TaxTMI 
TaxTMI 
2009 (2) TMI 28
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....e appeal preferred by the respondent - assessee. The Commissioner of Income Tax (Appeals), arrived at the conclusion, that the respondent - assessee was an industrial establishment engaged in manufacturing/processing of goods, and as such, was entitled to a deduction under Section 80-I of the 1961 Act. The Appellate Authority, accordingly, directed the Assessing Officer to allow the respondent - assessee's claim for a deduction under Section 80-I of the 1961 Act. 2. Dissatisfied with the order passed by the said Appellate Authority, the Revenue preferred an appeal against the order passed by the Commissioner of Income Tax (Appeals), dated 25.9.1991, before the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal). The Tribunal allowed the appeal vide an order dated 18.11.1999. The Tribunal arrived at the conclusion, that the Commissioner of Income Tax (Appeals) was not justified in arriving at the conclusion, that the respondent - assessee was an industrial undertaking engaged in the processing of "articles" or "things". The Tribunal concluded, that merely on account of the fact, that the respondent - assessee had been incorporated with the object of manufactur....
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....009 solely on the preliminary objection raised on behalf of the respondent - assessee. 7. During the course of hearing, learned counsel for the appellant vehemently repudiated the preliminary objection raised by the learned counsel for the respondent - assessee. The claim of the appellant - revenue is based on instruction No.1777 dated 4.11.1987. A copy of the aforesaid instruction was made available to us during the course of hearing. Relevant extract from the aforesaid instruction is being reproduced hereunder: - "At present Board's approval is required for filing Reference Application under section 256(2) before the High Court , where the application under section 256(1) is rejected by the Tribunal. Similarly, Board's approval is required for accepting or contesting any adverse order of the High Court. Board's approval is also required for contesting before the High Court or the Supreme Court, the adverse orders of the Settlement Commission of the Appellate Tribunal for forfeited properties. 2. This area of the Board's functions has been reconsidered. It has been now decided that the decision to accept or contest adverse judgements of High Courts/ITAT etc. will be....
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.... judgement for other years in issue in that case, should also be contested irrespective of the amount involved so that Department's case on the issue is not prejudiced on the ground that in respect of some year the department has already accepted the assessee's case; A report to the Board should be sent to in respect of the judgements containing strictures or which are contrary to Board's orders, notifications, instructions, circulars etc. iv) Adverse judgements which need not be contested; a) where the adverse judgement is in accordance with the view in the Board's instruction or circulars etc. b) where the adverse judgement is in respect of mere procedural failure of the assessee like non-signing of appeal memo by the appellant or Form 12 by one of the partners etc. c) Adverse judgement, in respect of protective order revered the substantive order made by the Department is upheld, and becomes final. v) Adverse judgement where Board's prior will is necessary for further contest: - a) Special leave petitions under Article 136 of the Constitution are filed before the Supreme Court only in consultation with Ministry of Law, Delhi, and on the advice of senior law ....
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....Income Tax Appellate Tribunal. According to the learned counsel, the aforesaid instruction also includes guidelines to be kept in mind by the Commissioner of Income Tax while deciding whether an appeal should be filed or should not be filed. Guidelines, according to the learned counsel, are only directory and never mandatory. For filing a reference/appeal before a High Court, the monetary limit stipulated under the instruction referred to above, was that the tax effect should be more than Rs.30,000/-. The instruction, according to the learned counsel, also delineated exceptions i.e. circumstances where the monetary limit prescribed may not be adhered to. Illustratively, it was pointed out that monetary limits laid down by the instruction were exempt in a case where "a question of law arises for the first time before the High Court". Other adverse judgements, which need to be contested irrespective of the revenue effect could also be appealed against. Appeals could also be filed in cases where prosecution proceedings are contemplated, where strictures have been passed against the Revenue or its officers, where an audit objection had been accepted by the Revenue, where the order unde....
