2017 (11) TMI 919 - HC - Income Tax

Monetary limit for filing an appeal - power of CBDT u/s 119 - retrospective effect - Department acted contrary to the Circular issued by CBDT in pursuance of Section 268A - scope of amendment - Held that - From the policy which has been referred by different High Courts and the intention of the legislation to reduce the pendency of the tax appeal and to have a uniform policy for the department through-out the Country, therefore, the direction issued by the CBDT is binding on all subordinate officers and Section 268A(4) which has been amended with retrospective effect is applicable with all force in pending matters.The intention of the legislation is very clear to prohibit the appeal analogous to the provisions of Code of Civil Procedure where there is a prohibition that appeal upto the value will not be entertained by the Court. The Circular issued by the CBDT under Section 268A of the Act of 1961 is binding on the Department thus the appeal cannot be preferred contrary to the instructions given therein. This Court, however, cannot lose sight of the only issue raised by the Department in reference to Article 141 of the Constitution of India. If an issue has been decided by the Apex Court then the ratio propounded therein is to be applied as a precedence. If the Tribunal or the CIT (Appeals) takes a view contrary to the settled law then rider imposed by the CBDT on filing of appeal cannot be applied. If we hold that appeal would not be maintainable even if the Tribunal or the CIT (Appeals) has taken view contrary to the judgment of the Supreme Court then Article 141 of the Constitution of India would be violated. No statutory provision can stand or be read contrary to the constitutional provision. In view of the above, theory of reading down needs to be applied for making Circular of the CBDT in consonance to the provisions of the Constitution of India otherwise it would not only cause judicial indiscipline but give rise to the anarchy, leading to serious consequences. Accordingly, the Circular issued by the CBDT under Section 268A of the Act of 1961 is held binding on the Department thus appeal cannot be filed, if it is barred. It is, however, with a clarification that if the issue decided by the CIT (Appeals) or Tribunal is contrary to the judgments of the Supreme Court, the Department can prefer an appeal, however, care would be taken to file it only in those cases where the order passed by the CIT (Appeals) or the Tribunal is contrary to the ratio propounded by the Supreme Court on the same issue. In doing so, sanctity of Article 141 of the Constitution of India would be maintained, thereby, serious consequences of taking different view would also be avoided. The Department may incorporate it in the Circular to avoid further controversy. - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the Department can take a contrary view than the circular issued for the reduction of arrears in the Supreme Court, High Courts, and Tribunals and insist on arguing the matter on merits.

Detailed Analysis:

1. Binding Nature of CBDT Circulars:

The core issue is whether the Department can act contrary to the Circulars issued by the Central Board of Direct Taxes (CBDT) under Section 268A of the Income Tax Act, 1961, which set monetary limits for filing appeals to reduce litigation. The statutory provisions and judicial precedents were examined to determine the binding nature of these Circulars on the Department.

Statutory Provisions:

- Section 268A of the Income Tax Act, 1961: This section empowers the CBDT to issue orders, instructions, or directions to income-tax authorities, fixing monetary limits for filing appeals. Sub-section (4) mandates that the Appellate Tribunal or Court shall have regard to these orders, instructions, or directions.
- Section 119 of the Income Tax Act, 1961: This section allows the CBDT to issue orders, instructions, and directions for the proper administration of the Act, which are binding on income-tax authorities.

Judicial Precedents:

- K.P. Varghese vs. Income Tax Officer: The Supreme Court held that CBDT circulars are binding on the tax authorities and must be followed even if they deviate from the statutory provisions.
- Commissioner of Central Excise vs. Ratan Melting and Wire Industries: The Supreme Court clarified that while circulars are binding on the revenue authorities, they cannot override the decisions of the Supreme Court or High Courts.

Contentions by the Department:

The Department argued that despite the monetary limits set by the Circulars, appeals should be allowed if the Tribunal's decision is contrary to the Supreme Court's rulings, invoking Article 141 of the Constitution, which mandates that the law declared by the Supreme Court is binding on all courts within the territory of India.

Analysis by the Court:

- The Court acknowledged that the Circulars issued by the CBDT under Section 268A are binding on the Department and must be followed to reduce litigation.
- The Court emphasized the need to maintain judicial discipline and the binding effect of the Supreme Court's decisions as per Article 141 of the Constitution.
- The Court proposed a harmonized approach, suggesting that while the Circulars are binding, appeals should be allowed in cases where the Tribunal's decisions are contrary to the Supreme Court's rulings to uphold the sanctity of Article 141.

Conclusion:

The Court concluded that the Circulars issued by the CBDT under Section 268A are binding on the Department, and appeals should not be filed if they are barred by the monetary limits specified in the Circulars. However, an exception is made for cases where the Tribunal's decision is contrary to the Supreme Court's rulings, allowing the Department to file appeals in such instances to maintain judicial discipline and uphold the law declared by the Supreme Court. The Court suggested that the Department incorporate this exception in the Circulars to avoid further controversy.