Income Tax Appellate Tribunal - Mumbai
Income Tax Officer vs Ranisati Fabric Mills P. Ltd. on 7 August, 2007
Equivalent citations: (2008)116TTJ(MUM)177
ORDER
Sunil Kumar Yadav, Judicial Member
1. This appeal by the Revenue is preferred against the Order of the CIT (A) on various grounds which are as under:
1.On. the facts and the circumstances of the case and in law, the Ld. CIT(A)-XIV, Mumbai, has erred in deleting the amount of Rs. 55,46,340/- being processing charges paid by the appellant company without appreciating the fact that the assessee company was neither able to provide evidence in respect of work done by the sub contractors nor was able to give the whereabouts of the sub contractors, despite a string of opportunities given by the Assessing Officer.
2. Further the learned CIT (A) has erred in deleting the aforesaid addition, despite the fact that the assessee company had not adduced even a shred of evidence regarding the actual services having been rendered by the sub contractors.
3. On the facts and the circumstances of the case and in law, the Ld.CIT(A)-XIV, Mumbai, has erred in deleting the amount, of Rs. 4,57,000/- being fixed payment made to M/s. S.N. Raj & Co. (Rs. 3,60,000/-) and to M/s. D.K. Brushing & Co. (Rs. 97,000/-) for the repairs and maintenance of the plant and machinery, despite the fact that there was no written agreement for making the aforesaid payments and also despite the fact that the assessee company had neither been able to produce any evidence regarding any services having been rendered by those twin parties. Another factor which paves the way for disallowability is that the assessee company had neither deducted TDS on these payments made to these two parties nor had produced the details of the work done, and hence the disallowance made by the Assessing Officer merits to be sustained.
4. On the facts and the circumstances of the case and in law, the Ld.CIT(A)-XIV, Mumbai, has erred in deleting the addition of Rs. 7,71,090/- in respect of ESIC under Section 43B without appreciating the fact that it is clearly not allowable in view of under Section 43B of the IT. Act, 1961.
5. Further, placed in the above factual and legal scenario, the impugned order of the learned CAT (A) is the appellant prays, patently perverse and contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored.
6. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
2. During the course of hearing, the learned Counsel for the assessee has invited our attention to the Order of the Tribunal in assessee's own case for the assessment year 1999-2000 with the submissions that the ground Nos. 1 and 2 are squarely covered by the Order of the Tribunal in favour of the assessee. We have carefully examined the Order of the Tribunal and we find that the CIT (A) has adjudicated both the issues following his earlier orders. We, however, examined the Order of the Tribunal and we find that ground No. 1 and 2 which relate to the deletion of addition of Rs. 65,46,340/- being processing charges paid by the assessee is covered, by the Order of the, Tribunal in assessee's own case in which the identical issue was examined and decided in favour of the assessee. We, therefore, following the same decide ground No. 1 in favour of the assessee.
3. So far as ground No. 3 relating to deletion of addition of Rs. 4,57,000/- being fixed payment made to S.N. Raj & Co. and to M/s. D.K. Brushing & Co. is concerned, we find that this issue is also covered by the Order of the Tribunal in favour of the assessee, in which the Tribunal has examined the identical issue in its para No. 7 to 10. We, therefore, following the same decide this issue in favour of the assessee.
4. With regard to ground No. 4, the learned Counsel for the assessee again invited our attention that this ground is also covered by the Special Bench of the Tribunal in the case of Kwality Floods v. ACIT 100 LTD 199 and the Judgment of the Gowhati High Court in the case of CIT us. George Willinmson (Assam) Ltd. 284 ITR 619.
