Holding

Circular No. 455 dated 16‑Sept‑1986 is applicable to all acquisition proceedings that have not attained finality under Section 269‑I, including those pending before the Tribunal or High Court.

Summary

The appellants purchased immovable property for Rs.2.45 lakh and were subjected to acquisition proceedings under Section 269‑D of the Income Tax Act. While the appeal was pending before the Income Tax Appellate Tribunal and subsequently the High Court, the Central Board of Direct Taxes issued Circular No. 455 (16‑Sept‑1986) stating that acquisition proceedings would be dropped where the apparent consideration was Rs.5 lakh or less. The High Court held the circular inapplicable because the proceedings before the Competent Authority had already been terminated. The Supreme Court examined whether the term “proceedings” under Section 269‑D includes appellate stages and whether a CBDT circular is binding on all authorities under Section 119. Relying on the statutory scheme, prior case law and the language of the circular, the Court held that the circular applies to all pending acquisition proceedings that have not attained finality under Section 269‑I, including those before the Tribunal and High Court. Consequently, the appeal was allowed and the circular was deemed binding on the authorities.

Issues considered

Whether Circular No. 455 dated 16‑Sept‑1986 issued by the CBDT is applicable to acquisition proceedings pending at appellate stages (Tribunal/High Court) and not only before the Competent Authority.
Whether the expression “proceedings” in Section 269‑D includes proceedings at the appellate level.
Whether a CBDT circular, issued under Section 119, is binding on all authorities executing the Income‑Tax Act.

Legislation cited

Income Tax Act, 1961s. 119, s. 269-D, s. 269-G, s. 269-H, s. 269-I, s. 269-RR, s. 269-UD

Subjects

Income TaxAcquisition proceedingsCBDT circularSection 269-DAppellate proceedingsBinding nature of circularChapter XX-CTax evasionStatutory interpretation

Judgment

MATHEW M. THOMAS AND ORS. A
v.
COMMISSIONER OF INCOME TAX

FEBRUARY 16, 1999

[D.P. WADHWA AND M. SRINIVASAN, JJ.] B

;,.. Income Tax Act, 1961: Sections 269-D, 269-G, 269-H, 269-I-Explana-
tion, 269-RR (Chapter XX-A) and 269-UD (Chapter XX-C)

Income tax-Property under sale-<.:ompulsory acquisition of--CBDT C
issued Circular No. 455 dated 16.9.1986, which provided for dropping of
acquisition proceedings w.e.f 1.4.1986 in cases where apparent consideration
of immovable property was below Rs. 5 lakh~Applicability of Circular No.
455-Held, Applicable to all pending proceedings at the appellate stage which
have not attained finality under S.269-I and also to the proceedings pending
before the Competent Autho1ity. D
Section 269- D--f'roceedings-Meaning of-Held, include the proceed-
ings at the appellate stage.

Section 119-Circulars issued by CBDT-Binding nature of-Held, All
authorities employed in the execution of the IT Act are duty bound to observe E
and fallow the orders, instrnctions and directions of CBDT.

Words and Phrases :

"Proceedings''-Meaning of-111 the context of S.269-D of the Income
Tax Act, 1961. F

The appellant purchased a certain immovable property for a sum
below Rs. 5 lakhs. The Inspecting Assistant Commissioner ordered ac-
quisition of the property. The appellants filed an appeal before the Income
Tax Appellate Tribunal, which was allowed. G
During the pendency of the Revenue's appeal before the High Court
under Section 269-H 'or the Income Tax Act, 1961, Chapter XX-C was
introduced in the Act. The Central Board of Direct Taxes (CBDT) issued '.,·,
a Circular No. 455 dated 16-9-1986 under Section 269-RR of the Act which
provided for dropping of acquisition proceedings where the apparent H
651
652 SUPREME COURT REPORTS [1999] 1 S.C.R.
A consideration of the immovable property was below Rs. 5 lakhs w.e.f.
1.4.1986.

The appellants contended before the High Court that the acquisition
proceedings had to be· dropped as the consideration was. below Rs. 5 lakhs.
B A Full Bench of the High Court held that the pendency of the proceedings ·
before the Competent Authority was necessary for the applicability of the
said Circular and as no such proceedings were pending in the instant case,
the Circular had no application. Hence this appeal.

