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HDFC Bank Ltd. Versus The Deputy Commissioner of Income Tax-2 (3) , Mumbai & Others

2016 (3) TMI 755 - BOMBAY HIGH COURT

Disallowance u/s 14A - whether Section 14A of the Act would have no application to disallow interest expenditure on fund borrowed in respect of the tax free returns on the securities? - Held that:- The impugned order of the Tribunal has an observation therein that there is no such thing as estoppel in law and by virtue of that gives itself a licence to decide the issue before it ignoring the binding precedent in the petitioner's own case in HDFC Bank Ltd(2014 (8) TMI 119 - BOMBAY HIGH COURT )whe .....

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The decision of a coordinate bench would continue to be binding till it is corrected by a higher Court. This principle laid down in respect of a coordinate Court would apply with greater force on subordinate Courts and Tribunals. We are also conscious of the fact that we are not final and our orders are subject to appeals to the Supreme Court. However, for the purposes of certainty, fairness and uniformity of law, all authorities within the State are bound to follow the orders passed .....

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reme Court and have it set aside and / or corrected or where the same issue arises in a subsequent case the issue may be reurged before the Court to impress upon it that the decision rendered earlier, requires reconsideration. It is not open to the Tribunal to sit in appeal from the orders of this Court and not follow it. In case the doctrine of precedent is not strictly followed there would complete confusion and uncertainty. The victim of such arbitrary action would be the Rule of law of which .....

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issues which stand settled by the decision of this Court.

It is in the above view, that we set aside the impugned order of the Tribunal dated 23rd September, 2015 in its entirety and restore the issue to the Tribunal to decide it afresh on its own merits and in accordance with law. However the Tribunal would scrupulously follow the decisions rendered by this Court wherein a view a has been taken on identical issues arising before it. It is not open to the Tribunal to disregard the bin .....

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. - Writ Petition No. 1753 of 2016 - Dated:- 25-2-2016 - M. S. Sanklecha And B. P. Colabawalla, JJ. For the Appellant : Mr. J D Mistry, Senior Counsel a/w Madhur Agarwal a/w Atul Jasani For the Respondent : Mr. Suresh Kumar a/w Ms. Samiksha Kanani ORDER Per Court :- 1. Heard. Rule. Respondents wave service. By consent of the parties, Rule is made returnable forthwith. 2. This petition under Articles 226 and 227 of the Constitution of India challenges the order dated 23rd September, 2015 passed b .....

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urther these securities are held as stock in trade. This dismissal of the appeal, submit the petitioner, inspite of the issue being concluded on both the grounds in its favour by the binding decisions of this Court. 3. However, Mr. Suresh Kumar the learned Counsel for the Revenue urged that as there is an alternative remedy of an statutory appeal available under Section 260A of the Act from impugned order of the Tribunal this court should not exercise its extraordinary jurisdiction under Article .....

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refusal of the Tribunal to follow the binding decision of this Court in the case of the petitioner itself being CIT Vs. HDFC Bank Ltd. 366 ITR 505 for an earlier Assessment Year 2001-02 on identical issue of applicability of Section 14A of the Act to partially disallow interest expenditure when interest free funds available with the Petitioner are in excess of investments made in tax free securities. Thus, the endeavor of the petitioner is to bring to our notice that in passing the impugned ord .....

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her forum. It is in the aforesaid circumstances, that we are compelled to examine the grievance of the petitioner in the context of our supervisory jurisdiction under Article 227 of the Constitution of India. 4. Factual Matrix : (a) For the Assessment Year 2008-09, the petitioner filed its return of income declaring an income of ₹ 241.72crores. The petitioner had in its return of income also declared an income of ₹ 5.81crores from the investments in securities which were exempt from .....

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llowance was made on the expenditure claimed as the interest paid on borrowed funds. (b) By an order dated 22nd December, 2010 passed under Section 143(3) of the Act, the Assessing Officer assessed the petitioner's income at ₹ 1067.93crores. This after disregarding the petitioner's contention that Section 14A of the Act would not apply in respect of its tax free securities as it had ample interest free funds available and the same was utilized from a common pool consisting of inter .....

