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Affection Investments Ltd. v. Assistant Commissioner Of Income-Tax
Judgment Summary — D.A. Mehta, J.
Factual and Procedural Background
Four appeals arising out of a common order of the Income‑tax Appellate Tribunal dated February 19, 2003, were admitted by this Court by a common order dated June 25, 2003. At admission the Court formulated two common questions for determination concerning (1) the Tribunal's application of the Supreme Court's decision in Dhun Dadabhoy Kapadia v. CIT (1967) 63 ITR 651 on the method of finding the cost of rights shares, and (2) whether the Tribunal should have referred the matter to a Special Bench under section 255(3) of the Income‑tax Act in the light of Sayaji Oil and Engineering Co. v. CIT (2002) 253 ITR 749.
The appeals were heard together. It was common ground between the parties that the controversy on Question No. 1 had been answered by a judgment rendered the same day in Asst. CIT v. Amazon Investments (Tax Appeal No. 556 of 1999). The impugned Tribunal order had, in paragraph 11, recorded that the facts of the Amazon Investments matter were identical to the present cases but nonetheless the Tribunal took a different view without referring the matter to the President to constitute a Special Bench.
Legal Issues Presented
- Whether the Tribunal rightly applied the principles of finding out the cost of rights shares laid down by the Supreme Court in Dhun Dadabhoy Kapadia v. CIT, Bombay, [1967] 63 ITR 651?
- Whether the Tribunal should have referred the matter to the Special Bench in accordance with Sayaji Oil and Engineering Co. v. CIT, [2002] 253 ITR 749, and whether the Tribunal's decision is bad and deserves to be quashed for failing to make such a reference?
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 |
|---|---|---|
| Dhun Dadabhoy Kapadia v. CIT, Bombay, [1967] 63 ITR 651 | Principles for finding out the cost of rights shares (Supreme Court authority). | The Court held that the Tribunal erred in reading and applying this decision so as to conclude that renunciation of entitlements to subscribe to convertible debentures/shares would preclude computation of a short‑term capital loss as claimed by the assessee. |
| Sayaji Oil and Engineering Co. v. CIT, [2002] 253 ITR 749 | Where a co‑ordinate Bench of the Tribunal finds the facts identical to a decided matter, it must not record a contrary decision but should refer the matter to the President of the Tribunal under section 255(3) to constitute a Special Bench. | The Court applied this principle to hold that the Tribunal misdirected itself by taking a different view despite having recorded that the facts were identical; the appropriate course was to refer the issue to the President for a Special Bench. |
| Asst. CIT v. Amazon Investments (Tax Appeal No. 556 of 1999) | The controlling judgment resolving the controversy relating to Question No. 1. | The Court treated this judgment as dispositive on Question No. 1 and, on that basis, answered Question No. 1 in the negative without setting out detailed facts and contentions. |
Court's Reasoning and Analysis
The Court proceeded in the following steps, as reflected in the opinion:
- At admission the Court formulated two common questions concerning application of Dhun Dadabhoy Kapadia and the obligation to refer identical cases to a Special Bench under Sayaji Oil.
- On Question No. 1 the parties agreed that the controversy was answered by the judgment in Asst. CIT v. Amazon Investments (Tax Appeal No. 556 of 1999). Relying on that judgment, the Court found it unnecessary to repeat facts or contentions and answered Question No. 1 in the negative.
- The Court expressly held that the Tribunal erred in its application of Dhun Dadabhoy Kapadia by construing it to mean that renunciation of entitlements to subscribe to convertible debentures/shares excludes computation of short‑term capital loss.
- On Question No. 2 the Court examined the impugned order and noted that the Tribunal itself recorded that the facts were identical to the Amazon Investments decisions, yet the Tribunal proceeded to adopt a contrary view for various reasons set out in its order.
- Relying on Sayaji Oil, the Court recalled the settled law that a co‑ordinate Bench cannot overrule a decision of another co‑ordinate Bench on an identical fact situation and must refer the issue to the President under section 255(3) to constitute a Special Bench. The Court found the reasons given by the Tribunal for not making such a reference to be not germane and specious.
