DIRECTOR OF INCOME TAX, CIRCLE 26(1) NEW DELHI versus S.R.M.B. DAIRY FARMING (P) LTD.
[2017] 11 S.C.R. 1118, Supreme Court of India, 2017
Outcome: Dismissed (Dismissed)
Segment: Ratio
[2017] 11 S.C.R. 1118 
A 
DIRECTOR OF INCOME TAX, CIRCLE 26(1) NEW DELHI 
B 
c 
v. 
S.R.M.B. DAIRY FARMING (P) LTD. 
(Civil Appeal No. 19650 of2017) 
NOVEMBER 23, 2017 
[R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.] 
Income Tax Act, 1961: 
Circular/Government order/Notification - Circular No.3 of 
2011 dated 9.2.2011 issued by IT department providing that appeals 
are not to be filed before the High Courts where tax impact was less 
than Rs.JO lakhs - Applicability of the circular to pending matters 
- Held: Circular dated 9.2.2011 would apply even to pending 
matters but subject to the two caveats provided in order passed by 
D a three-Judge Bench of Supreme Court in Surya Herbal case - The 
two caveats are: (i) Circular dated 9.2.2011 should not be applied 
by High Courts ipso facto when the matter has a cascading effect; 
(ii) where common principles may be involved in subsequent group 
of matters or large number of matters - Order passed in Surya 
E 
Herbal case holds the field - Appeals of Revenue accordingly 
dismissed. 
National Litigation Policy, 2011 - Purpose of - Discussed. 
Dismissing the appeals, the Court 
F 
HELD: The matter has been squarely put to rest taking 
further care of the interests of the Revenue by the order passed 
by the three Judges Bench of this Court in Surya Herbal Ltd., 
which had put two caveats even to the retrospective application 
of the Circular. The said view of the three Judges Bench would 
G hold water and Circular would apply even to
pending matters but 
subject to the two caveats provided in Surya Herbal Ltd. case. 
[Para 25) [1133-G; 1134-A-C] 
H 
CIT Central-Ill v. Surya Herbal Ltd. (2011) 15 SCC 
482 - Followed 
1118
. DIRECTOR OF LT, CIRCLE 26(1) NEW DELHI v. S.R.M.B. 
1119 
DAIRY FARMING (P) LTD. 
Suchitra Components Ltd. v. Commissioner of Central 
A 
· 
Excise, Guntur 2007 (208) ELT 321 (SC); 
Commissioner of Central Excise, Bangalore v. Mysore 
Electricals Industries Ltd. 2006 (204) ELT 517 (SC) -
relied on. 
Commissioner of Income Tax, Bangalore v. Ranka & 
Ranka 2012(284) ELT 185 (Kar.); Commissioner of 
Income Tax v. Pithwa Engg. Works (2005) 276 ITR 519 
(Born.); Com111:issioner of Income Tax v. Madhukar K. 
Inamdar (HUF) (2009) 318 ITR 149 (Born); 
Commissioner of Income Tax v. As/wk Kumar Manibhai 
Patel & Co. (2009) 317 ITR 386 (MP); Commissioner 
of Income Tax v. P.S. Jain & Co. (2011) 335 ITR 591 
(Delhi); Commissioner of Income Tax v. Varindera 
Construction Co. (2011) 331 ITR 449 (P&H)(FB); 
Commissioner of Income Tax v. Navbharat Explosives 
Co. P. Ltd. (2011) 337 ITR 515 (Chhattisgarh); 
Commissioner of Income Tax v. Kodanand 'Tea Estates 
Co. (2005) 275 ITR 244 (Mad.); CWT v. John L. 
Chacko/a (2011) 337 ITR 385 (Ker); Commissioner 
of Income Tax-VII, New Delhi v. Suman Dhamija (2015) 
16 SCC 176; Commissioner of Income Tax & Am: V. 
Century Park (2015) 14 SCC 704 - referred to. 
