TMI Blog2006 (2) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Tribunal was justified in holding that while computing deduction under section 80-I of the Income-tax Act, 1961, interest received from trade debtors towards late payment of sales consideration is required to be excluded from the profits of the industrial undertaking as the same cannot be stated to have been derived from the business of the industrial undertaking?" The assessment year is 1992-93 and the relevant previous year is the financial year 1991-92. The assessee, a limited company, claimed deduction under section 80-I of the Income-tax Act, 1961 (the Act) in relation to two units-Vatva unit and Mandali unit. The Assessing Officer held while computing the amount allowable as deduction under section 80-I of the Act that a sum of Rs. 1,25,23,324 being late payment interest received from the debtors in the case of the vatva unit and Rs. 53,67,140 being late payment interest received from the debtors in respect of the Mandali unit had to be excluded from the profits of the industrial undertaking. According to the Assessing Officer, as held in the assessment order for the immediately preceding assessment year, viz., the assessment year 1991-92 late payment interest was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely stating therein the substantial question of law involved. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question: Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. (5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.' From the above, it is clear that under sub-section (1) an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, only if the High Court is satisfied that the case involves a substantial question of law. Sub-section (2) of the said section permits a party aggrieved by any order passed by the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal has chosen to follow its own decision in the case of Deputy CIT v. Mira Industries [2003] 87 ITD 475 (Ahd) by reproducing the relevant extracts from the said order in paragraph No. 18.4 of the impugned order. The sum total of the reasoning of the Tribunal is that ".... The interest is not arising because of manufacturing of detergent powder/cake by the industrial undertaking but because the sale proceeds remained unpaid for a stipulated period ....". That interest cannot be said to be derived from the industrial undertaking. Contentions: Question No. 1 Mr. S.N. Soparkar, the learned senior advocate appearing on behalf of the appellant-assessee, submitted that an appeal is nothing else but a continuation of the original proceedings and when a High Court, after adjudication endorses the view expressed by the Tribunal, the High Court endorses the decision on the issue arising before the Tribunal. That the Tribunal had erred in stating that when the High Court dismisses an appeal holding that no substantial question of law arises, there is no merger of the order of the Tribunal. According to him, the High Court in exercise of its appellate jurisdiction is called upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 SCC 37; (iii) Kunhayammed v. State of Kerala [2000] 245 ITR 360 (SC); (iv) State of Orissa v. Krishna Stores [1997] 104 STC 594 (SC); AIR 1997 SC 871; (v) Madan Naik v. Mst. Hansubala Devi AIR 1983 SC 676; (vi) Manicka Poosali v. Anjalai Ammal, AIR 2005 SC 1777; (vii) Thiagarajan v. Sri Venugopalaswamy B. Koil, AIR 2004 SC 1913; (viii) S. Shanmugavel Nadar v. State of Tamil Nadu, [2000] 132 STC 284; AIR 2002 SC 3484; (ix) Ratansingh v. Vijaysingh, AIR 2001 SC 279; (x) Amba Bai v. Gopal, AIR 2001 SC 2003; (xi) Rekha Mukherjee v. Ashish Kumar Das, AIR 2004 SC 443. In rejoinder Mr. Soparkar submitted that when the High Court dismisses an appeal holding that no substantial question of law arises it does not mean that the High Court has no powers. By way of illustration it was pointed out that in case of a matter where the tax effect is low the High Court may refuse to entertain the appeal, and the impact of such a decision would be that though the High Court exercises appellate jurisdiction, it is limited qua that matter but the order does not operate as a precedent. However, that cannot be the situation when the High Court in exercise of its appellate jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal jurisdiction or the jurisdiction to issue writs. On a plain reading of section 260A of the Act, inclusive of sub-sections of the said section, the only jurisdiction, and powers that the High Court can exercise are to hear an appeal. The High Court does not have any powers under the statute to grant any leave as such for filing an appeal. An aggrieved person has the right, statutorily provided, of filing an appeal. The rules framed by this court describe such an appeal as a "tax appeal" to distinguish the same from other appeals, like first appeal and second appeal. In fact, an appeal gets filed with the registry of the High Court as a matter of fact and the person filing the appeal is not required to seek any leave from any authority, much less the High Court, prior to filing of the appeal. It is not as if the Legislature is not aware of such a procedure, i.e., requirement of leave. Under section 149(2) of the Motor Vehicles Act, 1988 ("the M.V. Act") the grounds on which an insurer