Allowing the appeal, this Court
c
HELD : 1.1. Chapter XX-A of the Income Tax Act, 1961 was intro-
duced by Taxation Laws (Amendments) Bill, 1971 to implement the recom-
mendations of the Wanchoo Committee with a view to prevent or arrest
evasion of tax through understatement of value of immovable property in
D sale transactions. The Government found that the provisions of the said
Chapter were not as effective as intended. Chapter XX-C was introduced
and Chapter XX-A was deleted. The provisions of Chapter XX-C are thus
in the nature of pre-emptive purchase by the Central Government to the
proposed sale and they were applicable to the properties, the value of
which exceeded Rs. 5 lakhs. (655-B, E]
E
1.2. In view of the change in the legislation, the CBDT thought fit to
issue Circular No. 455, obviously with an object of achieving the earlier.
finalisation of the proceedings under Chapter XX-A. The language of the
Circular does not in any manner indicate that it will apply only to proceed-
F ings pending before the Competent Authority. The mere fact that reference
is made to the initiation of the proceedings by notice under Section 269-D
does not limit the operation of the Circular to proceedings immediately
following such notice and culminating with the order of the Competent
Authority. If proceedings are pending before the Tribunal in appeal and
before the High Court on further appeal, they are the acquisition proceed-
G ings of the same nature as they are only in continuation of the proceedings
initiated by. the Competent Authority. It is well settled that the word ...
"Proceedings" shall include the proceedings at the appellate stage. [656-B-D] ·.....- -
Garikapati Veeraya v. N. Subiah Choudhry, AIR (1957) SC 540, relied
H on.
MATIIEWM. TIIOMASv. C.l.T. [SRINIVASAN,J.] 653

CIT v. Rattan Chand Sood, (1987) 66 ITR 497 (Del); CIT v. Export A
India Corporation (P) Ltd., (1996) 219 ITR461 (P&H); CITv. GobindRam,
(1996) 221 ITR 892 (P&H); CIT v. Gursher Singh, (1997) 225 ITR 725
(P&H); Competent Authority (Acqwsition) v. Smt. Lalita Tody, (1997) 225
ITR 665 (Pat) and CIT v. Sivan Soap Factory, (1997) 227 ITR 126 (Mad),
approved.
B
2. Circular No. 455 dated 16.9.1986 issued by the CBDT is applicable
to all pending proceedings which have not attained finality under Section
269-1 of the Act as defined in the Explanation to the said Section.

3. All authorities employed in the execution of the Act are duty bound C
to observe and follow such orders, instructions and directions of the
CBDT.

CIT v. Export India Corporation (P) Ltd., (1996) 219 ITR 461 (P&H),
approved.
D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1566 of
~ ,. 1993.

From the Judgment and Order dated 8.10.92 of the Kerala High
court in M.F.A. No. 45 of 1982.
E
Ramesh Babu M.R. for N Sudhakaran for the Appellants.

K. N. Shukla, Sr. Adv., Rajive Nanda and B.K. Prasad for the
Respondent.
F
The Judgment of the Court was delivered by

SRINIVASAN, J. The appellants purchased certain lands with build-
ings thereon in 1977 for a sum of Rs. 2,45,000/-. The Inspector of Income
Tax valued them at Rs. 3,24,000 and later in 1979 the Departmental
Valuation Officer valued them at Rs. 7,24,000/-. The Inspecting Assistant G
Commissioner, Acquisition Range, Ernakulam ordered acquisition of the
>
... property on 31.3.1981. The appellants filed an appeal to the Tribunal by
order dated 31.10.1981. The appeal was allowed and the proceedings were
cancelled. As against the said order, the Revenue filed an appeal under
Section 269 Hin the High Court of.Kerala. H
654 SUPREME COURT REP OR TS [1999] 1 S.C.R.

A 2. During the pendency of the appeal, Chapter XX-C was introduced "'f-.....,.
in the Income Tax Act (hereinafter referred to as 'Act') by Finance Act of
1986 w.e.f.. October I, 1986. Under Section 269 RR, Chapter XX-A was
made inapplicable in relation to transfer of an immovable property after
September 30, 1986. The Central Board of Direct Taxes (hereinafter
referred to as 'C.B.D.T.') issued Circular No. 455 dated 16.9.1986. The
B relevant part of the Circular reads as follows:-

"With a view to achieve early finalisation of proceedings under the
existing Chapter XX-A of the Income - Tax Act, 1961, the Board
.
has decided that with effect from April 1, 1986, acquisition
c proceedings under section 269C will not be initiated in respect of
an immovable property for which the apparent consideration is Rs.
5 lakhs or less and that where acquisition proceedings have been
initiated by issue of notice under section 2690, the proceedings
will be dropped if the apparent consideration of the immovable
property is below Rs. 5 lakhs''.
D
3. When the appeal was taken up by the High Court the appellants ,. ._
herein contended that the acquisition proceedings had to be dropped as
the consideration was only Rs. 2,45,000/-. The matter was referred to a Full
Bench of the High Court for decision on the question whether Administra-
E tive Circular issued by the C.B.D.T. under the Act to supplement the
statute can supplant the same by deviating or detracting or going beyond
or contrary to the statutory provisions.