Case Law Reference 
(2011) 15 sec 482 
followed 
Paras 19, 25 
2012(284) ELT 185 (Kar.) 
referred to 
Paras 
(2005) 276 ITR 519 (Born.) 
referred to 
Para 14 
(2009) 318 ITR 149 (Born) 
referred to 
Para 15 
(2009) 317 ITR 386 (MP) 
referred to 
Para 16 
(2011) 335 ITR 591 (Delhi) 
referred to
Para 16 
(2011) 331 ITR 449 (P&H)(FB) 
referred to 
Para 17 
(2011) 337 ITR 515 (Chhattisgarh) referred to 
Para 18 
(2005) 275 ITR 244 (Mad.) 
referred to 
Para 18 
(2011) 337 ITR 385 (Ker) 
referred to 
Para 18 
B 
c 
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a· 
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SUPREME COURT REPORTS 
[2017] ll S.C.R. 
A 
(2015) 16 sec 176 
(2015) 14 sec 104 
referred to 
referred to 
relied on 
relied on 
Para 21 
Para 22 
Para24 
Para 24 
B 
2007 (208) ELT 321 (SC) 
2006 (204) ELT 517 (SC) 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 19650 
of2017. 
From the Judgment and Order dated 19.04.2011 of the High Court 
C of Delhi at New Delhi in ITA No. 4412005 
D 
WITH 
CivilAppealNo.19651 of2017. 
Arjjit Prasad, T. M. Singh, Ms. N. Annapoomi, Mrs. Anil Katiyar, 
Advs for the Appellant. 
S. B. Upadhyay, Sr. Adv, Pawan Upadhyay, Sarvjit Pratap Singh, 
Nishant Kr., Ms. Sharmila Upadhyay, Salil Kapoor, Sumit Lalchandani, 
Kamal Mohan Gupta, Advs for the Respondent. 
The Judgment of the Court was delivered by 
E 
SANJAY KISHAN KAUL, J. 1. Leave granted. 
2. The propensity of Government Departments and public 
authorities to keep litigating through different tiers of judicial scrutiny is 
one of the reasons for docket explosion. The Income Tax Department 
of the Government oflndia is one of the major litigants. There are two 
F departmental scrutinies at the level of the Assessing Officer and the 
Commissioner oflncome Tax (Appeals) and thereafter an independent 
judicial scrutiny at the Income Tax Appellate Tribunal (hereinafter 
referred to as the 'ITAT') level followed by the legal issue which can be 
inquired into by the High Courts. The last tier is, of course, the jurisdiction 
G under Article 136 of the Constitution of India before the
Supreme Court. 
H 
3. Mindful of the phenomenon of the docket explosion and the 
rising litigation in the country, the Union oflndia in order to ensure the 
conduct of responsible litigation framed what is today known as the 
National Litigation Policy, to bring down the pendency of cases and get 
meaningful issues decided from the judicial forums rather than multiple
DIRECTOR OF LT, CIRCLE 26(1) NEW DELHI v. S.R.M.B. 
1121 
DAIRY FARMING (P) LTD. [SANJAY KISHAN KAUL, J.] 
tiers of scrutiny just for the sake of it. The Government, being a litigant A 
in well over 50 per cent of the cases, has to take a lead in not being a 
compulsive litigant. 
4. It is towards the aforesaid avowed object that the Income Tax 
Department, from time to time, has come out with administrative circulars/ 
notifications for the Department not to litigate where the revenue impact 
B 
is low. 
5. In the present proceedings, we are concerned with the 
implementation oflnstruction No.3 of2011 dated 9.2.2011, providing for 
appeals not to be filed before the High Court(s) where the tax impact 
was less than Rs.10 lakh. It also contains certain other conditions which c 
will be reverted to later, but suffice to say that this Instruction was in 
supersession of the earlier Instruction No.1979 of 2000 dated 27.3.2000 
where the limit of the tax effect was Rs.4 lakh. The Instruction/Circular 
in question is stated to have a prospective effect as per the Revenue 
and, thus, cases which were pending in the High Court(s) and had been 
filed' prior to the Instruction in question (InstructionNo.3) but had tax 
D 
effect of less than Rs.10 lakh were, thus, required to be determined on 
their merits and not be dismissed by applying the circular/instruction. 
6. There has been a divergence of legal opinion on this aspect 
amongst the High Courts. 
7. There have also been
certain orders passed by this Court which 
appear to have a divergence of view and we consider it necessary to 
examine this issue in detail so that conflicting orders do not arise and the 
High Courts are also guided appropriately. This is also necessary, as in 
the mean time, a large number of cases have been disposed of on the 
application of the Instruction/Circular in question though the appeals were 
preferred by the Revenue prior to the Instruction/Circular being issued 
as a large number of High Courts took that view. 
