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TMI Blog2015 (5) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... pendulum is tilted more in favour of the assessee and impels the Court to interpret the provisions harmoniously by adopting the purposive method of construction. We must not shut our eyes to the object for which the instructions were issued and if the instructions had been made applicable to pending cases as laid down by the National Litigation Policy, the object of the policy would have been fulfilled. We are not here to legislate but to expound and in such a situation, we at best could be called reformers or polishers of legislation as to fill up the gaps left in the legislation. Para 11 of Instruction No.3 of 2011 makes it apparently clear that it applies to appeals that would be filed on or after 9th February, 2011. However, Section 268(4) of the Act allows the Court to consider the circumstances under which such appeal was filed while hearing the appeal. By reading para 11 harmoniously with sub-clause (4) of Section 268 one can remove the mischief or the defect in Instruction No.3 of 2011. By our orders, we had directed the CBDT and the income tax department to take a concious decision and review pending cases, which they failed to do so. On the other hand, the department i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 10 lacs, whereas the tax effect in the instant appeal is less than ₹ 10 lacs and, therefore, the appeal should be dismissed as not maintainable. Since the preliminary objection raised had far reaching consequence affecting pending appeals in the High Court, the Court invited other counsels to address the Court on this issue. In this manner, we have heard Sri Bharat Ji Agarwal, the learned Senior Counsel alongwith Sri Shambhu Chopra and Sri Govind Krishna, the learned counsels for the Department and Sri R.P. Agarwal, Sri Piyush Agarwal, Sri Ashish Bansal and Sri Suyash Agarwal, the learned counsels for the assessee. The learned Senior Counsel for the Income Tax Department (hereinafter referred to as the Department) vehemently repudiated the preliminary objection raised by the learned counsel for the assessee. The learned Senior Counsel for the Department contended that the instructions issued by CBDT only lays down the monetary limits for regulating the filing of the appeals and not to regulate the appeals already filed. It was urged that the appeals already filed as per the earlier instructions will have to be decided on merits irrespective of the fact that the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us Courts of India in an attempt to reduce the average pendency time from 15 years to 3 years. The National Litigation Policy reads as under:- National Litigation Policy In this background, it is necessary to notice the 'National Litigation Policy Document Released'. The Centre has formulated the National Litigation Policy to reduce the cases pending in various courts in India under the National Legal Mission to reduce average pendency time from 15 years to 3 years. It reads as under: 'Introduction Whereas at the National consultation for strengthening the judiciay toward reducing pendency and delays held on October 24/25, 2009, the Union Minister of Law and Justice, presented resolutions which were adopted by the entire conference unanimously. And wherein the said resolution acknowledged the initiative undertaken by the Government of India to frame the National Litigation Policy with a view to ensure conduct of responsible litigation by the Central Government and urges every State Government to evolve similar policies. The National Litigation Policy is as follows: The Vision/Mission 1. The National Litigation Policy is based on the recognition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... social reform, weaker sections and senior citizens and other categories requiring assistance must be given utmost priority. In respect of filing of appeals in revenue matter it is stated as under: (G) Appeals in revenue matters will not be filed: (a) if the stakes are not high and are less than that amount to be fixed by the Revenue authorities: (b) if the matter is covered by a series of judgments of the Tribunal or of the High Court which have held the field and which have not been challenged in the Supreme Court: (c) where the assessee has acted in accordance with long standing industry practice: (d) merely because of change of opinion on the part of the jurisdictional officers. Review of pending cases (A) All pending cases involving the Government will be reviewed. This due diligence process shall involve drawing upon statistics of all pending matters which shall be provided for by all Government departments (including public sector undertakings). The Office of the Attorney General and the Solicitor General shall also be responsible for reviewing all pending cases and filtering frivolous and vexatious matters from the meritorious ones. (B) Cases will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : Revision of monetary limits for filing of appeals by the Department before the Income-tax Appellate Tribunal, High Courts and Supreme Court - Measures for reducing litigation - Regarding. Reference is invited to Board's instruction No.5 of 2008, dated May 15, 2008, wherein monetary limits and other conditions for filing Departmental appeals (in Income-tax matters) before Appellate Tribunal, High Courts and Supreme Court were specified. 2. In supersession of the above instruction, it has been decided by the Board that departmental appeals may be filed on the merits before the Appellate Tribunal, High Courts and Supreme Court keeping in view the monetary limits and conditions specified below. 