2017 (10) TMI 1275 - SC - Income Tax

Supreme Court limits tax circular retroactive effect. Appeals allowed, matters remitted for re-adjudication.

The Supreme Court ruled that instructions/circulars issued by the Central Board of Direct Taxes on 9.2.2011 do not have retrospective operation and apply ... Retrospective operation of administrative circulars - prospective application of departmental instructions - effect of Board circulars on pending cases - remand for re-adjudicationRetrospective operation of administrative circulars - prospective application of departmental instructions - effect of Board circulars on pending cases - Instructions/circular dated 9.2.2011 do not have retrospective operation and govern only cases filed after 9.2.2011. - HELD THAT: - The Court, following its earlier decision in Commissioner of Income Tax-VIII, New Delhi v. Suman Dhamija, held that the Central Board of Direct Taxes cannot issue a circular having retrospective effect. Although reliance was placed by respondents on a later circular dated 10.12.2015 (paragraph 10), the determinative conclusion is that the circular dated 9.2.2011 is not retrospective and therefore does not govern cases filed before its issuance; it applies only to cases filed after 9.2.2011.Circular dated 9.2.2011 is not retrospective and applies prospectively to cases filed after 9.2.2011.Remand for re-adjudication - Impugned High Court order dated 2.11.2011 in ITA No.887/2006 is set aside and the matter is remitted for fresh adjudication on merits in accordance with law. - HELD THAT: - In consequence of the above legal conclusion on the non-retrospective operation of the 9.2.2011 instructions, the Supreme Court allowed the appeals, set aside the High Court order, and remitted the matters to the High Court for re-adjudication on merits and in accordance with law.High Court order dated 2.11.2011 set aside; matters remitted to the High Court for re-adjudication on merits and in accordance with law.Final Conclusion: Civil Appeals allowed; the 9.2.2011 CBDT instructions are not retrospective, the High Court order dated 2.11.2011 is set aside and the matters are remitted for fresh adjudication on merits in accordance with law. Issues:1. Retrospective operation of instructions/circular issued by the Central Board of Direct Taxes on 9.2.2011.Analysis:The Supreme Court addressed the issue of whether the instructions/circular issued by the Central Board of Direct Taxes on 9.2.2011 would have retrospective operation. In a previous case, the Court had ruled that the said instructions were not retrospective and would only apply to cases filed after 2011. The respondents in the present case relied on a circular from December 2015, but the Court held that the Central Board of Direct Taxes cannot issue a circular with retrospective operation. Therefore, the Court allowed the Appeals, set aside the High Court's order from 2.11.2011, and remitted the matter(s) back to the High Court for re-adjudication based on merit and in accordance with the law. The Civil Appeals were allowed accordingly.