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Petitioner: INCOME-TAX APPELLATE TRIBUNAL VS Respondent: DEPUTY COMMISSIONER OF INCOME-TAX JUDGMENT
Court Name: Supreme Court of India Judge(s): B. P. Jeevan Reddy, S. B. Majmudar Title:INCOME-TAX APPELLATE TRIBUNAL vs DEPUTY COMMISSIONER OF INCOME-TAX
JUDGMENT
Reported As: 1997 PTD 228 Result: Order accordingly Judgment JUDGMENT S. B. MAJMUDAR, J.---Leave granted in all these petitions. By consent of the learned Advocates of the parties, the appeals are heard finally and are being disposed of by this common judgment. These appeals are taken out by the Income-tax Appellate Tribunal (referred to as "the Appellate Tribunal") which is up in arms against the Income-tax Department in a way these are unusual cases wherein the Tribunal has to voice a grievance against the Income-tax Department in connection with its functioning as such. A few relevant background facts are required to be noted at the outset to highlight the grievance of the appellant-Appellate Tribunal. Background facts: Surana Steels Pvt. Ltd., Binjusaria Metal Box Co. Pvt. Ltd. And Agroha Extraction Ltd., who are respondent no,2 in each of these appeals are the concerned assessees. They were the appellants in three income-tax appeals before the Income-tax Appellate Tribunal, Hyderabad. The Special Bench thereof disposed of all the three appeals by common order dated February 4, 1993, as they involved consideration of a common question of law relating to the construction of section 115-J of the Income Tax Act, 1961 (hereinafter referred to as "Income-tax Act"). This decision of the Special Bench resulted in three writ petitions moved by the Deputy Commissioner of Income-tax, Hyderabad, before the High Court of Andhra Pradesh. The assessee- respondent no,2 in each of these appeals had succeeded before the Special Bench of the Appellate Tribunal on the construction of section 115-J of the Income-tax Act. However, Income-tax Reference no,126 of 1992, which was pending in the High Court also pertained to the very same
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question centering round the construction of section 1154 and was, therefore, clubbed with the aforesaid three writ petitions moved by the Deputy Commissioner of Income-tax against the common order of the Special Bench dated February 4, 1993. All these matters were heard by a Division Bench of the High Court consisting of V. Sivaraman Nair and S.V. Maruthi, JJ. The Division Bench of the High Court by its common order dated December 31, 1993 (see (1994) 207 ITR 508), allowed the three writ petitions moved by the Deputy Commissioner of Income-tax and answered the reference in favour of the Revenue and against the assessees. The Appellate Tribunal being aggrieved by the finding reached by the High Court in the writ petitions has filed the aforesaid appeals before this Court on obtaining leave under Article 136 of the Constitution of India. The dissatisfied assessees have filed separate Special Leave Petitions Nos.12446 and 12835 of 1994. By an order dated August 8, 1994, in the special leave petitions moved by the Appellate Tribunal, a Bench of this Court consisting of one of us, Jeevan Reddy, J. And Sen, J., issued notice and directed that pending further orders, the judgment, in so far as it holds that constitution of a Special Bench consisting of three or more members by the President of the Income-tax Appellate Tribunal can be done only and by virtue of a judicial order, is suspended, while notice was also issued and interim relief was granted on condition in the assessee's Special Leave Petition no,12446 of 1994 arising from the very same common judgment of the High Court. By a later order, dated April 3, 1995, however, Special Leave Petitions Nos.12054-56 of 1994 moved by the Income-tax Appellate Tribunal were delinked from the other matters. That is how the assessees' special leave petitions are now no longer a part of the present group and we are concerned, in the present proceedings, with the three appeals arising out of Special Leave Petitions Nos.12054-56 of 1994 moved by the Income-tax Appellate Tribunal against the common order of the Division Bench of the High Court in the aforesaid three writ petitions. Consequently, we will not be concerned, in these proceedings, with the question of construction of section 115-J of the Income-tax Act and the merits of the decision of the High Court on this point. We will, therefore, only consider, in these proceedings, the grievances voiced on behalf of the Appellate Tribunal by its learned counsel Shri Subba Rao. Rival contentions: Shri Subba Rao, learned counsel appearing for the appellant, the Tribunal, contended that the High Court had patently erred in law in taking the view that the President of the Income-tax Appellate Tribunal had no jurisdiction to constitute a Special Bench for hearing the appeals of the respondent-assessees. He. Submitted that the Division Bench of the High Court had misconstrued and