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C.K Gangadharan And Another v. Commissioner Of Income Tax, Cochin .
Factual and Procedural Background
The present opinion arises out of an order dated 13 March 2008 by which a two-Judge Bench of the Supreme Court referred a group of tax matters to a larger Bench. The referral became necessary because several High Courts had taken conflicting positions on a recurring question in income-tax litigation: whether the Union of India (Revenue) is barred from defending itself by invoking contrary legal views when it had chosen not to appeal an earlier, similar decision that went against it. The larger Bench was therefore convened to settle this point of law.
Legal Issues Presented
- Whether the Revenue is precluded from defending itself in later cases by relying on legal positions contrary to those accepted in earlier cases where it chose not to file an appeal.
- Whether non-filing of an appeal in one matter creates a binding restraint on the Revenue in subsequent matters involving different assessees, particularly when divergent High Court views exist or public interest is involved.
Arguments of the Parties
Assessee’s Arguments
- The Revenue, having accepted an unfavourable High Court decision in one case, cannot “pick and choose” by appealing in another identical case; doing so is mala fide and undermines certainty in tax law.
Revenue’s Arguments
- Non-filing of appeals in some cases may be due to small revenue effect, policy thresholds, or revenue-neutral outcomes, and therefore cannot bar the filing of appeals in cases involving larger stakes or public interest.
- Divergent views of various High Courts constitute “just cause” for seeking authoritative clarification from the Supreme Court.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Kaumudini Narayan Dalal (2001) 10 SCC 231 | Revenue cannot challenge a legal view in one assessee’s case after having accepted it in another, without just cause. | Re-affirmed as good law; the Bench clarified it was not doubting the decision but examining its limits. |
| CIT v. Narendra Doshi (2004) 2 SCC 801 | Same principle as Kaumudini Narayan Dalal. | Referenced to show existing precedent that restricts selective appeals by Revenue. |
| CIT v. Shivsagar Estate (2004) 9 SCC 420 | Reiterates the prohibition on selective appeals in absence of just cause. | Cited to underscore consistency of prior Supreme Court view. |
| BSNL v. Union of India (2006) 3 SCC 1 | Res judicata does not apply to different assessment years; earlier decisions bind only by precedential value and can be overruled or distinguished. | Used to demonstrate that a coordinate or larger Bench may legitimately depart from earlier views when warranted. |
| Rupa Ashok Hurra v. Ashok Hurra (2002) 4 SCC 388 | Enumerates limited situations for recalling or reviewing a judgment. | Quoted (via BSNL) to explain mechanisms for setting aside prior decisions. |
| State of Maharashtra v. Digambar (1995) 4 SCC 683 | Non-filing of SLPs in some cases does not bar filing in others when public interest so demands. | Relied on to justify why Revenue may litigate selectively without attracting estoppel. |
| State of Bihar v. Ramdeo Yadav (1996) 3 SCC 493 | Courts may revisit issues even if earlier appeals were not filed when larger public interest is involved. | Cited to amplify the Digambar rationale. |
| Govt. of W.B. v. Tarun K. Roy (2004) 1 SCC 347 | High Court ought not dismiss a plea merely because the State had not appealed in a prior similar matter. | Serves as support for treating each case on its merits despite past inaction. |
| State of W.B. v. Debdas Kumar 1991 Supp (1) SCC 138 | Earlier authority on differential pay scales and effect of non-appeal. | Referenced in Tarun K. Roy; illustrates that non-appeal is not conclusive. |
| CCE v. Hira Cement (2006) 2 SCC 439 | Reiterates that absence of appeal in one matter is not a perpetual bar. | Noted to confirm the emerging jurisprudence. |
| Govt. of A.P. v. V.J. Cornelius (1981) 2 SCC 347 | Equity considerations are irrelevant to statutory interpretation. | Quoted to emphasise that tax appeals are determined by law, not equity. |
| Karamchari Union v. Union of India (2000) 3 SCC 335 | Revenue must have “just cause” for filing appeals selectively. | Forms the doctrinal backdrop for assessing Revenue’s conduct. |
| Berger Paints India Ltd. v. CIT (2004) 12 SCC 42 | Contained observations that triggered the larger-Bench reference. | Provided the immediate context for revisiting the issue. |
| Hemalatha Gargya v. CIT (2003) 9 SCC 510 | Divergent High Court views constitute “just cause” for Revenue to appeal. | Cited to support Revenue’s stance that conflicting judgments warrant Supreme Court clarification. |
Court's Reasoning and Analysis
1. The Court began by recognising that multiple High Courts had handed down conflicting judgments on the Revenue’s ability to appeal in subsequent, similar matters. This conflict created legal uncertainty, necessitating authoritative resolution.