High Courts of the View that the Circular in guestion would apply 
to pending appeals as well: 
A. Karnataka High Court: 
8. Commissioner of Income Tax, Bangalore v. Ranka & 
Ranka1• The issue was squarely addressed by the Division Bench of 
the Karnataka High Court recognizing that the concept of providing the 
12012(284) ELT 185 (Kar.) 
E 
F 
G 
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SUPREME COURT REPORTS 
[2017) 11 S.C.R. 
A monetary limit was not new and has been invoked from 1992. The limit 
was raised from time to time. The clause in the circular has explained 
the meaning of 'Tax Effect' as the "difference between the tax on total 
income assessed and the tax that would have been chargeable had such 
total income been reduced by the amount of income in respect of the 
B issues against which appeal is intended to be filed without impact of 
interest." The different clauses protected the interest of the Revenue 
so as not to have any precedentiary impact. There were, however, 
certain exclusions from this, i.e., challenge to constitutional validity of an 
Act or Rule, declaration of any Board Order, Notification, Instruction or 
Circular being held to be illegal or ultra vires, audit objections of the 
C Revenue Department being accepted by the Department. These 
Circulars have been given statutory recognition having been issued under 
Section 268A of the Income Tax Act, 1961 (hereinafter referred to as 
the 'IT Act'). 
9. The judgment took note of the fact that the Madras High Court, 
D Kerala High Court, Chhattisgarh High Court and the Punjab and Haryana 
High Court had taken a contra view, opining that the existing Circular/ 
Instruction prevailing at the relevant time when the appeal/reference 
was made would apply and there would be no retrospective application 
of the circular. On the other hand, the Bombay High Court, Madhya 
Pradesh High
Court, Delhi High Court had taken the view, which was 
E sought to be taken by the Karnataka High Court. 
10. The line of reasoning adopted is that as the value of money 
went down and the cases of the Revenue increased, the choking docket 
required such an endeavour and there is no reason why the same policy 
should not be applied to old matters to achieve the objective of the policy 
F laid down by the Central Board of Direct Taxes ('CBDT'). An earlier 
Circular dated 5.6.2007 issued by the CBDT was also taken note of, 
which required all appeals pending before the Court to be examined, 
with direction to withdraw the cases wherein criteria for monetary limit 
as per prevailing instructions was not satisfied unless the question oflaw 
G involved or raised in the appeal referred to High Court was of recurring 
nature, and therefore, required to be settled by a higher court. 
11. The Bench considered the issuance of the Circular in the 
conspectus of the National Litigation Policy Document Released. The 
said Policy Document which has been extracted in the judgment for its 
H reliance has been reproduced hereiriunder:
DIRECTOR OF LT, CIRCLE 26(1) NEW DELHI v. S.R.M.B. 
1123 
DAIRYFARMING (P) LTD. [SANJAY KISHAN KAUL, J.] 
"Introduction 
A 
Whereas at the National consultation for strengthening the judiciary 
toward reducing pendency and delays held on October 24/25, 2009, 
the Union Minister for Law and Justice, presented resolutions 
which were adopted by the entire conference unanimously. 
And wherein the said resolution acknowledged the initiative B 
undertaken by the Government of India to frame the National 
Litigation Policy with a view to ensure conduct of responsible 
litigation by the Central Government and urges every State 
Government to evolve similar policies. 
The National Litigation Policy is as follows: 
c 
The Vision/Mission . 
I. The National Litigation Policy is based on the recognition that 
the Government and its various agencies are the pre-dominant 
litigants in courts and Tribunals in the country. Its aim is to transform 
D 
the Government into an efficient and responsible litigant. This policy 
is also based on the recognition that it is the responsibility of the 
Government to protect the rights of citizens, to respect fundamental 
rights and those in charge of the conduct of the Government 
litigation should never forget this basic principle. 
"Efficient litigant" means 
- Focusing on the core issues involved in the litigation and 
addressing them squarely. 
· 
- Managing and conducting litigation in a cohesive, co-ordinated 
E 
and time-bound manner. 
· 
F 
-
Ensuring that good cases are won and bad cases are not 
needlessly persevered with. 
- A litigant who is represented by competent and sensitive legal 
persons: competent in their skills and sensitive to the facts that 
the Government is not, an ordinary litigant and that a litigation 
G 
does not have to be won at any cost. 
