Enhanced Rate Of 60% And Surcharge @25% On The 'Advancetax'. The Learned Single Judge Rejected The Writ Petitionby A Cryptic Judgment Relying On Commissioner Of v. S.a.wahab.((1990) 182 Itr 464 (Ker

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE T.R.RAVI WEDNESDAY, THE 23RD DAY OF SEPTEMBER 2020 / 1ST ASWINA, 1942 WA.No.984 OF 2019 AGAINST THE ORDER/JUDGMENT IN WP(C) 101/2019(K) OF HIGH COURT OF KERALA APPELLANT: MARUTHI BABU RAO JADAV,AGED 44 YEARSS/O. BABURAO SAMBAJI JADAV, DHANALAKSHMI NIVAS, NEAR ARADHANA UARTERES, PERINTHALMANNA PIN 679 321. MALAPPURAM DISTRICT. BY ADVS.SMT.LATHA ANANDSRI.M.N.RADHAKRISHNA MENONSRI.JOSEPH SEBASTIAN (PARACKAL)SRI.S.VISHNU (ARIKKATTIL) RESPONDENT: THE ASSISTANT COMMISSIONER OF INCOME TAXCENTRAL CIRCLE I, AAYAKAR BHAVAN (NORTH BLOCK) KOZHIKODE 673 001. R1 BY ADV. SRI. JOSE JOSEPH,STANDING COUNSEL FOR INCOME TAX(B/O) THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 23.09.2020,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ::2:: K. Vinod Chandran & T.R.Ravi, JJ. ----------------------------------- Writ Appeal No.984 of 2019 ----------------------------------- Dated, this the 23[rd] September, 2020 CR J U D G M E N T K.Vinod Chandran, J The writ petition sought for a declaration thatthe amendments made by the Taxation Laws (SecondAmendment) Act, 2016, to Section 115BBE of the Income TaxAct, 1961 enhancing the rate of income tax, for specifiedincomes which are unexplained, to 60% and the surchargeprovided in the Finance Act, 2016 to 25% for incomecovered under Section 69A, to be prospective. The abovereferred enactments are herein after referred to as the'2[nd] Amendment Act', 'IT Act' and the 'Finance Act'. The2[nd] Amendment Act was dated 15.12.2016 and the amendmentto Section 115BBE was specified to be effective from01.04.2017. The amendment enhancing the rate of tax wasincorporated in the I T Act and that of surcharge in theFinance Act. On declaration, consequential relief issought against Ext.P2 assessment order levying tax at the enhanced rate of 60% and surcharge @25% on the 'advancetax'. The learned Single Judge rejected the writ petitionby a cryptic judgment relying on Commissioner of IncomeTax v. S.A.Wahab.((1990) 182 ITR 464 (KER)). 2. The learned Counsel Sri.Vishnu S Arikkattilappearing for the appellant would contend that even goingby the decision in Karimtharuvi Tea Estate ltd. v. Stateof Kerala (AIR (1966) SC 1385) an amendment made on the1[st] day of April of any financial year would apply to theassessments of that year. That is, if an amendment isbrought into force on 01.04.2017, as is the case here, itcan only apply to the assessment made in 2018-2019(Assessment Year) of the income accrued for the previousfinancial year; which is 2017-2018. The learned Counselwould seek to draw a distinction insofar as amodification of the rate as brought out in the FinanceAct and a substantive provision altering accrued rightsor creating new liabilities, on the 1[st] of April of anyear. In the former, it could apply to the assessments ofthe previous year, made in that financial year, but asubstantive amendment not relating to the rates, could only be applied to the assessments of that financial yearand not of the previous year. Reliance is placed on theConstitution Bench decision of the Hon'ble Supreme Courtin C.I.T Vs. Vatika Township Private Ltd. (2015) 1 SCC 1.The learned Counsel would also place before us a numberof decisions of the Hon'ble Supreme Court in KesoramIndustriesv. Commissioner of Wealth Tax, ,Guffic Chem P. Ltd v. C.I.T [2011(4) SCC 245],C.I.Tv. Sarkar Builders [(2015) 375 ITR 392 (SC)], ShivRaj Guptav. C.I.T [(2020) 425 ITR 420(SC)]and State ofKeralav. Alex George[(2004) 271 ITR 290(SC), to furtherbuttress his arguments. Reliance is also placed on theFull Bench decision of the Patna High Court in LoknathGoenka v. C.I.T[2019 417 ITR 521(Patna)]. only be applied to the assessments of that financial yearand not of the previous year. Reliance is placed on theConstitution Bench decision of the Hon'ble Supreme Courtin C.I.T Vs. Vatika Township Private Ltd. (2015) 1 SCC 1.The learned Counsel would also place before us a numberof decisions of the Hon'ble Supreme Court in KesoramIndustriesv. Commissioner of Wealth Tax, ,Guffic Chem P. Ltd v. C.I.T [2011(4) SCC 245],C.I.Tv. Sarkar Builders [(2015) 375 ITR 392 (SC)], ShivRaj Guptav. C.I.T [(2020) 425 ITR 420(SC)]and State ofKeralav. Alex George[(2004) 271 ITR 290(SC), to furtherbuttress his arguments. Reliance is also placed on theFull Bench decision of the Patna High Court in LoknathGoenka v. C.I.T[2019 417 ITR 521(Patna)]. 