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Otters Club Petitioner v. Director Of Income Tax (Exemptions) Mumbai & Ors. S

Bombay High Court

Jan 12, 2017

Judgment

Subsequent
References

CaseIQ

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Concise Analytical Summary of the Provided Opinion

Factual and Procedural Background

The petitioner filed a writ petition under Article 226 of the Constitution of India challenging the Income Tax Appellate Tribunal's (Tribunal) order dated 30 September 2016, which was passed under Section 254(2) of the Income Tax Act, 1961. That impugned order dismissed the petitioner's application for rectification of a prior Tribunal order dated 3 February 2016 (an order under Section 254(1)) concerning Assessment Year 2009-10. The Tribunal hearing of the appeal had concluded on 22 September 2015; the order dated 3 February 2016 was issued after that date, i.e., beyond 90 days of conclusion of hearing.

Legal Issues Presented

Whether the Tribunal's order dated 3 February 2016 was invalid or otherwise tainted because it was pronounced beyond 90 days after the conclusion of the hearing (hearing having concluded on 22 September 2015), in breach of Rule 34(5)(c) of the Income Tax Appellate Tribunal Rules, 1963 and the binding decision in Shivsagar Veg. Restaurant v. ACIT (317 ITR 433).
Whether the Tribunal was obliged to rectify its earlier order dated 3 February 2016 in light of a subsequent decision of the jurisdictional High Court (DIT(E), Mumbai v. Maharashtra Housing and Area Development Authority — Income Tax Appeal No. 2174/2013, decided 18 April 2016) that decided the identical issue in favour of the petitioner, applying the principle in ACIT v. Saurashtra Kutch Stock Exchange Ltd. (305 ITR 227).

Arguments of the Parties

Petitioner's Arguments

The order dated 3 February 2016 was passed after the statutory/regulated period of 90 days from conclusion of the hearing (hearing concluded 22 September 2015) and thus breached Rule 34(5)(c) of the Tribunal Rules and the binding authority of Shivsagar Veg. Restaurant v. ACIT (317 ITR 433).
Because of the delay, the Tribunal's order ignored binding decisions of co-ordinate benches, resulting in prejudice to the parties.
A subsequent decision of the jurisdictional High Court (DIT(E), Mumbai v. Maharashtra Housing and Area Development Authority, decided 18 April 2016) decided the identical issue in the petitioner's favour; under ACIT v. Saurashtra Kutch Stock Exchange Ltd. (305 ITR 227) subsequent decisions of the jurisdictional High Court may warrant rectification of earlier orders, and therefore the Tribunal should have allowed the rectification application.

Respondents' / Tribunal Position (as recorded)

The impugned Tribunal order acknowledged that the order dated 3 February 2016 was passed beyond the 90-day period but recorded that "administrative clearance" had been taken to pass the order beyond 90 days.
The opinion records that counsel for the respondents (Mr. Suresh Kumar, who appeared for the respondents including the Registry of the Tribunal) was unable to explain the nature, source, timing or basis of the said "administrative clearance."

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Shivsagar Veg. Restaurant v. ACIT, 317 ITR 433	Prevents delay in delivery of Tribunal orders; treats Rule 34(5)(c) requirement as binding and directed procedural safeguards (including framing of guidelines and deciding matters within three months of conclusion of hearing).	The Court relied on this authority to emphasise that the Tribunal must pronounce orders within the prescribed period (or within the three-month guideline) and that the impugned delayed order was unacceptable. The Court noted that administrative clearance could not override the prescribed timelines and that Shivsagar required measures to prevent such delays.
ACIT v. Saurashtra Kutch Stock Exchange Ltd., 305 ITR 227	Recognises that subsequent decisions of the jurisdictional High Court may warrant rectification of earlier orders in appropriate circumstances.	The Court directed that the Tribunal should consider the petitioner's rectification application in the light of this authority (i.e., consider whether the subsequent jurisdictional High Court decision requires rectification), and specifically to apply the principles approved in this case when re-considering the rectification application.
Suhrid Geigy v. Commissioner of Surtax, 237 ITR 834 (Gujarat High Court)	The view of the Gujarat High Court on rectification based on subsequent jurisdictional High Court decisions (as approved by the Supreme Court in Saurashtra).	The Supreme Court noted that Saurashtra had approved the view in Suhrid Geigy and instructed that the Tribunal should consider the rectification application in light of these approved principles.
DIT(E), Mumbai v. Maharashtra Housing and Area Development Authority (Income Tax Appeal No. 2174/2013), decision dated 18 April 2016	A subsequent decision of the jurisdictional High Court on the identical issue, decided in favour of the petitioner-assessee.	The Court observed that the impugned Tribunal order did not deal with this subsequent High Court decision. The Supreme Court restored the rectification application to the Tribunal and directed it to consider this subsequent High Court decision while deciding the rectification application in accordance with the principles in Saurashtra and Suhrid Geigy.

