Andhra Pradesh H.C : Chapter IV of the Finance Act, 1997, does not contain any section enabling the CBDT to issue any clarifications; while interpreting the provisions of the Scheme, the circulars have to ignored as irrelevant.

High Court Of Andhra Pradesh

Shankarlal vs. Income Tax Officer & Ors.

Sections 119, 1997FA 64, 1997FA 70, 1997FA 76, 1997FA 77

S.V. Maruthi & T.N.C. Rangarajan, JJ.

WP No. 20316 of 1997

29th December, 1997

Chapter IV of the Finance Act, 1997, does not contain any section enabling the CBDT to issue any clarifications; while interpreting the provisions of the Scheme, the circulars have to ignored as irrelevant.

T.N.C. RANGARAJAN, J. :

This writ petition is concerned with the Voluntary Disclosure of Income Scheme, 1997 (hereinafter referred to as ‘VDIS’).

Pleadings—Affidavit in support of the petition 2. The petitioner states that he is an income-tax assessee and he has filed returns upto asst. yr. 1996-97. A search was conducted in his premises on 16th July, 1997, and a sum of Rs. 2,80,000 was seized along with the pledged jewellery. It is stated that under the VDIS 1997, he had a right tomake a voluntary disclosure from 1st July, 1997, upto 31st Dec., 1997, and the search conducted during that period arbitrarily took away that right. It is also stated that the classification of those who have been searched and denying them the right to make a disclosure was discriminatory. It is further stated that no distinction has been made between those cases where nothing was discovered during the search and cases where anything is seized and this also amounted to discrimination. Reference is also made to the circular issued by the CBDT stating that in the case of survey, there is no bar to the making of disclosure for the earlier years and the benefit of such departure should not be denied to the petitioners as otherwise it will be discriminatory. Counter-affidavit of the second respondent

3. The CIT has filed a counter-affidavit stating that the power to make a search under Chapter XIII-C of the IT Act has not been kept in abeyance, and therefore, a search was conducted in the premises of the petitioner and his five brothers when unaccounted cash of Rs. 20.15 lakhs and pawned jewellery of Rs. 1,89,500 was found. It is also stated that the total disclosure of the family was Rs. 1.30 crores including Rs. 27.15 lakhs in the hands of the petitioner. It is stated that the assessees, who have been identified as tax evaders by search, were not entitled to the benefit of the Scheme. It is also stated that no circulars of CBDT have been issued which are in conflict with s. 64 of the Finance Act, 1997. In the reply-affidavit, it is reiterated that the denial of the benefit of the Scheme to the petitioner is discriminatory and arbitrary. Interim Directions

4. The writ petition was filed on 20th Aug., 1997. On 1st Sept., 1997, it was admitted and an interim direction was given permitting the petitioner to file a declaration under the Scheme in respect of the assessment year earlier to the assessment year in which the raid was conducted pending further orders. But the petitioner has not filed any declaration so far. The petitioner also filed an application to expedite the hearing, which was ordered on 24th Oct., 1997, posting the case for hearing on 17th Nov., 1997. Thereafter, at the request of the Revenue the case was adjourned from time to time and was heard from 23rd Dec., 1997, onwards. Counter-affidavit of 2nd respondent was filed only on 23rd Dec., 1997. Even though the validity of the section of the Finance Act has been questioned, and the 4th respondent, the Union of India represented by its Secretary, Ministry of Finance, is the proper person to defend the case, no counter-affidavit has been filed by the 4th respondent. Again, the 3rd respondent, which is CBDT which has issued circulars, has also not filed any counter-affidavit. Under the Writ Rules, the counter- affidavit has to be filed after the service of notice and before the case is posted for final hearing. The standing counsel for income-tax had taken notice at the time of admission and a notice was also sent by registered post. It was acknowledged by the 4th respondent, without giving the date of receipt of notice whereas the ITO has received it on 7th Nov., 1997. But the case did not get the attention it deserved. Contentions of the petitioner

