2011 (8) TMI 614 - HC - Income Tax

Instruction No.2/2005 dated 24.10.2005 issued by the Department effects that the appeals are to be only in cases where the tax effect exceeds the mandatory limit of Rs. 4,00,000/- u/s 260A of the Income -tax Act to the High Court. Further Instruction No. 5/2007 dated 16.07 2007 issued clarified Tax Effect to mean Tax Excluding Interest . Appeal filed is not maintainable.

Summary

Issues:
- Appeal challenging order under Section 54 of the Income-tax Act
- Claim of deduction under Section 54
- Tax effect involved in the appeal
- Correct interpretation of "Tax Effect" for appeal filing

Analysis:

The judgment pertains to an appeal filed by the Revenue against the order of the Income-tax Appellate Tribunal, which upheld the claim of the assessee under Section 54 of the Income-tax Act. The assessee had declared a total income of Rs. 4,49,375 and claimed exemption under Section 54, which was initially declined by the Assessing Authority. However, the Appellate Commissioner allowed the deduction under Section 54, a decision that was affirmed by the Tribunal. The Revenue challenged this order through an appeal.

The key issue in this case was the tax effect involved in the appeal, which was determined to be Rs. 89,875. The Revenue, based on a report by the Assessing Officer mentioning the total income declared by the assessee as Rs. 4,49,375, recommended filing an appeal under Section 260A of the Income-tax Act. However, it was clarified that the tax effect for appeal purposes should be calculated as 'Tax Excluding Interest' as per relevant circulars.

The court noted that Instruction No. 2/2005 and Instruction No. 5/2007 clarified the meaning of "Tax Effect" for appeal filing purposes, emphasizing that it should be calculated as 'Tax Excluding Interest.' Given that the tax effect in this case was only Rs. 89,875, which was below the mandatory limit of Rs. 4,00,000 for filing appeals under Section 260A, the appeal filed by the Revenue was deemed not maintainable. Consequently, the appeal was dismissed in accordance with the aforementioned circulars.