9911796707
TMI Blog2007 (8) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... mill filed its return of income on December 26, 1991, admitting a loss of Rs. 8,37,24,609 for the assessment year 1991-92. A notice under section 143(2) of the Income-tax Act, 1961 (for short, "the IT Act"), was issued to the assessee and in response to the same, the assessee has stated that the mill had remained closed since August, 1983, to August 21, 1990, as it became sick. It went before the BIFR and had ultimately restarted its operation with effect from August 22, 1990, in pursuance of the order of the AAIFR dated June 13, 1990. Hence, for the assessment year 1991-92, the assessee quantified the total loss as shown above which included the depreciation claimed for the assessment years 1985-86 to 1990-91 amounting to Rs. 1,15,96,862 and carry forward loss from the assessment years 1981-82 to 1990-91 amounting to Rs. 6,81,88,117. 3. The Deputy Commissioner of Income-tax, Special Range-II, Coimbatore, finalised the assessment determining the net loss for the year at Rs.1,38,842 and disallowed in toto the claim of carry forward loss of the earlier years. Aggrieved by that, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Coimbatore. Placing r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nquiry into working of sick industrial companies. 7. Section 17 of the SICA relates to the powers of the Board to make suit-able orders on the completion of inquiry. Sub-section (1) of section 17 of the Act contemplates that if after making an inquiry under section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be, by order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. 8. As per sub-section (3) of section 17 of the SICA, if the Board decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company, it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith in any other law except the provisions of the Foreign Exchange Regulation Act, 1973, and the Urban Land (Ceiling and Regulation) Act, 1976, for the time being in force or in the memorandum or articles of association of an industrial company or in any other instrument having effect by virtue of any law other than this Act.' The Central Board of Direct Taxes have been advised that if a scheme is sanctioned in pursuance of section 17(3) of the Act, it will have an overriding effect over the provisions of the Income-tax Act, by virtue of section 32 of the Act. 3. Consequently, if the BIFR sanctions a scheme under section 17(3) of the Act, specifically excluding or limiting the application of sections 41(1), 79 and 115J or of any one or more of these sections of the Income-tax Act, 1961, in respect of the assessment years which are also specified, then the Assessing Officer will have to take due cognizance of this order and give effect to the same. Such a situation may arise in the case of a sick industrial company which has debited its account in respect of its interest liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Board to appoint an operating agency will not give rise to the assessee any benefit of with either excluding or limiting the application of sections 41(1), 79 and 115J of the Income-tax Act. Hence, Circular No. 523, dated October 5, 1988 (see [1988] 174 ITR (St.) 1), and Circular No. 576, dated August 31, 1990 (see [1990] 185 ITR (St.) 48), were withdrawn by a letter dated December 30, 1993. Thereafter, by yet another Circular No. 683, dated June 8, 1994 (see [1994] 209 ITR (St.) 98), the earlier circulars dated October 5, 1988 (see [1983] 174 ITR (St.) 1) and August 31, 1990 (see [1990] 185 ITR (St.) 48) were clarified. Circular No. 683, dated June 8, 1994 (see [1994] 208 ITR (St.) 98), reads as under : "Subject : Withdrawal of Circulars Nos. 523 and 576-New procedure for representation before Board for Industrial and Financial Reconstruction and the Appellate Authority for Industrial and Financial Reconstruction. The Board had issued two circulars, Circular No. 523, dated October 5, 1988 (see [1988] 174 ITR (St.) 1), and Circular No. 576, dated August 31, 1990 (see [1990] 185 ITR (St.) 48), in connection with the procedure to be followed in respect of grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment pending in appeal. 17. The above substantial question of law gives rise to an incidental issue, a decision on the same shall have relevance, as to whether the benefit given to an assessee in Circular No. 523, dated October 5, 1988 (see [1988] 174 ITR (St.) 1), requires a pre-condition of framing a scheme and the con-sequential consent from the financial institution for its revival. The above consideration occasions in view of the submission of the standing counsel for the Revenue that the circular dated October 5, 1988 (see [1988] 174 ITR (St.) 1), itself was without reference to sub-section (3) of section 19 of the SICA and, therefore, the benefit arising out of such circular cannot be claimed as a matter of right and the CBDT is entitled to withdraw the said circular giving retrospective effect. The source of power of the CBDT to issue circular is traceable to section 119 of the Income-tax Act. That section empowers the CBDT to issue such orders, instructions and directions to other income-tax authorities for proper administration of the Act, with a further direction that such authority should observe and follow such orders, instructions and directions. Apparently, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act retrospectively. 22. The same view was taken by the Supreme Court in CWT v. Vasudeo V. Dempo [1992] 196 ITR 216, that circulars issued by the Department are normally meant to be followed and accepted by the authorities. 23. In K. P. Varghese v. Income-tax Officer [1981] 131 ITR 597, the Supreme Court had gone one step further and observed that the circulars issued by the CBDT are legally binding on the Revenue and this binding character attaches to the circulars even if they are found not in accordance with the correct interpretation of a statutory provision and they depart or deviate from such construction. 24. The above dictum of law laid down by the Supreme Court show that although the circulars are not binding on the courts or an assessee, they are certainly binding on the Revenue and it is not open to the Revenue to advance an argument or filing an appeal contrary to the circulars. In fact, the Department cannot even take contrary stands to the circulars as well. 25. In UCO Bank v. CIT [1999] 237 ITR 889, the Supreme Court while considering the circulars issued in exercise of power under section 119 of the Income-tax Act regarding the interest on " sticky ..... X X X X Extracts X X X X X X X X Extracts X X X X
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