The Hindu Business Line : Wide are the Board's powers

THE CENTRAL Board of Direct Taxes is the highest administrative authority. Section 119 of the Income-tax Act, 1961 empowers the CBDT to issue such orders, instructions and directions to other income-tax authorities as may be deemed fit for the proper administration of the Act. This provision makes it mandatory for such authorities and other persons employed in the execution of the Act to observe and follow the Board's orders, instructions and directions.

Parliament has restricted the aforesaid power of the Board by providing that no such orders, instructions and directions can be issued which would require any income-tax authority to make a particular assessment, or dispose of a case, in a particular manner. Further, the Board cannot issue such orders, instructions and directions that would interfere with the appellate functions of the Commissioner of Income-tax (Appeals).

The width and amplitude of these powers have been the matter of judicial scrutiny. The Supreme Court has delineated the scope and ambit of these powers with one Bench trying to explain the judgments given by earlier Benches.

In Union of India vs Azadi Bachao Andolan (263 ITR 706), the Supreme Court laid down that under Section 119(2) the CBDT has the power to issue general or special orders in respect of any class of incomes or class of cases, setting forth directions or instructions as to the guidelines, principles or procedures to be followed by other income-tax authorities in the discharge of their work relating to assessment or initiating proceedings for imposition of penalties. The powers of the CBDT are wide enough to enable it to grant relaxation from the provisions of several provisions enumerated in Section 119(2)(a). Such orders may be published in the Official Gazette in the prescribed manner, if the Central Board of Direct Taxes is of the opinion that it is so necessary. The only bar on the exercise of power is that it should not be prejudicial to the assessee.

In K. P. Varghese vs ITO (131 ITR 597 SC), it was pointed out by the apex court that not only are the circulars and instructions issued by the CBDT in exercise of the power under Section 119 binding on the authorities administering the Tax Department, but they are also clearly in the nature of contemporanea expositio, furnishing legitimate aid to the construction of the Act.

The rule of contemporanea expositio is that "administrative construction (that is, contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, it is highly persuasive" (Crawford on Statutory Construction, 1940 edition).

In this case, the Court held that the CBDT circulars issued in exercise of its power under Section 119 are legally binding on the Revenue and that this binding character attaches to the circulars "even if they be found not in accordance with the correct interpretation of sub-section (2) and they depart or deviate from such construction".

Navnit Lal C. Javeri vs K. K. Sen, AAC (56 ITR 198 SC) and Ellerman Lines Ltd vs CIT (82 ITR 913 SC) clearly establish the principle that CBDT circulars issued under Section 119 of the Act are binding on all officers and employees employed in the execution of the Act, even if they deviate from the provisions of the Act.

In UCO Bank vs CIT (237 ITR 889, 896), dealing with the legal status of such circulars, the Supreme Court observed that such instructions may be by way of relaxation of any of the provisions of the Sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under Section 119 of the Income-tax Act which are binding on the authorities in the administration of the Act. Under Section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee.

Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in Section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied.

In CIT vs Anjum M. H. Ghaswala (252 ITR 1 SC), it was pointed out that the circulars issued by the CBDT under Section 119 of the Act have statutory force and would be binding on every income-tax authority, although such may not be the case with regard to press releases issued by the CBDT for information of the public.

It is trite law that as long as an authority has power, which is traceable to a source, the mere fact that the source of power is not indicated in an instrument does not render the instrument invalid (State of Sikkim vs Dorjee Tshering Bhutia — 4 SCC. 243; N. B. Sanjana, Assistant Collector of Central Excise vs Elphinstone Spinning and Weaving Mills Co. Ltd. — 1 SCC 337); B. Balakotaiah vs UOI — 1958 S.C.R. 1052; and Afzal Ullah v. State of UP — 1964, 2 S.C.R. 991).

In Pahwa Chemicals P. Ltd. vs Commissioner of Central Excise (274 ITR 87) the Supreme Court held that the Central Board of Excise and Customs can only issue such direction as is necessary for the purpose of and in furtherance of the provisions of the Act. The instructions issued by the Board have to be within the four corners of the Act.

In CIT vs Smt. Brij Bala (274 ITR 33), the CBDT had given instructions to all Commissioners of Income-tax to the effect that no remedial action is necessary in summary assessment cases, as the revenue loss, if any, is consciously suffered by the government to utilise resources for scrutiny and investigation of larger cases. In such cases, the Commissioner of Income-tax should only inform the audit department that the cases are completed under the summary assessment scheme. Circulars issued by the CBDT are binding on the income-tax authorities.

In Jalgaon District Central Co-operative Bank Ltd vs Union of India (265 ITR 423), the Bombay High Court held that Section 119 of the Act, gives some powers to the CBDT to issue only administrative instructions to the subordinate authorities for the purpose of proper administration and enforcement of the provisions of the Act.

In Banque Nationale De Paris vs CIT (237 ITR 518), the same court held that the CBDT cannot issue a circular under Section 119 which would override or detract from the provisions of the Act. The Board can legitimately issue administrative instructions or orders by exercising powers under Section 119. However, by virtue of Section 119, the CBDT is not permitted to override or withdraw an exemption.

In Precot Mills Ltd vs CBDT (268 ITR 521), the Madras High Court considered the scope of Clauses (a), (b) and (c) of Section 119(2). According to the Court, the power of the CBDT under Clauses (b) and (c), in contrast to Clause (a), is meant to be exercised for the purpose of "avoiding genuine hardship in any case or in any classes of cases". The power may be exercised under those two clauses only in respect of matters specified therein.

The power under Clause (b) is limited to extending the time within which the assessee may make claims for exemption, deduction or refund or other relief and permitting the assessee to make such claim even after the expiry of the period specified in the Act. Clause (c) permits the CBDT to relax any requirement contained in Chapters IV and in VI-A to enable an assessee or class of assessees to claim the deduction provided therein.

Any relaxation which may be ordered by the Board must subserve the object of proper and efficient management of the work of assessment and collection of revenue. The power is to be exercised in respect of a clearly ascertainable class of income, or a class of cases. The decision to exercise or to refrain from exercising the power under Section 119(2)(a) is that of the CBDT because it alone is required to consider the necessity or expediency for the exercise of the power for the purposes mentioned therein. It does not confer a right on any individual assessee to compel the CBDT to exercise that power vested in it, in favour of the assessee.

Thus, it must be pointed out that it is not open to the I-T Department to raise a contention which is contrary to the circulars and instructions validly issued by the CBDT. The Department is precluded from challenging the correctness of such orders or instructions, even on the ground of the same being inconsistent with statutory provisions.

(The author, a Mumbai-based advocate specialising in tax laws, can be contacted at ranina@bom2.vsnl.net.in)

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