5. The learned DR on the other hand has submitted that this ground is squarely covered by the Judgment of the Madras High Court in the case of Synergy Finance Exchange Ltd. 288 ITR 366 in which it has been held that the omission of the second proviso to Section 43B by Finance Act, 2003 w.e.f. 1-4-2004 has no retrospective operation so as to make it applicable to the earlier period and therefore the P.F. payments made after the due date under Provident Fund Act, were not deductible in view of second proviso to Section 43B than in force. The learned DR further invited our attention to the Order of the Special Bench in the case of Kwality Foods v. ACIT 100 ITD 199 with the submissions that it has been over ruled by the Madras High Court in the case of Synergy Finance Exchange Ltd. 288 ITR 366 (supra). Further, the judgment referred to by the assessee in the case of CAT v. George Williamson (Assam) Ltd.284 ITR 619 of Gowhati High Court (supra) is not rendered on the impugned issues. While deciding the issue they have followed earlier Judgments in the case of CAT v. Bharat Bamboo and Timber Suppliers 219 ITR 212 and CIT v. Assam Tribune 253 ITR 93 and in those judgments, the impugned issue was not involved. These judgments were rendered with respect to the payment of the sales tax, with regard to which 2nd proviso, is not relevant. The effect of omission of second proviso was examined by the Madras High Court, in the case of Synergy Finance Exchange Ltd. 288 ITR 366.
6. Having heard the rival submissions and from a careful perusal of the record, we find that undisputedly the contribution of FSI was not deposited even within the grace period prescribed under the corresponding Act. The assessee has raised a plea that since the second proviso to Section 43B has been omitted by the Finance Act, 2003 with retrospective effect, the payment made before the due date of filing of the return, is to be allowed under Section 4313 of the Act. The retrospectivity of the omission of second proviso was examined by the Special Bench at Madras of the Tribunal in the case of Kwality Foods v. ACIT 100 ITD 199 in which it has been held that, the omission of second proviso to Section 4315 is with retrospective effect. But, the view taken by the Special Bench has been over ruled by Madras High Court which is a jurisdictional High Court in the case of Synergy Finance Exchange Ltd. 288 ITR 366 in which it has been held that the omission of the second proviso to Section 43B by Finance Act, 2003 w.e.f. 1-4-2004 has no retrospective operation so as to make it applicable to the earlier period and therefore the P.F. payments made after the due date under Provident Fund Act, were not deductible in view of second proviso to Section 43B than in force. The reliance on the judgment of the Gowhati High Court in the case of CIT v. George Williamson (Assam) Ltd. was placed in support: of the contention that omission of second proviso is with retrospective effect. But, on perusal of this judgment, we find that though the argument was raised in this regard, but, the Hon'ble High Court has dismissed the appeal of the department following its own judgment in the case of Assam Tribune 33 ITF 93 and CIT v. Bharat Bamboo and Timber Suppliers 219 ITR 212.
7. In the case of Assam Tribune the Hon'ble High Court has followed the view taken in the case of CIT v. Bharat Bamboo and Timber Suppliers 219 ITR 212, as such, the lead judgment was rendered in the case of CIT v. Bharat Bamboo and Timber Suppliers 219 ITR 212 and from careful perusal of this judgment we find that this judgment was rendered, with respeet to applicability of Explanation 2 and 1st proviso to Section 4313 with regard to payment of sales tax which falls within Clause(a) of Section 43B of the Act. With regard to payment of sales tax their Lordship have held that if it is paid before the filing of the return, it is to be allowed under Section 43B of the I.T. Act, after holding that its introduction is retrospective. The relevant observations of the Hon'ble High Court of Gowhati is extracted hereunder:
The following question has been referred by the Tribunal at the instance of the Revenue under Section 256(1) of the I.T. Act, 1961 Whether, on the facts and in the circumstances of the case and in view of the Explanation 2 to Section 43B as inserted by the Finance Act, 1989, giving retrospective effect from April 1, 1984, the Tribunal has not erred in law in directing the Assessing Officer to allow relief to the extent of the sales tax amount paid even after the close of the accounting period but before the due date of filing the return of income under Section 139(1) of the Income-tax Act, 1961?
