CIT vs. Goodwill Theatres Pvt Ltd (Supreme Court)

DATE: November 29, 2017 (Date of pronouncement)
DATE: December 7, 2017 (Date of publication)
AY: -
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Taxability of mesne profits: High Court's approach of dismissing the Dept's appeal only because the Tribunal relied on Narang Overseas 111 ITD 1 (Mum) (SB) and the appeal against which had been dismissed for non-removal of defects is not correct. The High Court ought to decide the question on merits

The 5-Member Special Bench in Narang Overseas vs. ACIT (ITAT Mumbai 5 Member Special Bench) (2008) 111 ITD 1 (Mum) (SB) laid down important principles of law regarding the taxability of mesne profits. The Special Bench overruled the 3-Member Special Bench in Sushil Kumar 88 ITD 35 (Kol) (SB).

The Department filed an appeal in the High Court against the order of the Special Bench. The High Court dismissed the appeal for non-removal of objections.

In Goodwill Theatres, the High Court dismissed the appeal of the Department on the ground that the Tribunal had merely followed Narang Overseas vs. ACIT.

On appeal by the Department to the Supreme Court HELD reversing the High Court:

Heard learned counsel for the parties and perused the impugned judgment and order dated 06.06.2016 passed by the the High Court of Judicature at Bombay in Income Tax Appeal No.2356 of 2013 whereby the High Court has dismissed the appeal preferred by the appellant herein only on the ground that the decision relied upon by the Tribunal i.e. in the case of Narang Overseas Pvt. Ltd. v. ACIT, Mumbai – (2008) 111 ITD 1 (Mum) (SB)], the appeal was preferred before the High Court and for non-removal of the defects the appeal has been dismissed.

We are of the considered opinion that this was not a correct approach of the High Court for the simple reason that merely because one authority has followed its own decision in another case and that matter in appeal has been dismissed on technical grounds still the High Court has to decide the question on merits.

Therefore, we set aside the impugned judgment and order passed by the High Court and remand the matter back to the High Court for deciding the same on merits expeditiously and in accordance with law.

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