S. 113 Proviso inserted by FA 2002 w.e.f. 01.06.2002 to impose surcharge in search assessments is not clarificatory or retrospective. Suresh Gupta 297 ITR 322 (SC) overruled

CIT vs. Vatika Township (Supreme Court – Full Bench)

A search and seizure operation u/s 132 was conducted on 10.02.2001 pursuant to which an assessment order for the block period from 01.04.1989 to 10.02.2000 was passed on 28.02.2002 at a total undisclosed income of Rs.85 lakhs. Tax was charged at the rate prescribed in s. 113. Subsequently, a Proviso was inserted to s. 113 by the Finance Act 2002 w.e.f. 01.06.2002 to provide for the levy of surcharge at 10%. The AO took the view that the said amendment was clarificatory in nature and he levied surcharge by passing an order u/s 154. However, the Tribunal and High Court upheld the assessee’s claim that the said amendment was prospective in nature and did not apply to block periods falling before 01.06.2002. However, the plea of the assessee was rejected by the Supreme Court in Suresh N. Gupta 297 ITR 322 (SC) (followed in (Rajiv Bhatara (SC)) and it was held that the said proviso is clarificatory in nature and applied to earlier block periods. When the present case reached the Supreme Court, the Bench was of the view that the issue ought to be referred to a larger Bench of 5 judges. HELD by the Full Bench of the Supreme Court:

(iv) There cannot be imposition of any tax without the authority of law. Such a law has to be unambiguous and should prescribe the liability to pay taxes in clear terms. If the concerned provision of the taxing statute is ambiguous and vague and is susceptible to two interpretations, the interpretation which favours the subjects, as against there the revenue, has to be preferred. This very principle is based on the “fairness” doctrine as it lays down that if it is not very clear from the provisions of the Act as to whether the particular tax is to be levied to a particular class of persons or not, the subject should not be fastened with any liability to pay tax.

(vi) Consequently, the conclusion in Suresh N. Gupta 297 ITR 322 (SC) treating the proviso to s. 113 as clarificatory and giving it retrospective effect is not correct and is overruled.