THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY and
HON’BLE SRI JUSTICE M.SEETHARAMA MURTHY
I.T.T.A. Nos.62, 82, 63 and 42 of 2004
% 24.12.2014
Between:
# Commissioner of Income Tax.
... APPELLANT Versus $ Sri Shankarlal.
...RESPONDENT < Gist:
> Head Note:
! COUNSEL FOR THE APPELLANT :- Sri S.R.Ashok ^COUNSEL FOR RESPONDENT :- Sri Y.Ratnakar ? Cases Referred:
1. 230 ITR 536
2. (1991) 1 Supreme Court Cases 494 HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND HON’BLE SRI JUSTICE M.SEETHARAMA MURTHY
I.T.T.A Nos. 62, 82, 63 and 42 of 2004
COMMON JUDGMENT:- (Per Hon’ble Sri Justice L.Narasimha Reddy)
This batch of appeals presents certain typical questions, which do not occur frequently.
The facts in brief are as under:
The respondents in these appeals are assesseses under the Income Tax Act (for short ‘the Act’). A search was conducted under Section 132 of the Act on all the respondents on 16.07.1997. Cash of about Rs.20,00,000/- and other materials have been discovered. In the statement recorded under sub-section (4) of Section 132 of the Act, it was revealed that there existed about Rs.1 crore of undisclosed income.
By the time the search has taken place, the Voluntary Disclosure of Income Scheme, 1997 (for short ‘the Scheme’) introduced through Finance Act, 1997 was in operation; with effect from 01.07.1997. Section 64 of the Finance Act, 1997 provided for voluntary disclosure of undisclosed income and dropping of all further proceedings on payment of the income tax thereon. Sub-section (2) thereof, however, kept the income, referable to an assessment year, as regards which, notices under Section 142 or 148 of the Act have been issued; and the income referable to any year preceding the one, in which search under Section 132 or requisition under Section 132A or survey under Section 133A of the Act have been carried out.
The respondents filed W.P.No.20316 of 1997 before this Court challenging certain provisions of the Scheme. Their plea was that the Scheme, insofar as it discriminates between the income referable to the previous years during which search was conducted or notices were issued under Section 142 or 148 of the Act is violative of Article 14 of the Constitution of India.
The Department i.e. the appellant, on the other hand, pleaded that the Scheme provides for a special facility and when once Parliament has identified certain items to be kept outside the Scheme, the same cannot be said to be discriminated.
A Division Bench of this Court rendered its judgment in that writ petition, which is reported in Shankarlal Vs. Income Tax Officer. The provisions of the Scheme were upheld, but certain directions were issued. It was observed that such of the amount as was discovered in the course of search under Section 132 of the Act does not qualify for the benefit under the Scheme.
In the declarations filed by the respondents to avail the benefit of the Scheme, the undisclosed income which was the subject matter of search is also included. The concerned Commissioner gave Certificate on 20.07.1999 in respect thereof, after receiving the tax payable thereon.
As a sequel to the search, the respondents filed block return covering a period of ten years preceding the date of search. The respondents pleaded that once the amount referable to search became the subject matter of the Scheme, it cannot be brought under the purview of the block assessment. That plea was not accepted. Block assessment orders were passed on 30.09.1999 and the Assessing Officer levied the tax under Chapter-IV of the Act.
The respondents filed appeals before the Commissioner, aggrieved by the orders of block assessment. The appeals were rejected. Thereupon, they filed I.T. (SS) A.No.21/Hyd/2002 and batch before the Hyderabad Bench ‘A’ of the Income Tax Appellate Tribunal (for short ‘the Tribunal’). The principal argument advanced on behalf of the respondents was that the order of block assessment was contrary to the Judgment of this Court in Shankarlal’s case (supra). The Tribunal allowed the appeals through a common order, dated 17.10.2002. Hence, this batch of appeals under Section 260A of the Act.
Sri S.R.Ashok, learned Senior Counsel for the appellant, submits that the judgment of this Court in Shankarlal’s case (supra) cannot be treated as laying down a principle to the effect that an assessee, against whom a search was conducted under Section 132 of the Act would be entitled to submit declaration under the Scheme, as regards the income, reference to any assessment year, preceding the date of search. He submits that notwithstanding the fact that the S.L.P. filed against the said judgment was dismissed, it cannot be understood to have ignored the clear bar, contained in sub-section (2) (ii) of Section 64 of the Finance Act, 1997. He submits that even otherwise, this Court categorically held in that case, in Clauses “B” and ‘C’ of the concluding paragraph, that the amount which is the subject matter of a search does not qualify for the benefit under the Scheme. He further submits that the Tribunal did not take into account, the correct purport of the Scheme nor did it properly understand the scope of the judgment of this Court and allowed the appeals, virtually rendering the entire proceedings under Chapter XIVB of the Act, redundant.
