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S.C. Naregal (S) v. The Commissioner Of Income Tax, Hubli And Another (S).
Factual and Procedural Background
The Supreme Court decided a batch of civil appeals (Civil Appeal Nos. 8205-8214 of 2009) filed by M/s. S.C. Naregal challenging the judgment dated 23.09.2008 of the High Court of Karnataka, Circuit Bench at Dharwad, rendered in ITA Nos. 362-370 of 2004 and ITA No. 372 of 2004 for the relevant assessment years.
The controversy before the High Court concerned whether Instruction Order No. 5/2008 dated 15.05.2008 (regarding disposal of appeals involving low tax effect) could be availed in respect of appeals filed earlier. The High Court relied upon Clauses 8 and 11 of the Instruction, noting in particular Clause 11, which states that appeals filed on or before 15.05.2008 would be governed by the instructions operative at the time of filing.
Legal Issues Presented
- Whether Instruction Order No. 5/2008 dated 15.05.2008, providing for disposal/dismissal of appeals involving low tax effect, could be applied to the appeals in question despite Clause 11 indicating earlier-filed appeals would be governed by the instructions operative when they were filed.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Director of Income Tax, Circle 26(1), New Delhi v. S.R.M.B. Dairy Farming (P) Ltd., (2018) 13 SCC 239 | Clarified that the relevant low-tax-effect circular/instruction could apply even to pending matters, subject to caveats noted in Surya Herbal Ltd.; emphasized the need for clarity and finality on the issue. | Treated as directly analogous; the Supreme Court applied the same interpretive approach to Instruction Order No. 5/2008 under consideration. |
| Commissioner Of Income Tax, Central-Iii v. Surya Herbal Limited ., (2011) 15 SCC 482 | Identified as a three-Judge Bench decision that permitted retrospective application of the circular but with two caveats to protect the Revenue’s interest. | The Court relied on the Surya Herbal framework (as explained in S.R.M.B. Dairy Farming) to hold that the instruction could apply to pending matters, subject to the caveats; it further noted the present case did not trigger concerns like cascading effect or group matters. |
Court's Reasoning and Analysis
The Court noted that the High Court had relied on Clauses 8 and 11 of Instruction Order No. 5/2008, and that Clause 11 indicates earlier-filed appeals would be governed by the instructions operative at the time of filing. However, the Supreme Court found guidance in its prior decision in Director of Income Tax, Circle 26(1), New Delhi v. S.R.M.B. Dairy Farming (P) Ltd. (2018) 13 SCC 239, which had addressed a similar question about applying a low-tax-effect circular to pending matters.
In S.R.M.B. Dairy Farming, the Supreme Court (after considering decisions of different High Courts and also Surya Herbal Ltd.) held that the circular would apply even to pending matters, but subject to two caveats set out in Surya Herbal Ltd. The Court in the present case stated that the same interpretation “must apply” to the instructions under consideration (Instruction Order No. 5/2008).
On the facts as recorded, the Court further observed that the case did not present a possibility of a cascading effect, nor did it involve an issue forming part of a group of matters. On that basis, it allowed the appeals and applied the low-tax-effect instruction to treat the respondent’s High Court appeals as dismissed, while keeping the questions of law open.
Holding and Implications
ALLOWED: The Supreme Court set aside the High Court’s judgment dated 23.09.2008 and directed that the appeals filed by the respondent before the High Court be treated as dismissed on account of low tax effect, leaving questions of law open. Pending applications, if any, were disposed of.
The direct implication is that the Revenue’s appeals before the High Court (as described in the order) stand dismissed due to low tax effect, without adjudication on the underlying questions of law. The opinion applies the interpretive approach adopted in earlier Supreme Court decisions on low-tax-effect circulars/instructions; beyond that, it does not discuss broader implications.
1. Heard learned counsel for the parties.
2. These appeals take exception to the judgment dated 23.09.2008 passed by the High Court of Karnataka, Circuit Bench at Dharwad in ITA Nos. 362-370 of 2004 and ITA No. 372 of 2004 pertaining to relevant assessment years.
3. The issue before the High Court was whether the Instruction Order No. 5/2008 dated 15.05.2008 could be availed by the appellant(s), providing for disposal of the appeal(s) filed by the respondent involving low tax effect. The High Court has gone by Clauses 8 and 11 of the said Instruction. Indeed, Clause 11 of the Instruction does mention that where the appeals have been filed on or before 15.05.2008, will be governed by the instructions on this subject, operative at the time when such appeal was filed.
4. Similar question came up for consideration before this Court in Director of Income Tax, Circle 26(1), New Delhi v. S.R.M.B. Dairy Farming (P) Ltd., reported in (2018) 13 SCC 239. This Court after considering the decisions of different High Courts, including the Supreme Court decision on the question involved, namely, Commissioner of Income Tax v. Surya Herbal Ltd. reported in (2011) 15 SCC 482 answered the question in favour of assessee in the following words:
“23. We are of the view that the matter needs to be put to rest and a clarity be obtained in view of the impact of this issue on pending cases before the High Courts as well as the cases which have been disposed of by various High Courts by applying the Circular of 2011 to pending litigations. In our view the matter has been squarely put to rest taking further care of the interest of the Revenue by the order passed by the three-Judge Bench of this Court in Surya Herbal Ltd. Case, which had put two caveats even to the retrospective application of the Circular. The subsequent orders have been passed by the two-Judge Bench without those orders being brought to the notice of the Court, a duty which was cast on the Department to have done so to avail the ambiguity which has arisen. Thus, the said view of the three-Judge Bench would hold water and the Circular would apply even to pending matters but subject to the two caveats provided in Surya Herbal Ltd. case.”
5. The same interpretation must apply to the instructions under consideration. In the present case, there is no possibility of cascading effect nor the issue is involved in group of matters, as such. Therefore, the appeals are allowed.
6. As a result, the impugned judgment is set aside and the appeals filed by the respondent before the High Court be treated as dismissed in terms of this order because of low tax effect, leaving questions of law open.
7. Pending applications, if any, stand disposed of.
SUPREME COURT OF INDIA
RECORD OF PROCEEDINGS
Civil Appeal No(s). 8205-8214/2009
M/s. S.C. Naregal.….Appellant(s)
v.
The Commissioner of Income Tax, Hubli & Anr.….Respondent(s)
([AT TOP])
Date : 23-10-2019 These appeals were called on for hearing today.
(Before A.M. Khanwilkar and Dinesh Maheshwari, JJ.)
For Appellant(s) Mr. Preetesh Kapur, Sr. Adv.
Mr. Senthil Jagadeesan, AOR
Ms. Sonakshi Malhan, Adv.
Ms. Suriti Chowdhary, Adv.
Ms. Mrinal Kanwar, Adv.
For Respondent(s) Mr. B. V. Balaram Das, AOR
Mr. ANS Nadkarni, ASG
Ms. Pinki Anand, ASG
Mr. Arijit Prasad, Sr. Adv.
Mr. Baroona Gautam, Adv.
Mr. Arjun Garg, Adv.
Mr. Amit Verma, Adv.
Mr. Adit Khorana, Adv.
Mrs. Anil Katiyar, AOR
UPON hearing the counsel the Court made the following
8. The appeals are allowed in terms of the signed order.
9. Pending applications, if any, stand disposed of.
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