Commissioner of Income-tax v. Shankarlal
[Citation -2014-LL-1224-1]

Citation 2014-LL-1224-1
Appellant Name Commissioner of Income-tax
Respondent Name Shankarlal
Court HIGH COURT OF HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH
Relevant Act Income-tax
Date of Order 24/12/2014
Judgment View Judgment
Keyword Tags income chargeable to tax • disclosure of income • voluntary disclosure • search proceedings • undisclosed income
Bot Summary: Sub-section thereof 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. Nothing contained in sub-section shall apply in relation to- 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; 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. A perusal of clause of sub-section discloses that if a search has taken place under section 132 of the Act against an assessee, he is disabled from availing of the benefit under the Scheme in respect of any income referable to any earlier previous years. The principal contention advanced by the appellant is that the judgment of this court in Shankarlal's case, in so far as it enabled an assessee against whom search was conducted under section 132 of the Act to avail of 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. 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. Even otherwise, a step taken under the Scheme does not nullify the proceedings initiated under the Act. The net result is that the amount which was the subject matter of search was liable to be dealt with under Chapter XIV-B of the Act notwithstanding the fact that it was mentioned in the declaration filed under the Scheme.


JUDGMENT judgment of court was delivered by L. Narasimha Reddy J.-This batch of appeals presents certain typical questions, which do not occur frequently. facts in brief are as under: respondents in these appeals are assessees under Income-tax Act (for short "the Act"). search was conducted under section 132 of Act on all respondents on July 16, 1997. Cash of about Rs. 20,00,000 and other materials have been discovered. In statement recorded under sub-section (4) of section 132 of Act, it was revealed that there existed about Rs. 1 crore of undisclosed income. By time search has taken place, Voluntary Disclosure of Income Scheme, 1997 (for short "the Scheme") introduced through Finance Act, 1997 was in operation; with effect from July 1, 1997. Section 64 of Finance Act, 1997, provided for voluntary disclosure of undisclosed income and dropping of all further proceedings on payment of income-tax thereon. Sub-section (2) thereof, however, kept income, referable to assessment year, as regards which, notices under section 142 or 148 of Act have been issued; and income referable to any year preceding one, in which search under section 132 or requisition under section 132A or survey under section 133A of Act have been carried out. respondents filed W. P. No. 20316 of 1997 before this court challenging certain provisions of Scheme. Their plea was that Scheme, in so far as it discriminates between income referable to previous years during which search was conducted or notices were issued under section 142 or section 148 of Act is violative of article 14 of Constitution of India. Department, i.e., appellant, on other hand, pleaded that Scheme provides for special facility and when once Parliament has identified certain items to be kept outside Scheme, same cannot be said to be discriminated. Division Bench of this court rendered its judgment in that writ petition, which is reported in Shankarlal v. ITO [1998] 230 ITR 536 (AP). provisions of Scheme were upheld but certain directions were issued. It was observed that such of amount as was discovered in course of search under section 132 of Act does not qualify for benefit under Scheme. In declarations filed by respondents to avail of benefit of Scheme, undisclosed income which was subject matter of search is also included. concerned Commissioner gave certificate on July 20, 1999, in respect thereof, after receiving tax payable thereon. As sequel to search, respondents filed block return covering period of ten years preceding date of search. respondents pleaded that once amount referable to search became subject matter of Scheme, it cannot be brought under purview of block assessment. That plea was not accepted. Block assessment orders were passed on September 30, 1999, and Assessing Officer levied tax under Chapter IV of Act. respondents filed appeals before Commissioner, aggrieved by orders of block assessment. appeals were rejected. Thereupon, they filed I. T. (SS) A. No. 21/Hyd/2002 and batch before Hyderabad Bench "A" of Income-tax Appellate Tribunal (for short "the Tribunal"). principal argument advanced on behalf of respondents was that order of block assessment was contrary to judgment of this court in Shankarlal's case (supra). Tribunal allowed appeals through common order, dated October 17, 2002. Hence, this batch of appeals under section 260A of Act. Sri S. R. Ashok, learned senior counsel for appellant, submits that judgment of this court in Shankarlal's case (supra) cannot be treated as laying down principle to effect that assessee, against whom search was conducted under section 132 of Act would be entitled to submit declaration under Scheme, as regards income, reference to any assessment year, preceding date of search. He submits that notwithstanding fact that special leave petition filed against said judgment was dismissed, it cannot be understood to have ignored clear bar, contained in sub-section (2)(ii) of section 64 of Finance Act, 1997. He submits that even otherwise, this court categorically held in that case, in