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| DATE: | February 27, 2012 (Date of publication) |
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| Click here to download the judgement (dsl_software_10B_frivolous_appeal_costs.pdf) |
Only way to prevent Dept from filing frivolous appeals is by imposing heavy costs
The assessee set up a 100% EOU unit in AY 1993-94 and claimed 5 year deduction till AY 1997-98 as was then allowable u/s 10B. By the IT (SA) Act, 1998, s. 10B was amended w.e.f. 1.4.1999 to allow deduction for 10 years from the date the eligible unit started software development. Accordingly, the assessee claimed s. 10B deduction for AY 1999-2000 to 2001-02. The AO held that as the deduction under the amended provision was allowable only for the “unexpired period”, it was necessary that as on the date of the amendment, there was “unexpired period” and as the assessee’s entitlement had ended in AY 1997-98, it was not eligible for further relief. The CIT (A) & Tribunal allowed the claim on the ground that there was nothing in the Act to provide that the units which have fully availed the exemption u/s l0-B will not get the benefit of the amended provision. On appeal by the department, HELD dismissing the appeal while passing strictures and imposing heavy costs:
(i) It is clear from the amended s. 10B that the benefit of tax holiday is extended for a period of ten consecutive assessment years beginning with the assessment year in which the undertaking begins to manufacture or produce articles. The object behind the amendment is to give added thrust to exports. lf the assessee has already availed the benefit under the unamended provision and 10 years have expired as of 01.04.1999, the assessee would not be entitled to the said benefit. If 10 years from the date of production has not expired prior to 01.04.1999, he would be entitled for the remaining unexpired period. The department’s stand that if the 5 year period had expired as of the date of the amendment, the benefit is not available runs counter to the intention with which the amended provision was enacted and negates it.
(ii) This case shows how the department is filing appeals without proper application of mind and wasting the precious time of the Court and the tax payer’s money. Even if the AO was overzealous in passing the assessment order, there was no need to file an appeal to the High Court. This is not an isolated case. The department is filing appeals mechanically either for the purpose of statistics or to save their skins without application of mind. In the process, a person eligible to tax holiday has been denied the benefit and made to contest the proceedings. If the object of extending the benefits was to give added thrust to exports, the assessee is made to unnecessarily waste his time in fighting the dispute in different forums. The only way to bring reason to the department is by imposing costs so that appropriate action may be taken against the person who has taken a decision to file the appeal and recover the same after enquiry. The department is directed to pay costs of Rs. 1 lakh for wasting the tax payer’s money. lt is open to the authorities to recover the money from the person who has taken a decision to file the frivolous appeal.
The HC’s observations, it is perceived, brings to focus more than one irritant commonly faced in such cases.
In the view the Court has taken, it is a clearly a case where the point of dispute has been taken up to court without first satisfying itself, in its true sense, whether or not the issue involves a ‘substantial question of law’ within its meaning under the Act.
In this case, the court has, at the first stage itself, i.e. under sub-section (1) of 260 (1), examined, and for the reasoning given, is satisfied that there is no ‘substantial question of law’; hence not proceeded further by formulating a question as envisaged in sub-section (3).
In a case where court, unlike herein, proceeds to formulate a question, even then, as provided in sub-section (4), it is permissible for court to examine and decide on such issue should an objection be raised by respondent that no ‘substantial question of law’ is involved.
The said new term is prima facie quite distinct in comparison with the relevant terms for the purposes of the erstwhile scheme; those are, – ‘question of law’ and ‘mixed question of law and facts’. What is the significance or legal meaning of those terms, one finds, has been the subject matter of prolonged disputes and a series of case law.
Nonetheless, so far as one knows, there is no clarity, or official or judicial guidance, on the scope or special significance of the newly employed term ’substantial question of law’.
The DTC proposes no change in the extant provisions dealing with appeals.
In view of the foregoing, the obvious lack of clarity in the term ‘substantial question of law’, by itself, has the irresolute potentials for an inconclusive litigation.
This brings to surface once again the inevitable twin posers, – whither simplification ?whither earnestness in curtailment of litigation ?
More thoughts>
As late NAP, renowned and revered legal luminary of our times , though in a different context, wrote:
“How we manage to remain poor is an uncomfortable question, the answer to which would not be flattering to our politicians and ideologues.”
(source: Article published in 1982)
No need to add,- the above quote may have to be modified to suit the context herein and the imponderable posers in the concluding comment.
Aside: In a lighter vein, one is left wondering whether the closely related policy of a comparatively recent origin, – “National Litigation Policy” could be regarded to have been aptly titled; instead, will nota differently worded title been better, so as to rightly reflect its awoed basic objectives as proclaimed by its makers.
Same way as, the inaptly chosen title – Committee of Disputes (CoD), to denote a committee set up with the objective for speedy resolution of disputes, thereby to save anyone from a fall into ‘litigation mines’.