In view of Liberty India , Department MA allowed by Mumbai ITAT

[pawansingla]

2010-TIOL-497-ITAT-MUM

(Also see analysis of the Order )

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'F', MUMBAI

M.A. No. 657/Mum/2009 In
ITA No. 3793/Mum/2005
Assessment Year : 2001-02

Dy COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE - 42, MUMBAI

Vs

M/s UNIVERSAL CAPSULE P LTD
1001, DALAMAL HOUSE,
NIRMAL POINT, MUMBAI - 400021
PAN: AAACU0615L

D K Agarwal, JM and J Sudhakar Reddy, AM

Dated: January 28, 2010

Appellant Rep by: S M Keshkamath
Respondent Rep by: M D inamdar

Income Tax - Sections 80IA, 254(2) - Whether Tribunal can rectify a mistake apparent on the basis of a subsequent decision of the Apex Court.

This is a case where Revenue filed a miscellaneous application on the basis of Supreme Court decision in the case of Liberty India and argued that in view of this decisions the amount of duty drawback is not an income derived by the industrial undertaking for the purpose of 80-IA.

After hearing the parties the ITAT held that,

++ the Supreme Court in the case of Honda Siel Power Products Ltd. vs. CIT (2007-TIOL-211-SC-IT) considered a case where the Tribunal failed to consider a decision of the coordinate bench cited by the assessee. In such circumstances, the Supreme Court held that by oversight the Tribunal missed the judgment, while dismissing the appeal filed by the assessee and that the rule of precedent as an important aspect of certainty in the rule of law and prejudice has been caused to the assessee since the precedent had not been considered by the Tribunal. The Tribunal was justified in rectifying the mistake;

++ the Apex Court analysed the scope of power of rectification u/s 254(2) and held that one of the important reasons for giving the power of rectification to the Tribunal is to see that no prejudice should cause to either of the parties appearing before it by its decision based on mistake apparent on record. In the case of ACIT vs. Saurashtra Kutch Stock Exchange Ltd. (2008-TIOL-170-SC-IT) the Supreme Court held that rectification of an order steams from the fundamental principle that justice is above all. The Court further held that there was a mistake apparent on record, if a decision of the jurisdictional High Court was not brought to the notice of the Tribunal and in such circumstances the Tribunal had taken a view contrary to the view expressed by the jurisdictional High Court;

++ the Supreme Court in the case of Mepco Industries Ltd. vs. CIT (2009-TIOL-121-SC-IT-LB) was considering the scope of section 154 which is identical to the scope u/s 254. The Supreme Court after analysing the various case laws held that in income-tax matters, one has to examine the nature of the items in question, which would depend on the facts of each case. In that case, they are concerned with power subsidy. They found that in the case of CIT vs. Ponni Sugars and Chemicals Ltd. (2008-TIOL-174-SC-IT), the subsidy given by the Government was for repaying loans. Therefore, it was held that in each case one has to examine the nature of subsidy and that this exercise cannot be undertaken u/s 154 of the Act;

++ the ratio laid down is that when the High Court lays down a principle of law which can be applied without the necessity of undertaking the exercise of verifying whether the principles of law laid down are applicable to the facts of the case or not, then the rectification u/s 154 is possible. In case when the facts have to be examined to come to a conclusion as to whether the principle of law laid down by the High Court is applicable or not, then rectification u/s 154 is not possible;

++ in the case on hand, the Supreme Court has laid down the principle of law which is applicable across the Board Application of these principles of law needs no factual verification as there is no dispute on facts. Thus, even going by the decision of the Apex Court in the case of Mepco Industries Ltd., the Miscellaneous Application of the Revenue has to be allowed.

Revenue's miscellaneous application allowed.

ORDER

Per: J Sudhakar Reddy:

By this Miscellaneous Petition the Revenue seeks rectification of the order of this Bench of the Tribunal in ITA No. 3793/Mum/2005 dated 14-11-2006 on the issue whether duty draw back can be considered as income derived from the industrial undertaking itself for the purpose of computing relief u/s 80I.

2. The learned DR Mr. S.M. Keshkamath submitted that the Tribunal in para 23 and 24 of its order held that duty draw back is inextricably linked with production cost of goods manufactured and, therefore, it is a trading receipt of the industrial undertaking and hence eligible for deduction u/s 80I. He relied on the recent decision of the Hon'ble Supreme Court in the case of Liberty India vs. CIT 317 ITR 218 = (2009-TIOL-100-SC-IT) and submitted that the Hon'ble Supreme Court has held that duty draw back and DEPB benefits are not derived from industrial undertaking. He submitted that the order should be rectified by following the decision of the Hon'ble Supreme Court.

