CBDT Circular Trumps Tax Appeals: High Court Upholds Monetary Limits

Case Name:

Commissioner of Income Tax vs. GAD Fashion (High Court)

Key Takeaways:

1. CBDT circulars issued under Section 268A are legally binding on the Income Tax Department. 2. Appeals cannot be filed if they don't meet the monetary limits set by CBDT, with some exceptions. 3. The court balanced the need to reduce litigation with the importance of maintaining constitutional principles. 4. The ruling applies retrospectively to pending appeals.

Issue:

Is a circular issued by the CBDT under Section 268A of the Income Tax Act, 1961, setting monetary limits for filing appeals, binding on the Income Tax Department?

Facts:

1. The Central Board of Direct Taxes (CBDT) issued a circular under Section 268A of the Income Tax Act, 1961, setting monetary limits for filing appeals by the Income Tax Department. 2. Section 268A was inserted into the Act with retrospective effect from April 1, 1999. 3. The circular aimed to reduce litigation and establish a uniform policy for the department across India. 4. The tax effect in the present case was less than Rs. 20 lakhs, which is below the threshold set for filing appeals in High Courts.

Arguments:

The main argument centered around whether the CBDT circular was binding on the Income Tax Department. The department raised concerns about potential conflicts with Article 141 of the Constitution of India, which deals with the binding nature of Supreme Court judgments.

Key Legal Precedents:

1. Section 268A of the Income Tax Act, 1961: This section authorizes CBDT to issue orders, instructions, or directions to income tax authorities regarding monetary limits for filing appeals.

2. Article 141 of the Constitution of India: This article establishes that Supreme Court judgments are binding on all courts within India.

3. Section 260A of the Income Tax Act: This section deals with appeals to High Courts.

4. Code of Civil Procedure, Section 96(4): The court drew an analogy from this section, which prohibits appeals in certain small causes cases.

Judgment:

The High Court ruled that: 1. The CBDT circular issued under Section 268A is binding on the Income Tax Department.

2. Appeals cannot be filed if they don't meet the monetary limits set in the circular, except in specific circumstances.

3. If a CIT (Appeals) or Tribunal decision contradicts a Supreme Court judgment, the Department can file an appeal to maintain the sanctity of Article 141 of the Constitution.

4. The ruling applies retrospectively to pending appeals.

In this specific case, since the tax effect was less than Rs. 20 lakhs (the limit for High Court appeals), the appeal was dismissed.

FAQs:

Q1: What are the monetary limits for filing appeals as per the CBDT circular?

A1: As per the circular, appeals cannot be filed if the tax effect doesn't exceed: - Rs. 10,00,000 for Appellate Tribunal - Rs. 20,00,000 for High Court - Rs. 25,00,000 for Supreme Court

Q2: Are there any exceptions to these monetary limits?

A2: Yes, appeals can be filed regardless of the tax effect in cases involving: - Constitutional validity challenges - Challenges to Board's orders, notifications, instructions, or circulars - Accepted Revenue Audit objections - Undisclosed foreign assets/bank accounts

Q3: Does this ruling apply to all pending cases?

A3: Yes, the ruling applies retrospectively to pending appeals and future appeals in High Courts and Tribunals.

Q4: What happens if a lower authority's decision contradicts a Supreme Court judgment?

A4: In such cases, the Department can file an appeal to maintain the sanctity of Article 141 of the Constitution, even if the tax effect is below the prescribed limit.

Q5: Can the Department recall this order if the case falls under any exceptions?

A5: Yes, the court observed that if the appeal falls under any exceptions mentioned in the CBDT circular, the Revenue can move an application to recall the order.

1. In view of the decision of full bench in D.B. Income Tax Appeal No. 575 / 2008 (Commissioner of Income Tax, Jaipur-II vs. M/s. Gad Fashion) decided on 10.11.2017 wherein it has held as under:-

“17. From the policy which has been referred by different High Courts and the intention of the legislation to reduce the pendency of the tax appeal and to have a uniform policy for the department through-out the Country, therefore, the direction issued by the CBDT is binding on all subordinate officers and Section 268A(4) which has been amended with retrospective effect is applicable with all force in pending matters.

