2007 (11) TMI 124 - HC - Income Tax

Interpretation and enforceability of the instructions fixing monetary limits for appeal issued by CBDT appeal by dept. - instructions have been issued with a view to reduce the litigation - All exceptions have been created in these instructions, which require consideration by the Department with reference to each case before filing appeal - No such exercise appears to have been done by dept. so appeal is dismissed

Issues Involved:
1. Interpretation and enforceability of the instructions issued by the Central Board of Direct Taxes (CBDT).
2. Whether the instructions issued by the CBDT are binding on the Department and enforceable by courts.
3. Whether the instructions fall under the scope of section 119 of the Income-tax Act, 1961.
4. Whether the Department can file appeals contrary to the instructions based on monetary limits.
5. Consideration of exceptions to the instructions by the Tribunal.

Detailed Analysis:

1. Interpretation and Enforceability of CBDT Instructions:
The appeals relate to the interpretation and enforceability of the instructions issued by the CBDT, specifically Instruction Nos. 1979, 1985, and 2 of 2005. These instructions set monetary limits for filing appeals to reduce litigation. For instance, Instruction No. 1979 stipulated that appeals should only be filed if the tax effect exceeded certain amounts for different courts. Instruction No. 2 of 2005 updated these limits.

2. Binding Nature of CBDT Instructions:
The respondents contended that these instructions are enforceable by courts to prevent arbitrariness by the Department. It was argued that if courts do not enforce these instructions, the Department could selectively decide when to file appeals, leading to inconsistent application. The Supreme Court in Paper Products Ltd. v. CCE [2001] 247 ITR 128 (SC) held that circulars issued by the Board are binding on the Department, even if inconsistent with statutory provisions. Similarly, the Andhra Pradesh High Court in CIT v. Andhra Pradesh State Road Transport Corporation [2006] 285 ITR 147 affirmed that the Department cannot challenge a circular issued by the Board.

3. Scope of Section 119 of the Income-tax Act:
The appellants argued that the instructions do not fall within the scope of section 119 of the Income-tax Act and are therefore not enforceable. However, the respondents countered that these instructions were publicly known and did not need to be published in the Official Gazette to be enforceable. The Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) clarified that section 119 empowers the CBDT to issue orders, instructions, and directions for the proper administration of the Act, which are binding on income-tax authorities.

4. Department's Power to File Appeals Contrary to Instructions:
The appellants contended that the Department's statutory right to file appeals under section 253 of the Act cannot be restricted by circulars. However, the court found that if such an interpretation were accepted, it would lead to arbitrary application of the instructions. The court emphasized that the selection of cases for appeal should not be left to the discretion of authorities without guidelines.

5. Consideration of Exceptions to Instructions by the Tribunal:
The appellants argued that the Tribunal did not consider exceptions to the instructions. Instruction No. 1979 and subsequent instructions outlined specific exceptions where adverse judgments should be contested regardless of revenue effect, such as cases involving prosecution proceedings or constitutional validity of the Act. The court noted that the Department did not present any evidence to show that the appeals fell within these exceptions. The Tribunal found that the appeals were filed in a routine manner without regard to the instructions.

Conclusion:
The court dismissed the appeals, emphasizing that the Department must clearly plead in the memo of appeal if an appeal falls under the exceptions to the monetary limits set by the instructions. The court granted liberty to the appellants to file applications before the Tribunal, pleading exceptions, which the Tribunal shall decide on their merits.

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