"Respo11sible litigant" means 
- That litigation will not be resorted to for the sake oflitigating. 
H
1124 
SUPREME COURT REPORTS 
[2017] 11 S.C.R. 
A 
- That false pleas and technical points will not be taken and shall 
be discouraged. 
B 
c 
D 
E 
F 
- Ensuring that the correct facts and all relevant documents will 
be placed before the court. 
- That nothing will be suppressed from the court and there will be 
no attempt to mislead any court or tribunal. 
2. The Government must cease to be a compulsive litigant. The 
philosophy that matters should be left to the courts for ultimate 
decision has to be discarded. The easy approach, "Let the court 
decide" must be eschewed and condemned-
3. The purpose underlying this policy is also to reduce the 
Government litigation in courts so that valuable court time would 
be spent in resolving other pending cases so as to achieve the 
goal in the principles incorporated in the National mission for judicial 
reforms which includes identifying bottlenecks which the 
Government and its agencies may be concerned with and also 
removing unnecessary Government cases. Prioritisation in litigation 
has to be achieved with particular emphasis on welfare legislation, 
social reform, weaker sections and senior citizens and other 
categories requiring assistance must be given utmost priority. 
In respect of filing of appeals in revenue matters it is stated as 
under: 
"(G) Appeals in revenue matters will not be filed: 
(a) if the stakes are not high and are less than that amount to be 
fixed by the Revenue authorities: 
(b) if the matter is
covered by a series of judgments of the Tribunal 
or of the High Court which have held the field and which have not 
G 
been challenged in the Supreme Court: 
( c) where the assessee has acted in accordance with long standing 
industry practice: 
(d) merely because of change of opinion on the part of the 
H 
jurisdictional officers.
DIRECTOR OF LT, CIRCLE 26(1) NEW DELHI v. S.R.M.B. 
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DAIRY FARMING (P) LTD. [SANJAY KISHAN KAUL, J.] 
Review of pending cases 
A 
(A) All pending cases involving the Government will be reviewed. 
This due diligence process shall involve drawing upon statistics of 
all pending matters which shall be provided for by all Government 
departments (including public sector undertakings). The Office 
of the Attorney General and the Solicitor General shall also be B 
responsible for reviewing all pending cases and filtering frivolous 
and vexatious matters from the meritorious ones. 
(B) Cases will be grouped and categorized. The practice of 
grouping should be introduced whereby cases should be assigned 
C 
a particular number of identity according to the subject and statute 
involved. In fact, further sub-grouping will also be attempted. To 
facilitate this process, standard forms must be devised which 
lawyers have to fill up at the time of filing of cases. Panels will be 
set up to implement categorization, review such cases to identify 
cases which can be withdrawn. These include cases which are D 
covered by decisions of courts and cases which are found without 
merit withdrawn. This must be done in a time bound fashion." 
12. We consider it appropriate to refer to some of the observations 
· in the judgment of the Karnataka High Court, which have our imprimatur, 
as under: 
E 
"22. The Government has formulat~d the National Litigation Policy 
with a view to ensure conduct
of responsible litigation by the 
Central Government and urges every State Government to evolve 
similar policies. Its aim is to transform Government into an efficient 
F 
and responsible litigant. "Efficient litigant" means ensuring that 
good cases are won and bad cases are not needlessly persevered 
with. The litigation should not be resorted to for the sake of 
litigating. The Government must cease to be a compulsive litigant. 
The philosophy, "that matters should be left to the courts for 
ultimate decision", has to be discarded. The easy approach, "Let G 
the court decide," must be eschewed and condemned. The purpose 
underlying this policy is also to reduce the Government litigation 
in courts so that valuable court time would be spent in resolving 
other pending cases, so as to achieve the goal in the National 
Legal Mission to reduce average pendency time from 15 years to H
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SUPREME COURT REPORTS 
[2017] I I S.C.R. 
3 years. All pending cases involving the Government has to be 
reviewed with the intention of filtering frivolous and vexatious 
matters from the meritorious one. Panels h!:lve to be set up to 
implement categorization, review such cases, to identify cases, 
which can be withdrawn. These include cases which are covered 
by decisions of courts and the cases which are found without 
merit. Such cases have to be withdrawn. This must be done in a 
time bound fashion. 
