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TMI Blog2008 (8) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the court was delivered by K. A. Puj J. - The Revenue has filed Tax Appeals Nos. 1402 to 1405 of 2007 under section 260A of the Income-tax Act, 1961, for the assessment years 1995-96 and 1996-97 proposing to formulate the following substantial question of law for determination and consideration of this court. The same question is formulated in all the four tax appeals. "Whether the Appellate Tribunal is right in law and on facts and in dismissing the appeal filed by the Revenue without adjudicating the same on the merits on the ground that since in the appeal, tax effect was below Rs. 2 lakhs, the Revenue could not have preferred the same in view of the instructions of the Central Board of Direct Taxes, thereby entitling the Appellate Tribunal not to decide the same on the merits ?" 2. Along with these four appeals, several other appeals involving identical question of law were heard by this court and learned counsel appearing for the parties have made their submissions in great detail. On behalf of the Revenue, Mr. Manish R. Bhatt, Mr. B. B. Naik, Mrs. Mauna Bhatt, Mr. Pranav Desai and Mr. Ketan Parikh, learned standing counsel have made their submissions, whereas on behal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion No. 1985, dated June 29, 2000, has stipulated that the Board has also decided that the cases involving a substantial question of law of importance as well as in cases where the same question of law repeatedly arises, either in the case concerned or in similar cases, should be separately considered on the merits without being hindered by the monetary limits. While dismissing the Department's appeals, the Tribunal has not considered this aspect of the matter. 5. The broad submissions made on behalf of the Revenue are that: (i) The instructions contained in the circular are not absolute. There are exceptions and the Tribunal is required to examine the matter in the light of the exceptions. (ii) Even as per the circular, appeals are maintainable in a case where circular is required to be interpreted. As, in this case also, the circular was required to be interpreted, the appeal was maintainable. (iii) The judgment reported in Commissioner of Customs v. Indian Oil Corporation [2004] 267 ITR 272 (SC) is required to be read in the context in which it was rendered: (iv) The assessee concedes that circular is not binding on the appellate authority. As per the say of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax effect in a number of cases is bound to be substantial. 7. Instruction No.1777, dated November 4, 1987, states that filing of Departmental appeal/reference should be selective. Guidelines were issued laying down monetary limits of revenue effect of Rs. 10,000 for filing appeals before Income-tax Appellate Tribunal, Rs. 30,000 for reference before the High Court and Rs. 60,000 for appeals to the Supreme Court (Instruction No.1573, dated July 12, 1984, and 1612, dated April 6, 1985). The Board has, however, clarified that these guidelines should be adhered to subject to the exceptions given below. For the purpose of working out monetary limit, the cumulative revenue effect of the issue in the assessee's case for all the years up to the year for which returns have been filed should be taken into consideration. Where the same issue is involved in different cases of a group (e.g., industrial house, family, connected cases, etc.), the revenue effect of the group and not the individual case should be taken into account for the purpose of the monetary limit. While applying the monetary limits, the effect of carry forward, effect of consequential addition/deletions in other years shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax effect exceeds the revised monetary limits as under: (i) Appeal before the Appellate Tribunal Rs. 2,00,000. (ii) Appeal under section 260A Rs. 4,00,000. (iii) Appeal before the Supreme Court Rs. 10,00,000. 10. The Board has, however, clarified that cases involving substantial question of law of importance as well as cases where the same question of law will repeatedly arise, either in the case concerned or in similar cases, should be separately considered on the merits without being hindered by the monetary limits. 11. The Board has further clarified the issue, vide Instruction No. 5, dated July 16, 2007, that the tax effect means the tax only, i.e., tax excluding interest. The Board has further clarified that cases where the questions of law involved or raised in appeal are of a recurring nature to be decided by the court, should be separately considered on the merits without being hindered by the monetary limits. 12. The Board has issued Instruction No. 5 of 2008, dated May 15, 2008, superseding all previous instructions and deciding monetary limits and conditions specified below. (1) Appeals will henceforth be filed only in cases where the tax effect exceeds monetary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have to be sent back to the Tribunal for deciding as to whether matters on hand fall within the scope of exceptions contained in applicable circulars. 14. In support of their submissions, the learned counsel for the Revenue relied on the following judgments. (i) In CIT v. Hero Cycles P. Ltd. reported in [1997] 228 ITR 463 (SC) it was held that circular can bind the Income-tax Officer but will not bind the appellate authority or the Tribunal or the court or even the assessee. (ii) In CIT v. Rajasthan Patrika Ltd. reported in [2002] 258 ITR 300 (Raj) it was held that if, in spite of administrative instructions in a circular of the Central Board of Direct Taxes to the effect that no appeal should be filed when the tax effect is not more than Rs. 50,000, the Department prefers to file an appeal or take a reference to the High Court, on such administrative instructions the High Court ought not to dismiss the appeal or reject the reference. There is no infirmity in disposing of the appeal or reference on the merits. (iii) In CIT v. Shivaji Works Ltd. reported in [2007] 295 ITR 542 (Bom), the facts were to the effect that the Revenue filed an appeal against the order of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The court, therefore, held that no substantial question of law arose for the admission of the appeal. (v) In CIT v. Kodananad Tea Estates Co. reported in [2005] 275 ITR 244 (Mad). The appeal filed by the Revenue before the Tribunal had been dismissed without going into the merits on the basis of Circular/Instruction No. 1903, dated October 28, 1992, and Instruction No.1777, dated November 4, 1987, by which a monetary limit for filing of the appeal by the Department before the Tribunal was laid down. Under the circular, the monetary limit was revised to Rs.1 lakh. As the tax effect in these cases was less than Rs.1 lakh, the appeal was dismissed relying on the instructions. On further appeal to the High Court it was held that the instruction came into force only with effect from April 1, 2000. The assessment years involved in these appeals were earlier to the date from which the notification was given effect. Hence, the application of the notification for dismissing the appeal was not legally sustainable. Apart from that clause (ii) of paragraph 3 of Instruction No.1979 provides that where the Board's order, notification, instruction or circular is the subject-matter of an adverse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g taxability of certain item represent merely their understanding of the statutory provisions. They are not binding upon the courts. Though those clarifications and circulars were communicated to the concerned dealers but even so nothing prevents the State from recovering the tax, if in truth such tax was leviable according to law. There can be no estoppel against the statute. The understanding of the Government, whether in favour or against the assessee, is nothing more than its understanding and opinion. It is doubtful whether such clarifications and circulars bind the quasi-judicial functioning of the authorities under the Act. While acting in quasi-judicial capacity, they are bound by law and not by any administrative instructions, opinions, clarifications or circulars. Law is what is declared by the Supreme Court and the High Courts. It is for the Supreme Court and the High Court to declare what does a particular provision of statute say, and not for the executive Of course, Parliament/Legislature never speaks or explains what does a provision enacted by it mean. (ix) In CIT v, Chhajer Packaging and Plastics P. Ltd. reported in [2008] 300 ITR 180 (Bom), it was held by the Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment. The court's attention is invited to the provisions contained in section 268A of the Act inserted by the Finance Act, 2008, with retrospective effect from April 1, 1999. Sub-section (4) of section 268A clearly states that the Appellate Tribunal or court, hearing such appeal or reference, shall have to record orders, instructions or directions issued under sub-section (1) and the circumstances under which such appeal or application for reference was filed or not filed in respect of any case. Till now there are only judicial pronouncements which state that the circular issued by the Central Board of Direct Taxes are binding on the Department and the Tribunal or the court are not bound by such circulars. Sub-section (4) of section 268A now cast an obligation on the Appellate Tribunal or the court to consider the orders, instructions or directions issued by the Board under sub-section (1) of section 268A of the Act and shall decide the appeal or application filed before it. Sub-section (5) of section 268A makes it further clear that every order, instruction or direction which has been issued by the Board fixing the monetary limit for filing an appeal or an application for referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the court. 18. In support of their submissions the learned counsel relied upon the following judgments of different High Courts including this court as well as the hon'ble Supreme Court. (i) In CIT v. Ashok Kumar Manibhai Patel and Co. reported in [2009] 317 ITR 386 (MP) ; [2008] 214 CTR (MP) 344, it was held that the tax impact of the issue involved is hardly Rs. 40,000 and, hence, reference made at the instance of the Revenue is not to be entertained by the court in view of the circulars issued by the Central Board of Direct Taxes. (ii) In CIT v. Smt. Madhu Bai Lodha reported in [2009] 316 ITR 338 (MP); [2007] 213 CTR (MP) 496, it was held that where tax liability of the assessee is below the monetary limit prescribed, the Revenue cannot file an appeal in transgression of the circular by which it is bound. However, in a case which falls within the excepted category, it would always be open to the Department to bring it to the notice of the forum approached and to insist that the question being covered by the exceptions contained in clause 3 of the circular dated October 24, 2005, as modified by Instruction No. 5 of 2007, dated July 16, 2007, the same deserves to be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal to come to a conclusion, that the circulars, which have been mentioned as "circulars" by the Board itself, were not circulars under section 119. The circulars in question are statutory in nature and are issued by the Board in, exercise of the powers under section 119. The first contention of senior counsel for the Revenue that the circulars were not enforceable as they were not issued under section 119 and even if issued under section 119, could not take away the power of the Department to file an appeal created under the Act, cannot be accepted. The second contention is that the circulars create an exception and this aspect was not looked into by the Tribunal. All these exceptions which have been created in these circulars, require consideration by the Department with reference to each case and after consideration, they should come to a conclusion that though the case was falling under the monetary limits, it was also covered by an exception. No such exercise appears to have been done and, therefore, this argument would not be available