Shri. Akhilesh Kumar Sah, Advocate, has dealt with the interesting issue of the binding force of judgements in the context of income-tax law. He argues that as the Income-tax Act extends to the whole of India, the judgments rendered by a High Court should normally be followed by the other High Courts in order to preserve uniformity in law unless there are compelling reasons for departing from the view taken by the High Court
There remains controversy, many a times, in the cases relating to taxation matters whether decision of the particular Tribunal or High Court (not being of the jurisdiction) be followed or not in deciding the appeal. Recently, in Astik Dyestuff Pvt Ltd Vs. CCE [2014-TIOL-237-HC- AHM-ST] it has been held that if there is any conflict between the jurisdictional High Court and the CBEC circular, the decision of the jurisdictional High Court is binding on the department rather than CBEC circular, and, when there are two contrary decisions, one of jurisdictional High Court and another of the other High Court, then the decision of the jurisdictional High Court is binding on the department and not the decision of another High Court.
The Supreme Court, in Shenoy & Co. Vs. CTO (1985) 155 ITR 178, has held that the law laid down by it (SC) is binding on all, notwithstanding the fact that it is against the State or a private party; it is binding even on those who were not parties before the court. Also as per Article 141 of the Constitution of India the law declared by the Supreme Court shall be binding on all courts within the territory of India. The binding effect of (SC) decision (on a question of law) does not depend upon whether a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided (See Soma Wanti Vs. State of Punjab (1963) 33 Comp Cas 745 (SC). It is neither desirable nor permissible to pick out a word or a sentence from a judgment of Supreme Court divorced from the context of the question under consideration and treat it to be complete ‘law’ declared by the Apex Court. Judgment must be read as a whole and the observations have to be considered in the light of the questions which were before the Court, principle emerging there from must be applied accordingly (CIT Vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209. Also any exposition of law by the Apex Court is not enactment of law and is only exposition of correct position of law, the legal position as explained by the Apex Court has to be considered as always in existence (Chandi Ram Vs. ITO (1996) 133 Taxation 219 (Raj)).
There remains difference of opinion in respect of following of the decision of a High Court by the another/territorial High Court in income-tax reference and also between the income-tax authorities. However, where the judgment of the High Court is found to be inconsistent with the decision of the Supreme Court, the High Court on a later occasion is bounds to follow the decision of the Supreme Court and is not bound by its own earlier decision (CIT Vs. Standard Motor Products of India Ltd. (1983) 142 ITR 877 (Mad)). If the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessee without just cause (Berger Paints India Ltd. vs. CIT Calcutta (2004) 26 SITC 28 (SC).
It has been held in Patil Vijay Kumar Vs. CIT (1985) 48 CTR (Kar) 41 that a High Court is not found by the decision of any other High Court. A High Court’s decision will only be binding on the same High Court and the Courts and Tribunals over which it exercises jurisdiction (See also CIT Vs. Ved Prakash (1989) 77 CTR (P&H) 116). In CIT Vs. Thane Electricity Supply Ltd. (1994) 206 ITR 727 the following observations were made by the Bombay High Court:
(a) The law declared by the Supreme Court being binding on all courts in India, the decisions of the Supreme Court are binding on all courts, except, however, the Supreme Court itself which is free to review the same and depart from its earlier opinion if the situation so warrants. That is binding is, of course, the ratio of the decision and not every expression found therein.
(b) The decisions of the High Court are binding on the subordinate courts and authorities or Tribunals under its superintendence throughout the territories in relation to which it exercises jurisdiction. It does not extend beyond its territorial jurisdiction.
(c) The position in regard to the binding nature of the decisions of a High Court in different Benches of the same court, may be summed up as follows:
(i) A single Judge of a High Court is bound by the decision of another single judge or a Division Bench of the same High Court. It would be judicial impropriety to ignore that decision. Judicial comity demands that a binding decision to which his attention had been drawn should neither be ignored nor overlooked.
(ii) A Division Bench of a High Court should follow the decision of another Division Bench of equal strength or a Full Bench of the same High Court. If one Division Bench differs from another Division Bench of the same High Court, it should refer the case to a larger Bench.
(iii) Where there are conflicting decisions of courts of coordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions.
(d) The decision of one High Court is neither binding precedent for another High Court nor for courts or Tribunals outside its territorial jurisdiction.
A conjoint reading of sections 257 and 260 of the Income-tax, 1961, shows that the Act itself contemplates independent decisions of various High Courts on the question of law referred to them. It has visualised the possibility of conflict of opinion between different High Court no the same question of law and has also made specific provision to take care of such a situation in suitable cases. In fact, in the light of the clear language of section 260 of the Act, every High Court is required to give its own opinion on a particular question of law. It should not follow as a matter of interpretation, the decision of another High Court, if such decision is contrary to its own opinion. Such action will be contrary to the clear mandate of section 260 of the Act. It will amount to abdication of its duty by the High Court to give “its decision” on the point of law referred to it.