clauses "B" and "C" of concluding paragraph, that amount which is subject matter of search does not qualify for benefit under Scheme. He further submits that Tribunal did not take into account, correct purport of Scheme nor did it properly understand scope of judgment of this court and allowed appeals, virtually rendering entire proceedings under Chapter XIV-B of Act redundant. Sri Y. Ratnakar, learned counsel for respondents, on other hand, submits that question as to whether sub-section (2)(ii) of section 64 of Finance Act, 1997, bars assessee, against whom search is conducted, from availing of benefit under Scheme for any years earlier thereto was specifically dealt with and it was answered in favour of appellant. He contends that once special leave petition filed by Department against such judgment was dismissed, it is not at all open to appellant to raise that very question. He submits that amount that was found during 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 Tribunal has taken into account purport of judgment of this court in Shankarlal's case (supra) and that order passed by it does not warrant interference. It is not in dispute that search was conducted on July 16, 1997, on respondents though there is some uncertainty as to what exactly was discovered therein. record discloses that 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 Act. It is from statement, that Department came to conclusion that respondents have suppressed income to tune of Rs. 1 crore. By time search has taken place, Scheme became operational from July 1, 1997. Chapter IV of Finance Act, 1997, comprising of sections 62 to 78 was devoted for this.The important provision in Scheme is section 64. It reads as under: 64. Charge of tax on voluntarily disclosed income.-(1) Subject to provisions of this Scheme, where any person makes, on or after date of commencement of this Scheme but on or before 31st day of December, 1997, declaration in accordance with provisions of section 65 in respect of any income chargeable to tax under Income-tax Act for any assessment year- (a) for which he has failed to furnish return under section 139 of Income-tax Act; (b) which he has failed to disclose in return of income furnished by him under Income-tax Act before date of commencement of this Scheme; (c) which has escaped assessment by reason of omission or failure on part of such person to make return under Incometax Act or to disclose fully and truly all material facts necessary for his assessment or otherwise, then, notwithstanding anything contained in Income-tax Act or in any Finance Act, income-tax shall be charged in respect of income so declared (such income being hereinafter referred to as voluntarily disclosed income) at rates specified hereunder, namely:- (i) in case of declarant, being company or firm, at rate of 35 per cent. of voluntarily disclosed income; (ii) in case of declarant, being person other than company or firm, at rate of 30 per cent. of voluntarily disclosed income. (2) Nothing contained in sub-section (1) shall apply in relation to- (i) income assessable for any assessment year for which notice under section 142 or section 148 of Income-tax Act has been served upon such person and return has not been furnished before commencement of this Scheme; (ii) income in respect of previous year in which search under section 132 of Income-tax Act was initiated or requisition under section 132A of Income-tax Act was made, or survey under section 133A of Income- tax Act was carried out or in respect of any earlier previous year." From reading of this, it becomes clear that while clauses (a) to (c) of sub- section (1) enlisted amounts that can be disclosed voluntarily, subsection (2) identified incomes that are kept outside Scheme. perusal of clause (ii) of sub-section (2) discloses that if search has taken place under section 132 of Act against assessee, he is disabled from availing of benefit under Scheme in respect of any income referable to any earlier previous years. Being under impression that search has virtually disabled them from availing of benefit of Scheme for their entire undisclosed income, respondents filed W. P. No. 20316 of 1997. They pleaded that sub-section (2)(ii) of section 64 of Finance Act totally disables appellant from making any disclosure under Scheme at all. After discussing various contentions at length, this court in Shankarlal's case (supra), summed up as under (page 559 of 230 ITR): "(A) Section 64 of Finance Act, 1997, grants concession of tax and immunity to undisclosed income which is declared in scheme period. (B) income that laws not returned within time prescribed in notice issued under section 142 or section 148 and which expired before commencement of scheme, will be ineligible under section 64(2)(i) for benefit under section 64(1). (C) That benefit is denied to income which is detected in search under section 132, on requisition under section 132A or in survey under section 133A, whichever be previous year to which 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 benefit under section 64(1). (E) If subsequently it is found that income disclosed under Voluntary Disclosure of Income Scheme, 1997, is to be assessed as part of total income of any previous year and thus ineligible to be declared under total income of any previous year and thus ineligible to be declared under section 64(1), tax paid under section 64(1) shall be adjusted against assessed tax. We, therefore, hold that on proper construction of section 64 of Finance Act, 1997,. there is no discrimination or infirmity in that section and it is constitutionally valid. In