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Judgment
Dhirendra Mishra
The income tax Appellate Tribunal, Nagpur, (for short "the Tribunal", has made this reference u/s 256(1) of the income tax Act, 1961 (for short "the Act", at the request of the Revenue and the Tribunal has referred the following question of law for our opinion :
Whether, on the facts and under the circumstances of the case, the Tribunal was justified in law in holding that deduction under sections 80HH and 80-I is to be allowed on the interest earned from the fixed deposits ?
Briefly stated facts of the case are that the assessee claimed deduction under sections 80HH and 80-I of the Act on interest earned from fixed deposits. The Assessing Officer was of the opinion that no relief can be allowed under sections 80HH and 80-I on the interest earned on fixed deposits and while calculating deduction allowable under sections 80HH and 80-I of the Act, reduced income from other sources from fixed deposit and recurring deposit by an amount of Rs. 3,15,469. However, the Commissioner of income tax (Appeals), relying upon the decision of the income tax Appellate Tribunal, Nagpur Bench in Asst. CIT v. Sugosa Oil Mills and Refinery Industries ITA No. 610/Nag./91, directed the Assessing Officer to allow the relief u/s 80-I without deducting reliefs u/s 80HH of the Act and the decision has been further affirmed by the Tribunal. However, the Tribunal has referred the question of law for our opinion.
Shri Neelabh Dubey, learned counsel appearing on behalf of the respondent, submitted that indisputably the tax effect involved in this reference is less than Rs. 4 lakhs, which is less than the monetary limit fixed by the Central Board of Direct Taxes (for short "the Board") as per Instruction No. 5 of 2008, dated May 15, 2008, according to which the monetary limit for filing appeal/reference in the High Court has been fixed at Rs. 4 lakhs.
Relying upon the decision of the Bombay High Court in the matter of CIT v. Madhukar K. Inamdar (HUF) (2009) 318 ITR 149 (Bom), it was argued that the Circular dated May 15, 2008, would be applicable to pending cases also requiring the Department to withdraw the cases wherein the tax effect is less than the prescribed monetary limit and the above circular would be applicable to cases pending before the court either for admission or for final disposal and it is binding on the Revenue.
On the other hand, Shri Rohit Arya, senior advocate with Shri Rajeev Shrivastava, advocate, would argue that the Board issues instructions from time to time to the Revenue authorities fixing monetary limits for preferring appeals before the Tribunal, the High Court and the Supreme Court. The Board, vide its Instruction No. 5 of 2008, dated May 15, 2008, superseding its earlier Instruction No. 1979, dated March 27, 2000; Instruction No. 1985, dated June 29, 2000, Instruction No. 6 of 2003, dated July 17, 2003, Instruction No. 19 of 2003, dated December 23, 2003, and Instruction No. 5 of 2004, dated July 16, 2004, fixed the monetary limit for filing-appeal before the Tribunal, the High Courts and the Supreme Court at Rs. 2 lakhs, Rs. 4 lakhs and Rs. 10 lakhs, respectively. However, clause 11 of the above Instruction clearly and specifically envisages that the Instruction will apply to the appeals filed on or after May 15, 2008. Where the appeals have been filed before May 15, 2008, they shall be governed by the instructions on the subject as operative at the time when such appeal was filed.
We have heard learned counsel for the parties. We have pecused the record, the orders of the forums below as also the order of reference and the statement of the case.
Indisputably, the instant reference has been made on September 22, 1997, and received on January 7, 1998, at the instance of the Revenue. This reference is arising out of the order of the Tribunal dated August 2, 1996, whereby the view taken by the Appellate Commissioner has been confirmed.
To appreciate the arguments advanced by the respective'' parties, it would be appropriate to refer to the various circulars issued by the Board fixing the monetary limit for filing appeal before the Tribunal, the High Courts and the Supreme Court.