We have heard Mr. G.K. Joshi, senior standing counsel for the Income-tax Department, and Dr. A. K. Saraf, counsel for the assessee. Dr. A.K. Saraf submits that the question has been answered by different High Courts, namely, the Andhra Pradesh High Court in Srikakollu Subba Rao and Co. v. Union of India , the Patna High Court, in Jamshedpur Motor Accessories Stores v. Union of India , the Kerala High Court in CIT v. P. Janardhanan Pillai , the Orissa High Court in CIT v. Pyarilal Kasam Manji and Co. , the Calcutta High Court in CIT v. Sri Jagannath Steel Corporation , the Gujarat High Court in CIT v. Chandulal Venichand , the Karnataka High Court in Chief Commissioner (Admn.) v. Sanjay Sales Syndicate and the Kerala High Court in CIT v. Govindaraja Reddiar . All these High Courts answered the question in favour of the assessee and against the Department. However, the Delhi High Court answered the question against the assessee in Sanghi Motors v. Union of India [1991] 187 ITR 703 and in Escorts Ltd. v. Union of India [1991] 189 ITR 81 (Delhi).
Following the majority decisions of the High Courts stated above, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue.
8. In this Judgment there is no whisper about the allowability of the payments towards the contribution of P.P. or superannuation funds which falls under Clause (b) of sub Section 43B of the I-T Act. The payments of provident fund or superannuation fund or gratuity funds or any other funds for the welfare of the employees which fall within Clause (b), are to be governed by second proviso of Section 43B of the Act and in this regard there is no whisper in any of the judgments rendered by the Gowhati High Court. In other Judgment of the Hon'ble Gowhati High Court in the case of CIT v. George Williamson (Assam) Ltd. 284 ITR 619 and CIT v. Assam. Tribune 253 ITR 93 (supra), their Lordships have simply followed the judgments rendered in the case of CIT v. Bharat Bamboo and Timber Suppliers 219 ITR 212 and they have not. dwelt upon the issue of allowability of claim of payment of P.F. or superannuation funds or gratuity funds or any other funds for the welfare of the employees which falls within Clause (b) of Section 43B which are to be governed by 2nd proviso of Section 4313.
9. During the course of hearing, our attention was also invited to the judgments of the Punjab and Haryana High Court with the submissions that, omission of 2nd proviso was held to be with retrospective effect in the case of CIT v. Avery Cycle Industries Pvt. Ltd. 292 ITR 198 (P&H). But, from its careful perusal we find that this judgment was also rendered with regard to payment of sales tax which falls within Clause (a) of Section 43B of the I.T. Act. Their Lordships of the Punjab and Haryana High Court have again held that the 1st proviso to Section 43B and Explanation 2nd have to be read together as giving effect to the true intention of Section 43B and if the Explanation 2nd is with retrospective effect, the 1st proviso will have to be so construed, following the judgment of the Apex Court in the case of Allied Motors Pvt. Ltd. v. CIT through which the controversy in this regard has been set at rest. The Hon'ble Punjab and Haryana High Court have held that the amendment by the Finance Act, 1987 was thus held to remedial in nature. The question of Law raised before the Hon'ble Punjab and Haryana High Court is with regard to applicability of the 1st proviso to Section 43B of the I-T Act. For the sake of reference, we extract the question of Law raised before the Hon'ble Punjab and Haryana High Court as under:
Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the liability of Rs. 94, 759/ - is allowable if the payment is made before the due date prescribed under Section 139(1) and that the first proviso to Section 43B has retrospective application though it came into being with effect from April 1, 1988?
10. Since, the issue with regard to the effect of omission of 2nd proviso was not raised before the Hon'ble Punjab & Haryana. High Court, they had no occasion to examine the object of the omission of the 2nd proviso by Finance Act, 2003 with effect from 1-4-2004, which was substituted by the Finance Act, 1989 with effect from 1-4-1989. The Hon'ble Gowhati High Court and the Punjab and Haryana High Court have adjudicated the effect of introduction of Explanation II and first proviso which was introduced by the Direct Tax Laws Amendment 1987 with effect from 1-4-1988 with respect to Clause (a) of Section 4313, and the 1st proviso. It has no relevance with Clause (b) of Section 43B which deals with the contribution of any P.F. or superannuation fund or gratuity fund or any other fund for the welfare of the employees. The payment, of these contributions were to be governed by 2nd proviso which says that payment should be made within the due date defined under the relevant Act.
