1984 (7) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. True construction and effect of benevolent circulars issued by the Central Board of Direct Taxes (CBDT) under section 119 of the Income Tax Act, 1961.
2. Entitlement of the petitioner companies to claim development rebate.
3. Obligation of Income Tax Authorities to follow CBDT circulars.
4. Rectification of assessment orders under section 154 of the Income Tax Act, 1961.
5. Review of past assessments in light of CBDT circulars.

Detailed Analysis:

Issue 1: True Construction and Effect of Benevolent Circulars Issued by CBDT
The court examined the true construction and effect of benevolent circulars issued by the CBDT under section 119 of the Income Tax Act, 1961, specifically in the context of development rebate. The court noted that these circulars were intended to mitigate the difficulties faced by assessees following the decision in Surat Textile Mills Ltd. v. CIT [1971] 80 ITR 1 (Guj). The circulars explained the position regarding the creation of statutory reserves for the allowance of development rebate, including conditions under which the reserve would be deemed to include development rebate reserve, and scenarios where no statutory reserve was required.

Issue 2: Entitlement of the Petitioner Companies to Claim Development Rebate
The petitioner companies claimed development rebate for different assessment years and faced issues with the Income Tax Officers (ITOs) regarding the creation of appropriate reserves. The court noted that the CBDT issued multiple circulars clarifying the conditions under which development rebate could be claimed, including the creation of additional reserves in subsequent years. The court emphasized that the circulars were binding on the tax authorities and that the petitioners were entitled to claim development rebate if they complied with the conditions specified in the circulars.

Issue 3: Obligation of Income Tax Authorities to Follow CBDT Circulars
The court reiterated the binding nature of CBDT circulars on all officers and persons employed in the execution of the Income Tax Act. It cited precedents where the Supreme Court and other High Courts held that benevolent circulars issued by the CBDT, even if they deviated from the legal position, were binding on the tax authorities. The court noted that the tax authorities were under an obligation to grant development rebate in accordance with the CBDT circulars, provided there were no intentional infractions of law by the assessees.

Issue 4: Rectification of Assessment Orders under Section 154 of the Income Tax Act, 1961
The court addressed the issue of rectification of assessment orders under section 154 of the Income Tax Act. It noted that the petitioner companies had moved applications for rectification of assessment orders based on the CBDT circulars. The court held that the ITOs were obliged to rectify the assessment orders in light of the binding CBDT circulars, which directed the review of past assessments and the grant of development rebate in cases of genuine deficiencies.

Issue 5: Review of Past Assessments in Light of CBDT Circulars
The court emphasized that the CBDT circulars issued in December 1975 and July 1979 directed the review of past assessments to ensure compliance with the conditions for granting development rebate. The court held that the tax authorities were under an obligation to review and rectify past assessments, even if they had become final, in accordance with the directions contained in the CBDT circulars. The court noted that the failure of the tax authorities to exercise this jurisdiction constituted an error, and the petitioners were entitled to seek relief through writs of certiorari and mandamus.

Conclusion:
The court allowed both petitions, directing the tax authorities to review and rectify the assessments in accordance with the CBDT circulars, and to grant the development rebate claimed by the petitioner companies. The court emphasized the binding nature of the CBDT circulars and the obligation of the tax authorities to follow them, ensuring that the assessees received the intended benefits.