K.L. SWAMY versus THE COMMISSIONER OF INCOME TAX & ANR. on 13 January 2023

[2023] 1 S.C.R. 689

K.L. SWAMY

v.

THE COMMISSIONER OF INCOME TAX & ANR.

(Civil Appeal No. 3704 of 2012)

JANUARY 13, 2023

[M. R. SHAH AND C. T. RAVIKUMAR, JJ.]

Income Tax Act, 1961: ss. 158BC, 158BD, 158 BFA(1) – Blockassessment – Undisclosed income of any other person – Levy ofinterest – Assessee belatedly filed return for block period in responseto notice u/s. 158BD by including undisclosed income – Absence ofany notice u/s. 158BC – Liability for period prior to 01.06.1999 –Levy of interest u/s. 158BFA(1) by the assessing officer –Sustainability of – Held: Persons other than searched persons’ liableto pay interest on late filing of the return u/s.158BC even in theabsence of notice u/s. 158BC and even for the period prior to June1999 –Chapter XIV-B prescribes a special procedure forcomputation of income for the block period in search and seizurecases – It is a complete code in itself providing for self-containedmachinery for assessment of undisclosed income for the block period– s.158BD would be applicable in case of any person other than aperson with respect to whom search was made – Thus, in case of theperson other than searched person the notice u/s. 158BD would berequired and in case of late filing of the return u/s. 158BC, theinterest would be leviable u/s. 158BFA – Any other interpretationwould lead to s.158BD nugatory – By inserting the words “underSection 158BC” in s. 158BD, the Parliament intended to clarifythat the assessment for the block period in case of the persons otherthan searched persons would also be as per the procedure u/s.158BC – In the instant case, the persons searched were issued noticeu/s. 158BC and in case of the appellant-director of the Company,who is the “other person”, the notice u/s. 158BD was issued – Itcannot be said that the in absence of any notice u/s. 158BC servedupon the persons other than searched persons for the period priorto the amendment in s. 158BD vide Finance Act, 2002, there wouldnot be any liability to pay interest u/s. 158BFA.

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s.113 proviso – Surcharge – Levy of – Held: Assessee notliable to pay the surcharge under proviso to s.113 – Order passedby the High Court and the assessment order qua the surcharge underproviso to s. 113 quashed and set aside.

Partly allowing the appeals, the CourtB

HELD: 1. As regards, the levy of the surcharge underproviso to Section 113 of the Income Tax Act is held in favour ofthe assessee and against the revenue. The assessee is not liableto pay the surcharge under proviso to Section 113 of the IncomeTax Act. To that extent the impugned judgment and order passedCby the High Court and the assessment order qua the surchargeunder proviso to Section 113 of the Income Tax Act is quashedand set aside.[Para 9.2][710-C-D]

2.1 Chapter XIV-B which deals with block assessment laysdown a special procedure for searched cases. The main reasonDfor adding the said provisions in the Act was to curb tax evasionand expedite as well as simplify the assessment in such searchedcases. The essence of the new procedure under Chapter XIV-Bis a separate single assessment of the “undisclosed income”,detected as a result of search and this separate assessment hasto be in addition to the normal assessment covering the saidEperiod. Therefore, a separate return covering the years of theblock period is a pre-requisite for making block assessment.Chapter XIV-B is a complete code in itself providing forself-contained machinery for assessment of undisclosed incomefor the block period of 10 years or 6 years as the case may be.F[Para 10][710-F-H]

2.2 With respect to assessment of undisclosed income forthe block period including the filing of the return etc., the normalassessment proceedings including under Section 140 of theIncome Tax Act shall not be applicable. Therefore, the submissionon behalf of the assessee that interest under Section 158BFA forGthe period prior to 01.06.1999 in view of insertion of the words“Section 158BC” in Section 140A w.e.f. 01.06.1999, shall not bechargeable, cannot be accepted. It is the case on behalf of theassessee that the interest only follows the principal and in thiscase the principal being the tax payable, there was no liability toH

pay the tax along with the return prior to 01.06.1999 which cameto be introduced by insertion of the words “Section 158BC” inSection 140A and therefore the liability to pay interest cannotarise if there was no liability to pay the tax itself along with thereturn at the relevant time, has no substance. At this stage, itrequires to be noted that neither Section 158BC nor Section158BFA required the assessee to pay tax along with the return.Liability to deposit the tax along with return arises only underSection 140A. However, at the relevant point of time Section140A did not apply to Section 158BC and hence there was noliability to deposit tax along with the return. The said lacunaewas noticed by the Parliament and by the Finance Act, 1999, thewords “Section 158BC” have been inserted in Section 140A w.e.f.01.06.1999. That does not mean that interest under Section158BFA would not be leviable in case of late filing of return. Thereturn under Section 158BC was required to be filed as perChapter XIV-B and on the delay in filing the return, there shallbe liability to pay interest leviable under Section 158BFA(1). [Para10.1][713-D-H; 714-A-B]

2.3 On conjoint reading of the Notes on Clauses andMemorandum, it is very clear that the Legislature originallyintended to make the assessee liable to pay taxes and interestwhen the return was filed under Section 139 or under Section142 or Section 148. By virtue of the amendment, the Legislaturethus proposed to make those assessees who are filing the returnunder Section 158BC also liable to pay tax and interest underSection 140A. The memorandum explaining the provisions of theFinance Bill further makes it clear that the existing provisions ofSection 140A were not applicable to Chapter XIV-B relating toassessment of income of the block period in search and seizurecases. It further recognizes that the admitted tax declared in thereturn cannot be collected till the assessment is completed.Therefore, the Legislature intended to amend Section 140A byincorporating Section 158BC so as to make liable those personswho are filing return under Section 158BC also. Thus, by virtueof the amendment, a new class of assessee was brought onto thestatute-book whose income are subject to be assessed underChapter XIV-B, in section 140A compelling them to payself-assessment tax. Thus, the interest under Section 158BFA is AB

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Aleviable on standalone basis for late or non-filing of return, whichceases on the day return is filed. In the impugned judgment andorder, the High Court has elaborately and comprehensivelyexplained the rationale behind introduction of Section 158BC inSection 140A and has specifically observed and held that theliability of payment of interest does not stop merely on filing ofBthe return but is attracted in terms of Section 140A till paymentof tax in terms of the section and even now the provisions ofSection 158BFA(1) and Section 140A operate independently. Theview taken by the High Court is concurred with. [Para 10.3][715-C-H]

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2.4 The submission on behalf of the assessee that in absenceof any notice under Section 158BC served upon the concernedassessee and in view of insertion of the words “Section 158BC”in Section 158BD inserted vide Finance Act, 2002, there shallnot be any liability to pay interest under Section 158BFA isDconcerned, the aforesaid submission is absolutely erroneous andhas no substance. Prior to amendment in Section 158BD videFinance Act, 2002 and even thereafter, the provisions of Section158BC would be applicable in case of “searched persons”. Section158BD would be applicable in case of persons “other thansearched persons”. Therefore, in case of a person “other thanEsearched person”, no notice under Section 158BC which isrequired to be issued in case of “searched persons” was requiredto be issued. For a person “other than searched person”, noticeunder Section 158BD is sufficient. [Para 10.4][716-A-C]