23. Instruction No. 3 of201 I is issued subsequent to the aforesaid 
National Litigation Policy. A perusal of the aforesaid policy makes 
it clear that though the said instruction was issued as a measure 
for reducing litigation, it was issued in supersession of the earlier 
instruction enhancing the monetary limits and prescribing certain 
conditions. The very fact that clause 11 provides that this instruction 
will apply to appeals filed on or after February 9, 2011, and where 
appeals have been filed before that date, the same will be governed 
by the instructions on this subject, operative at the time when the 
said appeal was filed, makes it clear that the said instruction is not 
applicable to the pending proceedings. The National Litigation 
Policy provides that appeals in revenue matters should not be 
filed if the stakes are not high and are less than that amount to be 
fixed by the Revenue authorities, it equally provided that cases
which are found without merit should be withdrawn. Similarly, 
cases which are covered by the decision of the courts also have 
to be withdrawn. For that purpose, a nodal officer has to be 
appointed and all pending cases have to be reviewed and frivolous 
and vexatious matters have to be filtered from the meritorious 
cases and the same are withdrawn. In other words, the National 
Litigation Policy dealt with the pending cases and wanted the 
pending cases to be reduced by way of withdrawal, so that 
valuable time of the courts would be spent in resolving other pending 
cases so as to achieve the goal in the National Legal Mission to 
reduce the average pendency from time from 15 years to 3 years. 
24. The National Litigation Policy expressly stated that the 
Government must cease to be a compulsive litigant. The philosophy, 
that the matters should be left to the courts for ultimate decision is 
to be discarded and the easy approach that "let the court decide",
DIRECTOR OF 1.T, CIRCLE 26(1) NEW DELHI v. S.R.M.B. 
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DAIRY FARMING (P) LTD. [SANJAY KISHAN KA!JL, J.] 
must be eschewed and condemned. The Revenue has not applied 
A 
its mind in this direction. No attempt is made to reduce the pendency 
of the litigation by filtering frivolous and vexatious matters from . 
meritorious ones and the said cases are withdrawn. The only 
measure taken for reducing the litigation is, by raising the monetary 
limit. However, as the same is made prospective, it had no 
application 'to the pending cases. Therefore, the said Instruction 
B 
No. 3 of 2011 do not fulfil the requirement prescribed by the 
National Litigation Policy. It only partially satisfies the requirement 
in respect of future litigation. Under the aforesaid instruction, the 
crucial date is the date of filing of the appeal. It is that date when 
the tax effect is less than the monetary limit prescribed, the · C 
Revenue is precluded from filing such appeals. Though the date 
of filing of the appeal may be the criteria, that by itself would not 
provide a rationale sufficient to distinguish between pending cases 
and cases to be filed in future. The earlier monetary limit was 
fixed in the year 2005. So it is after six years, the monetary limit is 
D 
enhanced. If only Instruction No. 3 of2011 had been made 
' 
applicable to the pending cases also, as laid down in the National 
Litigation Policy, the object of the policy would have been fulfilled. 
One of the ways of giving
effect to the said policy is to make that 
instruction applicable retrospectively to all pending appeals as on 
the date of the circular. It would substantially serve the object of E 
the policy. 
25. It is in this context, the question arises, when the instruction 
expressly states that the benefit of the said policy is prospective, 
still can the courts place a construction on such instruction so as 
to make it retrospective. In this context, the apex court in the 
F 
case of CCE v. Mysore Electricals Industries Ltd. reported in 
[2006] 204 ELT 517 (SC): [2007] 8 RC 1, dealing with the 
question how a beneficial circular is to be construed, has 
approached this question in the following manner. At paragraph 
13 of the judgment, it is stated that the learned counsel further .G 
submitted that the circular being oppressive and against the 
respondent, has to apply only prospectively and cannot be applied 
retrospectively. In other words, a beneficial circular has to be 
applied prospectively. Thus, when the circular is against the 
assessee they have a right to claim the enforcement of the same 
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SUPREME COURT REPORTS 
[2017] 11 S.C.R. 
prospectively. It is further submitted that for the period in question, 
trade notices had been issued classifying the circuit breakers under 
heading No. 85.35 or 85.36. When the approved classification 
was proposed to be revised to reclassify the single panel circuit 
breakers under heading No.85.37 of the tariff, such re-classification 
can take effect only prospectively from the date of communication 
of the show-cause notice proposing reclassification. 