misinterpreted the relevant statutory provisions of the Income-tax Act as well as the regulations in this connection. According to Shri Subba Rao, the High Court had wrongly assumed that a Special Bench can be constituted by the President only on the basis of a judicial order and not in exercise of his powers under subsection (5) of section, 255 of the Income-tax Act. According to learned counsel, the High Court had equally erred in taking the view that, on the facts of the present case, the Special Bench was constituted on the whims and fancies of the President and there was no reason for constituting such a Bench. He also further contended that the High Court was equally in error when it held that the Tribunal had committed a breach of the principles of natural justice in not granting an adjournment as asked for by learned counsel for the Revenue, and that on the facts of the present case enough latitude was shown by the Tribunal in adjourning the matters at the instance of learned counsel for the Revenue on II past occasions and, therefore, there was no violation of the principles of natural justice when further adjournment was refused and the matter was heard by the Special Bench. Shri Ahuja, learned senior counsel appearing for the respondent. Deputy Commissioner of Income- tax, on the other hand, submitted that on the facts of the present case, the High Court rightly took the view that the Special Bench was constituted by the President of the Tribunal without any rhyme
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or reason and in any case the Tribunal had committed breach of the basic principles of natural justice in refusing adjournment in the appeals posted for hearing before the Special Bench when the departmental representative who was in charge of the matter had taken ill and had to be hospitalised and that the previous adjournments which were granted before the constitution of the Special Bench were only 8 in number and that had nothing to do with the situation in which the Department found itself under circumstances beyond its control when learned counsel for the Revenue was busy in the High Court in tax matters before the Tax Bench and the Departmental Representative had suddenly taken ill and had to be hospitalised. That these were circumstances which called for a judicious and a liberal approach on the part of the Tribunal. That even the written submissions which were tendered on behalf of the Revenue were not permitted to be taken on record and, therefore, the High Court was right in taking the view that the Tribunal in deciding the Special Bench matter had committed breach of the basic principles of natural justice. In view of the aforesaid rival contentions, the following points arise for our determination. Point no,1: Whether the Special Bench of the It!Come-tax Appellate Tribunal had committed breach of the principles of natural justice and had denied reasonable opportunity to the Income-tax Department to put forward its case in the appeals taken up for decision by the Special Bench. Point no,2: Whether the President of the Tribunal was legally competent to constitute a Special Bench for hearing the three appeals moved by respondent no,2 assessees in these three cases and whether the Special Bench was validly constituted. We shall deal with the aforesaid points one by one. Point no,1: So far as this point is concerned the High Court in the impugned judgment at page 31 (at page 515 of 207 ITR) has noted that it was true that the matter was adjourned at the instance of the Departmental. Representative from time to time on 11 occasions from October 28,1992, up to January 4, 1993. However, on January 4, 1993, when the matter was posted for hearing before the Special Bench, Shri H. Srinivasulu, who was appointed as designated officer, to argue the matter before the Special Bench fell sick. It was also not disputed that he was shifted to Hyderabad Nursing Home and the doctors had advised him rest for four weeks. It was also true that Shri Mani, another Deputy Commissioner, who was appointed to assist Shri Srinivasulu, was ready to argue the matter and in fact he argued the matter to the best of his ability. However, in view of the complicated nature of the case and the heavy Revenue involved in the matters and also keeping in view the fact that any decision rendered by the Special Bench of the Tribunal will have an all-India effect, to supplement the arguments of Shri Mani, the Department sought permission of the Tribunal to file written submissions and it is not disputed that the Tribunal to file those written submissions. On these facts, the High Court took the view that the Tribunal was not justified in not adjourning the matter and in insisting on hearing the matter. Now, we may state at this stage that, even though on the merits the Revenue lost before the Special Bench of the Income-tax Appellate Tribunal, the High Court, in the writ petitions, heard the Department fully on the merits of the question, namely, the