The Board vide Instruction No. 1979, dated March 27, 200, superseding its earlier Instruction Nos. 1903, dated October 28, 1992, and 1777, dated January 4, 1987, revised the monetary limit for filing Departmental appeals before the Appellate Tribunal, for filing reference to the High Court and appeal to the Supreme Court.
The Board, vide its instructions dated October 24, 2005, again revised the monetary limits. Paragraphs 2, 3 and 4 of the above circular read as under :
In partial modification of the above instruction, it has now been decided by the Board that appeals will henceforth be filed only in cases where the tax effect exceeds the revised monetary limits given hereunder :
S. No.
income tax
Tax effect Rs
1.
Appeal before the Appellate Tribunal
2,00,000
2.
Appeal u/s 260A
4,00,000
3.
Appeal before the Supreme Court
10,00,000
The Board has also decided that in cases involving substantial question of law of importance as well as in cases where the same question of law will repeatedly arise, either in the case concerned or in similar cases, should be separately considered on the merits without being hindered by the monetary limits.
Subject to paragraphs 2 and 3 above, Instruction No. 1979, dated March 27, 2000, as clarified subsequently in Instruction No. 1985, dated June 29, 2000, will continue to govern the decision for filing of Departmental appeals.
The Board, vide its Circular dated May 15, 2008, issued various instructions to the Assessing Officer for filing appeal. Instructions No. 5 and 11 are relevant for the issue under consideration which read thus :
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 issue arises 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 paragraph 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 paragraph 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.
This instruction will apply to appeals filed on or after May 15, 2008. However, the cases where appeals have been filed before May 15, 2008, will be governed by the instructions on this subject, operative at the time when such appeal was filed.
Section 268A of the Act reads as under :
268A. Filing of appeal or application for reference by income tax authority.--(1) The Board may, from time to time, issue orders, instructions or directions to other income tax authorities, fixing such monetary limits as it 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.
In the matter of The Commissioner of Income Tax Vs. Pithwa Engg. Works, , the Bombay High Court, while considering the applicability of circulars of the Board regarding tax effect less than monetary limits fixed by the Board on old referred and undecided cases, observed thus (page 520) :
One fails to understand how the Revenue, can contend that so far as new cases are concerned, the circular issued, by the Board is binding on them and in compliance with the said instructions, they do not file references if the tax effect is less than Rs. 2 lakhs. But the same approach is not adopted with respect to the old referred cases even if the tax effect is less than Rs. 2 lakhs. In our view, there is no logic behind this approach.
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, the assessees on the file of the Department have 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. In this view of the matter, the Board has rightly taken a decision not to file references if the tax effect is less than Rs. 2 lakhs. The same policy for old matters needs to be adopted by the Department. In our view, the Board''s circular dated March 27, 2000, is very much applicable even to the old references which are still undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with decades old references having negligible tax effect.
In the matter of Commissioner of Income Tax Vs. Chhajer Packaging and Plastics (P) Ltd., the Division Bench of the Bombay High Court, while considering the applicability of Circular dated 24th October, 2005, to old cases, disagreeing with the views recorded in The Commissioner of Income Tax Vs. Pithwa Engg. Works, held that the aforesaid circular is only applicable prospectively and makes no reference to the pending matters. Referring to para. 3 of the Circular dated October 24, 2005, it has been observed that whenever there is a substantial question of law, or a question of law which is likely to recur in future, the Department is not prohibited from filing and pursuing appeals.
In the matter of CIT v. Polycott Corporation (2009) 318 ITR 144 (Bom) referring to para. 5 of the circular dated May 15, 2008, it was held thus (page 146):
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 paragraph 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 lakhs, appeals need not be filed. Paragraph 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.