26. Following this judgment, the apex court in the case of Suchitra 
Components Ltd. v. CCE reported in [2007] 208 ELT 321 (SC) 
held as under: 
'The point raised by the learned counsel for the appellant is covered 
by the recent judgment of this court in Civil Appeal No. 4488 of 
2005. CCE v. Mysore Electricals Industries Ltd. reported in 
[2006] (204) ELT 517 (SC). In the said judgment, this court 
held that a beneficial circular has to be applied retrospectively 
while oppressive circular has to he applied prospectively. Thus, 
when the circular is against the assessee, they have the right to 
claim the enforcement of the same prospectively." 
27. In the instant case, Instruction No. 3 of2011 is more beneficial 
than Instruction No. 2 of2005. Iflnstruction No. 3 of201 l is also 
made applicable to the pending appeals before this court, it would 
grant relief to the assessee. Apart from granting relief to the 
assessee, if a number of appeals pending
before this court are 
disposed of on the basis of the said circular, the precious time 
which would be saved by this court could be better utilized for 
deciding disputes where the tax effect is enormous. That apart, 
the duration, an appeal takes in this court would be reduced as 
desired by the National Litigation Policy. 
28. It is also not out of context to mention that periodically, the 
Revenue introduces what is called as the Kar Vivadh Samadhan 
G 
Scheme and the Voluntary Disclosure oflncome Scheme to annul 
black money and to give benefit to persons who are not prompt in 
filing returns and paying tax. But unfortunately, persons who are 
paying tax regularly but have succeeded before the Tribunal in 
showing that there is no tax liability, are made to face these 
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DIRECTOR OF LT, CIRCLE 26(1) NEW DELHI v. S.R.M.B. 
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DAIRY FARMING (P) LTD. [SANJAY KISHAN KAUL, J.] 
litigations, instead of concentrating their time and energy in 
A 
productive work. Under these circumstances, we are of the view 
that it is settled law that any notification issued under this fiscal 
legislation granting exemption from payment of tax has to be 
construed strictly. Any circulars/instructions issued conferring the 
benefit on the assessees who are still to come to the court and 
B 
who already inside the court, at any rate, if such a benefit is given 
to the pending matters, it would be only in the nature of one-time 
settlement, which most of the financial institutions throughout the 
country extend to defaulters who have borrowed money and who 
refuse to pay the same. 
29. It is also not out of place to mention herein that Parliament 
wanted to grant statutory recognition to these orders/instructions/ 
circulars, issued by the Department from time to time 
retrospectively to take care to protect the interests of the Revenue 
c 
by introducing sub-sections (2) and (3) in section 268A of the 
Act. This benefit conferred on these assessees would be only in 
D 
the nature of one-time settlement because if the same issue arises 
for consideration in the subsequent years and the tax effect is 
more than Rs. I 0 lakhs, it is not open to them to plead that either 
the Department is estopped from claiming such amount or that 
the order passed by this court
dismissing the appeals on the ground 
E 
that the tax effect being within the monetary limit would come in 
F 
the way of the Department proceeding against the assessee. The 
circular also makes it clear that in the pending appeals, where the 
constitutional validity of the provisions of the Act or Rule are under 
challenge, or where the Board's o_rder, notification, instruction or 
circular h~s been held to be illegal or ultra vires or whether the 
Revenue audit objection in the case has been accepted by the 
Department, notwithstanding the fact that the tax effect is less 
than the monetary limit fixed under the aforesaid circular, still it is 
open to the Department to request the court to permit them to 
prosecute such appeals. Thus, the Department has to apply its 
G 
mind in all the pending appeals and point out to the court, which 
are those appeals in which they intend to prosecute. Therefore, 
sufficient safeguards have been made to protect the interests of 
the public revenue. By this approach we would be saving the time 
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SUPREME COURT REPORTS 
[2017] 11 S.C.R. 
of the court, the time of the Department and public time in general 
and giving effect to the Nation Litigation Policy, 2011, so that it 
can be used for better and productive purpose." 
