Commissioner Of Income Taxchennai – X v. Associated Electrical Agencieschennai – 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 16.08.2007 CORAM THE HON'BLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HON'BLE MRS.JUSTICE CHITRA VENKATARAMAN TAX CASE NO.222 OF 2004(Appeal NO.217 of 2004) Commissioner of Income TaxChennai – X ... Appellant Versus Associated Electrical AgenciesChennai – 600 034. ... Respondent Prayer: Appeal filed under Section 260-A of the Income-tax Act, 1961against the order of the Income-tax Appellate Tribunal Chennai 'B' Benchdated 20.10.2003 in I.T.A.No.2190/Mds/94 for the assessment year 1991-92against the order of the Commissioner of Income Tax (Appeals)- I, Madras-34 dated 02.08.94 in ITAppeal No.49/94-95 against the order of theAssistant Commissioner, Central Circle II (I) Madras – 34 dated 29.03.94in PA.No./GIR.No./47-000-EQ-3001. For Appellant : Mr.N.Muralikumaran Sr.Standing Counsel for Income-tax. For Respondent : Mr.N.Devanathan JUDGMENT (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN,J.) The assessee was an unregistered firm. For the assessment year 1991-92, the assessment of the assessee was completed under Section 143(3) ofthe Income-tax Act on 29.3.1994 on a total income of Rs.36,27,580/-. Inthe course of assessment proceedings, the assessing officer noticed fromthe profit and loss account that the assessee has claimed a sum ofRs.3,27,895/- towards bonus, however, in the balance sheet as on31.3.1991, the assessee has shown a sum of Rs.84,01,475.98ps. under thehead "Accounts payable". The assessing officer called for the detailsregarding payment of bonus. The assessee's representative stated that thebonus was paid to the staff on 31.10.2001 after drawing the cash from theBank. On verification of the accounts, the assessing Officer found thatthough there was cash withdrawal from the Bank on 31.10.2001, there was noentry in the books of accounts relating to disbursement of bonus and evenhttps://hcservices.ecourts.gov.in/hcservices/the vouchers did not contain the date of receipt except in a few cases wherein the date of receipt of bonus was mentioned as 2.11.1991. In theabsence of any materials to vouchef the payment of bonus on 31.10.2001,the assessing officer was of the view that the bonus could not have beendisbursed on the same day for the staff working at Cochin and BangaloreBranches. Finally, it was conceded that the bonus was disbursed to thestaff of Madras Branch on 1.11.1991, Cochin Branch on 2.11.1991 andBangalore Branch on 2.11.1991. In view of the above, the assessing officerdisallowed the claim of bonus payment of Rs.3,27,895/- applying theprovisions of Section 43-B. 2. Aggrieved by the disallowance made by the assessing officer, theassessee filed appeal before the Commissioner of Income-tax (Appeals). Theappeal came to be dismissed on the ground that the bonus has not beenactually paid on or before 31.10.1991. In the second appeal filed inI.T.A.No.2190/Mds/94, the Tribunal by its order dated 6.11.2003 held thatactually the cash was withdrawn on 31.10.1991 itself; that the delay indistribution of bonus was occurred while transmitting the money from onebranch to another through Bank and thus the delay was justifiable andacceptable. On that basis, the Tribunal has concluded that the claim madeby the assessee was an allowable expenditure and on that reason, set asidethe order of the lower authorities. The revenue filed the present appealquestioning the correctness of the order of the Tribunal by formulatingthe question of law as follows: "Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right indirecting the assessing officer to allow the payment ofbonus to staff as deduction even though the payment hasnot been made on or before the due date for filing thereturn of income?" "Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right indirecting the assessing officer to allow the payment ofbonus to staff as deduction even though the payment hasnot been made on or before the due date for filing thereturn of income?" 3. Though the appeal was filed by the revenue, learned counselappearing for the assessee/respondent contended that considering the taxeffect involved, which is very negligible, this is not a fit case toentertain the appeal for consideration by relying on instruction No.1979issued by the Central Board of the Central Board of Direct Taxes inCircular F.No.279/126/98-ITJ, dated 27.3.2000. 4. However, learned counsel for the revenue contended that when theappeal was entertained by this Court and was pending before this Courtfrom the year 2004, the Court should not throw away the case withoutdeciding the issue on merits. The circular with which reliance has beenmade by the learned counsel for the respondent is not an unqualifiedembargo on the revenue proceeding with the matter in appeal. He relied ona decision of this Court in the case of COMMISSIONER OF INCOME-TAX VS.P.S.T.S.THIRUVIRATHNAM AND SONS reported in (2003) 261 ITR 406. 