circumstances, respondents are directed to entertain voluntary disclosures falling within above parameters as falling under section 64(1) of Finance Act, 1997. writ petition is disposed of accordingly." special leave petition filed against that judgment by Department was dismissed (see [2003] 260 ITR (St.) 270). Armed with judgment, respondents filed their declarations before Commissioner, who was entrusted with operation of Scheme. amount that was subject matter of search was included in declaration. Commissioner issued receipt in respect of entire amount covered by declaration after satisfying himself that stipulated amount of tax was paid. search proceedings under Chapter XIV-B of Act spilled over beyond two years. In addition to one recorded on July 16, 1997, another statement was recorded on September 11, 1997. Ultimately, block assessment order was passed on September 30, 1999. Though it was pleaded that amount referable to search has already suffered tax under Scheme, Assessing Officer proceeded to levy tax stipulated under Chapter XIV-B of Act. appeals before Commissioner did not fructify and Tribunal accepted contention of respondents. principal contention advanced by appellant is that judgment of this court in Shankarlal's case (supra), in so far as it enabled assessee against whom search was conducted under section 132 of Act to avail of benefit under Scheme under Act in respect of period anterior to search cannot be said to be good law and in fact it amounts to per incuriam. According to appellant, question is one of jurisdiction and it is always open to Department to raise it at any point of time. In support of contention that mere dismissal of special leave petition against such judgment does not bar affected party to raise question of jurisdiction, reliance is placed upon judgment of hon'ble Supreme Court in Smt. Isabella Johnson v. M. A. Susai (dead) [1991] 1 SCC 494. There is absolutely no quarrel with proposition. It is quite possible to analyse judgment in Shankarlal's case (supra) on touchstone of section 64 of Act. At first blush, it may appear that this court has added certain new dimensions to clause (ii) of sub-section (2) of section 64 of Finance Act, 1997. That, however, is for limited purpose of case. All same, discussion in context of granting relief was restricted only to amount covered in search proceedings. record is not clear as to whether respondents wanted benefit under Act in respect of any amount other than one covered by search proceedings. Obviously, because controversy was only about amount covered by search, their Lordships took that into account, and in discussion, summed up that benefit under Scheme is not available to amount which is detected in search under section 132 of Act. This is clear from clause (C) which has been extracted in preceding paragraphs. With that, necessity to deal with any other aspect of judgment or to see whether it is per incuriam is obviated. Almost as note of caution, their Lordships added clause "E" in concluding portion which is to effect that if for any reason, amount covered by disclosure is found to be not eligible for benefit under section 64(1) of Finance Act, 1997, tax paid thereon shall be adjusted against assessed tax. It means that their Lordships were aware that there is every likelihood of respondents being extended benefit under section 64 of Finance Act, 1997, on account of improper understanding of Scheme and in such event, they shall be under obligation to pay differential tax. Once this court held in Shankarlal's case (supra), that amount covered by search proceedings does not qualify for benefit under Scheme, there was absolutely no basis for Tribunal in taking away amount from purview of Chapter XIV-B of Act on sole ground that Commissioner, who operated Scheme, gave receipt for that amount also. Such step does not accord with section 64 of Finance Act, 1997. Further, it runs contrary to judgment in Shankarlal's case (supra). Even otherwise, step taken under Scheme does not nullify proceedings initiated under Act. non obstante clause contained in Chapter IV of Finance Act, 1997, is not that wide enough. net result is that amount which was subject matter of search was liable to be dealt with under Chapter XIV-B of Act notwithstanding fact that it was mentioned in declaration filed under Scheme. only difference would be that respondents would be under obligation to pay differential tax if any. Whenever search proceedings take place, assessee would be exposed not only to higher rate of tax but also to incidence of levy of interest and penalty. In instant case, senior official of Department i.e., Commissioner, who operated Scheme itself, was of view that amount covered by search can be subject matter of benefit under Scheme. It is only on close analysis of relevant provisions of law and judgment rendered by this court, that it has emerged that proceedings initiated under Chapter XIV-B of Act do not get affected by proceedings under Scheme. When this is disparity or complexity as to understanding of provisions of those enactments, respondents cannot be exposed to obligation to pay penalty or interest. We, therefore, allow appeals, setting aside common order dated October 17, 2002, passed by Tribunal and upholding orders passed by Assessing Officer. We, however, direct that respondents shall not be exposed to liability of penalty, interest or prosecution. This facility shall be available to them if only they pay differential tax payable under Chapter XIV- B of 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. *** Commissioner of Income-tax v. Shankarlal
Report Error