Court's Reasoning and Analysis

The Court's analysis proceeded in two main strands corresponding to the petitioner's two core complaints.

Delay and Rule 34(5)(c):
- The Court accepted the uncontested factual position that the order dated 3 February 2016 was issued beyond 90 days from the conclusion of hearing (hearing concluded on 22 September 2015).
- The impugned order before the Court had recorded that "administrative clearance" was taken to justify issuing the order beyond 90 days. The Court found that the record did not disclose what "administrative clearance" meant, when it was obtained, from whom, or on what basis.
- The Court observed that Rule 34(5)(c) read with Rule 34(8) of the Tribunal Rules mandates pronouncement of the Tribunal's order at the latest within 90 days after conclusion of the hearing and that the decision in Shivsagar Veg. Restaurant required measures to prevent delay (including guidelines to the Tribunal President and a directive to decide matters within three months of hearing conclusion).
- Given these rules and binding authority, the Court concluded that the impugned order rejecting the rectification application had failed to consider the statutory rules and binding precedent; on that ground the impugned order was unsustainable.
Rectification in light of subsequent jurisdictional High Court decision:
- The Court noted that the Tribunal's impugned order did not address the petitioner's contention based on the subsequent decision of the jurisdictional High Court (Maharashtra Housing and Area Development Authority).
- Instead of deciding that issue itself, the Court set aside the impugned order on the first-ground defect (delay and failure to apply the Rules and binding precedent) and restored the rectification application to the Tribunal for fresh consideration.
- The Court expressly directed the Tribunal, on re-consideration of the rectification application, to consider the subsequent High Court decision and the principles laid down in ACIT v. Saurashtra Kutch Stock Exchange Ltd. (which approved the view in Suhrid Geigy).

The Court repeatedly emphasised fidelity to Rule 34(5)(c)/Rule 34(8) and the binding nature of Shivsagar; it also observed the absence of any explanation for the notion of "administrative clearance" appearing in the Tribunal's file.

Holding and Implications

Holding:

The impugned order dated 30 September 2016 passed under Section 254(2) of the Income Tax Act is set aside. The petitioner's Miscellaneous Application dated 30 April 2016 (the rectification application) is restored to the Tribunal for fresh consideration and disposal in accordance with law.

Implications:

Direct effect on the parties: The Tribunal's order dismissing the rectification application is overturned; the rectification application will be re-heard and decided afresh by the Tribunal in accordance with Rule 34(5)(c)/Rule 34(8) and the binding precedents identified (including consideration of the subsequent jurisdictional High Court decision and the principles in Saurashtra and Suhrid Geigy).
The Court left all contentions open for the Tribunal to consider on re-hearing; it did not decide the rectification claim on the merits itself.
No new legal precedent was formulated by the Court in this opinion beyond applying existing authorities (the Court confined itself to setting aside and remanding for fresh consideration in line with prior decisions).

Disposition: Petition disposed in the terms stated above. No order as to costs.

Show all summary ...

1. This petition under Article 226 of the Constitution of India challenges the order dated 30th September, 2016 passed by the Income Tax Appellate Tribunal (Tribunal) under Section 254(2) of the Income Tax Act, 1961 (the Act). The impugned order dismissed the petitioner's application for rectification of its order dated 3rd February, 2016 passed under Section 254(1) of the Act relating to A.Y 2009-10.