3. Henceforth appeals shall not be filed in cases where the tax effect does not exceed monetary limits given hereunder:- Sl. No. Appeals in income-tax matters Monetary limit (in Rs.) 1 Appeal before Appellate Tribunal 3,00,000 2 Appeal under section 260A before High Court 10,00,000 3 Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above, the Commissioner of Income-tax shall specifically record that even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this instruction . Further, in such cases, there will be no presumption that the Income-tax Department has acquiesced in the decision on the disputed issues. The Income-tax Department shall not be precluded from filing an appeal against the disputed issues in the case of the same assessee for any other assessment year, or in the case of any other assessee for the same or any other assessment year, if the tax effect exceeds the specified monetary limits. 7. In the past, a number of instances have come to the notice of the Board, whereby an assessee has claimed relief from the Tribunal or the Court only on the ground that the Department has implicitly accepted the decision of the Tribunal or Court in the case of the assessee for any other assessment year or in the case of any other assessee for the same or any other assessment year, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the instructions on this subject, operative at the time when such appeal was filed. 12 This issues under section 268A(1) of the Income-tax Act, 1961. Yours faithfully, (Sd.).............. (A.K. Bharadwaj) Under Secretary to the Government of India (ITJ-II), CBDT Prior to the aforesaid instructions, the CBDT had issued Instructions No.1777 dated 4th November, 1987 fixing a monetary limit by which an appeal would not be filed before the High Court where the tax effect was less than ₹ 50,000/- This was enhanced to ₹ 2 lacs by Instructions No.1979 dated 27th March, 2000. By Instructions No.2 of 2005 dated 24th October, 2005 the limit was enhanced to ₹ 4 lacs. Similar instructions were again issued by Instruction No.5 of 2008 dated 15th May, 2008. By Instruction No.3 of 2011, the limit was enhanced to ₹ 10 lacs and reiterated by Instruction No.5 of 2014 dated 10th July, 2014 wherein the limit for filing an appeal before the High Court remained the same. Para 3 of Instruction No.3 of 2011 indicates that the appeal would only be filed where the tax effect exceeds the monetary limits, namely, ₹ 10 lacs before the High Court. Para 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of an adverse order. (iii)Where prosecution proceedings are contemplated against the assessee. (iv) Where the constitutional validity of the provisions of the Act are under challenge. 4. Special leave petitions under Article 136 of the Constitution are filed before the Supreme Court Court only in consultation with the Ministry of Law. Therefore, where the Chief Commissioner decides to contest an adverse judgment by filing special leave petition before the Supreme Court, they should send the proposal to the Board for further processing. 5. These instructions will apply to litigation under other direct taxes also, e.g., wealth-tax, gift-tax, estate duty, etc. 6. These monetary limits will apply to writ matters. 7. This instruction will come into effect from April 1, 2000. A perusal of the aforesaid instructions and the earlier instructions of the CBDT indicate that it was issued to reduce the litigation in the Court. Previously, only instructions were issued by CBDT under Section 119 of the Act and, in order to give it a legislative measure, a new Section 268A was inserted by the Finance Act, 2008 with retrospective effect from 1st April, 1999 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The object of introduction of Section 268A of the Act was to regulate the filing of the appeals by the government. The said object is extracted hereunder:- The proposed section seeks to provide that the Board may, from time to time, issue orders, instructions or directions to other income-tax authorities, fixing such monetary limits as it may deem fit, for the purpose of regulating filing of appeal or application for reference by any income tax authority under the provisions of Chapter XX. It is further proposed to provide that where, in pursuance of the orders, instructions or directions issued under sub-section (1), an income tax authority has not filed any appeal or application for reference on any issue in the case of an assessee for any assessment year, it shall not preclude such authority from filing an appeal or application for reference on the same issue in the case of-- (a) the same assessee for any other assessment year, or (b) any other assessee for the same or any other assessment year. It is also proposed to provide that notwithstanding that no appeal or application for reference has been filed by an income- tax authority pursuant to the orders, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question : Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. (5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit. (6) The High Court may determine any issue which - (a) has not been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1). (7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible for the Courts to look into the legislative intention and go behind the enactment and take other factors into consideration in order to give effect to the legislative intent and to the purpose of the national litigation policy. The process of construction, therefore, combines both literal and purposive approaches, namely, the true meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. Once this is achieved, it would be called the cardinal principle of construction . The difference between purposive and literal constructions is in truth one of degree only as held in Oliver