REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL Nos. 19650 of 2017 (Arising out of SLP(C) No.24055 of 2017) DIRECTOR OF INCOME TAX, CIRCLE 26(1) NEW DELHI .Appellant versus S.R.M.B. DAIRY FARMING (P) LTD. .Respondent And CIVIL APPEAL No. 19651 of 2017 (Arising out of SLP(C) No.24056 of 2017) JUDGMENT SANJAY KISHAN KAUL, J. 1. Leave granted. 2. propensity of Government Departments and public authorities to keep litigating through different tiers of judicial scrutiny is one of reasons for docket explosion. Income Tax Department of Government of India is one of major litigants. There are two departmental scrutinies at level of Signature Not Verified Digitally signed by ANITA MALHOTRA Assessing Officer and Commissioner of Income Tax (Appeals) and thereafter Date: 2017.11.25 14:21:00 IST Reason: independent judicial scrutiny at Income Tax Appellate Tribunal (hereinafter referred to as ITAT ) level followed by legal issue which can be inquired into by High Courts. last tier is, of course, jurisdiction under Article 136 of Constitution of India before Supreme Court. 3. Mindful of phenomenon of docket explosion and rising litigation in country, Union of India in order to ensure conduct of responsible litigation framed what is today known as National Litigation Policy, to bring down pendency of cases and get meaningful issues decided from judicial forums rather than multiple tiers of scrutiny just for sake of it. Government, being litigant in well over 50 per cent of cases, has to take lead in not being compulsive litigant. 4. It is towards aforesaid avowed object that Income Tax Department, from time to time, has come out with administrative circulars/notifications for Department not to litigate where revenue impact is low. 5. In present proceedings, we are concerned with implementation of Instruction No.3 of 2011 dated 9.2.2011, providing for appeals not to be filed before High Court(s) where tax impact was less than Rs.10 lakh. It also contains certain other conditions which will be reverted to later, but suffice to say that this Instruction was in supersession of earlier Instruction No.1979 of 2000 dated 27.3.2000 where limit of tax effect was Rs.4 lakh. Instruction/Circular in question is stated to have prospective effect as per Revenue and, thus, cases which were pending in High Court(s) and had been filed prior to Instruction in question (Instruction No.3) but had tax effect of less than Rs.10 lakh were, thus, required to be determined on their merits and not be dismissed by applying circular/instruction. 6. There has been divergence of legal opinion on this aspect amongst High Courts. 7. There have also been certain orders passed by this Court which appear to have divergence of view and we consider it necessary to examine this issue in detail so that conflicting orders do not arise and High Courts are also guided appropriately. This is also necessary, as in mean time, large number of cases have been disposed of on application of Instruction/Circular in question though appeals were preferred by Revenue prior to Instruction/Circular being issued as large number of High Courts took that view. High Courts of View that Circular in question would apply to pending appeals as well: A. Karnataka High Court: Commissioner of Income Tax, Bangalore v. Ranka & Ranka1. issue was squarely addressed by Division Bench of Karnataka High Court recognizing that concept of providing monetary limit was not new and has been invoked from 1992. limit was raised from time to time. clause in circular has explained meaning of Tax Effect as difference between tax on total income assessed and tax that would have been chargeable had such total income been reduced by amount of income in respect of issues against which appeal is intended to be filed without impact of interest. different clauses protected interest of Revenue so as not to have any precedentiary impact. There were, however, certain exclusions from this, i.e., challenge to constitutional validity of Act or Rule, declaration of any Board Order, Notification, Instruction or Circular being held to be illegal or ultra vires, audit objections of Revenue Department being accepted by Department. These Circulars have been given statutory recognition having been issued under Section 268A of Income Tax Act, 1961 (hereinafter referred to as IT Act ). 1 8. judgment took note of fact that Madras High Court, Kerala High Court, Chhattisgarh High Court and Punjab and Haryana High Court had taken contra view, opining that existing Circular/Instruction prevailing at relevant time when appeal/reference was made would apply and there would be no retrospective application of circular. On other hand, Bombay High Court, Madhya Pradesh High Court, Delhi High Court had taken view, which was sought to be taken by Karnataka High Court. 