Judicial Propriety In Income - Tax

K. Kumar

1. It has been emphasized time and again by the Highest Court of the country that Judicial discipline demands that a Bench of the High Court must follow the decision of an earlier Bench of equal jurisdiction of the same High Court. The Bench may follow the earlier decision of any other High Court as well. However, if it differs from the earlier decision, it may refer the matter to the Chief Justice who may appoint a larger Bench. But if there is an earlier decision of a three member Bench, then the two member bench has got no option but to follow it. It is for the affected party to move the higher judicial forum. If for some very special reasons the latter Bench differs from the earlier larger Bench’s decision, it shall not give its decision against the earlier Bench’s decision, but shall refer it to the Chief Justice with specific reasons for decision by a larger/constitution Bench.

In the case of the Tribunal, the same procedure is to be followed. It is of no concern as to who are the members at a given time is. It should follow the decision of an earlier larger Bench of any Tribunal in the country, not only of its own Bench. Similarly, the Commissioner (Appeal) shall follow the decision of a Tribunal under whose jurisdiction it is working, whether it is correct or not; or whether it has been accepted by the department or not. He has to decide the appeal on the basis of the order of the Tribunal on the same facts. It is for the assessee or the Income-tax Department to go in further appeal against his order.

1.1 SOME CASE-LAWS - For example, there is a judgment of the Allahabad High Court in CIT v. Raj Kumar [1990] 182 ITR 436 wherein it is held that for making valuation of investment made in the construction of property, the valuation officer shall adopt his valuation on the basis of UPPWD rates and not on the basis of CPWD rates. Neither any appeal had been filed against this decision in the Apex Court, nor its operation was stayed by a competent Court. Hence, it has become the law of the land as regards the State of Uttar Pradesh. Accordingly, all the quasi-judicial and judicial authorities in the state, viz, the Assessing Officer, the Commissioner (Appeal), the Tribunal and the Departmental Valuation Officers are bound to follow this principle without any reservation. Not following the decision may entail contempt proceedings as has been held in the following cases :

A-K.N. Agarwal v. CIT [1991] 189 ITR 769/56 Taxman 24 (All.).

B-K. Subramaniam v. Siemen’s India Ltd. [1985] 156 ITR 11/[1983] 15 Taxman 594 (Bom.)

C-Khalid Automobiles v. Union of India (1995) 45CC (Supp) 3.

The Supreme Court in the case of CIT v. G.M. Mittal Stainless Steel (P.) Ltd. has very emphatically stated that the jurisdictional High Court decision is binding on the revenue authorities within the State. They cannot refuse to follow on the ground that the decision of some other High Court was pending disposal before the Supreme Court, otherwise it would lead to an anarchic situation within the State. It is, therefore, suggested that the CBDT may issue instructions to the officers concerned to follow the law laid down by the jurisdictional High Court to avoid undue harassment and legal consequences.

The issue on judicial propriety was considered by a Bench of five members of the Supreme Court in the case of Pradip Chandra Parija v. Pramod Chandra Patnaik [2002] 254 ITR 99/122 Taxman 101 (SC). The crux of the issue before the Bench was whether the two judges of the Supreme Court can disagree with a judgment of three judges of the Court and, whether, for that reason, they can refer the matter before them to a Bench of five Judges. This Bench of the Apex Court, at the outset, referred the earlier case of Bharat Petroleum Corpn. Ltd. v. Mumbai Shramik Sangha [2001] 249 ITR 669/117 Taxman 377 (SC) in which a somewhat similar question was considered by a Bench of five Judges. The Supreme Court was of the firm view that judicial discipline demands that a Bench of two Judges should follow a decision of a Bench of three Judges. In the case of difference of opinion, they can refer the matter to a Bench of three Judges and then in case of difference, it can be referred to a Bench of five Judges.

Similar is the position before the Tribunal in the following cases -

A-CIT v. L.G. Ramamurthi [1977] 110 ITR 453 (Mad.)

B-Sayaji Iron & Engg. Co. v. CIT [2002] 253 ITR 749/121 Taxman 43 (Guj.)

It was held that the Tribunal is an institution. Simply because of the change in the personnel of the officers who manned the Tribunal, it is not open to the new officers to come to a conclusion totally contradictory to the conclusion reached by an earlier Bench. That will be destructive of the institutional integrity itself and will shake the confidence of the public in judicial procedure. Similarly, the Madhya Pradesh High Court in Agrawal Warehousing & Leasing Ltd. v. CIT [2002] 257 ITR 235/124 Taxman 440 has held that the orders passed by the Tribunal are binding on all the revenue authorities functioning under its jurisdiction. Similar view was taken by the Apex Court in the case of Union of India v. Kamlakshi Finance Corpn. Ltd. AIR 1992 SC 711.

The Court held that the principle of judicial discipline demands that the orders of the higher appellate authorities are to be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not ‘acceptable’ to the department in itself an objectionable phrase - and is the subject matter of appeal, can furnish no ground for not following it unless its operation is not suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to the assessee and chaos in administration of tax laws. Thus, there is no option to the Commissioner (Appeals) but to follow the order of the Tribunal, whether or not he agrees with the same. The assessee or the department can agitate the matter further.

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