11. The scope of omission of 2nd proviso was examined by the Hon'ble Madras High Court in the case of Synergy Finance Exchange Ltd. 288 ITR 366 (supra) in detail and has categorically held that omission of 2nd proviso to Section 43B of the Finance Act, 2003 with effect from 1/4/2004 has no retrospective operation so as to make it applicable to the earlier period and therefore, the P.F. payment made after the due date under P.F. Act. were not deductible in view of 2nd proviso to Section 43B then in force. The relevant observations of the Madras High Court in the ease of Synergy Finance Exchange Ltd, is extracted hereunder:
4.1. Point (ii): "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the disallowance of Rs. 1,45,399 being the provident fund payments applying the provisions of Section 43B of the IT Act, 1961?"
4.2. As per Section 43B of the Act, certain deductions are allowable only on actual payment. For the purpose of present appeal, we are concerned only with the deduction claimed by the assessee towards payment of provident fund under Section 43B of the Act. Section 43B(b) of the Act provides that any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him.
4.3. During the relevant assessment year, namely, 1994-95, the second proviso to Section 43B, as then in force, of course, which stands omitted by the Finance Act, 2003 w.e.f. 1st April, 2004, imposed a further condition that no deduction shall, in respect of any sum referred to in Clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below Clause (va) of Sub-section (1) of Section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date.
4.4. Explanation to Clause (va):
Explanation.--For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.
4.5. By Finance Act, 2003, which came into force from 1st April, 2004, the said second proviso to Section 43B was omitted the result being, the assessee is entitled to the deduction of payment made towards provident fund, etc. when such payment is actually made by the assessee on or before the due date applicable for filing return, irrespective of the fact that such payment is made on or before the due dale by which the assessee is required to credit the contribution to the employee's account in the relevant fund under the relevant Act.
4.6. Mr. Senthilkumar, learned Counsel for the assessee, contends that in view of the deletion of second proviso to Section 43B of the Act, the assessee is entitled to deduction even if the assessee made the provident fund contribution after the due date as mentioned in the relevant Act and for the purpose of claiming deduction, it is sufficient that the provident fund contribution is made before the due date for furnishing the return. According to the learned Counsel for the assessee, the deletion of second proviso to Section 43B by the Finance Act, 2003 w.e.f. 1st April, 2004, should be given retrospective operation so as to make it applicable to the impugned asst. yr. 1994-95.
4.7. It is the cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation [vide : Gem Granites v. CIT ]. As a logical corollary of the general rule that retrospective operation is not taken to be intended unless that intention is manifested by express words or necessary implication, there is a subordinate rule to the effect that a statute or a section in it is not to be construed so as to have larger retrospective operation than its language renders necessary [vide: Shyam Sunder v. Ram Kumar ].
4.8. Of course, it is always not necessary, as contended by Mr. Senthilkumar, learned Counsel for the assessee, an express provision be made to make a statute retrospective and the presumption against the retrospective operation may be rebutted by necessary implication, especially in a case where a new law is made to cure an acknowledged evil for the benefit of the community as a whole [vide: Zile Singh v. State of Haryana ]. But, for this, there should be materials to show that the legislature intended to cure the acknowledged evil or to remove any such hardship. In other words, the real issue in each case is as to the dominant intention of the legislature to be gathered from the tests, viz.,
(i) the language used;
(ii) the object intended;
(iii) the nature of rights affected; and
(iv) the circumstances under which the statute is passed.
4.9. We are constrained to examine the instant case on the basis of above tests. The second proviso to Section 43B of the Act, which stands omitted by the Finance Act, 2003 w.e.f. 1st April, 2004, related to a condition imposed on the assessee to claim deduction of statutory contribution. The condition under the said second proviso is that to claim deduction, the assessee should make payment towards the contribution before the due date under the relevant Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise.
4.10. It is a well-settled principle in law that the Court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. The object of interpreting a statute is to ascertain the intention of the legislature enacting it. The intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said [vide: Sangeeta Singh v. Union of India ].
4.11. When Parliament enacts law, the law must be understood with reference to the language used in the provision construed in the light of the scheme of the Act and the object of the statute and the provisions therein. If it is with a view to confer a benefit which had not been conferred before the law was amended, that does not necessarily imply that the amendment is to be given retrospective effect even without a legislative declaration to that effect [vide: CWT v. Varadharaja Theatres (P) Ltd. ].
