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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 30TH DAY OF JULY, 2018
PRESENT
THE HON'BLE DR. JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS. JUSTICE S. SUJATHA
INCOME TAX APPEAL NO.548 OF 2006
BETWEEN:
THE COMMISSIONER OF INCOME-TAX
C.R.BUILDING, QUEEN’S ROAD
BANGALORE.
THE ASST. COMMISSIONER OF INCOME-TAX
CIRCLE-6(1), C.R.BUILDING
QUEEN’S ROAD
BANGALORE.
…APPELLANTS (BY MR. G.KAMALADHAR, ADV.)
AND:
SRI SATISH CHANDRA NO.3, RESERVOIR STREET K.P.WEST BANGALORE.
…RESPONDENT
* * * THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY INCOME-TAX APPELLATE TRIBUNAL, BANGALORE IN ITA NO.668/BANG/2003 DATED 23.09.2005 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER
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AND CONFIRM THE ORDER PASSED BY THE ASST.COMMISSIONER OF INCOME TAX, WARD-6(1), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY.
THIS INCOME TAX APPEAL IS COMING ON FOR ORDERS THIS DAY, S. SUJATHA J., MADE THE FOLLOWING:- O R D E R
Mr. G.Kamaladhar, Adv. for Appellants - Revenue
This Income Tax Appeal filed by the Appellant- Revenue earlier came to be disposed of by a co-ordinate Bench of this Court on 22.02.2012, on the ground that the appeal was not maintainable due to the tax effect involved being less than the prescribed monetary limit of Rs.20 lakhs in the Instructions issued by Central Board of Direct Taxes in 2011 (for short the ‘CBDT’).
The matter was remanded back to this Court by orders of the Hon’ble Supreme Court by a common order passed in some Civil Appeals, including the lead Civil Appeal No.16815 of 2017 @ SLP (C) No.1425 of 2014 (THE COMMISSIONER OF INCOME TAX,
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BANGALORE-I & ANOTHER vs. M/S.GEMINI DISTILLERIES) reported in (2017) 398 ITR 343 decided on 12.10.2017, but the said order of the two- judges Bench of Hon’ble Supreme Court in the case of M/s. Gemini Distilleries (supra) came to be explained by a later decision of the Hon’ble Supreme Court in the case of DIRECTOR OF INCOME-TAX vs. S.R.M.B. DAIRY FARMING (P.) LTD. reported in (2018) 400 ITR 9 (SC) decided on 23.11.2017 about the retrospective application of the CBDT Circulars with regard to monetary limits for maintaining the pending appeals before the Hon’ble High Court under Section 260A of the Income Tax Act. The Hon’ble Supreme Court in S.R.M.B.Dairy Farming (P.) Ltd. (supra) held as under:- “Appeal to High Court – Monetary limits for litigation by Department – Circular to apply to pending appeals – but Circular not to be applied by court ipso facto when matter
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has cascading effect or where common principles involved in large number of matters – Income Tax Act, 1961 ss. 260A, 268A – Instruction No.3 of 2011, dated 9-2-2011.
The view adopted by the Delhi High Court making the circular applicable to pending matters came up before a three- Judges Bench of this Court in SLP (C) No.CC 13694 of 2011 titled CIT v. Surya Herbal Ltd. when the following order was passed on August 29, 2011:
“Delay condoned.
Liberty is given to the Department to move the High Court pointing out that the Circular dated February 9, 2011 should not be applied ipso facto, particularly, when the matter has a cascading effect. There are cases under the Income-tax Act, 1961 in which a common principle may be involved in subsequent group of matters or a large number of matters. In our view, in such cases if attention of the High Court is
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drawn, the High Court will not apply the circular ipso facto. For that purpose, liberty is granted to the Department to move the High Court in two weeks.
The Special Leave Petition is, accordingly, disposed of.”
The aforesaid order, in our view, actually should have laid the controversy to rest. The retrospective applicability of the Circular dated February 9, 2011 was not interfered with, but with two caveats –
(i) Circular should not be applied by the High Courts ipso facto when the matter had a cascading effect; (ii) where common principles may be involved in subsequent group of matters or a large number of matters. It was opined that in such cases, the attention of the High Court would be drawn and the Department was even given liberty to move the High Court in two weeks. In our view this order holds the field and should continue to hold the field.