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66crores under Section 14A of the Act as being an expenditure incurred for earning tax exempt income of ₹ 5.81crores. (c) Being aggrieved with the order dated 22nd December, 2010 of the Assessing Officer, the petitioner preferred an Appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By an order dated 21st November, 2011, the CIT(A) dismissed the petitioner's appeal upholding the order of the Assessing Officer. (d) Being aggrieved, the petitioner inter alia carried the issue o .....

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(ii) The tax free securities were held by it as its stock in trade. Thus no disallowance of any expenditure under Section 14A of the Act could be made in view of binding decision of this Court in CIT Vs. India Advantages Securities Ltd. ITA 1131/13 decided on 30th April, 2014. However, the Tribunal by the impugned order did not accept the petitioner's submission on both the grounds. It disregarded the binding decision of this Court by holding that an earlier decision of this Court in Godrej .....

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(supra) dismissed the Revenue's appeal at the stage of admission on the ground that no question of law arises for consideration from the order of the Tribunal. Submissions :- 5. Mr. Mistry, learned Senior Counsel in support of the petition submits as under : (a) The issue which arose for consideration before the Tribunal with regard to applicability of Section 14A of the Act in respect of the tax free income earned on investments in case of a party possessed of interest free funds in excess .....

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Court in Godrej and Boyce Manufacturing Co. Ltd.(supra) and HDFC Bank Ltd(supra). This is for the reason that this Court has in Godrej and Boyce Manufacturing Co. Ltd.(supra) has not ruled on the issue of disallowance of interest under Section 14A of the Act on the ground of presumption where sufficient interest free funds are available to make investment in tax free instruments. This issue was only decided later by this Court for the first time in the petitioner's own case in HDFC Bank Ltd. .....

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as no application to the present facts; (d) In fact the Tribunal has been consistently following the ratio of the decision of this Court in HDFC Bank (supra) in other cases before it, but HDFC Bank itself i.e. the petitioner does not get its benefit. (e) Similarly, the alternative submissions urged before the Tribunal that these investments in securities are its stock in trade and consequently Section 14A of the Act is not applicable is also concluded in favour of the petitioner as held by this .....

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er submits as under :- (a) This petition should not be entertained as there is an alternative remedy available to the petitioner under Section 260A of the Act by way of an appeal to this Court from the impugned order of the Tribunal. (b) The appeal filed by the petitioner before the Tribunal arose from orders of the Assessing Officer and the CIT(A) holding that the petitioner was unable to establish that its interest free funds were utilized for the purposes of investment in securities. Conseque .....

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n stock in trade, was raised for the first time only before the Tribunal and thus could not be entertained. In any case the decision of this Court in India Advantage Securities Ltd (supra) would have no application as the revenue's appeal was dismissed by this court at the stage of admission. It is, therefore, submitted that the impugned order passed by the Tribunal calls for no interference by this Court in its extraordinary jurisdiction under Articles 226 and 227 of the Constitution of Ind .....

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ule of Law. In fact, the Supreme Court in Union of India vs. Raghuvir Singh 1989 (2) SCC 754 while setting out the objectives of the doctrine of Precedent observes at para 7, 8 and 9 thereof as under: "7. India is governed by a judicial system identified by a hierarchy of courts, where the doctrine of binding precedent is a cardinal feature of its jurisprudence. ….... 8. Taking note of the hierarchical character of the judicial system in India, it is of paramount importance that the .....

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ent has the merit of promoting a certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transactions forming part of his daily affairs. And, therefore, the need for a clear and consistent enunciation of legal principle in the decisions of a Court." (emphasis supplied) 8. Further the Apex Court in the case of Collector of Central Excise Vs. Dunlop India Ltd. 154 ITR 172 has observe .....

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h do not attract the unanimous approval of all members of the judiciary ….... But the judicial system only works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted" (See observations of Lord Hailsham and Lord Diplock in Broome V. Cassell). The better wisdom of the court below must yield to the higher wisdom of the court above. That is the strength of the hierarchical judicial system. In Cassell V. Broome (1972) AC 1027, commenting on the .....

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High Court to disregard a decision of the Court of Appeal." It is needles to add that in India under article 141 of the Constitution, the law declared by the Supreme Court shall be binding on all Courts within the territory of India and under art. 144 all authorities, civil and judicial, in the territory of India shall act in aid of the Supreme Court." (emphasis supplied) 9. Although both the above decisions are rendered in the context of the decision of the Supreme Court, the same pr .....