4.12. It is a settled law that the fiscal legislation imposing liability is generally governed by normal presumption that it is not retrospective [vide: Halsbury's Law of England (3rd Ldn.) Vol. 36, p. 425, Union of India v. Madan Gopal ]. It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication [vide: Reliance Jute & Industries Ltd. v. CIT . The above rule is applicable not only to the charging section, but also other substantive provision such as, the provision imposing penalty and it does not apply to machinery or procedural provisions of a taxing Act which are generally retrospective and apply even to pending proceedings [vide : CWT v. Sharvan Kumar Swarup & Sons ], because the assessment creates a vested right and the assessee cannot be subjected to reassessment unless a provision to that effect is inserted either expressly or by necessary implication retrospectively [vide : CED v. M.A. Merchant . The same logic is also available to a statutory liability. A provision which in terms is retrospective and has the effect of opening up liability which had become barred by lapse of time, will be subject to the rule of strict construction [vide : CIT v. Onkarmal Meghraj (HUF) ].
4.13. We have also gone through the Budget Speech of the Hon'ble Minister for finance for the year 2003-04, the Notes on Clauses of Finance Bill, 2003 dealing with Section 43B and the Memorandum Explaining the Provisions in the Finance Bill, 2003 dealing with Section 43B of the Act, and we find that they do not help the assessee to satisfy either of the above tests in favour of the assessee. It is therefore not permissible in law to take a liberal view or lenient approach to give retrospective effect to the deletion of second proviso to Section 43B of the Act so as to apply the same to the asst. yr. 1994-95, particularly when there is no indication in the Finance Act, 2003 from the language used and from the object indicated that the legislature intended expressly or by implication that the second proviso to Section 43B was deleted to cure an acknowledged evil for the benefit of the community as a whole or to remove any such hardship, nor there is any express provision in the statute that such deletion of second proviso to Section 43B of the Act will have any retrospective effect.
4.14. Mr. Senthilkumar, learned Counsel for the assessee took us through the Report of the Task Force on Direct Taxes reported in (2003) 179 CTR (St) 5 whercunder it was recommended to delete the second proviso to Section 43B of the Act, but, unless there is any material to show that the said recommendation in the report of the Task Force on Direct Taxes was accepted by the legislature, it will be difficult for us to come to the conclusion that the impugned deletion of second proviso to Section 43B of the Act was intended to cure the acknowledged evil or to remove the hardship in any event, it is trite law that a taxing Act cannot, however, be called retrospective if it taxes an event which is continuing and not complete when the Act comes into force.
4.15. In support of his submission that the deletion of second proviso to Section 43B of the Act has to be given retrospective effect, Mr. Senthilkumar, learned Counsel for the assessee relied upon the decision of the apex Court in Allied Motors (P) Ltd. v. CIT wherein it is held that the first proviso to Section 43B of the Act and Lxpln. 2 have to be read together as giving effect to the true intention of Section 43B of the Act and the Expln. 2 being retrospective, the first proviso has also to be so construed. The apex Court was dealing with a case relating to the payment of sales-tax made by the assessee after the end of previous year, but within the time allowed under the relevant sales-tax law. In the factual situation, the apex Court held that the first proviso to Section 43B of the Act has to be treated as retrospective. In so far as the first proviso to Section 43B of the Act is concerned, it deals with statutory liability, such as sales-tax liability. The first proviso to Section 43B was introduced to remove the hardship caused to certain taxpayers who had represented that since the sales-tax for the last quarter cannot be paid within the previous year, the original provisions of Section 43B would unnecessarily involve disallowance of the payment for the last quarter. The situation is not the same in the case of payment of contribution towards provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees. Therefore, we are unable to accept the submission of the learned Counsel for the assessee in this regard.
