TMI Blog2015 (8) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that the file of the matter was before the Vice president, is a mystery. This was a private meeting and the Petitioner was not informed. The matter was seized before the regular bench and the revenue was a contesting party. The Petitioner was completely unaware that any such private meeting had taken place between the counsel and the Vice president. Permitting a party to the litigation to meet privately in absence of other side in respect of an ongoing litigation and then base an opinion on such meeting ,was most improper on the part of the Vice president. The Vice president did not even find it improper and he has proceeded to place the said private meeting on record as if nothing was wrong about the same. Not only holding such private meetings is opposed to judicial conduct, but not knowing that it is an improper judicial conduct, makes the matters worse. It is true that the final order of the president is not a judicial order. Nevertheless, even when a judicial body acts in administrative capacity, in midst of the litigation, which order will have effect on the ultimate outcome, the judicial body, must act with fairness, and not allow itself to be influenced. This is a fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cially directed against the Petitioner alone. The petitioner has levied a charge, which has gone unanswered, that similar allegations were made in the case of Ramojirao Group, but their matters were not referred to a special bench and only the Petitioner is singled out. Why the Board did not choose to invoke the judicial power of the Bench is not been informed to us in spite of our repeated queries. There is a clear methodology laid down under the Regulation 98(A) to make a reference by judicial order to the president. To sum up, the president was under obligation to give hearing to the parties. The Regular Bench had not unequivocally recommended constitution of the special bench and it had merely recommended that the matter be heard outside Andhra Pradesh. Since the Regular Bench had not recommended constitution of the special bench, no reason at all is found in the order of the president in constitution of the special bench. The president entertained a request in a matter which was seized by the Regular Bench, from a party to the litigation, passed an order without hearing the other side, without any reasons, and posted the entire matter before the special bench. This course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in subsection (3), a Bench shall consist of one judicial member and one accountant member. (3) The president or any other member of the Appellate Tribunal authorized in this behalf by the Central Government may, sitting singly, dispose of any case which has been allotted to the Bench of which he is a member and which pertains to an assessee whose total income as computed by the Assessing Officer in the case does not exceed (five hundred thousand rupees), and the president may for the disposal of any particular case, constitute a special bench consisting of three or more members, one of whom shall necessarily be a judicial member and one an accountant member. (4) 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order similar to order of Tribunal 'the reference shall be made by the Bench as far as possible' in the proforma as appended in XIX(B). APPENDIX XIX (B) INCOME TAX APPELLATE TRIBUNAL Proforma for making reference by a Bench to the president, Income Tax Appellate Tribunal for constitution of the. 'We the members ......... Bench (es) at ...... (station) are of the opinion that the appeal(s) No.(s) ........... in the matter of .............. which were posted for hearing before us on ......... is/are fit and proper appeal(s) which should be heard by a special bench consisting of three/or .............. members of the Tribunal. We accordingly forward the records of the appeal(s) mentioned above to the president of the Tribunal and request him to constitute a special bench for the reasons given below : Reasons in brief : Signatures : (1) (2) Note: 1. This form should be sent to the president of the Tribunal in duplicate, along with the observations of the Vice president of the concerned zone. Note: 2. Document/materials in support of the reasons for constitution of a should be enclosed. These are the basic provisions governing how the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6. Petitioner challenged the order passed by the Assessing Officer on 31 December 2010, by way of an appeal to the Commissioner of Income Tax (Appeals3), Hyderabad. Petitioner took up various contentions. It contended that the share premium, which was received during the relevant financial year 2007-08, was of capital nature and could not be treated as an income in terms of Section 28(iv) of the Act. It contended that, only nonmonetary benefit or perquisites can be taxed under Section 28(iv) and the section did not apply to capital receipt. The levy of tax of ₹ 150000000 was also challenged. It was urged that the order of the Assessing Officer was in contravention of the law laid down by the Apex Court and also decisions of the Tribunal. The Commissioner (Appeals), vide order dated 30 December 2011, dismissed the Appeal filed by the Petitioner. 