construction of section 115-J of the Income Tax Act and held in favour of the Revenue and against the assessees. Thus, the Revenue had not only full opportunity to put forward its case before the High Court in the writ petitions but had succeeded therein. Under the circumstances, the question of violation of the principles of natural justice by the tribunal pales into insignificance and, therefore, we do not deem it fit to pronounce upon that question finally. We have already noted that the decision of the Division Bench of the High Court on the merits of the controversy centering round the construction of section 115-J of the Income Tax Act is already pending scrutiny of this Court in the delinked special leave petitions moved by the assessees and
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this Court is going to decide that question on the merits. Under these circumstances, we do not think it fit to delve deep into the question of failure of the principles of natural justice at the stage of hearing before the Special Bench of the Tribunal. However, in passing we may observe that prima facie, the view of the High Court that the Tribunal on the peculiar facts of the case was not, justified in insisting on hearing the matter and even not taking the written submissions on record as tried to be furnished on behalf of the Revenue and thus had adopted an unjustified stand, appears to be well-sustained. It is no doubt true that the matter was adjourned on 11 occasions earlier. It is also true that when a senior counsel is not available to argue and adjourned matter for which a Special Bench is constituted at Hyderabad where the President had to come from Delhi and another member had to come from Bombay, the Revenue should have taken all care to see that some alternative arrangement was made so that the matter may not get unduly prolonged and indefinitely adjourned and that in such situations the Special Bench of the Tribunal could have legitimately required the Revenue to make alternative arrangement for getting the matter argued. But for that purpose a short adjournment of a day or two could have been granted when the Departmental Representative who was in charge of the matter was admitted to a nursing home. In any case written submissions could have been taken on record and considered by the Tribunal instead of totally brushing them aside. However, as noted earlier and as ultimately, the Revenue has not suffered till date and its viewpoint has been accepted by the High Court on the construction of section 115-J of the Income Tax Act we do not dilate on this question any further. That disposes of the first point. Point no,2: So far as this point is concerned, it is necessary to have a look at the relevant facts as emerging on the record of the case which resulted in the constitution of the Special Bench by the President of the Appellate Tribunal. In the counter filed by Shri Kalu Ram Meena, Deputy Commissioner of Income-tax, Hyderabad,' in the present proceedings the background facts leading to the formation of the Special Bench by the President have been stated. It is averred that the Tax Bar Association of Andhra Pradesh addressed a letter to the President on July 25, 1992, requesting him to refer the matter of the correct interpretation of section 115-J to a Special Bench to have uniformity of the decisions on the point. The request in the letter was as follows: "In the wake of the divergent opinions expressed by different Benches of the Tribunal and also in view of the language in which section 115-J is couched, the members of the A.P. Tax Bar Association have felt the need to request your goodself to refer the matter to a Special Bench to have uniformity in the decisions on this point. The governing body has received various representations to his effect from our members. May we, therefore, request your goodself to consider the request of constituting a Special Bench to decide the issue relating to the interpretation of the word under section 115-J and oblige." After the receipt of the above letter, the President forwarded the same to the Senior Member of the Income-tax Appellate Tribunal, Hyderabad Bench, Hyderabad, directing him to contact the members of the Bar and suggest to him how far he feels the need for constituting a Special Bench. On that the Senior Member alongwith the Accountant Member after due consultation with the Bar suggested constitution of the Special Bench and the reason for the constitution of the Special Bench is stated in reference dated September 25, 1992, forwarded to the President, which reads thus: "After noting conflicting decisions on the interpretation of section 115-J and also after going through the several articles published in 50 Taxman 659 (Magazine Section) 47 Taxman 133 (Magazine Section) 48 Taxman 347 (Magazine section) and 49 Taxman 49 and 133 (Magazine Section) and having noticed diametrically opposite view expressed in the two decisions of the Tribunal, one in Butt-welded Tools (P.) Ltd. v. Asstt. Commissioner of Income-tax (1991) 39 ITD 432 (Mad.) and the