In the matter of CIT v. Madhukar K. Inamdar (HUF) (2009) 318 ITR 149 (Bom), the Bombay High Court, considering the applicability of monetary limit fixed by the Board, vide Circular dated May 15, 2008, in undecided and pending cases, held that Circular dated May 15, 2008, would be applicable to the cases pending before the Bombay High Court either for admission or for final disposal and that it is binding on the Revenue. All the appeals having the tax effect less than Rs. 4 lakhs have been dismissed. In the aforesaid judgment, a reference is also made to the Board''s Circular dated June 5, 2007, whereby the Department has been directed to examine all appeals pending before the Bombay High Court on a case to case basis with further direction to withdraw cases wherein the criteria of monetary limits as per the prevailing instruction are 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.
In the matter of Commissioner of Income Tax Vs. Concord Pharmaceuticals, the Gujarat High Court, after considering a numerous judgments of different High Courts on the issue of impact of tax effect less than minimum monetary limit fixed by the Board, held that where a substantial question of law of importance is involved or where the question of law repeatedly arises or where the issue is covered by the judgment of the territorial High Court or the Supreme Court, the Tribunal will have to decide the appeal on the merits and in terms of the law declared by the Supreme Court or by the territorial High Court. Simply because the appeal is filed by the Department in contravention of the circular, the Tribunal is not bound to decide the appeal on the merits. Due weight age should invariably be given by the Tribunal to the circular issued by the Board. Section 268A(4) of the income tax Act, 1961, makes it obligatory for the Tribunal to consider such circular, as the aforesaid section recognizes the right of the Board to regulate the filing of appeal or application before the Tribunal or the Court.
In the matter of Commissioner, Income Tax Vs. Ashok Kumar Manibhai Patel and Co., the Madhya Pradesh High Court following the decision of the Bombay High Court in The Commissioner of Income Tax Vs. Pithwa Engg. Works, dismissed the appeal preferred by the Revenue considering the tax impact involved in the case as also on the merits.
In the matter ofCIT v. Ram Krishna Saraf, the Division Bench of the Madhya Pradesh High Court, vide its order dated May 7, 2007, passed in M. A. I. T, No. 23 of 2005 following the decision in the case of The Commissioner of Income Tax Vs. Pithwa Engg. Works, dismissed the appeal of the Revenue on the ground of tax effect as well as on the merits.
Similar view has been taken by the Division Bench of the Madhya 20 Pradesh High Court in the matter of Commissioner of Income Tax Vs. Smt. Madhu Bai Lodha,
In the matter of Commissioner of Income Tax Vs. Kodananad Tea Estates Co. and Others, the Madras High Court, while considering the effect of Circular dated October 28, 1992, fixing monetary limit for appeal, allowed the appeal preferred by the Revenue and held thus (page 246) :
The instruction came into force only with effect from April 1, 2000. The assessment years involved in these appeals are earlier to the date from which the notification was given effect to. Hence, the application of notification for dismissing the appeal cannot be legally sustainable. Apart from that, clause (ii) of para. 3 of Instruction No. 1979 provides that where the Board''s order, notification, instruction or circular is the subject-matter of an adverse order irrespective of the revenue effect, the appeal has to be decided on the merits. When the applicability of the notification, which is given effect to from April 1, 2000/ is questioned before the Tribunal, the question c6fnes from clause (ii) of paragraph 3 of Instruction No. 1979.
In the matter of CWT v. John L. Chackola (2011) 337 ITR 385 (Ker), the Kerala High Court, dissenting with the views expressed in Madhukar K. Inamdar (HUT) (2009) 318 ITR 149 (Bom) held thus (page 388 of 337 ITR) :
... maintainability of appeals has to be considered with reference to the question raised in the appeals and further whether such question will arise for subsequent years. The purpose of an exception clause is to ignore the tax effect for the year of assessment, if the issue is recurring, because the decision will have cumulative effect for all the years. The question raised is with regard to exigibility to tax of urban land with semi-constructed building... The question on liability for wealth-tax on semi-constructed building on urban land which is prima facie a non-productive asset is a substantial question of law arising in the case of several assessees and the same will repeatedly arise in the case of the very same assesses. Therefore, we are of the view that all these cases will fair within the exception clause, namely, clause (3) of Instruction No. 2 of 2005, dated October 24, 2005. The contention of counsel for the assessee that by virtue of subsequent Instruction No. 5 of 2008, the appeal is not maintainable is also not acceptable because it is specifically mentioned in clause (11) of that instruction that instruction will apply only for appeals filed after May 15, 2008, and it is also specifically provided that maintainability of appeals prior to that should be considered with reference to the instruction in force at the time of filing of the appeals. Going by clause (11) of Instruction No. 5 of 2008, it is clear that instruction applicable in the case of the assessee is Instruction No. 2 of 2005 under which we have already found that appeals are maintainable by virtue of operation of clause (3) of that instruction... Therefore, appeals are maintainable before the Tribunal no matter the tax effect is below the threshold limit prescribed by the Central Board of Direct Taxes.
