Document Fragment View
Fragment Information
Showing contexts for: circulars binding in Lodge Hamilton 26 vs Income Tax Officer on 18 March, 1996Matching Fragments
"The directions given in that circular clearly deviated from the provisions of the Act, yet the Court held that the circular was binding on the ITO."
The learned Departmental Representative further argued that the above referred judgment of the Supreme Court came to be examined by the Hon'ble Andhra Pradesh High Court in the case of CIT vs. Sahney Steel & Press Works Ltd. (1985) 152 ITR 39 (AP), where the Hon'ble High Court observed as under :
"The decision cannot be understood to mean that even though a circular of the Central Board runs counter to the provisions of the Act, still it has to be followed and applied..."
It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under s. 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the idea was not to affect such transactions and not to bring them within the mischief of the new provision.
The directions given in that circular clearly deviated from the provisions of the Act, yet this Court held that the circular was binding on the ITO."
The above observations were quoted with approval in Ellerman Lines Ltd. vs. CIT (1971) 82 ITR 913 (SC), where Hegde, J. after quoting from the above observation of Gajendragadkar, C.J. laid down in paragraph 19 in unmistakable terms that direction given in the circulars in the earlier case clearly deviated from the provisions of the Act, yet the Supreme Court held that the circular is binding on the ITOs. Again in K. P. Varghese vs. ITO (1981) 131 ITR 597 (SC), Bhagwati J. (as he then was), again observed as below :
'The two circulars of the CBDT to which we have just referred are legally binding on the Revenue and this binding character attracts to the two circulars even if they be found not in accordance with the correct interpretation of sub-s. (2) and they depart or deviate from such construction. It is now well settled as a result of two decisions of this Court, one in Navnitlal C. Javeri vs. K. K. Sen, AAC (supra) and the other in Ellerman Lines Ltd. vs. CIT (supra) that circulars issued by the CBDT under s. 119 of the Act are binding on all officers and persons employed in the execution of the Act even if they deviate from the provisions of the Act.' The observations in State Bank of Travancore vs. CIT (supra) made by Sabyasachi Mukharji, J. to the effect that the circulars being executive in character cannot alter the provisions of the Act run counter to the observations of Gajendragadkar, C.J. in the case of Navnitlal C. Javeri (supra). The latter being judgment of five Judges and the former of three Judges, I am bound to follow the case of Navnitlal C. Javeri (supra). It is thus obvious that in terms of the circular of the CBDT quoted above, no penalty could have been levied. The assessee was certainly in default, but the CBDT's circular being binding on the officers employed in execution of the Act under s. 5(8), they were bound to give effect to the circular."