5. The learned counsel for the petitioner took us through the provisions of the Scheme as well as the circulars issued by the CBDT and submitted that the intention of the Scheme was to give an opportunity to all tax evaders to come out with a disclosure within the Scheme period. He submitted that by conducting a search in the premises of the petitioner within the Scheme period, the opportunity already given and available to the petitioner, was denied arbitrarily. It is, therefore, contended that if the Scheme is not to be applied arbitrarily and discriminatorily, there should be an implied bar on all searches during the Scheme period. Secondly, it was argued that the object of the Scheme was to unearth the undisclosed income and if the persons in whose cases searches were conducted, are barred from making a disclosure, it would be defeating the object as there was no intelligible differentia which distinguishes them from the rest of those who are eligible to make a disclosure. Thirdly, it was submitted that the CBDT had issued circulars stating that the bar in respect of all previous years under s. 64(2)(ii) of the Finance Act, will not apply to the cases of survey which was clearly contrary to the plain language of the section and in order not to discriminate those whose cases were subject to search, the section must be read down to allow disclosure for all previous years in respect of those people also. Fourthly, it was submitted that the answers to the questions given out by the Department reveal the understanding of the Department and in that background the petitioner should be permitted to make a disclosure in spite of the search. It was further submitted that debarring a person in whose case a search was conducted had no nexus with the object, because even if nothing is found, he would be debarred from making a disclosure. Such a situation had no nexus with the object of the section. It was pointed out that under s. 70 any tax paid, in respect of voluntarily disclosed income was not refundable, andhence, the CIT should be directed to accept the disclosure in spite of the search, taking judicial notice of similar benefit granted to those cases where survey was conducted. Reliance was placed on the decisions in Union of India vs. A. Sanyasi Rao (1996) 132 CTR (SC) 81 : (1996) 219 ITR 330 (SC) and Sri Meenakshi Mills vs. Sastry AIR 1955

SC 13. Contentions of the Revenue

6. The learned standing counsel for the Revenue submitted that since the provisions of the Finance Act relating to searches and seizure were not kept in abeyance, the search was validly made and any fortituous circumstances by which the petitioner lost the opportunity to make a disclosure cannot make the section invalid or arbitrary. It was submitted that the intention was to give the opportunity to only those who come voluntarily and with clean hands, and, therefore, there was nothing wrong in treating search cases as a separate class not eligible for the benefit of the Scheme. It was submitted that by pointing out that there should be a better classification or subclassification, it cannot be said that the present classification is untenable as long as it serves the object of the Act as held in M. Match Works vs. Asstt. Collector AIR 1974 SC 497. It was also argued that in fiscal matters, the classification for taxation in the context of application of Art. 14 of the Constitution of India must be viewed liberally, and reliance was placed on the decision of the Supreme Court in Federation of Hotel & Restaurant Assn. vs. Union of India (1989) 77 CTR (SC) 141 : (1989) 178 ITR 97 (SC). It was submitted that any understanding of the Department will not affect the legal effect of the statute and if some concession is given to one class of assessees incorrectly, the others cannot claim the same benefit and the reliance was placed on the decision in Secretary, Jaipur Development Authority vs. Daulat Mal Jain 1997 (1) SCC 35. The assessment procedure under the IT Act The IT Act as it now stands provides for a voluntary return of income under s. 139 and self-assessment under s. 140A. An enquiry before an assessment can be made by the AO and for that purpose he may call for information by issuing a notice under s. 142(1). In case no return has been filed, he may also issue a notice under s. 142(1) calling upon the assessee to file a return. Thereafter, he will make an assessment under s. 143. If no self-assessment has been made, or no assessment has been made under s. 143 for any assessment year and the ITO has reason to believe that income has escaped assessment, he may issue notice under s. 148 calling upon the assessee to file a return. If the income which escaped assessment is likely to be more than Rs. 1 lakh, such a notice can be issued if more than 10 years have not elapsed from the end of the relevant assessment year. If the assessee does not respond to that notice or files a return, an assessment will be made under the usual procedure referred to in ss. 142 and 143. The

consequences will be that the assessee will have to pay tax at the normal rate in respect of the assessed income along with statutory interest and penalty besides being liable for prosecution for concealing the assessed income. Similarly, even where self-assessment has been made or a regular assessment has been made and the ITO has reason to believe that some income has escaped assessment, he can have recourse to s. 148 for making the assessment of the escaped income with the same consequences. Sec. 132 enables the authorised officer to search the premises, etc., and seize documents, money, etc., which are not disclosed.

Chapter XIV-B provides a special procedure for assessment of search cases. According to this procedure, the undisclosed income is taken to be the income of a block period of 10 previous years preceding the year in which the search was conducted but excluding the income of that previous year, if the assessee establishes that it is the income of the current year. For this purpose, a notice is issued and after an enquiry, assessment is made. The consequence of such assessment is that the tax is charged at the rate of 60 per cent, but there will be no levy of statutory interest or penalty; however, the assessee will be liable for prosecution. This will apply both to the case where no return has been filed at all and also to cases where the assessments have been made but still concealment is established. Thus, the IT Act itself has an ongoing scheme of disclosure at the time of search by giving an opportunity to the assessee at the time of search to file a return, to disclose the escaped income and avoid statutory interest and penalty while paying tax at a higher rate of 60 per cent. Sec. 132A enables the authorised officer to summon or requisition books of accounts, etc., relating to the undisclosed income. Sec. 133A enables the authority to survey the business premises of the assessee and make an inventory and record the statement of any person as may be useful for any proceeding under the Act. Voluntary Disclosure of Income Scheme, 1997

