The Hindu Business Line : Limits of implementation

DIRECT taxes in arrears stood at Rs 98,606 crore as on April 1, 2005. Attempts are being made to recover about Rs 10,300 crore this year. Year after year, the arrears keep rising.

The Department has a procedure for write-off in respect of irrecoverable demands. However, even senior officers seldom exercise this power, and the amounts written off are often negligible.

Meanwhile, the tribunals and the High Courts are flooded with appeals, around two-thirds of which are filed by the Revenue Department. But most of these appeals do not succeed and attempts are made to file special leave petitions (SLPs) before the Supreme Court.

From April till now, more than a thousand fresh appeals have been filed before the Madras High Court.

It is not as if the Department is not aware of the docket explosion. From time to time, the Central Board of Direct Taxes (CBDT) has been issuing instructions to field formations directing that appeals should not be filed unless the revenue involved is more than the prescribed limit.

Instruction No. 1903 of October 1992 superseded Instruction No. 1777 of 1987, and fresh monetary limits were laid down. Again, Instruction No. 1987 was issued in March 2000 suggesting limits of Rs 1,00,000, Rs 2,00,000 and Rs 5,00,000 for appeals before the Income-Tax Appellate Tribunal, the High Court and the Supreme Court respectively.

However, the Board took care to advise that adverse judgments concerning revenue audit objections (accepted by the Department) should be contested in appeal.

Similarly, while prosecution proceedings are contemplated or the constitutional validity of the provisions of the Act is under challenge, appeal should be filed irrespective of the revenue effect. Obviously, these instructions have had no effect as appeals have been mounting.

On October 26, the Board issued fresh instructions. Hereafter, departmental appeals should be filed before the ITAT only if the tax effect exceeded Rs 2 lakh. Appeals before the High Court can be considered if the amount to be recovered exceeded Rs 4 lakh. And for moving the Supreme Court, the limit should exceed Rs 10 lakh. These limits, however, will not apply if the same question of law crops up repeatedly.

Though the intent is good, there can be implementation problems. In spite of the instructions, departmental authorities continue to file various types of appeals before appellate fora, leaving courts to decide whether the appeals can be dismissed in limine for violating the Board's instructions about monetary limits. There are arguments about whether the instructions go beyond the judicial powers of the appellate authorities and whether they are binding as circulars.

In a leading judgment (CIT vs Camco Colour Co — 254 ITR 565), the Bombay High Court held that the instructions reflected the policy decision of the CBDT not to raise questions of law where the tax effect is less than the amount prescribed with a view to reduce litigation before the courts.

According to the Bombay High Court, the circular is binding on the Revenue. An appeal or a reference contrary to the instructions issued in the circular will not be considered by the courts. The court observed:

"It appears that despite the above circular, the Revenue has chosen to file the present appeal knowing fully well that the corridors of the court are flooded with pending litigations". The court said that the instruction was binding.

As expected, other High Courts came into the picture with a different view. The argument was that if an appeal is presented on a point of law, the court has to give its views on the issue raised rather than short-circuit the appeal process by taking recourse to the Board's instructions. The instruction concerned the internal administration of the I-T Department.

The Supreme Court will have to, at some time, pronounce its views on the binding nature of these instructions.

It will be interesting to know whether the Board took any action against any of its officers for filing appeal in violation of its own instructions. It is idle to talk about setting up a National Tax Tribunal for early disposal of appeals before various High Courts. In several cases, courts have expressed displeasure about the flippant nature of the appeals. Even damages have been awarded. The main reason for the docket explosion is the CBDT. If the Board cannot enforce the instructions, it may as well not issue them. Every such instruction not adhered to merely adds to burden of the court, and litigation mounts.

(The author is a former Chief Commissioner of Income-Tax.)

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