13. The Division Bench also pointed out the anomaly in the working 
of the Circular, were it to apply only prospectively, in the following words: 
"31. Yet another anomaly which requires to be noticed is, if a 
Tribunal where the number of cases which are pending are more, 
decides the appeal, subsequent to these latest circulars and the 
amount involved is less than Rs. 10 lakhs, the assessee in such 
cases get the benefit of the latest circular. However, ifthe Tribunal 
has decided a case expeditiously or in Tribunals where the pendency 
is less and if the subject-matter of the appeal preferred by the 
Revenue in such cases is more than Rs. 4 lakhs and less than Rs. 
10 lakhs, the assessees in those appeals are denied the benefit of 
the latest circular. In other words, where there is huge pendency 
of cases in the Tribunal or court, an appeal filed earlier is disposed 
of after the circular, the benefit accrues to the assessee. However, 
in Tribunals and the courts where the pendency of cases is less, 
an appeal filed recently is decided before the circular or where 
the assessee co-operates with the court in speed disposal of the 
appeal and the appeal is disposed of before the date of circular, 
he is denied the benefit
of the circular. Therefore, the benefit to 
which the assessee is entitled to should not be dependant on the 
date of the decision, over which neither the assessee nor the 
Revenue has no control. In this context, the circular would be 
discriminatory, if it is held to be prospective only. It could be saved 
from such vice of discrimination by holding it as retrospective. 
32. Though Circular/Instruction 3 of 2011 is issued by the 
Department in pursuance of the power conferred under the 
statutory provisions while issuing such circular/instruction, the 
Department has not kept in mind the object with which such 
circulars/instructions are issued from time to time. The object 
sought to be achieved by such circulars/instructions and also the 
law declared by the apex court, the National Litigation Policy, 
2011, as well as the various schemes introduced by the Department 
granting relief to persons who have not even filed returns and 
paid taxes, are kept in mind, to bring the circular/instruction in
DIRECTOR OF I.T, CIRCLE 26(1) NEW DELHI v. S.R.M.B. 
I 131 
DAIRY FARMING (P) LTD. [SANJAY KISHAN KAUL, J.] 
harmony with the National Litigation Policy, it would be appropriate 
A 
to hold that the benefit of such circular/instruction also applies to 
the pending cases in appeal in various courts and Tribunals on the 
date of the circular/instruction." 
B. Bombay High Court: 
14. Commissioner of Income Tax v. Pithwa Engg. Works2: 
This judgment of the Division Bench pertains to the Circular dated 
27 .3.2000 enhancing the previous limit but the ratio is the same. 
B 
15. In Commissioner of Income Tax v. Madhukar K. Inamdar 
(HUF)3 the Circular dated 15.5.2008 was examined, opining that it was 
C 
in public interest if the Revenue concentrates on the cases wherein tax 
effect is substantially high rather than running after tht; assessees wherein. 
the tax impact is less than Rs.4 lakhs, considering the cost of litigation 
and other administrative cost which may be much more than the tax 
recovery, especially in the context of the Circular dated 5.6.2007 requiring D 
the current matters also to be examined. 
C & D. Madhya Pradesh High Court & Delhi High Court: 
16. In Commissioner of Income Tax v. Ashok Kumar Manibhai 
Patel & Co.4 and Commissioner of Income Tax v. P.S. Jain & Co. 5: 
E 
In both the above cases, the Circular in question was dated 27.3.2000, 
but the ratio is the same. 
High Courts of the View that the Circular in question would awly 
only prospectively: 
A.
Punjab & Harvana High Court: 
. 17. In Commissioner of Income Tax v. Varindera Construction 
Co. 6 Instruction No.5/2008 dated 15.5.2008 was held to apply only 
prospectively. The Court disagreed with the view taken by other High 
Courts to the contra. 
'(2005) 276 ITR 519 (Born.) 
3(2009) 318 ITR 149 (Born) 
4 (2009) 317 ITR 386 (MP) 
"(2011) 335 ITR 591 (Delhi) 
6 (2011) 331 ITR 449 (P&H)(FB) 
F 
G 
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SUPREME COURT REPORTS 
[2017] 11 S.C.R. 
A B, C & D. Chhattisearh Hieh Court; Madras Hieh Court & Kerala 
Hieh Court: 
18. In Commissioner of Income Tax v. Navbharat Explosives 
Co. P. Ltd.7; Commissioner of Income Tax v. Kodanand Tea Estates 
Co8• and CWT v. John L. Chackola9, the opinion is to the same effect 
B as aforesaid applying the circular prospectively as they state so. 