2.5 The submission on behalf of the assessee that the wordsF“under Section 158BC” has been inserted in Section 158BD videFinance Act, 2002 and therefore, in absence of any notice underSection 158BC prior to the amendment, there shall not be anyliability to pay interest under Section 158BFA is concerned, aperusal of the Notes on Clauses appended to Clause 64 of theGFinance Bill, 2002, it appears that the same is clarificatory innature. [Para 10.5][716-D-E]

2.6 Chapter XIV-B prescribes a special procedure forcomputation of income for the block period in search and seizurecases. Section 158BD shall be applicable in case of any person H

other than a person with respect to whom search was made. Asobserved Chapter XIV-B is a complete code in itself providingfor self-contained machinery for assessment of undisclosed incomefor the block period. Therefore, in case of the person other thansearched person the notice under Section 158BD would berequired/sufficient and in case of late filing of the return underSection 158BC, the interest will be leviable under Section158BFA. Any other interpretation would lead to Section 158BDnugatory. It can be seen that by inserting the words “underSection 158BC” in Section 158BD, the Parliament intended toclarify that the assessment for the block period in case of thepersons other than searched persons would also be as per theprocedure under Section 158BC of the Income Tax Act. In theinstant case as such K Company – the persons searched wereissued notice under Section 158BC and in case of the appellant-director of K Company, who is the “other person”, the noticeunder Section 158BD has been issued. [Para 10.6][716-H; 717-A-D]

2.7 The submission on behalf of the assessee that in absenceof any notice under Section 158BC served upon the assessee –persons other than searched persons for the period prior to theamendment in Section 158BD vide Finance Act, 2002, there shallnot be any liability to pay interest under Section 158BFA, has nosubstance and the same is required to be rejected and the saidquestion is required to be answered in favour of the revenue andagainst the assessee. [Para 10.7][717-E]

3. The respective assessees are not liable to pay thesurcharge under proviso to Section 113 of the Income Tax Act.The impugned judgment and order passed by the High Court isrequired to be modified to the aforesaid extent. So far as theliability to pay the interest under Section 158BFA of the IncomeTax Act for late filing of the return under Section 158BC of theIncome Tax Act, in absence of any notice under Section 158BCupon the assessee-persons other than searched persons, the saidquestion is held in favour of the brevenue and against theassessee. The impugned judgment and order passed by the HighCourt is confirmed and it is observed and held that the assessee-persons other than searched persons would be liable to pay the A

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Ainterest on late filing of the return under Section 158BC even inabsence of a notice under Section 158BC of the Income Tax Actand even for the period prior to 01.06.1999. To that extent, theimpugned judgment and order passed by the High Court isconfirmed. [Para 11][717-F-H; 718-A]

BCommissioner of Income Tax (Central)–I, New Delhi v.Vatika Township Private Limited 2015 (1) SCC 1 : [2014]12 SCR 1037; Commissioner of Income Tax v. SureshN. Gupta (2008) 297 ITR 322 (SC) ; Mathuram Agrawalv. State of Madhya Pradesh, (1999) 8 SCC 667 : [1999]C4 Suppl. SCR 195; Commissioner of Income Tax(Central)-I, New Delhi Vs. Vatika Township PrivateLimited 2015 (1) SCC 1 : [2014] 12 SCR 1037; AssistantCommissioner of Income Tax and Anr. v. Hotel BlueMoon (2010) 3 SCC 259 : [2010] 2 SCR 282;P.P.Umerkutty v. ACIT (2005) 279 ITR 213 Kerala –Dreferred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No.3074of 2012.

FFrom the Judgment and Order dated 09.12.2009 of the High Courtof Judicature of Karnataka at Bangalore in Income-tax Appeal No.268of 2004.

With

GCivil Appeal Nos.3706, 3705, 3707, 3708 and 3709 of 2012.

Balbir Singh, ASG, Preetesh Kapur, Arijit Prasad, Sr. Advs., SenthilJagadeesan, Ms. Sonakshi Malhan, Sajal Jain, Rupesh Kumar, H.R. Rao,Prahlad Singh, Ms. Shradha Deshmukh, Dharma Datta Verma, PrasenjeetMohapatra, Raj Bahadur Yadav, Advs. for the appearing parties.

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The Judgment of the Court was delivered by

M. R. SHAH, J.

1. As common question of law and facts arise in this group ofappeals, all these appeals are decided and disposed of together by thiscommon judgment and order.

2. In all these appeals, the dispute is with respect to levy of interestunder Section 158BFA(1) of the Income Tax Act in respect of assessmentcompleted under Section 158BD of the Act for belatedly filing the returnof income for the block period and also the levy of surcharge underSection 113 of the Income Tax Act.

3. For the sake of convenience Civil Appeal No.3706 of 2012arising out of the impugned judgment and order passed by the HighCourt in ITA No.277 of 2004, is being treated and considered as a leadmatter.

4. The facts leading to the present appeal in nut-shell are as under:

4.1 That the appellant is an individual and Director Partner inKhoday Group of Company concerns. A search under Section 132 wasconducted in the residential premises of the family members of KhodayGroup and the warrant was issued in the name of M/s. Khoday IndiaLimited. The appellant was served with the notice under Section 158BDto file the return of income for the block period of 01.04.1986 to13.02.1997. The appellant filed return for the block period in response tonotice under Section 158BD by including the undisclosed income ofRs.45,00,000/- for the block period. The Assessing Officer levied interestunder Section 158BFA(1) for the period from 18.01.1998 to 19.01.1999at the rate of 2% per month for 13 months and levied interest ofRs.7,12,296/- on the tax amount of Rs.27,49,600/-.

4.2 The appellant being aggrieved by the order of the AssessingOfficer filed an appeal before the learned CIT (A). It was the case onbehalf of assessee that levy of interest under Section 158BFA(1) wasnot justified. The learned CIT (A) held that Section 158BFA providesfor levy of interest for late filing of return of block assessment in responseto the notice under Section 158BC similar to the provisions of Section234A. The CIT(A) also held that levy of interest under Section 234A iscompensatory in nature and is attracted the moment there is a default.The appellant – assessee being aggrieved by the order of CIT(A) filed A

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Aan appeal before the ITAT, Bangalore. Before the ITAT, it was contendedon behalf of assessee that provisions of Section 158BFA(1), the levy ofinterest would be attracted only in a case where there was a failure ordelay in filing the return in response to notice under Section 158BC. Itwas contended that in absence of any notice under Section 158BC, theAssessing Officer was not justified in levying interest. It was alsoBcontended that in Section 158BD after the words “that Assessing Officershall proceed” the words “under Section 158BC” was inserted w.e.f.01.06.2002 by the Finance Act, 2002. It was contended that theamendment was specifically brought to cure the anomaly and the factthat it has been made prospective w.e.f. 01.06.2002 and therefore, theCinterest cannot be validly levied under Section 158BFA(1) in a casewhere notice under Section 158BD was issued prior to 31.05.2002 andin the present case the notice was issued on 28.11.1997. The learnedITAT allowed the appeal preferred by the assessee by observing thatSection 158BFA(1) inserted w.e.f. 01.01.1997, prescribes levy of interestand never require to pay the self-assessment tax due along with theDreturn of income. Interest is leviable on undisclosed income determinedwith the assessment. It was observed that 140A requiring to pay self-assessment tax along with the return of income filed under Section158BC(a) was amended w.e.f. 01.06.1999 only. It was observed that inthe present case the return was filed on 19.01.1999 and at the relevantEpoint of time there was no provision to pay self-assessment tax alongwith the return of income and therefore no interest was leviable underSection 158BFA(1).