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....rt, in favour of the proposition being canvassed by the learned counsel for the appellant - revenue. And fourthly, it is contended by the learned counsel for the appellant, that an objection of the nature raised by the respondent - assessee herein, should have been raised by the respondent -assessee before the Tribunal, and since, the respondent - assessee did not raise any such objection before the Tribunal, where the Revenue was in appeal against the same order passed by the Commissioner of Income Tax (Appeals) dated 25.9.1991, despite the fact that the tax effect on the respondent - assessee was less than that prescribed under the prevalent instruction at that time, it is not open to the respondent - assessee to agitate this issue for the first time before this Court. 9. The submissions advanced by the learned counsel for the appellant - revenue were vehemently repudiated by the learned counsel for the respondent - assessee. The first contention advanced by the learned counsel for the respondent - assessee is that, instructions issued by the Central Board of Direct Taxes, from time to time stipulating monetary limits for filing of appeals, were granted statutory status with t....
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....itution are filed before the Supreme Court only in consultation with the Ministry of Law. Therefore, where the Chief Commissioner, decides to contest an adverse judgement by filing special leave petition before the Supreme Court, they should send the proposal to the Board for further processing. 5. These instructions will apply to litigation under other direct taxes also, e.g. Wealth-tax, Gift-tax, Estate duty etc. 6. These monetary limits will not apply to writ matters. 7. This instruction will come into effect from April 1, 2000." Based on the instruction dated 27.3.2000, it is the contention of the learned counsel for the respondent - assessee, that the tax effect of the instant appeal, in case of its success, would be less than Rs.2,00,000/- i.e. less than the prescribed limit for filing an appeal before this Court. It is also submitted that the instant case does not fall in any of the exceptions enumerated in the instruction itself, and as such, the filing of the instant appeal transgresses the mandate of the instruction dated 27.3.2000. Thirdly, learned counsel for the respondent - assessee placed reliance on the judgement rendered by this Court in Commissioner of....
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....ministration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board: Provided that no such orders, instructions or directions shall be issued (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions. (2) Without prejudice to the generality of the foregoing power, (a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections 115P, 115S, 115WD, 115WE, 115WF, 115WG, 115WH, 115WJ, 115WK, 139, 143, 144, 147, 148, 154, 155, 158BFA, sub-section (1A) of section 201, sections 210, 211, 234A, 234B, 234C, 271 and 273 or otherwise), general or special orders in respect of any class of incomes or fringe benefits or class of cases, setting forth directions or instructi....
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....nner in which an appeal was to be disposed of. Accordingly, it was the vehement contention of the learned counsel for the respondent -assessee based on the words "… and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board…" incorporated in sub-section (1) of Section 119 of the 1961 Act, were in the nature of a mandate, and that, the instructions issued by the Central Board of Direct Taxes, fixing monetary limits for the purpose of regulating the filing of appeals, were binding. 11. Even though, learned counsel for the rival parties acknowledged, that the instructions dated 4.11.1987 (relied upon by the appellant - revenue) and 27.3.2000 (relied upon by the respondent -assessee) were issued under Section 119 of the 1961 Act, yet we are satisfied that it is no longer necessary to treat the instruction dated 27.3.2000, relied upon by the respondent - assessee, and which constitutes the foundation of the preliminary objection raised on its behalf, as having been issued under Section 119 of the 1961 Act, because under a deeming fiction of law, the aforesaid instruction is to be ....
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....b-section (1) of Section 260-A of the 1961 Act, it is the contention of the learned counsel for the appellant - revenue, that the provisions of the Income Tax Act, 1961 authorise the Revenue to prefer an appeal to the High Court "from every order passed in appeal by the Appellate Tribunal", subject to the condition that the Revenue can satisfy the High Court, that the case involves a substantial question of law. This right, according to the learned counsel, is unbridled and unconditional. It is also the contention of the learned counsel for the appellant, that the very fact that the instant appeal was admitted for consideration by this Court, was sufficient to infer that a substantial question of law was involved in the instant appeal. It is, accordingly, asserted that the appellant - revenue cannot be restrained by any instruction(s) issued by the Central Board of Direct Taxes, from filing an appeal wherein a substantial question of law arises for consideration. In this behalf, the Court's attention has been invited to the fact, that the instant appeal was admitted for regular hearing by a Division Bench of this Court on 29.10.2002. Another submission of the learned counsel for th....
