2016 (5) TMI 112 - HC - Income Tax

Monetary limit - appeal to High court - Held that - CBDT to ensure that there is uniformity in respect of filing of appeals has fixed threshold limits which would do away with the discretion of the officer to file and pursue the appeal remedy where the tax effect is less than the minimum amounts specified. It is noteworthy that the Circular specifically provides that where the tax effect is higher than that specified in the Circular then the filing of appeal in such cases is to be decided on the merits of the case. Therefore to enable the Revenue to focus on matters where the tax implication is above 20 lacs only such matters should be agitated in appeal before the High Court according to the Circular. This policy of non filing and of not pressing and/or withdrawing admitted appeals having tax effect of less than 20 lacs has been specifically declared to be retrospective by the Circular dated 10th December 2015. There is no reason why the circular should not apply to pending References where the tax effect is less than 20 lacs as the objective of the Circular would stand fulfilled on its application even to pending References more particularly bearing in mind that there are 1149 number of References still awaiting disposal by this Court and a large number of them would have tax effect of less than 20Lakhs. In the above view we hold that as admittedly the tax effect is less than 20 lacs in the present Reference Application at the instance of the Revenue the same is being returned unanswered. However we make it clear that the question of law as raised for our opinion is left open be considered in an appropriate case.

Summary

Issues Involved:
1. Applicability of Circular No. 21/2015 to pending References under Section 256(1) of the Income Tax Act, 1961.
2. Whether the assessee's business of dubbing and sound recording qualifies as a manufacturing/processing activity for investment allowance on plant and machinery.

Detailed Analysis:

1. Applicability of Circular No. 21/2015 to Pending References:
The primary issue addressed was whether Circular No. 21/2015 issued by the Central Board of Direct Taxes (CBDT) applies to pending References under Section 256(1) of the Income Tax Act, 1961. The Circular, dated 10th December 2015, revised the monetary limits for filing departmental appeals to reduce litigation. It specifies that appeals should not be filed if the tax effect is below certain thresholds, including Rs. 20 lacs for High Court cases, and applies retrospectively to pending appeals.

The court noted that the Circular does not explicitly mention pending References under Section 256(1). However, it referenced its prior decision in CIT v/s. M/s. Computer Point (I) Ltd., where it was held that similar instructions applied to pending References. The court reiterated that the objective of the Circular is to focus on substantial financial stakes and reduce the backlog of cases with low tax effects. It emphasized that the Circular's retrospective application should logically extend to pending References, aligning with the CBDT's intent to streamline litigation.

The court observed that the Commissioner of Income Tax did not provide instructions regarding the Circular's applicability to pending References, despite the opportunity to do so. This lack of clarity necessitated the court's interpretation. The court concluded that the Circular should apply to pending References, as it does to pending appeals, to fulfill its purpose of reducing the burden on the judiciary and the Revenue.

2. Assessee's Business of Dubbing and Sound Recording:
The second issue was whether the assessee's business of dubbing and sound recording qualifies as a manufacturing/processing activity, entitling them to an investment allowance on plant and machinery. The Income Tax Appellate Tribunal (ITAT) had upheld the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which recognized the assessee's business as a manufacturing/processing activity.

The court noted that the Revenue's counsel, Mr. Suresh Kumar, acknowledged that the tax effect involved in this Reference was less than Rs. 20 lacs. Given the court's decision on the applicability of Circular No. 21/2015 to pending References, it determined that the question of law regarding the assessee's business classification should not be addressed in this case due to the low tax effect.

Conclusion:
The court held that Circular No. 21/2015 applies to pending References under Section 256(1) of the Income Tax Act, 1961, thereby returning the present Reference unanswered due to the tax effect being less than Rs. 20 lacs. The question of law regarding the classification of the assessee's business was left open for consideration in an appropriate case. The court appreciated the assistance provided by Mr. Mihir Naniwadekar and disposed of the Reference with no order as to costs.