TMI Blog2020 (3) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-2-2020 - Pramod Kumar (Vice President) And Saktijit Dey (Judicial Member) For the Appellant : P J Pardiwalla along-with Madhur Agarwal For the Respondent : Ujjawal Kumar ORDER Per Pramod Kumar, VP: 1. This appeal, filed by the assessee, calls into question correctness of the order dated 30th January 2015, passed by the learned CIT(A) in the matter of assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act ), for the assessment year 2007-08. 2. When this appeal was called out for hearing, learned senior counsel for the assessee submitted that though this appeal involves several legal issues, including the question on validity of the reassessment proceedings, the fundamental issue in this appeal deals with the question as to whether the assessee can be said to be an associated enterprises , within meanings assigned under section 92A, of Kaybee Exim Pte Ltd, a Singapore based entity, and, in the event of this issue being held in favour of the assessee, all other issues will be rendered academic and infructuous. He, however, hastens to add that while this issue is now required to be decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in further appeal before us. 4. In all fairness to the learned Departmental Representative, this issue is covered, against the assessee, by two coordinate bench decisions in assessee s own case. While dealing with the assessment year 2008-09, a coordinate bench, vide order dated 29th May 2019, had held the issue and observed, inter alia, as follows: The language of section 92A(1) is unambiguous and does not leave any scope of importing any meaning of expression AE . The question raised before us is whether the meaning of expression AE as per s.s. (1) of section 92A is subjected to s.s. (2) of section 92A. The ld. Sr. counsel for the assessee has asserted that the criteria prescribed under s.s. (2) are necessarily be fulfilled for two enterprises to be treated as AEs. The meaning of AEs as provided under s.s. (1) of section 92A and if the condition provided in clause (a) (b) of s.s. (1) are independently satisfied then the two enterprises for the purpose of section 92B to 92E of the Act will be treated as AEs. Sub Sec. (2) of section 92A is a deeming fiction and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol or capital of the other enterprise. In effect, thus, when same persons participate, directly or indirectly or through an intermediary, in the management or control or capital of two or more enterprises, such enterprises are required to be treated as 'associated enterprise'. Interestingly even as definition of 'associated enterprises' has crucial references to 'participation in management or control or capital' at some places, the precise scope of this expression has not been defined under the provisions of the Income- tax Act, and it has not come up for judicial adjudication either. This expression has been used in Article 9(1 of OECD and UN model conventions, but we find no assistance from the OECD and UN commentaries either. All that the OECD commentary says on the scope of this expression is that it refers to parent and subsidiary companies and companies under common control . The true test of associated enterprise thus is control by one enterprise over the other, or control of two or more associated enterprises by a common interests, and such a control is essentially an effective control in decision making process. 11. In our considered view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as to make them workable rather than redundant (ut res magis valeat quam pereat), and that the same test of effective control on decision making as are implicit In deeming fiction under section 92(A)(2) we also apply to the situations of more than two associated enterprises envisaged in section 92A(1)(b). In this light, let us analyse the situation before us. The manufacture of goods is carried out by the CBU Konkan Agro, which is controlled by the assessee inasmuch as the CBU is wholly dependent on the use of trade- marks in respect of which the assessee has exclusive rights. This relationship meets the test of de facto control on decision making as set out in section 92A(2)(g). The assessee in turn, as evident from information in Form 3CEB, is controlled, by way of equity participation, by Diageo PLC which also similarly controls other entities in the Diageo group, including the entities from which CBU has imported the raw materials. Diageo PLC thus, through the assessee as an intermediary, controls the CBU as also the Diageo group entities from which the CBU has imported raw materials. Clearly, therefore, the assessee, as also the CBU and its Diageo group supplier of raw mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or indirectly or through one or more intermediaries in its management or control or capital as prescribed under clause (a) (b) of s.s. (1) of section 92A is satisfied. Hence, the assessee and Kaybee Exim Pte Limited, Singapore falls under the meaning of AEs as per the provisions of section 92A. 5. When the matter again came up before another coordinate bench of this Tribunal, for the assessment years 2010-11 and 2011-12, learned counsel for the assessee invited attention of the bench to subsequent legal developments by way of judicial precedents, and urged the bench to follow these judicial precedents. Rejecting this plea vide order dated 8th August 2018, the