4.3 The revenue being aggrieved by the order passed by the ITAT,filed an appeal before the High Court being ITA No.277 of 2004. By theFimpugned judgment and order, the High Court has reversed the decisionof the ITAT. The High Court has observed that the amendment to Section140A is of no consequence so far as determination of interest underSection 158BFA(1) is concerned. The High Court negatived thesubmission on behalf of the assessee that in absence of any specificnotice under Section 158BC, there shall not be any levy of interest underGSection 158BFA(1) on the submission that prior to the amendment byincluding Section 158BC within the scope of Section 158BD by FinanceAct, 2002 w.e.f. 01.06.2002. So far as a notice under Section 158BD,provision of Section 158BFA(1) was not attracted. The High Court hasobserved and held that levy of provisions of Section 158BD prior to theHamendment in terms of Finance Act, 2002 i.e. before adding the words “under Section 158BC”, section itself indicates the procedure that wasrequired to be followed by the Assessing Officer, is only in terms of thevery provisions of Chapter XIV-B of the Act and therefore Section158BC as well as 158BFA(1) are even otherwise attracted and justbecause the Legislature thought it fit to add or to mention Section 158BCby way of amendment through Finance Act, 2002, it would not makeany difference to the earlier provision of Section 158BD which evenotherwise envisages within itself the provisions and applicability of Section158BD and 158BFA(1). Consequently, the High Court has answeredthe questions of law in favour of the revenue and against the assesseeand consequently allowed the said appeal.

4.4 Now so far as the levy of surcharge under Section 113 of theIncome Tax Act, the High Court has held the said question also in favourof the revenue relying upon the decision of this Court in the case ofCommissioner of Income Tax vs. Suresh N. Gupta – (2008) 297ITR 322 (SC).

4.5 Being aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court, the assessee has preferred thepresent appeals.

5. Shri Preetesh Kapur, learned Senior Advocate has appearedon behalf of the assessee – appellant and Shri Balbir Singh, learnedASG has appeared on behalf of the Revenue.

6. Now, so far as the liability to pay the interest – applicability ofSection 158BFA to persons who have not been issued notice under Section158BC prior to the amendment in Section 158BD by Finance Act, 2002,it is vehemently submitted by Shri Kapoor, learned Senior Counselappearing on behalf of assessee that in the present case admittedly thepresent assessee was never issued notice under Section 158BC, butwas issued notice only under Section 158BD. It is submitted that in factprior to amendment in Section 158BD by Finance Act, 2002, there wasno requirement to issue notice to the “other person” under Section 158BC.It is submitted that in view of the above factual position, Section 158BFAapplies only where a return “as required by notice under Clause (a) ofSection 158BC” has not been furnished within time. It is further submittedthat in absence of such notice under Clause (a) of Section 158BC, thefundamental pre-requisite of the section is not fulfilled.

6.1 It is submitted that if on its plain words a section does notapply then liability under that section cannot be imposed. It is submitted A

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Athat as consistently being held by this Hon’ble Court that for liability tobe fastened upon the assessee, it must be shown that he unambiguouslyfalls within the letter of the section. Reliance is placed on the decision ofthis Court in the case of Mathuram Agrawal Vs. State of MadhyaPradesh, (1999) 8 SCC 667 (Paras 13 and 14).B6.2 It is submitted that therefore since Section 158BFA does notcover a situation where notice has been issued under Section 158BD, nointerest under that section can be recovered from the present assessee.

6.3 It is further submitted that the department’s argument beforethe High Court was that amendment in Section 158BD vide FinanceCAct, 2002, introducing the requirement of issuing notice under Section158BC to the “other person”, applied even to pending proceedings iserroneous and against the Constitution Bench decision of this Court inthe case of Commissioner of Income Tax (Central)-I, New DelhiVs. Vatika Township Private Limited – 2015 (1) SCC 1 (Para 28),wherein the Constitution Bench has clearly laid down that theDpresumption is that every amendment is prospective and the amendmentapplies from the assessment year in which it is introduced.

6.4 It is further submitted that in any event, consequence of thesaid argument will be that the entire block assessment (not just levy ofinterest) would be rendered non-est inasmuch as this Court in theEaforesaid decision has laid down that where a section requires issuanceof notice such notice is a jurisdictional pre-requisite and in the absenceof such notice, the entire proceedings are liable to be quashed. Relianceis placed on the decision of this Court in the case of AssistantCommissioner of Income Tax and Anr. Vs. Hotel Blue Moon,F(2010) 3 SCC 259 (Para 22). It is submitted that in other words if theamendment applied retrospectively, then issuance of notice under Section158BC was mandatory even to the “other person” (being the assesseeherein) and in the absence thereof the entire block assessment wouldfail.

6.5 It is submitted that even the submission on behalf of departmentGthat issuance of notice under Section 158BC is a mere formality andthat no notice under Section 158BC is required to be issued to “otherperson” even after the amendment to Section 158BD vide Finance Act,2002, is concerned, it is submitted that the said submission is also erroneousfor the following reasons :H

“(i) The said argument goes against the specific mandatorylanguage of section 158BD as it stands now namely. “…..andthat Assessing Officer shall proceed [under section 158BC]against such other person …….”

{As submitted above, in view of the judgment of this Hon’bleCourt in Hotel Blue Moon, the issuance of a notice under thespecified section, would be a jurisdictional pre-requisite, andhence the entire block assessments would be rendered non-est.}

(ii) Furthermore, the argument renders otiose the specificamendment in section 158BD adding the words “under Section158BC” vide Finance Act, 2002. If the Department’scontention is correct then this amendment was unnecessary.

(iii) In any event, this argument does not answer the contentionof the assessee that section 158BFA on a plain reading, appliesonly where a return “as required by a notice under clause (a)of section 158BC” has not been furnished within time. In thepresent case we are concerned with the limited issue of levyof interest under section 158BFA. Even if {for the sake ofargument} notice under section 158BC is not mandatory, thatdoes not change the specific words of section 159BFA andcannot bring within its net a person who has not been issueda notice under section 158BC. On the other hand, theargument being raised by the assessee ensures that post 2002even the “other person” comes within the purview of section158BFA.

(iv) This argument of the Department also goes against thespecific pari materia provision namely section 153C. as rightlypointed out by the learned ASG, post 31[st] May, 2003, in caseof a search, the provisions of 153A to 153C apply and thatsection 153C is pari materia with 158BD.”