5.We heard the argument of the learned counsel on either side andperused the materials on record. 6. The factual issue is undisputed that the tax effect involved inthis appeal is only few thousand rupees. The above referred judgment wasrendered in a reference case and the question of law therein was referredhttps://hcservices.ecourts.gov.in/hcservices/for the decision of this Court. This Court rejected the contention of the respondent therein by saying that the circular dated 4.11.1987 was not anunqualified embargo on the Revenue proceeding with the matter in appealwhere the amount of tax in issue was Rs.30,000 or less. Several exceptionswere set out in that circular. If the assessee wanted the benefit of thecircular, it should have put the Revenue on notice when the Revenueapplied for having the question referred so that the Revenue could havegathered relevant material, if any, to show the matter was within theexpected category. Incidentally, one of us (K.Raviraja Pandian,J.) wasalso a party to the said judgment. The said judgment has not denied thebenefit of the circular to the assessee, but only cautioned the assesseethat if the assessee put on notice the revenue, the revenue would havegathered material and satisfied whether it is a fit case for filing appealwith reference to the exception clause contained therein. Hence, thejudgment cannot be regarded as one which decided the scope and bindingnature of the circular and decided in favour of the revenue. 7. In the case of COMMISSIONER OF INCOME-TAX VS. RAJASTHAN PATRIKALIMITED reported in (2002) 258 ITR 300, the Rajasthan High Courtcategorised the circular as one of administrative instruction and heldthat the administrative instruction cannot prevail over the statutoryprovision. 8. In the case of RANI PALIWAL VS. COMMISSIONER OF INCOME-TAXreported in (2004) 268 ITR 220, the Punjab & Haryana High Court has heldthat from the perusal of the order of the Tribunal, it was clear that noplea was raised before the Tribunal that appeal was not entertainablebecause of the tax effect was less than Rs.1 lakh in each of theassessment year and therefore the High Court did not allow the assessee toraise the plea for the first time before the High Court and further heldthat the circular was not binding on the Tribunal and further held thatsuch a plea was not a question of law. 8. In the case of RANI PALIWAL VS. COMMISSIONER OF INCOME-TAXreported in (2004) 268 ITR 220, the Punjab & Haryana High Court has heldthat from the perusal of the order of the Tribunal, it was clear that noplea was raised before the Tribunal that appeal was not entertainablebecause of the tax effect was less than Rs.1 lakh in each of theassessment year and therefore the High Court did not allow the assessee toraise the plea for the first time before the High Court and further heldthat the circular was not binding on the Tribunal and further held thatsuch a plea was not a question of law. 9. The circular referred to in the above said judgment has beensubsequently revised in Circular NO.F/279. It is not in dispute in thiscase that the tax effect is only a few thousand rupees and not exceededthe monetary limit of Rs.2 lakhs prescribed in the above said circular forfiling appeal before High Court. The exceptions stated in the circular forcontesting the case irrespective of the revenue effect were: (i) Where Revenue audit objection in the case has been accepted bythe Department. (ii) Where the Board's order, notification, instruction or circularis the subject-matter of an adverse order. (iii) Where prosecution proceedings are contemplated against theassessee. (iv) Where the constitutional validity of the provisions of the Actare under challenge. and the monetary limit would not apply to writ matters. The Circular wouldcome into effect from 1.4.2000. 10. We are of the considered view that none of the exceptions statedin the circular are applicable to the facts of the present case. Thecircular was stated to be issued by invoking the statutory power underhttps://hcservices.ecourts.gov.in/hcservices/Section 119 of the Income-tax Act. The appeal is filed under Section 260- A of the Income-tax Act. It is well settled principle of law that eachand every provision of a statute has to be given the same importance. Oneprovision cannot be alleviated to a higher pedestal than the otherprovision, of course, unless or otherwise specifically stated either inthe scheme, the Act or in the provision itself that a particular provisionis subjected to or qualified by any other provision or the provision canbe given effect to notwithstanding anything contained in any otherprovisions by assigning overriding effect. Hence, the contention thatnotwithstanding the circular, which was issued under Section 119 of theIncome-tax Act, the appeal could be filed by the revenue under Section260-A has to be rejected for the reason that if the contention isaccepted, one of the Section would become virtually otiose and that cannotbe the intention of the law makers. Hence, the above judgments cannot betaken in aid for non-suiting the respondent/assessee from taking shelterunder the Government Order. 