Case Law Details
CIT Vs Madhukar K. Inamdar H.U.F. (Bombay High Court)
The case of CIT Vs Madhukar K. Inamdar H.U.F. brought before the Bombay High Court focuses on the applicability of the Central Board of Direct Taxes (CBDT) Circular dated 15-05-2008. The key issue is whether appeals filed before this circular’s issuance but involving a cumulative tax effect of less than Rs. 4 lakhs should be governed by its stipulations. The judgment provides crucial insights into how the circular impacts ongoing and future cases, particularly those with lower tax effects.
Background of the Case
The Commissioner of Income Tax (CIT), Thane, filed an affidavit contending that appeals or petitions involving substantial questions of law of a recurring nature could be filed regardless of the total cumulative tax effect being less than Rs. 4 lakhs. This stance was based on the interpretation that the CBDT Circular dated 15-05-2008, which restricts appeals for tax effects below Rs. 4 lakhs, does not have retrospective effect and should not apply to appeals filed before its issuance.
The CBDT Circular No. 5 of 2008
The Circular in question aimed to reduce the burden on the judiciary and the tax department by setting a monetary limit for appeals. According to paragraph 5 of the Circular, appeals should only be filed for assessment years where the tax effect exceeds the specified monetary limit. This directive intended to streamline the appeal process and focus resources on cases with significant tax implications.
Court’s Interpretation and Judgment
The court meticulously examined the language and intent of the CBDT Circular. It emphasized that the Circular’s lack of retrospective application meant it should only affect cases filed after its issuance date. However, the court clarified that the principle behind the Circular—to minimize unnecessary litigation—should logically extend to pending cases.
Key Points from the Judgment:
- Non-retrospective Application: The CBDT Circular does not apply retrospectively. Appeals filed before 15-05-2008 should not be dismissed solely based on the Circular.
- Monetary Limits: Even for appeals filed before the Circular, the logic of reducing litigation costs and focusing on significant tax disputes should apply. Appeals involving tax effects below Rs. 4 lakhs should not proceed unless they address recurring legal questions requiring higher court resolution.
- Judicial Precedents: The court referenced previous rulings, including CIT Vs M/s. Polycott Corporation, which supported the non-retrospective interpretation and emphasized consistent application of monetary limits.
- Public Interest Consideration: The court highlighted the public interest in reducing litigation involving minor tax disputes. It noted that administrative and litigation costs often exceed potential tax recoveries in low-effect cases.
- Section 268-A of the Income Tax Act: The insertion of this section empowered the CBDT to issue instructions on monetary limits for appeals. This provision ensured that even withdrawn appeals on recurring legal issues could be refiled if necessary, safeguarding the revenue’s interests.
Implications of the Judgment
The Bombay High Court’s ruling in CIT Vs Madhukar K. Inamdar H.U.F. underscores the importance of judicial consistency and practical governance in tax administration. The decision directs the tax department to withdraw appeals with tax effects below Rs. 4 lakhs, aligning with the CBDT’s policy to minimize frivolous litigation.
Conclusion
The Bombay High Court’s judgment in CIT Vs Madhukar K. Inamdar H.U.F. clarifies the applicability of the CBDT Circular dated 15-05-2008 and reinforces the principle of reducing unnecessary tax litigation. By focusing on significant tax disputes and adhering to the Circular’s guidelines, the ruling aims to streamline judicial processes and optimize resource allocation within the tax department. This judgment serves as a precedent for handling similar cases, ensuring that tax litigation remains efficient and purposeful.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Heard. Perused appeals and affidavit dated 30-06-2009 filed by Shri K.K. Sharma, Commissioner of Income Tax – 3, Thane, wherein he has stated that in the opinion of the Revenue, the Appeals and/or Petitions filed before 15-05-2008 involving substantial question of law of recurring nature can be filed notwithstanding the fact that total cumulative tax effect involved in the appeal is less than Rs.4 lakhs. According to him, such an Appeal shall not be governed by the Central Board of Direct Taxes (`CBDT’ for short) Circular / Income Tax Instructions No.5 of 2008 dated 15-05-2008. Since all these Appeals were filed prior to the date of issuance of said Circular, they need to be heard and decide on merits.
2. The issue raised needs consideration. It cannot be disputed that the CBDT Circular dated 15-5-2008 has no retrospective effect. It operates from the date of its issuance. As a corollary thereof, the Appeals which come on board for consideration after the issuance of CBDT Circular dated 15-5-2008 needs to be considered in the light of said Circular. Application of the said Circular to the cases coming on board after 15-5-2008 by no stretch of imagination can be said to be an application of Circular with retrospective effect.
3. In order to consider the issue in its right perspective, it is necessary to refer to the Circular of the CBDT dated 15-5-2008, para (5) of which reads as under :
“5. The Assessing Officer shall calculate the tax effect separately for every assessment year in respect of the disputed issue in the case of every assessee. If, in the case of an assessee, the disputed issues arise in more than one assessment year, appeal shall be filed in respect of such assessment year or years in which the tax effect in respect of the disputed issue 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 will be filed only with 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 year, appeal shall be filed in respect of all 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”.