can take up defence have been specified. Under section 170 of the Motor Vehicles Act the Motor Accident Claims Tribunal is entitled to make a direction that the insurer shall be impleaded as a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly misconceived. Where a statutory right to file an appeal has been provided for, it is not open to the High Court to entertain a petition under article 227 of the Constitution ...." The provisions of the Act, with special reference to section 260A of the Act, do not require any such prior permission. Therefore, the only jurisdiction that the High Court exercises is the appellate jurisdiction. Merely because the High Court decides in the first instance, whether or not, a substantial question of law arises from the order of the Tribunal, it cannot be stated that the High Court does not exercise the appellate powers or that ho appeal lies, or that there is no decision on appeal, when the High Court dismisses an appeal holding that no substantial question of law arises from the order of the Tribunal. Therefore, it is not possible to bifurcate the jurisdiction or powers available to the High Court while dealing with an appeal under section 260A of the Act as canvassed by the Revenue. The view expressed by the Tribunal that there is no decision on appeal, when the High Court holds that no substantial question of law arises from the order of the Tribunal, when the High Court dismisses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enforced. In law the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the appellate authority the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement.' 21. Collector of Customs v. East India Commercial Co. Ltd. [1963] 2 SCR 563: AIR 1963 SC 1124 is a typical example of that class of cases in which prior to the amendment of article 226 of the Constitution by the insertion of clause 1-A, the High Courts were faced with the question whether a writ could issue against an authority whose seat was situated beyond the territorial jurisdiction of the High Court. The respondent filed a writ petition in the Calcutta High Court against the decision of the Central Board of Revenue which had dismissed his appeal. A Full Bench of the High Court held that though it had no jurisdiction to issue a writ against the Central Board of Revenue which was permanently located outside its territorial jurisdiction, the Board having merely dismissed the respondent's appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ... 24. An interesting question arose in Shankar Ramchandra Abhyankar v. Krishnaji Dattatraya Bapat [1970] 1 SCR 322; AIR 1970 SC 1, where after a single judge had dismissed a civil revision application filed by the tenant under section 115 of the Code of Civil Procedure, against a decree passed by the District Court, a Division Bench of the Bombay High Court entertained the tenant's writ petition under articles 226 and 227 of the Constitution against the same decree and allowed it. The Bombay High Court had followed its earlier judgment in Sipahimalani's case [1956] 58 Bom LR 344 which had taken the view that an order passed by the lower court does not merge in the order passed by the revisional court because whereas a right of appeal is a vested right and an appeal is a continuation or rehearing of the suit, a revision is not a continuation or rehearing of the suit and it is not obligatory upon the revisional court to interfere with the order even if it is improper or illegal. This court disapproved of that view and held following a judgment of the Privy Council in Nagendra Nath Dey v. Suresh Chandra Dey, AIR 1932 PC 165 ; 59 Ind App. 283 that the revisional jurisdiction is a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by such appellate authority as, in such event, the original decree will be inexecutable.' This conclusion is clearly opposed to the view taken by this court in the decisions referred to above and the learned judge was in error in making a distinction between an appellate judgment whereby an appeal is dismissed and an appellate judgment modifying or reversing the decree of the lower court. This distinction is unsound and is based on no discernible principle." (II) Kunhayammed v. State of Kerala [2000] 245 ITR 360, 366, 368, 380 (SC); [2000] 6 SCC 359, 369, 376, 382; [2000] 119 STC 505 (SC); "The doctrine of merger 7. The doctrine of merger is neither a doctrine of constitutional law nor a doctrine statutorily recognised. It is a common law doctrine founded on principles of propriety in the hierarchy of justice delivery system. On more occasions than one this court had an opportunity of dealing with the doctrine of merger. It would be advisable to trace and set out the judicial opinion of this court as it has progressed through the times. 