinthe spirit of the law the case might otherwiseappear to be. (d) There are some other circumstances whichreflect the legislative intent. The problem which washighlighted in the Conference of ChiefCommissioners on the rate of surcharge applicableis noted above. In view of the aforesaid difficultiespointed out by the Chief Commissioners in theirConference, it becomes clear that as per theprovisions then enforced, levy of surcharge in theblock assessment on the undisclosed income was adifficult proposition. It is for this reasonretrospective amendment to Section 113 wassuggested. Notwithstanding the same, thelegislature chose not to do so, as is clear from thediscussion hereinafter. (d) There are some other circumstances whichreflect the legislative intent. The problem which washighlighted in the Conference of ChiefCommissioners on the rate of surcharge applicableis noted above. In view of the aforesaid difficultiespointed out by the Chief Commissioners in theirConference, it becomes clear that as per theprovisions then enforced, levy of surcharge in theblock assessment on the undisclosed income was adifficult proposition. It is for this reasonretrospective amendment to Section 113 wassuggested. Notwithstanding the same, thelegislature chose not to do so, as is clear from thediscussion hereinafter. “Notes on Clauses” appended to Finance Bill, 2002while proposing insertion of proviso categoricallystates that “this amendment will take effect from1st June, 2002”. These become epigraphic words,when seen in contradistinction to otheramendments specifically stating those to beclarificatory or retrospectively depicting clearintention of the legislature. It can be seen from thesame notes that few other amendments inthe Income Tax Act were made by the same FinanceAct specificallymakingthoseamendmentsretrospectively. For example, clause 40 seeks toamend S.92F. Clause iii (a) of S.92F is amended “soas to clarify that the activities mentioned in the saidclause include the carrying out of any work inpursuance of a contract.” This amendment takeseffect retrospectively from 01.04.2002. Variousother amendments also take place retrospectively.The Notes on Clauses show that the legislature isfully aware of 3 concepts: (i) prospective amendment with effect from a fixeddate; (ii) retrospective amendment with effect from afixed anterior date; and(iii)clarificatoryamendmentswhichareretrospective in nature. Thus, it was a conscious decision of the legislature,even when the legislature knew the implicationthereof and took note of the reasons which led tothe insertion of the proviso, that the amendment is to operate prospectively. Learned counsel appearingfor the assessees sagaciously contrasted theaforesaid stipulation while effecting amendmentin Section 113 of the Act, with various otherprovisions not only in the same FinanceAct but Finance Acts pertaining to other yearswhere the legislature specifically provided suchamendment to be either retrospective orclarificatory. In so far as amendment to Section113 is concerned, there is no such language usedand on the contrary, specific stipulation is addedmaking the provision effective from 1st June, 2002. (e) There is yet another very interesting piece ofevidence that clarifies the provision beyond any paleof doubt, viz. understanding of CBDT itselfregarding this provision. It is contained in CBDTcircular No.8 of 2002 dated 27th August, 2002, withthe subject “Finance Act, 2002 – Explanatory Noteson provision relating to Direct Taxes”. This circularhas been issued after the passing of the FinanceAct, 2002, by which amendment to Section 113 wasmade. In this circular, various amendments tothe Income Tax Act are discussed amplydemonstrating as to which amendments areclarificatory/retrospective in operation and whichamendments are prospective. For example,explanation to Section 158BB is stated to beclarificatory in nature. Likewise, it is mentioned thatamendments in Section 145 whereby provisions ofthat section are made applicable to blockassessments is made clarificatory and would takeeffect retrospectively from 1st day of July, 1995.When it comes to amendment to Section 113 of theAct, this very circular provides that the saidamendment along with amendments in Section158BE, would be prospective i.e. it will take effectfrom 1st June, 2002. (f) Finance Act, 2003, again makes the positionclear that surcharge in respect of block assessmentof undisclosed income was made prospective. Sucha stipulation is contained in second proviso to sub-section (3) of Section 2 of Finance Act, 2003. Thisproviso reads as under: “Provided further that the amount of income-taxcomputed in accordance with the provisionsof section 113 shall be increased by a surcharge forpurposes of the Union as provided in Paragraph A,B, C, D or E, as the case may be, of Part III of theFirst Schedule of the Finance Act of the year inwhich the search is initiated under section 132 orrequisition is made under section 132A of theincome-tax Act.” Addition of this proviso inthe Finance Act, 2003 further makes it clear that such a provision was necessary to provide forsurcharge in the cases of block assessments andthereby making it prospective in nature. The chargein respect of the surcharge, having been created forthe first time by the insertion of the provisoto Section 113, is clearly a substantive provisionand hence is to be construed prospective inoperation. The amendment neither purports to bemerely clarificatory nor is there any material tosuggest that it was intended by Parliament.Furthermore, an amendment made to a taxingstatute can be said to be intended to remove'hardships' only of the assessee, not of theDepartment. On the contrary, imposing aretrospective levy on the assessee would havecaused undue hardship and for that reasonParliament specifically chose to make the provisoeffective from 1.6.2002. 40. The aforesaid discursive of ours also makes itobvious that the conclusion of the Division Bench inSuresh N. Gupta treating the proviso as clarificatoryand giving it retrospective effect is not a correctconclusion. Said judgment is accordingly overruled.41. As a result of the aforesaid discussion, theappeals filed by the Income Tax Department arehereby dismissed. Appeals of the assessees areallowed deleting the surcharge levied by theassessing officer for this block assessmentpertaining to the period prior to 1st June, 2002. 6.In view of the above, the issues are answered in favour ofthe assessee against the department. 7.The appeal stands dismissed. (VIJAY KUMAR VYAS) J. (K.S. JHAVERI)J. A.Sharma/