(Emphasis supplied)
4. The aforesaid para (5) makes it clear that no Appeals should be filed in the cases involving tax effect less than Rs.4 lacs notwithstanding the issue being of recurring nature.
5. The aforesaid para (5) was a subject matter of the judicial interpretation in the case of The Commissioner of Income Tax – 23 V/s. M/s. Polycott Corporation in Income Tax Appeal No.1241 of 2008 decided on 23-01-2009, wherein this Court ruled as under :
“It would be clear from the above that if in the case of an assessee if the disputed issues arise in more than one assessment year, appeals are to be filed only 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. In other words, even if in respect of the same issue in respect of the same assessee for other assessment years the monetary limit is not more than Rs. 4.00 lakhs appeals need not be filed. Para 6 makes it clear that in such a case if an appeal is not filed there will be no presumption that the Income Tax Department has acquiesced in the decision on the disputed issues.”
(Emphasis supplied)
6. The aforesaid judicial verdict makes it clear that the Circular dated 15-5-2008 in general and para (5) thereof in particular lay down that even if the same issue, in respect of same assessee, for other assessment years is involved, even then the department should not file appeal, if the tax effect is less than Rs.4 lakhs. In other words, even if the question of law is of recurring nature even then, the Revenue is not expected to file Appeals in such cases, if the tax impact is less than the monetary limit fixed by the CBDT.
7. One fails to understand how the Revenue, on the face of the above clear instructions of the CBDT, can contend that the Circular dated 15-5-2008 issued by the CBDT is applicable to the cases filed after 15-5-2008 and in compliance thereof, they do not file Appeals, if the tax effect is less than Rs.4 lakhs; but the said circular is not applicable to the cases filed prior to 15-5-2008 i.e. to the old pending Appeals; even if the tax effect is less than Rs.4 lakhs. In our view, there is no logic behind this belief entertained by the Revenue.
8. This Court can very well take judicial notice of the fact that by passage of time money value has gone down, the cost of litigation expenses has gone up, filing of cases at the instance of Revenue has 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. The litigation expenses have also increased manifold. In this view of the matter, the Board has rightly taken decision not to file Appeals if the tax effect is less than Rs.4 lakhs so as to reduce burden of the department as well as that of the tribunals and courts. The same policy for old matters needs to be adopted by the Department so as to achieve the object of the policy laid down by the CBDT.
9. It would be in the public interest if the Revenue concentrates on the cases wherein tax effect is substantially high rather than running after the assessee’s wherein the tax impact is less than Rs.4 lakhs considering the cost of litigation and other administrative cost which may be much more than the tax recovery.
10. At this juncture, it will be relevant to note that the CBDT has also issued a Circular on 5-6-2007 directing the Department to examine all Appeals pending before this Court on case to case basis with further direction to withdraw cases wherein the criteria of monetary limits as per the prevailing instruction is not satisfied, unless the question of law involved or raised in Appeal or referred to the High Court for opinion is of a recurring nature required to be settled by the higher Court.
11. The aforesaid Circular makes it clear that on the date of issuance of Circular, prevailing instructions fixing monetary limit will hold good even for pending cases. Adopting the same approach, we are of the considered view that the CBDT Circular dated 15-5-2008 would be very much applicable to the pending cases requiring department to withdraw cases wherein the tax effect is less than the prescribed monetary limits.
12. At this juncture, it will also be relevant to mention that it was necessary for the CBDT to put a caveat, while issuing instructions vide its Circular dated 5-6-2007, that the Appeals involving substantial question of law of recurring nature should not be withdrawn since provision like Section 268-A of the Income Tax Act was absent. Now, in view of insertion of the provision of Section 268-A by the Finance Act, 2008 w.e.f. 1-4-1999 in the Income Tax Act, 1961, no prejudice could be caused to the Revenue even if the cases involving legal issues of recurring nature are withdrawn, since the newly inserted provision takes care of the adverse eventuality which could have been put against the Revenue. The Section 268-A of the Act, reads as under:
“Filing of appeal or application for reference by income-tax authority.
268A. (1) The Board may, from time to time, issue orders, instructions or directions to other income-tax authorities, fixing such monetary limits as if 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.
(2) 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.
(3) Notwithstanding that no appeal or application for reference has been filed by an income-tax authority pursuant to the orders or instructions or directions issued under sub-section (1), it shall not be lawful for an assessee,being a party in any appeal or reference, to contend that the income-tax authority has acquiesced in the decision on the disputed issue by not filing an appeal or application for reference in any case.
(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.
(5) Every order, instruction or direction which has been issued by the Board fixing monetary limits for filing an appeal or application for reference shall be deemed to have been issued under sub-section (1) and the provisions of sub-sections (2), (3) and (4) shall apply accordingly.”
13. In the aforesaid backdrop, we are of the considered view that the Circular dated 15-5-2008 would be applicable to the cases pending before this Court either for admission or for final disposal and that it is binding on Revenue. In this view of the matter, all these Appeals, having tax effect less than Rs.4 lakhs, are dismissed with no order as to costs.
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