CBDT Instruction of tax effect applies to pending appeals also subject to the two caveats provided in Surya Herbal Ltd. Case – Supreme Court
ABCAUS Case Law Citation:
ABCAUS 2132 (2017) (11) SC
In a recent judgment the Hon’ble Supreme Court had held that CBDT cannot issue circular with retrospective effect-Supreme Court and revised monetary limits for appeals shall apply prospectively.
However, in yet another latest judgment, the Apex Court in view of a three judges bench decision, has held a divergent view and put the controversy to rest.
In the instant proceedings, the Apex Court was concerned with the implementation of Instruction No.3 of 2011 dated 9.2.2011, providing for appeals not to be filed before the High Court(s) based on tax effect. The Instruction/was stated to have a prospective effect as per the Revenue and, thus, cases which were pending in the High Court(s) and had been filed prior to the said Instruction even if covered by the tax effect were required to be determined on their merits and not be dismissed by applying the the said instruction.
The Hon’ble Supreme Court observed that there had been certain orders passed by it with divergence of view and therefore it was necessary to examine this issue in detail so that conflicting orders do not arise and the High Courts are also guided appropriately. According to the Supreme Court it was also necessary, as in the mean time, a large number of cases had been disposed of on the application of the said Instruction though the appeals were preferred by the Revenue prior to the Instruction being issued as a large number of High Courts took that view.
The Supreme Court noted that Karnataka High Court, Bombay High Court, Madhya Pradesh High Court & Delhi High Court held the view that the Instruction would apply to pending appeals as well. On the contrary, Punjab & Haryana High Court, Chhattisgarh High Court; Madras High Court & Kerala High Court were of the View that the Circular in question would apply only prospectively.
It was also observed that a three Judge Bench of the Apex Court passed the following order;
“Liberty is given to the Department to move the High Court pointing out that the Circular dated 9th February, 2011, should not be applied ipso facto, particularly, when the matter has a cascading effect. There are cases under the Income Tax Act, 1961, in which a common principle may be involved in subsequent group of matters or large number of matters. In our view, in such cases if attention of the High Court is drawn, the High Court will not apply the circular ipso facto. For that purpose, liberty is granted to the Department to move the High Court in two weeks.”
Thus the retrospective applicability of the Instruction/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.
In the current judgment delivered by the Division Bench comprising of Justice Rohinton Fali Nariman and Justice Sanjay Kishan Kaul opined that the matter needs to be put to rest and a clarity be obtained in view of the impact of this issue on pending cases before the High Courts as well as the cases which have been disposed of by various High Courts by applying the Circular of 2011 to pending litigations.
Their Lordships opined that the matter had been squarely put to rest taking care of the interest of the Revenue by the order passed by the three Judges Bench of the Supreme Court Court in Surya Herbal Ltd. case which had put two caveats even to the retrospective application of the Circular.
Their Lordships observed that 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. Thus, the said view of the three Judges Bench would hold water and the Circular would apply even to pending matters but subject to the two caveats provided in Surya Herbal Ltd. case