9. line of reasoning adopted is that as value of money went down and cases of Revenue increased, choking docket required such endeavour and there is no reason why same policy should not be applied to old matters to achieve objective of policy laid down by Central Board of Direct Taxes ( CBDT ). earlier Circular dated 5.6.2007 issued by CBDT was also taken note of, which required all appeals pending before Court to be examined, with direction to withdraw cases wherein criteria for monetary limit as per prevailing instructions was not satisfied unless question of law involved or raised in appeal referred to High Court was of recurring nature, and therefore, required to be settled by higher court. 10. Bench considered issuance of Circular in conspectus of National Litigation Policy Document Released. said Policy Document which has been extracted in judgment for its reliance has been reproduced hereinunder: Introduction Whereas at National consultation for strengthening judiciary toward reducing pendency and delays held on October 24/25, 2009, Union Minister for Law and Justice, presented resolutions which were adopted by entire conference unanimously. And wherein said resolution acknowledged initiative undertaken by Government of India to frame National Litigation Policy with view to ensure conduct of responsible litigation by Central Government and urges every State Government to evolve similar policies. National Litigation Policy is as follows: Vision/Mission 1. National Litigation Policy is based on recognition that Government and its various agencies are pre-dominant litigants in courts and Tribunals in country. Its aim is to transform Government into efficient and responsible litigant. This policy is also based on recognition that it is responsibility of Government to protect rights of citizens, to respect fundamental rights and those in charge of conduct of Government litigation should never forget this basic principle. Efficient litigant means - Focusing on core issues involved in litigation and addressing them squarely. - Managing and conducting litigation in cohesive, co-ordinated and time-bound manner. - Ensuring that good cases are won and bad cases are not needlessly persevered with. - litigant who is represented by competent and sensitive legal persons: competent in their skills and sensitive to facts that Government is not, ordinary litigant and that litigation does not have to be won at any cost. Responsible litigant means - That litigation will not be resorted to for sake of litigating. - That false pleas and technical points will not be taken and shall be discouraged. - Ensuring that correct facts and all relevant documents will be placed before court. - That nothing will be suppressed from court and there will be no attempt to mislead any court or tribunal. 2. Government must cease to be compulsive litigant. philosophy that matters should be left to courts for ultimate decision has to be discarded. easy approach, Let court decide must be eschewed and condemned 3. purpose underlying this policy is also to reduce Government litigation in courts so that valuable court time would be spent in resolving other pending cases so as to achieve goal in principles incorporated in National mission for judicial reforms which includes identifying bottlenecks which Government and its agencies may be concerned with and also removing unnecessary Government cases. Prioritisation in litigation has to be achieved with particular emphasis on welfare legislation, social reform, weaker sections and senior citizens and other categories requiring assistance must be given utmost priority. In respect of filing of appeals in revenue matters it is stated as under: (G) Appeals in revenue matters will not be filed: (a) if stakes are not high and are less than that amount to be fixed by Revenue authorities: (b) if matter is covered by series of judgments of Tribunal or of High Court which have held field and which have not been challenged in Supreme Court: (c) where assessee has acted in accordance with long standing industry practice: (d) merely because of change of opinion on part of jurisdictional officers. Review of pending cases (A) All pending cases involving Government will be reviewed. This due diligence process shall involve drawing upon statistics of all pending matters which shall be provided for by all Government departments (including public sector undertakings). Office of Attorney General and Solicitor General shall also be responsible for reviewing all pending cases and filtering frivolous and vexatious matters from meritorious ones. (B) Cases will be grouped and categorized. practice of grouping should be introduced whereby cases should be assigned particular number of identity according to subject and statute involved. In fact, further sub-grouping will also be attempted. To facilitate this process, standard forms must be devised which lawyers have to fill up at time of filing of cases. Panels will be set up to implement categorization, review such cases to identify cases which can be withdrawn. These include cases which are covered by decisions of courts and cases which are found without merit withdrawn. This must be done in time bound fashion. 