ORDER

Shri E. M. Narayanan Unni, Vice President

1. In this appeal, filed by the revenue, the only contention is that the Commissioner (Appeals) is not justified in directing the ITO to exclude an amount of Rs. 2,50,000, representating the amount disclosed by the assessee under the Voluntary Disclosure of Income and Wealth Act, 1976 (hereinafter referred to as the "Voluntary Disclosure Act"), from the income of Rs. 15,96,160 as per income-tax assessment, for purposes of computing the chargeable profits for levying surtax under the Companies (Profits) Surtax Act, 1964 ("the Act").

2. The assessee is a private limited company and the assessment year involved is 1975-76. The company filed a return of the chargeable profits on 30-3-1976 declaring the net chargeable profit at Rs. 78,930. Thereafter it filed a revised return declaring the net chargeable profit at Rs. 3,05,824. The assessment was completed on a chargeable profit of Rs. 4,00,122 and the surtax payable was determined at Rs. 1,54,949 by the ITO's order dated 14-1-1980.

3. Against the above assessment, the assessee filed an appeal before the Commissioner (Appeals), in which it was contended that the computation of chargeable profits made by the ITO was wrong, inasmuch as, he had not deducted, from the total income of Rs. 15,96,160, as determined for the purpose of the income-tax assessment, a sum of Rs. 2,50,000, representing the amount voluntarily disclosed by the assessee under the Voluntary Disclosure Act and which was included in the above total income. The assessee contended that the said amount of Rs. 2,50,000 was not to be included in the chargeable profits by virtue of the provisions of section 8 of the Voluntary disclosure Act. By a very brief order, the Commissioner (Appeals) held that the contention of the assessee is a clearly valid one, inasmuch as, under the provisions of section 8 of the said Act, such voluntarily disclosed income should have been excluded from the computation of chargeable profits. It is against this decision of the Commissioner (Appeals), that the revenue has filed the present appeal before the Tribunal.

4. The learned departmental representative submitted that section 8 of the Voluntary Disclosure Act, on which the Commissioner (Appeals) relied, in granting relief to the assessee, was not applicable to the facts of the case. He submitted that section 8 would apply only to a disclosure made by an assessee under section 3 of the said Act. In the present case, the disclosure was made by the assessee under section 14, after a raid was conducted on the premises of the assessee on 28-10-1975 and the disclosure was made by the assessee pursuant to such raid and search of its premises. Under the terms of section 14 of the Voluntary Disclosure Act, the amount disclosed by the assessee is to be included in its total income for the purpose of determining the tax payable by the assessee on the disclosed amount and the only immunity to which the assessee was entitled, in such circumstances, was as provided in section 14, namely, that such disclosed amount shall not be taken into account for the purposes of :

a. payment of interest under section 139(8) of the Income-tax Act;

b. payment of interest under section 215 or section 217 of the Income-tax Act;

c. imposssition of penalty under the prvsions of the Income-tax Act, the Wealth-tax Act, etc., except under section 221 of the Income tax Act or the corresponding provisions of any other Act; and

d. prosecution under the provisions of any of the said Acts, that is, the Indian Income-tax Act, 1922, or the Income-tax Act, 1961, the Excess Profits Tax Act, 1940, the Business Profits Tax Act, 1947, the Super Profits Tax Act, 1963, or the Companies (Profits) Surtax Act, 1964.

The Explanation to section 14, it was pointed out, clearly contemplated the inclusion of the amount declared under that section in the total income of the assessee and treating the aggregate of the said amounts at the total income for purposes of levying tax. In the light of this provision, it was contended by the learned departmental representative, that the claim of the assessee to exclude the amount of Rs. 2,50,000 declared by it under section 14, for purposes of determining the surtax payable by it is not in accordance with the provisions of the Voluntary Disclosure Act, as section 8 of the said Act is not applicable to a disclosure made under section 14.

5. Shri D. M. Harish, the learned counsel for the assessee, on the other hand, contended that there is nothing in the provisions of section 8 of the Voluntary Disclosure Act to show that a declaration under section 14 is excluded from its operation and that it applies only to a declaration under section 3. He referred to sub-section (2) of section 14, wherein it is laid down that the declaration under sub-section (1) shall be made to the Commissioner in such form and verified in such manner as may be prescribed by Rules made by the Board. He then took us through Form 'A"' relating to a disclosure under section 3(1) and through Form 'B' relating to a disclosure under section 14(1) and submitted that the heading given in both those forms was, "Voluntary Disclosure". Thus, he submitted that the disclosure, whether under section 3 or under section 14, shall designed by the person specified in sub-section (2) of section 14, as if the declaration had been made under that section. He then referred of the to sub-section (5) of section 14 and said that the tras chargeable in respect of the income of the previous year or years for which the declaration has been made, is to be paid by the declarant in accordance with the provisions of section 5.