Ashworth (Holdings) Ltd. Vs. Bellard (Kent) Ltd., (1999) 2 All ER 791at 805 and reiterated in Tanna Modi Vs. Commissioner of Income Act, Mumbai, (2007) 7 SCC 434. The real distinction lies in the balance to be struck in the particular case between literal meaning of the words on the one hand and the context and purpose of the measure in which they appear on the other. In Francis Bennion's Statutory Interpretation, purposive construction has been described in the following manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so principles of constitutionalism involved therein. With a view to read the provisions of the Act in a proper and effective manner, we are of the opinion that literal interpretation, if given, may give rise to an anomaly or absurdity which must be avoided. So as to enable a superior court to interpret a statute in a reasonable manner, the court must place itself in the chair of a reasonable legislator/author. So done, the rules of purposive construction have to be resorted to which would require the construction of the Act in such a manner so as to see that the object of the Act fulfilled; which in turn would lead the beneficiary under the statutory scheme to fulfill its constitutional obligations. The Bombay High Court, being conscious of the instructions issued by CBDT dismissed a large number of appeals on the ground that the instructions issued by CBDT from time to time were not being adhered to and that the appeals were being filed in utter disregard to the monetary limits. The Bombay High Court insisted that all the appeals filed by the department where the tax effect was below the Board's prescribed limit should be withdrawn forthwith. In this regard, CBDT issued in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailing instructions was not satisfied. We are of the opinion that the Ministry of Finance and/or Central Board of Direct Taxes should take a conscious decision as to whether they would like to pursue the pending appeals where the tax effect is less than ₹ 10.00 lacs. This conscious decision must be taken keeping in mind the national litigation policy framed by the Central Government with the object of reducing the burden of pending appeals before various Courts across the country. We, accordingly, adjourn the matter for a period of two weeks and direct the Income Tax Department to take necessary instructions and intimate the Court on an affidavit. List on 06.08.2014. Based on the aforesaid direction, the Income Tax Officer, Allahabad filed an affidavit dated 14th August, 2014 indicating that the Instruction No.3 of 2011 was issued in the light of the National Litigation Policy. Since the affidavit was not in consonance with the direction of the Court dated 22nd July, 2014, further directions was issued directing that an affidavit should be filed by the Joint Secretary of the Ministry of Finance or Central Board of Direct Taxes. Based on the aforesaid order, an af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve increased; consequently, the burden on the Department has also increased to a tremendous extent. The corridors of the superior courts are choked with huge pendency of cases. In this view of the matter, the Board has rightly taken a decision not to file references if the tax effect is less than ₹ 2 lakhs. The same policy for old matters needs to be adopted by the Department. In our view, the Board's circular dated March 27m 2000, is very much applicable even to the old references which are still undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with decades old references having negligible tax effect. The Bombay High Court held that the instructions would apply to pending appeals and, therefore, will have a retrospective effect. Similar view was again reiterated by the Bombay High Court in Commissioner of Income Tax Vs. Camco Colour Co., 254 ITR 565, Commissioner of Income Tax Vs. Smt. Vijaya V. Kavekar L/H of Late Vijaykumar B. Kavekar, 350 ITR 237, Commissioner of Income Tax Vs. Madhukar K. Inamdar (HUF), 318 ITR 149 and Commissioner of Income Tax Vs. Vites ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the tax effect is less than the monetary limit fixed under the aforesaid circular, still it is open to the Department to request the court to permit them to prosecute such appeals. Thus, the Department has to apply its mind in all the pending appeals and point out to the court, which are those appeals in which they intend to prosecute. Therefore, sufficient safeguards have been made to protect the interests of the public revenue. By this approach we would be saving the time of the court, the time of the Department and public time in general and giving effect to the National Litigation Policy, 2011, so that it can be used for better and productive purpose. 37. Yet another anomaly which requires to be noticed is, if a Tribunal where the number of cases which are pending are more, decides the appeal, subsequent to these latest circulars and the amount involved is less than ₹ 10 lakhs, the assessee in such cases get the benefit of the latest circular. However, if the Tribunal has decided a case expeditiously or in Tribunals where the pendency is less and if the subject-matter of the appeal preferred by the Revenue in such cases is more than ₹ 4 lakhs and less t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f statutes and that purposive construction should only be used in a rare case. Similarly, a Full Bench of the Punjab and Haryana High Court in Commissioner of Income-Tax Vs. Varindera Construction Co., 331 ITR 449 also held that pending appeals could not be governed by a subsequent circular unless it was specifically provided in the circular. The Punjab and Haryana High Court held that the object of the circular was to regulate the filing of