6.6 Making above submissions, it is prayed to hold that in absenceof the notice under Section 158BC, served upon the assessee – “otherperson”, the Assessing Officer was not justified in levying the interestunder Section 158BFA.

6.7 Now, so far as the levy of surcharge under proviso to Section113 of Income Tax Act is concerned, it is vehemently submitted that as A

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Asuch the said question is now covered in favour of the assessee by theConstitution Bench decision of this Court in the case of Vatika TownshipPrivate Limited (supra) (Para 37 to 40). It is submitted that the decisionof this Court in the case of Suresh N. Gupta (supra) that has beenrelied upon by the High Court in the impugned judgment has beenspecifically overruled by the Constitution Bench in Vatika TownshipBPrivate Limited (supra).

6.8 Now, so far as chargeability of interest under Section 158BFAprior to 01.06.1999 in the case of persons issued notice under Section158BC is concerned, it is submitted that interest only follows the principal.In this case the principal being the tax payable. It is submitted that inCother words the liability to pay interest cannot arise if there was noliability to pay the tax itself along with the return, at the relevant point oftime. It is submitted that interest only being an element to compensatethe revenue for having been deprived of the tax, interest can start runningonly once a liability to deposit tax arises.

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6.9 It is submitted that in the present case it is clear that neitherSection 158BC nor Section 158BFA require the assessee to pay taxalong with the return. It is submitted that this liability to deposit the taxalong with return arises only under Section 140A. However, at the relevantpoint of time Section 140A did not apply to Section 158BC and henceEthere was no liability to deposit tax along with the return. It is submittedthat this lacuna was noticed by Parliament and by the Finance Act, 1999,the words “Section 158BC” have been inserted in Section 140A w.e.f.01.06.1999. It is submitted that for the period prior to 01.06.1999 thesubmission on behalf of the department that Section 158BFA is to beseen independently from Section 140A may not be accepted. It isFsubmitted that therefore at the relevant point of time there being noliability to deposit tax along with the return, there can be no levy ofinterest” on that tax for mere failure to file return.

6.10 Making above submissions, it is prayed to allow the presentappeals and answer the issues / questions of law in favour of the assesseeGand against the revenue.

7. All these appeals are vehemently opposed by Shri Balbir Singh,learned ASG appearing on behalf of the revenue.

7.1 It is submitted that the present appeals arise out of searchconducted on 13.02.1997 in the Khoday Group of companies. All appealsH

raised one common question regarding the levy of interest under Section158BFA on the undisclosed income of the assessee. It is submitted thatpursuant to the search conducted on 13.02.1997, Section 158BD noticewas issued to the assessee (“other person”) to file return for the blockperiod 1987-88 to 1997-98, whereafter the Assessing Officer passedthe order of assessment under Section 158BD and determined the income.The Assessing Officer also levied interest under Section 158BFA(1) fordifferent periods, depending on the date of filing of return in each case.It is submitted that pursuant to the notice issued to file return, there wasdelay in filing return and Section 158BFA(1) being mandatory in natureas per which the interest became payable and was liable to be paid bythe assessee after the due date stipulated in the notice and the date ofactual filing of return.

7.2 It is submitted that the interest under Section 158BFA(1) ofthe Act is levied to compensate the government for delay in filing ornon-filing of return by the assessee pursuant to determination underSection 158BC / 158BD of the Act.

7.3 It is further submitted that subsequently, Section 140A (1) ofthe Income Tax Act was amended by the Finance Act, 1999, w.e.f.01.06.1999 incorporating Section 158BC making the assessee liable topay tax before furnishing return under Section 158BC and also file theproof of payment along with return. By insertion of Section 158BC inSection 140A, the Legislature casts an additional onus on the assesseeto pay self-assessment tax under Section 140A (1) of the Income TaxAct when the return of income was filed in response to the notice underSection 158BC. It is submitted that therefore it is very clear that whenthe return was filed by the assessee for the block period under Section158BC, there was no requirement to pay tax under Section 140A (1) ofthe Income Tax Act and the entire liability was limited to period of delayand not be delayed in payment of tax.

7.4 It is submitted that Chapter XIV-B of the Income Tax is aspecial provision with respect to “searched person” and “other thansearched person”. It is submitted that the scope and intent behindintroduction of Chapter XIV-B has been explained in detail by the KeralaHigh Court in the case of P.P.Umerkutty Vs. ACIT – (2005) 279ITR 213 Kerala. It is submitted that as explained by the Kerala HighCourt in the aforesaid decision, the provision relating to block assessmentunder Chapter XIV-B are self-contained note, providing for variation of A

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Athe manner in which the liability for payment of tax is determined andcovering a situation where undisclosed income relatable to the blockperiod had not suffered tax only due to non-disclosure coming to light incourse of certain search proceedings etc.

7.5 It is submitted that the scheme of block assessment introducedBunder Chapter XIV-B has been explained and considered by theConstitution Bench of this Court in the case of Vatika Township PrivateLimited (supra). It is submitted that as observed by this Court, ChapterXIV-B of the Act deals with block assessment which lays down a specialprocedure for search cases. It is submitted that as observed, the mainreason for adding this provision in the Act was to curb tax evasion andCexpedite as well as simplify the assessment in such searched cases. It issubmitted that even as observed and held by this Court in the aforesaiddecision Chapter XIV-B is a complete code in itself providing for self-contained machinery for assessment of undisclosed income for the blockperiod of ten years or six years as the case may be.

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7.6 It is submitted that the levy of interest under Section 158BFA(1)is linked to the period of filing of return and that period alone is to betaken into consideration particularly as the levy of interest being only fordelayed period of filing return. It is submitted that delay of interest is notlinked to delay in payment of taxes but due to delay in filing the return.

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7.7 Insofar as the submission on behalf of the assessee that inabsence of any notice under Section 158BC to the “other person” priorto the amendment in Section 158BD vide Finance Act, 2002 and therebyentire block assessment would be rendered non-est and the submissionon behalf of the assessee that the amendment vide Finance Act, 2002 inFSection 158BD adding the words “under Section 158BC” would becomeotiose it is vehemently submitted that the said contentions are withoutany merit. Relying upon Notes of Clauses appended to Clause 64 of theFinance Bill, 2002, whereby said words “under Section 158BC” wasinserted it is submitted that the words “under Section 158BC” in Section158BD has been inserted so as to clarify that Assessing Officer shallGproceed against such “other person” under Section 158BC. It is furthersubmitted that Chapter XIV-B prescribes a special procedure forcomputation of income for the block period in search and seizure cases.Section 158BD indicates the procedure that was required to be followedby Assessing Officer when any person other than a person with respectHto whom search was made. It is submitted that even bereft of clarificatory amendment brought in vide Finance Act, 2002, Section 158BD providedthat provision of Chapter-XIV-B of the Act would apply accordinglyand therefore the provision of Section 158BC and 158BFA was attracted.It is submitted that insertion of “under Section 158BC” only makes itclear what was always existing under Section 158BD.

