2011 (7) TMI 577 - HC - Income Tax

Reassessment - assessee contested that jurisdictional Commissioner should not be nominated as a member of the DRP - Held that - The doctrine of nemo judex in causa sua is subject to the doctrine of necessity. Bias cannot be established merely because one of the members of the Panel is also a jurisdictional Commissioner. In the present case there is nothing to indicate that the jurisdictional Commissioner was interested in his personal capacity in the outcome of the assessment order. Further there is nothing to indicate that the directions issued by the Panel to the Assessing Officer was based on extraneous considerations. The Commissioner is required to discharge certain functions under the Act. He exercises his power impartially and with an independent mind. Such exercise of statutory functions does not get coloured when a member of a Panel issues directions to the AO. Hence DIT-II was only discharging its statutory functions provided under the Act and therefore on the principles of the doctrine of necessity bias stood excluded. There is no violation of the principles of natural justice. The law permits certain things to be carried out as a matter of necessity. The doctrine of necessity makes it imperative for the authority to carry out its statutory functions and if the doctrine of necessity is not allowed full play in certain situations it would impede the course of justice.Thus the contention of the petitioner that section 144C and rule 3(2) of the Rules should be declared ultra vires is patently erroneous. Mere potential of bias against one of the members of the Panel will not render the provision unconstitutional. The Court finds that in the facts and circumstances of the case there is no conflict of interest. Alleged bias against one member of the Panel does not make the provision ultra vires. The contention of the petitioner on this issue is rejected - Writ dismissed.

Summary

Issues Involved:
1. Constitutionality of Section 144C of the Income-tax Act.
2. Constitutionality of Rule 3(2) of the Income-tax (Dispute Resolution Panel) Rules, 2009.
3. Alleged bias and conflict of interest involving the jurisdictional Commissioner as a member of the Dispute Resolution Panel (DRP).

Issue-wise Detailed Analysis:

1. Constitutionality of Section 144C of the Income-tax Act:
The petitioner challenged the vires of Section 144C, arguing that it led to a conflict of interest and potential bias, violating the principles of natural justice. The court examined the purpose of Section 144C, which was introduced to expedite the resolution of disputes involving foreign companies and to minimize prolonged litigation. The court concluded that Section 144C is a beneficial provision aimed at speedy disposal of disputes and does not inherently violate principles of natural justice. The court held that the mere potential for bias or abuse of power does not render the provision unconstitutional. Consequently, the challenge to the constitutionality of Section 144C was rejected.

2. Constitutionality of Rule 3(2) of the Income-tax (Dispute Resolution Panel) Rules, 2009:
The petitioner contended that Rule 3(2) creates an inherent conflict of interest by allowing jurisdictional Commissioners, who have supervisory roles, to be members of the DRP. The court noted that Rule 3(2) requires the Board to assign three Commissioners to each DRP, who would perform their regular duties alongside their responsibilities on the panel. The court found that the rule does not violate the Constitution and that the potential for bias does not make the rule unconstitutional. However, to ensure impartiality and the appearance of justice, the court directed the Central Board of Direct Taxes (CBDT) to ensure that jurisdictional Commissioners are not nominated as members of the DRP.

3. Alleged Bias and Conflict of Interest Involving the Jurisdictional Commissioner:
The petitioner argued that the involvement of the jurisdictional Commissioner, who had supervisory roles and had approved reassessment proceedings, in the DRP created a conflict of interest and violated the principle of "nemo judex in sua causa" (no one should be a judge in their own cause). The court examined whether the presence of the jurisdictional Commissioner on the panel amounted to personal or legal bias. The court found that the Commissioner was performing statutory duties and that there was no personal bias. However, the court acknowledged the possibility of perceived bias and emphasized the importance of maintaining public confidence in the impartiality of the adjudicatory process. The court concluded that while there was no personal bias, the appearance of bias could undermine confidence in the DRP's decisions. Therefore, the court directed the CBDT to avoid appointing jurisdictional Commissioners to the DRP to prevent any perception of bias.

Conclusion:
The writ petition was dismissed, and the court upheld the constitutionality of Section 144C and Rule 3(2). However, to maintain the appearance of impartiality, the court directed the CBDT to ensure that jurisdictional Commissioners are not appointed to the DRP. Additionally, the court ordered the respondents to deposit the cost of Rs. 50,000 as previously directed.