3. Sri. Jose Joseph, learned Standing Counsel,Government of India(Taxes) would submit that the positionhas been clearly established from the 1960's and itrequires no further consideration. Considering thespecific arguments put forth by the learned Counsel, weare of the opinion that it warrants some elucidation ofthe law on the point; especially since the distinction drawn appeals to us, at first blush. We hence first lookat the various decisions placed before us dealing withthe amendments brought into force on the 1[st] of April of aparticular year; which under the IT Act is the assessmentyear (AY) for the previous financial year. 4. Karimtharuvi Tea Estatedealt with KeralaAgricultural Income Tax Act 1950, wherein the assessmentmade in an year is of the previous year. A surcharge @5% was levied by virtue of Kerala Surcharge on Taxes Act,1957 which came into force from 01.09.1957. The questionraised was whether the surcharge would be applicable forthe assessments made in the assessment year 1957-58,which is of the previous year 1956-57. It was held thatsince the Surcharge Act came into force in September of1957 and not as on the 1[st] of April of that year it couldnot be regarded as the law in force at the commencementof the assessment year. A Division Bench of this Courtin A Wahabfollowed the above Constitution Bench. A.Wahabin the assessment year 1980-81 claimed 40% depreciationon motor vehicles as per the amendment which came intoeffect on 24.07.1980. Prior to the amendment such depreciation was allowable only at 30%. The DivisionBench found that the depreciation allowable in thesubject assessment year relating to the assessments ofthe previous year was that allowable as on 01.04.1980. 5. The other decisions relied on by the learnedCounsel for the appellant is to urge that a substantiveprovision coming into effect on 01.04.2007 standsdistinguished from a mere reduction or enhancement ofrate prescribed by a Finance Act as on the 1[st] of April.Kesoram Industriesconsidered three questions, one ofwhich is relevant for our purpose. That relevant questionwas as to whether, in computing the net wealth of anassessee under the Wealth Tax Act 1957, the provision forpayment of income tax and super tax in respect of theyear of account, was a debt owed within the meaning ofSection 2(m). The Wealth Tax assessment which was thesubject matter of the above case was of the FinancialYear 1956-57 and the valuation day as per the Wealth TaxAct was 31.03.1957. The Revenue argued that Finance Act,1957 provides the charge of income tax and therefore theliability accrues only on 01.04.1957. The assessee on the other hand argued that Finance Act, 1957 only prescribesthe rate of tax payable and not the liability to tax. TheHon'ble Supreme Court held that though the expression'charged' is used both in the Finance Act, 1957 and theIT Act, they are used in a different sense. It was heldin Paragraph 47 that “The tax is to be charged for thatyear in accordance with, and subject to, the provisions-of the Incometax Act, but the said charge will be inaccordance with the rates prescribed under the FinanceAct”. Section 3 of the IT Act, 1922 was held to be thecharging section, while the Finance Act, 1957 providedthe rate for quantifying the tax in the assessment year.On the above reasoning it was held that the tax liabilityarose on the last day of the accounting year, ie, the 31[st]of March, though the rate of tax applicable in carryingout an assessment would be that as on the 01[st] of April ofthe Assessment Year. The question stood answered againstthe Revenue., but before Karimtharuvi Tea Estate.It washeld so in paragraph 60 : “60.Looking from a practical standpoint also, therecannot possibly be any difficulty in ascertaining theliability. As the actual assessment will invariably be made subsequent to the close of the accountingyear, the rate would certainly be available to theauthoritiesconcernedforthepurposeofquantification.” 