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opposite decision rendered by the Hyderabad Bench in V.V. Trans-Investments (P.) Ltd. v. Income- tax Officer (1992) 42 ITD 242, we are of the opinion that in order to secure uniformity in judicial decisions and prevent judicial chaos and in order to avoid uncertainties on such a vital point of public importance, Constitution of a Full Bench is very essential to resolve the following questions: (1) Whether depreciation and loss should necessarily be present for the purpose of adjustment while computing the book profit under section 115-J of the Income Tax Act read with section 205(1), proviso (b), of the Companies Act? (2) For the purpose of computing the book profits under section 1154 of the Income Tax Act read with section 205(1), proviso (b), of the Companies Act whether depreciation includes loss? (3) If an assessee had not incurred losses in the previous years but only had unabsorbed depreciation claim, the claim for deduction under section 1154 (1-A)(iv) would not be available to such an assessee? (4) In case where there is profit in a year but after adjustment of depreciation it results in loss, can no adjustment in book profit under section 115-J of the Income Tax Act be allowed?" This reference was made on September 25,1992, in the prescribed form and it was sent alongwith a covering letter dated September 25,1992, to the President of the Income-tax Appellate Tribunal at Delhi. Thereupon, the President, Income-tax Appellate Tribunal, had accepted the reference and constituted a Special Bench vide Letter no,F.16-LG(ATNZ Sectt) 92, dated October 1,1992. The aforesaid stand taken in the counter shows that the President appeared to have acted in light of the reference dated September 25,1992 made by two senior members of the Tribunal. It is also true that the President was requested by the Tax Bar Association of Andhra Pradesh to constitute a Special Bench for resolving the question in controversy . However , when we turn to the reference letter dated September 25,1992, which has been brought on the record of these proceedings as an annexure to the special leave petition as Annexure-A, we find that the reference purports to be under section 255(3) of the Income-tax Act by the two mem bers, Shri T.V. Rajagopala Rao and Shri Chander Singh, and they have suggested that the Special Bench of the Tribunal may be following four matters: 1. I.T.A. No,1045/Hyd. of 1991 (Assessment year:1989- 90)Hagglunds Lenision Ltd. v. Deputy Commissioner of Income-tax (Assts.), Special Range-4, Hyderabad 2. I.T.A. No,138/Hyd. of 1992 Novopan India Ltd.,Hyderabad v. Deputy Commissioner of Income-tax (Assts.) Special Range-4, Hyderabad. 3. I.T.As. Nos .797 and 798 Hyd. of 1992 (Assessment years:1988-89 and 1989- 90)Andhra Printers Ltd., Vijayawada v. Deputy Commissioner of Income-tax, Special Range, Vijayawada. 4. I.T.A. No,812/Hyd. Of 1992 (Assessment year 1989- 90)Sri Raja Rajeswari Paper Mills Ltd. v. Deputy Commissioner of Income-tax, Special Range, Vijayawada. It is also interesting to note that it is this D.O. Letter of the Accountant Member and the Judicial Member, dated September 25, 1992, to which the President agreed and by his order in the light of the said D.O. The President constituted a Special Bench. That is clearly indicated by communication, dated October 1, 1992, addressed by the Assistant Registrar of the Income-tax Appellate Tribunal, New Delhi to Shri T.V. Rajagopala Rao, Member, Income-tax Appellate Tribunal, Hyderabad. The said communication is at Annexure "B" to the special leave petition at page 135 of
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the paper book. It is also brought on the record of this case that one of the members of the Tribunal, namely, Shri Chander Singh who was a signatory to the reference dated September 25,1992, had earlier taken the view by his order dated July 30,1992, that this question was not required to be referred for decision to the Special Bench. But even that a part, even though he might have subsequently changed his view and recommended constitution of a Special Bench for resolving the questions involved centering round construction of section 115-J of the Income-tax Act in the company of Shri T.V.Rajagopala Rao, Judicial Member, only four listed matters were suggested to be placed before the Special Bench for decision. However, the Special Bench was constituted by the President not for deciding these four matters but for deciding the three tax appeals being I.T.As. Nos.1845/Hydro 1990,811/Hyd. Of 1992 and 822/Hyd. Of 1992, which were moved by the present three assessee-respondents in these proceedings and it is the decision of the Special Bench in these appeals that has resulted in the present proceedings. We wanted, therefore, to know from learned counsel for the appellant as to how the aforesaid three income-tax appeals of the present three respondent-assessees were