Tax Effect In Appeals Below Monetary Limit Of Rs.1 Crore; Kerala High Court Dismisses ​​Dept's Appeal

The Kerala High Court has held that the tax effect in the appeals filed by the income tax department pertaining to assessment years 2006–07, 2007–08, 2008–09, 2009–10, and 2010–11 is well below the monetary limit of Rs. 1 crore and is liable to be dismissed.

The bench of Justice A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M. has observed that, as per Circular No. 3 of 2018 issued by the Central Board of Direct Taxes, appeals cannot be maintained by the revenue before the High Court if the tax effect in the appeal does not exceed Rs. 50 lakhs. A subsequent Circular No. 17 of 2019 dated August 8, 2019 was issued by the CBDT, and the monetary limit has since been enhanced to Rs. 1 crore.

The respondent-assessee is a trust instituted in 1999 that was granted registration under Section 12A/12AA of the Income Tax Act as early as 2002. The trust is engaged in running medical, dental, engineering, and ayurvedic colleges on a self-financed basis. Pursuant to a search conducted on the premises of the Trust and its satellite institutions on October 31, 2011, under Section 132, the Department launched proceedings for cancellation of the registration and consequent denial of the exemption that was available to the Trust in terms of the Act. The department for the purposes of making additions to the taxable income of the trust for the various assessment years from 2006–07 to 2012–13.

The proceedings that were initiated by the Income Tax Department for sustaining the additions made to the taxable income of the trust for the assessment years. It would appear that, based on material that was obtained during the search, additions were made to the income of the trust for the various assessment years, except for the years 2006–07 and 2007–08.

The assessing officer also had a case that the income of the trust for these years had to be brought to tax under the normal rate of tax since, according to him, the benefits under Section 11 were not available to the respondent-assessee since they had not satisfied the conditions under Section 13.

The assessee preferred appeals before the First Appellate Authority against the assessment order passed by the assessing authority for the various assessment years. The First Appellate Authority confirmed the denial of exemption to the assessee on the ground that it had not filed the returns of income within time during the various assessment years in question. The additions made by the assessing authority were also partly sustained, save for the assessment year 2008–09, where the additions were completely deleted by the First Appellate Authority. There was no appeal filed by the revenue against the said deletion by the First Appellate Authority.

The assessee preferred appeals before the Income Tax Appellate Tribunal against the orders of the First Appellate Authority. In the meantime, the Appellate Tribunal, in the appeal preferred against the orders of the authorities below, confirming the denial of exemption to the respondent-assessee, found as a matter of fact that there had been no application of the funds of the assessee-trust for purposes unconnected with the objects of the trust. The assessee had not violated any of the conditions mentioned in Section 13 of the Act for denial of the benefits under Section 11 or for cancellation of its registration under Section 12AA of the Act.

The Tribunal found, therefore, that the assessee was entitled to the benefit of the exemption envisaged for registered trusts. It is significant that, against the order of the Tribunal that was in favor of the assessee, the department did not choose to file any appeal. The order of the Tribunal has therefore become final and binding on the department.

The assessee contended that, in view of Circular No. 3 of 2018 issued by the Central Board of Direct Taxes, Government of India (Ministry of Finance, Department of Revenue), appeals cannot be maintained by the revenue before the High Court if the tax effect in the appeal does not exceed Rs. 50 lakhs. A subsequent Circular No. 17 of 2019 dated August 8, 2019, by which the monetary limit has since been enhanced to Rs. 1 crore. The Supreme Court in the case of Director of Income Tax, Circle v. S.R.M.B. Diary Farming (P) Ltd. held that the circulars would apply even to pending appeals by the revenue before this court and that the only caveat to be observed is that the circulars should not be applied by the High Court when they have a cascading effect or where common principles are involved in a subsequent group of matters or a large number of matters. There is no cascading effect that arises, nor are there common principles involved in a large number of matters for the caveat to be observed.

The issue raised was whether the monetary limit in any of these appeals was breached through the filing of these appeals.

The court dismissed the income tax appeals as not maintainable in view of the circulars referred to above that are binding on the department in view of the judgment of the Supreme Court in S.R.M.B. Diary Farming (P) Ltd.

Counsel For Petitioner: P.K.Ravindranatha Menon

Counsel For Respondent: Joseph Markose

2024 LiveLaw (Ker) 445

Case Title: PCIT Versus Kunhitharuvai Memorial Charitable Trust

Case No.: ITA NO. 18 OF 2020

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