2. Through an extensive survey of precedent, the Bench distinguished between (a) the doctrine of res judicata, applicable only to the same parties and cause of action, and (b) the doctrine of precedent, which allows courts to revisit questions of law in later assessment years or in respect of different assessees.
3. Relying on BSNL v. Union of India, the Court affirmed that while earlier decisions carry precedential weight, a coordinate or larger Bench may depart from them if they are per incuriam, distinguishable, or if broader public interest so requires.
4. Cases such as Digambar, Tarun K. Roy, and Ramdeo Yadav were invoked to demonstrate that non-filing of SLPs in some instances cannot estop the State from appealing in other matters where stakes are higher or public interest is implicated.
5. The Bench acknowledged the authority of Kaumudini Narayan Dalal and kindred cases but clarified that those rulings do not impose an absolute bar; they merely require the Revenue to show “just cause” for differential litigation conduct.
6. The Court accepted the Revenue’s explanation that factors such as low tax effect, revenue neutrality, or policy thresholds could provide legitimate justification for not appealing in certain cases while appealing in others.
7. Consequently, the Bench concluded that the mere fact of non-appeal in some prior instances does not, by itself, preclude the Revenue from pursuing appeals in other cases, especially when divergent judicial opinions exist and a definitive pronouncement from a higher court is desirable.
Holding and Implications
HOLDING: The Court answered the reference by holding that the Revenue is not barred from filing or defending appeals in other cases merely because it chose not to appeal an earlier, similar decision, provided there is “just cause,” public interest, or a need for clarification due to conflicting judicial views.
IMPLICATIONS: The decision clarifies that governmental litigants may pursue selective appeals without being automatically accused of arbitrariness, so long as a rational basis—such as policy thresholds, fiscal impact, or legal uncertainty—exists. It reinforces flexibility for the Revenue while preserving the requirement of “just cause,” thereby balancing administrative pragmatism with fairness to taxpayers. No new statutory rule was created, but the judgment harmonises prior case law and offers guidance to High Courts and tribunals facing similar objections.
Dr. Arijit Pasayat, J.— By order dated 13-3-2008, a reference was made to larger Bench and that is how these cases are before us. The order, of reference, inter alia, reads as follows:
In view of the aforesaid position, we are of the opinion that matter requires consideration by a larger Bench to the extent whether Revenue can be precluded from defending itself by relying upon the contrary decision.
We make it clear that we are not doubting the correctness of the view taken by this Court in Union of India v. Kaumudini Narayan Dalal (2001) 10 SCC 231, (2001) 249 ITR 219, CIT v. Narendra Doshi (2004) 2 SCC 801 and CIT v. Shivsagar Estate (2004) 9 SCC 420 to the effect that if the Revenue has not challenged the correctness of the law laid down by the High Court and accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessees, without just cause.
Registry is directed to place the papers before the Hon'ble Chief Justice of India for appropriate orders.”
2. In terms of the reference what is required to be decided is whether Revenue can be precluded from defending itself by relying upon the contrary decisions. It is to be noted that various High Courts have taken contrary views. While some of the Courts have decided in favour of the assessee, other High Courts have decided in favour of the Revenue.