coordinate bench, inter alia, observed as follows: 14. Considering the decision of Co-ordinate Bench in assessee s own case on almost identical ground and on identical fact and respectfully following the same, the ground no.2 of the appeal is dismissed. For alternative contention of the ld. AR of the assessee that each year relationship for the determination of AE s has to be separately established. We have noted that the assessee has not brought any material fact on record to take any contrary view for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such subsequent decision in the case of Page Industries Ltd Vs DCIT [(2016) 159 ITD 680]. It is then pointed out that the author of decision in the case of Diageo India Ltd (supra) is also author of two such subsequent decisions in the cases of Orchid Pharma Ltd Vs DCIT [(2016) 76 taxmann.com 63] and ACIT Vs Veer Gems [(2017) 77 taxmann.com 127], and one of these decisions is specifically approved by Hon ble Gujarat High Court in the judgment reported as PCIT Vs Veer Gems [(2017) 83 taxmann.com 271] and SLP against the said approval has been rejected by Hon ble Supreme Court in the judgment reported as PCIT Vs Veer Gems [(2018) 95 taxmann.16]. Once the contrary view is approved by Hon ble Courts above, its no longer to open to the Tribunal to follow the earlier view which has not found favour with the higher judicial forum. He also invites our attention to Hon ble jurisdictional High Court s judgment in the case of CIT Vs Godavaridevi Saraf [(1978) 113 ITR 589] in support of the proposition that even a non jurisdictional High Court, in the absence of anything to the contrary by Hon ble jurisdictional High Court, is equally binding on the Tribunal. We are thus urged to follow the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coordinate benches in assessee s own case against the assessee, decide the issue in favour of the assessee now. 9. We find that in the lead order in this case, i.e. in the case of Diageo India Ltd (supra), there was no occasion to take note of the fact that the words for the purpose of Section 92A(1) were inserted in Sub Section 92A(2) with a specific purpose, as unambiguously set out in the Memorandum to the Finance Bill 2002, to the effect It is proposed to amend sub-section (2) of the said section to clarify that the mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled . This aspect of the matter is further evident from the CBDT circular no. 8 of 2008 which states that the Finance Act, 2002, has amended sub section (2) of section 92A to clarify that where any of the criterion specified in sub section (2) is fulfilled, two enterprises shall be deemed to be associated enterprises (emphasis supplied by us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot obviously be open to us to disregard the law settled by Hon ble Supreme Court, which binds all of us under article 141 of the Constitution of India, or to disregard the CBDT circular once it is pointed out to us. What happened in the past was due to sheer inadvertence on this aspect of the matter. The fact that this decision was authored by one us (i.e. the Vice President) does not matter at all. There are two simple things that we must bear in mind. The first one is that what matters is the institutions and not the individuals; sooner or later all the individuals have to be fade into oblivion but the institutions can shine forever, and it is because of the institutions, as long as an individual occupies the position therein, that individuals are relevant. The relevance of individuals is because of their institutional positions and not because of their own persona. Whether this decision is rendered by one of us or by one of the esteemed colleagues, it does not matter at all; all these decisions are decisions of the Tribunal and are completely at par so far as precedence value is concerned. The second thing is that, even as judicial officers, all of us evolve every day, and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions enacted but, quite apart from their binding character, they are clearly in the nature of contemporanea expositio furnishing legitimate aid in construction (of the related provision) .. and then further observed that these circulars are legally binding on the revenue and this binding character attaches to the circulars even if they be found to be not in accordance with the correct interpretation (of the related provision) and they depart or deviate from such construction. It is now well settled, as a result of decisions of this court, one in Navnit Lal C Jhaveri Vs K K Sen, AAC [(1965) 56 ITR 198 (SC)] and the other in Ellerman Lines Ltd Vs CIT [(1971) 82 ITR 913 (SC)] that circulars issued by the CBDT under s 119 of the Act are binding on all officers and persons employed in execution of the Act even if they deviate from the provisions in law . When a decision is arrived at contrary, in letter and in spirit, to the position set out in the CBDT circular, which are binding in the light of law laid down by Hon ble Supreme Court in the cases of UCO Bank (supra), K P Verghese (supra), Ellerman Lines Ltd (supra) and Navnit Lal Jhaveri (supra), such a decision clearly per inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled . In this sense, Section 92A(2) governs the operation of Section 92A(1) by controlling the definition of participation in management or capital or control by one of the enterprise in the other enterprise. If