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f the law so declared. Under Art.215, every High Court shall be a court of record and shall have all the powers of such a court including the power to punish for contempt of itself. Under Art. 226, it has a plenary power to issue orders or writs for the enforcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under Art. 227, it has jurisdiction over all courts and tribunals thro .....

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ower of supervision conferred on a superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise, there would be confusion in the administration of law and respect for law would irretrievably suffer. We, therefore, hold that the law declared by the highest court in the State is binding on authorities or tribunals under its superintendence, and that they cannot ignore it eith .....

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this Court would be binding upon all Authorities, Tribunals and Courts subordinate to the High Court within the State of Maharashtra. 10. One more aspect which needs to be adverted to and that is that a decision would be considered to be a binding precedent only if it deals with/decides an issue which is subject matter of consideration/decision before a coordinate or subordinate court. It is axiomatic that a decision cannot be relied upon in support of the proposition that it did not decide. (se .....

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the Tribunal as raised by the petitioner was that Section 14A of the Act would have no application to disallow interest expenditure on fund borrowed in respect of the tax free returns on the securities, for the following two reasons : (a) The petitioner was possessed of sufficient interest free funds of ₹ 2153 crores as against the investment in tax free securities of ₹ 52.02 crores. Consequently, there is a presumption that the investment which has been made in the tax free securiti .....

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raised before the Tribunal has been challenged before the Supreme Court; and (b) In any event, the tax free investment in securities were the petitioner's stock in trade. Consequently, there would be no occasion to invoke Section 14A of the Act as held by this Court in India Advantage Securities Ltd. (supra) wherein the Revenue's appeal from the order of the Tribunal was dismissed, to contend that no disallowance can be made under Section 14A of the Act in respect of exempted Income aris .....

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d. Thereby implying and proceeding on the basis that there is a conflict between the two decisions rendered by this Court in Godrej and Boyce Manufacturing Co. Ltd. (supra) and HDFC Bank Ltd. (supra). We are unable to understand on what basis the impugned order has proceeded on the basis that there is a conflict between the two decisions. This is so as with the assistance of the Counsel we closely examined the decision of this court in Godrej and Boyce Manufacturing Co. Ltd. (supra). On examinat .....

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facturing Co. Ltd. (supra) to the Assessing officer for passing an order afresh, after the Court upheld the Constitutionality of Section 14A of the Act. 13. One more fact which must be emphasized is that merely because a decision has been cited before the Court and a reference to that has been made in the order of the Court such as in the case of Godrej and Boyce Manufacturing Co. Ltd. (supra) reference was made to CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 by itself would not lead to .....

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. If it was done, the Tribunal would have noted that this Court in Godrej and Boyce Manufacturing Co. Ltd. (supra) has not decided the issue of applicability of Reliance Utilities and Power Ltd. (supra) inasmuch as it has restored the entire issue to the Assessing officer after upholding the constitutional validity of Section 14A of the Act. 14. The only basis for proceeding on the basis that there is a conflict between the two decisions of this court which emerges from the impugned order is tha .....

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e Utilities and Power Ltd. (supra) was rendered in the context of Section 36(1)(iii) of the Act, it was consciously applied by this Court while interpreting Section 14A of the Act in HDFC Bank Ltd. (supra). The impugned order of the Tribunal proceeds on the basis that Godrej and Boyce Manufacturing Co. Ltd. (supra) had considered the decision of this Court in Reliance Utilities and Power Ltd. (supra), which is factually not so. The decision of this Court in Godrej and Boyce Manufacturing Co. Ltd .....

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Reliance Utilities and Power Ltd. (supra) can be invoked while applying Section 14A of the Act. Thus by no stretch of reasoning can it be countenanced that there is conflict in the decisions of this Court in Godrej and Boyce Manufacturing Co. Ltd.(supra) and HDFC Bank Ltd.(supra). The decision in Godrej and Boyce Manufacturing Co. Ltd.(supra) is not a precedent for the issue arising before the Tribunal and could not be relied upon in the impugned order of the Tribunal to disregard the binding d .....

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when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (supra) while considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Rev .....

