2009 (2) TMI 88 - HC - Income Tax

Whether Tribunal should have referred the matter to special bench - once the Tribunal had come to the conclusion that the fact situation was identical to the one obtaining in a decided matter no coordinate bench of Tribunal has any right to record a contrary decision The only course that is open to the subsequent coordinate bench would be to make a Reference to the President of the Tribunal as as per S. 255(3) of IT Act 1961 to constitute a Special Bench to resolve the controversy

Summary

Issues:
1. Application of principles for finding out the cost of right shares
2. Referral to a special bench as per established law

Analysis:

Issue 1: Application of principles for finding out the cost of right shares
The High Court considered whether the Tribunal correctly applied the principles for determining the cost of right shares as established by the Supreme Court in the case of Miss Dhun Dadabhoy Kapadia v. CIT, (1967) 63 ITR 651. The Court noted that the Tribunal erred in its interpretation of the Apex Court decision, specifically regarding the renunciation of entitlements to subscribe to convertible debentures/shares. The Court held that the Tribunal's reading and application of the Supreme Court decision were incorrect, leading to a flawed conclusion that disallowed the computation of short-term capital loss as claimed by the assessee. Consequently, the first question was answered in the negative, indicating the Tribunal's error in this regard.

Issue 2: Referral to a special bench as per established law
The Court addressed the second question concerning the Tribunal's failure to refer the matter to a special bench in accordance with the precedent set by the Gujarat High Court in the case of Sayaji Oil and Engineering Co. v. CIT, (2002) 253 ITR 749. The Court emphasized the principle that when a Tribunal determines that the fact situation in a case is identical to a previously decided matter, no coordinate bench has the authority to reach a contradictory decision. The Court highlighted that judicial propriety and public confidence in the legal system necessitate consistency in decisions on similar facts. The Court concluded that the Tribunal's decision not to refer the matter to a special bench was unjustified, as the reasons provided were deemed irrelevant. Therefore, the Court held the impugned order as legally flawed, and the decision on merits could not be upheld. Consequently, the second question was answered in favor of the appellant.

In conclusion, the High Court allowed all four appeals, emphasizing that the impugned order was legally flawed, and the decisions on both issues were in favor of the appellant. The Court ruled that the Tribunal's errors in applying legal principles and failure to refer the matter to a special bench rendered the decision unsustainable on merits. The appeals were allowed with no order as to costs.