New Compounding Guidelines of CBDT apply Only to Fresh Applications: Madras HC Clarifies Scope of S. 279 [Read Order]

The Madras High Court has held that the revised CBDT ( Central Board of Direct Taxes ) Compounding Guidelines cannot be retrospectively applied to pending or remanded compounding proceedings and would apply only to fresh applications filed in terms of the new guidelines.

The Court clarified the scope of Section 279 of the Income Tax Act, 1961, ruling that vested rights arising from earlier judicial orders cannot be diluted by subsequent executive guidelines. The impugned compounding guidelines was issued by the central board on 17 October 2024.

The petition came before the high court after a lengthy prosecution against the petitioner, a senior citizen named K.M. Mamen for alleged offences under Sections 276C and 277 of the Income Tax Act relating to undisclosed foreign bank accounts.

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The petitioner had filed his first compounding application as early as 2011 under the then-prevailing CBDT Guidelines dated 16 May 2008.

Over the years, the matter travelled through multiple rounds of litigation before the High Court, Division Bench, and even the Supreme Court. Ultimately, courts consistently held that the petitioner was entitled to compounding, especially in view of reduction of penalty, payment of tax, interest, and penalty, and considering his age and prolonged prosecution.

Despite clear judicial directions, the Income Tax Department, in 2025, issued a communication computing compounding charges by applying the new CBDT Compounding Guidelines dated 17 October 2024, demanding over ₹1.29 crore as compounding fees.

The petitioner challenged this demand, contending that the authorities could not apply new guidelines to a case that had already been conclusively governed by earlier court orders and older CBDT guidelines.

Allowing the writ petition, Justice C. Saravanan made it clear that the Explanation to Section 279(6) only enables the CBDT to issue instructions governing the process of compounding and does not authorise retrospective application of newly issued guidelines to cases that are already concluded or have been remanded pursuant to judicial orders.

The Court further clarified that the Revised CBDT Compounding Guidelines, 2024 apply exclusively to “fresh applications”, as expressly stated in Paragraph 3.2 of the said guidelines. It categorically observed that a compounding application refiled in compliance with court directions cannot be treated as a fresh application, and therefore cannot be subjected to the new guidelines.

Therefore, while setting aside the impugned orders, the High Court directed the Income Tax Department to recompute the compounding fee strictly in accordance with the CBDT Guidelines dated 16 May 2008, after adjusting any amount already paid by the petitioner.

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