COMMISSIONER OF INCOME TAX II V. OFFICIAL LIQUIDATOR OF M-S.MARDIA CHEMICALS LTD

TAXAP/735/2013

AI Insights

The case involves a series of tax appeals by the Commissioner of Income Tax II against the Official Liquidator of M-S.Mardia Chemicals Ltd., concerning the dismissal of earlier appeals by the tribunal on the grounds of low tax effect. The main legal question was whether the tribunal was correct in dismissing the appeals solely based on the low tax effect without considering the notional tax effect, which exceeded the monetary limit prescribed by the CBDT. The High Court of Gujarat, referencing a similar case (Tax Appeal No. 1601/2009), ruled that the notional tax effect should be considered and that the tribunal erred in dismissing the appeals without entering into the merits of the case.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 738526 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 23-09-2013
• Assessment Year: misc
• Other Referred Cases: Tax Appeal No. 1601/2009
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Assessee Lawyers: MAUNA BHATT
• Keywords: Assessment years; CBDT Circular; Low tax effect; Notional tax effect; Tax appeal
• Section: 268A

Judgement Text

"O/TAXAP/735/2013 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 735 of 2013 With TAX APPEAL NO. 2190 of 2009 With TAX APPEAL NO. 1764 of 2009 With TAX APPEAL NO. 2164 of 2009 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MS JUSTICE SONIA GOKANI ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ====================================== COMMISSIONER OF INCOME TAX II....Appellant(s) Versus OFFICIAL LIQUIDATOR OF M-S.MARDIA CHEMICALS LTD....Opponent(s) ====================================== Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 NOTICE SERVED BY DS for the Opponent(s) No. 1 ====================================== Page 1 of 10 O/TAXAP/735/2013 JUDGMENT CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MS JUSTICE SONIA GOKANI Date : 23/09/2013 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. As common question of law and facts arise in these group of appeals, with respect to the same assessee but different Assessment Years, all these appeals are finally decided and disposed of by this common judgment and order. 2. The issue/question of law raised in these Tax Appeals are in a narrow compass. 3. Against the respective orders passed by the CIT(A), impugned before the tribunal, the tribunal with respect to the Assessment Years 1997-98, 1998-99, 1999-00 and 2000-01, without entering into the merits of the case and solely on the ground that the tax effect is low, dismissed the respective appeals, being ITA Nos. 3208, 3209, 3210/Ahd/2003 and ITA No. 855/Ahd/2004. 3.1. Against the impugned judgment and orders passed by the tribunal in dismissing the aforesaid appeals solely on the ground that the there is low tax effect and and they are beyond the limits laid down in the circular issued by the CBDT, the revenue has preferred the present Tax Appeals to consider the following substantial question of law; “Whether the appellate tribunal is right in law and on facts in dismissing the tax appeal of the revenue on the Page 2 of 10 O/TAXAP/735/2013 JUDGMENT ground of low tax effect, though the notional tax effect exceeded the monetary limit prescribed by the board?” 4. Though served, nobody appears on behalf of the Official Liquidator of the respondent-Company. 5. Ms. Mauna Bhatt, learned advocate appearing on behalf of the revenue has vehemently submitted that the tribunal has dismissed the appeals, without entering into the merits on the premises that being loss declared by the assessee, there will be only notional tax effect. It is submitted that as such the aforesaid would be necessary and may have relevance, if, in subsequent years, the assessee declares profits. It is submitted that as such if the notional tax effect is considered with respect to the Assessment Year 1997-98 in Tax Appeal No. 2190/2009 the notional tax effect would be approximately Rs.31.47 crores, for the Assessment Year 1998-99 in Tax Appeal No. 1764/2009 the notional tax effect would be approximately Rs.27.27 crores and for the Assessment Year 1999-00 in Tax Appeal No. 2164/2009 the notional tax effect would be approximately Rs.36.92 crores. It is submitted that as such the issue involved is squarely covered by the decision of this Court in Tax Appeal No. 1601/2009 and other allied appeals. It is further submitted that so far as the appeal with respect to the Assessment Year 2000-01 in Tax Appeal No. 735/2013 is concerned the tribunal has without entering into the merits of the case dismissed the appeal. In view of the order passed by the tribunal with respect to the earlier Assessment Years (impugned in Tax Appeal No. 2190/2009, 1764/2009 and 2164/2009), it is requested to quash and set aside the orders passed by the tribunal and remand the Page 3 of 10 O/TAXAP/735/2013 JUDGMENT appeals to the tribunal to consider the appeals in accordance with law and on its own merits. 