10. Chapter IV of the Finance Act, 1997, introduced the Scheme which was notified to come into force from 1st July, 1997, and to be in force until 31st Dec., 1997. During the period when the Scheme is in force, any person may declare any income chargeable to tax for any assessment year in respect of which he has not filed a return under s. 139 or which he has not disclosed in a return filed earlier. The income so disclosed is chargeable to tax at the rate of 35 per cent in respect of a company or firm and at the rate of 30 per cent in the case of others. But nothing in that Scheme is to apply to income assessable for any assessment year for which notice under s. 142 or s. 148 has been served and the return has not been filed before the commencement of the Scheme and the income in respect of the previous year in which a search was initiated under s. 132, a requisition was made under s. 132A, or a survey was conducted under s. 133A and in respect of any earlier previous years. The voluntarily disclosed income is not to be included in the total income where tax is paid in respect of it and such tax is not refundable. The Central Government has power to remove difficulties and the Board has the power to make rules. The Voluntary Disclosure of Income Rules of 1997 contain only three rules (1) short title and commencement, (2) definitions; and (3) the form of declaration. The prescribed form contains a statement of voluntarily disclosed income in column No. 5 where particulars of income, amount of income declared, assessment years to which the income relates and the description of asset representing such income are to be given. Since the VDIS operates notwithstanding anything contained in the IT Act, it is obvious that it is a departure from the pattern of assessment under the IT Act in respect of undisclosed income. If such income had been disclosed within the time prescribed under s. 139, it would have been chargeable to normal rate of tax. If it had been returned in response to a notice under s. 148 also, the normal rate of tax would have been applied but the assessee would be faced with statutory interest, penalty and prosecution. If it had been returned in response to a notice after a search, it would have been charged at the rate of 60 per cent without any statutory interest or penalty but with liability for prosecution. Under the VDIS the same income if disclosed, would attract income-tax at the concessional rate of 30 per cent with all immunities from statutory interest, penalty and prosecution. A concession is, therefore, given in respect of the undisclosed income where a disclosure is made under the Scheme. But under sub-s. (2) of s. 64, this concession is withheld from two classes of cases. Clarifications by the Department

11. After the introduction of the VDIS, a number of queries were received from the public about the scope of the Scheme and the procedure to be followed. The CBDT issued Circular No. 754, dt. 10th June, 1997 [published at (1997) 140 CTR (St) 15] and Circular No. 755, dt. 25th July, 1997 [published at (1997) 141 CTR (St) 1] posing the questions and giving the answers. The questions highlighted in the course of the arguments were question numbers, 6, 23, 35 and 52 which are as follows:

“Question No. 6: Where search and seizure action has taken place in financial year 1995-96, the block period is 1985-86 to 1995-96, can disclosure under the present scheme be made by the persons searched for an assessment year prior to 1985-86?

Answer: No. In respect of a case where

search has taken place in any financial year, the person cannot make a declaration in respect of any previous year prior to the previous year in which search has taken place. Question No. 23: The scope of the Scheme should be expanded so as to include cases where: (a) action under s. 132, 133A has been taken. (b) appeal is withdrawn, as this will reduce litigation. Answer: This is not possible. In respect of survey under s. 133A, the declarants are debarred for that previous year only. Question No. 35: Action under s. 132 of the IT Act was taken in the case of Mr. A on 30th March, 1992, and the same was concluded on 5th April, 1992. Can he take advantage of VDIS for asst. yr. 1993-94 and subsequent years?

Answer: Sec. 64(2)(ii) of the Finance Act, 1997, lays down that no disclosure of income can be made in respect of the previous year in which a search is initiated or in respect of any earlier previous year. In the case cited above, search was initiated in asst. yr. 1992-93. Therefore, disclosure can be made, (except for the income/assets discovered or seized during the search referred to), in respect of asst. yr. 1993-94 and subsequent years. Question No. 52: Whether a declaration can be made in respect of an assessment year for which assessment has been set aside? Answer: Where an assessment order has been completely set aside, the assessee can make a declaration for that year because on the date of declaration there is no surviving assessment. Where an assessment order has been partially set aside, the declaration can be made only with regard to the items of income which were not subject- matter of assessment and those which have been set aside”. Two Press releases were made on 18th June, 1997, and 8th Aug., 1997 [published at (1997) 141 CTR (St.) 12]. The RBI issued a clarification on 4th July, 1997. The Chief CIT answered certain queries and issued Press releases through the Public Relations Officer.

