By TIOL News Service:

MUMBAI, JAN 18, 2016: THE issue is - whether the CBDT Circular restricting the Revenue from filing an appeal to the High Court u/s 260 having tax effect of less than Rs. 20 lakhs, would also apply to pending References u/s 256. YES is the answer.

Facts of the case:

The assessee is engaged in the business of dubbing & sound recording. The ITAT had preferred this Reference u/s 256(1) at the instance of the Revenue, seeking opinion of the High Court on the question whether the ITAT was right in upholding the order of the CIT(A) that assessee's business of dubbing and sound recording was a manufacturing activity and the assessee was entitled for investment allowance on plant and machinery. The counsel for Revenue had stated that in the present Reference Application the tax effect involved was admittedly less than Rs.20 lacs. When this court enquired whether the Circular No.21/2015 dated 10th December, 2015 issued by the CBDT would apply to the pending Reference made u/s 256(1), the Revenue's counsel submitted that a bare reading of the Circular dated 10th Dec, 2015 would indicate that it applies only to pending appeals as it did not make any mention of References u/s 256(1).

After hearing the parties, the High Court held:

++ it is pertinent to note that even after listing of Reference, no assistance is forthcoming from the Revenue Department. Neither any attempt is made to obtain necessary clarification from the CBDT nor a statement is being made that according to them the Circular has no application and they want to pursue this Reference. Therefore though it is for the Revenue to take a decision on wanting to pursue this Reference or not, in this case it seems that the Commissioner is not wanting to take any decision or even seek clarification from the CBDT on the application of the Circular. Therefore in the aforesaid facts this Court is required to examine whether the Circular No. 21/2015 dated 10 December 2015 applies to pending References having a tax effect of less than Rs. 20 lacs. From a plain reading of the aforesaid Circular it is clear that it does not advert to pending References. It only makes mention about nonfiling of appeals to the High Court where tax effect is less than Rs.20 lacs and that it would apply retrospectively even in respect of pending appeals which would not be pressed. We however find that the Circular dated 10 December, 2015 is identically worded to the instructions No.5 dated 10th July, 2014 save and except enhancement of the threshold limit for the purpose of Revenue pursuing its appellate remedies before the High Court, specifically providing for the retrospective operation of the 2015 Circular so as to apply to pending appeals and directing that the pending appeals be withdrawn and/or not pressed. In the above view, we hold that even though the 2015 Circular does not specifically refer to References just as the instruction No.5 of 2014, it should apply even to pending References u/s 256. The Circular thereof protects the interest of the Revenue by providing that where it does not pursue appellate remedies in view of the low tax effect as provided therein, it would not be held against the Revenue for any other A.Y in respect of the same Assessee or even in respect of any other Assessee, if the tax effect involved in those cases is higher than the threshold limits specified in the Circular;

++ though the References are undoubtedly made by the Tribunal, they emanate from an application by one of the parties before it leading to the order giving rise to the question of law requiring the opinion of the Court. This in practice is similar to the statutory appeal u/s 260A being filed by a party to the High Court for the reason that, this appeal is not considered as a matter of right of the party but only if the court to which the appeal is preferred is satisfied that a substantial question of law arises and admits the appeal for further consideration. Therefore a pending appeal u/s 260A is no different from a pending Reference in as much as in the case of a Reference the Tribunal is of the view that a substantial question of law arises either on its own which requires the opinion of the Court, while in a pending appeal u/s 260A which has been admitted, the Court is of the view that a substantial question of law arises which requires due consideration by the Court. Therefore we construe the Circular dated 10th December 2015 as applicable even to pending References in the same manner they apply to pending appeals. The need for the CBDT to issue the 15th December 2015 Circular and to clarify that it would apply retrospectively to govern even pending appeals arose on account of the enormous increase in the number of appeals being filed by the Revenue over the years. It appears that appeals are being filed by the Revenue from almost every order of the Tribunal adverse to it, without taking into account the tax effect involved with the fear that in other cases where tax effect is more, the nonfiling of an appeal may be used against the department as having accepted the position in law. It is in that view that the Circular of 2015 clarifies that non filing of appeal in view of low tax effect will not be used against the Revenue in other appeals. In the above view, we hold that as admittedly, the tax effect is less than Rs. 20 lacs in the present Reference Application at the instance of the Revenue, the same is being returned unanswered. However, we make it clear that the question of law as raised for our opinion is left open to be considered in an appropriate case.

(See 2016-TIOL-98-HC-MUM-IT)