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Unfortunately, this order was not brought to the notice of the subsequent two Judges Bench of this court in CIT v. Suman Dhamija again arising from a Delhi High Court order, wherein it was simply stated that since the appeals were preferred before 2011 and the instructions were dated February 9, 2011, the earlier cases would not be covered by the instruction. This order in turn had been followed by another two- Judges Bench in Civil Appeal No.16815 of 2017 titled CIT v. Gemini Distilleries dated October 12, 2017.
Once again, in another matter CIT v. Century Park, the line adopted by the three- Judges Bench in Surya Herbal Ltd. Case (supra) has been followed.
We have already given our imprimatur to the observations made by the Karnataka High Court in a detailed analysis in Ranka and Ranka case (supra), which was dealt with the litigation
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policy philosophy behind applying the circular and the benefit being extended in view thereof to all assesses where appeals have been pending, but below the financial limit, as otherwise an anomalous situation would arise.
We may also take note of the judgment of this court in Suchitra Components Ltd. v. CCE on the general principle of application of circulars. Reliance was placed on the view expressed in CCE v. Mysore Electricals Industries Ltd. opining that a beneficial circular has to be applied retrospectively while an oppressive circular has to be applied prospectively.
We are of the view that the mater needs to be put to rest and a clarity be obtained in view of the impact of this issue on pending cases before the High Courts as well as the cases which have been disposed of by various High Courts by applying Circular of 2011 to pending litigations. In our view the matter has been squarely put to rest taking
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further care of the interest of the Revenue by the order passed by the three-Judges Bench of this court in Surya Herbal Ltd. Case (supra), which had put two caveats even to the retrospective application of the circular. The subsequent orders have been passed by the two-Judges Bench without those orders being brought to the notice of the court, a duty which was cast on the Department to have done so to avoid the ambiguity which has arisen. Thus, the said view of the three- Judges Bench would hold water and the circular would apply even to pending matters but subject to the two caveats provided in Surya Herbal Ltd. Case (supra).
The appeals of the Revenue are, thus, dismissed in the aforesaid terms.”
Recently, the CBDT has again revised the Instructions in this regard and besides para 13 specifically allowing withdrawal of pending appeals, the monetary limits for maintaining such Income Tax
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appeals before the High Court is raised from Rs.20 lakhs to Rs.50 lakhs. The said Circular is quoted extenso below:- “Circular No. 3/2018 F No. 279/Misc. 142/2007-ITJ (Pt) Government of India Ministry of Finance Department of Revenue Central Board Direct Taxes New Delhi the 11th July, 2018 Subject: Revision of monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal, High Courts and SLPs/appeals before Supreme Court - measures for reducing litigation-Reg. Reference is invited to Board’s Circular No.21 of 2015 dated 10.12.2015 wherein monetary limits and other conditions for filing departmental appeals (in Income-tax matters) before Income Tax Appellate Tribunal, High Courts and SLPs/appeals before Supreme Court were specified. 2. In supersession of the above Circular, it has been decided by the Board that departmental appeals may be filed on merits before Income Tax
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Appellate Tribunal and High Courts and SLPs/appeals before Supreme Court keeping in view the monetary limits and conditions specified below. 3. Henceforth, appeals/SLPs shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder: Sl. No. Appeals/SLPs in Income-tax matters Monetary Limit (Rs.) 1. Before Appellate Tribunal 20,00,000 2. Before High Court 50,00,000 3. Before Supreme Court 1,00,00,000 It is clarified that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case. 4. For this purpose, ‘tax effect’ means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed (hereinafter referred to as ‘disputed issues’).