at this stage to the Department. Even such an exercise was not made at the Tribunal. Therefore, these appeals deserve to be dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in [2002] 255 ITR 460 (Delhi), wherein it is held that, circular issued under section 119 of the Income-tax Act, 1961, stand on a different footing and they are meant for ensuring proper administration of the statutes and mitigate rigours of the provisions of law. These circulars are binding and enforceable against the Revenue. However, when the Supreme Court or the High Court have declared the law on a question, it is not open to the court to direct that a circular should be given effect to and not the decision. A statutory right of the Tribunal for making references to the court cannot be taken away by the Central Board of Direct Taxes by issuing a circular. (vii) In CIT v. Associated Electrical Agencies reported in [2007] 295 ITR 496 (Mad), it is held that the Central Board of Direct Taxes Circular (F. No. 279/126/98-ITJ, dated March 27, 2000, prescribes monetary limits for appeals. An appeal cannot be filed by the Revenue ignoring the circular. The exceptions stand in the circular for filing an appeal irrespective of the revenue effect are : (i) where a revenue audit objection in the case has been accepted by the Department, (ii) where the Board's order, notification, instruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 263 of the Income Act, 1961, in the case of a summary assessment. (x) In Union of India v. Azadi Bachao Andolan reported in [2003] 263 ITR 706 (SC), it is held that Circular No. 789, dated April 13, 2000, issued by the Central Board of Direct Taxes providing clarification that, in the application of the provisions of the Indo-Mauritius Double Taxation Avoidance Convention, 1983, wherever a certificate of residence is issued by the Mauritian authorities, such certificate will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership of shares, is a circular within the meaning of section 90, and, therefore, it must have the legal consequences contemplated by section 90(2). In other words, the circular will prevail even if inconsistent with the provisions of the Income-tax Act, 1961, in so far as assessees covered by the provisions of the Convention are concerned. The court further held that Circular No. 789, dated April 13, 2000, issued by the Central Board of Direct Taxes falls well within the parameters of the powers exercisable by the Central Board of Direct Taxes under section 119. The circular does not in any way crib, cabin or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant circumstances, i.e., affluent background of assessee and multiple sources of income, in coming to its conclusion that household expenses were understated, matter deserved to be remitted back; however, tax effect being small, reference was not answered. (xv) In CIT v. Dineshchandra S. Shah [2009] 317 ITR 391 (Guj), decided on July 9, 2008, this court had an occasion to consider the provisions contained in section 268A of the Income-tax Act, 1961, while deciding the application moved by the Revenue seeking leave to appeal to the Supreme Court. Section 268A(1) says 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 this Chapter. The court took the view that the tax effect in each of the three years is very low and is below the monetary limit prescribed by the Board and in this view of the matter, apart from the fact whether MCA/SLP is filed by the Revenue in any other cases, as per the Board's instructions no MCA could have been filed in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r exceptions are applicable or not. In Smt. Madhu Bai Lodha's case [2009] 316 ITR 338 the Madhya Pradesh High Court took the view that in a case which falls within the excepted category, it would always be open to the Department to bring it to the notice of the forum approached and to insist that the question being covered by the exceptions contained in the circular, the same deserves to be considered. 22. In A. Raajendra Prasad [2008] 299 ITR 227, the Andhra Pradesh High Court took the view that in case the Department finds a certain matter to be agitated by way of an appeal although it falls within the monetary limits of the circulars, the Department should clearly plead in the memo of appeal itself that the appeal falls under the exceptions. In the absence of such a pleading in the memo of appeal, normally appeal should not be entertained. 23. In Kurian Abraham Pvt. Ltd 's case [2008] 303 ITR 284 the hon'ble Supreme Court took the view that whenever any binding circular is issued by the Board granting administrative relief, as long as such circular remains in force, it is not open to the subordinate officers to contend that the circular is erroneous and not binding on them. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh. If no objections are raised by the Departmental representative at the time of hearing of the appeal against the applicability of the circular despite there being an exception, the Department has missed the bus and second inning cannot be granted for that purpose. However, in matters where such objections are raised and despite those objections or without dealing with those objections ii' the Tribunal has dismissed the appeal only on the ground of low tax effect, in such matter, an indulgence is required to be shown by this court and for this limited purpose, the Department is permitted to move an appropriate application before the Tribunal for deciding the appeal on the merits. 28. We are of the view that simply because the appeal is filed by the Department in contravention of the circular, the Tribunal is not bound to decide the appeal on the merits. Due weightage should invariably be given by the Tribunal to the circular issued by the Board. Even otherwise, the newly inserted provisions contained in section 268A(4) make it obligatory for the Tribunal to consider such circular. It is not open for the Department to contend that circulars are internal matters of the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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