The Commissioner of Income Tax Tamil Nadu- III, Madras v. M/s. Ormed Medical Technology Ltd.

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 18.04.2018 CoramThe Hon'ble Mr.Justice T.S.Sivagnanam &The Hon'ble Mr.Justice N.SeshasayeeT.C.(A).No.901 of 2008 The Commissioner of Income Tax Tamil Nadu- III, Madras. ...AppellantVs.M/s. Ormed Medical Technology Ltd.,162 Sidco Industrial Estate, Ambattur, Chennai - 600 098. ...Respondent Tax Case Appeal filed under Section 260-A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, ''B'' Bench, Chennai, dated 31.12.2007, passed inI.T.A.No.2116/Mds/2006, against the order dated 27/06/2006 inITA No.194/05-06, in the Office of the Commissioner of IncomeTax(Appeals)-XII 121, Mahathma Gandhi Road, Chennai-600 034,against the order dated 22/09/2004 in PAN/GIRNo.AAACo0891N/51091-0 passed by the Deputy Commissioner of Income Tax Company Circle V(1), Chennai. For Appellant : Mr.M.Swaminathan and Mr. T.Ravikumar Senior Standing Counsel For Respondent :Mr.M.P.Senthil KumarJUDGEMENT (Judgement of the Court was delivered by T.S.Sivagnanam,J.,) This Tax Case Appeal filed by the Revenue is directedagainst the order passed by the Income Tax Appellate Tribunal,''B'' Bench, Chennai, (ITAT, for brevity) dated 31.12.2007, inI.T.A.No.2116/Mds/2006. https://hcservices.ecourts.gov.in/hcservices/

The Appeal has been admitted on the followingsubstantial question of law:- Whether in the facts and circumstances ofthe case, the Income Tax Appellate Tribunal wasright in law, in holding that the assessee isentitled to deduction under Section 80-O of the Actis valid law?3.At the time, when the Appeal was taken up for hearing, the learned counsel for the respondent/assessee raised anobjection to the hearing of this Appeal by placing reliance on Circular No.21 of 2015, dated 10.12.2015, which prescribedmonetary limits for preferring the Appeal, or pursuing thepending Appeals by the Revenue, if the tax effect is less thanRs.20,00,000/-. In support of the said contention, the learnedcounsel placed reliance on the decision of the Hon'ble SupremeCourt, in Director of Income Tax, New Delhi Vs. M/s. S.R.M.B.Diary Farming (P) Ltd., reported in [(2018) 4 9 (SC)]. It ispointed out that, the tax effect in the present Appeal would beonly Rs.3,50,000/-, and the monetary limit is only Rs.9,00,000/-far below Rs.20,00,000/-, the monetary limit fixed in CircularNo.21 of 2015, dated 10.12.2015.

4.2) The learned Senior Standing Counsel drew theattention of the Court to the Instruction No.5 of 2007, dated16.07.2007, wherein, the Central Board, while reiterating Para 3of the Instruction No.2 of 2005, has substituted InstructionNo.1979, dated 27.03.2000 and stated that, the subsequentInstruction No.1985, dated 29.06.2000 and Instruction No.2 of2005, dated 24.10.2005, will continue to govern the decision forfiling of Departmental Appeals. The said Instruction No.5 of2007, dated 16.07.2007 will come into effect from 16.07.2007. 4.3) The learned Senior Standing Counsel referred to the Circular, dated 02.09.2011, for the purpose that, Appeals filedon or after 09.02.2011, would be governed by the oldinstructions operative at the time of filing of Appeal. It isfurther submitted that, in Instruction No.3 of 2011, dated09.02.2011, the monetary limit for filing Appeals under Section260A was increased to Rs.10,00,000/-, however, it was madeapplicable only prospective and the earlier Instruction wouldgovern the Appeals filed on or after 2011.

The learned SeniorStanding Counsel also invited the attention of this Court to Instruction No.5 of 2014, dated 10.07.2014, where, the monetarylimit, while being retained at Rs.10,00,000/-, held that, itwill be applicable to the Appeals filed on or after 10.07.2014.4.4) After referring to the above Circulars, the learnedSenior Standing Counsel for the Revenue has drawn the attentionof this Court to the decision of the Hon'ble Supreme Court, in Commissioner of Central Excise, Bolpur Vs. Ratan Melting and Wire Industries, reported in [(2008) 13 SCC 1], for theproposition that, Circulars and Instructions issued by the Central Board of Excise and Customs (CBEC) are, no doubt, binding in law on the Authorities under the respective statutes, but, when the Hon'ble Supreme Court, or the High Court declaresthe law on the question arising for consideration, it would notbe appropriate for the Court to direct that the Circular shouldbe given effect to and not the view expressed in a decision ofthe Hon'ble Supreme Court, or the High Court.