Effect of such clarifications

12. Chapter IV of the Finance Act, 1997, does not contain any section enabling the CBDT to issue any clarifications. Sec. 77 only enables the Board to make rules which are also to be laid before each House of Parliament. Reference was made to s. 119 of IT Act which enables the Board to issue circulars for proper administration of the IT Act. Since the Finance Act is not part of the IT Act, clearly the provisions of s. 119 cannot apply. The CBDT was constituted by the Central Board of Revenue Act, 1963 and the functions entrusted to it are such as are given under the various taxing statutes. The Finance Act does not contain any provisions other than s. 77 entrusting any function of giving clarification to the CBDT. On the other hand, s. 76 provides that the Central Government may remove difficulties in giving effect to the provisions of the Scheme and this function cannot be delegated to the CBDT under that section. Further, s. 74 applies certain provisions of the IT Act and WT Act to the Scheme and s. 119 of the IT Act is not one of them. This position could not be unknown to the Government because there was a clear feedback in a book published by the eminent tax management consultant, S. Rajaratnam, “A Guide to Voluntary Disclosure of Income Scheme, 1997” in October, 1997. The 4th respondent has not filed any counter-affidavit explaining the stand of the Government in this regard and the 3rd respondent has not filed any counter-affidavit explaining the authority under which the circulars were issued. The learned standing counsel also has not placed before us any provision of the statute or notification authorising the issue of these clarifications except pointing out the sentence in the counter-affidavit of the 2nd respondent that no circular has been issued inconsistent with the Scheme and also asserting that that counter-affidavit was filed oninstructions of the Government. Faced with the situation that the counter-affidavit of the Chief CIT cannot be taken as an affidavit on behalf of the Government because under Art. 299 of the Constitution of India only a person specifically authorised can represent the Government, the learned Standing Counsel offered to file a counter- affidavit by the concerned officer adopting the counter-affidavit of the Chief CIT, if given time. The ad campaign states “This is your last chance. Declare your income before it becomes your lost chance. VDIS 1997 Scheme closes 31st Dec., 1997. Now or never”. Since only a few days are left, this case may well become a lost cause, and hence, we could not grant any further time. The learned counsel for the petitioner submitted that judicial notice should be taken as wide publicity was given to these circulars and the Press releases and submitted that this would amount to promissory estoppel against the Government when they were not denied by the Government. We do not propose to consider the issue of promissory estoppel because we are of the opinion that the true effect of the sections must first be ascertained before considering the question whether they are discriminatory and whether they should be read down to maintain that they are constitutionally valid, as was done in the case of Union of India vs. A. Sanyasi Rao (supra). We, therefore, ignore the circulars as irrelevant for that purpose.

Scope and effect of VDIS, 1997

13. Sec. 64 reads as follows: “64. Charge of tax on voluntarily disclosed income : (1) Subject to the provisions of this Scheme, where any person makes, on or after the date of commencement of this Scheme but on or before the

31st day of Dec., 1997, a declaration in accordance with the provisions of s. 64 in respect of any income chargeable to tax under the IT Act for any assessment year— (a) for which he has failed to furnish a return under s. 139 of the IT Act; (b) which he has failed to disclose in a return of income furnished by him under the IT Act before the date of commencement of this Scheme; (c) which has escaped assessment by reason of the omission or failure on the part of such person to make a return under the IT Act or to disclose fully and truly all material facts necessary for his assessment or otherwise, then, notwithstanding anything contained in the IT Act or in any Finance Act, income-tax shall be charged in respect of the income so declared (such income being hereinafter referred to as the voluntarily disclosed income) at the rates specified hereunder, namely— (i) in the case of a declarant, being a company or a firm, at the rate of 35 per cent of the voluntarily disclosed income; (ii) in the case of a declarant, being a person other than a company or a firm, at the rate of 30 per cent of the voluntarily disclosed income. (2) Nothing contained in sub-s. (1) shall apply in relation to— (i) the income assessable for any assessment year for which a notice under s. 142 or s. 148 of the IT Act has been served upon such person and the return has not been furnished before the commencement of this Scheme; (ii) the income in respect of the previous year in which a search under s. 132 of the IT Act was initiated or requisition under s. 132A of the IT Act was made or survey under s. 133A was carried out or in respect of any earlier previous year”. The principal effect of this provision is that if a person declares income which has escaped assessment, that income will be charged at a concessional rate. Sub-s. (1) identifies that income as (a) income in respect of which no return has been filed under s. 139, (b) income which is not disclosed in any return filed, and (c) income which has escaped assessment either because no return has been filed or because full and true disclosure was not made for the purpose of making an assessment. It will be seen that these three categories are in the nature of income in respect of which notices can be issued under ss. 142 or 148. Consequently, sub-s. (2)(i) provides that if notices have been issued under ss.