6. Heard Ms. Mauna Bhatt, learned Counsel appearing on behalf of the revenue and perused the impugned judgment and orders passed by the tribunal rejecting ITA Nos. 3208, 3209, 3210/Ahd/2003 and ITA No. 855/Ahd/2004 with respect to the Assessment Years 1997-98, 1998-99, 1999-00 and 2000-01. At the outset, it is required to be noted that the tribunal has rejected the respective appeals solely on the ground of low tax effect and, therefore, they are beyond the limit laid down in the circular issued by the CBDT. It is required to be noted that the tribunal has not considered the notional tax effect. According to the Department if the notional tax effect is considered, in that case, with respect to the Assessment Year 1997-98 in Tax Appeal No. 2190/2009 the notional tax effect would be approximately Rs.31.47 crores, for the Assessment Year 1998-99 in Tax Appeal No. 1764/2009 the notional tax effect would be approximately Rs.27.27 crores and for the Assessment Year 1999-00 in Tax Appeal No. 2164/2009 the notional tax effect would be approximately Rs.36.92 crores. 6.1. Identical question came to be considered by the Division Bench of this Court in Tax Appeal No. 1601/2009 and other allied appeals and the Division Bench considered the same/similar substantial question of law, which reads as follows; “Whether the appellate tribunal is right in law and on facts in dismissing the tax appeal of the revenue on the Page 4 of 10 O/TAXAP/735/2013 JUDGMENT ground of low tax effect, though the notional tax effect exceeded the monetary limit prescribed by the Board?” 6.2. While answering the aforesaid question of law in favour of the revenue it is held that while considering the tax effect for the purpose of preferring the appeal by the revenue, the tribunal is required to consider the notional tax effect. While interpreting the various circulars issued by the CBDT, more particularly, the Circular issued by the Board on 15/05/2008 and 09/02/2011 the Division Bench has held in paragraph 34 to 43, which reads as under; “34. From the above circulars, two fold questions arise. Firstly, we are required to answer the question if circulars ranging from 27.3.2000 till 16.7.2007, debarred the department from filing appeals in cases of negative income of the assessee. The second aspect of the matter is whether when the Board in its subsequent circular dated 15.5.2008 provided that \" Similarly, in loss cases notional tax effect should be taken into account\", did the Board desire for the first time that the appeals be permitted to be presented in cases of loss only on and from 15.4.2008 and not before. In other words, the question is whether above quoted portion in the Board circular dated 15.4.2008 is clarificatory in nature or not? 35. Close perusal of the circulars issued prior to 15.5.2008 noted hereinabove, would reveal that such circulars provided for different conditions on which the Revenue could prefer appeals before the Tribunal and Courts which included the monetary limits specified from time to time. Nowhere do these circulars, specify that irrespective of the degree of divergence between the Assessing Officer and CIT merely because in either case the assessee is held to have suffered loss, appeal before the Tribunal would not be presented. Starting with circular dated 27.3.2000, we find that the said circular provided for limits for preferring appeals to the Tribunal, reference before the High Court and appeal before the Supreme Court as long as the tax effect exceeded Page 5 of 10 O/TAXAP/735/2013 JUDGMENT Rs.1,00,000/-, Rs.2,00,000/- and Rs.5,00,000/- respectively. Paragraph 3 of the said circular specified the categories where irrespective of the revenue effect, such appeals could be pursued. The term \" tax effect\" specified in circular dated 27.3.2000 is nowhere defined and explained in any of the preceding and succeeding circulars. We must, therefore, understand this term in the context of the intention of the Board in limiting the Tax Appeals. 