JAMIA MILLIA ISLAMIA

Faculty of law

Project

Powers and Functions of Income Tax Authorities

Tax Law

Submitted to: Prof. Ekramuddin

Submitted by: Dilshad Ahmed

BA.LLB (Regular) 6th Semester

Batch: 2019 – 2020

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Acknowledgement

I take this opportunity to express my profound gratitude and deep regards to my

teacher Prof. Ekramuddin sir for his exemplary guidance, monitoring and
constant encouragement throughout the course of this assignment. The blessing,
help and guidance given by his time to time shall carry me a long way in the
journey of life on which I am about to embark.

I also take this opportunity to express a deep sense of gratitude to my friends for
cordial support, valuable information and guidance, which helped me in
completing this task through exhaustive research.

Dilshad Ahmed

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Table of Contents

1. Acknowledgement 02
2. Table of Contents 03
3. List of Cases 04
4. Introduction 05
5. The Central Board of Direct Taxes 07
6. Appointment of Income Taxation Authorities 07
7. Powers and functions of the CBDT 08
8. Conclusion 13
9. Reference 14

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List of Cases

 Navnit Lal C.Javeri v. K.K.Sen

 Delhi Flour Mills Co. Ltd. v. CIT
 Swedish East Asia Co. Ltd. V CIT
 Laxmichand Hirjibhai v. CIT
 T.P.Kapadia v. CIT
 CIT v. K.T.M.S. Mohamed
 Paper Products Ltd. v. CCE
 Bela Singh Daulat Singh v. CIT
 Pankaj Oil Mills v. CIT
 Tata Iron & Steel Co.Ltd. vs. Upadhyaya
 India Sea Foods v CIT
 Smt. K.Bhoomiamma v. CIT

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Introduction

In India, the Central Government has been empowered by Entry 82 of the Union
List of Schedule VII of the Constitution of India to levy tax on all income other
than agricultural income. The Income Tax Law comprises The Income Tax Act
1961, Income Tax Rules 1962, Notifications and Circulars issued by Central
Board of Direct Taxes (CBDT), Annual Finance Acts and Judicial
pronouncements by Supreme Court and High Courts. The Government of India
imposes an income tax on taxable income of all persons including
individuals, Hindu Undivided Families (HUFs), companies, firms, association of
persons, body of individuals, local authority and any other artificial judicial
person. Levy of tax is separate on each of the persons. The levy is governed by
the Indian Income Tax Act, 1961. The Indian Income Tax Department is
governed by CBDT and is part of the Department of Revenue under the Ministry
of Finance, Govt. of India. Income tax is a key source of funds that the
government uses to fund its activities and serve the public. The Income Tax
Department is the biggest revenue mobilizer for the Government.

The Income Tax authorities are required to exercise their powers and perform
their functions so as to prevent harassment of assesses, tax-evasion, unnecessary
discrimination in collection of tax. However, there have been a number of
instances of misuse of these rule- making powers which have the effect of
contradicting statutory provisions that have been given binding effect, displacing
the authoritative pronouncements of the Higher Judiciary and causing an erosion
of the constitutionally-mandated effect of Supreme Court declarations under
Article 141. In this scenario, for the purpose of effective financial management it
becomes imperative to understand the functioning, the powers and the limitation
on the powers of these tax authorities.  This paper talks about various tax
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authorities under the Income Tax Act, appointment of income tax authorities, the
Central Board of Direct Taxes and it’s powers, powers of other Income Tax
authorities, jurisdiction of the Income-Tax Authorities, and a conclusive analysis
of the same.1

There shall be the following classes of income-tax authorities for the purposes of
this act, namely :-

(a) the Central Board of Direct Taxes constituted under the Central Boards of
Revenue Act, 1963 (54 of 1963),
(b) Directors-General of Income-tax or Chief Commissioners of Income-tax,
(c) Directors of Income-tax or Commissioners of Income-tax or
Commissioners of Income-tax (Appeals),
(d) Additional Directors of Income-tax or Additional Commissioners of
Income-tax or Additional Commissioners of Income-tax (Appeals),2
(e) Joint Directors of Income-tax or Joint Commissioners of Income-tax,3
(f) ) Deputy Directors of Income-tax or Deputy Commissioners of Income-tax
or Deputy Commissioners of Income-tax (Appeals),
(g) Assistant Directors of Income-tax or Assistant Commissioners of Income-
tax,
(h) Income-tax Officers,
(i) Tax Recovery Officers,
(j) Inspectors of Income-tax,

1
Surbhi Gupta “Various Tax Authorities and their Powers under the Income Tax Act”, Asian
Journal of Management. HNLU, Raipur available at http://ajmjournal.com/HTMLPaper.aspx?
Journal=Asian+Journal+of+Management%3bPID%3d2015-6-1-5
2
Inserted by the Finance Act, 19941
3
Inserted by the Finance (No. 2) Act, 1998
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These authorities are defined in clauses (3), (12), (16), (21), (27) and (28) of
Section 2. ‘Director of Inspection’ includes Additional, Deputy or Assistant
Director of Inspetion. ‘Commissioner’ includes an Additional Commissioner.