11. We consider it appropriate to refer to some of observations in judgment of Karnataka High Court, which have our imprimatur, as under: 22. Government has formulated National Litigation Policy with view to ensure conduct of responsible litigation by Central Government and urges every State Government to evolve similar policies. Its aim is to transform Government into efficient and responsible litigant. Efficient litigant means ensuring that good cases are won and bad cases are not needlessly persevered with. litigation should not be resorted to for sake of litigating. Government must cease to be compulsive litigant. philosophy, that matters should be left to courts for ultimate decision , has to be discarded. easy approach, Let court decide, must be eschewed and condemned. purpose underlying this policy is also to reduce Government litigation in courts so that valuable court time would be spent in resolving other pending cases, so as to achieve goal in National Legal Mission to reduce average pendency time from 15 years to 3 years. All pending cases involving Government has to be reviewed with intention of filtering frivolous and vexatious matters from meritorious one. Panels have to be set up to implement categorization, review such cases, to identify cases, which can be withdrawn. These include cases which are covered by decisions of courts and cases which are found without merit. Such cases have to be withdrawn. This must be done in time bound fashion. 23. Instruction No. 3 of 2011 is issued subsequent to aforesaid National Litigation Policy. perusal of aforesaid policy makes it clear that though said instruction was issued as measure for reducing litigation, it was issued in supersession of earlier instruction enhancing monetary limits and prescribing certain conditions. very fact that clause 11 provides that this instruction will apply to appeals filed on or after February 9, 2011, and where appeals have been filed before that date, same will be governed by instructions on this subject, operative at time when said appeal was filed, makes it clear that said instruction is not applicable to pending proceedings. National Litigation Policy provides that appeals in revenue matters should not be filed if stakes are not high and are less than that amount to be fixed by Revenue authorities, it equally provided that cases which are found without merit should be withdrawn. Similarly, cases which are covered by decision of courts also have to be withdrawn. For that purpose, nodal officer has to be appointed and all pending cases have to be reviewed and frivolous and vexatious matters have to be filtered from meritorious cases and same are withdrawn. In other words, National Litigation Policy dealt with pending cases and wanted pending cases to be reduced by way of withdrawal, so that valuable time of courts would be spent in resolving other pending cases so as to achieve goal in National Legal Mission to reduce average pendency from time from 15 years to 3 years. 24. National Litigation Policy expressly stated that Government must cease to be compulsive litigant. philosophy, that matters should be left to courts for ultimate decision is to be discarded and easy approach that let court decide , must be eschewed and condemned. Revenue has not applied its mind in this direction. No attempt is made to reduce pendency of litigation by filtering frivolous and vexatious matters from meritorious ones and said cases are withdrawn. only measure taken for reducing litigation is, by raising monetary limit. However, as same is made prospective, it had no application to pending cases. Therefore, said Instruction No. 3 of 2011 do not fulfil requirement prescribed by National Litigation Policy. It only partially satisfies requirement in respect of future litigation. Under aforesaid instruction, crucial date is date of filing of appeal. It is that date when tax effect is less than monetary limit prescribed, Revenue is precluded from filing such appeals. Though date of filing of appeal may be criteria, that by itself would not provide rationale sufficient to distinguish between pending cases and cases to be filed in future. earlier monetary limit was fixed in year 2005. So it is after six years, monetary limit is enhanced. If only Instruction No. 3 of 2011 had been made applicable to pending cases also, as laid down in National Litigation Policy, object of policy would have been fulfilled. One of ways of giving effect to said policy is to make that instruction applicable retrospectively to all pending appeals as on date of circular. It would substantially serve object of policy.