7.8 It is submitted that if the contention of the assessee that Section158BFA would not be attracted unless notice under Section 158BC isprovided then for the period prior to the clarificatory amendment broughtin prior to Finance Act, 2002, is accepted, in that case, the provision ofSection 158BD will be rendered nugatory qua Section 158BFA. It issubmitted that such an interpretation will result in absurdity and the wholeintention behind Section 158BD being on the statute book will be lost.

7.9 Now so far as the chargeability of interest under Section158BFA prior to 01.06.1999 in case of persons issued notice under Section158BC and the submission on behalf of assessee that since the interestonly follows principal, the liability of payment of interest does not ariseas there was no liability to pay tax along with return, since at the relevantpoint of time, Section 140A did not apply to Section 158BC , there wasno liability to deposit tax along with return, hence, there can be no levyof interest on that tax for mere failure to file return, it is submitted thatthe said contention runs contrary to the mandatory and compensatorylanguage of Section 158BFA(1). Reliance is placed on Notes on Clausesand the memorandum explaining amendment to Section 140A of the Actmore particularly Clause 63 by which it was sought to amend Section140A of the Income Tax Act. It is submitted that a conjoint reading ofthe Note on Clauses and the memorandum it is very clear that Legislatureoriginally intended to make assessee liable to pay taxes and interestwhen the return was filed under Section 139 or under Section 142 orunder Section 148. It is submitted by virtue of amendment the Legislatureproposed to make those assessees who are filing return under Section158BC also liable to pay tax and interest under Section 140A. It issubmitted that memorandum explaining the provisions of Finance billfurther makes it clear that the existing provisions of Section 140A arenot applicable to Chapter XIV-B relating to assessment of income ofblock period in search and seizure cases. The said memorandum alsorecognizes that the admitted tax declared in return cannot be collectedtill the assessment is completed. Therefore, the Legislature intended toamend Section 140A by incorporating Section 158BC so as to make A

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Aliable those persons who are filing return under Section 158BC also.Thus, by virtue of the amendment, a new class of assessee was broughtto the statute book whose income are subject to the assessment underChapter XIV-B, in Section 140A compelling them to pay self-assessmenttax. It is submitted that therefore if the Legislature wanted to apply theprovisions of Section 140A, they would have expressly stated so. TheBvery fact that there is no provision in Chapter XIV-B for applying provisionof Section 140A, clearly shows that Legislature never intended to applythe provisions of Section 140A before 01.06.1999. This was also madeclear in the memorandum explaining the Finance Bill, 1999, by sayingthat there is no corresponding provision in Chapter XIV-B for paymentCof self-assessment tax at the time of filing the return. It is submitted thattherefore interest under Section 158BFA is leviable on stand-alone basisfor non-filing of return which ceases on the day return is filed. It issubmitted that said provision is similar to Section 234A.

7.10 It is submitted that in the impugned judgment and order theDHigh Court has explained the rationale behind introduction of Section158BC in Section 140A and has specifically held that “the liability ofpayment of interest does not stop merely on filing of return but it isattracted in terms of Section 140A in payment of tax in terms of Sectionand even now the provision of Section 158BFA(1) and 140A operateindependently”. It is submitted that in view of the same, the submissionEon behalf of assessee to refute its liability to pay interest under Section158BFA deserves to be negatived.

7.11 Now insofar as the levy of surcharge under proviso to Section113 of the Income Tax Act is concerned Shri Balbir Singh, learned ASGappearing for revenue has fairly conceded that the said issue has beenFdecided in favour of the assessee in terms of the decision of this Court inthe case of Vatika Township Private Limited (supra).

8. Heard the learned counsels appearing on behalf of therespective parties at length. The questions of law posed for theconsideration of this Court in the present appeals are:(i) levy of interestGunder Section 158BFA(1) of the Income Tax Act for late filing of thereturn for the block period in absence of any notice under Section 158BC of the Act and for the period prior to 01.06.1999? and (ii) the levy of thesurcharge under proviso to Section 113 of the Income Tax Act.

9. Now insofar as the levy of the surcharge under proviso toHSection 113 of the Income Tax Act is concerned, the said issue is now not res integra in view of the decision of this Court in the case of VatikaTownship Private Limited (supra). In paragraphs 37 to 40, 44 and45, it is observed and held as under:

“Answer to the reference

37. When we examine the insertion of the proviso in Section 113of the Act, keeping in view the aforesaid principles, our irresistibleconclusion is that the intention of the legislature was to make itprospective in nature. This proviso cannot be treated asdeclaratory/statutory or curative in nature.

38. There are various reasons for coming to this conclusion whichwe enumerate hereinbelow.

Reasons in support

39. The first and foremost poser is as to whether it was possibleto make the block assessment with the addition of levy ofsurcharge, in the absence of proviso to Section 113? In Suresh N.Gupta [CIT v. Suresh N. Gupta, (2008) 4 SCC 362] itself, it wasacknowledged and admitted that the position prior to theamendment of Section 113 of the Act whereby the proviso wasadded, whether surcharge was payable in respect of blockassessment or not, was totally ambiguous and unclear. The Courtpointed out that some assessing officers had taken the view thatno surcharge is leviable. Others were at a loss to apply a particularrate of surcharge as they were not clear as to which Finance Act,prescribing such rates, was applicable. It is a matter of commonknowledge and is also pointed out that the surcharge varies fromyear to year. However, the assessing officers were indeterminativeabout the date with reference to which rates provided for in theFinance Act were to be made applicable. They had four datesbefore them viz.: (Suresh N. Gupta case [CIT v. Suresh N.Gupta, (2008) 4 SCC 362], SCC p. 379, para 35)

(i) Whether surcharge was leviable with reference to the ratesprovided for in the Finance Act of the year in which the searchwas initiated; or

(ii) the year in which the search was concluded; or

(iii) the year in which the block assessment proceedings underSection 158-BC of the Act were initiated; or A

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(iv) the year in which block assessment order was passed.39.1. The position which prevailed before amending Section 113of the Act was that some assessing officers were not levying anysurcharge and others who had a view that surcharge is payablewere adopting different dates for the application of a particularFinance Act, which resulted in different rates of surcharge in theassessment orders. In the absence of a specified date, it was notpossible to levy surcharge and there could not have been anassessment without a particular rate of surcharge. As stated above,in Suresh N. Gupta [CIT v. Suresh N. Gupta, (2008) 4 SCC 362]itself, the Court has pointed out four different dates which werebothering the assessees as well as the Department. The choiceof a particular date would have material bearing on the paymentof surcharge. Not only the surcharge is different for differentyears, it varies according to the category of assessees and forsome years, there is no surcharge at all. This can be seen fromthe following table prescribing surcharge for different assessment

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years:

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39.2. The rate at which tax, or for that matter surcharge is to beGlevied is an essential component of the tax regime. In GovindSaran Ganga Saran v. CST [1985 Supp SCC 205 : 1985 SCC(Tax) 447 : (1985) 155 ITR 144], this Court, while explaining theconceptual meaning of a tax, delineated four components therein,as is clear from the following passage from the said judgment:H(SCC pp. 209-10, para 6)

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“6. The components which enter into the concept of atax are well known. The first is the character of the impositionknown by its nature which prescribes the taxable eventattracting the levy, the second is a clear indication of the personon whom the levy is imposed and who is obliged to pay the tax,the third is the rate at which the tax is imposed, and the fourthis the measure or value to which the rate will be applied forcomputing the tax liability. If those components are not clearlyand definitely ascertainable, it is difficult to say that the levyexists in point of law. Any uncertainty or vagueness in thelegislative scheme defining any of those components of thelevy will be fatal to its validity.”