the appeal and not to regulate the appeals already filed. Similar view was reiterated by the Madras High Court in CIT Vs. Kodanand Tea Estates Co., 275 ITR 244. The Kerala High Court in the case of CWT Vs. John L. Chackola, 337 ITR 385 and the Chattisgarh High Court in the case of CIT Vs. Navbharat Explosives Co. P. Ltd., 337 ITR 515, have held that: ... the maintainability of appeals/references at the instance of the Revenue is to be considered on the basis of circulars/ instructions prevailing at the relevant time when the appeal/reference was made and instruction issued, vide circular dated May 15, 2008, is prospective and it has no application whatsoever to any proceedings initiated before May 15, 2008, and the same remain undecided and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals. As a consequence of the insertion of Section 268A in the Act, the orders and instructions or directions issued on the subject of monetary limits for filing appeals has attained a statutory status and it has become mandatory for the department to comply with the requirement on the subject of monetary limits for filing appeals. Sub-section (5) of Section 268A of the Act indicates that earlier instructions issued by CBDT fixing monetary limits for filing an appeal shall be deemed to have been issued under Section 268A of the Act. After the introduction of Section 268A into the Act, Section 260A of the Act cannot be read independently. Both Section 260A and 268A of the Act will have to be interpreted by reading the two provisions harmoniously. Section 268A was inserted in the Act with retrospective effect from 1st April, 1999. The legislature desired to give statutory effect to all the instructions issued on the subject of monetary limits in regulating filing of appeals retrospectively. We are of the view that instructions issued by CBDT laying down the monetary limits for filing an appeal is mandatory and binding on the Revenue. The contention of the department that the rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy and that Instructions No.3 of 2011 only fulfils the requirement partially. If only Instructions No.3 of 2011 had been made applicable to pending cases also as laid down by the National Litigation Policy, the object of the policy would have been fulfilled. No doubt, the instructions issued by CBDT only regulates the filing of an appeal. Para 11 only indicates that the instruction would apply to appeals filed on or after 9th February, 2011 and where appeals have been filed before 9th February, 2011, the said appeals would be governed by the instructions operative at the time when such appeal was filed, which in the instant case was Instruction No.1979 dated 27th March, 2000. Whereas instructions issued by CBDT only regulates the filing of the appeal, sub-clause (4) of Section 268A will come into play when the appeal is being heard and the Court will then have regard to the orders, instructions or directions issued under sub-Clause(1) of Section 268A and the circumstances under which such appeal was filed or not filed in respect of any case. Meaning thereby, that at the stage of hearing of an appeal, the Court can see where the circumstances contemplated under para 3 of the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is carved out, which, according to the department, still exists. The Punjab and Haryana High Court in Oscar Laboratories (supra) held: There can be no doubt, that the process of litigation is a financial hardship. An individual assessee may have to suffer the hardship far beyond the effect thereof on the Revenue. The Revenue also incurs financial expense, which when taken to its logical effect, falls on the shoulders of the general public as the same is incurred out of money collected from innocent taxpayers. Filing of an appeal should be a fruitful exercise. An appeal should not be filed only to press a proposition of law, unless it results in an adverse inference against the Revenue. The veracity of filing an appeal must be gauged with reference to the tax, which is likely to be recovered by the Revenue, on the success thereof. If the proportion of the aforesaid recovery of tax as against the expenses incurred in pursuing the appellate remedy is negligible, and there is no other adverse effect, the inference should be, that the remedy of appeal would be an exercise in futility. In such an eventuality, an appeal should not be filed. There is another aspect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t held that the instructions issued by CBDT was only prospective in nature. The Full Bench further held that where the language of the instructions were clear and unambiguous only a literal interpretation should be given and that it is not for the Court to interpret the language in a different way. There is no quarrel with the aforesaid proposition laid down by the Full Bench of the Gujarat High Court and Punjab and Haryana High Court but in deference to the said decisions, we find that the National Litigation Policy was not taken into consideration and, consequently, the Full Bench only applied the literal interpretation of the instructions. Considering the object and intention and the surrounding circumstances of the National Litigation Policy, it is necessary for the Court to iron out the creases bearing in mind the principles of interpretation as discussed above and the legal proposition that flows from such interpretation. We find that there is a defect in the instructions issued by the CBDT. The only measure taken in reducing the litigation was to raise the monetary limit. No effort was made to review the pending cases. Accordingly, we are of the opinion that the literal rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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