placed before the Special Bench bir the President when the President had agreed to the suggestion of the members of the Income-tax Appellate Tribunal for placing four other appeals which were listed in the reference of September 25,1992, for being placed before the Special Bench. In this connection, by our order dated December 1, 1995, the required details were asked for from the appellant-Tribunal. We shall deal with the material supplied by the Tribunal pursuant to our aforesaid order a little later. In the background of the aforesaid facts the High Court took the view that, on the facts and circumstances of the case, the President of the Tribunal was not justified in constituting the Special Bench for deciding the -appeals of the aforesaid three respondents. The High Court has taken the view that the President has to exercise his discretion judiciously and judicially and it may not be exercised at the whims and fancies of the President. The High Court has further observed that in the present case there was no conflict at all between Butt-welded Tools (P.) Ltd. v Asstt. CIT (1991) 39 ITD 432 (Mad.) and V.V. Trans-Investments (P.) Ltd. v. ITO (1992) 42 ITD 242 (Hyd.) and that there was no reason for the President to constitute a Special Bench. The High Court has also made the following observations in his connection at page 41 of its judgment: "As already stated, the power to constitute a Special Bench under section 255(3) of the Act shall be exercised judicially and judiciously and the discretion cannot be exercised arbitrarily at the whims and fancies of the authority vested with such power." We see considerable force in the submission of counsel for the petitioners that unless the reference is made in a judicial order by a Bench of Tribunal pointing out the reasons for the constitution of a Special Bench, President of the Income-tax Tribunal, was not competent to constitute a special Bench. In the present case, admittedly, none of the Benches of the tribunal had made any reference by a judicial order when the question came for consideration and the conflict of decisions of the coordinate Benches was adverted to. The procedure adopted in this case seems to us to be curious. On receipt of a representation by the Tax Bar Association, the President of the Tribunal invited comments from the senior member of a Hyderabad Bench of the Tribunal. It is more curious that the very same member who had rendered judgment which was in V.V Trans- Investments (P) Ltd. v. ITO (1992) 42 ITD 242 (Hyd.) replied to the President suggesting the constitution of the Special Bench. Counsel for the petitioner submits that in the facts and circumstances of the case that was but a command performance at the instance of the President. He submits further that since there was no judicial order requesting for a reference of any question to a Special Bench, the constitution of the same was not justified. We see considerable force in the submission, since a Court or a judicial Tribunal is expected to discharge their judicial functions by passing judicial orders and not by intra-departmental communications. We also see force in the submission of counsel that had the matter been posted for hearing on the judicial side, the
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Department would have had an opportunity to project its views before the Hyderabad Bench deliberated upon the alleged conflict of authorities, rather than depending on views expressed in articles and journals as reason for constitution of a Special Bench." In our view, the aforesaid decision of the High Court to the effect that the President of the Income- tax Appellate Tribunal cannot constitute a Special Bench save and except under a judicial order cannot be sustained on the scheme of the Act and the relevant regulations. The reasons are obvious. Section 255 of the Income Tax Act deals with the procedure of the Appellate Tribunal. The said section alongwith relevant subsections thereof read as under: "255.--(1) The powers and functions of the Appellate Tribunal may be exercised and discharged by Benches constituted by the President of the Appellate Tribunal from among the members thereof. (2) Subject to the provisions contained in subsection (3), a Bench shall consist of one judicial member and one accountant member, (3) The President or any other member of the Appellate Tribunal authorised in this behalf by the Central Government may, sitting singly dispose of any case which has been allotted to the Bench of which he is a member and which pertains to an assessee whose total income as computed by the Assessing Officer in the case does not exceed one lakh rupees and the President may, for the disposal of any particular case, constitute a Special Bench consisting of three or more members, one of whom shall necessarily be a judicial member and one an accountant member. (4) If members of the Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such…
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