It is clear from the above that the rate at which the tax is to beimposed is an essential component of tax and where the rate isnot stipulated or it cannot be applied with precision, it would bedifficult to tax a person. This very conceptualisation of tax wasrephrased in CIT v. B.C. Srinivasa Setty [(1981) 2 SCC 460 :1981 SCC (Tax) 119 : (1981) 128 ITR 294], in the following manner:(SCC p. 465, para 10)

“10. … The character of computation of provisions ineach case bears a relationship to the nature of the charge.Thus the charging section and the computation provisionstogether constitute an integrated code. When there is a caseto which the computation provisions cannot apply at all, it isevident that such a case was not intended to fall within thecharging section.”

39.3. In absence of certainty about the rate, because ofuncertainty about the date with reference to which the rate is tobe applied, it cannot be said that surcharge as per the existingprovision was leviable on block assessment qua undisclosedincome. Therefore, it cannot be said that the proviso added toSection 113 defining the said date was only clarificatory in nature.From the aforesaid table showing the different rates of surchargein different years, it would be clear that choice of date has to beformed as in some of the years, there would not be any surchargeat all.

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40. Pertinently, the Department itself acknowledged andadmitted this fact which is clear from the manner the issue wasdebated in a Conference of Chief Commissioners which was heldsometime in the year 2001. In this Conference, some proposalsrelating to simplification and rationalisation of procedures andprovisions were noted in respect of block assessment. Thefoofaraw made in the Conference by those who had to apply theprovision, was not without substance because of the garboil [Ed.:From the French word gérable: meaning a confused disorderedstate; turmoil.] situation which this provision had created and isamply reflected in the proposals which were submitted in thefollowing terms:

“In the case of a block assessment, there are two problemsin relation to the levy of surcharge. The first is that Section 113does not mention a Central Act. In the absence of a referenceto another Central Act in the charging section, it becomesdifficult to justify levy of surcharge. Even if it is assumed thatreference in the Finance Act to Section 113 is a sufficientauthority to levy surcharge, the second problem is that theFinance Act levies surcharge on the amount of income tax onthe income of a particular assessment year whereas in theblock assessment tax is levied on the undisclosed income ofthe block period. Absence of a specific assessment year in theblock assessment may render the levy suspect. Yet anotherproblem is the rate of surcharge applicable. To illustrate, if thesearch took place on, say, 4-4-1996, whether the rate ofsurcharge is to be adopted as applicable to the assessmentyear 1996-1997 or the assessment year 1997-1998, the rate ofsurcharge being different for the two years? The provisions ofSection 113 or the provisions of the Finance Act do not offerany guidance on the issue.

Suggestions

The foregoing problem indicates that levy of surcharge onundisclosed income is a matter of uncertainty and is prone tolitigation. In the circumstances, it is suggested that Section 113may be amended retrospectively in order to provide for levy ofsurcharge at the rate applicable to the assessment year relevantto the financial year in which the search was concluded.”

The Chief Commissioners accepted the position, in no uncertainterms, that as per the language of Section 113, as it existed, it wasdifficult to justify levy of surcharge. It was also acknowledgedthat even if Section 113 empowered to levy surcharge, since blockassessment tax is levied on the undisclosed income of the blockperiod, absence of specific assessment year in the blockassessment would render the levy suspect.

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44. The Finance Act, 2003, again makes the position clearthat surcharge in respect of block assessment of undisclosedincome was made prospective. Such a stipulation is contained inthe second proviso to sub-section (3) of Section 2 of the FinanceAct, 2003. This proviso reads as under:

“Provided further that the amount of income taxcomputed in accordance with the provisions of Section 113shall be increased by a surcharge for purposes of the Union asprovided in Paras A, B, C, D or E, as the case may be, of PartIII of the First Schedule of the Finance Act of the year inwhich the search is initiated under Section 132 or requisition ismade under Section 132-A of the Income Tax Act:”

Addition of this proviso in the Finance Act, 2003 further makes itclear that such a provision was necessary to provide for surchargein the cases of block assessments and thereby making itprospective in nature. The charge in respect of the surcharge,having been created for the first time by the insertion of the provisoto Section 113, is clearly a substantive provision and hence is tobe construed prospective in operation. The amendment neitherpurports to be merely clarificatory nor is there any material tosuggest that it was intended by Parliament. Furthermore, anamendment made to a taxing statute can be said to be intended toremove “hardships” only of the assessee, not of the Department.On the contrary, imposing a retrospective levy on the assesseewould have caused undue hardship and for that reason Parliamentspecifically chose to make the proviso effective from 1-6-2002.

45. The aforesaid discursive of ours also makes it obviousthat the conclusion of the Division Bench in Suresh N.

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AGupta [CIT v. Suresh N. Gupta, (2008) 4 SCC 362] treating theproviso as clarificatory and giving it retrospective effect is not acorrect conclusion. The said judgment is accordingly overruled.”

9.1 While passing the impugned judgment and order, the HighCourt has relied upon earlier decision of this Court in the case of SureshBN. Gupta (supra). However, the said decision has been specificallyoverruled by this Court in the case of Vatika Township Private Limited(supra).

9.2 In view of the above, the question of law with respect to levyof the surcharge under proviso to Section 113 of the Income Tax is heldCin favour of the assessee and against the revenue. It is observed andheld that in the present case the assessee is not liable to pay the surchargeunder proviso to Section 113 of the Income Tax Act. To that extent theimpugned judgment and order passed by the High Court and theassessment order qua the surcharge under proviso to Section 113 of theIncome Tax Act deserves to be quashed and set aside.D

10. Now so far as levy of the interest under Section 158BFA(1)of the Income Tax Act in absence of any notice served upon the assesseeunder Section 158BC of the Act and the liability to pay the interest undersaid provision for the period prior to 01.06.1999 is concerned, whileconsidering the issue the reason for adding Chapter XIV-B for the blockEassessment is required to be considered. The reason, object and purposeof Chapter XIV-B has been adequately dealt with and considered bythis Court in the case of Vatika Township Private Limited (supra).It is observed and held that Chapter XIV-B which deals with blockassessment lays down a special procedure for searched cases. The mainFreason for adding the said provisions in the Act was to curb tax evasionand expedite as well as simplify the assessment in such searched cases.It is observed and held that the essence of the new procedure underChapter XIV-B is a separate single assessment of the “undisclosedincome”, detected as a result of search and this separate assessmenthas to be in addition to the normal assessment covering the said period.GTherefore, a separate return covering the years of the block period is apre-requisite for making block assessment. It is observed and held thatChapter XIV-B is a complete code in itself providing for self-containedmachinery for assessment of undisclosed income for the block period of10 years or 6 years as the case may be. In paragraphs22 to 25, it isHobserved and held as under:

“Scheme of Chapter XIV-B

22. Before we proceed to answer the question, it would benecessary to keep in mind the scheme of block assessmentintroduced in Chapter XIV-B to the Finance Act, 1995 w.e.f. 1-7-1995.

