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Cwt v. Rakr. International (P.) Ltd.
Factual and Procedural Background
Three companies—M/s. Allied Finance Pvt. Ltd., M/s. R.K.K.R. Industries Pvt. Ltd. and M/s. R.K.K.R. International Pvt. Ltd.—purchased property bearing No. 12, Aurangzeb Lane, New Delhi by a sale deed dated 22-7-1972 for Rs. 8,00,000. The property was let out to two directors of these companies at Rs. 22,500 per month.
For the assessment year 1985-86 the Wealth-tax Officer valued the property at Rs. 7,50,00,000; as each company was a one-third owner, the net wealth attributed to the assessed was taken as Rs. 2,50,00,000. The three companies appealed to the Commissioner of Wealth-tax (Appeals) (CWT(A)), who took the view that the property's value should be calculated on the basis of its annual letting value as worked out in the income-tax assessment.
The revenue challenged the CWT(A) order before the Income Tax Appellate Tribunal (ITAT). By an order dated 1-1-1999 (which followed an earlier ITAT order dated 4-5-1998), the ITAT directed the assessing officer to adopt the property's municipal valuation. The revenue filed the present appeal under section 27A of the Wealth Tax Act against the ITAT order dated 1-1-1999 (which, as noted, follows the order dated 4-5-1998).
The respondent placed before the court a chart showing how the revenue had dealt with similar ITAT orders for these three companies across multiple assessment years; that chart indicated that the ITAT's basic orders dated 4-5-1998 and 18-5-1998 had in many instances not been challenged by the revenue, while subsequent orders that followed those basic orders were selectively appealed.
Legal Issues Presented
- Whether the revenue can selectively challenge ITAT orders that merely follow earlier unchallenged ITAT orders (specifically orders following the basic ITAT orders dated 4-5-1998 and 18-5-1998) after having accepted the correctness of those basic orders by not appealing them.
- Whether the principle of consistency (as applied in tax litigation) precludes the revenue from departing from an accepted position across assessment years unless there is just cause for such departure.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Kaumudini Narayan Dalal (2001) 249 ITR 219 (SC) | Held that the revenue cannot accept a judgment in one assessed's case and later challenge its correctness in other assesseds' cases without just cause; court declined to consider correctness where revenue had not appealed an earlier decision. | The court relied on this principle to support the conclusion that the revenue, having accepted the basic ITAT orders by not appealing them, could not now properly challenge subsequent orders that merely followed those basic orders. |
| Pradip Ramanlal Sheth v. Union of India (1993) 204 ITR 866 (High Court) | Earlier High Court decision which was not appealed against and which was followed by the order challenged in Kaumudini. | Referenced as the earlier unchallenged decision whose acceptance by the revenue was material in Kaumudini; used to illustrate the principle against selective challenges. |
| Union Of India v. Satish Panalal Shah (2001) 249 ITR 221 (SC) | Reiteration by the Supreme Court of the principle that the revenue cannot selectively challenge a view accepted in another case without just cause. | Cited as further Supreme Court authority reinforcing the same principle relied upon by the court in the present matter. |
| Berger Paints India Ltd. v. Commissioner Of Income Tax, Calcutta (2004) 266 ITR 99 (Cal.) | Referred to Kaumudini and other authorities and stated the principle that if the revenue has not challenged the correctness of a law in one assessed, it is not open to challenge it in other assesseds without just cause. | Used by the court to demonstrate consistent judicial treatment of the principle and to support refusal to allow the revenue to pick and choose in challenging later orders. |
| CIT v. Narender Doshi (2002) 254 ITR 606 (SC) | Referenced in Berger Paints decision as part of the legal background endorsing the consistency principle. | Referred to indirectly through Berger Paints as part of the authorities underpinning the court's view on consistency. |
| Commissioner Of Income Tax v. Shivsagar Estate (2002) 257 ITR 59 | Referenced in Berger Paints decision as part of the legal background endorsing similar principles. | Referred to indirectly through Berger Paints and relied upon generally to support the court's application of the consistency principle. |
| Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC) | Noted that res judicata does not apply to income-tax proceedings because each assessment year is a separate unit; but where a fundamental aspect persists across years and has been accepted by the authorities, it is inappropriate to change the position in a subsequent year (decision confined to its facts). | The court acknowledged this authority to explain the limits of res judicata in tax matters while emphasizing that consistency should be maintained where appropriate; noted the special nature of Radhasoami's facts. |
