DIFFERENCE OF OPINION – THIRD MEMBER CANNOT SIT IN APPEAL OVER ENTIRE MATTER AND TAKE DECISION INDEPENDENTLY

[Mr. M. GOVINDARAJAN]

Difference in opinion

Section 255 of the Income Tax Act, 1961(‘Act’ for short) provides the procedure of Income Tax Appellate Tribunal.  Section 255(4) provides that if the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it.

The above said provision makes it clear that if two Members equally divide or differ on certain point or points such points shall be formulated  by them and those points shall be considered by one or more Members of the Tribunal as constituted by the President of the Appellate Tribunal and such point or points shall be decided according to the opinion of majority of Members, who have heard the case including those who first heard it.

Issue

The issue to be decided in this case is whether the third Member to whom the reference is made to decide the case on the difference of opinion arised between the two Members can sit in appeal over the entire matter and take decision independently, with reference to a decided case.

Case law

In ‘Commissioner of Income Tax V. Sahara India Limited’ – 2017 (1) TMI 1456 - ALLAHABAD HIGH COURT dissenting opinion were rendered by the Accountant Member and the Judicial Member of the Tribunal on 16^th October, 1996.  Because of this both the Members stated points on which they differed as detailed below-

1. Whether on the facts and circumstances of the case particularly the fact that both the assessee and the Revenue have challenged the attention of system of accounting by learned Commissioner of Income Tax (Appeals) from mercantile to cash in the computation of the assessee’s income from the ‘Golden Key Scheme’, the Tribunal with reference to its powers under section 254 (1) of the Income Tax Act, 1961, could adjudicate the issue/
2. If the answer to the question above is in the affirmative whether on the facts and circumstances of the case and in law, system of accounting to be adopted by the assessee should be cash or mercantile?
3. Whether if mercantile system of accounting is to be adopted the assessee should be entitled to prize money for the entire scheme running over 12 years during the first year itself?
4. Whether on the facts and circumstances of the case, proviso 1 appended to section 45(1) of the Act, could be invoked or not?
5. Whether either with reference to the provisions of section 211 of the Contract Act or sections 2(24), 4 and 5 of the Act any notional interest could be added in the hands of the assessee due to the delayed remittance of collections made by their agent M/s Sahara India in respect of ‘Golden Key Scheme’?
6. Whether in law as also according to the principles of natural justice, the dissenting Member could refer to certain case law of different High Courts (no dispute about Supreme Court case law) not cited by either side during the hearing of the Appeals?
7. Whether if adoption of mercantile system is upheld, the questions of discounting and application pro rata in respect of deduction towards prize liability under the ‘Golden Key Scheme’ should go back to the Regular Bench for its decision, considering that the Accountant Member has not adjudicated on these aspects?

The above difference of opinion arised between the two Members was referred to the Third Member, Senior Vice President, Srhi V. Dongzathang.

The third Member rendered his opinion vide his order dated 29^th March, 1998.  The third Member decline to answer questions 5 and 6 and remaining questions answered, some categorically and some, in a vague manner.  The matter went to the Regular Bench.  The Regular Bench found it difficult to decide appeals on the basis of majority opinion of Members in the light of section 255 (4) and consequently heard the matter and decided the appeals.

Against this order the Revenue filed appeal before the High Court.  After hearing both the parties the High Court found that one substantial question of law, arisen in this appeal is – Whether it was open to Third Member, to whom certain specific points of dissents were referred for opinion, to answer those questions in his own way or decline to answer some of these questions, and due to lack of clear answers given or some questions remained unanswered by the Third Member, was it open to the Regular Bench to hear the matter and decide the appeal afresh, in the manner it likes without deciding the matter in the light of majority of opinion of the Bench?

The High Court analyzed the provisions of section 255(4) of the Act.  In this case two Members differed in their views and formulated seven points.  A single Member was constituted to hear those points.  The High Court held that such member has no other option but to answer those points and thereafter the decision of the Tribunal has to be given by the Regular Bench in the light of the opinion.  It was not open to the Third Member to sit in appeal over the matter and decide some questions and leave some questions unanswered in his own way.  The Third Member ought to have try to answer the questions referred to him in a specific manner so that the matter ultimately could have been decided by Regular bench in the light of majority opinion but that has not been done in the case in hand.   The High Court found that the Third Member as well as the Regular Bench have not acted in the manner, as contemplated in law.

The High Court analyzed the findings of the Third Member as below-

• For the first question, the Third Member rendered his opinion as when the assessee and Revenue both are aggrieved by an order of the Commissioner (Appeals) it is incumbent upon the Tribunal to adjudicate issued raised before it and pass such order thereon as it thinks fit.The High Court observed that this question was answered in the affirmative.
• For the second question the Third Member rendered his opinion as there is no need of changing entire system of accounting adopted by the assessee as the entries in accounts are correct and complete on the basis of which correct income chargeable to tax can be computed;
• The High Court observed that question no. 4 was answered by the Third Member in affirmative;
• For question numbers 3 and 7 were taken together and without giving any answer deciding the same in one or other way, the Third Member observed that both these questions are decided in the light of observations.

The High Court found that the Third Member instead of answering the questions 3 and 7 has  looked into the correctness of decision of two differing Members and that they have not looked into the relevant circumstances and should re-decide ground of appeal after giving opportunity to both the sides.  The High Court observed that the Third Member, it appeared forgot his position that he was not sitting in appeal over the opinion rendered by two Members of the Tribunal since jurisdiction of Third Member was co-ordinate and it was his duty to hear the two sides and decide question referred for its opinion in  one or other way and not to make comments in the manner in which two differing Members have rendered their opinion for deciding certain issues.

The High Court further observed that the Third Member has looked into question No. 5 as if he was sitting in appeal over different opinions recorded by two Members and this approach on the part of the Third Member is clearly erroneous.   Whether any purpose would be served by answering question no. 5 or not was not within the domain of the Third Member for the reason that it was under a statutory duty to answer questions referred for its opinion in one or other way?

The High Court also observed that the strange approach and manner of functioning of the Third Member has put the Regular Bench in a difficult situation.  The Division Bench found it a rare case wherein judgment was not possible in the manner in which was required by section 255(4).  The Bench, however, found itself obliged to comply with the Third Member’s opinion of reopening issues and requiring re-hearing of appeals of the assessee/Department as well as cross objection on the points of difference.  The High Court observed that this situation was created by the Third Member who appears to have forgotten its own duty and statutory obligation that it has to decide specific points referred for its opinion and not to sit in appeal over the entire matter and takes its own decision independently and bereft of points formulated by different Members and referred for opinion of the Third Member.

The High Court held that the order and approach of the Third Member is  patently erroneous, illegal, impermissible  and constitutionally unsustainable in law rendering the order passed by the Regular Bench.  The High Court set aside not only the order passed by the Regular Bench but also the order passed by the Third Member and remand the matter to the President of the Tribunal to nominate another Bench constituting one or more Members to consider and decide the seven points formulated by differing Members for giving opinion thereon and thereupon the Regular Bench may decide the issue in the light of the majority opinion as contemplated in section 255(4) of the Act.