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....shut out by the appellant - revenue. In this behalf, learned counsel for the respondent - assessee has raised two further pleas, namely, that Section 268-A of the 1961 Act was not available on the statute book when the appeal was decided by the Income Tax Appellate Tribunal, and that, the instant preliminary objection constitutes a pure question of law which can be raised at any time. 14. Having given our thoughtful consideration to the issue advanced by the learned counsel for the rival parties, as has been noticed in the foregoing paragraph, we are satisfied that the maintainability of the appeal filed by the Revenue before the Income Tax Appellate Tribunal, was an issue entirely different from the maintainability of the appeal at the hands of the Revenue before this Court. Separate and distinct parameters are laid in the instructions for filing appeals before the Income Tax Appellate Tribunal, as against the ones prescribed, for approaching this Court in appeal under Section 260-A of the 1961 Act. As such, we are of the view that it makes no difference whatsoever to the issue canvassed at the hands of the respondent - assessee before this Court, whether or not, such an object....
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....ve taken the view that in fact the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to section 145 of the Income-tax Act or illegal in any form. It is meant for a uniform administration of law by all the income-tax authorities in a specific situation and is, therefore, validly issued under section 119 of the Income-tax Act. As such the circular would be binding on the Department. Mr. Mathur, learned counsel for the Revenue, also brought to our notice the decision of the apex court in the case of CIT v. Hero Cycles P. Ltd. (1997) 228 ITR 463, wherein their Lordships have taken the view that the circulars can bind the Income-tax Officer but will not bind the appellate authority or the Tribunal or the court or even the assessee. It is true that in the case of the Supreme Court, which has been referred to by Mr. Ranka, learned counsel for the assessee, their Lordships held that a circular has binding effect, but the issue before the Supreme Court relates to the circular, which interprets the statute for the uniformity of the decisions in the Dep....
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.... Department were not maintainable because the tax effect did not exceed Rs. 1,00,000 in each assessment year and, therefore, according to the circular, the Department could not prefer an appeal. From the perusal of the order of the Tribunal, it is clear that no such plea was raised before the Tribunal and, therefore, we are not allowing the assessee to raise this plea for the first time before us. In any case, the Board's circular is only an instruction issued to the income-tax authorities not to file appeals where the tax effect is less than Rs. 1,00,000. The Tribunal is not bound by any such instruction and once the Department files an appeal, the Tribunal was bound to decide the same on the merits. This question, in our opinion, is not a question of law. " Reference was also made to the decision rendered by the Allahabad High Court in Jugal Kishore Arora Vs. Deputy Commissioner of Income Tax, (2004) 269 ITR 133, wherein the Allahabad High Court, inter-alia, held as under:- "As regards the contention that the appeal should not have been entertained in view of the direction of the Central Board of Direct Taxes dated March 27, 2000, we are of the opinion that the instructi....
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....the Department prefers to file an appeal or make a reference to the court, the same should not be dismissed by relying upon such administrative instructions. Accordingly, the appeal filed by the Revenue was heard and decided on the merits. In CIT v. Blaze Advertising (Delhi) P. Ltd. (2002) 255 ITR 460, the Delhi High Court held that the circular issued by the Board does not, in any way, prohibit or curtail the power of the Tribunal for making a reference and in any case, the statutory right of the Tribunal to refer a case to the High Court for its opinion under section 256(1) of the Act cannot be taken away by the Board by issuing a circular or otherwise. In CIT v. Hero Cycles P. Ltd. (1997) 228 ITR 463, the Hon'ble Supreme Court held that the circular issued by the Central Board of Direct Taxes (for short, "the Board") can bind the Income-tax Officer, but will not bind the appellate authority or the Tribunal or the court or even the assessee. Accordingly, it is held that there is no merit in the plea of the assessee to the effect that the present appeal filed by the Revenue should be dismissed. Rather, we hold that the circulars issued by the Board fixing the quantu....