The view of lhe Supreme Court: 
19. The view adopted by the Delhi High Court making the Circular 
applicable to pending matters came up before a thre~ Judge Bench of 
C this Court in SLP(C) No.CC 13694/2011 titled CIT Central-Ill v. Surya 
Herbal Ltd. when the following order was passed on 29.8.2011: 
D 
E 
"Delay condoned. 
Liberty is given to the Department to move the High Court pointing 
out that the Circular dated 9th February, 2011, should not be applied 
ipso facto, particularly, when the matter has a cascading effect. 
There are cases under the Income Tax Act, 1961, in which a 
common principle may be involved in subsequent group of matters 
or large number of matters. In our view, in such cases if attention 
of the High Court is drawn, the High Court will not apply the 
circular ipso facto. For that purpose, liberty is granted to the 
Department to move the High Court in two weeks. 
The Special Leave Petition· is, accordingly, disposed of." 
F 
20. The aforesaid order, in our view, actually should have laid the 
controversy to rest. The retrospective applicability of the Circular
dated 
9.2.2011 was not interfered with, but with two caveats - (i) Circular 
should not be applied by the High Court$ ipso facto when the matter 
had a cascading effect; (ii) where common principles may be involved 
G in subsequent group of matters or a large number of matters. It was 
opined that in such cases, the attention of the High Court would be 
drawn and the Department was even given liberty to move the High 
7 (2011) 337 ITR 515 (Chhattisgarh) 
'(2005) 275 ITR 244 (Mad.) 
H 
'(2011) 337 ITR 385 (Ker)
DIRECTOR OF LT, CIRCLE 26(1) NEW DELHI v. S.R.M.B. 
1133 
DAIRY FARMING (P) LTD. [SANJAY KISHAN KAUL, J.] 
Court in two weeks. In our view this order holds the field and should 
A 
continue to hold the field. 
21. Unfortunately, this order was not brought to the notice of the 
subsequent two Judges Bench of this Court in Commissioner of Income 
Tax-VII, New Delhi v. Suman Dhamija10 again arising from a Delhi 
High Court order, wherein it was simply stated that since the appeals 
B 
were preferred before 2011 and the Instructions were dated 9.2.2011, 
the earlier cases would not be covered by the Instruction. This order in 
turn had been followed by another two Judges Bench in Civil Appeal 
No.16815/2017 titled The Comn1issioner of Income Tax Bangalore I 
& Anr. v. Mis. Gemini Distilleries dated 12.10.2017. 
' 
22. Once again, in another matter Commissioner of Income Tax 
&Anr. V. Century Park11, the line adopted by the three Judges Bench 
in Surya Herbal Ltd. case (supra) has been followed. 
c 
23. We have already given our imprimatur to the observations 
D 
made by the Karnataka High Court in a detailed analysis in Ranka & 
Ranka case (supra), which has dealt with the litigation policy philosophy 
behind applying the Circular and the benefit being extended in view 
thereof to all Assessees where appeals have been pending, but below 
the financial limit, as otherwise an anomalous situation would arise. 
24. We may also take note of the judgment of this Court in Suchitra
Components Ltd. v. Commissioner of Central Excise, Guntur12 on 
the general principle of application of Circulars. Reliance was placed 
on the view expressed in Commissioner of Central Excise, Bangalore 
E 
v. Mysore Electricals llldustries Ltd. 13 opining that a beneficial circular 
F 
· has to be applied retrospectively while an oppressive circular has to be 
applied prospectively. 
25. We are of the view that the matterneeds 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 G 
of by various High Courts by applying the Circular of 2011 to pending 
10 (2015) 16 sec 176 
21 (2015) 14 sec 704 
12 2007 (208) ELT 321 (SC) 
13 2006 (204) ELT 517 (SC) 
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SUPREME COURT REPORTS 
[2017) 11 S.C.R. 
A 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 Judges Bench of this Court in Surya Herbal Ltd. case (supra), 
which had put two caveats even to the retrospective application of the 
Circular. The subsequent orders have been passed by the two Judges 
B 
c 
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 avoid the 
ambiguity which has arisen. Thus, the said view of the three Judges 
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 (supra). 
26. The appeals of the Revenue are, thus, dismissed in the aforesaid 
terms. 
Devika Gujral 
Appeals dismissed.