The Central Board of Direct Taxes :

The Central Board of Direct Taxes is a statutory body constituted under the
Central Board of Revenue Act, 1963. It consists of a number of members
appointed by the Central Government for the performance of such duties, as may
be entrusted to the Board from time to time. It is functioning under the jurisdiction
of the Ministry of Finance. The Central Board of Direct Taxes, besides being the
highest executive authority, exercises control and supervision over all officers of
the Income-tax Department and is authorised to exercise certain powers conferred
upon it by the Income-tax Act, 1961. In particular, it has the powers, subject to the
control and approval of the Central Government to make any rules, from time to
time for the proper administration of the provisions of the Income-tax Act, 1961.
All the rules under the Act are framed by the Board under section 295 of the ITA,
1961 and placed before the Parliament. In addition to the general power of
making rules and of superintendence, the Board has been given specific powers
on several matters.

Appointment of Income Taxation authorities :

1. The Central Government may appoint such persons as it thinks fir to be

Income Tax authorities.
2. Without prejudice to the provisions of sub-Section (1), and subject to the
rules and orders of the Central Government regulating the conditions of
service of persons in public services posts, the Central Government may
authorize the Board, or a Director-General, a Chief Commissioner or a
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 Director or a Commissioner to appoint Income Tax authorities below the
rank of an Assistant Commissioner or Deputy Commissioner.
3. Subject to the rules and orders of the Central Government regulating the
conditions of service of persons in public services and posts, an Income
Tax authority authorized in this behalf by the Board may appoint such
executive or ministerial staff as may be necessary to assist it in the
execution of its functions.

The CBDT also enjoys various powers under the Second Schedule (Procedure for
Recovery of Tax) and to recognize provident funds and to approve superannuation
funds and gratuity funds under the Fourth Schedule.

Powers and functions of the CBDT :

1. Instructions to subordinate authorities :

From time to time, the Board may issue such orders, instructions and
directions to other income tax authorities as it may deem fit for the proper
administration of the Act. Such authorities and all other persons employed
in the execution of the Act) shall observe and follow such orders,
instructions and directions of the Board. For instance,
o The Board cannot issue an instruction, direction or order so as to
require any income-tax authority to make a particular assessment or
to dispose of a particular case in particular manner.
o Moreover, the Board cannot issue any direction, order or instruction
so as to interference with the discretion of the Deputy Commissioner
(Appeals) or the Commissioner (Appeals) in the exercise of his
appellate functions.

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 2. Judicial recognition of circulars/classification issued bt the CBDT :
It is a well settled law, as laid down by the Supreme Court,4 that under
Sec.119, a circular issued by the Board would be binding on all persons and
officers employed in the execution of the Act.

3. Not binding on the Court :

What is binding on administrative authorities is not necessarily binding on
the Courts. In the case of Delhi Flour Mills Co. Limited v. Central
Information Commission.5 the Delhi High Court observed that the
decisions of the Board are not binding upon Courts; they are meant only for
the guidance of the departmental authorities and if these departmental
decisions are not in accordance with the provisions of the statute, they have
to be disregarded. To the similar effect is the decision of the Calcutta High
Court,6 wherein it was held that, ordinarily, a circular containing
instructions which are inconsistent with the provisions of the statute is of no
effect.

4. Benevolent circulars :
Benevolent circulars issued by the Board, even if they deviate from the
legal position are required to be followed by the department since such
circulars would go to the assistance of the assessee 7 (and such other atleast
ten decisions of Bombay, Punjab & Haryana, Kerala, Calcutta, Andhra
Pradesh and Madhya Pradesh High Courts). Further, benevolent circulars

4
Navnit Lal C.Javeri v. K.K.Sen, AAC(1965), 56 1TR 198
5
Delhi Flour Mills Co. Ltd. v. CIT ((1974) 95 ITR 151
6
CIT vs. Swedish East Asia Co. Ltd. (1981) 127 ITR 148
7
Laxmichand Hirjibhai v. CIT (1981) 128 ITR 747 (Guj.)
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 have to be applied in a sympathetic as well as in a broad and liberal
manner.8
Apart from the fact that the circulars issued by the Board are binding on the
Department, the department is precluded from challenging the correctness
of the said circulars even on the ground of the same being inconsistent with
the statutory provision. The ratio of the judgment of the Court further
precluded the right of the Department to file an appeal against die
correctness of the binding nature of the circulars. Therefore, it is clear that
so far as the department is concerned, whatever action it has to take, the
same will have to be consistent with the circular which is in force at the
relevant point of time.9

