“Higher wisdom has to prevail over better wisdom” is the mantra judges mumble when they are forced to follow a precedent that they don’t quite agree with. However, judges do find ways of getting out of having to follow a judgement of a higher court. The latest salvo on this front is the Third Member judgement in Kanel Oil which shows that a High Court judgement, though superior in status to the Tribunal, may have to yield to the latter. In this case, the Bench was faced with a piquant situation. It had to decide whether an assessee liable to pay Minimum Alternate Tax (“MAT”) under section 115JA of the Act was also liable to pay advance tax under sections 234B and 234C for default in paying advance tax. The issue as such was covered against the assessee by the decision of the Special Bench in Ashima Syntex 117 ITD 1 but the assessee must have been very smug during the hearing because there was a subsequent judgement of the Bombay High Court in Snowcem India 313 ITR 170 which held, following the judgement of the Supreme Court in Kwality Biscuits 284 ITR 434, that assessees paying tax on book profits u/s 115JA were not liable to pay advance tax. The Judicial Member did oblige and decided in favour of the assessee by following the judgement of the Bombay High Court. However, the Accountant Member wrote a detailed dissenting judgement and followed the judgement of the Special Bench. This is how the matter landed up before the Third Member.
The controversy was sparked off in the first place by a legislative and departmental fiasco. Section 115J was inserted by the Finance Act 1987 to provide that companies would pay a minimum tax on their book profits. Predictably, the draftsman forgot to provide as to whether such assessees were obliged to pay advance tax given that their book profits would only be known at the end of the year. The assessees were quick to pounce on the lacunae and hollered that they were not liable to pay advance tax and the consequent interest thereon but the department would have none of that. The assessees faced stiff resistance at all fronts and even at the stage of the High Court, it was the department which drew first blood with the Gauhati High Court holding in their favour in Assam Bengal Carriers 239 ITR 862 with the pithy words “If you are bidden to treat an imaginary state of affairs as real, your imagination must not boggle when faced with the consequences”.
Well, the assessees were in no mood to treat the so-called imaginary state of affairs as real and continued their assault in the Madhya Pradesh High Court (Itarsi Oils & Flours 250 ITR 686), Madras High Court (Holiday Travels 263 ITR 307) and the Bombay High Court (Kotak Mahindra 265 ITR 119), in all of which they faced resounding defeat. The Madras High Court made short work of the assessee’s submissions that they could not “estimate” book profits by observing that if normal profits could be estimated there was no reason why the same could not be done with book profits.
However, it is truly said that litigation is a game of chance and if you play long enough, you may well hit the jackpot. This is exactly what happened when the Karnataka High Court, without being told by the department of the judgements of the other High Courts, decided in favour of the assessee in Kwality Biscuits 243 ITR 519.
That should have sent alarm bells ringing in the department but sadly they continued their deep slumber even when the Kwality Biscuits matter reached the Supreme Court. By a one – line order “The appeals are dismissed” (284 ITR 434), the Supreme Court brought an anti – climactic end to the simmering dispute. Surprisingly, though the department had brought heavy artillery to Court (the Attorney General), none of the contrary High Court judgements were cited and the hard work done by the department in defending their interpretation vaporized into thin air.
Anyway, once bitten – twice shy. The draftsman who re – incarnated section 115J in its new avatar of section 115JA added a ubiquitous sub-section (4) to the latter to provide that all of the other provisions of the Act would apply to MAT companies. He could have been more articulate given the hoary background of the case but he chose to be cryptic as usual.
Determined not to let the ghost of Kwality Biscuits haunt them in section 115JA, the department put up a spirited fight in Ashima Syntex and thoroughly convinced the Special Bench that whatever may have been their sins in section 115J, the assessees could not be allowed to escape scot – free in section 115JA. They took their victory one step forward and even persuaded the Karnataka High Court to endorse their stand in Jindal Thermal Power 286 ITR 182 (Kar) in the context of section 115JB, the second re – incarnation of s. 115J.
However, having worked so hard before the Special Bench to redeem their interpretation of section 115JA, the department was back to its wayward ways in Snowcem India 313 ITR 170. The department did not even bother to read the section before the Court leave alone pointing out the judgements in their favour. The result: The assessees were very happy to accept the matter as “covered” in their favour by Kwality Biscuits.
Anyway, the Third Member now found himself in the piquant position of having to choose between a judgement of a non-jurisdictional High Court and that of a Special Bench.
It is not that the issue had not arisen earlier. In Godavari Devi Saraf 113 ITR 589, the Bombay High Court pithily observed that the Tribunal, being an all – India body, had to follow laid down by the High Court of any State. A non – jurisdictional High Court judgement was also binding on the Tribunal. However, they were careful to qualify the dictate by the words “so long as there was no contrary judgement of any other High Court”. What was left unsaid but is quite clear by inference is that if there is a conflict amongst the non – jurisdictional High Courts, the Tribunal is free to take its own view. This principle was followed by the Tribunal in Tej International 69 TTJ (Del) 650, Aurangabad Holiday Resorts 118 ITD 1 (Pune) and was also echoed by the Special Bench in Rishi Roop Chemical 36 ITD 35 (Del) (SB). In all of these, non-jurisdictional High Court judgements were followed in preference to Special Bench judgements.
Sadly, even on this seemingly elementary proposition of law, there is a conflict of judicial opinion with a contrary view taken in Patil Vijayakumar 151 ITR 48 (Kar), Ved Prakash 178 ITR 332 (P&H), Shah Electrical 207 ITR 350 (Guj) and Taylor Instrument 232 ITR 771 (Del) that the Tribunal is not bound by a judgement of a non-jurisdictional High Court. Surprisingly, the Bombay High Court itself, in Thana Electricity Company 206 ITR 727 declared (after noticing Godavari Devi Saraf) that “The decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its own territorial jurisdiction”. This was reiterated in Consolidated Pneumatic 209 ITR 277 (Bom). Following this dictate, the Special Bench in Mahindra & Mahindra 122 TTJ (Mum) (SB) 577 refused to follow the judgement of the Delhi High Court on the point before it.
The end result of this confounding confusion of conflicting judgements is that it is impossible to say with any conviction whether or not the Tribunal is bound by a judgement of a non-jurisdictional High Court.
This imbroglio in the law came to the assistance of the department before the Third Member though the Third Member toed the Rishi Roop line and held that a solitary High Court judgement would be binding. The Third Member evolved a new argument – that a judgement which is per incuriam need not be followed even if it was the only High Court judgement in the Country. Snowcem India was branded as being “per incuriam” on the ground that it omitted to note the impact of sub-section (4) to section 115JA – the blame for which must squarely lie on the department for failing to draw the Court’s attention to it. One can only hope that the department does its homework – at least when arguing important matters in Court – to prevent such ignominy in the future.
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