Income-tax---

----Central Board of Direct Taxes---Powers of CBDT---Scope of powers-- Board cannot clarify its instructions to a private person---Indian Income Tax Act, 1961, Ss. 116 & 119.

A conjoint reading of the provisions of sections 116(a) and 119 of the Income Tax Act, 1961, makes it clear that the Central Board of Direct Taxes being the highest executive authority, exercises its power and supervision and control over the whole Department and it also possesses rule-making power and power to issue orders, instructions and directions to all officers and persons employed in the execution of the Act subject to two exceptions, namely, that it cannot interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions and it cannot direct the Income-tax Authority to make a particular assessment or to dispose of a particular case in a particular manner. Being the executive head the Board can definitely issue orders/instructions or directions by way of issuing circulars but the law does not give the Board power to clarify the inner meaning of a circular or order to an individual. In order to clear an ambiguity in orders or instructions or directions, the Income-tax Authorities may approach the Board and the Board may clear the ambiguity but it definitely does not mean that on the request made by a private individual the Board can clarify the intention in issuing any direction, order, etc.

The appellant was a company, which deducted income-tax from the salary of its employees and deposited the same in accordance with law. In addition to salary, allowances and other taxable perquisites of the individual employees of the factory, the company had provided them with the services of sweepers by way of reimbursement of wages of sweepers engaged by the individual employees. For the financial year 1991-92, the appellant-company was called upon to add the sweepers' wages in the taxable salary of the concerned employees and also was directed to pay tax, which the appellant had failed to deduct during the financial year 1990-91. The appellant addressed a letter to the Chairman of the Board on March 6, 1992,requesting the Board to issue. administrative direction/clarification for proper implementation of its Instruction No. 133. dated December 10, 1969. The Board on July 28, 1992, informed the appellant-company that the said instruction of 1969 was not applicable to the case of the company and, as such, the amount paid was to be included in the salary of the employees under section 17(2)(iv) of the Act. Subsequently, by a notice issued in September, 1992, the assessing authority called upon the

appellant-company to show cause as to why it should not be treated as an "assessee in default" on account of failure to deduct tax on sweepers' allowance by not adding the total amount in the salary of the employees. It was also called upon to show cause why a penalty proceeding should not be initiated against it. The appellant challenged the order of the Board, dated July 28, 1992, as well as the notice. Before the writ Court it was contended on behalf of the appellant company that it was covered under Instruction No. 133 of 1969 and, as such, the Board erred in law in holding that the said instruction was not applicable to the case of the company. The Single 'Judge held that the clarificatory circular could not be said to have been issued only for the purpose of the appellant's case, rather it wits a general circular applicable to all concerned. The appellant was given liberty to produce all the materials before the assessing authority, who was required to consider and decide the matter in accordance with law after giving opportunity to the parties. It was further directed that the assessing authority shall also take into consideration the effect of the Board's Circular No.662, dated September 27, 1993, which was subsequently issued by the Board during the pendency of the writ application. On appeal from the order of the Single Judge:

Held, dismissing the appeal, that when the Board issued its order on July 28, 1992, on the request made by the appellant, it could not be said that the said communication was a quasi judicial order of the Board. Moreover, there was no dispute regarding the fact that in the year 1993 another circular was issued which clearly indicated the circumstances under which the said circular would be applicable. The appellant had not challenged the said circular by filing an amendment petition in the writ application. Hence, it could not raise any objection to the said circular of 1993. As the Board had no jurisdiction/power under law to issue such clarificatory communication on the request made by the appellant, the question of giving opportunity of being heard to the appellant did not arise. On the other hand, the Single Judge having given liberty to the appellant to raise all such points before the assessing authority in the assessment proceeding and also having directed the assessing authority not to be prejudiced by the said communication, the appellant could not make any grievance before the Appellate Court against the judgment of the Single Judge.

M.M. Bhattacharya, D.K. Sinha and M.M. Banerjee for Appellant.

L.N. Rastogi and K.K. Jhunjhunwala for Respondents.

