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| DATE: | October 10, 2012 (Date of publication) |
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| Click here to download the judgement (shambhubhai_low_tax_effect_circular.pdf) |
Question whether Low Tax Effect Circular can apply to pending appeals referred to Full Bench
The department filed an appeal in the High Court in 2008, the tax effect of which was more than Rs. 4 lakhs but less than Rs. 10 lakhs. The assessee claimed, relying on Sureshchandra Durgaprasad Khatod (HUF) & Madhukar K. Inamdar 318 ITR 149 (Bom), that as Instruction No. 3 of 2011 dated 9.2.2011 issued by the CBDT applied to pending appeals and as the tax effect was lower than the sum of Rs. 10 lakhs prescribed therein, the appeal was not maintainable. The department argued that the maintainability of the appeal had to be decided on the basis of the CBDT Instruction dated 15.5.2008 which was in force at the time of filing the appeal. HELD by the High Court:
Though in Sureshchandra Durgaprasad Khatod (HUF) (and other judgements), it has been held that Instruction No. 3 of 2011 dated 9.2.2011 shall apply to pending appeals paragraph 11 of the Instruction itself provides that “This instructions will apply to appeals filed on or after 9th February 2011. However, the cases where appeals have been filed before 9th February 2011 will be governed by the instructions on this subject, operative at the time when such appeal was filed”. The issue requires consideration by a larger Bench. A number of decisions of various High Courts on the subject (Kodananad Tea Estates 275 ITR 244, Varinder Construction Co 331 ITR 449 (P&H)(FB), John L. Chackola 337 ITR 385(Ker)) were not brought to the notice of this Court in the case of Sureshchandra Durgaprasad Khatod (HUF). We, independently also have serious doubts if the instructions of 2011 can be applied to cases filed earlier. Also, the said Instruction cannot be interpreted on the basis of the litigation policy. Also, prospective application of the instructions would not lead to any absurdity. If by applying the instructions prospectively, certain appeals would be decided on merits, because the appeals were filed prior to issuance of the new instructions, the same cannot be stated to be absurd. A counter situation also may arise if such instructions are applied with retrospective effect to all pending appeals whereby an appeal would be dismissed without examination on merits simply because the same survived for a longer period than the cognate appeals. Sureshchandra Durgaprasad Khatod (HUF) accordingly requires reconsideration.
This judgement, though rendered a little late, it has thrown some more light on various aspects of Low tax effect circulars and has also discussed various earlier judgements on this issue.
Further a Bench of the High Court of Karnataka has not followed the judgement of a Coordinate Bench in the case of Ranka & Ranka and held that Instruction No. 3 of 2011 is prospective and not applicable to pending appeals, which is a interesting development. This judgement is in ITA No. 5049 of 2010 dated 3-10-2012 in the case of CIT, Belgaum Vs. B. Sumangaladevi. The Judgement also makes suggestions on how to increase the tax base.