Recovery of dues: SC ruling allows CBDT to withdraw court cases with retrospective effect

Suresh P Iyengar Mumbai | Updated on January 09, 2018

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Providing major relief to corporates and small businesses, a Supreme Court ruling minimises pending disputes with tax authorities. The court has ruled that the notifications issued by the Central Board of Direct Taxes (CBDT), directing the tax department to withdraw legal cases on tax demands below ₹10 lakh, will be applicable with retrospective effect.

This means that if a company is waging a legal case against tax authorities for amounts below the specified limit, the case can now be withdrawn by the tax department even if it began prior to CBDT setting the limits. These limits were fixed in February 2011.

In order to reduce the volume of litigation in courts, the CBDT has been enhancing the limits for filing cases from time-to-time.

In 2011, the CBDT directed the Income Tax Department not to file court cases against the assessees if the amount to be recovered is less than ₹10 lakh, and settle the dispute on merits.

However, there was confusion whether the CBDT notification would have retrospective effect. The interpretation of the circular in different ways led to contradicting judgments in the High Courts.

Referring to the contradictory verdict passed by the apex court applying the CBDT limits with retrospective effect in Surya Herbal and turning down similar appeals in Suman Dhamija and Gemini Distilleries, a bench with Justice Rohinton Nariman and Justice Sanjay Kaul said the previous order was not brought to the notice in the subsequent two cases.

“We are of the view that the matter needs to be put to rest and a clarity be obtained in view of the impact of this issue on pending cases before the High Courts as well as the cases which have been disposed of by various High Courts,” said Justice Nariman passing a judgment in a case involving SRMB Dairy Farming and Director of Income Tax, Delhi.

He said the (CBDT) circular would apply even to pending matters subject to two caveats — the circular should not be applied by High Courts when the matter had a cascading effect and where common principles may be involved in a subsequent group of matters or a large number of matters.

Published on November 27, 2017

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