6. Guffic Chem P. Ltd, was concerned with theassessment year 1997-1998 and the issue arose as towhether the amounts received by the assessee asnon-competition fee would be a capital receipt, nottaxable under the IT Act. The Court highlighted thedichotomy between a compensation received for loss ofagency, which is a revenue receipt and that received asagainst a negative/restrictive covenant, which is acapital receipt. Finding the income received by theassessee to be a capital receipt, it was also noticedthat the non competition fee received was always treatedas a capital receipt till the assessment year 2003-04. ByFinance Act 2002, w.e.f 01.04.2003 the said receiptswere made taxable. The settled proposition that “aliability cannot be created retrospectively” was noticed.Shiv Raj Guptawas also on identical facts and law. Weare of the opinion that nothing turns on these decisionssince there was no consideration as to whether in an assessment of the previous year, ie: of the financialyear 2002-03 carried out in the year 2003-04, whether acapital receipt received in that financial year couldhave been taxed. 7.Sarkar Builderswas concerned with thededuction of 100% of profits allowable in the case ofhousing projects as permissible under Section 80IB(10).Section 80IB was introduced with effect from 01.04.2000,the benefit of which was available to thebuilders/assessees. By Finance Act, 2004 w.e.f.01.04.2005 there was a condition laid down, for the firsttime, which if applied to the previous year would denythe benefit to the builders. The Revenue contended onthe basis of Karimtharuvi Tea Estate that the amendmenthaving come in to effect on 01.04.2005, it applies to theassessments made in the assessment year 2005-06. Theassessees before Court had commenced their projects priorto 01.04.2005 as sanctioned by the authorities; the dateof completion of which projects were after 01.04.2005.The amendment brought into Section 80IB(10) as on01.04.2005 reduced the permissible extent of commercial space in the housing projects. The Hon'ble Supreme Courtposed a question as to whether the builders who havecommenced their projects, which had progressedconsiderably, were expected to demolish the coveragemeant for commercial purpose to bring it within thereduced extent provided by the amendment. The specificquestion as to whether the assessment made on a returnfiled after 1.04.2005, the law prevailing on that daywould be applicable was answered in the negative on thespecific circumstance arising in that case. Theassessees/builders were found to have arranged theiraffairs in accordance with the law that existed on thecommencement of the projects by which they acquired avested right to claim deduction as per the existing law,which cannot be taken away. The Bench also relied onReliance Jute and Industries Ltd. V CIT 1980 (1) SCC 139.Specifically the declaration that “it is a cardinalprinciple of the tax law that the law to be applied isthat in force in the assessment year unless otherwiseprovided expressly or by necessary implication...” (sicpara 6) In the instant case it was held that by necessary implication the amendment made to restrict theextent of commercial space in a housing project, was tobe read prospectively and not retrospectively. 8. Alex George was concerned with the revision made to the Kerala Plantation Tax Act 1960 with effectfrom 01.07.1987. The Assessing authority applied theearlier provision for period up to 01.07.1987 and for thebalance period the amended provision. The Court foundthat the scheme of the Act read with the Rules indicatethat the charging section makes the subject of charge;the extent of plantation held by an assessee on the firstday of each financial year (the 'valuation date') at therates prescribed in Schedule (1) to the Act. Section 3(1) also indicates that the tax assessed is payable forthe Financial Year until the extent is revised and thateven in the event of a revision it would be payable onlyfrom the financial year, immediately following suchrevision. It was found in Paragraph 24: “24 ... As stated above, chargeability isindependent of the passing of the Finance Act.Therefore, one has to read the Finance Act inconsonance with the provisions of the charging section. The function of the Finance Act primarily isto prescribe the rate of tax and the manner ofcalculation of tax; and it is not intended toincorporate the entire procedural and substantive lawrelating to tax.In the circumstances, we do not findmerit in the contention advanced on behalf of theappellant-State that the object of the Finance