JUDGMENT

S.K. CHATTOPADHYAYA, J.---This Letters Patent Appeal is directed against the order of a learned Single Judge, dated March 13, 1995, passed in C.W.J.C. No.3264 of 1992(R), by reason of which, while declining to grant relief to the writ-petitioner-appellant, the application has been disposed of by giving the petitioner-appellant liberty to produce all the materials before the assessing authority and by further directing the Assistant Commissioner of Income-tax to consider aid decide the matter on merits and in accordance with law after giving the petitioner opportunity of being heard.

Before appreciating the contentions advanced on behalf of the parties, the factual background of the case may be portrayed. The appellant, a limited company, moved this Court under Articles 226 and 227 of the Constitution for quashing the order, dated July 28, 1992, passed by the Central Board of Direct Taxes, New Delhi (hereinafter referred to as "the Board"), by reason of which the Board opined that Circular Instruction No. 133, dated December 10, 1969, is not applicable to the case of the petitioner and the petitioner was not entitled to avail of the benefit thereof. Further prayer was made to restrain the Assistant Commissioner of Income tax (hereinafter referred to as "the assessing authority") from proceeding pursuant to a notice, dated September 22/24, 1992, whereby and where under the assessing authority called upon the petitioner to show cause why it should not be treated as an "assessee in default" under section 192 of the Income Tax Act, 1961, and why penalty proceeding under section 271-C of the said Act should not be initiated against it.

The case of the writ petitioner is that it is engaged in manufacturing and sale of tapered roller bearings, components and related parts and being assessed to income-tax under the Income Tax Act, 1961 (hereinafter referred to as the "said 'Act"), at Calcutta, and its factory/office is situated at Jamshedpur in

the State of Bihar. The company deducts income-tax amount from the salary of its employees working in the said factory/office and deposits the same in accordance with law. In addition to salary, allowances and other taxable perquisites of the individual employees of the factory, the company has provided them with the services of sweepers by way of reimbursement of wages of sweepers engaged by the individual employees. In connection with the annual return filed by the company for the accounting year 1990-91, the assessing authority by its notice, dated August 21, 1991, directed the writ petitioner to appear with the particulars as mentioned in the' notice. The said notice is contained in Annexure-1 to the writ application. Even after appearance and furnishing the required information the petitioner company was served with a further notice, dated January 23, 1992 (Annexure-3), wherein it was mentioned that the Board's Instruction No. 133, dated December 10, 1969, was applicable only to a case where the employee is provided with an accommodation owned by the employer otherwise the entire amount of sweepers' allowances was to be included in the taxable income of the employees. For the financial year 1991-92, the petitioner company was called upon to add the sweepers' wages in the taxable salary of the concerned employees and also was directed to pay tax, which the petitioner had failed to deduct during the said financial year 1990-91. The petitioner moved respondent No. 1, the Commissioner of Income-tax Ranchi, on February 18, 1992, with a request to issue administrative direction/ clarification for the proper implementation of Instruction No. 133, dated December 10, 1969. Subsequently, the assessing authority sought further information as to whether the houses in question have been given to the employees of the petitioner-company by the landlord, namely, TISCO Ltd., or by the employer-petitioner-company itself and as to who pays the rent to TISCO Ltd., the owner of the premises. Being, thus, noticed, the petitioner is said to have discussed the matter with the Deputy Commissioner of Income-tax, who allowed it to continue deduction of taxes at source from the salary after considering the taxable value of perquisites for sweepers in view of the said Board's Instruction No. 133.

It is the case of the petitioner-company that it directly addressed a letter to the Chairman of the Board on March 6, 1992, requesting the Board to issue administrative direction/clarification for proper implementation of its Instruction No. 133, dated December 10, 1969. The Board on July 28, 1992, informed the petitioner-company that the said instruction of 1969 is not applicable to the. case of the company and, as such, the amount paid was to be included in the salary of the employees under section 17(2)(iv) of the Act. Subsequently, by notice, dated September 22/24, 1992, the assessing authority called upon the petitioner-company to show cause as to why it should not be treated as an "assessee in default" on account of the failure to deduct tax on sweepers' allowance by not adding the total amount in the salary of the employees. It was also called upon to show cause why a penalty proceeding should not be initiated against it.

