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TMI Blog2011 (8) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision of the Act. The present appeal relates to the appellant's assessment for the Assessment Year 1998-99 the relevant previous year being the year ended on March 31, 1998. b) The appellant claimed that it had large number of surplus employees which was affecting its economical day-to-day working and causing financial hardship and as a result, the appellant framed a Voluntary Retirement Scheme giving an option to its employees to seek voluntary retirement between October 15, 1996 and March 31, 1997. The said option to seek the voluntary retirement was later extended till October, 1997. c) The VRS Scheme was duly approved by the Director General of Income-tax (Investigation) under Section 10(10C) of the Act and Rule 2BA of the Income-tax Rules, 1962. In terms of the said VRS Scheme the appellant incurred an expenditure of 3,38,09,825/- during the relevant previous year for the Assessment Year 1998-99 and the said sum was claimed by the appellant in its return filed for the Assessment Year 1998-99 as a revenue expenditure. d) The Assessing Officer in course of the assessment proceedings obtained full details of the said expenditure incurred on account of VR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act could be assumed in the facts and circumstances of the case by the Commissioner when the Assessing Office had taken a reasonable and possible view in allowing the deduction in respect of the said payments on account of VRS?" Mr. Bajoria, the learned Senior Advocate appearing on behalf of the appellant, has criticized the order of the Tribunal by pointing out that the Tribunal below did not consider the scope of Section 263 of the Act which did not authorize reopening of the assessment merely because of the existence of a Circular issued under Section 119 of the Act taking a contrary view on the subject-matter of the assessment. According to Mr. Bajoria, the said Circular dated 23rd January, 2001 was on the face of it against the spirit of Section 119 of the Act inasmuch as no Circular could be issued for guiding the Assessing Officer for assessment which is a quasi judicial duty of the officer concerned. Mr. Bajoria, therefore, contends that the said Circular being issued in violation of the provision contained in Section 119 of the Act, on that basis, the assessment could not be reopened. Mr. Bajoria next contends that it is the consistent view of differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate authorities.-(1) The Board may, from time to time, issue such orders, instructions and directions to other Income Tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board: Provided that no such orders, instructions or directions shall be issued- (a) so as to require any Income Tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the 1[* * *] Commissioner (Appeals) in the exercise of his appellate functions. (2) Without prejudice to the generality of the foregoing power,- (a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of Sections 2[115-P, 115-S,]3[, 115-WD, 115-WE, 115-WF, 115-WG, 115-WH, 115- WJ, 115-WK]4[139,] 143, 144, 147, 148, 154, 155 5[, 158-BFA], 6[subsection (1-A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial functions, such authorities should be guided by the law of the land as enunciated on the questions involved by various judicial authorities which have binding effect. If an existing circular is in conflict with the law of the land laid down by the High Courts or the Supreme Court, in our view, the Revenue Authorities, while acting quasi judicially, should ignore such circulars in discharge of their quasi-judicial functions. In this connection, we are fortified by the following observations of the Supreme Court in the case of M/s. Hindustan Aeronautics Ltd., Bangalore vs. Commissioner of Income-tax, Karnataka-I, Bangalore, reported in AIR 2000 SC 2178, while considering the effect of a circular on a judicial decision taking a contrary view: "However, the learned counsel for the appellant relied on the decisions in Navnitlal C. Javeri v. K.K. Sen, AAC of Income-tax 56 ITR 198 : (AIR 1965 SC 1375); Ellerman Lines Ltd. v. C.I.T., 82 ITR 913 : (AIR 1972 SC 524 : 1972 Tax LR 246) and K.P. Varghese v. ITO, 131 ITR 509 : (AIR 1981 SC 1922 : 1981 Tax LR 1448) to contend that the circular issued by the Board under Section 119 of the Act is binding on the Commissioner in terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng prejudicial to assessees, as the guidelines, principles or procedures to be followed in the work relating to assessment. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under Section 119 of the Income-tax Act which are binding on the authorities in the administration of the Act. Under Section 119(2)(a) however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forego the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in Section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, the law declared by the Supreme Court is made binding on all the courts within the territory of India (vide Article 141). Proprio vigore the law is binding on all the tribunals and authorities. Can it be said that even after the law is declared by the Supreme Court the adjudicating authority should still give effect to the circular issued by the Board ignoring the legal position laid down by this Court? Even after the legal position is settled by the highest court of the land, should the Customs Authority continue to give primacy to the circular of the Board? Should Section 151-A be taken to such extremities? Was it enacted for such purpose? Does it not amount to transgression of constitutional mandate while adhering to a statutory mandate? Even after the reason and rationale underlying the circular disappears, is it obligatory to continue to follow the circular? These are the questions which puzzle me and these are the conclusions which follow if the observations of this Court in the two cases of Dhiren Chemical Industries are taken to their logical conclusion. I am of the view that in a situation like this, the Customs Authority should obey the constitutional mandat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the sole reason for invocation of Section 263 of the Act is a circular dated January 23, 2001 issued in terms of Section 119 of the Act. The outcome of the original order of assessment was in tune with the Division Bench decisions of this Court in the cases of Commissioner of Income tax vs. Machinery Manufacturing Ltd., reported in (1992) 198 ITR 559 and Grindlays Bank P.L.C vs. C.I.T, reported in (1993) 201 ITR 148 where the Division Bench in the former case held that the payment of compensation to induce the workmen to retire prematurely is an item of expenditure incurred by the Company on the ground of commercial expediency in order to facilitate the carrying on of business and a revenue expenditure and allowable deduction and in the latter one, it was held that the entire initial contribution to staff pension fund in respect of past services of its members was deductable. The same view has been taken by the Bombay High Court and the Kerala High Court in the cases of CIT vs. Bhor Industries Ltd and CIT vs. OEN India Ltd, reported in 264 ITR 180 and (2011) 196 Taxman 131 respectively. Thus, the Commissioner of Income tax simply by taking aid of a circular which says t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signatories to the working time agreement, for the aggregate sum of Rs. 2,03,225/- during the year 1st Aug. 1958 to 31st July 1959. In the course of assessment for the Assessment Year 1960-61 for which the relevant accounting year was the previous year 1st Aug. 1958 to 31st July 1959, the assessee claimed to deduct this amount of Rupees 2,03,255/- as revenue expenditure on the ground that it was part of the cost of operating the looms which constituted the profit making apparatus of the assessee. While dealing with such a case and holding in favour of the assessee, the Supreme Court observed as follows: "The test of enduring benefit is therefore not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. But even if this test were applied in the present case, it does not yield a conclusion in favour of the Revenue. Here, by purchase of loom hour no new asset has been created. There is no addition to or expansion of the profit making apparatus of the assessee. The income earning machine remains what it was prior to the purchase of loom hours. The assessee is merely enabled to op ..... X X X X Extracts X X X X X X X X Extracts X X X X
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