3. For deciding the issue few decisions of this Court need to be noted.
4. In BSNL v. Union of India (2006) 3 SCC 1 it was noted as follows:
“20. The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why the courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction.
22. A decision can be set aside in the same lis on a prayer for review or an application for recall or under Article 32 in the peculiar circumstances mentioned in Rupa Ashok Hurra v. Ashok Hurra (2002) 4 SCC 388. As we have said, overruling of a decision takes place in a subsequent lis where the precedential value of the decision is called in question. No one can dispute that in our judicial system it is open to a court of superior jurisdiction or strength before which a decision of a Bench of lower strength is cited as an authority, to overrule it. This overruling would not operate to upset the binding nature of the decision on the parties to an earlier lis in that lis, for whom the principle of res judicata would continue to operate. But in tax cases relating to a subsequent year involving the same issue as an earlier year, the court can differ from the view expressed if the case is distinguishable or per incuriam. The decision in State of U.P v. Union of India (2003) 3 SCC 239 related to the year 1988. Admittedly, the present dispute relates to a subsequent period. Here a coordinate Bench has referred the matter to a larger Bench. This Bench being of superior strength, we can, if we so find, declare that the earlier decision does not represent the law. None of the decisions cited by the State of U.P are authorities for the proposition that we cannot, in the circumstances of this case, do so. This preliminary objection of the State of U.P is therefore rejected.”
5. In State of Maharashtra v. Digambar (1995) 4 SCC 683, the position was highlighted by this Court as follows:
“16. We are unable to appreciate the objection raised against the prosecution of this appeal by the appellant or other SLPs filed in similar matters. Sometimes, as it was stated on behalf of the State, the State Government may not choose to file appeals against certain judgments of the High Court rendered in writ petitions when they are considered as stray cases and not worthwhile invoking the discretionary jurisdiction of this Court under Article 136 of the Constitution, for seeking redressal therefor. At other times, it is also possible for the State, not to file appeals before this Court in some matters on account of improper advice or negligence or improper conduct of officers concerned. It is further possible, that even where SLPs are filed by the State against judgments of the High Court, such SLPs may not be entertained by this Court in exercise of its discretionary jurisdiction under Article 136 of the Constitution either because they are considered as individual cases or because they are considered as cases not involving stakes which may adversely affect the interest of the State. Therefore, the circumstance of the non-filing of the appeals by the State in some similar matters or the rejection of some SLPs in limine by this Court in some other similar matters by itself, in our view, cannot be held as a bar against the State in filing an SLP or SLPs in other similar matter(s) where it is considered on behalf of the State that non-filing of such SLP or SLPs and pursuing them is likely to seriously jeopardise the interest of the State or public interest.”
6. In Govt. of W.B v. Tarun K. Roy (2004) 1 SCC 347 reference was made to the judgment in Digambar case (1995) 4 SCC 683 and State of Bihar v. Ramdeo Yadav (1996) 3 SCC 493. It was noted as follows: (Tarun K. Roy case (2004) 1 SCC 347)
“28. In the aforementioned situation, the Division Bench of the Calcutta High Court manifestly erred in refusing to consider the contentions of the appellants on their own merit, particularly, when the question as regards difference in the grant of scale of pay on the ground of different educational qualification stands concluded by a judgment of this Court in Debdas Kumar 1991 Supp (1) SCC 138, (1991) 17 ATC 261. If the judgment of Debdas Kumar 1991 Supp (1) SCC 138, (1991) 17 ATC 261 is to be followed, a finding of fact was required to be arrived at that they are similarly situated to Debdas Kumar 1991 Supp (1) SCC 138, (1991) 17 ATC 261 which in turn would mean that they are also holders of diploma in Engineering. They admittedly being not, the contention of the appellants could not be rejected. Non-filing of an appeal, in any event, would not be a ground for refusing to consider a matter on its own merits. (See State of Maharashtra v. Digambar (1995) 4 SCC 683.)
