JUDGMENT
R.C. Lahoti, J.
On 23-11-1992, the revenue moved an application under section 256(2) of the Income Tax Act, 1961, making a prayer to the Tribunal to state for the opinion of the High Court the two questions of law arising out of the appellate order dated 23-11- 1992:
1. “Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in upholding Commissioner (Appeal)s direction to allow investment allowance to the assessee company?
2. Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that the assessee Company carrying on job work of insulation is engaged in the manufacture or production of article or thing”?
2. By order dated 4-10-1993, the Tribunal rejected the application. The Tribunal has not expressed any opinion whether the questions sought to be referred are the questions of law arising from the order of the Tribunal. It has referred to CBDT’s Circular No. 319/11/87 dated 14-7-1987 according to which the department would not seek reference to the High Court even if a question of law has arisen out of order of the Tribunal if the tax effect involved is less than Rs. 30,000. The reference was declined solely by relying on the said circular. Disputing the correctness of the above said order of the Tribunal, the department has filed a petition under section 256(2) of the Income Tax Act before the High Court which is registered as ITC 37/94.
3. A petition under article 226 of the Constitution has also been filed on 31-1-1996 (re-filed on 26-4-1996 after removing objections pointed out by the office), wherein the department has sought for quashing of the impugned order dated 4-10-1993 passed by the Tribunal under section 256(1), followed by a direction to the Tribunal to hear and decide the petition on merits.
3.1 It is averred in the petition that during the course of hearing of ITC 37/94 on 20-11-1995, the Bench hearing the petition had expressed an opinion that on the facts and in the circumstances of the case the appropriate remedy of the department was to file a petition under article 226 of the Constitution and not a petition under section 256(2) of the Income Tax Act in view of the phraseology of the latter provision. However, the ITC was kept pending.
4. The respondent having been noticed, the two petitions have come up for hearing analogously.
5. The controversy centres around interpretation of section 256 of the Act and the instructions of CBDT contained in its circulars, copies whereof have been made available for the perusal of the court by the learned Senior Standing Counsel for the department.
6. The first question which arises for consideration is what is the appropriate remedy available to the petitioner? On the facts and in the circumstances of the case whether the petitioner could file an application under section 256 (2) of the Act feeling aggrieved by the Tribunals Order dated 4-10-1993 or invoking the writ jurisdiction of this court under article 226 of the Constitution or the power of superintendence under article 227 of the Constitution was the appropriate remedy?
7. The relevant part of section 256 of the Income Tax Act reads as under:
Statement of case to the High Court
256(1). The assessee or the Commissioner may, within sixty days of the date upon which he is served with notice of an order under section 254, by application in the prescribed form, accompanied where the application is made by the assessee by a fee of (two hundred rupees) require the Appellate Tribunal to refer to the High Court any question of law arising out of such order and subject to the other provisions contained in this section, the Appellate Tribunal shall, within one hundred and twenty days of the receipt of such application, draw up a statement of the case and refer it to the High Court.
(2) If, on an application made under sub-section (1), the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, may, within six months from the date on which he is served with notice of such refusal, apply to the High Court, and the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal, required the Appellate Tribunal to state the case and to refer it, and on receipt of any such requisition, the Appellate Tribunal shall state the case and refer it accordingly. [Emphasis, here italicized in print, supplied]
8. With the law laid down by the Supreme Court in the leading authority of CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC), the following principles are well settled:
1. When a question is raised before a Tribunal and dealt with by it, it is clearly one arising out of its order.
2. When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.
3. When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.
4. When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on a finding given by it.
9. An application under section 256(1) of the Act filed before the Tribunal if rejected, the order of rejection may be founded on very many grounds :
9.1 The simplest of the case where the Tribunal rejects an application are those which are based on the following grounds:
(i) The suggested question is not a question of law; it is a question of fact merely.
(ii) Though a question of law, it does not arise from the order of the Tribunal.
9.2 However, there are cases where the Tribunal may form an opinion that the suggested question is a question of law and it does arise from the order of the Tribunal still it may refuse to state the question for the opinion of the High Court for any of the following reasons:
(i) The question of law is academic merely; answered either way it will have no bearing on the revenue.
(ii) The question is concluded by a decision of the Supreme Court or of the High Court.
(iii) The answer to the question is self evident or obvious.
(iv) The matter having been remanded by the Tribunal to one of the authorities below, and the order of remand being so wide and open that the question can very well be raised or agitated before the authority to whom the matter has been sent back.
9.3 A third category of cases is where the application under section 256(1) of the Act is rejected by the Tribunal in one of the following situation:
(i) The application was barred by time.
(ii) The application was preferred by a person not authorised.
(iii) The application does not comply with certain essential pre-requisites as to form or payment of fee, etc.
(iv) The petitioner does not take essential steps for prosecuting the application or complete the reference such as by filing of relevant documents or requisites copies thereof.
