Supreme Court: The division bench of M.R. Shah* and C.T. Ravikumar J.J., while allowing the appeal in part, modified the judgment passed by the Karnataka High Court and held that:
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respective assesses are not liable to pay surcharge under the proviso of Section 113 of the Income Tax Act, 1961 (‘The Act')
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‘Persons other than searched persons' shall be liable to pay interest on late filing of the return under Section 158 BC even in the absence of notice for the period prior to June 1999.
In the matter at hand, the dispute was with respect to levy of interest under Section 158 BFA (1) of the Act in respect of assessment completed under Section 158 BD of the Act for belatedly filing the return of income for the block period and also the levy of surcharge under proviso of Section 113 of the Act.
The appellant had filed a return including the ‘undisclosed income' in compliance with the notice under Section 158 for the block period between 1986 to 1997. However, an interest of 2% per month was levied for 13 months under Section 158 BFA (1) and also on the tax amount by the Assessing Officer.
Legal Trajectory
Consequently, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) which held that Section 158 BFA provides for levy of interest for late filing of return of block assessment and levy of interest under Section 234 A was compensatory in nature.
Aggrieved by the said order, the appellant filed an appeal before the Income Tax Appellate Tribunal (‘ITAT'), Bangalore which allowed the appeal by observing that Section 158 BFA (1) did not require to pay the self-assessment tax along with return of income. Interest was, however, leviable on ‘undisclosed income'. ITAT further observed that Section 140 A which required to pay self-assessment tax along with return of income was amended in June 1999. Whereof, the appellant filed his return in January 1999 when at that time no provision to pay self-assessment tax along with the return of income existed. Thus, no interest was leviable under Section 158 BFA (1) of the Act.
The revenue filed an appeal before the Karnataka High Court which reversed the decision of ITAT by answering the question of law in favour of the revenue and against the assessee and observed that amendment to Section 140 A was of no consequence for determining interest under Section 158 BFA (1). Prior to the amendment of Section 158BD i.e., before adding the words ‘under Section 158 BC', the Section itself indicated the procedure that was required to be followed by the Assessing Officer, which was in terms of Chapter XIV-B of the Act due to which Section 158 BC and 158 BFA (1) were attracted.
Question of Law
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Whether the interest under Section 158 BFA (1) of the Act for late filing of the return during the block period, in absence of any notice under Section 158 BC of the Act or the period prior to June 1999, leviable?
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Whether the surcharge under Section 113 proviso of the Act, leviable?
Issue No.1
While navigating through the first issue for consideration, the Supreme Court stated that the Chapter XIV-B deals with block assessment and lays down a special procedure. It exists to curb tax evasion, expediate and simplify the assessment in ‘searched' cases. In the present case, it was a separate single assessment of the ‘undisclosed' income which was detected due to the search. Therefore, a separate return covering the years of the block period was a pre-requisite for making block assessment. The Court, therefore, stated that the assessment of ‘undisclosed' income for the block period including the filing of the return, the normal assessment proceedings including under Section 140 of the Act shall not be applicable.
The Court noted that the ‘interest' only follows the ‘principal', therefore, the ‘principal' being the payable tax, resulted into no liability to pay the tax along with return. Consequently, no liability to pay interest if there was no liability to pay the tax.
The Court affirmed the order of the High Court which held that liability of payment of interest does not stop merely on filing of the return but was attracted in terms of Section 140A of the Act till payment of tax was made in terms of the said section.
The Court further noted that prior to amendment in Section 158 BD vide Finance Act, 2002, the provision of Section 158BC would be applicable in case of ‘searched persons' and Section 158BD would be applicable in cases of persons ‘other than searched persons'. Therefore, in the latter instance, no notice under Section 158 BC was required to be issued as notice under Section 158BD was sufficient.
Issue No.2
The Supreme Court stated that the surcharge under Section 113 proviso was res integra with the decision of Commissioner of Income Tax (Central)- I, New Delhi v Vatika Township Pvt. Ltd. (2015) 1 SCC 1 which was in favour of the assessee and against the revenue. The Court, therefore, held that the assessee was not liable to pay the surcharge under the proviso to Section 113 of the Act and thus, quashed the order passed by the High Court and the assessment order qua the surcharge under proviso to Section 113 of the Act.
Conclusion
The Supreme Court, therefore, allowed the appeal in part and held that the respective assesses were not liable to pay the surcharge under proviso to Section 113 of the Act and the order of the Karnataka High Court was modified to the aforesaid extent. Further, the Supreme Court affirmed the order of the High Court and held that ‘persons other than searched persons' shall be liable to pay interest on late filing of the return under Section 158 BC even in the absence of notice for the period prior to June 1999.
[K.L. Swamy v. The Commissioner of Income Tax, 2023 SCC OnLine SC 44, decided on 13-01-2023]
*Judgment by Justice M.R. Shah
Advocates who appeared in this case :
For the appellant- Senior Advocate Preetesh Kapur and Advocate Senthil Jagadeesan
For the respondent- Additional Solicitor General Balbir Singh and Advocate Raj Bahadur Yadav
*Simran singh , editorial assisstant has put this brief together