Even Ordinary Act of Parliament Cannot Override Final Court Orders: Madras HC sets aside Compounding Demand Based on 2024 CBDT Guidelines [Read Order]

The Madras High Court has held that even an ordinary Act of Parliament or subordinate legislation such as CBDT ( Central Board of Direct Taxes ) guidelines cannot override or dilute final judicial orders that have attained finality between the parties.

Justice C. Saravan, depending on Supreme Court precedents, the Court set aside a fresh demand for enhanced compounding charges raised on the basis of the CBDT Compounding Guidelines dated 17.10.2024, holding the action to be legally unsustainable/.

A senior citizen assessee, K. M. Mamen who had been facing prosecution under Sections 276C and 277 of the Income Tax Act, 1961, in relation to undisclosed foreign bank accounts pertaining to Assessment Year 2002-03.

The petitioner had paid the tax, interest, and penalty, and had repeatedly applied for compounding of offences under Section 279 of the Act.

After multiple rounds of litigation spanning over a decade, the Madras High Court, by earlier orders, had conclusively held that the petitioner was entitled to compounding, and that the applicable compounding guidelines would be the CBDT Guidelines dated 16.05.2008, which were in force when the first compounding application was filed.

These findings were repeatedly confirmed by the Division Bench of the High Court and ultimately upheld by the Supreme Court in March 2025.

Despite the matter having reached finality, the Income Tax Department issued a fresh communication in June 2025, demanding ₹1.29 crore as compounding charges, calculated by applying the revised CBDT Compounding Guidelines dated 17.10.2024.

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The department argued that, in view of the Explanation to Section 279(6) of the Income Tax Act, the Board had the power to issue fresh guidelines which would govern the compounding process.

Aggrieved by the demand, the assessee once again approached the High Court, contending that the application of the 2024 Guidelines directly violated binding judicial directions and amounted to nullifying final court orders.

The court rejected the department’s stand, holding that once rights have crystallised under final court orders, they cannot be taken away by subsequent circulars, guidelines, or even legislative amendments.

The Court observed that the Explanation to Section 279(6) only empowers the CBDT to issue guidelines for proper administration, but does not authorise the Board to override judicial mandates.

The Supreme Court in Madan Mohan Pathak Vs. Union of India, held that “the Orders of the Court cannot be touched by an ordinary Act of Parliament.”

The high court after noting supreme court observation, said that “Since even an Act of the Parliament cannot dilute the decision of the Courts, the issuance of revised circulars/guidelines viz., Guidelines dated 17.10.2024 bearing reference F.No.285/08/2014-IT(Inv.V) either taking away such rights or imposing more onerous condition cannot be countenanced.”

Accordingly, the High Court set aside the communication dated 11.06.2025 and directed the Income Tax Department to recompute the compounding charges strictly in accordance with the CBDT Guidelines dated 16.05.2008, after adjusting amounts already paid. The department has been directed to complete this exercise within three months.