4. The'Full Bench opined that the Circular was not applicable to the
case on hand as the acquisition proceedings were over by the order of the
F Competent Authority passed on 31.3.1981. The Full Bench observed that
the pendency of the proceeding before the Competent Authority was
necessary for the applicability of the Circular and as no such proceedings
were pending in this case, the Circular had no application. Consequently,
the Full Bench declined to answer the question referred and directed the
matter to be posted before the Division Bench for hearing.
G
5. Against the said order of the Full Bench the appellants have
preferred this appeal on Special Leave. When leave was granted, the ....
~
hearing of the pending appeal before the High Court was stayed. The only
question to be considered is whether the Circular issued by the Board is
H applicable to proceedings pending in the Appellate stages or not. In other
MATHEW M. THOMAS v. C.l.T. [SRINIVASAN, J.) 655

~ )' words, the question is, whether the Circular will not apply to proceedings A
in which the Competent Authority had passed an order earlier even though
the same is subject matter of appellate proceedings.

6. Chapter XX-A of the Act was introduced by Taxation Laws
(Amendment) Bill, 1971 to implement the recommendations of the
B
Wanchoo Committee with a view to prevent or arrest evasion of tax through
under statement of value of immovable property in sale transactions. The
~ provisions of the Chapter enabled the Central Government to acquire any
immovable property having a fair market value above Rs. 25 lakhs in cases
where the consideration declared in the instrument of transfer was less
than the fair market value of the property on the date of acquisition of the c
instrument. That power was available in cases where there were reasons to
believe that the consideration agreed to between the parties had not been
truly stated in the document with a view to facilitate tax evasion by the
transferor or the transferee. It was also provided that proceedings could
be initiated only if the fair market value exceeded the declared considera-
tion by more than 15% thereof. The Government found that the provisions D
.. • of the said chapter were not as effective as intended in the Finance Bill of
1986. Chapter XX-C was introduced and Chapter XX-A was deleted. It
was proposed that no proceedings under Section 269 C shall be initiated
in respect of the property transferred after Sept. 30, 1986. In the new
Chapter XX-C transfer· of any immovable property of a value exceeding
Rs. 5 lakhs or as may be prescribed was prohibited except after an E
agreement for transfer between the transferor and the transferee at least
three months before the intended date of transfer. The agreement shall be
in writing in the form of a statement by each of the parties to the transfer.
The statement should contain in the prescribed manner such particulars as
may be prescribed and shall be furnished to the Appropriate Authority
constituted. by the Central Government. under that Chapter within such F
--...- time as may be prescribed. Section 269 UD of the Act provides_ that the
Appropriate Authority after receipt of such statement may, for reasons, to
be recorded, order for the purchase of such. moveable property by the
CentraJ Goverment for an amount equal to the amount of apparent con-
sideration. If such an order is not made within a period of two months from G
the end of the month in which such statement is received by the Ap-
propriate Authority, the power of the Appropriate Authority to make such
> an order shall lapse. The provisions of Chapter XX-C are thus in the nature
....
of preemptive purchase by the Central Government to the·proposed sale
and they were applicable to the properties, the value of which exceeded
Rs. 5 lakhs. H
656 SUPREME COURT REPORTS [1999) 1 S.C.R.

A 7. In view of the change in the legislation, the C.B.D.T. thought fit --; "-·
to issue Circular No. 455, obviously with an object of achieving the earlier
finalisation of the proceedings under Chapter XX-A. The Circular is
undoubtedly a beneficial measure in order to bring an end to the uncer-
tainty of litigious proceedings with reference to properties, the value of
B which does not exceed Rs. 5 lakhs. The language of the circular does not
in any manner indicate that it will apply only to proceedings pending before
the Competent Authority. The mere fact that reference is made to the
initiation of the proceedings by notice under 269 D does not limit the
operation of the Circular to proceedings immediately following such notice
and culminating with the order of the Competent authority. If proceedings
c are pending before the Tribunal in appeal and before the J:Iigh Court on
further appeal, they are also acquisition proceedings of the same nature as
they are only in continuation of the proceedings initiated by the Competent
Authority.

