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Hindustan Aeronautics Ltd., Bangalore v. Commissioner Of Income Tax, Karnataka-I, Bangalore .
Factual and Procedural Background
M/s Hindustan Aeronautics Ltd. (the assessee) filed its income-tax return for Assessment Year 1970-71. The Income-tax Officer (ITO) completed the assessment on 15-3-1973, disallowing certain deductions. The assessee’s first appeal to the Appellate Assistant Commissioner (AAC) was partly allowed on 27-10-1976. Both the Revenue and the assessee then filed independent second appeals before the Income-tax Appellate Tribunal (ITAT).
On 9-5-1977 the assessee withdrew its appeal, reserving liberty to file a revision under Section 264 of the Income-tax Act, 1961. The ITAT later dismissed the Revenue’s appeal on 20-5-1978. Meanwhile, on 19-5-1977 the assessee had filed a revision petition before the Commissioner of Income-tax under Section 264. The Commissioner dismissed that petition on 22-12-1978, holding that Section 264 barred revision once an appeal had been filed to the ITAT.
The assessee challenged the Commissioner’s order by Writ Petition No. 4803 of 1979. A learned Single Judge directed the Commissioner to entertain the revision in view of CBDT Circular No. XVI/11/69. On the Commissioner’s appeal, a Division Bench relied on Commissioner of Income-Tax v. Hindustan Aeronautics Ltd., (1986) 157 ITR 315 (Karn)(FB), and affirmed the Commissioner’s refusal. The present appeal is against that Division Bench judgment.
Legal Issues Presented
- Whether the Commissioner of Income-tax has power under Section 264 of the Income-tax Act, 1961, to revise an assessment order that has already become the subject of an appeal before the Income-tax Appellate Tribunal, even when the matters sought to be revised are distinct from those in appeal.
- Whether a circular issued by the Central Board of Direct Taxes (CBDT) under Section 119 can compel the Commissioner to entertain such a revision petition, despite the statutory bar in Section 264(4) and judicial pronouncements to the contrary.
Arguments of the Parties
Appellant's Arguments
- Invoked CBDT Circular No. XVI/11/69 and contended that, being issued under Section 119, it is binding on the Commissioner; therefore the revision petition ought to have been examined on merits.
- Relied on the Supreme Court decisions in Navnit Lal C. Javeri v. K.K. Sen, Ellerman Lines Ltd. v. CIT, and K.P. Varghese v. ITO to emphasise the binding character of Board circulars on tax authorities.
Revenue's Arguments
- Submitted that when the Supreme Court or a High Court has declared the law, administrative circulars cannot override those judicial pronouncements.
- Maintained that Section 264(4) explicitly bars the Commissioner from revising an order that has been appealed to the ITAT, regardless of whether the appeal was filed by the assessee or by the Department, or whether the subject-matters overlap.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner of Income-Tax v. Hindustan Aeronautics Ltd., (1986) 157 ITR 315 (Karn)(FB) | Held that a revision under Section 264 is not maintainable once the same order is appealed to the ITAT, even on distinct matters. | Followed by the High Court Division Bench; its reasoning was approved in the present judgment. |
| Additional Commissioner of Income-Tax v. Vijayalakshmi Lorry Service, (1986) 157 ITR 327 (Karn) | Earlier Karnataka view reiterating the bar under Section 264 when an appeal is before the ITAT. | Noted as the precedent the Commissioner had followed in rejecting the revision. |
| CWT v. Kasturbai Walchand, 1989 Supp (1) SCC 640; 177 ITR 188 | Supreme Court authority that the Commissioner cannot revise under Section 264 if the order has been appealed to the ITAT, irrespective of the party in appeal or the relief sought. | Treated as binding; formed the primary basis for affirming the High Court’s view. |
| Navnit Lal C. Javeri v. K.K. Sen, (1965) 56 ITR 198 | Recognised that CBDT circulars issued under Section 119 are binding on tax authorities. | Cited by the appellant; the Court distinguished the effect of circulars when contrary judicial pronouncements exist. |
| Ellerman Lines Ltd. v. CIT, (1972) 4 SCC 474; 82 ITR 913 | Also on the binding nature of Board circulars. | Cited by the appellant for the same proposition; not accepted to override Section 264(4). |
| K.P. Varghese v. ITO, (1981) 4 SCC 173; 131 ITR 597 | Another decision affirming that CBDT circulars are binding. | Relied upon by the appellant; distinguished by the Court for reasons similar to Navnit Lal and Ellerman Lines. |
Court's Reasoning and Analysis
The Court emphasised the statutory bar in Section 264(4), which prohibits the Commissioner from revising “any order” that “has been made the subject of an appeal to the Appellate Tribunal.” It reasoned that once an appeal is filed, the entire order of the AAC merges in the ITAT’s order; it cannot be dissected into appealed and un-appealed parts for the purpose of revision. The Court contrasted Section 264 with Section 263, noting that the latter expressly allows revision on matters not dealt with in appeal, thereby showing that the legislature deliberately omitted such a carve-out from Section 264.
Relying on its earlier decision in CWT v. Kasturbai Walchand, the Court held that the Commissioner lacks jurisdiction to entertain the assessee’s revision petition in the circumstances of the present case. With respect to CBDT Circular No. XVI/11/69, the Court accepted the Revenue’s submission that circulars, though generally binding, cannot override a clear statutory provision or a judicial interpretation by the Supreme Court or a High Court. Consequently, the direction of the learned Single Judge to enforce the circular could not stand.
Holding and Implications
Appeal Dismissed.