142 or 148 and no return has been filed before the commencement of the Scheme, a voluntary disclosure cannot be made in respect of that income. The rationale for this prohibition is that a person who has been given a second opportunity to file a return after his failure to return it voluntarily under s. 139 and has not availed of that opportunity before the Scheme commenced, should not be allowed the benefit of the Scheme. Cases in which notices under s. 142 have been issued will lead to assessment under. s. 143 as there will still be time to make a regular assessment and cases where notices under s. 148 have been issued will lead to assessment of escaped income, both attracting normal rate of tax along with statutory interest, penalty and prosecution. If, however, the assessee had filed returns in respect of those notices and wishes to disclose income not included in those returns, he would certainly have the benefit of the scheme in respect of such undisclosed income. The wording of this subsection makes it clear that it is only with reference to the notices served after the commencement of the Scheme that the prohibition applies, because the question of return not been furnished before the commencement of the

Scheme can arise only if notices are served before the commencement of the Scheme. There is still a grey area where notices have been served prior to the commencement of the Scheme and time is granted under the notice beyond the commencement of the Scheme for filing the return. It will be unreasonable to construe such a case as falling outside the scope of the Scheme as long as the opportunity to file a return in response to the notices was not lost. In our considered opinion on a correct construction of this sub-section, a voluntary disclosure can be made in respect of the income declared for any assessment year for which notice under s. 142 or s. 148 had been served and the return was not filed within the time granted in accordance with such notices if the time granted had not expired prior to the commencement of the Scheme. It is only this construction which will satisfy the rationale that those who have been given an opportunity and have not availed the opportunity before the expiry of that period of opportunity, who will be debarred from another opportunity under the Scheme.

14. Coming to sub-s. (2)(ii), we find that it refers to a distinct class in respect of which there was some detection of the concealed income. Where a search has been made, the concealed income will be assessed under Chapter XIV-B of the IT Act. Where a requisition is made under s. 132A, a process has been initiated for discovering the data relating to concealed income. Where a survey has been made under s. 133A, there is a discovery of the available assets of the assessee which will lead to the discovery of the concealed income. When the concealed income is so discovered, it ceases to be concealed income in respect of which the assessee can get the benefit of concessional rate by making a declaration. Since the procedure for making an assessment in search cases is to take

a block of 10 years, it will stand to reason that such income of the earlier years also cannot be declared under the VDIS. It was pointed out that the assessment of block of 10 years was related only to search cases but in the case of survey it can refer only to the income of the previous year in which the survey is conducted or the year in respect of which information is gathered and the ban on disclosure for all the previous years will be inappropriate, and therefore, a clarification was given to that effect. In this connection, it is useful to reproduce this provision as introduced in the Bill: “62. Charge of tax on voluntarily disclosed income : (1)……… (2) Nothing contained…… (ii) the income in respect of the previous year in which a search under s. 132 of the IT Act or under s. 37A of the WT Act was initiated or requisition under s. 132A of the IT Act or under s. 37B of the WT Act was made, or in respect of any earlier previous year”. (i)………

There was no reference to survey in the clause in the Bill. The phrase “or survey under s. 133A under the IT Act” was inserted before the phrase “or in respect of any “earlier previous year” which has led to a situation where a reference to the earlier previous years gets attached to the survey operation which can only refer to the current or specific year and not all earlier years, whereas both ss. 132 and 132A refers to the special procedure forassessment of search cases involving a block of 10 previous years, thus giving rise to a certain absurdity unless properly construed.

We must, therefore, understand the real scope of the ban in respect of “any earlier previous years”. Since the main section as we noted above grants a concession in respect of concealed income which is declared, the ban under sub-s. (2)(ii) can only refer to the concealed income which has been detected and which can no longer be the concealed income. In other words, the income referred to in sub-s. (2)(ii) must be that income which could otherwise be declared under sub-s. (1). Construed in this way, income which was a subject of an assessment under Chapter XIV-B would not be eligible for the benefit and the ban would operate for the block of 10 previous years preceding the previous year in which a search was conducted because that will be the block period for which assessment would be made under Chapter XIV-B of the IT Act. In the case of a survey, only such income, which is concealed from the books but detected, would be ineligible for the benefit. Since that income would be confined to the year of survey or specific years in which the data relates, it would follow that the ban cannot operate in respect of any or all other earlier previous years.

The learned standing counsel for Revenue submitted that the ban is with reference to the assessee and not the income. But we are unable to accept this interpretation because of two reasons. Firstly, sub-s. (2) of s. 64 states that nothing in sub-s. (1) shall apply in relation to the cases mentioned in that sub-section. Since sub-s. (1) only relates to the income eligible for concessional rate of tax and immunity, income referred to in sub-s. (2) can also relate to only to that income and not the assessee. Secondly, s. 78 specifically lists the persons to whom thescheme shall not apply and since the assessees, who were subject to search or survey, are not listed under s. 78, it underlines the position that s. 64(2)(ii) refers only to income and not to persons. The learned standing counsel also referred to the memorandum explaining the Bill [(1997) 138 CTR (St) 1, 113 : (1997) 224 ITR 142 (St)], which is as follows : “(v) A person in whose case a search under s. 132 of the IT Act has been initiated or where books of account, other documents or other assets have been requisitioned under s. 132A will not be entitled to make a declaration in respect of the previous year in which the search was made or any earlier previous year. Disclosure by such persons would however, be allowed in respect of any previous year following the previous year in which the search was carried out. Further, in cases where a survey under s. 133A has been carried out, no declaration of income or wealth will be allowed in respect of the previous year in which such survey was made. Persons who have been served with a notice under s. 142(1) or s. 148 of the IT Act and where the return has not been furnished before the commencement of the proposed Act will also be barred from making a disclosure in respect of the previous year relevant to the assessment year for which the notice has been served”. He contended that this shows that the ban was intended against persons and not income. In tax matters, there can be no intendment and as pointed out by Lord Donovan in Mangin vs. IRC (1971) AC 739, one has to look merely at what is clearly said and there is no need to take the aid of the memorandum explaining the provision. This construction removes the internal contradictions in the section about the application to the earlier previous years with reference to the search and survey operations. It also saves those persons where nothing is detected in the search and enables them to make a disclosure of the concealed income which will go to effectuate the main objective of the VDIS.