D 8. It is well settled that the word "Proceedings" shall include the
proceedings at the appellate stage. It is sufficient to refer to the judgment
of this Court in Garikapati Veeraya v. N. Subiah Chaudhry & Ors., AIR
(1957) S.C. 540 wherein the Court said at page 553 :-

· "(i) That the legal pursuit of a remedy, suit appeal and second
E appeal are really but steps in a series of proceedings all conected
by an intrinsic unity and are to be regarded as one legal proceed-
ings".

Hence we are unable to persuade ourselves to agree with the view ex-
F pressed by the full bench of the High Court in the judgment under appeal
that the Circular would apply only to proceedings pending before the
Competent Authority.

9. Even before the matter was considered by the Full Bench of the
Kcrala High Court in the present case, the Delhi High Court had occasion
G to decide the question in Commissioner of Income Tax v. Rattan Chand
Sood & Ors., (1987) 166 I.T.R. 497. After referring to the Circular and
extracting the second paragraph thereof the High Court said :-

"The intention of the authorities clearly is that, after April 1, 1986,
H proceedings earlier initiated but subsisting should be dropped
MATIIEW M. TIIOMAS v. C.I.T. [SRINIVASAN, J.] 657
_., . ., unless the apparent consideration exceeds Rs. 5 lakhs. In this case, A
the proceedings were initiated by the Competent Authority and
finalised by him in 1976. But this was subject to orders in appeal
and as a result of the order of the Tribunal and the appeal to this
court, the position is as if those proceedings are pending as on
date. In this case, the apparent consideration iF only the petty sum
of Rs. 19,992 and it would seem, in view of the declaration by the
B
Central Board of Direct Taxes and in view also of the various
circumstances pointed out by us, that this is clearly not a case in
which the proceedings should be allowed to drag on further".

10. In Commissioner of Income Tax v. Exp01t India Corporation (P) c
Ltd., .(1996) 219 I.T.R. 461 the Punjab & Haryana High Court dealt with
the matter at great length and refused to agree with the Kerala Full Bench.
After tracing the relevant legislative background to the introduction of
Chapter XX-A and XX-C and referring to the Circular and the Provisions
thereof, the Division Bench of the High Court held that the proceedings
once initiated will continue to have the same character until and unless
D
,.
-
~ they acquire finality under Section 269 I of the Act. The Court said that
the proceedings which have been initiated by issue of Notice under Section
269 D were continuing as the Second Appeal was pending in the High
Court under Section 269 H of the Act and thus the proceedings had not
come to an end. As regards the orders, instructions and directions issued E
by the Board, the Bench referred to Section 119 of the Act and observed
that all authorities employed in the execution of the Act are duty bound to
observe and follow such orders, instructions and directions of the Board.
The Bench pointed out that the _Circular being a benevolent one would be
binding on all authorities and would be applicable to the proceedings
F
pending at the appeal stage as well if the apparent consideration is below
~~
Rs. 5 lakhs. We are entirely in agreement with the opinion expressed by
the High Court in that case.

11. The same High Court reiterated the above view in C.l. T. v.
Gobind Ram, (1996) 221 I.T.R. 892 (P&H) & C.l.T. v. Gursher Singh & G
Anr., ( 1997) 225 I.T .R. 725.
.;. ...
12. The Patna High Court has also in Competent Authority (Acquisi-
tio11) v. Smt. Lalita Tody and Ors., (1997) 225 I.T.R. 665 applied the
Circular in pending appeals and held that the appeals would abate. The H
658 SUPREME COURT REPORTS [1999] 1 S.C.R.
A Court had also gone into th~ merits of the decision of the Competent-,
Authority and found it to be unsustainable on the facts and circumstances
of the case.

13.The same view has been expressed by the Madras High Court in
Commissioner of Income Tax v. Sivan Soap Facto1y, (1997) 227 I.T.R. 126
B which dissented from the Kerala Full Bench. It accepted the view of the
Delhi High Court and Punjab & Haryana High Court.

14.We are, therefore, inclined to differ from the view expressed by
the Full Bench of the Kerala High Court in the judgment under appeal.
The appeal is hereby allowed and it is held that Circular No. 455 dated
C 16.5.1986 issued by the C.B.D.T. is applicable to all pending proceedings
which have not attained finality under Section 269 I of the Act as defined
in the explanation to the said Section. There will be no order as to costs.

v.s.s. Appeal allowed.

-