2007 (8) TMI 333 - HC - Income Tax

Scheme to help revive sick companies - Both the CIT (A) and the ITAT placing reliance on Circular No. 523, dated October 5, 1988, found that the assessee was entitled to the benefit of carry forward loss of the earlier years circulars in the nature of concession can be withdrawn prospectively only - In the subsequent Circular no. 683 dated June 8, 1994, the CBDT had only laid a new procedure for extension of benefit - Such a procedure could always be prospective operation only assessee is entitled to benefit under earlier scheme revenue appeal dismissed

Summary

Issues Involved:
1. Whether Circular No. 683, dated June 8, 1994, is prospective only and does not affect assessments pending in appeal.
2. Whether the benefit given to an assessee in Circular No. 523, dated October 5, 1988, requires a pre-condition of framing a scheme and the consequential consent from the financial institution for its revival.
3. The binding nature and retrospective applicability of circulars issued by the Central Board of Direct Taxes (CBDT).

Issue-wise Detailed Analysis:

1. Prospective Nature of Circular No. 683, dated June 8, 1994:
The court was tasked with determining if Circular No. 683, dated June 8, 1994, was intended to apply prospectively, thereby not affecting assessments that were pending in appeal. The court concluded that circulars in the nature of concessions, such as those issued by the CBDT, can only be withdrawn prospectively. This conclusion was based on the precedent set by the Supreme Court in UCO Bank v. CIT [1999] 237 ITR 889, which held that such circulars could not be withdrawn with retrospective effect as it would result in hardship to the assessee. Therefore, the court held that Circular No. 683 must be applied prospectively and cannot affect pending assessments.

2. Pre-condition of Framing a Scheme and Consent from Financial Institutions:
The court examined whether the benefit provided under Circular No. 523, dated October 5, 1988, required the pre-condition of framing a scheme and obtaining consent from financial institutions. The court noted that the circular was issued to provide tax benefits to sick industrial companies as soon as they were declared sick by the Board for Industrial and Financial Reconstruction (BIFR) or the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). The circular did not necessitate the appointment of an operating agency, the preparation of schemes, or the provision of financial assistance as pre-conditions for extending the benefit. The court emphasized that the circular was designed to offer immediate relief to companies facing financial crises, without waiting for the completion of the entire revival process.

3. Binding Nature and Retrospective Applicability of CBDT Circulars:
The court discussed the binding nature of circulars issued by the CBDT under section 119 of the Income-tax Act. It reiterated that such circulars are binding on all officers and persons employed in the administration of the Act, as established in Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198 (SC) and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC). The court also noted that circulars beneficial to the assessee, which tone down the rigour of the law, are binding on the authorities retrospectively, as held in Keshavji Ravji and Co. v. CIT [1990] 183 ITR 1 (SC). However, the court clarified that such circulars, being in the nature of concessions, could always be withdrawn prospectively, as reaffirmed in UCO Bank v. CIT [1999] 237 ITR 889 (SC). Consequently, the court held that the CBDT's power to issue and withdraw circulars must be exercised in a manner that avoids retrospective application, which could otherwise cause undue hardship to taxpayers.

Conclusion:
The court dismissed the appeal, affirming that Circular No. 683, dated June 8, 1994, is prospective and does not affect pending assessments. The court also clarified that the benefit provided under Circular No. 523, dated October 5, 1988, did not require the pre-condition of framing a scheme or obtaining consent from financial institutions. The judgment reinforced the principle that CBDT circulars are binding on tax authorities and can only be withdrawn prospectively to ensure fair and consistent administration of tax laws.