4.5) Reliance was placed on the decision of the Hon'bleFull Bench of Punjab and Haryana High Court, in Commissioner of Income Tax III, Ludhiana Vs. Varindera Construction Co.Baghapurana, reported in [(2011) 331 ITR 449 (P & H)], wherein, Instruction No.5 of 2008, dated 15.05.2008, was dealt with, and, it was held that, the Circular, laying down monetary limitcontrols the filing of the Appeals and not their hearing. 4.6) Further, the learned Senior Standing Counsel referredto the decision of the Hon'ble Supreme Court, in Commissionerof Income Tax Vs. Century Park reported in [(2015) 373 ITR 32 https://hcservices.ecourts.gov.in/hcservices/ (SC)], wherein, the effect of Instruction No.3 of 2011, dated09.02.2011, was examined, and it is pointed out that, Circularscannot be mechanically made applicable. Referring to yetanother decision of the Hon'ble Supreme Court, in Commissionerof Income Tax, Bangalore Vs.

Gemini Distilleries, reported in[(2017) 398 ITR 343(SC)], it is submitted that the Hon'bleSupreme Court has held that, CBDT cannot issue any Circular, having retrospective operation. 4.7) Further, the learned Senior Standing Counsel hasreferred to the decision of the Hon'ble Supreme Court, in CITVs. Surya Herbal Ltd., reported in [(2013) 350 ITR 300], andsubmitted that, in the said decision, the Hon'ble Supreme Courtpointed out two caveats, where, the retrospective applicabilityof the Circular was not interfered with viz., (i) the Circularshould not be applied by the High Courts ipso facto, when thematter had a cascading effect (ii) Where common principles maybe involved in subsequent group of matters or a large number ofmatters. With these two caveats, the Hon'ble Supreme Courtobserved that, in such cases, the attention of the High Courtwould be drawn and the Department was even given liberty to movethe High Court within a time frame.

5. Thus, it is submitted that the Circular cannot haveretrospective effect and can only be prospective and the Circulars only speak about the filing of Appeals and not hearingof Appeals. 6. Mr.M.P.Senthilkumar, the learned counsel appearing forthe respondent/assessee has drawn the attention of the Court tothe decision of the Hon'ble Supreme Court, in the case ofS.R.M.B.Diary Farming (P) Ltd.,(supra) which has dealt with theeffect of Circular No.3 of 2011, dated 09.02.2011, and aftertaking note of the certain decisions on the point has held thatthe Circulars/Instructions would apply to appeals to be filed aswell as pending appeals and the judgment puts at rest allcontroversies on the issue and the judgment is a straight answerto the contentions advanced by the learned Senior StandingCounsel for the Revenue. 7. To decide the point in issue, we wish to first takenote of the decision of the Apex Court in the case ofS.R.M.B.Diary Farming (P) Ltd.,(supra), more particularly, paraNo.24, which is as follows:- “ 24.

We are of the view that the matterneeds to be put to rest and a clarity beobtained in view of the impact of this issueon pending cases before the High Courts as https://hcservices.ecourts.gov.in/hcservices/ well as the cases which have been disposed ofby various High Courts by applying the Circular of 2011 to pending litigations. Inour view the matter has been squarely put torest taking further care of the interest ofthe Revenue by the order passed by the threeJudges Bench of this Court in Surya HerbalLtd. case (supra), which had put two caveatseven to the retrospective application of the Circular. The subsequent orders have beenpassed by the two Judges Bench without thoseorders being brought to the notice of the Court, a duty which was cast on the Department to have done so to avoid theambiguity which has arisen. Thus, the saidview of the three Judges Bench would holdwater and the Circular would apply even topending matters but subject to the twocaveats provided in Surya Herbal Ltd. case(supra).” 8.