23. As already mentioned in brief by us, Chapter XIV-B of theAct which deals with block assessment lays down a specialprocedure for search cases. The main reason for adding theseprovisions in the Act was to curb tax evasion and expedite as wellas simplify the assessments in such search cases:

23.1. Undisclosed incomes have to be related in different yearsin which income was earned under block assessment. This isbecause in such cases, the “block period” is for previous yearsrelevant to 10/6 assessment years and also the period of the currentprevious year up to the date of the search i.e. from 1-4-2000 to17-1-2001, in this case. The essence of this new procedure,therefore, is a separate single assessment of the “undisclosedincome”, detected as a result of search and this separateassessment has to be in addition to the normal assessment coveringthe same period. Therefore, a separate return covering the yearsof the block period is a prerequisite for making block assessment.Under the said procedure, the Explanation is inserted in Section158-BB, which is the computation section, explaining the methodof computation of “undisclosed income” of the block period. It isnow well accepted that this Chapter is a complete code in itselfproviding for self-contained machinery for assessment ofundisclosed income for the block period of 10 years or 6 years, asthe case may be.

23.2. In case of regular assessments for which returns are filedon yearly basis, Section 4 of the Act is the charging section.However, at what rate the income is to be taxed is specified everyyear by Parliament in the Finance Act. In contradistinction, whenit comes to payment of tax on the undisclosed income relating tothe block period, the rate is specified in Section 113 of the Act. Itremains static at 60% of the undisclosed income which is thecategorical stipulation in Section 113 of the Act. Section 158-BA(2)

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of the Act clearly states that the total undisclosed income relatingto the block period “shall be charged to tax” at the rates specifiedunder Section 113 as income of the block period irrespective ofprevious year or years. Under Section 113 of the Act, theundisclosed income is chargeable to tax at the rate of 60%.

24. From the above, it becomes manifest that Chapter XIV-Bcomprehensively takes care of all the aspects relating to the blockassessment relating to undisclosed income, which includes Section156-BA(2) as the charging section and even the rate at whichsuch income is to be taxed is mentioned in Section 113 of the Act.No doubt, Section 4 of the Act is also a charging section which ismade applicable on “total income of previous year”. As per Section2(45), “total income” means the total amount of income referredto in Section 5, computed in the manner laid down in the Act.Section 5 of the Act enumerates the scope of total income andprescribes, inter alia, that it would include all income which isreceived or is deemed to be received in India in any previous yearby or on behalf of a person who is a resident. No doubt, undisclosedincome referred to in Chapter XIV-B is also an income whichwas received but not disclosed, therefore, in the first blush, theargument of the Department that undisclosed income referred toin Chapter XIV-B is also a part of total income and consequentlySection 4 becomes the charging section in respect thereof as well.However, a little closer scrutiny leads us to conclude that that isnot the position as per the scheme of Chapter XIV-B. In the firstplace, income referred to in Section 5 talks of total income of any“previous year”. As per Section 2(34) of the Act, “previous year”means previous year as defined in Section 3. Section 3 lays downthat previous year means “the financial year immediately precedingthe assessment year”. Undisclosed income referred to in ChapterXIV-B is not relatable to the previous year. On the contrary, it isfor the block period which may be 6 years or 10 years, as thecase may be.

25. Consequently, as already mentioned, while analysing thescheme of Chapter XIV-B, such chapter is a complete code inrespect of assessments of “undisclosed income”. Not only itdefines what is undisclosed income, it also lays down the blockperiod for which undisclosed income can be taxed. Further, it also lays down the procedure for taxing that income. It is very pertinentto note at this stage that for this purpose, specific provision in theform of Section 158-BA(2) is inserted making it a charging section.Thus, a diagnostic of Chapter XIV-B of the Act leads to irresistibleconclusion that it contains all the provisions starting from chargingsection till the completion of assessment, by prescribing a specialprocedure in relation thereto, making it a complete code by itself.Looking at it from this angle, the character and nature of“undisclosed income” referred to in Chapter XIV-B becomes quitedistinct from “total income” referred to in Section 5. It is of somesignificance to observe that when a separate charging section isintroduced specifically, to assess the undisclosed income,notwithstanding a provision in the nature of Section 4 already onthe statute book, this move of the legislature has to be assignedsome reason, otherwise, there was no necessity to make a provisionin the form of Section 158-BA(2). It could only be that forassessing undisclosed income, the charging provision is Section158-BA(2) alone.”

10.1 Thus, with respect to assessment of undisclosed income forthe block period including the filing of the return etc., the normalassessment proceedings including under Section 140 of the Income TaxAct shall not be applicable. Therefore, the submission on behalf of theassessee that interest under Section 158BFA for the period prior to01.06.1999 in view of insertion of the words “Section 158BC” in Section140A w.e.f. 01.06.1999, shall not be chargeable, cannot be accepted. Atthis stage, it is required to be noted that it is the case on behalf of theassessee that the interest only follows the principal and in this case theprincipal being the tax payable, there was no liability to pay the tax alongwith the return prior to 01.06.1999 which came to be introduced byinsertion of the words “Section 158BC” in Section 140A and thereforethe liability to pay interest cannot arise if there was no liability to pay thetax itself along with the return at the relevant time, has no substance. Atthis stage, it requires to be noted that neither Section 158BC nor Section158BFA required the assessee to pay tax along with the return. Liabilityto deposit the tax along with return arises only under Section 140A.However, at the relevant point of time Section 140A did not apply toSection 158BC and hence there was no liability to deposit tax along withthe return. The said lacunae was noticed by the Parliament and by the A

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AFinance Act, 1999, the words “Section 158BC” have been inserted inSection 140A w.e.f. 01.06.1999. That does not mean that interest underSection 158BFA would not be leviable in case of late filing of return.The return under Section 158BC was required to be filed as per ChapterXIV-B and on the delay in filing the return, there shall be liability to payinterest leviable under Section 158BFA(1).B

10.2 At this stage, the Notes on Clauses and the memorandumexplaining the said provision which is reported in (1999) 236 ITR (St)141 and 187 are required to be considered and reproduced, which readas under:

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“Clause 63 seeks to amend section 140A of the Income TaxAct relating to self-assessment.

Under the existing provisions, if any tax is payable on thebasis of any return required to be furnished under section139 of section 142 or section 148, the assessee shall be liableto pay such tax along with interest payable under the Actbefore furnishing the return and the return shall beaccompanied by proof of payment of such tax and interest.