17. The learned standing counsel for the Revenue further submitted that a literal reading of this sub-s. (2)(ii) would refer to the entire income of the previous year as the reference to search, requisition and survey only qualify the previous year and not this income. But we are unable to accept this contention because the meaning of the word “income” in this sub-s. (2)(ii) can only refer to the kind that would otherwise be governed by sub-s.(2)(i). If it is to refer to the total income of the previous year, it would prohibit the disclosure of undetected income contrary to the very object of the Scheme which is to harness black money for productive purposes in the words of the Finance Minister. Moreover, total income is a concept well known to income-tax and usually referred to as “income assessable for any assessment year” which is the expression used in sub-s. (2)(i) as well as s. 139 and 148 of the IT Act. By contrast, s. 132 refers to the existence of income which has not been or which would not be disclosed as “the undisclosed income” as the reason for the search itself. It has been held in the case of CWT vs. Hasmatunnisa Begum (1989) 75 CTR (SC) 194 : (1989) 176 ITR 98 (SC), that “the literal rule of statutory interpretation demands that if the statute is plain, Courts must apply it regardless of result”. But, if the other view canvassed by the standing counsel is possible, then the one which promotes its constitutionality has to be preferred. In this case, any undisclosed income duly declared is eligible for the concession. But if theinterpretation that income refers to entire income of the previous year is adopted, it would discriminate against concealedincome left undiscovered in a search without any rational basis. In this connection, the learned counsel for the petitioner drew our attention to the Scheme introduced in 1976 where there was another s. 14 which specifically related to disclosure of income in case of a search and seizure and granted comparatively lesser benefits to such income. The learned counsel submitted that it was only because of such a sub-classification that the said Scheme was upheld by the Supreme Court in Tribhovandas Bhimji Zaveri vs. Union of India (1993) 115 CTR (SC) 411 : (1993) 204 ITR

368 (SC). On the other hand, the learned standing counsel submitted relying on the decision in M. Match Works vs. Asstt. Collector (supra) that the legislative power cannot be said to have unconstitutionally exercised because within the class, a sub-classification was reasonable but has not been made. In our opinion, this case does not involve a question of classification at all because on a true construction of the section any concealed income declared is eligible for concessional rate of tax and immunities. The question of discrimination arises only if the section is read in the way in which the Revenue wants to read it as to deny the benefits to income concealed in spite of a search.

18. As pointed out by the Supreme Court in State of Punjab vs. Prem Sukhdas AIR 1977 SC 1642, it is not permissible to alter the meaning of clear words to create an ambiguity in order to consider the constitutionality of the section. In the context of s. 64(1) the word ‘income’ in s. 64(2)(ii) can refer only to undisclosed income eligible for concessional tax becoming ineligible by detection before declaration. This meaning is in consonance with the object of the Scheme as stated in the memorandum. “In order to mobilise resources and to channelise funds into priority sectors of the economy, and to offer an opportunity to persons who have evaded tax in the past, to declare their undisclosed income, pay a reasonable tax and in future adopt the path of rectitude and civil responsibility, a voluntary disclosure of income and wealth scheme is proposed to be introduced”. The words “income of the previous year” are advisedly different from the words “the income assessable for the assessment year” in s. 64(2)(i) and cannot have the same wide scope and is therefore limited to undisclosed income. Such undisclosed income which is subject to search, requisition and survey is clearly identified in the assessment made in consequence thereof. Since we are of the opinion that the interpretation placed by the learned standing counsel is incorrect and the bar under sub-s. (2)(ii) is confined only to undisclosed income which is identified bydetection, we find it unnecessary to consider the cases cited with reference to the classification in taxing statutes or ofmatters of policy as such questions do not arise.

