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K.L. Swamy vs The Commissioner of Income Tax & Anr.

Civil Appeal · 2023 INSC 28Decided 13 Jan 2023
Civil Appeal No. 3704 of 2012
M.R. Shah · C.T. Ravikumar

Background

Income-tax authorities searched the premises of the Khoday Group in 1997. K.L. Swamy, a director/partner in Khoday concerns who was not himself the "searched person", was issued a notice under Section 158BD asking him to file a return of his undisclosed income for the "block period" 1986-1997. He filed the return late, declaring Rs. 45 lakh of undisclosed income, and the Assessing Officer charged him about Rs. 7.1 lakh interest under Section 158BFA(1) for the 13-month delay, plus a surcharge under Section 113. The Bangalore Tribunal deleted the interest, but the Karnataka High Court restored it and also upheld the surcharge; Swamy and connected assessees appealed.

Decision Breakdown

The Supreme Court partly allowed the appeals. On surcharge, the Revenue itself conceded that the Constitution Bench ruling in CIT vs Vatika Township (2014) had settled that the proviso to Section 113 imposing surcharge on block assessments operates only prospectively, so no surcharge was payable for this period. The High Court's order was modified to that extent. On interest, however, the Court sided with the Revenue. It rejected the argument that interest under Section 158BFA(1) can be charged only where a notice under Section 158BC (meant for searched persons) was issued: Chapter XIV-B is a complete code, a Section 158BD notice is the correct and sufficient notice for "other persons", and the 2002 amendment adding the words "under Section 158BC" to Section 158BD was merely clarificatory. The Court also held that interest for late filing under Section 158BFA(1) operates independently of the self-assessment tax provision in Section 140A, so it applies even for periods before the 1999 amendment of Section 140A.

Lesson Learnt

When the tax department asks you to file a return of undisclosed income after a search, even if you were not the person searched, filing late attracts interest, and technical gaps in the wording of the notice will not excuse the delay. On the other hand, a new tax burden like a surcharge cannot be applied retrospectively unless Parliament clearly says so.

Official source (sci.gov.in)View Judgment (PDF)

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