1988 (1) TMI 73 - AT - Income Tax

Summary

Issues:
1. Whether the circular dt. 16th April, 1982, which amended the circular dt. 1st Aug., 1955, applied to the assessment year commencing on 1st April, 1982?

Analysis:
The appeal was filed against the order of the CIT under s. 263 of the IT Act, 1961, for the assessment year 1982-83. The issue revolved around the treatment of medical reimbursement received by the assessee from his employer. The CIT contended that the excess medical reimbursement over one month's salary should be taxed based on the circular dt. 16th April, 1982. The assessee argued that the circular in force on 1st April 1982, i.e., the circular dt. 1st Aug., 1955, should apply, exempting the entire medical reimbursement from tax. The Tribunal analyzed the legal position, emphasizing that the law applicable to an assessment year is the law as of 1st April of that year. The circular dt. 16th April, 1982 did not specify its effective date, and the Tribunal inferred that it applied to expenses reimbursed after its issue on 16th April, 1982. The Tribunal cited precedents to support its interpretation that circulars giving concessions cannot be withdrawn retrospectively.

Further, the Tribunal considered the conflicting versions of the clarification provided by the Board in a letter dated 26th Aug., 1982, and a footnote in Taxmann's Direct Taxes Circulars. The Tribunal accepted the Board's clarification as the preferred version but noted that the ITO may not have been aware of this clarification when making the assessment. The Tribunal highlighted an apparent contradiction in the circular dt. 16th April, 1982, regarding its applicability to pending assessments, concluding that in case of ambiguity, the benefit should favor the assessee.

Ultimately, the Tribunal held that the ITO's assessment based on the circular dt. 1st Aug., 1955 was not erroneous, as there was no evidence to suggest that the ITO was aware of the subsequent clarification by the Board. The Tribunal emphasized that the provisions of the IT Act for a specific assessment year must align with the circumstances of the relevant previous year unless explicitly stated otherwise, leading to the cancellation of the CIT's order under s. 263.

In conclusion, the appeal was allowed in favor of the assessee based on the grounds that the circular dt. 16th April, 1982 did not apply retrospectively to the assessment year 1982-83, and the ITO's assessment was deemed correct under the prevailing legal framework.