- On that basis the Court concluded that the Tribunal had misdirected itself in law and that the impugned order of February 19, 2003, was bad in law and that the merits decision could not be sustained.
Holding and Implications
Holding: The appeals are allowed in the terms stated in the opinion. The impugned order dated February 19, 2003, is held to be bad in law and the decision on the merits cannot be sustained.
Implications:
- The Tribunal's application of Dhun Dadabhoy Kapadia to deny computation of short‑term capital loss on renunciation was held to be erroneous.
- Where a co‑ordinate Bench records that the facts are identical to a decided case, it must not record a contrary decision but should follow the procedure in Sayaji Oil by making a reference to the President under section 255(3) of the Income‑tax Act to constitute a Special Bench; failure to do so is a misdirection of law.
- The immediate practical effect is that the impugned Tribunal order is set aside and the appeals succeed; there is no order as to costs. The opinion does not purport to lay down a novel principle beyond applying the cited authorities.
D.A Mehta, J.:— In all the four appeals by a common order dated June 25, 2003, the following common questions have been formulated by this court at the time of admission:
“1. Whether the Tribunal has rightly applied the principles of finding out the cost of rights shares laid down by the Supreme Court in the decision of Dhun Dadabhoy Kapadia v. Cit, Bombay, [1967] 63 ITR 651?
2. Whether the Tribunal should have referred the matter to the Special Bench in accordance with the law laid down by the Gujarat High Court in Sayaji Oil and Engineering Co. v. CIT, [2002] 253 ITR 749 and whether its decision is bad and deserves to be quashed for the reason that the matter was not referred to the Special Bench?
2. All the four appeals are taken up for hearing and disposal for together as they arise out of common order of the Tribunal dated February 19, 2003.
3. Heard learned counsel appearing for the respective parties. In relation to question No. 1, it is common ground between the parties that the controversy now stands answered by judgment rendered today in case of Asst. CIT v. Amazon Investments in Tax Appeal No. 556 of 1999.
4. Hence, it is not necessary to set out facts and contentions in detail.
5. Question No. 1, is therefore, answered in the negative. The Tribunal was in error in reading and applying the apex court decision in the case of Dhun Dadabhoy Kapadia v. Cit, Bombay, [1967] 63 ITR 651 in the manner it did so as to hold that the renunciation of entitlements to the right to subscribe to convertible debenture/shares will not permit computation of short-term capital loss as claimed by the assessee.
6. In so far as the second question is concerned, the Tribunal has misdirected itself in law. In paragraph 11 of the impugned order, the Tribunal has recorded. It is true that the facts relating to the case of Amazon Investments Ltd. in I.T.A No. 3610.Ahd/97 dated April 20, 1999, and in the cases Nos. 3704.Ahd/97 and others dated August 17, 1999, decided by the Tribunal are absolutely identical. Thereafter, the Tribunal has gone on to take a different view in relation to the present four cases for various reasons stated in the impugned order.
7. The law is well settled on this subject. As laid down by this court in case of Sayaji Oil and Engineering Co. v. CIT, [2002] 253 ITR 749, once the Tribunal had come to the conclusion that the fact situation was identical to the one obtaining in a decided matter, no co-ordinate Bench of the Tribunal has any right or jurisdiction to record a contrary decision, entirely contrary to the one reached by another co-ordinate Bench of the same Tribunal on the same set of facts and circumstances. Mere difference in the Members manning the Tribunal does not vest the subsequent Bench with such power. The principle is based on judicial propriety and the confidence which the litigating public has in judicial hierarchy and the institution. The only course that is open to the subsequent co-ordinate Bench, would be to make a reference to the President of the Tribunal as provided in section 255(3) of the Income-tax Act, 1961 (“the Act”) to constitute a Special Bench to resolve the controversy.
8. The reasons given in the impugned order by the Bench of the Tribunal for not making a reference to the President under the provisions of section 255(3) of the Act, are, to say the least, not germane and on such specious reasons a co-ordinate Bench could not have taken a different view of the matter. The second question stands answered accordingly.
9. In the facts and circumstances of the case, the impugned order dated February 19, 2003, is bad in law and the decision on the merits cannot be sustained.
10. The appeals are accordingly allowed in the aforesaid terms with no order as to costs.
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