12. The logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hiness of the petitioner's prayer seeking leave to file an appeal and having formed an opinion may say 'dismissed on merits'. Such an order may be passed even ex parte, that is, in the absence of the opposite party. In any case, the dismissal would remain a dismissal by a non-speaking order where no reasons have been assigned and no law has been declared by the Supreme Court. The dismissal is not of the appeal but of the special leave petition. Even if the merits have been gone into, they are the merits of the special leave petition only. In our opinion neither the doctrine of merger nor article 141 of the Constitution is attracted to such an order. Grounds entitling exercise of review jurisdiction conferred by order 47, rule 1, CPC or any other statutory provision or allowing review of an order passed in exercise of writ or supervisor)' jurisdiction of the High Court (where also the principles underlying or emerging from order 47, rule 1, CPC, act as guidelines) are not necessarily the same on which this court exercises discretion to grant or not to grant special leave to appeal while disposing of a petition for the purpose. Mere rejection of a special leave petition does not take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der impugned having been subjected to judicial scrutiny of this court. 42. 'To merge' means to sink or disappear in something else; to become absorbed or extinguished; to be combined or be swallowed up. Merger in law is defined as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist, but the greater is not increased; an absorption or swallowing up so as to involve a loss of identity and individuality. 43. We may look at the issue from another angle. The Supreme Court cannot and does not reverse or modify the decree or order appealed against while deciding a petition for special leave to appeal. What is impugned before the Supreme Court can be reversed or modified only after granting leave to appeal and then assuming appellate jurisdiction over it. If the order impugned before the Supreme Court cannot be reversed or modified at the SLP stage obviously that order cannot also be affirmed at the SLP stage." (III) Chandi Prasad v. Jagdish Prasad [2004] 8 SCC 724: "10. Where a statutory appeal is provided for, subject, of course to the restrictions which may be imposed, it is a continuation of suit. It is also not in dispute that when a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court Employees' Welfare Association v. Union of India [1989] 4 SCC 187: '22. It has been already noticed that the special leave petitions filed on behalf of the Union of India against the said judgments of the Delhi High Court were summarily dismissed by this court. It is now a well-settled principle of law that when a special leave petition is summarily dismissed under article 136 of the Constitution, by such dismissal this court does not lay down any law, as envisaged by article 141 of the Constitution, as contended by the learned Attorney General. In Indian Oil Corporation Ltd. v. State of Bihar [1987] 167 ITR 897 (SC); [1986] 4 SCC 146 it has been held by this court that the dismissal of a special leave petition in limine by a non-speaking order does not justify any inference that, by necessary implication, the contentions raised in the special leave petition on the merits of the case have been rejected by the Supreme Court. It has been further held that the effect of a non-speaking order of dismissal of a special leave petition without anything more indicating the grounds or reasons of its dismissal must, by necessary implication, be taken to be that the Supreme Court had d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an untrammelled reservoir of power incapable of being confined to definitional bound; the discretion conferred on the Supreme Court being subjected to only one limitation, that is, the wisdom and good sense or sense of justice of the judges. No right of appeal is conferred upon any party; only a discretion is vested in the Supreme Court to interfere by granting leave to an applicant to enter in its appellate jurisdiction not open otherwise and as of right. Thus, a petition seeking grant of special leave to appeal and the appeal itself, though both dealt with by article 136 of the Constitution, are two clearly distinct stages. In our opinion, the legal position which emerges is as under: (1) While hearing the petition for special leave to appeal, the court is called upon to see whether the petitioner should be granted such leave or not. While hearing such petition, the court is not exercising its appellate jurisdiction; it is merely exercising its discretionary jurisdiction to grant or not to grant leave to appeal. The petitioner is still outside the gate of entry though aspiring to enter the appellate arena of the Supreme Court. Whether he enters or not would depend on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal itself when the same is notified for hearing. In a case where an order of a subordinate forum is carried in appeal, the appellate court may (i) reverse the order under appeal, (ii) modify the order under appeal, (iii) merely dismiss the appeal and thus, confirm the order under appeal without any modification. The apex court has laid down that in all the three eventualities it is the appellate decision alone which subsists and is operative and capable of enforcement. That there is no difference in principle and it is not possible to draw any distinction between the first two kinds of orders made by the appellate authority and the third kind of order made by the appellate authority. In law the terms "affirm" and "confirm" are synonymous. Both the terms denote ratification of a judgment. In the case of Somnath Sahu v. State of Orissa [1969] 3 SCC 384, when