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....ssessment. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Income-tax Act which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorised as belonging to a class, can thus be gi....
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....2 ITR 314 (MP) and CIT v. Camco Colour Co. (2002) 254 ITR 565 (Bom), this court held that the uniform line of judicial opinion is that if the tax effect is less than what is stated in the circular, the Revenue need not agitate the issue on appeal and that the circular is binding on the Revenue." Likewise, reference was made to the decision rendered by the Allahabad High Court in Commissioner of Income Tax Vs. Smt. Prakashwati, (1994) 210 ITR 567, wherein the Allahabad High Court recorded the following concluding remarks:- "There is another aspect of the matter. We have seen earlier that in these two cases the tax effect involved is very nominal, that is, Rs.80 for the assessment year 1984-85 and Rs. 475 for the assessment year 1985-86. In CWT v. Executors of Late D. T. Udeshi (1991) 189 ITR 319, a Division Bench of the Bombay High Court rejected an application for reference where the tax effect was less than Rs. 8,500 in a year saying that no reference application could be made in view of the policy decision of the Central Board of Direct Taxes not to file references in the cases where the tax effect was less than Rs. 30,000 per year, contained in its Circular F. No. 279/2....
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....nals is not to be wasted on petty matters. However, if the case be not covered by the said instructions or be covered by one of the exceptions carved out in the instructions themselves in that event the denial of reference would be failure to exercise a jurisdiction statutorily vested in the Tribunal. Inasmuch as the Tribunal has not examined the case from that point of view and adequate material is not available before us enabling formation of an opinion either way, we deem the present one to be an appropriate case, which should be sent back to the Tribunal for consideration afresh." Reference was also made to the decision of the Bombay High Court in Commissioner of Income Tax Vs. Camco Colour Co., (2002) 254 ITR 565, which is as under:- "The issue in the present case being one of some potential general significance in relation to the policy decision taken by the Board not to raise questions of law where the effect is less than the amount prescribed in the instructions issued by the Central Board of Direct Taxes with a view to reduce litigations before the High Courts and the Supreme Court, we propose to dispose of this appeal on this short contention canvassed by learned co....
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....ss. Several exceptions were set out in that circular. If the assessee wanted the benefit of the circular, it should have put the Revenue on notice when the Revenue applied for having the question referred so that the Revenue could have gathered relevant material, if any, to show the matter was within the expected category. Incidentally, one of us (K. Raviraja Pandian J.) was also a party to the said judgment. The said judgment has not denied the benefit of the circular to the assessee, but only cautioned the assessee that if the assessee put on notice the Revenue, the Revenue would have gathered material and satisfied whether it is a fit case for filing the appeal with reference to the exception clause contained therein. Hence, the judgment cannot be regarded as one which decided the scope and binding nature of the circular and decided in favour of the Revenue. In the case of CIT v. Rajasthan Patrika Ltd. reported in (2002) 258 ITR 300, the Rajasthan High Court categorised the circular as one of administrative instruction and held that the administrative instruction cannot prevail over the statutory provision. In the case of Rani Paliwal v. CIT reported in (....
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....y the Revenue under section 260-A has to be rejected for the reason that if the contention is accepted, one of the sections would become virtually otiose and that cannot be the intention of the law makers. Hence, the above judgments cannot be taken in aid for non-suiting the respondent/assessee from taking shelter under the Government order. In this case, not only the tax effect involved is nearly Rs. 5,000, but also the other qualification prescribed in the circular were also not available or in existence to carve out the case to bring outside the purview of the circular. Even de hors the circular, if the facts are considered, the assessee is entitled to claim the benefit for the next assessment year if the same was negatived for the assessment year in question. Further, the point in issue is whether the bonus as claimed by the respondent has been paid within October 31, 1991, or subsequent to that date, can no stretch of imagination be considered as a question of law rather than substantial question of law as provided under section 260-A of the Income-tax Act." Reliance was then placed on a decision rendered by the Madras High Court in Commissioner of Income Tax Vs. M. Pach....