18. The intention of the legislation is very clear to prohibit the appeal analogous to the provisions of Code of Civil Procedure where there is a prohibition that appeal upto the value will not be entertained by the Court. 19. Under Section 260A of the Act only question of law is required to be decided, therefore, on analogous principle of Section 96(4) of the CPC, if the legislation has thought it fit to prohibit the department to file appeal, the instruction of CBDT to delegate the power, in our considered opinion, the appeal is prohibited. In view of sub-section (4) of Section 96 of the CPC where it has been prohibited that no appeal shall lie, except on a question of law, from a decree in any suit of the nature cognizable by Courts of Small Causes, when the amount or value of the subject matter of the original suit does not exceed Rs.10,000/-.

20. In view of majority of High Court decisions where the view is in favour of the assessee and in view of all the judgments referred by counsel for the assessee-respondent, if two views are possible, then one view which is in favour of the assessee is required to be upheld and the same is upheld.

21. The contention which has been envisaged is of the decision of the Supreme Court. There are ample powers under Section 263 and 154, which will meet the ends of justice and it will not be out of place to mention that the writ can also be filed by the department if it is a gross case decided by any officer or authority but to that extent the appeal is not maintainable and would amount to give over riding effect to the statutory provisions.

22. It is well known that the Courts are flooded with litigation where the State Government and Central Government or the Department or Corporation are the largest litigants, therefore, frivolous litigation is curb for larger interest of avoiding more Tribunals or Courts to decide the matters on merits.

23. In that view of the matter, when the legislation had thought it fit to put some prohibition on the department, in our considered opinion the issue is required to be answered in favour of the assessee and against the department inasmuch as the circular of the CBDT is binding on the subordinate officers.”

2. Thus, the present appeal is governed by the Circular and since indisputably the tax effect as brought to our notice, is less than Rs.20 lac.

2.1 A Circular No.21/2015 has been issued by the Central Board of Direct Taxes dated 10.12.2015 in exercise of its power u/sec. 268A (1) of the Income-tax Act 1961 in supersession of the Boards instruction No.5/2014 dt.10.7.2014 regularising the monetary limits for filing the appeal by the Revenue before the Tribunal, High Courts and Apex Court with an object for reducing litigation. Relevant para nos.3, 8, 9 and 10 reads ad infra :-

“3. Henceforth, appeals/SLPs shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder :- S.No. Appeals in Income-tax matters Monetary Limit (in Rs.)

1 Before Appellate Tribunal 10,00,000/-

2 Before High Court 20,00,000/-

3 Before Supreme Court 25,00,000/-

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. xxx xxx xxx

5. xxx xxx xxx

6. xxx xxx xxx

7. xxx xxx xxx

8. 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 are 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.

9. 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 & rules. Further, filing of appeal in cases of Income Tax, where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12 A of the IT Act, 1961, shall not be governed by the limits specified in para 3 above and decision to file appeal in such cases may be taken on merits of a particular case.

10. This instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in High Courts/Tribunals. Pending appeals below the specified tax limits in para 3 above may be withdrawn/not pressed. Appeals before the Supreme Court will be governed by the instructions on this subject, operative at the time when such appeal was filed.”

2.2 The extract of the paragraphs referred to supra, clearly indicates that the limits specified in para 3 may not apply to certain exceptions specified in para 8, at the same time para nos.9 and 10 of the Circular if read conjointly, clearly envisages that the present instructions will apply retrospectively to all the pending appeals and appeals to be filed henceforth in High Courts/Tribunals, subject to exceptions where the tax effect even if is less than Rs.20 lac, can be preferred in High Courts.

2.3 Taking note of the CBDT Circular dt. 10/12/2015 and the tax effect which indisputably in the instant case is less than Rs.20 lac, much less than what has been prescribed for filing appeals before the High Courts, deserves to be dismissed as not pressed. However, it is made clear that the substantial questions of law raised in the instant appeal, if any, are left open to be examined in an appropriate proceeding, if arises in future. At the same time we consider it appropriate to observe that if the appeal falls in any of the exceptions as referred to in the Circular dt. 10/12/2015, the Revenue will be at liberty to move an application for recalling of the order if so advised.

3. Accordingly, in the light of the CBDT Circular dated 10.12.2015 the appeal stands dismissed.

(VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J.