7. The Petitioner thereafter filed a further Appeal No. ITA/18/H of 2012 before the Appellate Tribunal, (B-Bench) at Hyderabad. The Petitioner prayed for stay of recovery of tax demanded. The Appellate Tribunal by an order dated 25 January 2012, granted a conditional stay of the demand, on deposit of tax by payment of installme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... desh. The assessee had allotted shares at a premium of ₹ 350/per share (face value ₹ 10/) to several persons or entities who received benefits from the Government of Andhra Pradesh for allotment of land at concessional rates, grant of licences, allotment of Special Economic Zones, license for construction of hotel, reduction of Green belt, provision of water and other facilities, regularization of urban land, permission for transfer of land, permission for establishment of ports, etc. During the course of assessment, the AO established that the Investment in shares at high premium was made as a matter of Quid Pro Quo for extending the official favours. The total quantum of share premium involved from a.Y. 200809 to A.Y. 201011 is a sum of ₹ 1140 crores. 4. Similar to the above Quid Pro Quo arrangement, another company promoted by Shri Y.S.Jagan Mohan Reddy, M/s.Bharathi Cements Ltd. Has received share capital with share premium of ₹ 430.71 crores. Total money received by various companies promoted by Shri Y.S. Jaganmohan Reddy, as a Quid Pro Quo arrangement is more than ₹ 1700 crores. 5 Section 225(3) of the IT Act empowers the president of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ban land, etc. According to the Board, these investments in shares were a matter of quid pro quo and the amounts involved were very large and the legal issue was complex and of far reaching consequences for the revenue. 9. The matter was taken up for hearing on 14 December 2012 by the members of the Appellate Tribunal (the Regular Bench). At the hearing, the Petitioner objected to the constitution of a special bench submitting that the special bench can be constituted only in the case of conflict of decisions and none of the factors mentioned by the Board were germane to constitute a special bench. It contended that the constitution of a special bench would prejudice the petitioner as the petitioner was entitled to the benefit of the settled law in its favour. 10. After the hearing before the Regular Bench concluded, the Petitioner did not receive any communication regarding the constitution of the special bench, nor the opinion reached by the Regular Bench was informed to the Petitioner. The Petitioner only received a notice dated 19 March 2013 fixing the date of hearing of the appeal on 29 April 2013, calling upon the Petitioner to file one more set of paper book. The Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came up for hearing on 3 September 2013, the counsel for the Respondent No.1 furnished a copy of the intimation issued of Assistant Registrar of the Tribunal dated 19 December 2012 regarding constitution of the bench. It was taken on record and leave was granted to amend the petition. Hearing of the Petition was adjourned and in the meanwhile, by way of an adinterim relief, the proceedings before the special bench were stayed. Thereafter the matter was adjourned from time to time at the request of the parties. 13. During the hearing on 1 September 2014, the Petitioner made a grievance that the order passed by the president constituting a special bench was not furnished to the Petitioner and what was furnished was only a communication from the Assistant Registrar. A direction was sought that the Respondents place the order of the president on record. The Respondent No.1, on the ground that it was an administrative order and not subject to judicial review, opposed this prayer. The Respondent No.1 was directed to place the order passed on record, keeping the rights and contentions of the parties regarding the judicial review open. Accordingly, the order dated 5 March 2013 was place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te a special bench by the president. The copy of the opinion of the Regular Bench is placed on record. During the hearing, the Departmental Representative contended that the constitution of a special bench is a purely administrative matter and there is no need to hear either side. He reiterated the grounds raised by the Board in its letter dated 15 November 2012. According to the Departmental Representative the president, in the appropriate case, can constitute a special bench and it is not necessary that there must exist conflicting judicial pronouncements. According to the Departmental Representative, since the issue involved in the Appeal was of national importance, having large scale of ramifications, the matter was required to be resolved by a special bench. According to him, Y.S. Jagan Mohan Reddy who was the main promoter had misused his political position and various prosecutions were lodged against him under different Acts. The Petitioner contended that there is no conflict of decisions and the attempt on the part of the Revenue to seek constitution for special bench is malafide and part of a political vendetta. It was contended that the law was settled in favour of the Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince these papers were forwarded to me for my comments by your good-self, I have gone through the papers to appreciate if it is a fit case for reference to special bench. Considering the complexity of the issues involved, as detailed in the order passed by the Division Bench, I am of the prima facie view that it deserves to be referred to a special bench consisting of three Members to decide the entire appeal in exercise of the powers vested in you under section 255(3) of the Income Tax, 1961, subsection (3) to that extend reads under : 'The president may, for the disposal of any particular case, constitute a Special Bench consisting of three or more Members, one of whom shall necessarily be a and one Accountant Member. Yours sincerely, Sd/ Hon'ble president, Income Tax Appellate Tribunal, Mumbai. (emphasis supplied). The Vice president did not mention about the recommendation of the Regular Bench that an Appropriate Bench be constituted for the hearing outside Andhra Pradesh. 