2015 (5) TMI 320 - HC - Income Tax

Maintainability of appeal - National Litigation Policy introduced by the Central Government - whether under the Instructions No.3 of 2011, the monetary limit for filing an appeal by the Department was ₹ 10 lacs, whereas the tax effect in the instant appeal is less than ₹ 10 lacs and, therefore, the appeal should be dismissed as not maintainable? - Held that - Considering the object and intention and the surrounding circumstances of the National Litigation Policy, it is necessary for the Court to iron out the creases bearing in mind the principles of interpretation as discussed above and the legal proposition that flows from such interpretation. We find that there is a defect in the instructions issued by the CBDT. The only measure taken in reducing the litigation was to raise the monetary limit. No effort was made to review the pending cases. Accordingly, we are of the opinion that the literal rule of interpretation cannot be applied in the instant case. Since the instructions is a beneficial piece of legislation, the pendulum is tilted more in favour of the assessee and impels the Court to interpret the provisions harmoniously by adopting the purposive method of construction. We must not shut our eyes to the object for which the instructions were issued and if the instructions had been made applicable to pending cases as laid down by the National Litigation Policy, the object of the policy would have been fulfilled. We are not here to legislate but to expound and in such a situation, we at best could be called reformers or polishers of legislation as to fill up the gaps left in the legislation. Para 11 of Instruction No.3 of 2011 makes it apparently clear that it applies to appeals that would be filed on or after 9th February, 2011. However, Section 268(4) of the Act allows the Court to consider the circumstances under which such appeal was filed while hearing the appeal. By reading para 11 harmoniously with sub-clause (4) of Section 268 one can remove the mischief or the defect in Instruction No.3 of 2011. By our orders, we had directed the CBDT and the income tax department to take a concious decision and review pending cases, which they failed to do so. On the other hand, the department insisted in hearing the appeal on merits. We find that the exception carved out under of the instructions are not existing and that the appeal was only filed because the tax effect was above the monetary limit. We also find that there is nothing to indicate that the issue involved in the instant appeal has a cascading effect which would affect the same issue in subsequent assessment years. In the light of the aforesaid, we find that since the CBDT while issuing Instruction No.3 of 2011 had not kept in mind the object and intention sought to be achieved by the National Litigation Policy and, in order to bring harmony with the National Litigation Policy, we are of the opinion that the Instruction No.3 of 2011 would also apply to pending appeals in various Courts or Tribunals unless it is pointed out by the department that the appeal would have a cascading effect in other assessment years of the assessee or that it is within the exception provided in the instructions that was issued at the time when the appeal was presented. In view of the aforesaid, the appeal is dismissed on the ground of monetary limit without expressing any opinion on the merits of the claim making it clear that it would be open to the department to proceed against the assessee in any other assessment year on the same issue if it is above the monetary limit prescribed.

Summary

Issues Involved:
1. Maintainability of the appeal based on monetary limits prescribed by CBDT.
2. Applicability of National Litigation Policy and CBDT instructions to pending appeals.
3. Interpretation of Section 268A of the Income Tax Act.
4. Judicial precedents and their applicability to the current case.

Issue-wise Detailed Analysis:

1. Maintainability of the Appeal Based on Monetary Limits Prescribed by CBDT:
The primary issue raised was the maintainability of the appeal due to the tax effect being less than Rs. 10 lacs, as per Instruction No.3 of 2011 issued by the CBDT. The respondent-assessee argued that the appeal should be dismissed because the tax effect did not meet the monetary threshold. The Department contended that the instructions were prospective and did not apply to appeals already filed before the issuance of the instruction.

2. Applicability of National Litigation Policy and CBDT Instructions to Pending Appeals:
The Court examined the National Litigation Policy, which aimed to reduce government litigation in courts and emphasized the need to review pending cases to filter out frivolous and vexatious matters. The Policy intended to transform the government into an efficient and responsible litigant. The Court noted that the CBDT had issued instructions to withdraw cases not meeting the monetary limits for the Bombay High Court but had not applied the same criteria uniformly across other High Courts. The Court found that the CBDT had partially complied with the National Litigation Policy by raising monetary limits but had not reviewed pending cases, which was a crucial aspect of the Policy.

3. Interpretation of Section 268A of the Income Tax Act:
Section 268A was introduced to give statutory status to CBDT instructions regarding monetary limits for filing appeals. The Court held that Section 268A and Section 260A should be read harmoniously. The instructions issued by CBDT under Section 268A were binding on the Department and were intended to alleviate unnecessary hardship to the assessee and reduce financial burden on the Department. The Court interpreted that the instructions should apply to pending appeals unless specific exceptions existed.

4. Judicial Precedents and Their Applicability to the Current Case:
The Court reviewed various judicial precedents, including decisions from the Bombay High Court, Delhi High Court, and Karnataka High Court, which held that CBDT instructions should apply to pending appeals. The Court also considered contrary views from the Gujarat High Court and Punjab and Haryana High Court, which held that the instructions were prospective. The Court concluded that the literal rule of interpretation should not be applied rigidly and that a purposive approach should be adopted to fulfill the legislative intent and the objectives of the National Litigation Policy.

Conclusion:
The Court dismissed the appeal on the ground of monetary limit, holding that Instruction No.3 of 2011 should apply to pending appeals to align with the National Litigation Policy. The Court emphasized that the instructions were intended to reduce frivolous litigation and save valuable court time. The decision was made without expressing any opinion on the merits of the claim, allowing the Department to proceed against the assessee in other assessment years if the tax effect exceeded the prescribed limit.