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e and was so decided for the first time by this Court in HDFC Bank Ltd. (supra). Thus, there is no conflict as sought to be made out by the impugned order. Thus, the impugned order has proceeded on a fundamentally erroneous basis as the ratio decindi of the order in Godrej and Boyce Manufacturing Co. Ltd.(supra) had nothing to do with the test of presumption canvassed by the petitioner before the Tribunal on the basis of the ratio of the decision of this Court in HDFC Bank Ltd.(supra). 16. At th .....

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to the facts of the present case. We are unable to understand the above submission. The Assessing Officer passed the Assessment order on 22nd December, 2010 under Section 143(3) of the Act. The CIT (A) passed an order on 21st November, 2011 dismissing the petitioner's appeal. On both the dates, when the orders were passed by the Assessing Officer and CIT (A), the authorities did not have the benefit of the order of this Court in HDFC Bank Ltd. (supra) rendered on 23rd July, 2014. Once the i .....

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t in the above submission made at the hearing on behalf of the Revenue. 17. At the hearing before us the Petitioner drew our attention to various orders of the Tribunal where a consistent view has been taken by the coordinate benches of the Tribunal in applying the presumption laid down by this Court in Reliance Utilities and Ltd. (supra) as well as the decision of this Court in HDFC Bank Ltd. (supra) while deciding on application of Section 14A of the Act to disallow interest claimed as expendi .....

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, we are not taking into account the above decisions as they were not cited at the hearing before the Tribunal. Thus we are only examining whether the action of the Tribunal is within the bounds of its authority on the basis of the materials placed before it leading to the impugned order and we unfortunately find it is not so. This is for the reason that it failed to follow the binding precedent in HDFC Bank Ltd. (supra). 18. The alternative submission (b) which was put forth by the petitioner b .....

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is non entertainment of an appeal being on the ground that this Court found no substantial question of law. Therefore, the impugned order holds that the decision relied upon in India Advantage Securities Ltd. (supra) does not lay down any binding proposition of law. 19. We are unable to comprehend how and why the impugned order of the Tribunal is of the view that if an appeal is not admitted from an order of the Tribunal, then it is open to the Tribunal in another case to decide directly contrar .....

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the facts or law applicable and the difference in fact and / or law should be reflected in its order taking a different view. Moreover the impugned order of the Tribunal places reliance upon the decision of this Court in Godrej and Boyce Manufacturing Co. Ltd.(supra) to deny the claim. On this issue no decision was rendered by this court in Godrej and Boyce Manufacturing Co. Ltd.(supra) and therefore how could it be relied upon to deny the claim of the petitioner is beyond comprehension. This a .....

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impugned order of the Tribunal seems to question the decision of this Court in HDFC Bank Ltd. (supra) to the extent it relied upon the decision of this Court in Reliance Utilities and Power Ltd. (supra). This is by observing that the decision in Reliance Utilities and Power Ltd.(supra) it must be appreciated was rendered in the context of Section 36(1)(iii) of the Act and its parameters are different from that of Section 14A of the Act. This Court in its order in HDFC Bank Ltd.(supra) conscious .....

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Utilities and Power Ltd. (supra) has been consciously applied by this Court while rendering a decision in the context of Section 14A of the Act. 22. We also note that the impugned order of the Tribunal has an observation therein that there is no such thing as estoppel in law and by virtue of that gives itself a licence to decide the issue before it ignoring the binding precedent in the petitioner's own case in HDFC Bank Ltd(supra). Once there is a binding decision of this Court, the same co .....

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rectified in a manner known to law and not by disregarding binding decisions of this Court. In fact our court in Panjumal Hassomal Advani Vs. Harpal Singh Abnashi Singh Sawhney & Ors. AIR 1975(Bom) 120 has observed that a coordinate bench cannot refuse to follow an earlier decision on the ground that it is incorrect and / or rendered on misinterpretation. This for the reason that the decision of a coordinate bench would continue to be binding till it is corrected by a higher Court. This prin .....

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ribunal and, therefore, unlike, then the Tribunal is free to decide on the basis of the facts put before it. However till such time as the decision of this court stands it is not open to the Tribunal or any other Authority in the State of Maharashtra to disregard it while considering a like issue. In case we are wrong, the aggrieved party can certainly take it up to the Supreme Court and have it set aside and / or corrected or where the same issue arises in a subsequent case the issue may be reu .....

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