2. The petitioner's grievance before us as also raised before the Tribunal are twofold:

(a) The order dated 3 February, 2016 was passed beyond a period of 90 days after the hearing of the appeal was concluded on 22nd September, 2015. This was in breach of Rule 34(5)(c) of the Income Tax Appellate Tribunal Rules, 1963 (Tribunal Rules) as also of the binding decision of this Court in Shivsagar Veg. Restaurant v. ACIT 317 ITR 433. Further this delay has also resulted in prejudice to the parties as binding decisions of the co-ordinate benches though referred to were ignored in the order dated 3 February, 2016.

(b) Consequent to the order dated 3 February, 2016 passed under Section 254(1) of the Act, the jurisdictional High Court on an identical issue in the case of DIT(E), Mumbai v. Maharashtra Housing and Area Development Authority (Income Tax Appeal No. 2174/2013) rendered on 18 April, 2016 has decided the issue arising herein in favour of the petitioner-assessee. It is submitted subsequent decisions of jurisdictional High Court would warrant of rectification of earlier orders as held by the Apex Court in ACIT v. Saurashtra Kutch Stock Exchange Ltd. 305 ITR 227. Therefore it is submitted that the Tribunal ought to have exercised its jurisdiction and allowed the rectification application.

3. The impugned order of the Tribunal while rejecting the rectification application does not dispute the fact that the order dated 3 February, 2016 passed under Section 254(1) of the Act was passed beyond the period of 90 days from the date of conclusion of its hearing on 22 September, 2015. However, it records that administrative clearance had been taken to pass such an order beyond the period of 90 days. We are at a loss to understand what is meant by ‘administrative clearance’ and the basis for the same. Besides when, how and from whom the administrative clearance was received, are all questions still at large. Mr. Suresh Kumar, the learned counsel who appears for all the respondents, including the Registry of the Tribunal is unable to shed any light on the same. Moreover, we are unable to comprehend the meaning of ‘Administrative clearance’ in the face of Rule 34(5)(c) read with Rule 34(8) of the Tribunal Rules. It is clear that the above provisions mandate the Tribunal to pronounce its order at the very latest on or before the 90 day, after the conclusion of the hearing. In fact, this Court in Shivsagar Veg. Restaurant (supra) after referring to various decisions of the Apex Court directed the President of the Tribunal to frame guidelines to prevent delay in delivery of orders/judgments. It also directed all the revisional and appellate authorities (including Tribunal) under the Act to decide the matters heard by them within a period of three months from the date of the conclusion of the hearing. This is further compounded by the fact that the submission of the petitioner in respect of the entire issue being covered by orders of co-ordinate benches was according to the petitioner, lost sight of while passing the order dated 3 February, 2016.

4. In the above view, the impugned order rejecting rectification application has not considered the aforesaid Rules and the binding decisions of this Court. Therefore on the aforesaid ground alone, the impugned order is not sustainable.

5. So far the second issue viz. rectification of the order passed under Section 254(1) of the Act on the basis of a subsequent decision of the jurisdictional High Court in Maharashtra Housing and Area Development Authority (supra) is concerned, the impugned order does not deal with it in the impugned order. In any case, as on the first issue itself we are setting aside the impugned order and restoring the issue to the Tribunal to consider the rectification application as such, this issue would be considered by the Tribunal while disposing of the rectification application in the context of Saurashtra Kutch Stock Exchange Ltd. (supra) which has approved the view of the Gujarat High Court in Suhrid Geigy v. Commissioner of Surtax 237 ITR 834.

6. In the above view, we set aside the impugned order dated 30 September, 2016 passed under Section 254(2) of the Act and restore the petitioner's Misc. Application dated 30 April, 2016 to the Tribunal for fresh consideration and disposed of in accordance with law All contentions kept open.

7. Accordingly, the petition is disposal of in above terms. No order as to costs.