a form of participation in management, capital or control is not recognized by Section 92A(2), even if it ends up in de facto or even de jure participation in management, capital or control by one of the enterprise in the other enterprise, it does not result in the related enterprises being treated as 'associated enterprises'. Section 92A(1) and (2), in that sense, are required to be read together, even though Section 92A(2) does provide several deeming fictions which prima facie stretch the basic rule in Section 92A(1) quite considerably on the basis of, what appears to be, manner of participation in control of the other enterprise . What is thus clear that as long as the provisions of one of the clauses in Section 92A(2) are not satisfied, even if an enterprise has a de facto participation capital, management or control ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Tej International (P.) Ltd. v. DCIT (69 TTJ 650), in the hierarchical judicial system that we have in India, the wisdom of the court below has to yield to the higher wisdom of the court above and, therefore, once an authority higher than this Tribunal has expressed its esteemed views on an issue, normally the decision of the higher judicial authority is to be followed. The Bench has further held that the fact that the judgment of the higher judicial forum is from a non-jurisdictional High Court does not really alter this position, as laid down by the Hon'ble Bombay High Court in the case of CIT v. Godavari Devi Saraf ( 113 ITR 589). For slightly different reasons and alongwith some other observations on the issue, which we shall set out a little later, we are in agreement with the conclusions arrived in this case. 6. That takes us to the question whether this decision stands overruled by the Hon'ble Bombay High Court's later judgment in the case of Thana Electricity Co. Ltd. (supra), as submitted by the learned Departmental Representative. 7. It is also important to bear in mind that the question requiring adjudication by Their Lordship was whether or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Courts were not bound by the decisions of each other and, as such, there may be contrary decisions of different High Courts on the same point. 9. The issue of consideration was thus confined to the question whether or not a High Court decision is binding on another High Court or not. That admittedly was the core issue decided by Their Lordships. As for the binding nature of non-jurisdictional High Court decisions on the Tribunal, the observations made by Their Lordships were no more than obiter dictum and in this very judgment, Their Lordships have held that even in the case of Hon'ble Supreme Court judgments, which are binding on all Courts, except Supreme Court itself, but 'what is binding, of course, is the ratio of the decision and not every expression found therein'. Their Lordships have also referred to the oft quoted judgment of the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P.) Ltd. ( 198 ITR 297) wherein it is held that 'it is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of question under consideration, and treat it to be complete law declared by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw laid down by the High Court, though of a different State, so long as there is no contrary decision on that issue by any other High Court ..... 13. It is thus clear that while the issue before the Hon'ble High Court in Thana Electricity Co. Ltd.'s case (supra) was whether or not a High Court should follow another High Court, whereas in Godavari Devi Saraf's case (supra), Their Lordships dealt with the issue whether or not a non-jurisdictional High Court is to be followed by a Bench of the Income-tax Appellate Tribunal. To that extent, and irrespective of some casual observations on the applicability of non-jurisdictional High Court judgments on subordinate courts and Tribunals, these two decisions deal in two different areas. As we have noticed earlier also, in Thana Electricity Co. Ltd.'s case, a note was taken of Godavari Devi Saraf's judgment and neither the said judgment was dissented nor overruled. In any event, in Thana Electricity Co. Ltd.'s case, Hon'ble Court was alive to the fact, which was acknowledged in so many words, that a Co-ordinate Bench decision cannot be overruled. In this view of the matter, it is difficult to hold, as has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Courts above. As we do so, we cannot help quoting from the decision of the Hon ble Supreme Court in the case of Assistant Collector of Central Excise v. Dunlop India Ltd. [(1985) 154 ITR 172 (SC)], where the Hon ble Supreme Court has itself quoted from the decision of House of Lords as under: We desire to add and as was said in Cassell Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never be necessary for us to say so again that in the hierarchical system of courts which exists in our country, it is necessary for each lower tier , including the High Court, to accept loyally the decision of the higher tiers . It is inevitable in hierarchical system of courts that there are decisions of the Supreme appellate Tribunal which 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. . . . 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. [Emphasis, by underlining, supplied by us] 13. Such being the guidance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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