Referring to section 5, he said that the section refers to, "The Voluntarily Disclosed Income". From this he went on to submit that the income disclosed under section 14 is also "voluntarily disclosed income". Thereafter, he referred to section 8 and submitted that it dealt with the the various Acts mentioned therein, namely, that such income shall not be included in the total income or wealth of the declarant for any assessment under any of the Acts mentioned therein, including this Act. He pointed out that section 8 did not specifically say that it applied only to section 14. He, further, submitted that wherever any provision was meant to apply only to declarations under section 3, it was specifically brought out in the relevant provision. In this connection, he referred to section 10, section 11, section 12 and section 13, in which section 3 has been specifically mentioned. He went on to submit that the title of the Act itself shows that anything so declared, under that Act, is a voluntary disclosure and anything declared is "voluntarily disclosed income". In the circumstances, he submitted that the Commissioner (Appeals) was right in accepting the assessee's contention and directing the exclusion of the amount of Rs. 2,50,000 from the assessee's total income, for purpose of determining the chargeable profits under the Act. He further made a submission that even if the provisions of the Act are found to be ambiguous, in any respect, the benefit of that ambiguity should be given to the assessee, as held by the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192.

6. In reply, the learned departmental representative submitted that there was absolutely no ambiguity in the provisions of either section 8 or section 14. He submitted that the attempt of the learned counsel for the assessee to equate an amount declared under section 14 with "voluntarily disclosed income", in order to make the provisions of section 8 applicable to such declaration, is clearly without any merit as the expression "voluntarily disclosed income" is defined in section 3 itself. The section clearly lays down that the income declared under that section is being, "hereinafter referred to as the voluntarily disclosed income" (sic). Thus, wherever there is a reference to "voluntarily disclosed income". Read along with section 3, it clearly means that section 8 applies only to a declaration under section 3. Any other interpretation, it was pointed out by the learned departmental representative, would lead to absurd results. If, accepting the plea of the learned counsel for the assessee, it is held that section 8 would apply to a declaration under section 14, it would follow that the amount so declared should not be included in the total income of the assessee for the relevant assessment year. But such an interpretation would be diametrically opposed to the Explanation to section 14, which clearly directs that the amount declared under section 14 should be aggregated along with the total income of the assessee for the relevant year for purposes of determining the tax payable on the amount declared by the assessee. An amount declared under section 3 is not to be aggregated with the total income, whereas an amount declared under section 14 is to be aggregated for purposes of payment of tax on the amount declared. If the interpretation of section 8, sought to be canvassed by the learned counsel, is accepted, the clear absurdity would be that for purposes of the Income-tax Act the amount declared under section 14 has to be included in the total income whereas for purposes of the surtax the amount is not to be included in the total income. Such a proposition is neither expressed nor implied in section

8.

Referring to the argument of the learned counsel, based on the procedure to be followed for a declaration under section 14, the learned departmental representative submitted that these are only procedures prescribed and will not affect the nature of the declaration itself or the consequences flowing flowing from such declaration, under the terms of the Act. He also pointed out to the scheme of the Act and submitted that section 4 to 13 go together, in relation to a declaration under section 3 and the reference to section 3 in sections 10,11,12,13, etc., is only because those sections are meant to apply to a declaration under section 3. In the circumstances, he submitted that the Commissioner (Appeals) was clearly in error in holing that the amount of Rs. 2,50,000 declared by the assessee under section 14 should be excluded from the total income, for proposes of determining the surtax payable by the assessee.

7. After having considered the rival submissions, we are in complete agreement with the case put forward on behalf of the revenue. The provisions of section 8 apply only to "voluntarily disclosed income". In this connection it will be necessary to consider the meaning assigned to the terms "voluntarily disclosed income" and "declarant" in the Act itself. These contained in section 3, which is reproduced below :

Charge of income-tax on voluntarily disclosed income-" (1) Subject to the provision of this Act, where any person makes, on or after the date of commencement of this Act but before the 1st day of January, 1976, a declaration in accordance with the provisions of section 4 in respect of any income chargeable to tax under the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act for any assessment year -

(a) for which he has failed to furnish a return under section 139 of the Income-tax Act., or

(b) which he has failed to disclose in a return of income furnished by him under the Income-tax Act before the date of commencement of this Act, or

(c) which has escaped assessment by reason of the omission or failure on the part of such person to make a return under the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act or to disclose fully and truly all material facts necessary for his assessment or otherwise,

then, notwithstanding anything contained in the Indian Income-tax Act, 1922 (11 of 1922), or the Income-tax Act or in any Finance Act, Income tax shall be charged in respect of the income so declared (such income or being hereinafter referred to as the voluntarily disclosed income) at the rate or rates specified in the Schedule.