the matter came up before the apex court it was observed that the learned single judge of the High Court of Orissa had in terms expressed opinion that where an appellate court merely dismisses the appeal, the principle of merger will have no application, but the position would be otherwise where there is modification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Once the High Court has dismissed an appeal on an issue brought before the High Court confirming the findings of the Tribunal it will not be open to the Tribunal thereafter to exercise powers of rectification under section 254(2) of the Act. The order of the Tribunal on the subject-matter of appeal has no existence after the order of the High Court. The Tribunal cannot, in the guise of distinguishing its own order for earlier years, ignore the fact that the only effective order for earlier years is that of the High Court. The Tribunal cannot also state that a particular argument was not raised or considered and hence, the Tribunal will not follow and apply the earlier decision of the High Court: ... As laid down by the apex court in the case of Ambika Prasad Mishra v. State of U.P., AIR 1980 SC 1762; [1980] 3 SCC 719: "Every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. ... a decision does not lose its authority 'merely because it was badly argued inadequately considered and fallaciously reasoned'..." Similarly in the case of Kesho Ram and Co. v. Union of India [1989] 3 SCC 151, it is stated by the Supreme Court thus: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [1998] 230 ITR 885 this court has laid down: "... When a decision on a question of law is rendered by the High Court, it will remain a binding precedent, on the doctrine of 'stare decisis' and when an identical question of law is involved in a subsequent matter the Tribunal would be bound to follow the decision of its jurisdictional High Court and it cannot be said that a question of law arises for the opinion of the High Court from such order of the Tribunal, which has followed the High Court decision on the question which is already settled so far as it is concerned, and would be a binding precedent until reconsidered and departed from by a larger Bench of the same court or overruled by the Supreme Court." In an order of affirmation, repetition of reasons may not be elaborate, but once the order shows that the points urged have been dealt with and reasons for affirmation/approval stated, the matter ends. It is a decision of the superior court viz., the High Court and the Tribunal cannot ignore it. Where by a process of incorporation, the High Court refers to and relies upon its own order made earlier in the point of time in the case of the same assessee, or even some oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit as per the statement of income filed along with the return of income. Therefore, the same item of receipt cannot be treated differently: once while computing the gross total income and secondly at the time of computing deduction under section 80-I of the Act. Therefore, on this limited count alone, the order of the Tribunal suffers from a basic fallacy resulting in an error in law and on facts. The Tribunal instead of recording findings on the facts proceeded to discuss law. This litigation could have been avoided if the parties had invited attention to the basic facts. Neither the approach nor the reasons advanced by the Tribunal deserve acceptance. It is an incorrect proposition to state that interest paid by the debtors for late payment of the sale proceeds would not form part of the eligible income for the purpose of computing relief under section 80-I of the Act. The reliance on the general meaning of the term interest as well as drawing distinction between the source of sale proceeds and the source of interest is erroneous in law. In the case of CIT v. Govinda Choudhury and Sons [1993] 203 ITR 881 the apex court was called upon to decide as to the nature of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 100 to carry the sale price of Rs. 102 for first month's delay, Rs. 104 for the second month's delay, Rs. 106 for the third month's delay and so on. If the contention of the Revenue is accepted, merely because the assessee has described the additional sale proceeds as interest in the case of a contract as per illustration (a) above, such payment would not be profits derived from the industrial undertaking, but in the case of illustration (b) above, if the payment is described as sale price it would be profits derived from the industrial undertaking, this can never be because in sum and substance these are only two modes of realising sale consideration, the object being to realise the sale proceeds at the earliest and without delay. The purchaser pays a higher sale price if it delays payment of the sale proceeds. In other words, this is a converse situation to offering of cash discount. Thus, in principle, in reality, the transaction remains the same and there is no distinction as to the source. It is incorrect to state that the source for interest is the outstanding sale proceeds. It is not the assessee's business to lend funds and earn interest. The distinction drawn by the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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