Act, 18of 1987 was only to revise the rates of plantationtax.” [underlining by us for emphazis] 9. The Full Bench of the Patna High Court wasconcerned with a provision introduced in the Income TaxAct with effect from 01.04.1976. The issue was as towhether the share income of minor sons, from a firm inwhich they were admitted as partners, was assessable inthe hands of their fathers by virtue of S.64(1)(iii)brought into the IT Act on 01.04.1976. Karimtharuvi TeaEstate was relied on by the Revenue where as KesoramIndustries was urged by the assessee. The assesseeargued that the liability to pay income tax hinges onaccrual of income and is not concerned with the time whencomputation is made by the taxing authority. KarimtharuviTea Estatewas specifically referred to especially paragraph 10 which is extracted hereunder : “10. Now, it is well-settled that the Income-tax Act,as it stands amended on the first day off April of anyfinancial year must apply to the assessments of thatyear. Any amendments in the Act which come into forceafter the first day of April of a financial year,would not apply to the assessment for that year, evenif the assessment actually made after the amendmentscome into force.” paragraph 10 which is extracted hereunder : “10. Now, it is well-settled that the Income-tax Act,as it stands amended on the first day off April of anyfinancial year must apply to the assessments of thatyear. Any amendments in the Act which come into forceafter the first day of April of a financial year,would not apply to the assessment for that year, evenif the assessment actually made after the amendmentscome into force.” Kesoram Industriesand the harmonious construction givento a Finance Act and the I.T Act was specificallyreferred to. It was held that reading the above twodecisions of the Hon'ble Supreme Court the applicabilityto assessments in a particular year, of an amendmentbrought into effect on the 1[st] of April of that year, isconfined to the rate prescribed and a surcharge broughtinto force. When a new liability is prescribed asdistinguished from a mere enhancement or reduction ofrate it cannot be given retrospective effect, was theauthoritative declaration. It was held that the amendmentenabling accrual of income, of a minor, on his parent,which came into effect from 01.04.1976 cannot be madeapplicable to assessments of the previous accounting year ie: 1975-76, carried out in the year 1976-77. 10. As we noticed herein before Karimtharuvi TeaEstaterefused applicability of the surcharge introducedin September to the assessments carried out in that year.There was no occasion to consider whether a new surchargeintroduced on 1[st] of April could be applied to theassessments in that year; is the contention raised by theappellant here. The well established position as arguedby the learned Standing Counsel, as is clearlydiscernible from the precedents too; is that the rateprescribed by a Finance Act brought into effect from the1[st] of April of an year would apply to the assessmentsmade in that year relating to the previous year. Theprecedents would also indicate that there cannot bedisturbance caused to accrued rights or obligationsimposed, unless the legislative intent clearly indicatesa retrospective effect as has been declared by anotherConstitution Bench in Vatika Township Pvt. Ltd. This isthe legal aspect on which the facts in the present casehas to be applied. 11. Before we look at the amendments carried out, on facts, there were two seizures of cash made on02.08.2016and03.11.2016respectivelyofRs.1,05,03,500/- and Rs.1,24,68,750/- both in the F.Y2016-2017. The persons from whom the cash was seized asalso the appellant herein admitted that it belonged tothe appellant who carries on trading in gold bullion. Theappellant not having produced any books of accounts orcash flow statements failed to establish the source ofthe money seized; which was included in the total incomeunder Section 69A of the IT Act. The writ petition or theappeal does not challenge such inclusion. On the saidamounts tax was imposed @60% under Section 115BBE andsurcharge @25%. The amendments to the Finance Act wereby the 2[nd] Amendment Act dated 15.12.2016. The enhancementof tax under Section 115BBE was made effective only from01.04.2017; the commencement of the assessment year2017-2018, in which the assessments of the previous yearare carried