Sri Y.Ratnakar, learned counsel for the respondents, on the other hand, submits that the question as to whether sub-section (2) (ii) of Section 64 of the Finance Act, 1997 bars an assessee, against whom search is conducted, from availing the benefit under the Scheme for any years earlier thereto was specifically dealt with and it was answered in favour of the appellant. He contends that once the S.L.P. filed by the Department against such Judgment was dismissed, it is not at all open to the appellant to raise that very question. He submits that the amount that was found during the course of search was only Rs.20,00,000/- and there is no basis for any figure higher than that. It is also urged that the Tribunal has taken into account, the purport of the judgment of this Court in Shankarlal’s case (supra) and that the order passed by it does not warrant interference.
It is not in dispute that a search was conducted on 16.07.1997 on the respondents, though there is some uncertainty as to what exactly was discovered therein. The record discloses that a sum of Rs.20,15,000/- in cash and pawned jewellery worth Rs.1,80,500/- were discovered. This was followed by recording of statement under sub-section (4) of Section 132 of the Act. It is from the statement, that the Department came to the conclusion that the respondents have suppressed the income to the tune of Rs.1 crore.
By the time the search has taken place, the Scheme became operational from 01.07.1997. Chapter-IV of the Finance Act, 1997 comprising of Sections 62 to 78, was devoted for this. The important provision in the Scheme is Section 64. It reads as under:
64. Charge of tax on voluntarily disclosed income.-(1) Subject to the provisions of this Scheme, where any person makes, on or after the date of commencement of this Scheme but on or before the 31st day of December, 1997, a declaration in accordance with the provisions of section 65 in respect of any income chargeable to tax under the Income-tax Act for any assessment year –
a. for which he has failed to furnish a return under section 139 of the Income-tax Act;
b. which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Scheme;
c. which has escaped assessment by reason of the omission or failure on the part of such person to make a return under the Income- tax Act or to disclose fully and truly all material facts necessary for his assessment or otherwise, then, notwithstanding anything contained in the Income-tax Act or in any Finance Act, income-tax shall be charged in respect of the income so declared (such income being hereinafter referred to as the voluntarily disclosed income) at the rates specified hereunder, namely:-
i. in the case of a declarant, being a company or a firm, at the rate of 35 per cent of the voluntarily disclosed income;
(ii) in the case of a declarant, being a person other than a company or a firm, at the rate of l30 per cent of the voluntarily disclosed income.
(2) Nothing contained in sub-section (1) shall apply in relation to –
i. the income assessable for any assessment year for which a notice under section 142 or section 148 of the Income-tax Act has been served upon such person and the return has not been furnished before the commencement of this Scheme;
(ii) the income in respect of the previous year in which a search under section 132 of the Income-tax Act was initiated or requisition under section 132A of the Income- tax Act was made, or survey under section 133A of the Income-tax Act was carried out or in respect of any earlier previous year.”
From a reading of this, it becomes clear that while clauses (a) to (c) of sub-section (1) enlisted the amounts that can be disclosed voluntarily, sub- section (2) identified the incomes that are kept outside the Scheme. A perusal of Clause (ii) of sub-section (2) discloses that if a search has taken place under Section 132 of the Act against an assessee, he is disabled from availing the benefit under the Scheme in respect of any income referable to any earlier previous years.
Being under the impression that the search has virtually disabled them from availing benefit of the Scheme for their entire undisclosed income, the respondents filed W.P.No.20316 of 1997. They pleaded that sub-section (2) (ii) of Section 64 of the Finance Act totally disables the appellant from making any disclosure under the Scheme at all. After discussing the various contentions at length, this Court in Shankarlal’s case (supra), summed up as under:
A. “Section 64 of the Finance Act, 1997, grants concession of tax and immunity to the undisclosed income which is declared in the scheme period.
B. The income that laws not returned within the time prescribed in the notice issued under section 142 or 148 and which expired before the commencement of the scheme, will be ineligible under section 64(2)(i) for the benefit under section 64(1).
C. That benefit is denied to the income which is detected in a search under section 132, on a requisition under section 132A or in a survey under section 133A, whichever be the previous year to which the detected income relates.
D. Any undisclosed income other than such detected income in relation to any previous year can still be declared and will be eligible for the benefit under section 64(1).
E. If subsequently it is found that the income disclosed under the Voluntary Disclosure of Income Scheme, 1997, is to be assessed as part of the total income of any previous year and thus ineligible to be declared under section 64(1), the tax paid under section 64(1) shall be adjusted against the assessed tax.
We, therefore, hold that on a proper construction of section 64 of the Finance Act, 1997, there is no discrimination or infirmity in that section and it is constitutionally valid.
In the circumstances, the respondents are directed to entertain voluntary disclosures falling within the above parameters as falling under section 64(1) of the Finance Act, 1997. The writ petition is disposed of accordingly.”
The S.L.P. filed against that Judgment by the Department was dismissed.
