Section 113 of the Income Tax Act provides for tax on undisclosed income at the rate of 60 per cent. According to the Central Board of Direct Taxes, the Finance Acts stipulate that the amount of income tax should be increased by surcharge, as applicable to the assessee.
However, levy of surcharge on tax on regular income does not pose a problem since the amount of income tax is determined with reference to a particular assessment year, as specified in the Finance Act, sources said.
Sources also said the basis for the levy of such tax on regular income is contained in section 4 of the I-T Act, in which the charge of tax is linked to any Central Act, such an Act in this case being the Finance Act. However, in the case of block assessments, there are two problems as far as imposing surcharge is concerned, they added. To begin with, section 113 does not mention a Central Act. In the absence of a reference to another Central Act in the charging section, it is difficult to justify levy of surcharge, they pointed out.
Even if it is assumed that reference in the Finance Act to section 113 is a sufficient authority to impose a surcharge, the problem is that it levies surcharge on the amount of income tax on the income of a particular assessment year, whereas in the block assessment, tax is levied on the undisclosed income for the block period. Sources also said the absence of a specific assessment year in the block assessment renders the levy of surcharge suspect.
Another problem associated with the levy of surcharge on undisclosed income is that of the rate to be applied. The provisions of section 113 do not offer any guidance on the issue as well, said sources.
To remove these impediments in the oncoming Budget, the finance ministry is currently considering a suggestion to amend section 113 retrospectively in order to provide for levy of surcharge on tax on undisclosed income at the rate applicable in the financial year in which the search is conducted, said sources, adding however that the government has asked for suggestions in the matter from various quarters and a final decision in this regard will be taken only after considering these inputs.
Other areas where the North Block is considering more simplification and rationalisation measures includes provisions in section 132-B and section 132 (8). Sources said section 132-B may be amended in the Budget 02-03 to provide for adjustment of the seized cash against the existing tax liability of the assessee, including liabilities for payment of advance tax at the assessees option. They also said section 132 (8) is also likely to be modified for making the requirement of approval for retention of seized books only after two years from the date of the search instead of the current 180 days limit.