10. In each of the above said three situations, different considerations would arise.
10.1 In the first category of cases, the remedy of the applicant is to file an application under section 256(2) of the Act. If the High Court is persuaded to hold that the suggested question is question of law and it does arise from the order of the Tribunal and therefore, the decision of the Tribunal was not correct, it may require the Appellate Tribunal to state the case and refer the question.
10.2 In the third category of cases, the remedy under section 256(2) of the Act will not be available inasmuch as the High Court while exercising jurisdiction to test if the decision of the Tribunal on availability of question of law arising from its Appellate order was correct or not, cannot go into the correctness of the decision of the Tribunal on any such other issues leading to the rejection of the application or withholding of the reference. A bare perusal of section 256(2) shows that availability of jurisdiction thereunder to the High Court is founded on existence of twin factors : (i) Refusal of the Tribunal to state the case on the ground that no question of law arises; and (ii) satisfaction of the High Court that such decision of the Tribunal was not correct. In all the cases other than these the remedy of the aggrieved party would be to invoke the writ jurisdiction of the High Court asking for the issuance of a writ of mandamus or a writ of certiorari as may be appropriate. The power of judicial superintendence conferred on High Court by article 227 of the Constitution may be invoked for setting aside an erroneous order of the Tribunal refusing to make a reference or withholding the same on the High Court arriving at a finding that the Tribunal had erroneously refused to exercise the jurisdiction vested in it by the Statute. None of the situations, catalogued in para 9.3 above would be covered by the expression refuses to state the case on the ground that no question of law arises as occurring in section 256(2).
10.3 The choice of appropriate remedy to the aggrieved person in the second category of cases (para 9.2 above) is not free from difficulty. A practical solution can be found out if the expression “any question of law arising out of such order” as occurring in sub-section (1) of section 256 is read as any referable question of law arising out of such order and similarly the expression no question of law arises as occurring in sub-section (2) of section 256 is read as no referable question of law arises. Obviously, this is what the two expressions are intended to mean and this is only how they can be read keeping in view the underlying intent and purpose of the provision. If the expression is so read, the purpose of conferring jurisdiction on the High Court by sub-section (2) of section 256 would be achieved. Such an approach to interpretation is permissible in accordance with well settled principles of interpretation of statutes. A limited departure from written text is permissible if it facilitates smooth working of scheme of legislation and advances the remedy available. It will also avoid a remedy otherwise available being defeated artificially or on superficial or erroneously assumed considerations. After all section 256 is a remedial provision – a provision providing remedy to the person aggrieved. It has to be liberally construed. The High Court on forming an opinion that the Tribunal inspite of holding that the suggested question was a question of law, also arising out of the appellate order of the Tribunal, had yet refused to state it to the High Court on the ground that the same was not referable and that such decision of the Tribunal was not correct, then the High Court would issue requisition to the Tribunal which shall then be obliged to state the case and refer the question to the High Court.
11. In the case at hand, the Tribunal has not even formed an opinion as to whether the suggested questions were the question of law arising out of its appellate order or not. Nay it has simply refused to apply its mind to the questions influenced by the instructions issued by CBDT. It is not a case of mere failure on the part of the Tribunal to deal with a question raised before ita situation contemplated by Principle No. 2 of Scindia Steam Navigation Co. Ltd.s case (supra)(see para 8 above). The remedy of the person aggrieved (i.e. the Department) was to invoke the jurisdiction of the High Court under articles 226/227 of the Constitution. The remedy under section 256(2) was not available to it. The petitioner was rightly advised into filing CWP1725/96.
12. The view taken by us finds support from ample judicial authority.
12.1 In CIT v. Nopany Education Trust, (1986) 159 ITR 367 (Cal), CIT v. Poonam Chand Manual Trust (1988) 171 ITR 153 (Raj),Prem Narain Khurana v. CIT (1986) 162 ITR 297 (All), S.P. Jaiwal v. CIT (1969) 73 ITR 179 (P&H), it has been held that the remedy under section 256(2) is available only if the rejection be referable to the ground set out in section 256(1).
12.2 In CIT v. Poonam Chand (supra) the application under section 256(1) of the Act was rejected on the ground that requisite copies of documents were not filed. In S.P. Jaiswals case (supra) the application under section 256(1) was rejected as barred by time. In CIT v. ITAT, (1987) 167 ITR 250 (Mad), the application under section 256(1) was rejected on the ground that it had not been signed by the authorised representative. In all such cases, the High Courts of Rajasthan, Allahabad, Punjab & Haryana and Madras have held that the remedy under section 256(2) of the Act was not available to the person aggrieved.
12.3 In CIT v. ITAT (supra) the Division Bench has held that having been convinced of the availability of ground for interference with an order of the Tribunal rejecting an application under section 256(1) of the Act on ground de hors the section, the High Court may in exercise of writ jurisdiction quash the order of the Tribunal and direct the Tribunal to consider the application on merits and dispose of the same in accordance with law.
13. The next question which arises for consideration is whether the Tribunal was justified in refusing to make a reference on the ground that the tax effect involved in the case was less than Rs. 30,000.