3. The learned counsel for the assessee Mr. M.D. Inamdar submitted that the decision of the Supreme Court was rendered subsequently and this cannot be taken as a ground for rectifying the order of the Tribunal u/s 254(2). He submits that the issue is very much debatable and out of jurisdiction of section 254(2). He relied on the decision of Hon'ble Madras High Court in the case of Shree Pillaniappa Transports vs. CIT 238 ITR 492.

4. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and the case law cited, we find that the Tribunal at par 23 held that duty draw back is inextricably linked with production cost and hence is a trading receipt having direct nexus with the activity of the undertaking and hence eligible for deduction u/s 80I. The Hon'ble Supreme Court in the case of Liberty India (supra) held that duty draw back and DEPB cannot be considered as income derived from industrial undertaking for the purpose of computing relief u/s 80I.

5. Now the short point that arises for our consideration is whether a subsequent decision of the Hon'ble Supreme Court can be the basis of rectification as contemplated u/s 254(2). We first take up the case laws relied upon by the learned counsel for the assessee.

6. In the case of Sree Palaniappa Transports (supra), the Hon'ble Madras High Court has held as follows :

" Held, that a Tribunal deciding a case on certain debatable issues, wherein there is no decision of the jurisdictional High court, could not be deemed to have made a mistake because subsequent to the decision of the Tribunal, a judgment has been rendered by the jurisdictional High Court. In respect of the orders passed by the Tribunal subsequent to the decision of the jurisdictional High Court, if it does not follow the ratio of the judgment of the jurisdictional High Court, then it can be said that it has committed an error apparent on the face of the record. Therefore there was no mistake apparent from the record in the order of the Tribunal, within the meaning of section 254(2) of the Act, requiring rectification in view of the subsequent decision of the Madras High Court in CIT v. Nagapatinam Import and Export Corporation [1979] 119 ITR 444. Kuppuraj (M.K.) v. ITO [1995] 211 ITR 853 (Mad) – overruled."

This case law is on the decision of jurisdictional High Court and not the decision of the Hon'ble Supreme Court as in the case on hand.

7. In the case of CIT vs. Vardhman Spinning 226 ITR 296, the Hon'ble Punjab & Haryana High Court held as follows :

" Held, that on the interpretation of section 84 of the Act read with rule 19A of the Rules, there could reasonably be two views out of which the Tribunal took one view. No doubt, at the relevant time, only the Calcutta High Court had expressed its views in Centuary Enka Ltd.'s case [1977] 107 ITR 909 (which was later on overrules by the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 208) which ran counter to the view taken by the Tribunal, but this did not mean that two views were not possible. The judgment of the Calcutta High Court in Century Enka Ltd.'s case [1977] 107 ITR 909 was not either by the apex court or by the jurisdictional High Court and, therefore, was not binding on the Tribunal. The Tribunal could take a different view and arrive at a different confusion. Hence, the Tribunal was not right in law in rectifying its appellate order under section 254(2) of the Act."
8. This decision relied upon by the assessee, is of no help because the Hon'ble Court was considering the decision of a non jurisdictional High Court.

9. We now examine the case laws in favour of the Revenue.

10. The Hon'ble Supreme Court in the case of Honda Siel Power Products Ltd. vs. CIT 295 ITR 466 (SC) = (2007-TIOL-211-SC-IT) were considering a case where the Tribunal failed to consider a decision of the coordinate bench cited by the assessee. In such circumstances, the Hon'ble Supreme Court held that by oversight the Tribunal missed the judgment, while dismissing the appeal filed by the assessee and that the rule of precedent as an important aspect of certainty in the rule of law and prejudice has resulted to the assessee since the precedent had not been considered by the Tribunal. The Tribunal was justified in rectifying the mistake. The Hon'ble Court analysed the scope of power of rectification u/s 254(2) and held that one of the important reasons for giving the power of rectification to the Tribunal is to see that no prejudice should cause to either of the parties appearing before it by its decision based on mistake apparent on record. In the case of ACIT vs. Saurashtra Kutch Stock Exchange Ltd. 305 ITR 227 = (2008-TIOL-170-SC-IT) the Hon'ble Supreme Court held that rectification of an order steams from the fundamental principle that justice is above all. The Court further held that there was a mistake apparent on record, if a decision of the jurisdictional High Court was not brought to the notice of the Tribunal and in such circumstances the Tribunal had taken a view contrary to the view expressed by the jurisdictional High Court. At pagination 41, 42 and 43 at page 240 of the reported decision it was held as follows :