5. Circulars me not law :

Another important point worth remembering was made Allahabad High
Court,10 wherein it was held that the circulars issued by the Board are not
law and the Tribunal is not bound to take judicial notice of than. It is
interesting to note that when a circular gives administrative relief strictly
beyond the terms of the relevant provision of the statute, the contention of
the department that the circular has no legal effect cannot be accepted.
6. Contrary opinions of High Courts :
In the case of T.P.Kapadia v. CIT, it was held that the Tribunal was not
right in following the decision of a different High Court in a situation
where a specific Board circular on the point in dispute existed containing a
contrary view, as the High Court decisions are binding only in the State

8
CIT v. K.T.M.S. Mohamed (1981) 128 ITR 580 (Mad.).
9
Paper Products Ltd. v. CCE (2001) 115 Taxman 147 (SC)
10
Bela Singh Daulat Singh v. CIT (1966) 62ITR 250 (All.)
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 concerned. In another decision11, the Court extended benefit of a circular to
an assessee even though there is a decision of the High Court of the same
State to the contrary rendered without noticing the circular.

7. Withdrawn circulars :
Sometimes a circular is withdrawn or the Section concerned is amended.
The legal position in dither of these eventualities has also been spelt out in
some of the cases. In Tata Iron and Steel Co .Ltd. v. N. C. Upadhyaya , it
was made clear that the withdrawal of a circular, subsequent to an
assessment or any other action in pursuance of the same, will not affect the
legal position.12 In CIT v. India Sea Foods13, it was held that though the
Board has the power to withdraw or recall its circulars, the assessee’s right
to have the assessment effected or carried in accordance with the said
circular cannot be prejudicially affected.

8. Circulars beneficial to the assesse : The circular of the Board has the
force of law. It can even supplant the law where it is beneficial to the
assesse and has mitigated or relaxed the rigour of the law. A circular of the
Board can be enforced by the courts.14

9. Binding on officers of Income-tax Department :

The Board circular is binding on the subordinate officers of the Income-tax

11
Pankaj Oil Mills v. CIT (1978) 115 ITR 824 (Guj.).
12
Tata Iron & Steel Co.Ltd. vs. Upadhyaya 96 ITR 1, 15-7.
13
CIT v. India Sea Foods(1991) 192 ITR 515 (SC).
14
Ibid.
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 Department. However, such a circular, if opposed to the provisions of the
Act, is not enforceable against an unwilling assesses, who is entitled to
ignore the circular if its terms are beyond the scope of the provisions of the
Act.15
10. Orders issued by way of relaxation of certain provisions under Section
119(2)(a) in certain cases:
Without prejudice to the general provisions of Sec. 119(l)as above, the
Board may from time to time issue certain orders, instructions or directions
to subordinate authorities under Sec.119(2)(a) if the following conditions
are satisfied:
a. Such orders, instructions or directions may be issued by the Board if
it considers it necessary or expedient so to do, for the purpose of
proper and efficient management of the work of assessment and
collection of revenue,
b. Such orders, etc., may be issued whether by way of relaxation of any
of the provisions of Sections. 139, 143, 144, 147, 154, 155, 201(1A),
210, 211, 234A, 234B, 234C, 271 and 273 or otherwise,
c. Such orders, etc., may be issued by general or special orders in
respect of any class of incomes or class of cases,
d. Such orders, etc., cannot be prejudicial to the assesse,
e. Such orders, etc., are the guidelines, principles or procedures to be
followed by other income tax authorities in the work relating to
assessment or collection of revenue or the initiation of proceedings
for the imposition of penalties,

15
Smt. K.Bhoomiamma v. CIT (1991) 98 CTR (Kar.) 184 (SC).
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 f. If the Board is of opinion that it is necessary in the public interest so
to do, such orders may be published and circulated in the prescribed
manner for general information.

Conclusion

Therefore I conclude that powers and functions of income tax authorities is

empowered by the Central Government in the Entry 82 of the Union List of
Schedule VII of the Constitution of India to levy tax on all income other than

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agricultural income. The Indian Income Tax Department is governed by CBDT
and is part of the Department of Revenue under the Ministry of Finance, Govt. of
India. Income tax is a key source of funds that the government uses to fund its
activities and serve the public. Thus I have been covered the powers and functions
of the Central Board of Direct Taxes and it’s appointment in detail. For instance,
Judicial recognitions, Binding on whom, Benevolent circulars, opinions of the
High Court, Circulars beneficial to the assesse and Orders issued by way of
relaxation of certain provisions under Section 119(2)(a), etc. This research gives
me immense knowledge about the Income Tax Authorities as per Income Tax
Act.

Reference

Books

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Statute

Websites

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