THE issue before the Bench is - Whether salary income of individual assessee, which was subjected to TDS by the employer, can be dubbed as 'undisclosed income' if no return or delayed return is filed and Whether such income can be brought within the fold of income to be taxed during the block period by virtue of the computation provision of section 158BB. And the answers of the HC go against the Revenue.
Facts of the case
The assessee was assessed to tax as an individual. He was subjected to search and seizure operations. He was served with a notice u/s 158BC for the block period. He filed a return declaring total undisclosed income at Rs 50,000/-. While processing such return, the AO dealt with several different issues. The AO was of the opinion that since in case of three A.Y’s i.e. 1986-87, 1987-88 and 1988-89, the assessee had filed no return and for the A.Y’s 1994-95 and 1995-96, the assessee had filed returns after the last date for filing regular returns, such income disclosed in the returns filed late cannot be adjusted in terms of clause (c) of sub-section (1) of section 158BB. The Tribunal was of the opinion that such income for the relevant A.Y’S cannot be considered as undisclosed income of the assessee. The Tribunal was of the opinion that section 158BB prescribes the method of computing the undisclosed income of a block period, however, before making any such computation, the existence of undisclosed income must be shown.
On Appeal before the HC the Revenue's Counsel contended that for the years during which the assessee filed no return, no adjustment of the salary income can be made from the total income of the block period for the computation of undisclosed income of the said period. He submitted that even in the latter two years when the returns were filed, admittedly the same having been filed beyond the last date for filing such returns, income of salary disclosed in such return cannot be set off for computation of undisclosed income of block period. The Assessee's Counsel submitted that undisputably on the salary income received by the assessee, the employer had deducted tax at source and deposited the same with the Government. That being so, such income cannot be treated as undisclosed income.
Having heard the parties, the HC held that,
++ essentially therefore, to tax any income in the block period as an undisclosed income, the same must come within the definition of undisclosed income provided in clause (b) of section 158B. It would not be appropriate to apply a computation provision to decide whether a certain income is undisclosed income or not;
++ the distinction between a charging provision in a taxing statute and a procedural or machinery provision is thus a well-recognised distinction. By interpreting a machinery or a computation provision, the scope of the charging provision obviously cannot be enlarged. That unless income in question can be categorised as undisclosed income of a block period, charging tax on such income at the rate specified for the block period by applying computation provision of section 158BB would not be permissible;
++ when an assessee is a salaried employee and on such salary income, suffers deduction of tax at source and such tax is also shown to have been deposited by the employer with the Revenue, it can hardly be stated that such income is undisclosed income. Additionally, we also notice that u/s 192, under certain circumstances, the employer is required to deduct tax at source on salary income. Section 199 provides for credit of such tax deducted at source. Section 205 provides for a bar against direct demand of tax where such tax is deductible at source;
++ the salary income of the assessee on which he had been subjected to deduction of tax at source, cannot be categorised as “undisclosed income” as defined in section 158B(b). That being the position, bringing such income within the fold of income to be taxed during the block period by virtue of the computation provision of section 158BB would not arise
On Appeal before the HC the Revenue's Counsel contended that for the years during which the assessee filed no return, no adjustment of the salary income can be made from the total income of the block period for the computation of undisclosed income of the said period. He submitted that even in the latter two years when the returns were filed, admittedly the same having been filed beyond the last date for filing such returns, income of salary disclosed in such return cannot be set off for computation of undisclosed income of block period. The Assessee's Counsel submitted that undisputably on the salary income received by the assessee, the employer had deducted tax at source and deposited the same with the Government. That being so, such income cannot be treated as undisclosed income.
Having heard the parties, the HC held that,
++ essentially therefore, to tax any income in the block period as an undisclosed income, the same must come within the definition of undisclosed income provided in clause (b) of section 158B. It would not be appropriate to apply a computation provision to decide whether a certain income is undisclosed income or not;
++ the distinction between a charging provision in a taxing statute and a procedural or machinery provision is thus a well-recognised distinction. By interpreting a machinery or a computation provision, the scope of the charging provision obviously cannot be enlarged. That unless income in question can be categorised as undisclosed income of a block period, charging tax on such income at the rate specified for the block period by applying computation provision of section 158BB would not be permissible;
++ when an assessee is a salaried employee and on such salary income, suffers deduction of tax at source and such tax is also shown to have been deposited by the employer with the Revenue, it can hardly be stated that such income is undisclosed income. Additionally, we also notice that u/s 192, under certain circumstances, the employer is required to deduct tax at source on salary income. Section 199 provides for credit of such tax deducted at source. Section 205 provides for a bar against direct demand of tax where such tax is deductible at source;
++ the salary income of the assessee on which he had been subjected to deduction of tax at source, cannot be categorised as “undisclosed income” as defined in section 158B(b). That being the position, bringing such income within the fold of income to be taxed during the block period by virtue of the computation provision of section 158BB would not arise
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