The learned standing counsel for the Revenue submitted that this construction will be difficult to implement because under the special procedure for making an assessment in search cases, notices are to be issued giving 45 days time and assessment can be completed within a period of one year from the date of search and where the search is initiated within the Scheme period, VDIS will be over before the identification of the concealed income. But we do not envisage any real difficulty except s. 70 which provides that the tax paid in pursuance of the declaration shall not be refundable under any circumstances. If this is understood as forfeiting the tax paid in cases where declarations are ineligible under s. 64(2) for the benefit of the Scheme, such a forfeiture would be confiscatory and unconstitutional unless it is properly qualified. It appears to us that the intention of this section was only to state that there will be no cash refund of the tax paid in pursuance of the declaration made under sub- s. (2)(1). It will not, however, stand in the way of adjustment of the amount if the declaration itself is not

acceptable as not falling under s. 64(1). A reference to s. 68 clears this point. That section provides that the amount of voluntarily disclosed income shall not be included in the total income of the declarant for any assessment year under the IT Act if the declarant credits the amount in the books of account and intimates the credit to the AO and pays the income-tax within the time specified. In a case where a search has been made and the assessee makes a declaration of income which is not identified in the search and has not been included in the assessment made for the block period of 10 years, it would be clear that it is a declaration falling under s. 64(1). If, however, it is found upon assessment that the income declared by the assessee under the VDIS is already part of the total income under an assessment, certainly the assessee is entitled to the adjustment of the tax paid because it will not be a tax paid under s. 64(1) but will be a tax paid in advance in respect of the total income assessed under the IT Act. No doubt, s. 69 provides that the declarant shall not be entitled to reopen any assessment or claim any setoff in respect of voluntarily disclosed income but this section cannot apply to a situation where the assessment has not been made. Where a search has been completed earlier and assessments have also been completed, surely both the assessee and AO know whether the income declared is the income which has escaped assessment. But, where the assessments have not been completed in respect of search or survey operations, the assessee is entitled to the set-off if the income declared is ultimately assessed under the IT Act because the s. 69 only prevents the reopening of the completed assessments and does not bar any adjustment in pending assessments.

19. Thus, reading all the sections together, we are of the considered opinion that on a true construction of sub-s. (2)(ii), only the income which is the subject-matter of the assessment, will be ineligible for disclosure and the assessee is free to disclose the income of any previous year as long as it has not been detected. Question of discrimination

20. The contention of the assessee that the classification of tax evaders has no nexus with the object of the Scheme is untenable. On a true construction of the Scheme, the object is to give concessional rate of tax and immunity in respect of the disclosure of concealed income. Where such concealed income is already detected, it cannot be said that there is concealed income, and hence, excluding them from the benefit of the Scheme is clearly reasonable and appropriate to the object of the Scheme. The contention that persons equally placed are not treated equally arose from an assumption that the section applies to the persons whereas we have found that the section applies only to incomes. Consequently, the classification of the income as concealed income and discovered income is certainly a valid classification appropriate to the purpose of the Scheme. The second contention that a search made during the Scheme period is an arbitrary exercise of power to deprive the petitioner of the benefit of the Scheme also fails on three grounds. Firstly, as held by the Supreme Court in Tribhovandas Bhimji Zaveri vs. Union of India (supra) the IT authorities are not debarred from conducting a search. Secondly, the person whose premises are searched is also not debarred from making a disclosure of income which is not discovered. Thirdly, on a proper construction of sub-s. (2)(ii) as relating only to the income detected, it has no relevance to the Scheme period and applies equally to all assessees whatever be the previous year in which the search was conducted as it would be confined to the income detected. The third contention that the classification of the cases of search as a separate class ignores the case where nothing is discovered, also falls to the ground in view of the proper construction of the section inasmuch as, if nothing is found, there will be no bar to the declaration of income which remains concealed.

21. The learned standing counsel for Revenue submitted that the construction given by us may itself bring out some discrimination between the class of assessees to whom notices were issued under ss. 142 and 148 and classes of assessees where search was conducted which is a more rigorous provision, whereby the entire income assessed is ineligible in the first case whereas only the detected income is ineligible in the second case. We do not find any substance in this argument because the rationale behind the two sub-classifications of tax evaders are quite distinct. In the first case where notices are issued under ss. 142 and 148, as we have explained above, the rationale is that they did not avail of a second opportunity and should, therefore, not be given any opportunity under the Scheme. They constitute a separate category of tax evaders whose disclosure cannot be said to be truly voluntary. At the same time, if they had responded to the notices and still concealed some income, the benefit of the Scheme would be available for such concealed income. The second class of income is really not concealed income because it has been detected, and therefore, there is no question of discrimination between sub-s. (2)(i) and sub-s. (2) (ii). Similarly, the Scheme period is relevant only to sub-s. (2)(i) and not sub-s. (2)(ii). The learned standing counsel submitted that even in the case of search assessment, notice is issued for filing a return and still

