Landmark Judgements of Supreme Court on Instructions to subordinate authorities [Section 119]
Legislative provisions cannot be amended by Central Board of Direct Taxes in exercise of its power under section 119
The Central Board of Direct Taxes (CBDT) issued a Circular under Section 119 of the Income Tax Act, 1961. In fact, it amended the provisions contained in Rule 68B of the IInd Schedule to the Income Tax Act, 1961, which otherwise have statutory force. Such legislative provisions cannot be amended by CBDT in exercise of its power under Section 119 of the Act. The High Court has, therefore, rightly held the circular ultra virus and quashed the same. [In favour of assessee] - [CIT v. S.V. Gopala Rao (2017) 396 ITR 694 : 88 taxmann.com 494 (SC)]
CBDT Circular issued by the Central or State Government represent merely their understanding of the provisions. They are not binding on the courts. It is for the court to declare what the provisions of the statute say and not for the executive. Therefore, the circular cannot be given effect to in preference to the view expressed by the High Court or the Supreme Court
It was held by 5 Judge Bench, in the context of excise law:
(i) While circulars and instructions issued by the Board are binding on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of the SC or the High Court.
(ii) The clarifications/circulars issued by the Central & State Government merely represent their understanding of the statutory provisions and are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.
(iii) To say that a revenue authority cannot question a circular would mean that the valuable right of challenge would be denied to him and there would be no scope for adjudication by the High Court or the Supreme Court. That would be against very concept of majesty of law declared by the Supreme Court and the binding effect in terms of Article 141 of the Constitution. - [CCE v. Ratan Melting & Wire Industries (2008) 220 CTR 98 : 14 DTR 324 (SC)]
Circular – Binding nature – CBDT – Customs Act, 1962 – Section 151A Central Excise Act, 1944 Officers not entitled to issue notice and adjudicate, contrary to instructions in circular. Circulars issued by the Central Board were binding on the department. – [Commissioner of Customs v. Indian Oil Corporation Ltd. & Anr. (2004) 267 ITR 272 : 187 CTR 297 : 180 Taxation 637 : 136 Taxman 491 (SC)]
Though circulars or instructions given by CBDT are no doubt binding in law on authorities under Act but when Supreme Court or High Court has declared law on question arising for consideration it will not be open to a court to direct that a circular should be given effect to and not view expressed in a decision of Supreme Court or High Court
The circulars or instructions given by the board are no doubt binding in law on the authorities under the Act but when the Supreme Court or the High Court has declared the law on the question arising for
consideration it will not be open to a Court to direct that a circular should be given effect to and not the view expressed in a decision of the Supreme Court or the High Court. Therefore, there being no merit in the instant appeal, the same stood dismissed. (Related Assessment year : 1970-71) – [Hindustan Aeronautics Ltd. v. CIT (2000) 243 ITR 808 : 110 Taxman 311 (SC)]
Power to issue circulars, etc. - Since Board has considered it necessary to lay down a general test for deciding what is a doubtful debt in circular dated 09.10.1984 and directed that all ITOs should treat such amounts as not forming part of income of assessee until realised, this direction by way of a circular cannot be considered as travelling beyond powers of Board under section 119 and such a circular is binding under section 119
As to the status of these circulars, section 119(1) provides that, “the Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board provided that no such orders, instructions or directions shall be issued (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions”. Under sub-section (2) of section 119, without prejudice to the generality of the Board’s power set out in sub-section (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to the assessees, as the guidelines, principles or procedures to be followed in the work relating to assessment. 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 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 forego 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. Hard cases which can be properly categorised as belonging to a class, can thus, be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities. – [UCO Bank v. CIT (1999) 237 ITR 889 : 104 Taxman 547 (SC)]
Section 119 : Central Board of Direct Taxes – Instructions – Circulars binding on revenue
Supreme Court held that the aforesaid circular issued by the Board would be binding on all officers and persons employed in the execution of the Act. Supreme Court observed that the circular clarified that it was likely that some companies might have advanced loans to their shareholders as a result of genuine transactions of loans and the provision was not intended to affect such transactions. Therefore, past transactions which would normally have attracted the stringent provisions of section 12(1B) were substantially granted exemption from the operation of the said provisions if the past loans were genuinely refunded to the companies. Such circular issued by the CBDT would be binding on the revenue authorities. (Related Assessment Year : 1956-57) – [Navnitlal C. Javeri v. K. K. Sen AAC (1965) 56 ITR 198 (SC)]