1. This appeal of the assessee relates to the block assessment year 1991-92 to 2001-02. The only issue arises for consideration is whether there can be a levy of surcharge over and above the rate of tax prescribed under Section 113 of the Income Tax Act, 1961.
2. Shri Sridhar, the learned counsel for the assessee submitted that there was a search in the assessee's premises on 8.2.2001. The assessment proceeding was completed for the block assessment year 1991-92 to 2001-02 under Section 158BC on 27.2.2003 determining the total undisclosed income at Rs. 22,31,200/-. The Assessing Officer (A.O.) levied income tax on the above determined undisclosed income at 60%. Apart from this, the A.O. also levied 17% as surcharge payable over and above the 60% tax. The assessee is now challenging only the levy of surcharge over and above the Income tax.
3. Shri Sridhar, the learned counsel for the assessee further submitted that Section 113 of the I.T. Act provides rate of tax at 60% in respect of the undisclosed income determined under Chapter XIV-B. The learned counsel invited our attention to Section 4 of the I.T. Act and submitted that the rate of tax prescribed under the Central Act would be applicable in respect of the assessment made raider regular courser.
In respect of the undisclosed income, the legislature prescribed a separate procedure under Chapter XIV-B. After computing the income, the rate of tax has been specifically provided under Section 113 of the Income Tax Act. Under Section 113 there was no reference to any Central enactment for the purpose of rate of tax. According to the learned counsel, Section 113 itself provides the rate of tax and therefore, there is no further scope for referring to the Central Act for the purpose of determing the rate of tax in respect of undisclosed income.
According to the learned counsel, Section 4(1) specifically refers to the Central enactment for the purpose of fixing the rate of tax, whereas for the purpose of block assessment, Section 113 provides the rate of tax itself. The learned counsel further submitted that Section 113 was amended by Finance Act, 2002 with effect from 1.6.2002. The legislature introduced a proviso which provides for levy of surcharge as levied by the Central Act. Therefore, if at all any surcharge that can be levied, it may be levied only in respect of the search carried out on or after 1.6.2002 and not before that. According to the learned counsel, since the search was carried out on 8.2.2001, the amended proviso to Section 113 is not applicable.
4. The learned counsel for the assessee further submitted that the Chief Commissioners of Income-Tax in their Conference expressed a doubt whether there can be any levy of surcharge without a specific amendment in Section 113 of the I.T. Act. The learned counsel further submitted that the Chief Commissioners also felt that Section 113 of the I.T. Act does not mention any Central Act for the purpose of rate of tax.
According to the learned counsel, in the absence of reference to another Central Act for charging surcharge in Section 113, there cannot be any justification for the levy of surcharge. The learned counsel further submitted that eventhough there was a reference in Finance Act, 2001 for levy of surcharge over and above the Income tax prescribed under Section 113 of the I.T. Act, the same cannot be made applicable to block assessment since Finance Act, 2001 refers only assessment year and not block assessment year. The learned counsel for the assessee further submitted that block assessment consists of several assessment years whereas the Finance Act prescribes the rate of surcharge for a particular assessment year. According to the learned counsel for the assessee, the Government of India accepted the recommendation of the Chief Commissioners and amended Section 113 by providing a proviso. The learned counsel also placed his reliance in the order of the Bangalore Bench of this Tribunal in the case of Microland Ltd v. Asstt. CIT, (1998) 67 ITD 446. The learned counsel also submitted that the Madras Bench of this Tribunal in the latest unreported decision in IT(SS) A.No. 28(Mds)/2003 held that the amended proviso to Section 113 will have prospective operation and therefore, there cannot be any levy of surcharge in respect of searches which took place before 1.6.2002. The learned counsel further submitted that the other Benches of this Tribunal has also taken a similar view.
5. On the contrary, Shri K. Anangapal, the learned Departmental Representative (D.R.) submitted that the Parliament by Finance Act, 1999 provided for levy of surcharge over end above the rate of income tax prescribed under Sections 112 and 113. A similar provision was also en acted by Finance Act, 2000 enabling the Government to levy surcharge. A specific reference was made with regard to Sections 112 and 113 of the I.T. Act. The Parliament has also enacted Finance Act, 2001 for levying surcharge over and above the tax computed in accordance with provisions of Sections 112 and 113 of the I.T. Act.
However, by Finance Act, 2002, the Parliament amended Section 113 and thereby a proviso was introduced to levy surcharge over and above the rate of tax prescribed under Section 113. By a separate provision in Finance Act, 2002 the Parliament continued the levy of surcharge in respect of tax determined under Section 112 of I.T. Act. According to the learned D.R., since the Parliament in their wisdom enacted finance Act, 2001 prescribing surcharge at the rate of 17% over and above the rate of income tax computed under Section 113, it cannot be said that there cannot be any levy of surcharge in respect of the search carried out before 1.6.2002.