It appears that being aggrieved, the petitioner-company challenged the order of the Board, dated July 28, 1992 (Annexure-9), as well as the notice, dated September 22/24, 1992 (Annexure 10). Before the writ Court it was contended on behalf of the petitioner-company that it was covered under Instruction No. 133 of 1969 and, as such, the Board erred in law in holding that the said instruction is not applicable to the case of the company. Consequently, it was urged that the notice as contained in Annexure-10 issued by the assessing authority, was without jurisdiction and should not be given effect to. It appears that the learned Single Judge, after hearing the parties, took the view that the communication, dated July 28, 1992 (Annexure-9), was merely an opinion expressed by the Board that Instruction No. 133 was not applicable to its case and the learned Single Judge also negatived the contention of the petitioner--company that Board should have given an opportunity of hearing before expressing the said opinion on July 28, 1992. The writ Court was of the view that as the regular assessment was pending before the competent Authority, it was futile for this Court to go into the question as to the effect of Instruction No. 133, dated December 10, 1969, and also the clarification of the Board, dated July 28, 1992. The writ Court also refused to decide as to whether such claim of reimbursement of the sweepers' wages would come within the ambit of perquisites or not.

It appears that the learned Single Judge took the above view taking into consideration that the opinion of the Board, dated July 28, 1992, appeared to have been based on the facts and circumstances narrated by the petitioner-company in its. letter, dated March 6, 1992, and the same could not be treated as a final verdict in the matter inasmuch as the entire materials in this regard were not made available before the Board. The contention of the petitioner-company that in view of the said clarification of the Board (Annexure-9) the proceeding before the assessing authority would be a futile exercise inasmuch as he would not act contrary to the clarification made by the Board, was negatived by the learned Single Judge, holding that the said apprehension of the petitioner was imaginary and incorrect. This Court was also of the opinion that the said clarificatory circular could not be said to have been issued only for the purpose of the petitioner's case, rather it was a general circular applicable to all concerned. Having held that the communication as contained in Annexure-9 is not the final order of the Board, the petitioner was given liberty to produce all the materials before the assessing authority, who was required to consider and decide the matter in accordance with law after giving opportunity to the parties and without being influenced by Annexure-9, while considering the matter and passing final assessment order in accordance with law. It was further directed that the assessing authority shall also take into consideration the effect of the Board's Circular No.662 (see (1993) 204 ITR (St.) 34), dated September 27, 1993, which was subsequently issued by the Board during the pendency of the writ application. This order of the Single Judge, thus, disposing of the writ application, has been impugned before us.

Mr. Bhattacharya, learned senior counsel appearing on behalf of the appellant, impugning the order of the learned Single Judge, has strenuously argued that when the Board intimated the petitioner-appellant, on July 28, 1992, that its case was not covered by Instruction No. 133, dated December 10, 1969, even though the learned Single Judge directed the assessing authority not to be influenced by the said communications, the appellant's apprehension is that the assessing authority in deciding the assessment proceeding cannot overlook the said communication and the same will definitely prejudice the appellant-company in the assessment proceeding. Learned counsel further contended that when the Board, on the representation/letter of request of the appellant, communicated to it that on the facts and circumstances the said Notification of 1969 would not be applicable to the case of the petitioner-appellant, the Board was required to give a reasonable opportunity of being heard and that having not been done, the Board has violated the principle of natural justice. Last, but not the least, learned counsel continues that the mala fide action of the authority is writ large from the fact that during the pendency of the writ application a circular has been issued on September 27, 1993, which highly prejudiced the appellant-company.