| TMM Sankaralinga Nadar and Bros. v. CIT (1929) 4 ITC 226; Hoystead v. Commissioner of Taxation (1926) AC 155 (PC); Parashuram Pottery Works Co. Ltd. v. Income Tax Officer (1977) 106 ITR 1 | Earlier authorities referred to in Radhasoami as part of the jurisprudential background regarding consistency across tax years. | Referenced through Radhasoami to show historical development of the principle that courts have recognised circumstances where changing an accepted position across years would be inappropriate. |
| CIT v. Neo Poly Pack (P.) Ltd. (2000) 245 ITR 492 (Division Bench) | Held that although res judicata does not apply to income-tax proceedings, if an issue has been consistently considered and decided in earlier assessment years in a particular manner, the same view should continue to prevail in subsequent years for the sake of consistency unless there is material change in facts. | The court relied on this Division Bench authority to reinforce the requirement of adherence to a consistently accepted position by the revenue unless justified by material change. |
Court's Reasoning and Analysis
The court began by examining the chart placed before it, which demonstrated that the ITAT's basic orders dated 4-5-1998 and 18-5-1998 formed the foundation for many subsequent ITAT decisions concerning the three companies and various assessment years. The court observed that the revenue had not appealed against these two basic ITAT orders and had thereby, in effect, accepted their correctness.
The court found it anomalous that the revenue would accept the basic orders by not appealing them and yet selectively challenge subsequent orders that simply followed those basic orders in respect of particular assesseds or specific assessment years. The court characterized the revenue's approach as having "no intelligible pattern" and described appeals wherever filed as "absolutely ad hoc."
To resolve the anomaly the court turned to binding and persuasive authorities. It relied primarily on Supreme Court decisions (for example, Union of India v. Kaumudini Narayan Dalal and Union of India v. Satish Panalal Shah) and subsequent judicial pronouncements which establish the controlling principle: where the revenue has accepted a legal position by not challenging an authoritative decision in one case, it cannot thereafter challenge the same position in other cases without just cause. The court also noted authorities explaining that the doctrine of res judicata does not strictly apply across assessment years in income-tax/wealth-tax proceedings, but that a principle of consistency must be respected where a fundamental aspect persists across years and has been accepted by the authorities (as discussed in Radhasoami and Neo Poly Pack).
Applying these principles to the facts, the court concluded that because the revenue had accepted the two basic ITAT orders (4-5-1998 and 18-5-1998) and had not shown any just cause for departing from those orders when challenging later decisions that simply followed them, it was not appropriate to permit the present selective appeal. The court emphasized that there "cannot be pick and choose" by the revenue in challenging subsequent orders in a random or ad hoc manner.
Holding and Implications
Holding: The court declined to entertain the present appeal and also declined to entertain all other connected appeals. The court concluded with the order: Dismissed.
Implications: The direct effect of the decision is dismissal of the present appeal (and connected appeals), leaving the ITAT orders (including those dated 4-5-1998 and 18-5-1998 and subsequent orders following them) intact in the matters before the court. The opinion grounds this result on the established principle that the revenue, having accepted basic orders by not appealing them, may not selectively challenge later orders which merely follow those basic orders without showing just cause for departure. The opinion does not purport to lay down a new general precedent beyond applying existing authorities to the facts; it enforces the existing line of authority favoring consistency in the revenue's approach across assessment years.
It is often said, though mistakenly, that consistency is the virtue of fools. The complete lack of it by the revenue (as the facts of this batch of cases demonstrates) really puts the theory to an acid test.
2. Three companies, M/s. Allied Finance Pvt. Ltd., M/s. R.K.K.R. Industries Pvt. Ltd. and M/s. R.K.K.R. International Pvt. Ltd. purchased property bearing No. 12, Aurangzeb Lane, New Delhi by a sale deed dated 22-7-1972 for a sum of Rs. 8,00,000. It was then let out to two directors of these companies at Rs. 22,500 per month.
3. When the question of valuing the property came up before the Wealth tax Officer, for the relevant assessment year 1985-86, he was of the view that it should be valued at Rs. 7,50,00,000. Since the assessed was 1/3rd owner of the property, its net wealth was valued at Rs. 2,50,00,000.
4. Feeling aggrieved, all three companies filed appeals before the Commissioner of Wealth-tax (Appeals) [for short CWT(A)] who was of the view that the value of the property should be calculated on the basis of its annual letting value worked out in the income-tax assessment.