he will get the benefit of the Scheme though he does not respond to the search notice whereas an assessee who has not responded to the notices under ss. 142 and 148 would be denied the benefit. Again these two operate in different areas and, as we have pointed out, sub-s. (2)(ii) still allows undetected income to be declared whereas the opportunity to declare such undetected income is denied under sub-s. (2)(i) in respect of those who have not taken the second opportunity in response to the notice under ss. 142 and 148 after failing to voluntarily declare the income under s. 139. We are, however, constrained to remark that if the Revenue envisaged such difficulties in giving effect to the provisions of the Scheme, the Central Government could have removed them by a proper notification or even by prompt attention to this case and clarifying the stand by filing a counter-affidavit. We hope that the construction placed by us would effectuate the Scheme in the way in which it was intended to mop up undisclosed income. Other objections of the Revenue

22. The learned standing counsel submitted that the circulars issued by the CBDT cannot deviate from the law as held in Kerala Financial Corpn. vs. CIT (1994) 119 CTR (SC) 164 : (1994) 210 ITR 129 (SC) : TC 39R.830, and therefore, even if they have deviated, they cannot be the basis for interpreting the Act. We have construed the section without reference to the circular, and hence, this argument is of no consequence. He then submitted that it is too late for the Department to change its view now and the writ petition as framed could not be entertained as it did not indicate any lis. He submitted that in spite of an interim direction, the petitioner did not make any declaration and the question of interpretation can arise only if a declaration when filed is rejected and the petitioner claims a refund. He also pointed out that the petitioner has not alleged that he had any concealed income other than the income discovered in the search, and therefore, he is not entitled to any relief. He further submitted that it is for the CIT to decide whether any declaration is valid and writ petition filed without approaching the Government for clarification and for removal of difficulties if he encountered any, was premature. We find no substance in any of these objections. Both the petitioner and the Department went on the assumption that the prohibition in sub-s. (2) (ii) was with reference to the assessee whereas we have now indicated that on a plain construction, the prohibition was only with reference to the undisclosed income which was discovered. As held by the Supreme Court in Sanjeev Coke Mfg. Co. vs. Bharat Coking Coal Ltd. AIR 1983 SC 239, that once the statute leaves Parliament House, the Courts’ is the only authentic voice which may echo (interpret) the Parliament, which will be on the language of the statute. If the Government was labouring under a misconception, there was no point in the petitioner making a declaration for the sake of creating a lis. On the other hand, if he refrains from making the declaration on the basis of the view of the Department, he would really be missing a chance to make a declaration within the Scheme period and the Revenue also would have suffered for not bringing out the concealed income which is the objective of the Scheme. There is no question of the petitioner violating the interim direction because the direction was only to permit him to make a declaration and if he found that in spite of such permission no purpose would be served or he will be put to further difficulties by making a declaration without clarifying the law, the petitioner cannot be prevented from approaching the Court for that purpose. The manner in which this case has been handled by Government is enough to indicate that the petitioner could not have had any appropriate and timely clarification from the Government even if he had made any representation because even after the writ petition was filed, no counter-affidavit has been filed to clarify the stand of the Government. In this background, we are of the opinion that the issue raised is not peculiar to the petitioner and is of substantial public importance, and hence, a decision of this Court is imperative. Though the learned standing counsel waspessimistic about a decision of this Court generating any more declarations in the few days left, we are of the view that the decision has to be given regardless of the results. Conclusion

23. We declare that : (A) Sec. 64 of Finance Act, 1997 grants concession of tax and immunity to the undisclosed income which is declared in the Scheme period. (B) The income that was not returned within the time prescribed in the notice issued under ss. 142 or 148 and which expired before commencement of the Scheme, will be ineligible under s. 64(2)(i) for the benefit under s. 64(1). (C) That benefit is denied to the income which is detected in a search under s. 132, on a requisition under s. 132A or in a survey under s. 133A, whichever be the previous year to which the 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 the benefit under s. 64(1). (E) If subsequently it is found that the income disclosed under VDIS 1997, is to be assessed as part of the total income of any previous year and thus ineligible to be declared under s. 64(1), the tax paid under s. 64(1) shall be adjusted against the assessed tax.

We, therefore, hold that on a proper construction of s. 64 of Finance Act, 1997, there is no discrimination or infirmity in that section and it is constitutionally valid. In the circumstances, the respondents are directed to entertain voluntary disclosures falling within the above parameters as falling under s. 64(1) of the Finance Act, 1997. The writ petition is disposed of accordingly.

24. After the judgment was delivered, the learned standing counsel for the Revenue made an oral application for leave to appeal to the Supreme Court. Even though the question decided in this case is of general importance, we find that the answer is self-evident. In the circumstances, we do not consider it a fit case to grant leave. Since we have rejected the application for leave to appeal, we also reject the oral application for keeping the order of this Court in abeyance.

[Citation : 230 ITR 536]

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