6. Having heard the learned representatives on both sides, we also perused the material available on record. The only issue arises for consideration is whether there can be levy of surcharge over and above the rate of income tax prescribed under Section 113 of the Income Tax Act, 1961. Before considering the rival submissions made on behalf of both parties we have to first see what is "surcharge". The Apex Court had an occasion to deal with surcharge in the case of Sarojini Tea Co.
(P) Ltd. v. Collector of Dibrugarh, Court held that the expression "surcharge" in the context of taxation means an additional imposition which results in enhancement of the tax and the nature of additional imposition is the same as the tax on which it is imposed as surcharge. The Apex Court in the case of CIT v. K.Srinivasan, held that income tax includes surcharge and additional surcharge. Therefore, it is very clear that the surcharge is an enhancement of tax or an additional imposition which have all the characteristics of tax.
7. We have carefully gone through the provisions of Sections 4 and 113 of the Income Tax Act, 1961. According to Section 4, when a Central Act was enacted providing the rate of income tax, the same shall be charged for that year in accordance with the provisions of the Central Act.
Section 113 provides for levy of tax at the rate of 60% in respect of undisclosed income determined under Section 158BC for the block period.
The first objection of the assessee is that since there was no reference about the Central enactment in Section 113, as referred in Section 4(1), the rate of tax prescribed under Finance Act, 2001 for levy of surcharge under Sections 112 and 113 is not applicable. The Parliament enacted Income Tax Act in exercise of its power under Article 265 read with 270 of the Constitution of India. Article 265 of the Constitution of India says that no tax shall be levied or collected except by authority of law. Therefore, there must be an enactment for the purpose of levy and also for collection of tax. In other words, the entire process of taxation commencing from texting statute to taking sway of the money from the pocket of the citizen shall be made by a process authorised by a law. The Apex Court has also taken a similar view in the case of Subba Rao v. State of A.P., . The Madras High Court also held that the entire process of levy and collection of tax must be authorised by law in the case of Royalaseema Construction v. Deputy Commercial Tax Officer, AIR 1959 Had 382.
Therefore, the Parliament in their wisdom enacted income tax to provide the method of computation of income and also method for recovery and collection of taxes. Section 4 (1) of the Income Tax Act provides that the rate of tax shall be prescribed by Central enactment. In view of the above, every year the Parliament passes the Finance Act prescribing the rate of tax for the purpose of income tax.
8. Article 271 of the Constitution of India enables the Parliament to increase the duties or taxes referred in Article 269 and 270 by levy of surcharge. Therefore, it is very clear that the Parliament has power to prescribe the rate of tax under Article 270 of the Constitution of India and also to prescribe the rate for the purpose of surcharge over and above the rate of income tax under Article 271. In other words, the source of power for prescribing the rate of income tax and also the rate of surcharge flows from Article 265 read with Article 270 and 273 of the Constitution of India. The Parliament in their wisdom, while enacting Income Tax Act, 1961 left open the rate of tax on income to be decided by a Central Act namely, the Finance Act. Therefore, Section 4(1) refers to Central Act for the purpose of rate of tax. The reason for doing so is obvious. The rate of income tax has to be fixed by taking into consideration of the socio, economic scenario that exist in particular year. It does not mean that the source of power for prescribing rate of income tax flows from Section 4(i) of the Income Tax Act. The source of power for prescribing the rate of income tax remains with Parliament under Article 265 read with Article 270 of the Constitution of India. Likewise, the power to prescribe the rate in respect of surcharge remains with Parliament under Article 271 of the Constitution of India. Therefore, it may not be correct to say that merely because there was no reference about Central enactment in Section 113 of the Income Tax Act, as referred in Section 4(1), the Parliament cannot fix the rate of surcharge by a separate enactment in respect of surcharged In our considered opinion, what is required is an enactment by a legislature for the purpose of levying tax. Since income tax falls at Entry-82, List-1 of Schedule-VII to the Constitution of India, the Parliament alone can enact law for the purpose of levying tax on income. Likewise, the Parliament aline is competent to enact law for the purpose of levying surcharge on income tax. Section 4(1) of the Income Tax Act does not become the source of power for the Parliament to prescribe the rate of tax on income merely because there was a reference about Central Act. Likewise, the source of power for the purpose of levying surcharge remains under Article 271 of the Constitution of India. Therefore, merely because there was no reference about the Central Act in Section 113 of the Income Tax Act, it cannot be said that the Parliament cannot levy surcharge in respect of tax on undisclosed income by separate enactment. In our view, so long as the source of power flows from Article 271 of the Constitution of India, the Parliament can fix the rate of surcharge over and above the income tax levied under Section 113 of the Income Tax Act. It is for the Parliament either to make an amendment by incorporating a proviso in Section 113 of the Income Tax Act for the purpose of levying surcharge or to enact a separate Act like Finance Act. Since it is entirely within the domain of the Parliament, it may not be correct to say that surcharge can be levied only if an amendment was made in Section 113 of the Income Tax Act. Finance Act, 2001 is also a Central enactment which prescribes the rate of surcharge over and above the income tax prescribed under Section 113 of the Income Tax Act. The Apex Court in the case of CIT v. K. Srinivasan (supra) held as follows :- "It is in exercise of the legislative power conferred by that entry that the Union Parliament enacts the provision in the Finance Act each year relating to them. It is that Act which authorises these taxes to be charged and prescribes the rates at which they can be charged. Section 4 of the Act simply provides that where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates income-tax at that rate or those rates shall be charged in accordance thereto and subject to the provisions of the Act. Section 95, which was omitted by the Finance Act of 1965, contained similar provision with regard to super-tax. Although under the Act Section 4 is the charging section yet income-tax can be charged only where the Central Act which, in the present case, will be the Finance Act, enacts that income-tax shall be charged for any assessment year at the rate or rates specified therein." Therefore, we find no substance in the objection of the assessee that there cannot be any levy of surcharge since there was no reference about Central Act in Section 113 of the I.T. Act. In our considered opinion, since the Parliament has enacted Finance Act, 2001 providing the levy of surcharge in respect of the income tax levied under Section 113, the lower authority has rightly levied the surcharge which is authorised by an authority of law.