5. The revenue challenged the order of the CWT(A) before the Income Tax Appellate Tribunal (ITAT). By the impugned order dated 1-1-1999 the ITAT disposed of the appeal on the basis of its earlier order dated 4-5-1998 and directed the assessing officer to adopt the value of the property on the basis of its municipal valuation.
6. The revenue has preferred the present appeal under section 27A of the Wealth Tax Act directed against the order of the ITAT dated 1-1-1999, which follows the order dated 4-5-1998.
7. Learned counsel for the Respondent placed before us a chart (which we have since completed on the basis of all pending cases) indicating how the revenue has dealt with similar orders of the ITAT in respect of each of the three companies for various assessment years. This chart makes for some rather interesting reading.
Assessment Year Allied Finance Pvt. Ltd.
R.K.K.R. Industries Pvt. Ltd.
R.K.K.R. International Pvt. Ltd.
1984-85 No appeal against May, 1998 ITAT order of 18th No appeal against ITAT order of 4-5-1998 No appeal against ITAT order of 4-5-1998 1985-86 WTA No. 4/99 filed against order of ITAT dated 1-1-1999 (following order dated 4-5-1998) No appeal against ITAT order of 4-5-1998 No appeal against ITAT order of 4-5-1998 1986-87 No appeal against ITAT order of 18-5-1998 No appeal against ITAT order of 4-5-1998 No appeal against ITAT order of 4-5-1998 1987-88 No appeal against ITAT order of 18-5-1998 No appeal against 1TAT order of 4-5-1998 No appeal against ITAT order of 4-5-1998 1988-89 No appeal against 1TAtorderof 18-5-1998 No appeal against ITAT order of 4-5-1998 No appeal against ITAT order of 4-5-1998 1989-90 No appeal against ITAT order of 18-5-1998 No appeal against ITAT order of 4-5-1998 No appeal against ITAT order of 4-5-1998 1990-91 WTA No. 7102 filed against order of ITAT dated 3-4-2001 (following order dated 4-5-1998) WTA No. 6/02 against order of ITAT dated 12-5-2000 (following order dated 4-5-1998) WTA No. 8/02 filed against order of ITAT dated 12-5-2000 (following order dated 4-5-1998) 1991-92 No information No information WTA No. 9/02 against order of ITAT dated 13-6-2001 (following orders dated 4 and 18-5-1998) 1992-93 WTA No. 12/03 filed against order of ITAT dated 19-12-2002(following orders dated 4 and 18-5-1998) WTA No. 1/03 filed against order of ITAT dated 21-9-2001 (following order dated 4-5-1998) WTA No. 21/02 filed against order of ITAT dated 21-9-2001 (following order dated 4-5-1998) 1993-94 WTA No. 13/03 filed against order of ITAT dated 19-12-2002(following orders dated 4 and 18-5-1998) WTA No. 2/03 filed against order of ITAT dated 21-9-2001 (following order dated 4-5-1998) WTA No. 22/02 filed against order of ITAT dated 21-9-2001 (following order dated 4-5-1998) 1994-95 WTA No. 11/03 against order of ITAT dated 19-12-2002 (following orders dated 4 and 18-5-1998) No information No information 1995-96 WTA No. 10/03 filed against order of ITAT dated 19-12-2002 (following orders dated 4 and 18-5-1998) WTA No. 6/04 filed against order of ITAT dated 10-12-2002 (following orders dated 4-5-1998) No information 1996-97 WTA No. 5/04 filed against order of ITAT dated 17-9-2003 (following orders dated 4-5-1998) No information No information 1998-99 WTA No. 16/04 filed against order of ITAT dated 22-4-2004 (following order dated 18-5-1998) No information No information 1999-2000 No information WTA No. 27/04 filed against order of ITAT dated 5-5-2004 (following order dated 4-5-1998) No information 2000-2001 WTA No. 7/05 filed against order of ITAT dated 5-5-2004 (following order dated 4-5-1998) No information No information
8. A perusal of the above chart clearly shows that the basic orders in all these appeals are the orders of the ITAT dated 4-5-1998 and 18-5-1998. These two basic orders have merely been followed by the ITAT while deciding all subsequent appeals. The revenue has accepted the correctness of these two basic orders and has not filed any appeal against them; it has only challenged subsequent orders, which follow these two orders. To say the least, this is a rather anomalous situation, and we are called upon to act upon it. Fortunately, we have the benefit of some decisions of the Supreme Court that makes our task quite simple.