14. It appears that the CBDT has issued instructions from time to time laying down monetary limits for departmental appeals in income-tax matters and for filing reference to the High Court. In the year 1992, in the then latest Circular which is dated 28-10-1992 Bearing No. F279/116/92-ITJ, the Board had enhanced the monetary limit for reference before the High Courts to Rs. 50,000, which was Rs. 30,000 before that date under a Circular dated 4-11-1987. Rest of the guidelines were retained as before. A copy of the Circular dated 4-11-1987 (F.279/110/87-ITJ) has been made available for the perusal of the court by the learned Standing Counsel for the revenue. The relevant part thereof is extracted and reproduced hereunder:
“The Board desires that while deciding the question of filing an appeal/reference in respect of an adverse judgment of High Court/ITAT etc., the Chief Commissioner should follow the following guidelines:
Filing of departmental appeal/reference should be selective. Guidelines were issued laying down monetary limits of revenue effect of Rs. 10,000 for filing appeal before ITAT Rs. 30,000 for reference before High Court and Rs. 60,000 for appeals to Supreme Court (Instruction Nos. 1573 dated 12-7-1984 and 1612 dated 6-4-1985). These guidelines should be adhered to subject to the exception given below. For the purpose of working out monetary limits the cumulative revenue effect of the issue in the assessees case for all the years up to the year for which returns have been filed should be taken into consideration. Where the same issue is involved in different cases of a group (e.g. industrial house, family, connected cases, etc.), the revenue effect of the group and not the individual cases should be taken into account for the purpose of the monetary limit. While applying the monetary limits the effect of the carry forward effect of consequential addition/deletions in other years should be kept in view. In cases of firms/AOP the revenue effect in case of partners/members be also taken into account.”
15. It is submitted by the learned counsel for the department that the CBDT instructions are binding on the Income Tax Authorities but they do not bind the Tribunal and certainly not the High Court. If the Tribunal or the High Court be satisfied that the question sought to be referred is a question of law and arises from the order of the Tribunal, then a reference has to be made to the High Court. CBDT instructions cannot take away such jurisdiction of the Tribunal as is vested in it by the statute and so the Tribunal should not have felt inhibited from drawing up the statement of case and stating the questions for the opinion of the High Court solely on account of the CBDT instructions.
16. It was also submitted that though the quantum of the revenue involved for the year in question i.e, the assessment year 1985-86 is only Rs. 19,363 but the appeal decided against the revenue has a recurring effect on revenue for the succeeding years and, therefore, the instructions would not apply. It was submitted by the learned Counsel for the department developing his argument further, that in the event of the question being answered in favour of the revenue, the cumulative revenue effect for all the years up to the year for which returns have been filed by the assessee would exceed the monetary limit laid down in CBDT instructions. The learned Counsel for the assessee has disputed the factual correctness of this statement. The fact remains that the desirability of making a reference has not been examined by the Tribunal from the above said angle.
17. Negligible amounts of revenue is one of the relevant considerations, for refusing the reference. [See CIT v. Imperial Surgical Co. (P) Ltd. (1992) 63 Taxman 508 (SC), CIT v. Smt. Prakashwati (1994) 210 ITR 567 (All), CIT v. Girdhari Lal Saraf (1992) 190 ITR 264 Raj and CIT v. Executors of Late D.T. Udeshi (1991) 189 ITR 319 (Bom)].
18. The CBDT instructions are binding on the department. If the case at hand is covered by a policy laid down by CBDT in that case no fault can be found with the order of the Tribunal refusing to state the case and there is not reason why the High Court should interfere with such discretion of the Tribunal as has been exercised consistently with the uniform policy laid down by the CBDT which binds all the subordinate authorities of Income Tax Department. The High Court would not ordinarily encourage breach of policy decisions and departmental instructions which have a public purpose behind. Valuable time of High Courts and highly placed Tribunals is not to be wasted on petty matters. However, if the case be not covered by the said instructions or be covered by one of the exceptions carved out in the instructions themselves in that event the denial of reference would be failure to exercise a jurisdiction statutorily vested in the Tribunal. In as much as the Tribunal has not examined the case from that point of view and adequate material is not available before us enabling formation of an opinion either way, we deem the present one to be an appropriate case which should be sent back to the Tribunal for consideration afresh.
19. For the foregoing reasons, CWP 1725/96 is allowed. The impugned order of the Tribunal dated 14-10-1993 passed on RA 271/Del 93 is set aside. The matter is sent back to the Tribunal. The application under section 256(1) if the Act filed by the department shall be deemed to be pending. After affording the parties an opportunity of hearing the Tribunal shall examine afresh, if the case is one which does not attract the applicability of CBDT instructions or is one covered by any one of the exceptions carved out in the Circular itself. Thereafter the Tribunal shall proceed to hear and dispose of the application filed by the department in accordance with law.
20. ITC-37/94 is dismissed as redundant.
21. No order as to the costs.