Operational Force of Circulars of Taxation Departments Operational Force of Circulars of Taxation Departments

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The Tax Publishers Operational Force of Circulars of Taxation Departments Akhilesh Kumar Sah This article is a broad based analytical study of operative force of CBDT circulars vis-a-vis the taxpayer, the department and the courts. His conclusions are derived from some very recent and existing around thirty four decisions of Supreme Court and other courts. Operational force of circulars has itself remained controversial. Many of decisions of High Courts and Supreme Court of India have considered their binding force. Recently, in DIT v. section R. M. B. Dairy Farming (P) Ltd. [2017 (11) TMI 1494 (SC)], it has been held that a beneficial circular has to be applied retrospectively while an oppressive circular has to be applied prospectively and in CIT v. Gemini Distilleries 2017 TaxPub(DT) 4479 (SC) : (2017) 398 ITR 343 (SC) : 2017 (10) TMI 1275 (SC), it has been held that CBDT cannot issue any circular having retrospective operation. From some of the decisions, one can draw the silver line in respect of circulars. The Rajasthan High Court in CWT v. Sanwarmal Shivkumar (1988) 171 ITR 377 (Raj) had held that the Income-tax and Wealth-tax Departmental Officer is bound to follow the circulars issued by the Central Board of Direct Taxes. The Kerala High Court in CIT v. Malayala Manorama & Co Ltd. (1983) 143 ITR 29 (Ker) has observed that circulars of general directions issued by the CBDT are binding under Section 119 of the Act on all officers and persons employed in the execution of the Act. However, the Madras High Court in A.L.A. Firm v CIT (1976) 102 ITR 622 (Mad) has observed that judicial power of the Income Tax Officer cannot be controlled by any circular that may be issued by the Central Board. The circulars that are contemplated under Section 119 of the Act, are only in regard to administrative aspects and cannot extend to the judicial aspects of the administration of the Act. It has also observed in CIT v. O.M.s.s. Sankaralinga Nadar & Co. (1984) 147 ITR 332 (Mad) that when a matter comes before the High Court for advisory opinion on the state of law or a fiscal principle or on the construction of a taxation enactment, the last place where it should look for aid or guidance would be a circular from the Central Board of Direct Taxes on the subject. Courts are not bound by the Board's circulars. Further, the circulars are issued generally for the occasion and hence are sometimes inconsistent. If a circular had expressed a view which the department did not follow, the remedy is not to ask the court to render its opinion in accordance with the circular but to approach for necessary relief elsewhere. The Delhi High Court in Addl. CIT v. Mrs. Avtar Mohan Singh (1982) 136 ITR 645 (Del) has observed that though the circulars of the Central Board are not binding on the court, yet general circulars are binding on the Income Tax Authorities. Through them the Board cannot impose a burden on the taxpayer greater than what the statute provides but it can relax the rigour of the law. The Bombay High Court has taken the view in CWT v. Gammon India (P) Ltd. (1981) 130 ITR 471 (Bom) that if a circular is relied upon for the first time in the High Court in the course of the hearing of a reference under the Income Tax Act, it must be given effect to by the Court because the circulars issued by the CBDT are binding on the Income Tax Officer. It is clear that while a circular of the Board will be binding upon an Income Tax Officer in materials relating to the general interpretation of any provisions of the statute, the circular cannot over-ride judicial decisions rendered on the statute. In fields which are covered by judicial decisions, the circular will not be conclusive even so far as the Income Tax Officer is concerned [Geep Industrial Syndicate Ltd. v. CBDT (1987) 166 ITR 88 (Del)]. The Kerala High Court in K.V. Produce. v. CIT (1992) 196 ITR 293 (Ker) has held that though circulars issued under Section 119 of the Act may have the force of law, they may not override the law itself. Concepts like ultra vires would come into play if a notification or a rule runs derogatory to the parent law. Also, the Delhi High Court in All India Lakshmi Commercial Bank Officer's Union v. Union of India (1984) 150 ITR 1 (Del) has observed that the income-tax authorities acting anywhere in India have to respect the law laid down by a High Court, whether of a State in which they are functioning or of a different State, in the absence of any contrary decision of any other High Court. Circulars (See for the circulars dealt in the case) couched in language suggesting to the contrary are not in good taste. The power conferred upon the CBDT to issue instructions and directions by Section 119 is for proper working of the Act. In cannot be presumed that the CBDT has issued any circular which runs counter to or is inconsistent with the provisions of the Act or the Rules. Unless the language is quite implicit, one shall not presume so [CIT v. J.K. Cotton Spg. & Wvg. Mills Co. Ltd. (1991) 188 ITR 80 (All)]. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

Operational Force of Circulars of Taxation Departments

Akhilesh Kumar Sah

This article is a broad based analytical study of operative force of CBDT circulars vis-a-vis the taxpayer, the department and the courts. His conclusions are derived from some very recent and existing around thirty four decisions of Supreme Court and other courts.