Mr. Rastogi, learned senior counsel appearing on behalf of the Revenue, on the other hand has contended that the appellant cannot make any grievance against the order of the learned Single Judge inasmuch as the writ Court has kept the matter wide open and directed the assessing authority to decide the assessment proceeding in accordance with law without being prejudiced by the said clarificatory communication of the Board. He urged that under section 119 of the Act, the Board was not empowered to give any clarification in respect of a circular issued by it on the request made by any individual assessee like the petitioner-appellant and even assuming that the Board had jurisdiction to clarify any circular, thus, issued, the said clarification cannot override the very intention/interpretation of the circular itself.

From the aforesaid submissions made on behalf of the parties, the points, which are required to be considered in my view, are as follows:

(i)Whether the learned Single Judge has committed any illegality in declining to give any relief to the appellant in view of the pendency of the assessment proceeding?

(ii)Whether his Lordship having refused to interpret the import of Instruction No. 133, the Appellate Court can entertain the plea of the appellant for interpreting the same?

(iii)Whether the appellant would be prejudiced by the observation of the learned Single Judge that the assessing authority will not be influenced by the communication of the Board as contained in Annexure-9 of the writ application while disposing of the assessment proceeding?

(iv)Whether the Board had any jurisdiction under the Act to entertain the application of the appellant seeking clarification of Instruction No.133 of 1969 and to issue communication as contained in Annexure-9 of the writ application?

(v)Whether before communicating its aforesaid clarification on the request made by the appellant, the Board was required to give an opportunity to the appellant of hearing?

In this context the relevant provisions of the law may be looked into. Section 2(12) of the Income Tax Act, 1961, defines "Board" which means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963). In view of section 3 of the Central Board of Revenue Act, 1963, the Board shall, subject to the control of the Central Government, exercise such powers and perform such duties, as may be entrusted to the Board by the Central Government or by or under any law. Sections 116 to 119 of the Income-tax Act deal with the Income-tax Authorities both quasi judicial and executive. In the instant case, we are mainly concerned with section 119 of the Act, which reads as follows:

119. Instructions to subordinate authorities.---(1) 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 Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the exercise of his appellate functions.

(2)Without prejudice to the generality of the foregoing power,--

(a)the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections 139, 143, 144, 147, 148, 154, 1.55, (subsection (1-A) of section 201, sections 210, 211, 234-A, 234-B, 234-C), 271 and 273 or otherwise), general or special orders in respect of any class of incomes or class of cases, setting forth directions or instructions (not being prejudicial to assessees) as to the guidelines, principles or procedures to be followed by other Income-tax Authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties and any such order may, if the Board is of opinion that it is necessary in the public interest so to do, be published and circulated in the prescribed manner for general information;

(b)the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorize any Income-tax Authority, not being a Deputy Commissioner (Appeals) or Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law.

(c)the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order for reasons to be specified therein, relax any requirement contained in any of the provisions of Chapter IV or Chapter VI-A, where the assessee has failed to comply with any requirement specified in such provision for claiming deduction thereunder, subject to the following conditions, namely:--

(i)the default in complying with such requirement was due to circumstances beyond the control of the assessee; and

(ii)the assessee has complied with such requirement before the completion of assessment in relation to the previous year in which such deduction is claimed:

Provided that the Central Government shall cause every order issued under this clause to be laid before each House of Parliament."

On a conjoint reading of the provisions as laid down in sections 116(a) and 199, it appears that the Board being the highest executive authority, exercises its power of administration, supervision and control over the whole Department and it also possesses rule-making power and power to issue orders, instructions and directions to all officers and persons employed in the execution of this Act subject to two exceptions, namely, that it cannot interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate function and it cannot direct the Income-tax Authority to make a particular assessment or to dispose of particular case in a particular manner. There is no dispute that the Board has power to issue general circulars which are binding on the Department but so far as quasi judicial functions of an Income-tax Authority are concerned, the" Board cannot control the same in a particular case. However, they can be so controlled to the extent that general directions are issued by the Board. It is, therefore, clear that the Board is the highest executive authority and can issue orders, instructions and directions to the other Income-tax Authorities which will be binding on such authorities but in their quasi-judicial functions the authorities cannot be controlled by the Board.