18. The proposal for constitution of special bench in the case of the Petitioner was placed before the president by way of a note, which stated that, if approved, may be plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to which the Petitioner's appeal would have been allowed, will be circumvented. The claim of the Board that there was quid pro quo, which made a departure from settled law, is fallacious, as the matter of the order of the tribunal in the case of PVP Ventures Ltd. that was relied upon, does not lay down this proposition. If so, it is open to the Revenue to distinguish the decision before the Regular Bench. There are no compelling reasons as to why the Board could not have moved the Regular Bench and followed the procedure laid Regulation 98A framed by the tribunal. The order passed by the president is amenable to judicial review and it must pass the test of fairness and nonarbitrariness. There are several issues, which raise more questions than answers and make the entire procedure suspect. The Regular Bench had not recommended constitution of a special bench and all that the Bench had opined was an Appropriate Bench outside Andhra Pradesh be constituted. The president was in receipt of this opinion, but there are no reasons disclosed as to why he did not accept the opinion of the Regular Bench. There is breach of principles of natural justice, as the president himself ought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons to the Central Bureau of Investigation to investigate the case. In view of the various directions issued by the High Court and the Apex Court, the Board bonafide believed that the case being complex and of greater magnitude, requires to be heard by a special bench. There is nothing malafide about the request made by the Board. After the request was so made to the president, a methodology was followed whereby both the parties submitted their points of views and thereafter a special bench was constituted. The petition is devoid of merits and be rejected. 23. First the scope of judicial review against the order of the president constituting a special bench under Section 255(3) of the Act. The learned counsel for the parties have accepted the position that a judicial review of the order passed by the president constituting a special bench is maintainable, but it lies in extremely narrow compass. There was however considerable debate at the bar as regard the nature power of the president to constitute a special bench. According to Mr.Rana, the power of the president under Section 255(3) is purely administrative. According to Mr.Mistry, the manner in which the power is exercised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the president was not justified in constituting a special bench and there was no reason to constitute a special bench. The High Court also disapproved the procedure adopted by the tribunal. The assessee's thereafter filed special leave petitions. The Income Tax Appellate Tribunal in the Apex Court challenged the finding of the High Court regarding the power of the president. The proceedings filed by the Income Tax Appellate Tribunal were delinked from other matters filed by the assessee and was decided by the decision of the Apex Court in the case of I.T.A.T. 26. The Apex Court in I.T.A.T. framed two points for consideration, first, as to whether the special bench had committed breach of principles of natural justice and whether the president of the Tribunal was legally competent to constitute a special bench. As regard the first point, the Apex Court concluded it did not arise in the facts of the case. The Apex Court thereupon proceeded to consider the second point that has relevance for the case at hand i.e. the nature of the power exercised by the president to constitute a special bench. The Apex Court, after considering the provisions of the Act and the regulations, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing an administrative order except in extraordinary grounds, such as, malafides, it is not open to scrutiny under Article 226 of the Constitution of India. Keeping this dictum of the Apex Court in mind, the rival contentions will have to be assessed. 28. The Petitioner has assailed the order of the president broadly on three counts. Firstly, that the Counsel for the Revenue meeting the Vice president privately vitiates the entire decisionmaking. Secondly, the president could not have exercised his suo moto powers to constitute a special bench when the regular Bench was seized of the matter and without giving hearing himself to the Petitioner. Thirdly, the president completely disregarded that Regular Bench did not recommend a special bench, and did not give any reason of his own. 29. According to Mr.Rana, it is not necessary to consider any of these points as the Regular Bench had suggested constitution of a special bench and the observations made by the Regular Bench were sufficient for the president to constitute a special bench. However, the order of the president discloses no reason. If it is to purely base on the opinion of the Regular Bench, then the opinion must be clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions and the law laid down by the Supreme Court and High Courts and also different benches of the Tribunal. The degree of appreciation of evidence varies between the proceedings before the Tribunal and the proceedings initiated by the CBI and Enforcement Directorate. 18. At the same time, however, there is enormous political sensitivity involved in the present appeal filed by a company, whose chief promoter is a Member of Parliament and son of former Chief Minister, facing serious charges of quid pro quo and so on, with the ongoing investigations by CBI and Enforcement Directorate. In the circumstances, any decision of the Tribunal on the issues involved in the appeal one way or the other may have wide spread ramifications in similar matters across the country. 