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....falls on the shoulders of the general public as the same is incurred out of money collect from innocent tax-payers. Filing of an appeal should be a fruitful exercise. An appeal should not be filed only to press a proposition of law, unless it results in an adverse inference against the Revenue. The veracity of filing an appeal must be gauged with reference to the tax, which is likely to be recovered by the Revenue, on the success thereof. If the proportion of the aforesaid recovery of tax as against the expenses incurred in pursuing the appellate remedy is negligible, and there is no other adverse effect, the inference should be, that the remedy of appeal would be an exercise in futility. In such an eventuality, an appeal should not be filed. 19. Independently of the issue in hand, it would be pertinent to notice, that in terms of the law laid down by High Courts, as well as, the Supreme Court, it was imperative for the Revenue to avail of the appellate remedy, lest it be considered that the Revenue had conceded an important question of law, in favour of a particular assessee. The Revenue could not take the risk of suffering a recurring loss of tax-recovery, even though, t....
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....ference, to contend that the income tax authority has acquiesced in the decision on the disputed issue by not filing an appeal or application for reference in any case. It is also proposed to provide that the Appellate Tribunal or Court, hearing any appeal or reference had filed under this Chapter, shall have regard to the orders, instructions or directions issued by the Board from time to time either before or after the insertion of this section and the circumstances in which such appeal or application for reference was filed or was not filed in any case; and accordingly the Tribunal or Court shall decide the appeal or the reference on the merits of the issue under consideration. It is also proposed to provide that every order or instruction or direction which has been issued by the Board fixing monetary limits for filing an appeal or application for reference shall be deemed to have been issued under sub-section (1) and the provisions of sub-sections (2), (3) and (4) shall apply accordingly. This amendment will take effect retrospectively from Ist April, 1999." It is apparent from the objects for the insertion of Section 268-A into the 1961 Act, that all technical obj....
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....f Direct Taxes has been authorized under the 1961 Act, to issue orders, instructions or directions to Income Tax Authorities, laying down monetary limits for purposes of filing appeals. As a consequence of the insertion of the instant provision in the Income Tax Act, 1961, orders, instructions or directions issued on the subject of monetary limits for filing appeals must be deemed to have attained statutory status. There can be no dispute that every requirement under the mandate of law, leads to a consequential statutory obligation to comply with the said requirement. Sub-Section (5) of Section 268-A of the 1961 Act is also relevant for the determination of the issue in hand, inasmuch as, it mandates that instructions, orders or directions, even issued earlier i.e. prior to the insertion of Section 268-A in the 1961 Act, by the Finance Act 2008, fixing monetary limits for filing of appeals, shall be deemed to have been issued under sub-Section (1) of Section 268-A of the 1961 Act. This conclusion emerges from the fact, that Section 268-A of the 1961 Act was introduced with retrospective effect from 1.4.1999. Accordingly, instructions, orders or directions issued even prior to the i....
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.... an appeal under the instructions relied upon by the respondent - assessee will not be subjected to any adverse inference against the Revenue so as to preclude it from raising the issue involved therein against the assessee. 23. In the background of the conclusions drawn by us hereinabove, we would endeavour to deal with the submissions advanced by the learned counsel for the appellant - revenue based on Section 260-A of the 1961 Act. There can be no doubt, whatsoever, that after the introduction of Section 268-A into the 1961 Act, Section 260-A of the 1961 Act, cannot be read independently. Sections 260-A and 268-A of the 1961 Act will now have to be interpreted by reading the two harmoniously, so as to give effect to the aforesaid two provisions keeping in mind the objects and the reasons on the basis whereof Section 268-A was inserted into the 1961 Act. One cannot lose sight of the fact, that Section 268-A of the 1961 Act was inserted by the Finance Act 2008 with retrospective effect from 1.4.1999. The legislature in its wisdom clearly desired to give statutory effect to all instructions issued on the subject of monetary limits for regulating filing of appeals retrospec....