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It is proposed to provide that any person before filing of thereturn under section 158BC shall also be liable to pay taxand interest in accordance with the provisions contained insub-section (1) of section 140A.

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It is further proposed to provide that after a block assessmentunder section 158BC has been made, any amount paid undersub-section (1) of section 140A shall be deemed to have beenpaid towards the block assessment under section 158BC.

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These amendments will take effect from 01.06.1999.”

Further, the Memorandum Explaining the Provisions readsas follows, G

“Under section 140A of the Income Tax Act, the assessee isrequired to pay tax on the basis of income declared in thereturn and such tax is required to be paid before the return isfurnished and the return is accompanied by the proof of suchpayment. The existing provisions of section 140A are not H

applicable to Chapter XIV-B relating to the assessment of theincome of the block period in search and seizure cases. Thereis also no corresponding provision in Chapter XIV-B forpayment of self-assessment tax at the time of filing the return.Therefore, the tax on the admitted income declared in the returncannot be collected till the assessment is completed. In viewof the above, it is proposed to amend section 140A of IncomeTax Act to provide for the requirement of payment of self-assessment tax at the time of filing the return under section158BC relating to block assessment of search cases.”

10.3 Thus, on conjoint reading of the above Notes on Clauses andMemorandum, it is very clear that the Legislature originally intended tomake the assessee liable to pay taxes and interest when the return wasfiled under Section 139 or under Section 142 or Section 148. By virtue ofthe amendment, the Legislature thus proposed to make those assesseeswho are filing the return under Section 158BC also liable to pay tax andinterest under Section 140A. The memorandum explaining the provisionsof the Finance Bill further makes it clear that the existing provisions ofSection 140A were not applicable to Chapter XIV-B relating toassessment of income of the block period in search and seizure cases. Itfurther recognizes that the admitted tax declared in the return cannot becollected till the assessment is completed. Therefore, the Legislatureintended to amend Section 140A by incorporating Section 158BC so asto make liable those persons who are filing return under Section 158BCalso. Thus, by virtue of the amendment, a new class of assessee wasbrought onto the statute-book whose income are subject to be assessedunder Chapter XIV-B, in section 140A compelling them to pay self-assessment tax. Thus, the interest under Section 158BFA is leviable onstandalone basis for late or non-filing of return, which ceases on the dayreturn is filed. In the impugned judgment and order, the High Court haselaborately and comprehensively explained the rationale behindintroduction of Section 158BC in Section 140A and has specificallyobserved and held that the liability of payment of interest does not stopmerely on filing of the return but is attracted in terms of Section 140A tillpayment of tax in terms of the section and even now the provisions ofSection 158BFA(1) and Section 140A operate independently. We are incomplete agreement with the view taken by the High Court.

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A10.4 Now so far as the main submission on behalf of the assesseethat in absence of any notice under Section 158BC served upon theconcerned assessee and in view of insertion of the words “Section158BC” in Section 158BD inserted vide Finance Act, 2002, there shallnot be any liability to pay interest under Section 158BFA is concerned,the aforesaid submission is absolutely erroneous and has no substance.B

It is required to be noted that prior to amendment in Section 158BDvide Finance Act, 2002 and even thereafter, the provisions of Section158BC would be applicable in case of “searched persons”. Section 158BDwould be applicable in case of persons “other than searched persons”.CTherefore, in case of a person “other than searched person”, no noticeunder Section 158BC which is required to be issued in case of “searchedpersons” was required to be issued. For a person “other than searchedperson”, notice under Section 158BD is sufficient.

10.5 Now so far as the submission on behalf of the assessee thatDthe words “under Section 158BC” has been inserted in Section 158BDvide Finance Act, 2002 and therefore, in absence of any notice underSection 158BC prior to the amendment, there shall not be any liability topay interest under Section 158BFA is concerned, a perusal of the Noteson Clauses appended to Clause 64 of the Finance Bill, 2002, it appearsthat the same is clarificatory in nature.E

Clause 64 of the Finance Bill 2002, provides that:- “In section 158BD of the Income-tax Act, after the words “thatAssessing Officer shall proceed”, the words, figures and letters“under Section 158BC” shall be inserted with effect from theF1[st] day of June, 2002.”The Notes on Clauses appended to Clause 64 of the Finance Bill2002 states the following:- “It is proposed to insert the words “under section 158BC”Gafter the words “that Assessing Officer shall proceed” so asto clarify that the Assessing Officer shall proceed againstsuch other person under section 158BC”.

10.6 At this stage, it is required to be noted that as observed bythis Court in the case of Vatika Township Private Limited (supra),HChapter XIV-B prescribes a special procedure for computation of income

for the block period in search and seizure cases. Section 158BD shall beapplicable in case of any person other than a person with respect towhom search was made. As observed Chapter XIV-B is a completecode in itself providing for self-contained machinery for assessment ofundisclosed income for the block period. Therefore, in case of the personother than searched person the notice under Section 158BD would berequired/sufficient and in case of late filing of the return under Section158BC, the interest will be leviable under Section 158BFA. Any otherinterpretation would lead to Section 158BD nugatory. It can be seen thatby inserting the words “under Section 158BC” in Section 158BD, theParliament intended to clarify that the assessment for the block period incase of the persons other than searched persons would also be as perthe procedure under Section 158BC of the Income Tax Act. At thisstage, it is required to be noted that in the present case as such M/s.Khoday India Limited, and M/s. Khoday Breweries Limited – the personssearched were issued notice under Section 158BC and in case ofK.L.Swamy, who is the “other person”, the notice under Section 158BDhas been issued.

10.7 Therefore, the submission on behalf of the assessee that inabsence of any notice under Section 158BC served upon the assessee –persons other than searched persons for the period prior to the amendmentin Section 158BD vide Finance Act, 2002, there shall not be any liabilityto pay interest under Section 158BFA, has no substance and the same isrequired to be rejected and the said question is required to be answeredin favour of the revenue and against the assessee.

11. In view of the above and for the reasons stated above, thepresent appeals succeed in part. It is observed and held that the respectiveassessees are not liable to pay the surcharge under proviso to Section113 of the Income Tax Act. The impugned judgment and order passedby the High Court is required to be modified to the aforesaid extent. Sofar as the liability to pay the interest under Section 158BFA of the IncomeTax Act for late filing of the return under Section 158BC of the IncomeTax Act, in absence of any notice under Section 158BC upon the assessee– persons other than searched persons, the said question is held in favourof the revenue and against the assessee. The impugned judgment andorder passed by the High Court is hereby confirmed and it is observedand held that the assessee – persons other than searched persons shallbe liable to pay the interest on late filing of the return under Section A

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718SUPREME COURT REPORTS

[2023] 1 S.C.R.

A158BC even in absence of a notice under Section 158BC of the IncomeTax Act and even for the period prior to 01.06.1999. To that extent, theimpugned judgment and order passed by the High Court is herebyconfirmed. Present appeals are accordingly disposed of in terms of theabove. There shall be no orders as to costs.

B

Nidhi Jain

Appeals partly allowed.

(Assisted by : Tamana, LCRA)

C

D

E

F

G

H