19. It is also worthwhile to point out at this juncture that the hearing of the appeal at Hyderabad Bench may generate widespread attention of the local media as well as certain sections of the general public, and may even generate avoidable heated debate over the subject, because of the sensitivity of the case and the personalities involved, which would, in turn, may have an effect on the smooth hearing and dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been enjoying over decades, the president may constitute appropriate Bench outside Andhra Pradesh. 31. When the Regular Bench rejected all grounds of the Board for a special bench and made only one suggestion that the matter should be transferred out of Andhra Pradesh, its use of the phrase Appropriate Bench can only mean a bench outside Andhra Pradesh. special bench is a specific term under the Act and having made a reference to it throughout the opinion, the Regular Bench specifically recommended an 'Appropriate bench' and deliberately chose not to employ the phrase special bench . We are not considering whether the Regular Bench was right in arriving at this conclusion but we are considering this opinion in the context of the submission of Mr.Rana that the opinion of the Regular Bench was so clear that there was nothing left for the president to do except to constitute a special bench. The opinion of the Regular Bench is far from clear as a recommendation for constitution of a special bench. If at all it points to the contrary. It would be a strained interpretation of the opinion to construe it as a recommendation for constitution of special bench and it is cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven find it improper and he has proceeded to place the said private meeting on record as if nothing was wrong about the same. Not only holding such private meetings is opposed to judicial conduct, but not knowing that it is an improper judicial conduct, makes the matters worse. 35. Mr.Rana, with usual his forthrightness befitting a senior advocate, submitted that such private meeting cannot possibly be tolerated by any Court. He however contended that this factor should not ultimately influence this Court in testing the validity of the order of the president. With respect to Mr.Rana, we are unable to agree. The Vice president had played a major role in the decision making process to constitute the special bench. After he received the file from the president for his opinion, he suggested that the Regular Bench should give their opinion. He asked them to consider formation of a special bench and for that purpose hold a hearing, if necessary. When the opinion was received from the Regular Bench, he gave his own comment that the Bench had recommended a special bench, omitting to mention that the Bench had recommended a bench outside Andhra Pradesh. The Vice president, therefore, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... career or that the issue in his case is politically sensitive. We therefore strongly deprecate the invocation of this criterion. The collection of tax and the adjudication must move unconcerned with political identity. 38. The Income Tax Appellate Tribunal is one of the oldest and most reputed tribunals in the country. The qualification for appointing a Judicial member broadly are at least 10 years in the judicial office or advocate for at least 10 years. The qualification for appointment as an Accountant Members is broadly are that he should be a Chartered Accountant for at least 10 years,Member of Indian Income Tax Service with the post of Additional Commissioner of Income Tax or equivalent or higher. The qualification to be appointed as a president is a sitting or retired Judge of the High Court and who has completed not less than seven years as a Judge in the High Court or a Senior Vice president or Vice president of the Appellate Tribunal. Looking at its composition, high standards of conduct are naturally expected. It is of utmost importance that the faith of the litigants in the Tribunal is maintained. 39. Procedural justice is an important facet in the administration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck to higher posts in that Department. Their promotion and tenure of office are not controlled by the Ministry of Finance. These are in the hands of the Ministry of Law . (emphasis supplied) The expectations of the litigants echoed by the learned Chief Justice must be maintained. We are not prepared to permit any dilution of these expectations. 40. Now to examine the role of the Board. The Board has sought to project itself as an innocent party in the matter. Mr.Dave learned counsel appearing for the Board, placed before us various decisions of the Andhra Pradesh High Court and the Apex Court, in the cases of P. Shankar Rao v/s The Govt. of Andhra Pradesh, Writ Petition Nos.794, 6604 and 6979 of 2011, dated 10 August 2011; M/s.Jagathi Publications Ltd. v/s Central Bureau of Investigation, Hyderabad, Criminal Petition No.4593 of 2012, dated 2 June 2012; Central Bureau of Investigation v/s V. Vijay Sai Reddy, Criminal Appeal No.729 of 2013, dated 9 May 2013; and Y.S. Jagan Mohan Reddy v/s Central Bureau of Investigation, AntiCorruption Branch, reported in (2013) 7 SCC 450. According to Mr. Dave, the observations made in these judgments would justify the request of the Board. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which has gone unanswered, that similar allegations were made in the case of Ramojirao Group, but their matters were not referred to a special bench and only the Petitioner is singled out. Why the Board did not choose to invoke the judicial power of the Bench is not been informed to us in spite of our repeated queries. There is a clear methodology laid down under the Regulation 98(A) to make a reference by judicial order to the president. These regulations show a procedure is prescribed by which relevant material is placed on record. After the special bench is so constituted it is informed to the members of the bar the points on which the matter is referred to the special bench. Nothing stopped the Board from invoking this method that is judicial, transparent, and non-arbitrary to get a special bench constituted. Since the petitioner has put the conduct of the Board and the procedure adopted under challenge, the complete lack of explanation from the Board as to why it did not adopt this methodology is not an irrelevant point. 43. This only gives credence to the serious grievance made by the Petitioner that the entire attempt of the Board to get the special bench constituted w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the challenge is laid to the order of the president, the exercise will have to be tested in the backdrop of facts of that case. We restrict the enquiry to the exercise of the powers by the president in the peculiar facts of this case. 46. Next facet is whether the president should have given hearing to the Petitioner. There was debate as to the extent of applicability of principles of natural justice. According to Mr.Rana, requirement of hearing the parties is not contemplated while exercising the power under Section 252(3) by the president, and even otherwise, the president, adopting a fair course of action, has permitted the parties to present their case before the Regular Bench. According to Mr.Mistri, in the peculiar facts of the present case, the principles of natural justice ought to have been strictly followed and the president ought to have given hearing to the petitioner, and such delegated hearing is impermissible. 47. Mr. Mistri relied upon the decision of the Apex Court in the case of A.K.Kraipak and ors. v/s Union of India ors.2. He contended that it has been held by the Apex Court as far back as in 1970 in the decision of Kraipak that the dividing line between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the position of law in favour of the Petitioner or differ is not the question but the perception of the Petitioner of having suffered an order without hearing, would be the most relevant factor. The Apex Court in I.T.A.T. did refer to the order of the president as administrative but in the case of I.T.A.T. a representation was made by the entire bar and not by a party to the litigation and it was concurred with by the bench hearing the matter. 50. Section 255(3) as interpreted by the Apex Court contemplates two ways of establishing a bench. One by a judicial order by the regular bench and sou-moto by the president. Even though the power of the president in constituting a Bench suo moto is conferred by the Act, it will depend on facts of each case as to what is the shade of the power exercised as to whether it is purely an administrative exercise or has trappings of it being quasijudicial. For determining whether a power is an administrative power or a quasi-judicial power one has to look to the nature of the power conferred, the person or persons on whom it is conferred, the frame work of the law conferring that power, the consequences ensuing from the exercise of that power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l bench and the president may, without hearing any party, constitute a special bench to hear the entire appeal of the assessee without formulating a question of law and without assigning any reason. Laying down that even such purely adhominem circumstances, the president is not obliged to give an opportunity to the concerned parties and pass unreasoned orders, will be conferring a non-transparent and un-correctable power on the president. In such circumstances, in our opinion, it is in the interest of administration of justice that the president should give an opportunity of hearing to both the parties before referring the matter to a special bench. 54. Laying down such proposition will neither open floodgates of litigation nor place unnecessary burden on the president. During the course of hearing, which went over several adjourned dates, we had called upon Registry of the Tribunal to furnish data as to instances of exercise of power by the president in such circumstances i.e. on an application of a party to the litigation, in a seized matter the entire appeal has been referred to special bench. No such data was furnished nor was any explanation given for non-furnishing. We wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial bench, no reason at all is found in the order of the president in constitution of the special bench. The president entertained a request in a matter which was seized by the Regular Bench, from a party to the litigation, passed an order without hearing the other side, without any reasons, and posted the entire matter before the special bench. This course of action was in breach of principles of natural justice and lacking in fairness. The Vice president, who played a dominant role in decision making, entertained the representative of one party to the litigation privately without notice to the other side, and introduced a completely irrelevant concept of political sensitivity in the process, which by itself vitiates the decision making. Even otherwise, all the factors cumulatively, it has to be declared that the entire course of action adopted to constitute a special bench was opposed to the rule of law, fairness, transparency and cannot be sustained. We do so declare accordingly. 58. The writ petition, therefore, is allowed. The impugned order passed by the Respondent No.1 president dated 5 March 2013 constituting a special bench to hear the appeal of the Petitioner, is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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