Commissioner Of Income-Tax v. Abhay Kumar Jain

A.M Sapre, J.:— The decision rendered in this reference application shall govern disposal of the other two reference applications also being I.T.R No. 14 of 1998 and I.T.R No. 16 of 1998 because all the three reference applications involve identical points and are based on similar type of order passed by the Tribunal (“the ITAT”).

2. This is an application made by the Revenue (Commissioner of Income-tax) under section 256(2) of the Income-tax Act, 1961, consequent upon the rejection of their application made under section 256(1) of the Income-tax Act by the Tribunal by their common order dated July 9, 1997, passed in R.A Nos. 44, 45 and 46.Ind/1997 which in turn arise out of I.T.A Nos. 326, 632 and 895.Ind/1992 for the assessment year 1989-90. Heard Shri R.L Jain, learned senior counsel with Ku. V. Mandlik, learned counsel for the Revenue, and Shri S.C Bagadia, learned senior counsel with Shri D.K Chhabra, learned counsel for the assessee.

3. Having heard learned counsel for the parties and having perused the record of the case, we are of the view that these two applications deserve to be allowed.

4. In all the three cases, the question before the taxing authorities was whether a particular amount of royalty can be held or regarded as capital receipt in the hands of the assessee or it be taxed as revenue receipt. The contention of the assessee was that it was in the nature of capital receipt and hence not to be taxed, the contention of the Revenue was that it was in the nature of revenue receipt hence, liable to be taxed.

5. The issue eventually was answered in favour of the assessee by the Tribunal holding the royalty amount in question to be in the nature of capital receipt. It is against this view, the Revenue when prayed to the Tribunal for making a reference to this court under section 256(1) of the Act, the Tribunal by the impugned order rejected the prayer saying that it is a question of fact and hence, not a fit case to refer.

6. We do not agree to the view expressed by the Tribunal both in their order passed in the main appeal out of which this reference application arises as also in the order which resulted in dismissal of the application made under section 256(1) ibid.

7. In the first place, the manner in which the appeal filed by the assessee came to be decided in their favour by the Tribunal deserves to be deprecated rather than to appreciate. Secondly, in the absence of any reasoning, much less factual discussion regarding the nature of the royalty amount, the question involved could not have been decided by the Tribunal one way or the other. Thirdly, again in the absence of any case law being taken note of on the question involved though holding the field rendered by the Supreme Court, the so-called conclusion arrived at by the Tribunal in favour of the assessee cannot be countenanced. Fourthly, simply placing reliance on some decision of the Tribunal rendered on July 7, 1994 in I.T.A Nos. 891, 432 and 969.Ind/1992, without even mentioning the facts of that case and ignoring the law laid down by the Supreme Court amounts to showing disrespect to institution and, lastly, the casual and most slipshod manner in which the highest Tribunal in tax matters has decided the case to say the least cannot be upheld by the High Court except to express the strong disapproval to what is called “brevity” in deciding the cases/appeals.

8. We may hasten to add it being the fittest case which call for these observations that it is the foremost duty of all courts in the country (and the Tribunal—ITAT is not the exception) to decide all issues of law arising before them in any case in the light of law laid down by the Supreme Court in the first instance. Article 141 of the Constitution makes it imperative to follow the law laid down by the Supreme Court in letter and spirit. It is only when the issue is not covered by the decision of the Supreme Court then the same has to be decided keeping in view the law laid down by the High Courts in our country which holds the field.

9. As observed supra, placing reliance on some unreported decisions of the Tribunal and that too without mentioning the facts involved in the said decision, to say the least, is not the judicial approach which can be upheld by the High Court. It only exhibits poor quality in deciding the case resulting in vitiating the order on this ground alone. The Tribunal may be bound by its own orders but if there are decisions of the Supreme Court and the High Court on that issue which have taken contrary view, then in such event, it is the duty of the Tribunal to ignore their own earlier view and follow the view taken by the Supreme Court and High Court which is binding on them.

10. Even otherwise, there are long catena of decisions of the Supreme Court and the High Courts taking a view that the question as to whether a particular amount received by an assessee is to be treated as capital receipt or revenue receipt is a question of law. It is required to be decided depending upon the nature of the amount. Such issues, therefore, need to be examined by the High Court as questions of law on the merits.

11. It is for all these reasons, we are constrained to set aside the order dated July 9, 1997 passed in R.A Nos. 44, 45 and 46 of 1997, referred supra.

12. The next submission of learned counsel for the assessee was that I.T.R No. 17 of 1998, between the same parties has already been decided against the Revenue by this court on July 31, 2002, hence, these applications be also dismissed keeping in view the order so passed. We do not agree. We have perused the order passed by this court on July 31, 2002 in I.T.R No. 17 of 1998. It reads as under:

“July 31, 2002

Neither parties appears.

Since none has appeared for the petitioner-Department to press this reference, this court on more than one occasions in such matters has refused to answer the reference. Accordingly, we decline to answer the reference. This I.T.R stands disposed of as aforesaid.”

13. With respect, we may say that firstly the aforesaid I.T.R No. 17 of 1998, was dismissed in default and not on the merits. Secondly, it was wrongly treated by their Lordships to be a reference under section 256(1) whereas in effect it was an application made under section 256(2) of the Act. Thirdly, and in any event, their Lordships having declined to apply their mind to the facts of the case saying that since none has appeared for the parties and, hence, we decline to answer the question shows that their Lordships declined to decide the application on the merits made under section 256(2) ibid and lastly no reasons have at all been shown for refusal to answer the reference application. In this view/the order shall not be of any binding nature.

14. Such order, in our opinion, does not carry the issue anywhere. Dismissal of any application in default without applying the mind to the merits would not preclude us to examine these cases on the merits. It is much more so when we are satisfied that the questions of law do arise out of the order of the Tribunal. It is for all these reasons, we reject the submission of learned counsel for the assessee. Accordingly and in view of the aforesaid discussion, the applications are allowed. The Tribunal is directed to send the statement of case on all the three cases which are the subject-matter of these applications on the following questions of law. Needless to say, care must be taken to narrate the full facts in detail, duly supported by all annexures/documents including the unreported decisions of the Tribunal on which the reliance was placed for deciding the issue involved:

“1. Whether, in the facts and circumstances of the case, the Tribunal was justified in holding that royalty received by an assessee for the years in question was capital receipt and not a revenue receipt?

2. In the absence of any discussion, on the facts of the case or on legal aspects with a view to find out the nature of the amount as also legal, could the Tribunal come to a conclusion simply on the basis of some decisions of the Tribunal referred to in para. 3 of the appellate order dated February 24, 1997, that the royalty amount in question is a capital receipt and, hence, not liable to tax in the hands of the assessee?

3. Whether the decision of the Tribunal dated February 24, 1997, rendered in I.T.A Nos. 326/632 and 895.Ind/1992, be termed as judicial decision because it does not contain any facts and reasons in support of its conclusion?”

15. Let the statement of case be sent to this court within 3 months to enable this court to answer the reference under section 256(1) ibid.

16. No costs.