9. In Union of India v. Kaumudini Narayan Dalal (2001)249 ITR 219 (SC) what was challenged by the revenue was an order which merely followed an earlier decision of the High Court in the case of Pradip Ramanlal Sheth v. Union of India (1993) 204 ITR 866. The Supreme Court noted that no appeal had been filed against the decision in Pradip Ramanlal Sheth's case (supra). Consequently, it was held that:-
"...It is not open to the revenue to accept that judgment in the case of the assessed in that case and challenge its correctness in the case of other assesseds without just cause. For this reason, we decline to consider the correctness of the decision of the High Court in this matter and dismiss the civil appeal."(p. 220)
10. The same Bench reiterated its view in respect of identical matter in Union Of India v. Satish Panalal Shah. (2001)249 ITR 22 1 (SC).
11. In Berger Paints India Ltd. v. Commissioner Of Income Tax, Calcutta.(2004) 266 ITR 99 (Cal.), the Supreme Court noted the decision in Kaumudini Narayan Dalal's case (supra) and also referred to CIT v. Narender Doshi (2002) 254 ITR 606 (SC) and Commissioner Of Income Tax v. Shivsagar Estate. (2002) 257 ITR 59 and held that:-
"...the principle established is that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessed then it is not open to the revenue to challenge its correctness in the case of other assesseds, without just cause."(p. 104)
12. Earlier, in Radhasoami Satsang v. CIT (1992) 193 ITR 321, the Supreme Court noted that the principle of res judicata does not apply. to income-tax proceedings, since each assessment year is a unit by itself. But, at the same time, where there is a fundamental aspect permitting through different assessment years and the authorities have allowed that position to be sustained, it would not be appropriate to allow the position to be changed in a subsequent year. In arriving at this conclusion, the Supreme Court referred to a Full Bench decision of the Madras High Court in TMM Sankaralinga Nadar and Bros. v. CIT(1929) 4 ITC 226, Hoystead v. Commissioner of Taxation (1926) AC 155 (PC) and Parashuram Pottery Works Co. Ltd. v. Income Tax Officer (1977) 106 ITR 1. The Supreme Court, however, also made it absolutely clear that the facts of Radhasoami Satsang' case (supra) being very special, the decision would be confined to the facts of that case and may not be treated as an authority on aspects which have been decided for general application.
13. A Division Bench of this court in CIT v. Neo Poly Pack (P.) Ltd. (2000) 245 ITR 492, held that even though the doctrine of res judicata would not apply to income-tax proceedings, but where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, then for the sake of consistency, the same view should continue to prevail in subsequent years unless there is some material change in the facts.
14. In view of the law laid down by the Supreme Court and also by a Division Bench of this Court, we have no reason to discard the principle of consistency which requires that when the revenue has accepted a particular view by not filing an appeal, that view should be adhered to unless there is just cause for departure.
15. Insofar as the present batch of cases is concerned, the view taken by the ITAT in its orders dated 4-5-1998 and 18-5-1998 has remained unchallenged in respect of several assessment years. These orders were not only in respect of the present assessed but in respect of the other two owners of the concerned property. For some reason, an appeal was filed in respect of the present assessed for the assessment year 1985-86 but no such appeal was filed in respect of the other two assesseds for that. year. For the earlier assessment year, that is, 1984-85 and for subsequent years, that is, 1986-87 to 1989-90, no appeal was filed by the revenue in respect of any of the assesseds. Similarly, there appears to be no information with regard to any appeal having been filed by the revenue for a couple of other assessment years in respect of all the three assesseds. In cases where an appeal has been filed by the revenue, it is on an absolutely ad hoc basis and without any intelligible pattern whatsoever. The fact, however, remains that the two basic orders passed by the ITAT on 4-5-1998 and 18-5-1998 have been accepted by the revenue. Subsequent orders which merely follow these two orders have been challenged, without any just cause having been shown for the departure by the revenue. Since the revenue has accepted the two basic orders, we are not inclined to permit it to randomly challenge a subsequent order in respect of an assessed or in respect of a random assessment year. There cannot be pick and choose in this regard, without sufficient reason.
16. Under the circumstances, we decline to entertain this appeal as well as all the other connected appeals. Dismissed.
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