There were times when income tax officers used to be involved in the legal battle against the taxpayer on the same question of law across multiple states. The primary reason for this was lack of correct interpretation of respective laws, i..e repetitive court cases were lodged to know the answer to a common question.
So, to put an end to this, in the 2022 Budget the finance minister announced Section 158AB. This section says if an identical question of law in a case is pending before high court or Supreme Court, then the tax department may defer the filing of appeal till the issue is decided by such a higher court. This will result in reduction of duplication of appeal filing and thus save time and resources of both taxpayers and government, if certain specified conditions are followed by both the taxpayer and the tax officer.
Why was Section 158AB needed?
Vishal Gehrana, Principal Associate at Karanjawala & Co. and Advocate-on-Record, Supreme Court of India, says, “One of the biggest problems in tax litigation is the endless repetition of the same legal issue across multiple cases, leading to unnecessary appeals, wasted resources, and prolonged uncertainty for taxpayers. Section 158AB of the Income Tax Act, 1961 was introduced in 2022 to address this issue.”
What is Section 158AB and its conditions?
Section 158AB of the Income Tax Act, 1961 was introduced as a litigation management tool to reduce the number of appeals filed by the tax department where identical question(s) of law issues exist.
Gehrana, explains the concept in simple terms. He says, “If a taxpayer’s case involves an identical legal question that is already pending before the Supreme Court or High Court in another matter, the income-tax authority has the discretion to defer filing an appeal on that issue. So instead of filing an appeal the department will keep it pending until the higher court delivers its verdict, which will then be applied to the taxpayer’s case.”
“However, for this to happen, the taxpayer must provide written consent, agreeing that they will be bound by the outcome of the higher court’s ruling. This is a welcome step towards reducing unnecessary litigation, ensuring that the judiciary does not have to repeatedly rule on the same legal issue in different cases, and ultimately providing more certainty in tax law interpretation,” says Gehrana.“The question of law under consideration for Section 158AB may be pending in the taxpayer’s own case or in the case of any other taxpayer,” says Rahul Charkha, Partner at Economic Laws Practice.In an order dated September 28, 2022, the Central Board of Direct Taxes (CBDT) said the collegium who will decide whether Section 158AB is applicable or not, should comprise of two or more chief commissioners of income tax or principal commissioner of income tax or commissioner of income tax.
CBDT circular
Source: CBDT order dated September 28, 2022
Will taxpayers benefit from Section 158AB?
We have asked various experts about whether Section 158AB helps taxpayers in reducing their litigation cases.
Monetary expenses of taxpayers may reduce when a favourable order is passed after acceptance of Section 158AB request
Faranaaz G. Karbhari, Counsel at HSA Advocates, says Section 158AB can be applied only if the taxpayer has given his/her approval. But when the identical judgement about the question of law is answered in favour of the taxpayer then litigation expenses can be saved.
“This basically, empowers the assessee or the taxpayer to avoid another proceeding(s) which they would have to defend (for separate assessment years), if the Assessing Officer would have filed an appeal challenging the order of the Commissioner of Tax. This reduces the monetary expenses of the assessee which they would have had to bear to defend the Appeal, especially when a favourable order has been passed in their favour,” says Karbhari.
Section 158AB defers the appeal by the tax department until a conclusion is reached about the question of law
Charkha says, “A taxpayer carrying out a particular business activity will undertake transactions of similar nature year on year. If the position adopted by a taxpayer is litigated in a particular year, there are possibilities of such a position being litigated in other years as well. At times, the litigious issue is spread industry wide affecting taxpayers wide and across. The issue reaches a higher forum and due to lack of conclusion, the exposure of litigation for all other taxpayers remains open. In such cases, Section 158AB provides a ray of relief in deferring the appeals by the revenue to the year when the issue finally reaches conclusion.”
Charkha highlights that it is important that under Section 158AB is that the ‘question of law’ pending before the jurisdictional HC/ SC should be identical to the taxpayer’s case. “An opportunity to confirm this stand is provided to the taxpayer. The taxpayer must use this opportunity diligently to analyse the facts in its own case.”