29. In State of Bihar v. Ramdeo Yadav (1996) 3 SCC 493 wherein this Court noticed Debdas Kumar 1991 Supp (1) SCC 138, (1991) 17 ATC 261 by holding: (Ramdeo Yadav case (1996) 3 SCC 493)
‘4. Shri B.B Singh, the learned counsel for the appellants, contended that though an appeal against the earlier order of the High Court has not been filed, since larger public interest is involved in the interpretation given by the High Court following its earlier judgment, the matter requires consideration by this Court. We find force in this contention. In the similar circumstances, this Court in State of Maharashtra v. Digambar (1995) 4 SCC 683 and in State of W.B v. Debdas Kumar 1991 Supp (1) SCC 138, (1991) 17 ATC 261, had held that though an appeal was not filed against an earlier order, when public interest is involved in interpretation of law, the court is entitled to go into the question.’ ”
7. In Ramdeo case (1996) 3 SCC 493 reference was made to State of W.B v. Debdas Kumar 1991 Supp (1) SCC 138, (1991) 17 ATC 261 wherein it was observed at para 5 as follows:
“5. It is then contended that Sections 3(2) and (3) make distinction between the employees covered by those provisions and the employees of the aided schools taken over under Section 3(2). Until the taking over by operation of Section 3(4) recommendation is complete, they do not become the employees of the Government under Section 4 of the Act. The Government in exercise of the power under Section 8 constituted a committee and directed to enquire and recommend the feasibility to take over the schools. On the recommendation made by them, the Government have taken decision on 13-1-1981 by which date the respondents were not duly appointed as the employees of the taken over institution. Therefore, the High Court cannot issue a mandamus directing the Government to act in violation of law.”
8. In CCE v. Hira Cement (2006) 2 SCC 439 at para 24 the position was reiterated.
9. In Govt. of A.P v. V.J Cornelius (1981) 2 SCC 347 it was observed that equity is not the relevant factor for the purpose of interpretation.
10. It will be relevant to note that in Karamchari Union v. Union of India (2000) 3 SCC 335, (2000) 243 ITR 143 and Union of India v. Kaumudini Narayan Dalal (2001) 10 SCC 231, (2001) 249 ITR 219 this Court observed that without a just cause Revenue cannot file the appeal in one case while deciding not to file appeal in another case. This position was also noted in CIT v. Shivsagar Estate (2004) 9 SCC 420.
11. The order of reference would go to show that same was necessary because of certain observations in Berger Paints India Ltd. v. CIT (2004) 12 SCC 42. The decision in Union of India v. Kaumudini Narayan Dalal (2001) 10 SCC 231, (2001) 249 ITR 219 was explained in Hemalatha Gargya v. CIT (2003) 9 SCC 510, at SCC para 14. It has been stated in the said case that the fact that different High Courts have taken different views and some of the High Courts are in favour of the Revenue constituted “just cause” for the Revenue to prefer an appeal. This Court took the view that having not assailed the correctness of the order in one case, it would normally not be permissible to do so in another case on the logic that the Revenue cannot pick and choose. There is also another aspect which is the certainty in law.
12. If the assessee takes the stand that the Revenue acted mala fide in not preferring appeal in one case and filing the appeal in other case, it has to establish mala fides. As a matter of fact, as rightly contended by the learned counsel for the Revenue, there may be certain cases where because of the small amount of revenue involved, no appeal is filed. Policy decisions have been taken not to prefer appeal where the revenue involved is below a certain amount. Similarly, where the effect of decision is revenue neutral, there may not be any need for preferring the appeal. All these certainly provide the foundation for making a departure.
13. In answering the reference, we hold that merely because in some cases the Revenue has not preferred appeal that does not operate as a bar for the Revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher court when divergent views are expressed by the Tribunals or the High Courts.
14. The matter shall be placed before the Bench concerned for disposal of the appeals.
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