9. The next submission of the learned counsel for the assessee is that the Chief Commissioners of Income Tax in their Conference expressed a doubt regarding levy of surcharge without any specific amendment in Section 113 of the Income Tax Act. Under the Income Tax Act, the Central Board of Direct Taxes (C.B.D.T.) was created as an administrative body to administer the direct taxes Act. The C.B.D.T.was also empowered to issue instructions and circulars under Section 119 of the Income Tax Act. Therefore, the statutory powers are vested only with the C.B.D.T. The Chief Commissioners are subordinate officers under the C.B.D.T. and they are expected to implement the instructions and guidance issued by the C.B.D.T. in exercise of its power under Section 119 of the Income Tax Act. No such statutory power was given to the Chief Commissioners of Income Tax. In our considered opinion, the Resolution passed by the chief Commissioners will not have a statutory force. Therefore, it will not bind on the quasi Judicial authorities established under the Income Tax Act. As already discussed, the source of power flows only from Articles 265, 270 and 271 of the Constitution of India for fixing rate of income tax and surcharge, there is no necessity for a separate reference about Central Act in Section 113 of the Income Tax Act. Therefore, we find no substance in the resolution of the Chief Commissioners. Even otherwise, the resolution passed by the Chief Commissioners of I.T. will not bind on this Tribunal. This Tribunal, being an Independent judicial body, is expected to examine the levy of surcharge in accordance with statutory provisions.
Therefore, we find no justification in the contention of the assessee that there cannot be any levy of surcharge merely because the Chief Commissioners expressed their doubt.
10. The other contention of the learned counsel for the assessee is that the Finance Act was passed every year and there is a reference about the assessment year. In respect of the block assessment, the tax has to be levied for the block assessment year. Since there is no reference about the block assessment year in the Finance Act, the rate of tax prescribed under Finance Act, 1999 would not be applicable for block assessment. In our view this submission of the learned counsel for the assessee is also not correct. When the Parliament enacted Finance Act, 2001 prescribing levy of surcharge over and above the rate of Income tax prescribed under Section 113, the legislature was aware that Section 113 refer only to undisclosed income in respect of block assessment year. Therefore, it is not correct to say that Finance Act refers only assessment year and not block assessment year. Finance Act, 2001 specifically levies and specifies the rate of surcharge on the income tax determined under Section 113 of the I.T. Act. The levy of surcharge is only on the income tax determined on the undisclosed income. Therefore, we find no substance in this submission of the learned counsel for the assessed.
11. The learned counsel for the assesses placed his reliance on the order of the Bangalore Bench of this Tribunal in the case of Microland Ltd. v. Asstt. CIT, (1998) 67 ITD 446 and also on the Madras Bench of this Tribunal in the unreported decision in IT (SS) A.No. 28(Mds)/2003.
We have carefully gone through the orders of this Tribunal in the above said two cases. We find that the constitutional provisions and also the Finance Act, were not brought to the notice of the earlier Bench.
Therefore, the earlier Bench has no occasion to discuss about Articles 265, 270 and 271 of Constitution of India and also the Finance Act, 2001. Therefore, in our view, the earlier orders of this Tribunal will not support the case of the assessed.
12. In view of the above discussion, we find that the Parliament in exercise of the power conferred upon it under Article 271 of the Constitution of India has enacted Finance Act, 2001 prescribing levy of surcharge at 17% over and above the rate of income tax levied under Section 113 of Income Tax Act in respect of the undisclosed income.
Therefore, in our view, the assessing authority has rightly levied the surcharge. We find no infirmity in the order of the lower authority.
Therefore, we have no hesitation to confirm the same. Accordingly, the orders of the lower authorities are confirmed.