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2017 (11) TMI 1494

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....gh Courts. The last tier is, of course, the jurisdiction under Article 136 of the Constitution of India before the Supreme Court. 3. Mindful of the phenomenon of the docket explosion and the rising litigation in the country, the Union of India in order to ensure the conduct of responsible litigation framed what is today known as the National Litigation Policy, to bring down the pendency of cases and get meaningful issues decided from the judicial forums rather than multiple tiers of scrutiny just for the sake of it. The Government, being a litigant in well over 50 per cent of the cases, has to take a lead in not being a compulsive litigant. 4. It is towards the aforesaid avowed object that the Income Tax Department, from time to time, has come out with administrative circulars/notifications for the Department not to litigate where the revenue impact is low. 5. In the present proceedings, we are concerned with the implementation of Instruction No.3 of 2011 dated 9.2.2011, providing for appeals not to be filed before the High Court(s) where the tax impact was less than Rs. 10 lakh. It also contains certain other conditions which will be reverted to later, but suffice to say that t....

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....atutory recognition having been issued under Section 268A of the Income Tax Act, 1961 (hereinafter referred to as the 'IT Act'). 8. The judgment took note of the fact that the Madras High Court, Kerala High Court, Chhattisgarh High Court and the Punjab and Haryana High Court had taken a contra view, opining that the existing Circular/Instruction prevailing at the relevant time when the appeal/reference was made would apply and there would be no retrospective application of the circular. On the other hand, the Bombay High Court, Madhya Pradesh High Court, Delhi High Court had taken the view, which was sought to be taken by the Karnataka High Court. 9. The line of reasoning adopted is that as the value of money went down and the cases of the Revenue increased, the choking docket required such an endeavour and there is no reason why the same policy should not be applied to old matters to achieve the objective of the policy laid down by the Central Board of Direct Taxes ('CBDT'). An earlier Circular dated 5.6.2007 issued by the CBDT was also taken note of, which required all appeals pending before the Court to be examined, with direction to withdraw the cases wherein criteria for mo....

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....s will be placed before the court. - That nothing will be suppressed from the court and there will be no attempt to mislead any court or tribunal. 2. The Government must cease to be a compulsive litigant. The philosophy that matters should be left to the courts for ultimate decision has to be discarded. The easy approach, "Let the court decide" must be eschewed and condemned- 3. The purpose underlying this policy is also to reduce the Government litigation in courts so that valuable court time would be spent in resolving other pending cases so as to achieve the goal in the principles incorporated in the National mission for judicial reforms which includes identifying bottlenecks which the Government and its agencies may be concerned with and also removing unnecessary Government cases. Prioritisation in litigation has to be achieved with particular emphasis on welfare legislation, social reform, weaker sections and senior citizens and other categories requiring assistance must be given utmost priority. In respect of filing of appeals in revenue matters it is stated as under: "(G) Appeals in revenue matters will not be filed: (a) if the stakes are not high and are less th....

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....s policy is also to reduce the Government litigation in courts so that valuable court time would be spent in resolving other pending cases, so as to achieve the goal in the National Legal Mission to reduce average pendency time from 15 years to 3 years. All pending cases involving the Government has to be reviewed with the intention of filtering frivolous and vexatious matters from the meritorious one. Panels have to be set up to implement categorization, review such cases, to identify cases, which can be withdrawn. These include cases which are covered by decisions of courts and the cases which are found without merit. Such cases have to be withdrawn. This must be done in a time bound fashion. 23. Instruction No. 3 of 2011 is issued subsequent to the aforesaid National Litigation Policy. A perusal of the aforesaid policy makes it clear that though the said instruction was issued as a measure for reducing litigation, it was issued in supersession of the earlier instruction enhancing the monetary limits and prescribing certain conditions. The very fact that clause 11 provides that this instruction will apply to appeals filed on or after February 9, 2011, and where appeals have bee....

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....g cases and cases to be filed in future. The earlier monetary limit was fixed in the year 2005. So it is after six years, the monetary limit is enhanced. If only Instruction No. 3 of 2011 had been made applicable to the pending cases also, as laid down in the National Litigation Policy, the object of the policy would have been fulfilled. One of the ways of giving effect to the said policy is to make that instruction applicable retrospectively to all pending appeals as on the date of the circular. It would substantially serve the object of the policy. 25. It is in this context, the question arises, when the instruction expressly states that the benefit of the said policy is prospective, still can the courts place a construction on such instruction so as to make it retrospective. In this context, the apex court in the case of CCE V. Mysore Electricals Industries Ltd. reported in [2006] 204 ELT 517 (SC) : [2007] 8 RC 1, dealing with the question how a beneficial circular is to be construed, has approached this question in the following manner. At paragraph 13 of the judgment, it is stated that the learned counsel further submitted that the circular being oppressive and against the r....

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....is no tax liability, are made to face these litigations, instead of concentrating their time and energy in productive work. Under these circumstances, we are of the view that it is settled law that any notification issued under this fiscal legislation granting exemption from payment of tax has to be construed strictly. Any circulars/instructions issued conferring the benefit on the assessees who are still to come to the court and who already inside the court, at any rate, if such a benefit is given to the pending matters, it would be only in the nature of one-time settlement, which most of the financial institutions throughout the country extend to defaulters who have borrowed money and who refuse to pay the same. 29. It is also not out of place to mention herein that Parliament wanted to grant statutory recognition to these orders/instructions/circulars, issued by the Department from time to time retrospectively to take care to protect the interests of the Revenue by introducing sub-sections (2) and (3) in section 268A of the Act. This benefit conferred on these assessees would be only in the nature of one-time settlement because if the same issue arises for consideration in the....

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....y of cases is less, an appeal filed recently is decided before the circular or where the assessee co-operates with the court in speed disposal of the appeal and the appeal is disposed of before the date of circular, he is denied the benefit of the circular. Therefore, the benefit to which the assessee is entitled to should not be dependant on the date of the decision, over which neither the assessee nor the Revenue has no control. In this context, the circular would be discriminatory, if it is held to be prospective only. It could be saved from such vice of discrimination by holding it as retrospective. 32. Though Circular/Instruction 3 of 2011 is issued by the Department in pursuance of the power conferred under the statutory provisions while issuing such circular/instruction, the Department has not kept in mind the object with which such circulars/instructions are issued from time to time. The object sought to be achieved by such circulars/instructions and also the law declared by the apex court, the National Litigation Policy, 2011, as well as the various schemes introduced by the Department granting relief to persons who have not even filed returns and paid taxes, are kept in....

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.... titled CIT Central-III V. Surya Herbal Ltd. when the following order was passed on 29.8.2011: "Delay condoned. Liberty is given to the Department to move the High Court pointing out that the Circular dated 9th February, 2011, should not be applied ipso facto, particularly, when the matter has a cascading effect. There are cases under the Income Tax Act, 1961, in which a common principle may be involved in subsequent group of matters or large number of matters. In our view, in such cases if attention of the High Court is drawn, the High Court will not apply the circular ipso facto. For that purpose, liberty is granted to the Department to move the High Court in two weeks. The Special Leave Petition is, accordingly, disposed of." 19. The aforesaid order, in our view, actually should have laid the controversy to rest. The retrospective applicability of the Circular dated 9.2.2011 was not interfered with, but with two caveats - (i) Circular should not be applied by the High Courts ipso facto when the matter had a cascading effect; (ii) where common principles may be involved in subsequent group of matters or a large number of matters. It was opined that in such cases, the atten....