11. In this case, not only the tax effect involved is nearlyRs.5,000/-, but also the other qualification prescribed in the circularwere also not available or in existence to carve out the case to bringoutside the purview of the circular. Even de hors the circular, if thefacts are considered, the assessee is entitled to claim the benefit forthe next assessment year if the same was negatived for the assessment yearin question. Further, the point in issue is whether the bonus as claimedby the respondent has been paid within 31.10.1991 or subsequent to thatdate, can no stretch of imagination be considered as a question of lawrather than substantial question of law as provided under Section 260-A ofthe Income-tax Act. 11. In this case, not only the tax effect involved is nearlyRs.5,000/-, but also the other qualification prescribed in the circularwere also not available or in existence to carve out the case to bringoutside the purview of the circular. Even de hors the circular, if thefacts are considered, the assessee is entitled to claim the benefit forthe next assessment year if the same was negatived for the assessment yearin question. Further, the point in issue is whether the bonus as claimedby the respondent has been paid within 31.10.1991 or subsequent to thatdate, can no stretch of imagination be considered as a question of lawrather than substantial question of law as provided under Section 260-A ofthe Income-tax Act. 12. The Supreme Court in the case of COMMISSIONER OF GIFT-TAX,GUJARAT VS. EXECUTORS AND TRUSTEES OF THE ESTATE OF LATE SH.AMBALALSARABHAI reported in (1988) 170 ITR 144, under Gift Tax Act, havingregard to the fact that the gift was of the year 1964, the total gift taxassessed was Rs.5661/-, upon a fresh determination of the value of theshares adopting the somewhat intricate processes inherent in the "profit-method" of valuation, the difference in the quantum of the tax might,perhaps, not be substantial. The magnitude of the mechanism for refixationof the value of the gifts and the difference in the quantum of the tax itmight result in, do not bear a reasonable or sensible proportion. Havingregard to the pecuniary involvement in that case, which was obviouslysmall, the Supreme Court observed that they should not expose the partiesto a fresh round of litigation. 13. In the case of COMMISSIONER OF INCOME-TAX VS. DIGVIJAY SINGHreported in (2007) 292 ITR 314, the Madhya Pradesh High Court, afterreferring to the judgment of the Bombay High Court in the case ofCOMMISSIONER OF INCOME-TAX VS. ZOEB Y.TOPIWALA (2006) 284 ITR 379, whereinthe Bombay High Court has held that the directions issued by the Boarddated March 27, 2000, directing the Department not to raise questions oflaw where the tax effect is less than Rs.2 lakhs was binding on theRevenue and dismissed the appeal in which tax effect was less thanRs.7,000 as not maintainable by holding that the direction issued by theBoard are binding on the Department. https://hcservices.ecourts.gov.in/hcservices/ 14. In the case of COMMISSIONER OF INCOME-TAX VS. CAMCO COLOUR CO.,reported in (2002) 254 ITR 565, the Bombay High Court has reproduced thecircular issued by the Ministry of Finance dated 27.3.2000 in which it wasdirected that the appeals under Section 260-A of the Income-tax Act inwhich the tax effect was less than RS.2 lakhs should not be preferred. Inall the cases relied on by the assessee, the long line of judicial opinionis that if the tax effect is less than the one stated in the circular, therevenue need not agitate the issue on appeal and the circular is bindingon them. 15. For all the above reasons, the appeal filed by the revenue isdismissed. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar usk To 1. The Assistant Registrar, Income Tax Appellate Tribunal,'B' Bench, Rajaji Bhavan,Besant Nagar, Chennai-600 090 2.The Commissioner of Income-tax (Appeals) I, Chennai – 34.(Appeals) I, Chennai – 34. 3.The Asst.Commissioner of Income-tax, Central Circle II(1), Madras. 4. The Commissioner of Income Tax,Chennai. 1 CC To Mr.N.Muralikumaran, Standing Counsel for Income Tax, SR NO.51438. TAX CASE No.222 of 2004(Appeal No.217 of 2004) BV(CO)RVL 03.09.2007