36. We must also remind ourselves that Board circulars are not statutes though by virtue of Section 268A, it may have certain statutory force. Common thread running through all the circulars presented before us is that the Board desired that subject to certain exceptions, Tax Appeals in which effect of tax is lower than the prescribed limit such appeals whether before the Tribunal, High Court or the Supreme Court, should not be presented. For example in Circular dated 27.3.2000 it is provided that appeals will be filed only in cases where tax effect exceeds the revised monetary limits i.e.Rs.2,00,000/- for the appeal to be file before the appellate Tribunal Rs.4,00,000/- for the appeal or reference before the High Court and Rs.10,00,000/- in case of appeals to the Supreme Court. Such limit came to be revised by Circular dated 24.10.2005 which provided for monetary limits of tax effect of Rs.2,00,000/-, Rs.4,00,000/- and Rs.10,00,000/- for appeals to the Tribunal, High Court and the Supreme Court respectively. None of these circulars provided that by virtue of assessment of loss by the Assessing Officer, different from that declared by the assessee, even if the possible tax effect is huge, no appeals should be presented before the Tribunal, High Court or the Supreme Court; merely because ultimately the income of the assessee was negative. We have no hesitation in coming to the conclusion that none of the circulars presented before us intended to bar the tax appeals even where potential tax effect would be enormous, simply because in the year in question, the assessee had earned negative income. 37. The issue can be looked from a slightly different angle. In absence of the Board's circulars issued, which now can be stated to be covered under Section 268A of the Act, there are no limitations on Revenue carrying the issue in appeal either before the appellate Tribunal, the Page 6 of 10 O/TAXAP/735/2013 JUDGMENT High Court, the Supreme Court. To hold that a particular appeal is not maintainable by virtue of the limitations imposed by the Board in its circular, such limitation must be traced into circular itself. In other words unless and until the appeal is found to be opposed to the directives issued by the Board in its different circulars prevailing from time to time, such an appeal cannot be categorized as not maintainable. 38. Circulars of the Board nowhere provide that in case of return of loss automatically per se irrespective of difference in the Assessing Officer's perception and that of the CIT (Appeals) of the computation of loss, further appeal would be shut out. 39. The contention that by virtue of subsequent clarifications contained in circulars dated 15.5.2008 and 9.2.2011 the position prevailing prior to such circulars gets amplified and that therefore in cases of loss returns the Board's instructions did not envisage further appeal also does not impress us. We may recall that in the circular dated 15.5.2008 it is provided that in the case of loss, notional tax effect should be taken into account. This clarification to our mind, contained in circular dated 15.5.2008 and absence of any such clarification in the previous circulars, is of no consequence. Such a clause can, at the best, be seen as clarificatory declaration by the Board to put the controversy beyond any shadow of doubt or debate. It cannot, however, be stated that only on and from 15.5.2008 the Board desired that on the basis of notional tax effect in cases of loss the appeals should be filed. In the previous circulars to reiterate, no such intention emerges. Only because clarification came in the subsequent circular dated 15.5.2008, would not mean that previously the Board desired that such appeals should be filtered out. 40. Reference to the decision of the Delhi High Court in the case of Mangalam Risinus (supra) or subsequent judgment in the case of Nanakram Jaysinghania (supra) would not persuade us to change our view. In the case of Mangalam Risinus (supra), the Delhi High Court simply affirmed the view of the Tribunal making following observations. \"5. We are in agreement with the view of the Tribunal that even if the order of the Assessing Page 7 of 10 O/TAXAP/735/2013 JUDGMENT Officer is upheld the tax recovery so far as the revenue is concerned would be nil. In the event the question has any impact on subsequent years, we leave it open to the revenue to raise it in the succeeding years, if need arises. 6. Learned counsel for the revenue submits that the tax effect is not required to be seen but the tax effect on the issue involved is to be seen. This is precisely what the Tribunal has done. We do not find any error in the view taken by the Tribunal.