In this background, it can very well be said that the Board, in exercise its power under section 119(1), issued Instruction No.133 on December 10, 1969, which was admittedly binding on the Income-tax Authorities. The appellant, it appears, invited, the clarification from the Board suo mote without there being any provision under the Act and the Board in its clarificatory letter informed the appellant that the said circular was not applicable to the case of the appellant.

Mr. Bhattacharya has failed to point out any provision of law which empowers the Board to give any clarification of a circular/instruction/ order/direction on the request matte by a particular individual. He also fairly conceded that there is no decision in this regard either of any High Court or the apex Court. However, laying much stress on subsection (2)(a) of section 119, he contends that the Board has ample power to issue special orders in respect of any class of income or class of cases and if it has given the aforesaid clarification (Annexure-9) which is prejudicial to the appellant assessee, the said clarification can well be challenged under Articles 226 and 227 of the Constitution. In my opinion, the contention of Mr. Bhattacharya is not sustainable in law.

I have already pointed out that being the executive head the Board can definitely issue orders /instructions or directions by way of issuing circulars but the law does not give the Board power to clarify the inner meaning of a circular or order to an individual. It may be possible that other income-tax authorities not being able to appreciate some orders/instructions or directions of the Board, may seek any clarification so that they may not be misguided in interpreting the same and the Board may clear its intention in issuing such orders, etc., to such income-tax authorities. It means that in order to clear an ambiguity in some orders or instructions or directions, the income-tax authorities may approach the Board and the Board may clear the ambiguity but it definitely does not mean that on the request made by , a private individual the Board can clarify the intention in issuing any direction, order, etc. Thus, when the Board issued Annexure-9 on the request made by the appellant, it cannot be said that the said communication is a quasi-judicial order of the Board. Moreover, there is no dispute about the fact that in the year 1993 another circular was issued which clearly indicates as to under what circumstances the said circular wound be applicable. The appellant, having not impugned the said notification by filing an amendment petition in the aforesaid writ application, in my view, cannot make any grievance against the said circular of 1993.

In these premises, the argument of Mr. Bhattacharya that even if there is no provision under the Act to give an opportunity of hearing by the Board, the appellant was entitled to get such opportunity from the Board before issuing Annexure-9, in my considered opinion is only to be seen to be rejected. I have already noticed that as the Board had no jurisdiction/power under the law to issue such clarificatory communication on the request made by the appellant, the question of giving opportunity of being heard to the appellant does not arise. On the other hand, the learned Single Judge having given liberty to the appellant to raise all such points before the assessing authority in the assessment proceeding and also having directed the assessing authority not to be prejudiced by the said communication (Annexure-9), the appellant cannot make any grievance before the Appellate Court against the judgment of the learned Single Judge. The apprehension of Mr. Bhattacharya that though this direction has been given by the learned Single Judge to the assessing authority but the assessing authority is bound to be influenced by the said communication of the Board, in my view, is misconceived. In my opinion, the learned Single Judge has rightly observed that the clarification of the order as contained in Annexure-9 was based on the facts and circumstances- stated by the appellant in its letter, dated March 6, 1992, and the same cannot be treated as final verdict in the matter inasmuch as the entire materials in this regard were not available before the Board. Further, contention of Mr. Bhattacharya that the Board has not assigned any reason in Annexure-9 for holding that Instruction No.133 of 1969 is not applicable to the case of the appellant has also no merit inasmuch as when the Board was not empowered to issue such communication and the same was a mere information in view of the query made by the appellant, no reason was required to be given.

Having considered the pros and cons of the entire case and the taw relating thereto, I am of the view that no case has been made out by the appellant for interfering with the judgment of the learned Single Judge.

In the result, this appeal is dismissed. However, no order as to costs. As there is no stay of the impugned judgment, the assessing authority is directed to dispose of the assessment proceeding in accordance with law after hearing the appellant.

LOKNATH PRASAD, J.---I agree.

M.B.A./4055/FAppeal dismissed.