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Further, ‘tax effect’ shall be tax including applicable surcharge and cess. However, the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against. 5. The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issues in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal can be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issues exceeds the monetary limit specified in para 3. No appeal shall be filed in respect of an assessment year or years in which the tax effect is less than the monetary limit specified in para 3. In other words, henceforth, appeals can be filed only with
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reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeals shall be filed in respect of all such assessment years even if the tax effect is less than the prescribed monetary limits in any of the year(s), if it is decided to file appeal in respect of the year(s) in which tax effect exceeds the monetary limit prescribed. In case where a composite order/ judgment involves more than one assessee, each assessee shall be dealt with separately. 6. Further, where income is computed under the provisions of section 115JB or section 115JC, for the purposes of determination of ‘tax effect’, tax on the total income assessed shall be computed as per the following formula- (A - B)+(C - D) where, A = the total income assessed as per the provisions other than the provisions contained in
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section 115JB or section 115JC (herein called general provisions); B = the total income that would have been chargeable had the total income assessed as per the general provisions been reduced by the amount of the disputed issues under general provisions; C = the total income assessed as per the provisions contained in section 115JB or section 115JC; D = the total income that would have been chargeable had the total income assessed as per the provisions contained in section 115JB or section 1I5JCwas reduced by the amount of disputed issues under the said provisions: However, where the amount of disputed issues is considered both under the provisions contained in section 115JB or section 115JC and under general provisions, such amount shall not be reduced from total income assessed while determining the amount under item D. 7. In a case where appeal before a Tribunal or a Court is not filed only on
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account of the tax effect being less than the monetary limit specified above, the Pr. Commissioner of Income-tax/ 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 Circular”. 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. 8. 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
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other assessee for the same or any other assessment year, by not filing an appeal on the same disputed issues. The Departmental representatives/counsels must make every effort to bring to the notice of the Tribunal or the Court that the appeal in such cases was not filed or not admitted only for the reason of the tax effect being less than the specified monetary limit and, therefore, no inference should be drawn that the decisions rendered therein were acceptable to the Department. Accordingly, they should impress upon the Tribunal or the Court that such cases do not have any precedent value and also bring to the notice of the Tribunal/ Court the provisions of sub section (4) of section 268A of the Income-tax Act, 1961 which read as under : “(4) The Appellate Tribunal or Court, hearing such appeal or reference, shall have regard to the 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.”
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As the evidence of not filing appeal due to this Circular may have to be produced in courts, the judicial folders in the office of Pr.CsIT/ CsIT must be maintained in a systemic manner for easy retrieval. 10. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect:
(a) Where the Constitutional validity of the provisions of an Act or Rule is under challenge, or
(b) Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or
(c) Where Revenue Audit objection in the case has been accepted by the Department, or (d) Where the addition relates to undisclosed foreign assets/ bank accounts.
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The monetary limits specified in para 3 above shall not apply to writ matters and Direct tax matters other than Income tax. Filing of appeals in other Direct tax matters shall continue to be governed by relevant provisions of statute and rules. Further, in cases where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12A/12AA of the IT Act, 1961 etc., filing of appeal shall not be governed by the limits specified in para 3 above and decision to file appeals in such cases may be taken on merits of a particular case. 12. It is clarified that the monetary limit of Rs. 20 lakhs for filing appeals before the ITAT would apply equally to cross objections under section 253(4) of the Act. Cross objections below this monetary limit, already filed, should be pursued for dismissal as withdrawn/ not pressed. Filing of cross objections below the monetary limit may not be considered henceforth. Similarly, references to High Courts and SLPs/appeals before Supreme Court below the monetary limit of Rs. 50 lakhs and Rs. 1 Crore respectively should be pursued for dismissal as
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withdrawn/ not pressed. References before High Court and SLPs/ appeals below these limits may not be considered henceforth. 13. This Circular will apply to SLPs/appeals/cross objections/references to be filed henceforth in SC/HCs/Tribunal and it shall also apply retrospectively to pending SLPs/ appeals/cross objections/references. Pending appeals below the specified tax limits in para 3 above may be withdrawn/not pressed.” 14. The above may be brought to the notice of all concerned.
This issue under Section 268A of the Income-tax Act 1961.
Hindi version will follow.
Sd/- (11/07/2018)
(Neetika Bansal)
Director (ITJ),
CBDT, New Delhi.
Learned counsel for the appellant-Revenue with regard to paragraph No.20 of the judgment of the
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Hon’ble Supreme Court in the case of DIRECTOR OF INCOME TAX vs. S.R.M.B. DAIRY FARMING (P.) LTD. quoted above and in the case of CIT vs. SURYA HERBAL LTD. (supra) has submitted before us that the present appeal filed by Revenue neither has any cascading tax effect nor it involves any issues of common principles involved in a group of matters or a large number of matters. Thus, the decision initially pointed out by the learned counsel for the appellant- Revenue in the case of CIT vs. M/S.GEMINI DISTILLERIES does not come in the way of the present appeal being withdrawn and the withdrawal of the appeal can be permitted as per recent CBDT Circular dated 11.07.2018.
Accordingly, in view of the aforesaid reasons and the Circular dated 11.07.2018 issued by the
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Central Board of Direct Taxes, the present appeal filed by the appellant-Revenue is permitted to be withdrawn.
The appeal is, accordingly, dismissed as withdrawn/not pressed. No costs.
Copy of this order be sent to the Respondent - Assessee forthwith.
Sd/- JUDGE
Sd/-
JUDGE
VMB