\" 41. We do not find that various provisions and authorities brought to our notice were cited before the Delhi High Court. Similarly, in the case of Nanakram Jaisinghania (supra) Delhi High Court affirmed the view of the Tribunal making following observations:- \"2. Learned counsel for the appellant submits that the Central Board of Direct Taxes has issued OM dated May 15, 2008, which is Instruction No.5 of 2008 and as per these instructions, in loss cases, notional tax effect is to be taken into account. The learned counsel, however, conceded that these instructions are applicable in respect of those appeals preferred after the issuance of these instructions. In fact, it is specifically provided in paragraph 11 of the said instruction as under \" this instruction will apply to appeals filed on or after May, 15,2008\". However, the cases where appeals have been before May 15, 2008, will be governed by the earlier instructions on this subject, operative at the time when such appeal was filed. In the present case, appeal was filed in the year 2005 before the Income-Tax Appellate Tribunal and it was dismissed on November, 30, 2007, as not maintainable. These instructions cam much thereafter, and in view of the paragraph 11 thereof, has no applicability to the case. The Income-tax Appellate Tribunal and it was dismissed on November 30, 2007, as not maintainable. These instructions came much thereafter, and in view of paragraph 11 thereof, has no applicability to the case. The Income-tax Appellate Tribunal, therefore, rightly dismissed the appeal as non-maintainable. The present appeal preferred thus clearly is a Page 8 of 10 O/TAXAP/735/2013 JUDGMENT misuse of the process of law and in spite of the aforesaid clear instructions of the Central Board of Direct Taxes itself, we fail to understand as to why this appeal is preferred when the appeal before the Income-tax Appellate Tribunal itself was not maintainable. In these circumstances, we dismiss the appeal with costs quantified at Rs.10,000/- to be paid to the Delhi High Court Mediation and Conciliation Centre.\" 42. Here also various statutory provisions and judicial pronouncements cited before us were not cited before the High Court. The High Court, therefore, did not have the benefit of examining such judicial pronouncements. Even otherwise we have given detailed reasons for holding the belief that we have expressed in this judgment. We are unable to persuade ourselves to follow Delhi High court in above mentioned cases of Commissioner of Income-Tax vs. Nanak Ram Jaisinghania (supra) and in the case of Commissioner of Income-Tax, Delhi-II vs. Manglam Ricinus Ltd. (supra). 43. In the result common question, framed in all appeals, is answered in favour of the Revenue and against the assessees. It is held that merely because even as per the Assessing Officer's order, ultimately income of the assessee is negative, the Revenue's appeal before the appellate Tribunal would not be barred by the Board's circular under Section 268A of the Act. It is, however, clarified that the notional tax effect would have to be above the limits prescribed by the Board from time to time for presentation of such appeals. In all these cases since it is stated that the notional tax effect would be higher than the limits prescribed by the Board in different circulars, we are of the view that the Tribunal committed an error in dismissing the Revenue's appeals as being not maintainable. We may record that none of the appeals came to be decided by the Tribunal on merits.” 7. In view of the decision of the Division Bench in Tax Appeal No. 1601/2009 and allied matters , all these appeals are required to be allowed and the impugned judgment and orders passed by the tribunal under challenge are to be set Page 9 of 10 O/TAXAP/735/2013 JUDGMENT aside and they are to be remanded to the tribunal to decide the same on merits. In the result all the Tax Appeals are allowed. The judgment and orders of the tribunal are set aside and the appeals are remanded to the learned tribunal to decide the same on merits and the issue arising in the appeals to be decided in accordance with law after issuing notice to the assessee. In the present case, as the assessee-Company has gone in liquidation and the Official Liquidator is appointed, the revenue shall submit an appropriate application before the tribunal to join the Official Liquidator of the Company in liquidation as party respondent i.e. M/s. Mardia Chemicals Ltd. and the tribunal to issue notice to the Official Liquidator of the assessee Company in liquidation. 8. With the above direction, all these appeals are disposed of. (M.R.SHAH, J.) (MS SONIA GOKANI, J.) Siji Page 10 of 10 "