The observations made by the Bombay High Court in The Commissioner of Income Tax Vs. Pithwa Engg. Works, quoted above, have been made in regard to Circular of the Board dated March 27, 2000, whereas in Madhukar K. Inamdar (HUF) (2009) 318 ITR 149 (Bom) para.11 of the Instruction dated May 15, 2008, were not considered. Even the decision of the jurisdictional court in the matter of Commissioner of Income Tax Vs. Chhajer Packaging and Plastics (P) Ltd., wherein the view taken by the Division Bench in The Commissioner of Income Tax Vs. Pithwa Engg. Works, has not been followed, has also not been considered.
From a bare perusal of section 268A of the Act, it is evident that orders, instructions or directions issued by the Board to the income tax authorities for the purposes of fixing the monetary limits are binding on the income tax authorities and the Tribunals or the courts hearing such appeal or reference are required to take into consideration the orders, instructions or directions issued under sub-section (1) of section 268A of the Act. There is no ambiguity in Circular dated May 15, 2008, fixing the monetary limit for filing appeal/reference before the Tribunal, High Courts and the Supreme Court. The Circular, in no uncertain terms, directs that the same would apply to the appeals filed on or after May 15, 2008, and the cases where the appeals have been filed before May 15, 2008, will be governed by Instructions on the subject, operative at the time when such appeal was filed.
Circular dated June 5, 2007, which finds reference in Madhukar K. Inam''dar (HUF)''s case (2009) 318 ITR 149 (Bom) has no application, as the same stands superseded by subsequent Circular dated May 15, 2008. It does not appeal to reason that the appeal/reference at the instance of the Revenue in the year 1998 remained pending for a period of 12 years till 2010 and thereafter it is dismissed on the ground of tax impact in view of some circular issued in the year 2008.
Thus, following the decision of the Madras High Court in the matter of Commissioner of Income Tax Vs. Kodananad Tea Estates Co. and Others, and the decision of the Kerala High Court in the case of John u Chackola (2011) 337 ITR 385 (Ker), we hold that maintainability of appeals/references at the instance of the Revenue is to be considered on the basis of circulars/instructions prevailing at the relevant time when the appeal/reference was made and Instruction issued, vide circular dated May 15, 2008, is prospective and it has no application whatsoever to any proceedings initiated before May 15, 2008, and the same remain undecided and pending after May 15, 2008.
Coming to the merits of the case, the question, whether deduction under sections 80HH and 80-I is to be allowed on the interest earned from the fixed deposits, is no longer res integra as admitted by learned counsel for the respondent/assessee and it has been conclusively decided in the matter of Commissioner of Income Tax Vs. Paras Oil Extraction Ltd., , wherein interpreting the words "derived from an industrial undertaking" would mean that the income has been derived from industrial activity which the industry is undertaking and it does not mean any industrial activity undertaken by the assessee, it has been held that loans are advanced by an undertaking to a third party and earning interest there from cannot be said to be an industrial activity of the assessee so as to entitle it for benefit under sections 80HH and 80-I.
In view of the above, we answer the reference in the negative and hold that the Tribunal was not justified in law in holding that deduction under sections 80HH and 80-I is to be allowed on the interest earned from the fixed deposits.