As rightly pointed by the learned counsel appearingfor the respondent/assessee, the judgment delivered by the Hon'ble three Judges Bench of the Hon'ble Supreme Court, in Surya Herbal Ltd. case (supra), which was followed by the Hon'ble two Judges Bench in the case of Gemini Distilleries(supra) was not brought to the attention of the Apex Court, inCIT Vs. Suman Dhamija reported in [(2015) 60 taxmann.com 460(SC)], and the Hon'ble Supreme Court also noted that, in CenturyPark case (supra), the line adopted by the three Judges Bench in Surya Herbal Ltd. case (supra) has been followed. It isrelevant to point out that, Circular No.21 of 2015, dated10.12.2015 makes the matter explicit and is useful to reproducethe operative portion of the Circular :-“This instruction will applyretrospectively to pending Appeals andappeals to be filed henceforth in HighCourts/Tribunals. Pending appeals below thespecified tax limits in para 3 above may bewithdrawn/not pressed.

Appeals before the Supreme Court will be governed by theinstructions on this subject, operative atthe time, when such appeal was filed.” 9. Thus, the above Circular, dated 10.12.2015 makes itclear that the instruction will apply retrospectively to pendingappeals and the Appeals to be filed henceforth before the HighCourts and the Tribunals. We wish to add that, this conditioncontained in the Circular, dated 10.12.2015, was not contained https://hcservices.ecourts.gov.in/hcservices/ in the earlier Circulars, which stated that the circulars wereprospective in operation and the Appeals filed earlier were tobe governed by respective instructions, which were holding thefield at the time of filing of Appeals. 10. An argument was advanced by the learned Senior StandingCounsel for the Revenue that the circular can have effect only, while filing the appeal and not while hearing of the appeal andwould have no impact on the appeals, which are admitted andpending.

However, in the Circular issued in the year, 2015, ithas been made clear that, it will apply to pending appeals aswell. In respect of the earlier circulars, it would berelevant to take note of the decision of the Hon'ble SupremeCourt in Mathew M. Thomas Vs Commissioner Of Income-Tax [(1999)(III) ELT 4 SC] wherein, the Hon'ble Supreme Court, whileconsidering the effect of Circular No.445, dated 16.05.1986,pointed out that Circular No. 455 dated 16.5.1986 issued by theC.B.D.T. is applicable to all pending proceedings which have notattained finality under Section 269 I of the Act as defined inthe explanation to the said Section.11. Thus, subject to the two caveats, which have beenpointed by the Hon'ble Supreme Court, in Surya Herbal Ltd. case(supra), the Circular issued in the year, 2015 will apply toall the pending Appeals. It appears that, despite Circularbeings issued and more particularly, the Circular, dated10.12.2015, appeals have been filed by the Revenue and when thiscame to the notice of the CBDT, Circular No.5 of 2017 dated23.01.2017 was issued and the operative portion of which is asfollows :-“3.

However, it has been noticed thatpara 8 (c) of Circular No.21/2015, regardingcases where addition made on account of Revenue Audit Objection is deleted, is beingerroneously interpreted and appeals are beingmechanically filed by the Department withoutproper examination of the case on merits. This is contrary to the instructionscontained in Circular No.21/2015 and CircularNo.8/2016. It is, therefore, clarified thatthe import and intent of para 8 of the Circular No.21/2015 is that even on issuesmentioned in the said para, appeals againstthe adverse judgment should only be filed onmerits.

Accordingly, henceforth, appealsshould not be filed by the Department inviolation of instructions mentioned above. https://hcservices.ecourts.gov.in/hcservices/ Further, appeals that may have been filed inviolation of these instructions may bewithdrawn.

The above may be brought to thenotice of all concerned. "12. The Appeal before us was filed in the year, 2008,precisely, on 09.06.2008, and the Instruction, which was holdingthe field at the relevant period was Instruction No.5 of 2008,dated 15.05.2008. Under the said Instruction, this Appeal couldnot have been filed, because, the monetary limit fixed in thecircular was Rs.4,00,000/-. This is a valid reason to rejectthe appeal. 13. Thus, for the above reasons, we find that the Circulars have retrospective effect. At this stage, we wish topoint out that, even the expression ''retrospective effect'' asworded in the impugned circular, has been misunderstood, as if, to mean the retrospective effect of a Statute or a Rule or Section in a statute. The word 'retrospective' used in the Circular could at best mean that it is for the Department not toprosecute the matters when the tax effect is less than thethreshold limit prescribed in the respective Circulars.