Sometimes identifying whether the question of law is identical or not is also a question
The word used here is ‘identical’ not the same. This means a best judgement has to be applied on deciding whether the question of law in the taxpayer’s case is identical to the already existing litigation case.
“While highlighting an identical question of law in a taxpayer’s own case is easier, identifying that the question of law in the case of any other taxpayer is also identical would require thorough analysis. For this purpose, the taxpayers must be updated with the ongoing litigations. In order to reduce the hassle and cost of litigation, it is necessary that the taxpayers proactively bring such cases to the notice of the collegium,” says Charkha.
You can file an appeal even if Section 158AB already accepted but judgement is unfavourable
Advocate Ashish Parashar says, “When a taxpayer accepts Section 158AB then the decision about the question of law becomes binding irrespective of it being favourable or unfavourable. But in tax matters sometimes the facts of the judgement differs based on the context it is being pronounced. Hence even if it’s an unfavourable judgement after accepting Section 158AB, the taxpayer can file an appeal against it if he/she could prove that the facts and context under which this judgement is given is different from his/her case.”
Chartered Accountant Deepak Ray, Founder DRC, a CA firm, agrees with Parashar and reiterates: If a taxpayer gives acceptance to Section 158AB and the identical question of law is decided against them, they have several options, they may challenge the decision in higher courts or explore under rule various options depending on the circumstances of the case.
Karbhari says the tax assessing officer may also file an appeal if the judgement is not favourable to the tax department.
“On the basis of consent given by the assessee the Assessing Officer may proceed to file an application before the tribunal or courts, to the effect that the AO shall file the said appeal, once the case dealing with a similar question of law (currently pending adjudication) is decided upon. In this regard, it is pertinent to note that in the event that the question of law is decided, in opposition to the earlier order passed in the case of the assessee, then the AO would be well within his rights to file an Appeal challenging the earlier order passed in the case of the assessee,” she says.
Invocation of Section 158AB has been infrequent
Shaily Gupta, Partner at Khaitan & Co, says, Though designed to reduce litigation, the invocation of Section 158AB has been infrequent, limiting its impact in reducing disputes.
“Several factors may contribute to this. For one, the Revenue can only apply for deferral if the assessee agrees that the legal question in its case is identical to one in another case, which may be difficult to obtain in practice – assessees may be unwilling to wait for and/or rely on a decision in another taxpayer’s case. The provisions are recommendatory, and exercising the section only adds to burden on the Revenue in terms of identifying such cases, make proposal followed by application, tracking outcome of such case and taking actions based on such outcome. While the action from Revenue authorities is clearly lacking, the reluctance of assessees also poses a significant barrier.”
Gupta shares her experience: “In my experience, I have not seen any client receive relief under this provision. In practice, tax authorities have continued to file appeals, often choosing to keep matters pending rather than waiting for a decision in another case. As a result, taxpayers continue to face multiple proceedings on identical legal issues, necessitating intervention at higher forums to secure relief.”
You can request the tax assessing officer to file Section 158AB request if not done on a suo moto basis
FCA Deepak Ray, says, “If a taxpayer believes that their case is eligible for Section 158AB of the Income Tax Act, but the tax department is not acting on it, the taxpayer can formally request the Assessing Officer to initiate proceedings under Section 158AB, providing all relevant information and supporting documents to justify the case.”
Section 158AB has several limitations
Anita Basrur, Partner, Sudit K. Parekh & Co. LLP, says, “Section 158AB of the Income Tax Act, 1961, was introduced to reduce repetitive litigation by allowing the deferment of appeals when an identical question of law is pending before higher courts. This mechanism enables tax authorities to await the outcome of similar legal issues before proceeding with new appeals, thereby promoting judicial efficiency.”
Basrur says at the same time, the provision of this section has limitations: “Identical question of law is subjective – The interpretation of what qualifies as an identical question may vary. Delayed results– the taxpayers might have to wait longer as it would be time consuming to tag all cases. Willing of the tax authorities– The tax authorities may still file separate appeals due to procedural lethargy. While the provisions are intended to help avoid unnecessary appeals, its effectiveness depends on its proper implementation by tax authorities.”
