2008 (11) TMI 8 - SC - Income Tax

Tax authority's selective appeals require taxpayer proof of malice; administrative policy can justify inconsistent appeal decisions, appeals dismissed

SC held that an assessee alleging mala fides in the Revenue's selective appeals must prove malafide intent; administrative policy choices (e.g., not ... Entitlement to benefit for exemption u/s 11 - Whether the respondent, assessee's trust was hit by the provisions of Section 13(1)(c) & 13(2)(a)(f) & (h) - HELD THAT:- If the assessee takes the stand that the Revenue acted mala fide in not preferring appeal in one case and filing the appeal in other case, it has to establish malafides. As a matter of fact, as rightly contended by the learned counsel for the revenue, there may be certain cases where because of the small amount of revenue involved, no appeal is filed. Policy decisions have been taken not to prefer appeal where the revenue involved is below a certain amount. Similarly, where the effect of the decision is revenue neutral there may not be any need for preferring the appeal. All these certainly provide the foundation for making a departure. In C.K. Gangadharan's case [2008 (7) TMI 10 - SUPREME COURT] it was held that merely because in some cases revenue has not preferred an appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher court when divergent views are expressed by the different High Courts. In this case, it is accepted by the learned counsel for the appellant-revenue that the fact situation in all the assessment years is same. According to him, if the fact situation changes then the revenue can certainly prefer an appeal notwithstanding the fact that for some years no appeal was preferred. This question is of academic interest in the present appeals as undisputedly the fact situation is the same. The appeals are accordingly dismissed. Issues:Challenge to order passed by Division Bench of Allahabad High Court in favor of assessee under Income Tax Act, 1961. Interpretation of provisions of Section 13(1)(c) and 13(2)(a)(f) & (h) of the Act. Whether revenue can be precluded from filing an appeal for certain assessment years when no appeal was filed for other years. Application of principles of res judicata in tax matters for different assessment years. Just cause for revenue to prefer an appeal.Analysis:1. The appeals before the Supreme Court challenged the order passed by the Division Bench of the Allahabad High Court in favor of the assessee under the Income Tax Act, 1961. The High Court relied on its judgment in a previous case involving the assessee to answer the reference made by the Income Tax Appellate Tribunal (ITAT). The dispute related to the applicability of provisions under Section 13 of the Act to the assessee's trust and its eligibility for exemption under Section 11.2. The main contention raised by the revenue appellant was that each assessment year should be considered a separate unit, and the factual scenario for each year must be examined independently. The dispute centered around whether the assessee's trust was impacted by the provisions of Section 13(1)(c) and 13(2)(a)(f) & (h) of the Act, thereby affecting its entitlement to exemption under Section 11.3. The assessee's counsel argued that the revenue had not filed appeals for several years, including those with similar factual positions. Reference was made to decisions by various High Courts supporting the assessee's position, where no appeals were filed by the revenue. The counsel highlighted that the absence of appeals in previous years did not preclude the revenue from filing appeals for other assessment years.4. The Supreme Court referred to previous decisions to analyze the issue at hand. It cited the principle that res judicata does not apply to tax matters for different assessment years, emphasizing that each assessment year presents a distinct cause of action. The Court noted that if the facts and law remain the same in subsequent assessment years, a different view should not be taken unless there are new grounds or material changes. The Court also discussed the circumstances under which a decision could be set aside or overruled in subsequent proceedings.5. The Court further examined the concept of just cause for the revenue to prefer an appeal. It noted that without a valid cause, the revenue should not selectively file appeals, as observed in previous judgments. The Court emphasized that divergent views among different High Courts could constitute a just cause for the revenue to appeal. It was also acknowledged that policy decisions, such as not appealing in cases involving small revenue amounts, could justify the revenue's actions.6. Ultimately, the Supreme Court held that the appeals lacked merit and were dismissed. The Court reiterated that the absence of appeals in certain years did not bar the revenue from filing appeals when there was a just cause or public interest involved. The Court emphasized that the fact situation remaining the same across assessment years was a crucial factor in this case.This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the Supreme Court's reasoning in deciding the appeals.