41 A similar question came up for consideration before the High Court of Gujarat in Suhrid Geigy Ltd. v. Commissioner of Surtax [1999] 237 ITR 834. It was held by the Division Bench of the High court that if the point is covered by a decision of the jurisdictional court rendered prior or even subsequent to the order of rectification, it could be said to be a "mistake apparent from record" under section 254(2) of the Act and could be corrected by the Tribunal. (emphasis ours).
42 In our judgment, it is also well-settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the court to pronounce a "new rule" but to maintain and expound the "old one". In other words, judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood.

43 Salmond in his well-known work states;

".... The theory of case law is that a judge does not make law; he merely declares it; and the overruling of a previous decision is a declaration that the supposed rule never was law. Hence any intermediate transactions made on the strength of the supposed rule are governed by the law established in the overruling decision. The overruling is retrospective, except as regards matters that are res judicatae or accounts that have been settled in the meantime"

11. In any event, the Court observed that the jurisdictional High Court decision in this case was rendered prior to the order of the Tribunal.

12. The Hon'ble Supreme Court in the case of Mepco Industries Ltd. vs. CIT, Civil Appeal Nos. 7622-7633 of 2009, order dated 19th Nov., 2009 = (2009-TIOL-121-SC-IT-LB) was considering the scope of section 154 which is identical to the scope u/s 254. The Hon'ble Supreme Court after analysing the various case laws held that in income-tax matters, one has to examine the nature of the items in question, which would depend on the facts of each case. In that case, they are concerned with power subsidy. They found that in the case of CIT vs. Ponni Sugars and Chemicals Ltd. reported in (2008) 306 ITR 392 = (2008-TIOL-174-SC-IT), the subsidy given by the Government was for repaying loans. Therefore, it was held that in each case one has to examine the nature of subsidy and that this exercise cannot be undertaken u/s 154 of the Act. While saying so, the Hon'ble Supreme Court also considered the decision in the case Kil Katogiri Tea and Coffee Estates Company Limited vs. Income Tax Appellate Tribunal & Ors. reported in 174 ITR 579 and also considered the judgment of the Calcutta High Court in the case of Jiyajeerao Cotton Mills Ltd. vs. ITO 130 ITR 710 and concluded that "The High Court laid down a principle of law, which was applicable across the board, namely, payment of advance tax made within the financial year, though not within the specified dates, should be treated as advance tax and, therefore, the assessee was entitled to interest on excess tax paid" and held that such a general interpretation of law, empower the Assessing Officer to rectify his order u/s 154.

13. In other words, the ratio laid down is that when the High Court lays down a principle of law which can be applied without the necessity of undertaking the exercise of verifying whether the principles of law laid down are applicable to the facts of the case or not, then the rectification u/s 154 is possible. In case when the facts have to be examined to come to a conclusion as to whether the principle of law laid down by the High Court is applicable or not, then rectification u/s 154 is not possible.

14. In this case on hand, the Hon'ble Supreme Court has laid down the principle of law which is applicable across the Board Application of these principles of law needs no factual verification as there is no dispute on facts. Thus, even going by the decision of the Apex Court in the case of Mepco Industries Ltd., the Miscellaneous Application of the Revenue has to be allowed.

15. In the result, we rectify our order by modifying para 24 and allowing the ground of the Revenue by following the decision of the Hon'ble Supreme Court in the case of Liberty India Ltd. (supra).

16. In the result, the Miscellaneous Application is allowed.

( Order pronounced on this 28.01.2010.)

[rajul5234]

one assessee's m.a. in case of inductotherm is filed before ahmedabad tribunal. issue is disallownce of bad debts by applying decision of gujarat high court in dhall enterprises.
assessee has filed m.a. since dhall enterprises ratio is  over ruled by recent decision of trf ltd. by supreme court. i suppose ahmedabad bench will follow reasoning of mumbai bench to allow assessee's m.a.

R. K. Patel