\ 25. It is in this context, question arises, when instruction expressly states that benefit of said policy is prospective, still can courts place construction on such instruction so as to make it retrospective. In this context, apex court in case of CCE v. Mysore Electricals Industries Ltd. reported in [2006] 204 ELT 517 (SC) : [2007] 8 RC 1, dealing with question how beneficial circular is to be construed, has approached this question in following manner. At paragraph 13 of judgment, it is stated that learned counsel further submitted that circular being oppressive and against respondent, has to apply only prospectively and cannot be applied retrospectively. In other words, beneficial circular has to be applied prospectively. Thus, when circular is against assessee they have right to claim enforcement of same prospectively. It is further submitted that for period in question, trade notices had been issued classifying circuit breakers under heading No. 85.35 or 85.36. When approved classification was proposed to be revised to reclassify single panel circuit breakers under heading No.85.37 of tariff, such re-classification can take effect only prospectively from date of communication of show-cause notice proposing reclassification. 26. Following this judgment, apex court in case of Suchitra Components Ltd. v. CCE reported in [2007] 208 ELT 321 (SC) held as under: point raised by learned counsel for appellant is covered by recent judgment of this court in Civil Appeal No. 4488 of 2005. CCE v. Mysore Electricals Industries Ltd. reported in [2006] (204) ELT 517 (SC). In said judgment, this court held that beneficial circular has to be applied retrospectively while oppressive circular has to he applied prospectively. Thus, when circular is against assessee, they have right to claim enforcement of same prospectively. 27. In instant case, Instruction No. 3 of 2011 is more beneficial than Instruction No. 2 of 2005. If Instruction No. 3 of 2011 is also made applicable to pending appeals before this court, it would grant relief to assessee. Apart from granting relief to assessee, if number of appeals pending before this court are disposed of on basis of said circular, precious time which would be saved by this court could be better utilized for deciding disputes where tax effect is enormous. That apart, duration, appeal takes in this court would be reduced as desired by National Litigation Policy. 28. It is also not out of context to mention that periodically, Revenue introduces what is called as Kar Vivadh Samadhan Scheme and Voluntary Disclosure of Income Scheme to annul black money and to give benefit to persons who are not prompt in filing returns and paying tax. But unfortunately, persons who are paying tax regularly but have succeeded before Tribunal in showing that there is no tax liability, are made to face these litigations, instead of concentrating their time and energy in productive work. Under these circumstances, we are of view that it is settled law that any notification issued under this fiscal legislation granting exemption from payment of tax has to be construed strictly. Any circulars/instructions issued conferring benefit on assessees who are still to come to court and who already inside court, at any rate, if such benefit is given to pending matters, it would be only in nature of one-time settlement, which most of financial institutions throughout country extend to defaulters who have borrowed money and who refuse to pay same. 29. It is also not out of place to mention herein that Parliament wanted to grant statutory recognition to these orders/instructions/circulars, issued by Department from time to time retrospectively to take care to protect interests of Revenue by introducing sub-sections (2) and (3) in section 268A of Act. This benefit conferred on these assessees would be only in nature of one-time settlement because if same issue arises for consideration in subsequent years and tax effect is more than Rs. 10 lakhs, it is not open to them to plead that either Department is estopped from claiming such amount or that order passed by this court dismissing appeals on ground that tax effect being within monetary limit would come in way of Department proceeding against assessee. circular also makes it clear that in pending appeals, where constitutional validity of provisions of Act or Rule are under challenge, or where Board's order, notification, instruction