(2) Nothing contained in sub-section (1) shall apply in relation to -

(i) the income assessable for any assessment year for which a notice under section 139 or section 148 of the Income-tax Act has been served upon such person and the return has not been furnished before the commencement of this Act;

(ii) where any books of account, other documents, money, bullion, jewellery or other valuable articles or things belonging to the person making the declaration under sun-section (1) (hereafter in this section, in sections 4 to 13 and in the schedule referred to as the declarant) have been seized as a result of any search under section 132 of the Income-tax Act or under section 37A of the Wealth-tax Act, the income in respect of the previous year in which such search was made or any earlier previous year.

(3) In addition to the amount of income-tax to be paid under sub. section (1), the declarant shall invest a sum equal to five per cent of the amount of the voluntarily disclosed income in such securities as the Central Government may notify in this behalf in the Official Gazette."

A reading of the above section would show that expression "voluntarily disclosed income" is used in the Act in relation to income declared, in a declaration made in accordance with the provisions of section 4. Section 4 provides that the declaration under sub-section (1) of section 3 shall be made to the Commissioner and shall be in such form and shall be verified in such manner as may be prescribed by the Rules made by the Board and shall be signed by the persons specified therein. Thus, the expression "voluntarily disclosed income" is used in the Act to denote income declared under section 3(1), that is, income declared voluntarily by any person. The expression "declarant" is used in the Act to mean a person making a declaration under sub-section (1) of section 8, If we apply these meanings to the said expressions, in section 8, the intention of the Legislature would be beyond any doubt. Section 8 is in the following terms :

"8. Voluntarily disclosed income not to be included in the total income. -

(1) The amount of the voluntarily disclosed income shall not be included in the total income of the declarant for any assessment year under the Indian Income-tax Act, (11 of 1922), or the Income-tax Act, 1961 or the Excess Profits Tax Act, 1940 (15 of 1940), or the Business Profits Tax Act, 1947 (21 of 1947), or the Super Profits Tax Act, 1963 (14 of 1963), or the Companies (Profits) Surtax Act, 1964 (7 of 1964), if the following conditions are fulfilled, namely :-

(i) the declarant credits such amount in the books of account, if any, maintained by him for any source of income or in any other record, and intimates the credit so made to the Income-tax Officer;

(ii) the income-tax in respect of the voluntarily disclosed income is paid by the declarant; and

(iii) the amount required to be invested in the securities referred to in sub-section (3) of section 3 is so invested by the declarant.

(2) The Commissioner shall, on an application, made by the declarant, grant a certificate to him setting forth the particulars of the voluntarily disclosed income, the amount of income-tax paid on respect of the same, the amount of investment made in the securities referred to in sub-section (3) of section 3 and the date of payment and investment."

If the meanings assigned to the expression "voluntarily disclosed income" and "declarant" are substituted in this section, sub-section (1) would read as under :

(1) The amount of the income declared in accordance with the provisions of section 4, that is, declared under sub-section (1) of section 3, shall not be included in the total income of the person making the declaration under sub-section (1) of section 3 of for any assessment year under the India Income-tax Act, 1922, etc,.

It will the have no application, at all, to any person making a declaration under section 14.

8. No doubt sub-section (3) of section 14 lays down that the declaration under that section shall be signed by the persons specified in section 4(2) as if the declaration had been make under that section. This, in our view, does not make the declaration under section 14, a declaration under 4. It only provides the mechanism or the procedure for making the declaration under section 14. Instead of repeating the terms of the procedure at tow places in the same Act, the Legislature considered it convenient to refer to the procedure laid down in section 4 and to make it applicable to a declaration section 14 also. The same is the case with sub-section (5) of section 14, wherein the mode and time of payment of the tax on the declared income is dealt with. It is laid down that the immunity provided in sub-section (1) shall not be available to the declarant unless the tax chargeable, in respect of the income of the previous year or years for which the declaration has been make, is paid by the declarant in accordance with the provisions of section 5. From this, the learned counsel sought to make out that the payment is a payment under section 5. In our view, this is clearly not so. It only lays down a procedure for the payment of the tax consequent on the declaration under section 14. Again, to avoid unnecessary repetition of the procedure the Legislature thought it convenient to refer to the procedure laid down in section 5 and to make it applicable to a declaration under section 14 also. This, by itself, does not make a declaration under section 14 equivalent to a declaration under section 3. In fact, a pursuit of section 5 will show that the whole of that section does not apply to a declaration under section 14. Only sub-sections (1) to (3) relating to the payment of tax apply to the declarations under section 14 and sub-section (4) will apply, along with sub-sections (1) to (3), to declarations under section 3(1).

