The Supreme Court, in Director Of Income Tax vs SRMB Dairy Farming (P) Ltd, has clarified that the Income Tax administrative circular, providing for appeals not to be filed before the high court(s) where the tax impact was less than Rs. 10 lakh, would apply even to pending matters, but subject to the two caveats provided in CIT Central-III vs Surya Herbal Ltd.
The Income Tax department had issued an instruction/circular providing for appeals not to be filed before the high court(s) where the tax impact was less than Rs. 10 lakh. This instruction was in supersession of the earlier instruction issued in the year 2000 where the limit of the tax effect was Rs. 4 lakh.
Various high courts had held the said the instruction is prospective and it does not apply to pending matters and has no retrospective application. Though the three-judge bench of the apex court, in Surya Herbal Ltd case, held that the instruction applies to pending cases as well, later division benches of apex court had held otherwise, without noticing the said order.
Clarifying that the said judgment in Surya Herbal Ltd holds the field, the bench comprising Justice RF Nariman and Justice Sanjay Kishan Kaul said: “The retrospective applicability of the Circular dated 9.2.2011 was not interfered with, but with two caveats – (i) Circular should not be applied by the High Courts ipso facto when the matter had a cascading effect; (ii) where common principles may be involved in subsequent group of matters or a large number of matters. It was opined that in such cases, the attention of the High Court would be drawn and the Department was even given liberty to move the High Court in two weeks. In our view this order holds the field and should continue to hold the field.”
The court also observed: “The subsequent orders have been passed by the two Judges Bench without those orders being brought to the notice of the Court, a duty which was cast on the Department to have done so to avoid the ambiguity which has arisen.”
The court also observed that the propensity of government departments and the public authorities to keep litigating through different tiers of judicial scrutiny is one of the reasons for docket explosion. “It is towards the aforesaid avowed object that the Income Tax Department, from time to time, has come out with administrative circulars/notifications for the Department not to litigate where the revenue impact is low,” the bench observed.