or circular has been held to be illegal or ultra vires or whether Revenue audit objection in case has been accepted by Department, notwithstanding fact that tax effect is less than monetary limit fixed under aforesaid circular, still it is open to Department to request court to permit them to prosecute such appeals. Thus, Department has to apply its mind in all pending appeals and point out to court, which are those appeals in which they intend to prosecute. Therefore, sufficient safeguards have been made to protect interests of public revenue. By this approach we would be saving time of court, time of Department and public time in general and giving effect to Nation Litigation Policy, 2011, so that it can be used for better and productive purpose. 12. Division Bench also pointed out anomaly in working of Circular, were it to apply only prospectively, in following words: 31. Yet another anomaly which requires to be noticed is, if Tribunal where number of cases which are pending are more, decides appeal, subsequent to these latest circulars and amount involved is less than Rs. 10 lakhs, assessee in such cases get benefit of latest circular. However, if Tribunal has decided case expeditiously or in Tribunals where pendency is less and if subject-matter of appeal preferred by Revenue in such cases is more than Rs. 4 lakhs and less than Rs. 10 lakhs, assessees in those appeals are denied benefit of latest circular. In other words, where there is huge pendency of cases in Tribunal or court, appeal filed earlier is disposed of after circular, benefit accrues to assessee. However, in Tribunals and courts where pendency of cases is less, appeal filed recently is decided before circular or where assessee co-operates with court in speed disposal of appeal and appeal is disposed of before date of circular, he is denied benefit of circular. Therefore, benefit to which assessee is entitled to should not be dependant on date of decision, over which neither assessee nor Revenue has no control. In this context, circular would be discriminatory, if it is held to be prospective only. It could be saved from such vice of discrimination by holding it as retrospective. 32. Though Circular/Instruction 3 of 2011 is issued by Department in pursuance of power conferred under statutory provisions while issuing such circular/instruction, Department has not kept in mind object with which such circulars/instructions are issued from time to time. object sought to be achieved by such circulars/instructions and also law declared by apex court, National Litigation Policy, 2011, as well as various schemes introduced by Department granting relief to persons who have not even filed returns and paid taxes, are kept in mind, to bring circular/instruction in harmony with National Litigation Policy, it would be appropriate to hold that benefit of such circular/instruction also applies to pending cases in appeal in various courts and Tribunals on date of circular/instruction. B. Bombay High Court: 13. Commissioner of Income Tax v. Pithwa Engg. Works 2: This judgment of Division Bench pertains to Circular dated 27.3.2000 enhancing previous limit but ratio is same. 14. In Commissioner of Income Tax v. Madhukar K. Inamdar (HUF) 3 Circular dated 15.5.2008 was examined, opining that it was in public interest if Revenue concentrates on cases wherein tax effect is substantially high rather than running after assessees wherein tax impact is less than Rs.4 lakhs, considering cost of litigation and other administrative cost which may be much more than tax recovery, especially in context of Circular dated 5.6.2007 requiring current matters also to be examined. C & D. Madhya Pradesh High Court & Delhi High Court: 15. In Commissioner of Income Tax v. Ashok Kumar Manibhai Patel & Co. 4 and Commissioner of Income Tax v. P.S. Jain & Co.5: In both above cases, Circular in question was dated 27.3.2000, but ratio is same. High Courts of View that Circular in question would apply only prospectively: 2 3 4 5 A. Punjab & Haryana High Court: 16. In Commissioner of Income Tax v. Varindera Construction Co. 6 Instruction No.5/2008 dated 15.5.2008 was held to apply only prospectively. Court disagreed with view taken by other High Courts to contra. B, C & D. Chhattisgarh High Court; Madras High Court & Kerala High Court: 17. In Commissioner of Income Tax v. Navbharat Explosives Co. P. Ltd. 7; Commissioner of Income Tax v. Kodanand Tea Estates Co8. and CWT v. John L. Chackola9, opinion is to same effect as aforesaid applying circular prospectively as they state so. view of Supreme Court: 18. view adopted by Delhi High Court making Circular applicable to pending matters came up before three Judge Bench of this Court in SLP(C) No.CC 13694/2011 titled CIT Central-III v. Surya