The Gujarat High Court in N.R. Paper & Boards Ltd. & Ors. Vs. DCIT (1998) VIII SITC 95 (Guj) has held that decisions of other High Court’s may be dissented from in deserving cases. There can be no dispute about the proposition that in income-tax matters which are governed by All-India statute, when there is a decision of a High Court interpreting a statutory provision, it would be a wise judicial policy and practice not to take a different view. However, this is not an absolute proposition and there are certain well known exceptions to it. In cases where decision is sub silentio, per incuriam, obiter dicta or based on a concession or takes a view which it is impossible to arrive at or there is another view in the field or there is a subsequent amendment of the statute or reversal or implied over-ruling of the decision by a High Court or some such or similar infirmity is manifestly perceivable in the decision by a High Court or some such or similar infirmity is manifestly perceivable in the decision, a different view can be taken by the High Court. Necessarily therefore, reasons that are given in the decisions of other High Courts relied upon for the petitioners, which have a great persuasive value as a precedents are required to be considered and to consequences are to be noted and if it becomes impossible to agree with them, or it there are no reasons at all and only announcements of legal precepts, the Court would be free to give its reasons, which may not coincide with the conclusions reached in the persuasive precedent relied upon. The decisions of any High Court are after all not intended to be gag orders, for other High Courts and do not have the effect of freezing judicial thinking on the points covered by them. Also, it has been held by the Punjab & Haryana High Court in CIT Vs. Mohan Lal Kansal (1978) 114 ITR 583 (P&H) that the income-tax authorities situated within the jurisdiction of a particular High Court are bound by its decision (See also Swadeshi Cotton Mills Co. Ltd. Vs. ITO (1978) 112 ITR 1038 (All)). It is necessary for judicial unity and discipline that all authorities below Tribunal must accept judgments of the Tribunal since the same are binding on them (Bank of Baroda vs. H. C. Srivastava (2002) 170 Taxation 347 (Bom). The decision in a judgment of the SC cannot be assailed on the ground that certain aspects were not considered or the court (Ballabhdas Mathuradas Lakhani vs. Municipal Committee, Malkapur (1970) 2 SCC 267: AIR 1970 SC 1002 and AIR 1973 SC 794. When the SC decides a principle it would be the duty of the HC or a subordinate Court to follow the decision of the SC. A Judgment of the High Court which refused to follow the decision and directors of the Supreme Court or seeks to revive a decision of the High Court which had been set-aside by the SC is a nullity (Narender Singh vs. Surjit Singh (1984) 2 SCC 402 and Kausalya Devo Barga vs. Land Acquisition officer (1984) 2 SCC 324; Director of Settlements, AP & Ors. vs. M. R. Apparao & Anr. (2002) 4 SCC 638 (SC).
The Hon’ble Supreme Court, in the case of Ajay Gandhi Vs. B.Singh (2004) (265 ITR 451) has held that the position of the Appellate Tribunal is the same as of a court of appeal under the Civil Procedure Code and its powers are identical with the powers enjoyed by the appellate court there under.
In the case of ITAT Vs. V. K. Agarwal [235 ITR 175 (S.C)], it has been held that the Income tax Appellate Tribunal, although it may have Benches in different parts of the country, is a national Tribunal and its functioning affects the entire country and all its Benches.
The Indian Income-tax Act extends to whole of India therefore the judgments rendered by High Court should normally be followed by the other High Courts in also the income-tax authorities particularly in identical or comparable circumstances unless there are compelling reasons for departing from the view taken by the another High Court in order to preserve uniformity in law, not taking the “territory” as the base. The Bombay High Court in CIT Vs. T. Maneklal Mfg. Co. Ltd. (1978) 115 ITR 725 has observed that the Income-tax Act being an all India statute, uniformity in the construction of its statutory provisions is eminently desirable and the considered opinion of any other High Court should be followed unless there are overriding reasons for taking a divergent view (Almost similar view have been taken by Bombay High Court in CIT Vs. Alcock Ashdown & Co. Ltd. (1979) 119 ITR 164 (Bom); CIT Vs. Elphinstone Spinning & Weaving Mills Co. Ltd. (1975) 100 ITR 139 (Bom); CIT Vs. Jayantilal Ramanlal & Co. (1982) 137 ITR 257 (Bom). The view taken by one High Court can be followed by another High Court (B. Virdhagiri vs. CWT (2003) 260 ITR 292 (Mad): 72 TR (Dir. Tax) (Mad. HC). It is well-settled that a judicial decision acts retrospectively. Courts never pronounce the law or they never make a new law. They only interpret the existing law. The fact is that even there an earlier decision of Court operated for quite some time, decision made later on would have retrospective effect clarifying the legal position which was not clearly understood. (Asstt. CIT v. Saurashtra Kutch Stock Exchange Ltd. (2008) 305 ITR 227 (SC).