Armed with the judgment, the respondents filed their declarations before the Commissioner, who was entrusted with the operation of the Scheme. The amount that was the subject matter of the search was included in the declaration. The Commissioner issued a receipt in respect of the entire amount covered by the declaration after satisfying himself that the stipulated amount of tax was paid.
The search proceedings under Chapter XIVB of the Act spilled over beyond two years. In addition to the one recorded on 16.07.1997, another statement was recorded on 11.09.1997. Ultimately, a block assessment order was passed on 30.09.1999. Though it was pleaded that the amount referable to search has already suffered tax under the Scheme, the Assessing Officer proceeded to levy tax stipulated under Chapter XIVB of the Act. The appeals before the Commissioner did not fructify and the Tribunal accepted the contention of the respondents.
The principal contention advanced by the appellant is that the Judgment of this Court in Shankarlal’s case (supra), insofar as it enabled an assessee against whom search was conducted under Section 132 of the Act, to avail the benefit under the Scheme under the Act, in respect of the period anterior to search cannot be said to be good law and in fact, it amounts to per incuriam. According to the appellant, the question is one of jurisdiction and it is always open to the Department to raise it at any point of time. In support of the contention that mere dismissal of the S.L.P. against such a Judgment does not bar the affected party to raise the question of jurisdiction, reliance is placed upon the judgment of the Hon’ble Supreme Court in Smt.Isabella Johnson Vs. M.A.Susai (dead) by L.Rs.
There is absolutely no quarrel with the proposition. It is quite possible to analyse the judgment in Shankarlal’s case (supra) on the touchstone of Section 64 of the Act. At the first blush, it may appear that this Court has added certain new dimensions to Clause (ii) of sub-section (2) of Section 64 of the Finance Act, 1997. That, however, is for the limited purpose of the case. All the same, the discussion in the context of granting relief was restricted only to the amount covered in the search proceedings. The record is not clear as to whether the respondents wanted the benefit under the Act in respect of any amount other than the one covered by the search proceedings. Obviously because the controversy was only about the amount covered by the search, their Lordships took that into account, and in the discussion, summed up that the benefit under the Scheme is not available to the amount which is detected in the search under Section 132 of the Act. This is clear from Clause (C) which has been extracted in the preceding paragraphs. With that, the necessity to deal with any other aspect of the judgment or to see whether it is per incuriem is obviated.
Almost as a note of caution, their Lordships added Clause ‘E’ in the concluding portion which is to the effect that if for any reason, the amount covered by the disclosure is found to be not eligible for the benefit under Section 64 (1) of the Finance Act, 1997, the tax paid thereon shall be adjusted against the assessed tax. It means that their Lordships were aware that there is every likelihood of the respondents being extended the benefit under Section 64 of the Finance Act, 1997 on account of improper understanding of the Scheme and in such an event, they shall be under obligation to pay the differential tax.
Once this Court held in Shankarlal’s case (supra), that the amount covered by the search proceedings does not qualify for the benefit under the Scheme, there was absolutely no basis for the Tribunal in taking away the amount from the purview of Chapter XIVB of the Act on the sole ground that the Commissioner, who operated the Scheme, gave receipt for that amount also. Such a step does not accord with Section 64 of the Finance Act, 1997. Further, it runs contrary to the judgment in Shankarlal’s case (supra). Even otherwise, a step taken under the Scheme does not nullify the proceedings initiated under the Act. The non-abstante Clause contained in Chapter IV of the Finance Act, 1997 is not that wide enough. The net result is that the amount which was the subject matter of search was liable to be dealt with under Chapter XIVB of the Act, notwithstanding the fact that it was mentioned in the declaration filed under the Scheme. The only difference would be that the respondents would be under obligation to pay the differential tax if any.
Whenever the search proceedings take place, an assessee would be exposed not only to higher rate of tax, but also to the incidence of levy of interest and penalty. In the instant case, a senior official of the Department i.e. the Commissioner, who operated the Scheme itself, was of the view that the amount covered by search can be the subject matter of the benefit under the Scheme. It is only on a close analysis of the relevant provisions of law and the judgment rendered by this Court, that it has emerged that the proceedings initiated under Chapter XIVB of the Act do not get affected by the proceedings under the Scheme. When this is the disparity or complexity as to the understanding of the provisions of those enactments, the respondents cannot be exposed to the obligation to pay penalty or interest.
We, therefore, allow the appeals, setting aside the common order, dated 17.10.2002 passed by the Tribunal and upholding the order passed by the Assessing Officer. We, however, direct that the respondents shall not be exposed to the liability of penalty, interest or prosecution. This facility shall be available to them if only they pay the differential tax payable under Chapter XIVB of the Act within two months from today. There shall be no order as to costs.
Miscellaneous petitions, if any, filed in these appeals shall also stand disposed of.
L. NARASIMHA REDDY, J M.SEETHARAMA MURTHY,J Date:24.12.2014 Note: L.R. copy to be marked.
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