Operational force of circulars has itself remained controversial. Many of decisions of High Courts and Supreme Court of India have considered their binding force. Recently, in DIT v. section R. M. B. Dairy Farming (P) Ltd. [2017 (11) TMI 1494 (SC)], it has been held that a beneficial circular has to be applied retrospectively while an oppressive circular has to be applied prospectively and in CIT v. Gemini Distilleries 2017 TaxPub(DT) 4479 (SC) : (2017) 398 ITR 343 (SC) : 2017 (10) TMI 1275 (SC), it has been held that CBDT cannot issue any circular having retrospective operation.

From some of the decisions, one can draw the silver line in respect of circulars. The Rajasthan High Court in CWT v. Sanwarmal Shivkumar (1988) 171 ITR 377 (Raj) had held that the Income-tax and Wealth-tax Departmental Officer is bound to follow the circulars issued by the Central Board of Direct Taxes. The Kerala High Court in CIT v. Malayala Manorama & Co Ltd. (1983) 143 ITR 29 (Ker) has observed that circulars of general directions issued by the CBDT are binding under Section 119 of the Act on all officers and persons employed in the execution of the Act. However, the Madras High Court in A.L.A. Firm v CIT (1976) 102 ITR 622 (Mad) has observed that judicial power of the Income Tax Officer cannot be controlled by any circular that may be issued by the Central Board. The circulars that are contemplated under Section 119 of the Act, are only in regard to administrative aspects and cannot extend to the judicial aspects of the administration of the Act. It has also observed in CIT v. O.M.s.s. Sankaralinga Nadar & Co. (1984) 147 ITR 332 (Mad) that when a matter comes before the High Court for advisory opinion on the state of law or a fiscal principle or on the construction of a taxation enactment, the last place where it should look for aid or guidance would be a circular from the Central Board of Direct Taxes on the subject. Courts are not bound by the Board's circulars. Further, the circulars are issued generally for the occasion and hence are sometimes inconsistent. If a circular had expressed a view which the department did not follow, the remedy is not to ask the court to render its opinion in accordance with the circular but to approach for necessary relief elsewhere.

The Delhi High Court in Addl. CIT v. Mrs. Avtar Mohan Singh (1982) 136 ITR 645 (Del) has observed that though the circulars of the Central Board are not binding on the court, yet general circulars are binding on the Income Tax Authorities. Through them the Board cannot impose a burden on the taxpayer greater than what the statute provides but it can relax the rigour of the law. The Bombay High Court has taken the view in CWT v. Gammon India (P) Ltd. (1981) 130 ITR 471 (Bom) that if a circular is relied upon for the first time in the High Court in the course of the hearing of a reference under the Income Tax Act, it must be given effect to by the Court because the circulars issued by the CBDT are binding on the Income Tax Officer. It is clear that while a circular of the Board will be binding upon an Income Tax Officer in materials relating to the general interpretation of any provisions of the statute, the circular cannot over-ride judicial decisions rendered on the statute. In fields which are covered by judicial decisions, the circular will not be conclusive even so far as the Income Tax Officer is concerned [Geep Industrial Syndicate Ltd. v. CBDT (1987) 166 ITR 88 (Del)]. The Kerala High Court in K.V. Produce. v. CIT (1992) 196 ITR 293 (Ker) has held that though circulars issued under Section 119 of the Act may have the force of law, they may not override the law itself. Concepts like ultra vires would come into play if a notification or a rule runs derogatory to the parent law. Also, the Delhi High Court in All India Lakshmi Commercial Bank Officer's Union v. Union of India (1984) 150 ITR 1 (Del) has observed that the income-tax authorities acting anywhere in India have to respect the law laid down by a High Court, whether of a State in which they are functioning or of a different State, in the absence of any contrary decision of any other High Court. Circulars (See for the circulars dealt in the case) couched in language suggesting to the contrary are not in good taste. The power conferred upon the CBDT to issue instructions and directions by Section 119 is for proper working of the Act. In cannot be presumed that the CBDT has issued any circular which runs counter to or is inconsistent with the provisions of the Act or the Rules. Unless the language is quite implicit, one shall not presume so [CIT v. J.K. Cotton Spg. & Wvg. Mills Co. Ltd. (1991) 188 ITR 80 (All)].