out. 12. The assessee contends that the seizures weremade prior to the amendment. The affidavits admitting theownership of amounts seized were also submitted prior to 12. The assessee contends that the seizures weremade prior to the amendment. The affidavits admitting theownership of amounts seized were also submitted prior to the amendment. The assessee was not aware of the enhancedtax liability when the admissions were made before theauthorities. The assessee has also made an attempt torelate the amendments to the demonetization of thespecified currencies announced on 08.11.2016 whichcontention we reject at the outset. The subjectamendments which are relevant for our consideration haveno direct link with the demonetization introduced or thetaxation and investment regime of Pradhaan Mantri GaribKalyan Yojana 2016 brought in under Chapter IX A of the2[nd] amendment Act. The 2[nd] amendment Act as is clear fromthe Statements of Objects and Reasons, was to curb,evasion of tax and black money as also plug loopholes inthe IT Act and to ensure that defaulting assessees aresubjected to higher tax and stringent penalty provision.Both the measures spoken of herein were to further thesaid objects and there cannot be any nexus assumed nor isit discernible. 13. Section 115 BBE was inserted by Finance Act2012 w.e.f 01.04.2013. As on 01.04.2016 the financialyear in which the subject seizures occurred Section 155BBE provided for 30% tax on income refereed to inSections 68, 69, 69A, 69B, 69C and 69D. The same wasamended by the 2[nd] Amendment Act; w.e.f. 01.04.2017,enhancing the rate to 60%. Hence there was no newliability created and the rate of tax merely stoodenhanced which is applicable to the assessments carriedon in that year. The enhanced rate applies from thecommencement of the assessment year, which relates to theprevious financial year. 14. Likewise it was by Chapter II with heading 'Rates of Income Tax', as provided in the Finance Act2016, that a surcharge was introduced by way of the 3[rd]proviso of Section 2(9) of that Finance Act. This comesinto effect from the Financial Year 2016-2017; which isthe year in which the subject seizures were occasioned.The proviso refers to various provisions where theadvanced tax computed under the first proviso standsincreased by a surcharge for the purpose of the Union.Section 115BBE is one of the provisions referred to inthe 3[rd] proviso and in the case of individuals thesurcharge was @15% where the total income exceeds one crore, as on 01.04.2016. By the 2[nd ]Amendment Act Section2 of the Finance Act, 2016 stood amended by which 115BBEwas omitted from the 3[rd] proviso. After the 6[th] proviso yetanother proviso was inserted which provided for the'advance tax' computed under the first proviso, inrespect of any income chargeable to tax under Section115BBE(1)(i), to be increased by a surcharge for thepurposes of the Union, calculated @25%. Hence there is nonew liability of surcharge created and it is a mereenhancement of the rate of surcharge. 15. In the financial year 2016-17 itself the taxas provided under section 115BBE and the surcharge onadvance tax was available as discernible from the IT Actand Finance Act, 2016 as it stood on 1.4.2016 itself. Amajor misdemeanor leading to assessment of income asaccrued under Section 69A invites the consequences ofSection 115BBE and surcharge provided under Section 2(9)of the Finance Act, 2016. When it stands enhanced from01.04.2017, for every assessment carried out in thatyear, related to the previous year, the rates asapplicable on 01.04.2017 has to be applied. There being no new liability created or obligation imposed, thearguments raised by the appellant's counsel fails. Theappellant cannot have a contention that he committed themisconduct on the expectation that if he were caught hewould have to shell out only lesser amounts as tax andsurcharge. There is no right accrued on the assessee tocommit an offence on the expectation of a lesser penalty. no new liability created or obligation imposed, thearguments raised by the appellant's counsel fails. Theappellant cannot have a contention that he committed themisconduct on the expectation that if he were caught hewould have to shell out only lesser amounts as tax andsurcharge. There is no right accrued on the assessee tocommit an offence on the expectation of a lesser penalty. 