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....assessee, that it is open to the respondent - assessee to repudiate not only the legal submissions advanced in an appeal on behalf of the Revenue, but also, any other legal submission that may arise therein. What seems to have been over-looked by the learned counsel for the appellant - revenue is, that a plea raised by an assessee under Section 268-A of the 1961 Act, is also a plea on a proposition of law. Furthermore, under sub-section (6) of Section 260-A of the 1961 Act, it is also open to this Court to decide such questions of law, which have not been determined hitherto before. The aforesaid conclusions drawn by us completely negate the contentions raised on behalf of the appellant - revenue on the effect Section 260-A of the 1961 Act. 25. On the basis of the conclusions drawn by us hereinabove, on the basis of the submissions advanced by the learned counsel for the appellant - revenue based on Section 260-A of the 1961 Act, and on the basis of the conclusions drawn by us on the basis of the submissions advanced by the learned counsel for the respondent - assessee based on Section 268-A of the 1961 Act; we have no hesitation to conclude that the instructions issued by....
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....eunder: - "Reference is invited to Board's instructions No.1979 dated 27.3.2000, No.1985 dated 29.6.2000, No.6 of 2003 dated 17.7.2003, No.19 of 2003 dated 23.12.2003, No.5/2004 dated 27.5.2004, No.2/2005 dated 24.10.2005 and No.5/2007 dated 16.7.2007, wherein . Monetary limits for filing departmental appeals (in income tax matters) and other conditions were specified, for filing appeals before Appellate Tribunal, High Courts and Supreme Court. 2. In supersession of the above instructions, it has been decided by the Board that departmental appeals will be filed before Appellate Tribunal, High Courts and Supreme Court as the monetary limits and conditions specified below. 3. Appeals will henceforth be filed only in cases where the tax effect exceeds monetary limits given hereunder: - Sr. No. Appeals in Income tax matters Monetary limit (in Rs.) 1 Appeal before Appellate Tribunal 2,00,000/- 2 Appeal under Section 260-A before High Court 4,00,000 3 Appeal before Supreme Court 10,00,000/- 4. For this purpose, "tax effect." means the difference between the tax on the total income assessed and the tax that would have been chargeable had ....
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....me to the notice of the Board, whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year, by not filing an appeal on the same disputed issues. The Department representatives/counsel must make every effort to bring to the notice of the Tribunal or Court that the appeal in such cases was not filed or not admitted only by reason of the tax effect being less than the specified monetary limit, and therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any precedent value. 8. Adverse judgements relating to the following should be contested irrespective of the tax effect. a) Where the constitutional validity of the provisions of an Act or Rule are under challenge. b) Where Board's order, Notifications, Instruction or Circular has been held to be illegal or ultra vires. c) Where Re....
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....r the instruction dated 27.3.2000. It would also be pertinent to mention, that it is not the case of the appellant - revenue, that inspite of the tax effect, the instant appeal could have been preferred under one of the four exceptions recorded in paragraph 3 of the instruction dated 27.3.2000. Thus viewed, we are satisfied that, even though, the instant appeal was filed when Section 268-A of the 1961 Act had not been inserted into the 1961 Act, yet since Section 268-A was inserted therein with retrospective effect from 1.4.1999, by a deeming fiction of law, the same must be deemed to have been filed when Section 268-A was already a part of the 1961 Act. 31. We would be failing in our duty, if we do not make a reference to the another submission advanced by the learned counsel for the appellant - revenue on the basis of the instruction dated 4.11.1987 (already extracted above). Referring to Clauses (ii) and (iii) in paragraph 3 of the instruction dated 4.11.1987, it was the contention of the learned counsel for the appellant - revenue, that even though, the tax effect in the present appeal was below the one stipulated in the aforesaid instruction, yet on account of the fact that....