The Scheme of the Act with regard to the declaration under section 3 and under section 14 is totally different. Section 3 deals with declarations made by a person without compulsion, either of circumstances, or of action taken against him by the department. Section 14 deals with the declaration make by a person, who acts under certain compulsions. His books of account, other documents, money, bullion, jeweler or other valuable articles or things have been seized, as a result of a search under section 132 of the Income-tax Act, or section 37A of the Wealth-tax Act. Incriminating of damaging materials in relation to his assessments to income-tax or wealth-tax are already in the possession of the department. It is when he is so concerned and may be described as being in a state of siege that he comes forward with a declaration under section 14. To call such a declaration, a "voluntary' disclosure, or to describe the income so declared as a "voluntarily disclosed income", would be a mockery of the language. That is why the Act has also provided separate immunities for declarations under section 3, the immunities are broader and large than those provided for a person making a declaration under section 14. Sub-clause (ii) of sub-section (2) of section 3 specifically rules out the operation of sub-section (1) to incomes in respect of the previous year, in which a search under section 132 of the Income-tax Act or section 37A of the Wealth-tax Act has been carried out, and any books of account, other documents, money, bullion, jewellery or other valuable articles or things belonging to the assessee have been seized. In the case of a declaration under section 3, the declarant is required to invest a sum equal to 5 per cent of the voluntarily disclosed income in such securities as are notified by the Central Government. There is no such requirement, as far as a declaration under section 14 is concerned. Section 8 specifically insists of the fulfillment of the conditions relating to investment of 5 per cent of the disclosed income, in securities of the Central Government as a condition precedent to the immunities provided therein. In other words, the immunities or concessions attending a declaration under section 3(1) are embodied in section 8, and those attending a declaration under section 14 are embodied in section 14 itself, a reference to which has been made by us inn paragraph 4 of this order. Such a differentiation in the treatment is in keeping with the nature of the two declarations, and is easily discernible from the provisions of the Act itself, as pointed out (supra).

The argument of the learned counsel for the assessee that section 8 does not specify section 3 and, therefore, that section would apply to section 14 also is, in our view, without any merit. Section 8 does not have to refer specifically to section 3, as the expressions used therein, namely, "voluntarily disclosed income" and "declarant" have their meaning and content spelt out in section 3. Thus, section 3 automatically figures in the interpretation of section 8 whereas section 14 does not fit into those expressions used in section 8.

9. The argument of the learned counsel for the assessee that the heading to Form 'B' as well as the heading to Form 'A' [for making declarations under section 14(1) and under section 3(1)], both are in the same terms, namely, "Voluntary Disclosure', and, consequently, the incomes declared both these sections should be treated as, "voluntarily disclosed income"' is only to be stated to be rejected. Below those headings in the two forms, are given the rules under which the forms have been prescribed and more elaborate heading has also been given in the following terms, for Form 'A' and for Form 'B' :-

FORM B : Form of declaration section 3(1) of the Voluntary Disclosure of Income and Wealth Ordinance, 1975, in respect of voluntarily disclosed income.

FORM B : Form of declaration in respect of income under section 14(1) of the Voluntary Disclosure of Income and Wealth Ordinance, 1975, in case of search and seizure.

It will be clear that even these forms make a clear distinction between "voluntarily disclosed income" under section 3(1) and declaration made under section 14, after a search and seizure. The expression "voluntarily disclosed income" has not been applied to the latter type of declaration, in Form B.

10. In the light of the above discussion, we have to hold that the Commissioner of Income-tax (Appeals) was wrong in direction the exclusion of the amount of Rs. 2, 50,000 declared under section 14(1) of the Voluntary Disclosure Act from the assessee's total income, for the purpose of assessment under the Act.

11. In the result, we set aside the order of the Commissioner of Income-tax (Appeals) on this point and restore the order of the ITO.

12. The appeal, filed by the revenue, is allowed.