16. It was also argued that Income Tax at the rateor rates specified, as prescribed in any Central Act tobe charged for any assessment year, shall be so chargedin respect of the total income of the previous year asper Section 4 Of the IT Act. However, there is no suchprovision to enable a surcharge to be so taxed, on theFinance Act prescribing an enhanced rate at thecommencement of an year. The said contention however,cannot be sustained especially looking at the decision ofthe Hon'ble Supreme Court in CIT Kerala v. K Srinivas.[(1972) 4 SCC 526]. The facts are not relevant to theissue raised here and we need only look at thedeclaration as to the nature of a surcharge imposed inthe Finance Act. The legislative history with respect to the concept of surcharge was traced by the Court, which,for the first time was found to have been recommended, inthe report of the Committee on Indian ConstitutionalReforms Volume I Part I. The word surcharge was usedcompendiously for the special addition to taxes on incomeimposed in September 1931. It was held so in paragraph 7and 8: 7. The above legislative history of the FinanceActs, as also the practice, would appear to indicatethat the term “Income tax” as employed in Section 2includes surcharge as also the special and theadditional surcharge whenever provided which arealso surcharges within the meaning of Article 271 ofthe Constitution. The phraseology employed in theFinance Acts of 1940 and 1941 showed that only therates of income tax and super tax were to beincreased by a surcharge for the purpose of theCentral Government. In the Finance Act of 1958 thelanguage used showed that income tax which was to becharged was to be increased by a surcharge for thepurpose of the Union. The word “surcharge” has thusbeen used to either increase the rates of income taxand super tax or to increase these taxes. The schemeof the Finance Act of 1971 appears to leave no roomfor doubt that the term “Income tax” as used inSection 2 includes surcharge. 8. According to Article 271 notwithstanding anything in Articles 269 and 270 Parliament may atany time increase any of the duties or taxesreferred to in those Articles by a surcharge for thepurpose of the Union and the whole proceeds of anysuch surcharge shall form part of the ConsolidatedFund of India. Article 270 provides for taxes leviedand collected by the Union and distributed betweenthe Union and the States. Clause (1) says that taxon income other than agricultural income shall belevied and collected by the Government of India anddistributed between the Union and the States in themanner provided in clause (2). Article 269 dealswith taxes levied and collected by the Union butassigned to the States. The provisions of Article268 which is the first one under the heading“distribution of revenue between the Union and theStates” relate to duties levied by the Union butcollected and appropriated by the States. Thus theseArticles deal with the levy, collection anddistribution of the proceeds of the taxes and dutiesmentioned therein between the Union and the States.The legislative power of Parliament to levy taxesand duties is contained in Articles 245 and 246(1)read with the relevant entries in List I of theSeventh Schedule.” 17. In the instant case surcharge was imposed by Finance Act, 2016 and the rate stood enhanced by Finance Act, 2017. The Income Tax even as per the Finance Act was 17. In the instant case surcharge was imposed by Finance Act, 2016 and the rate stood enhanced by Finance Act, 2017. The Income Tax even as per the Finance Act was to be at the rate specified in Part I of the 1[st] Schedulewhich shall be increased by surcharge for purposes of theUnion. Surcharge hence partakes the character of Income-tax and Article 271 itself empowers the Parliament, atany time to increase any of the duties or taxes by asurcharge for the purpose of the Union and it forms partof the Consolidated fund. So when a surcharge is imposedit is in effect an enhancement of the tax or duty. Theprovision in the Finance Act also employs the words 'theincome tax computed … shall be increased by a surcharge'.Section 4 of the IT Act squarely applies to the surchargeimposed. The judgment of the learned Single Judge isaffirmed for the for the reasoning herein above and theWrit Appeal would stand dismissed without any order as tocosts. Sd/-K.VINOD CHANDRAN, JUDGE Sd/-T.R.RAVI, JUDGE