Herbal Ltd. when following order was passed on 29.8.2011: Delay condoned. Liberty is given to Department to move High Court pointing out that Circular dated 9th February, 2011, should not be applied ipso facto, particularly, when matter has cascading effect. There are cases under Income Tax Act, 1961, in which common principle may be involved in subsequent group of matters or large number of matters. In our view, in such cases if attention of High Court is drawn, High Court will not apply circular ipso facto. For that purpose, liberty 6 7 8 9 is granted to Department to move High Court in two weeks. Special Leave Petition is, accordingly, disposed of. 19. aforesaid order, in our view, actually should have laid controversy to rest. retrospective applicability of Circular dated 9.2.2011 was not interfered with, but with two caveats (i) Circular should not be applied by High Courts ipso facto when matter had cascading effect; (ii) where common principles may be involved in subsequent group of matters or large number of matters. It was opined that in such cases, attention of High Court would be drawn and Department was even given liberty to move High Court in two weeks. In our view this order holds field and should continue to hold field. 20. Unfortunately, this order was not brought to notice of subsequent two Judges Bench of this Court in Commissioner of Income Tax-VII, New Delhi v. Suman Dhamija10 again arising from Delhi High Court order, wherein it was simply stated that since appeals were preferred before 2011 and Instructions were dated 9.2.2011, earlier cases would not be covered by Instruction. This order in turn had been followed by another two Judges Bench in Civil Appeal No.16815/2017 titled Commissioner of Income Tax Bangalore I & Anr. v. M/s. Gemini Distilleries dated 12.10.2017. 21. Once again, in another matter Commissioner of Income Tax &Anr. V. Century 10 Park11, line adopted by three Judges Bench in Surya Herbal Ltd. case (supra) has been followed. 22. We have already given our imprimatur to observations made by Karnataka High Court in detailed analysis in Ranka & Ranka case (supra), which has dealt with litigation policy philosophy behind applying Circular and benefit being extended in view thereof to all Assessees where appeals have been pending, but below financial limit, as otherwise anomalous situation would arise. 23. We may also take note of judgment of this Court in Suchitra Components Ltd. v. Commissioner of Central Excise, Guntur 12 on general principle of application of Circulars. Reliance was placed on view expressed in Commissioner of Central Excise, Bangalore v. Mysore Electricals Industries Ltd.13 opining that beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. 24. We are of view that matter needs to be put to rest and clarity be obtained in view of impact of this issue on pending cases before High Courts as well as cases which have been disposed of by various High Courts by applying Circular of 2011 to pending litigations. In our view matter has been squarely put to rest taking further care of interest of Revenue by order passed by three Judges Bench of this Court in Surya Herbal Ltd. case (supra), which had put two caveats even to retrospective application of 11 12 13 Circular. subsequent orders have been passed by two Judges Bench without those orders being brought to notice of Court, duty which was cast on Department to have done so to avoid ambiguity which has arisen. Thus, said view of three Judges Bench would hold water and Circular would apply even to pending matters but subject to two caveats provided in Surya Herbal Ltd. case (supra). 25. appeals of Revenue are, thus, dismissed in aforesaid terms. .. . . .J. (Rohinton Fali Nariman) ... J. (Sanjay Kishan Kaul) New Delhi. November 23, 2017. ITEM NO.1501 COURT NO.8 SECTION XIV SUPREME COURT OF INDIA RECORD OF PROCEEDINGS C.A. NO. 19650/2017 @ Petition(s) for Special Leave to Appeal (C) No(s). 24055/2013 DIRECTOR OF INCOME TAX NEW DELHI Petitioner(s) VERSUS M/S S.R.M.B.DIARY FARMING (P) LTD. Respondent(s) WITH C.A. NO. 19651/2017 @ SLP(C) No. 24056/2013 Date : 23-11-2017 These matters were called on for pronouncement of JUDGMENT today. For Petitioner(s) Mr. Arijit Prasad, Adv. Mrs. Anil Katiyar, AOR For Respondent(s) Ms. Sharmila Upadhyay, AOR Mr. Kamal Mohan Gupta, AOR * * * * * * * * * * * * * Hon'ble Mr. Justice Sanjay Kishan Kaul pronounced Reportable Judgment of Bench comprising Hon'ble Mr. Justice Rohinton Fali Nariman and His Lordship. Leave granted. Civil Appeals are dismissed in terms of signed reportable judgment. (SONALI SAUND) (CHANDER BALA) SENIOR PERSONAL ASSISTANT COURT MASTER (signed reportable Judgment is placed on file) Director of Income-tax, Circle 26(1), New Delhi v. S.R.M.B. Dairy Farming (P) Ltd