The decision confirms that a revision under Section 264 is barred whenever the same assessment order has been appealed to the ITAT, regardless of the appellant or the overlap of issues. It underscores that CBDT circulars cannot be applied in contravention of statutory language or authoritative judicial pronouncements. No costs were awarded, and the ruling leaves existing precedent intact without creating a new legal doctrine.
S. Rajendra Babu, J.— The appellant before us is M/s Hindustan Aeronautics Ltd., which is a wholly centrally-owned government company engaged in the manufacture of aeroplanes and its parts. For Assessment Year 1970-71, the appellant filed its return before the ITO concerned who by an order made on 15-3-1973 completed the assessment by disallowing certain deductions claimed by the appellant on various grounds. Against the assessment order of the ITO, the assessee filed an appeal before the Appellate Assistant Commissioner who by an order made on 27-10-1976 partly allowed the same. By the order of the Appellate Assistant Commissioner, both the Revenue and the assessee preferred second appeals before the Income Tax Appellate Tribunal, Bangalore to the extent each one of them was aggrieved. However, on 9-5-1977, the assessee withdrew its appeal before the Tribunal with liberty reserved to it to approach the Commissioner of Income Tax (Commissioner) in a revision under Section 264 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). On 20-5-1978, the Tribunal, however, dismissed the appeal filed by the Revenue on merits.
2. The assessee filed revision petition on 19-5-1977 under Section 264 of the Act to the extent of the grievance projected before the Tribunal earlier. On 22-12-78 the Commissioner dismissed the revision petition on the ground that he has no power to revise any order under Section 264 as the order had been made the subject to an appeal to the Appellate Tribunal.
3. A writ petition (No. 4803 of 1979) was filed challenging this order made by the Commissioner. The learned Single Judge, who considered the matter, directed the Commissioner to entertain the revision petition filed by the assessee in terms of Circular No. XVI/11/69 issued by the Central Board of Direct Taxes (hereinafter referred to as “the Board”) and examine its case on merits. Aggrieved by that order, an appeal was preferred by the Commissioner before the Division Bench.
4. The Division Bench following a decision in CIT v. Hindustan Aeronautics Ltd. (1986) 157 ITR 315 (Karn)(FB) of the Full Bench of the High Court held that the revision petition filed by the appellant could not be maintained and the Commissioner was justified in dismissing the same. The question considered by the Full Bench was as follows:
“Can the Commissioner of Income Tax entertain the assessee's revision petition under Section 264 of the Income Tax Act, 1961, preferred from a part of the appellate order of the Appellate Assistant Commissioner against which the assessee is aggrieved during the pendency or after the disposal, as the case may be, of the Department's second appeal before the Income Tax Appellate Tribunal preferred against another part of the same order where the subject-matter of the appellate and revisional proceedings are not the same but relates to distinct matters?”
The said question was answered in the negative.
5. This view is a reiteration of an earlier view stated in CIT v. Vijayalakshmi Lorry Service (1986) 157 ITR 327 (Karn). The Commissioner had in fact followed the decision of the High Court in Vijayalakshmi Lorry Service case (1986) 157 ITR 327 (Karn). It is not necessary for us to dilate on this aspect of the matter any further because this Court in CWT v. Kasturbai Walchand 1989 Supp (1) SCC 640, (1989) 177 ITR 188 (sic) has held that the Commissioner has no power to revise any order under Section 264 if the order
“has been made subject to an appeal to the Appellate Tribunal, even if the relief claimed in the revision is different from the relief claimed in the appeal and irrespective of the fact whether the appeal is by the assessee or by the Department”.
That is because Section 264(4) provides that the Commissioner shall not revise any order under this section in a case where the order has been made the subject of an appeal to the Appellate Tribunal. What becomes final in such a proceeding is the order made by the Appellate Tribunal which is a superior forum than that of the Commissioner and the order which is the subject-matter of an appeal cannot be divided into two parts — one which is the subject-matter of the appeal and the other which was not in issue in the appeal before the Tribunal. What becomes merged in the order of the Tribunal is the order made by the Appellate Assistant Commissioner in its entirety and not in part. Indeed where the legislature intended to make a distinction in such circumstances where there will be no merger in such cases is expressly provided. We may notice that under Section 263 of the Act where a revision is permissible in cases of orders which are prejudicial to the interest of the Revenue, in Explanation (c) thereof it has been provided where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal, the powers of the Commissioner under this sub-section shall extend to such matters as had not been considered and decided in such appeal. Where the legislature intended that the scope of revision should extend to a part of the order which had not been considered and decided in an appeal and thereby does not merge is explicitly provided. When the legislature does not make such a distinction in the scheme of Section 264 of the Act the view taken by the High Court appears to us to be correct.
6. However, the learned counsel for the appellant relied on the decisions in Navnit Lal C. Javeri v. K.K Sen (1965) 56 ITR 198, AIR 1965 SC 198, Ellerman Lines Ltd. v. CIT (1972) 4 SCC 474, (1971) 82 ITR 913 and K.P Varghese v. ITO (1981) 4 SCC 173, (1981) 131 ITR 597 to contend that the circular issued by the Board under Section 119 of the Act is binding on the Commissioner in terms of which he was bound to examine the revision of the appellant on merits and the order of the learned Single Judge merely gives effect to such a course. Dr Gauri Shankar, learned Senior Advocate for the Revenue, however, pointed out by referring to several decisions of this Court to the effect that the circulars or instructions given by the Board are no doubt binding in law on the authorities under the Act but when the Supreme Court or the High Court has declared the law on the question arising for consideration it will not be open to a court to direct that a circular should be given effect to and not the view expressed in a decision of the Supreme Court or the High Court. We find great force in this submission made by the learned Senior Advocate for the Revenue and find absolutely no merit in this appeal and the same stands dismissed, but in the circumstances of the case, there shall be no orders as to costs.
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