4.16. The test to be applied for deciding as to whether a later amendment should be given retrospective effect, despite a legislative declaration specifying a prospective date as the date from which the amendment is to come into force, is as to whether without the aid of the subsequent amendment the unamended provision is capable of being so construed as to take within its ambit the subsequent amendment [vide : CWT v. B.R. Theatres & Industrial Concerns (P) Ltd. ].
4.17. In the instant case, the unamended provision enables the assessee to pay contribution towards provident fund, superannuation fund, gratuity fund, etc. before the due date under the respective enactments, whereas the amended provision, due to the omission of second proviso to Section 43B of the Act, enables the assessee to pay contribution to provident fund, superannuation fund, gratuity fund, etc. before the filing of the return. In other words, if the assessee fails to pay contribution to the provident fund, superannuation fund, gratuity fund, etc. before the due date under the relevant Act is not entitled to the deduction without the aid of subsequent amendment, because only by way of subsequent amendment, due to the omission of the second proviso to Section 43B of the Act, the assessee is able to get deduction of payments made towards provident fund, superannuation fund, gratuity fund, etc. even if the payments were made after the due date under the relevant enactment. Hence, the benefit conferred under the amended provision cannot be said to be taken care of by the unamended provision. Applying the above test to the facts of the present case, we are of the view that it is not possible to hold that without the aid of the subsequent Finance Act, 2003 by which the second proviso to Section 43B was omitted, the unamended provision of Section 43B would allow the deduction of payment of provident fund, etc. when such payment was made by the assessee on or before the due date applicable for filing return.
4.18. Unless there is an amendment which is clarificatory or declaratory in nature, for the removal of doubts, the same cannot be read into the main provision with effect from the time when the main provision came into force [vide : Sedco Forex International Drill Inc. v. CIT (]. But, in the instant case, there is no material available to hold that the impugned deletion is either clarificatory or declaratory or intended for the removal of doubts to give a consequential retrospective effect to the impugned deletion so as to make it applicable to the asst. yr. 1994-95.
4.19. This Court in CIT v. Madras Radiators & Pressings Ltd. , after considering the same provisions of law, viz., Sections 43B and 36(1)(va) of the Act, held that the disallowance of provident fund contribution made after the due date prior to the Finance Act, 2003 is justified.
4.20. The Kerala High Court in CIT v. Standard Tile & Clay Works (P) Ltd. held that the assessee was not entitled to deduction of the contribution to the provident fund for the asst. yr. 1991-92 as the payment made was not w n the due date as defined in the Explanation to Section 36(1)(va) of the IT Act, 1961.
4.21. In Halmira Estate Tea (P) Ltd. v. CIT the Calcutta High Court held that the provident fund contribution not made within the due date, cannot be allowed as a deduction in view of Section 43B of the I-T Act, 1961.
4.22. The Calcutta High Court in CIT v. Sudera Services (P) Ltd. again held that so long as Clause (b) of Section 43B of the I-T Act, 1961 and the Explanation exist in unmodified terms in the statute book, provident fund contributions must be made within the due date for those to qualify for deductions under the IT Act.
4.23. In CIT v. Udaipur Distillary Co. Ltd. a Division Bench of Rajasthan High. Court held that in order to avail the benefits of deduction under Clause (b) of Section 43B in respect of contributions to the provident fund, superannuation fund and gratuity fund or any other funds for the welfare of the employees, the sums are not only to be actually paid before the end of the previous year but are further required to be paid within the time stipulated under the relevant statute or notification, standing order, award, contract of service or otherwise and if the payments have not been made within the stipulated time, the deduction cannot be claimed at any time thereafter.
12.1. Their Lordships of the Madras High Court have examined the issue in detail in the light; of Judgment; of the Apex Court in the case of Allied Motors and other Judgments on this subject.
12. During the course of hearing, it was emphatically argued before us that the Judgment: of the Madras High Court is not binding upon the Tribunal sitting at: Mumbai as it is not the judgment of the jurisdictional High Court and the Tribunal is supposed to follow the Order of the Special Bench in the case of Kwality Foods v. ACIT 100 ITD 199 and to allow the claim of the assessee. The learned Counsel for the assessee has placed a reliance upon the Judgment of the jurisdictional High Court in the case of CIT v. Thane Electric Supply 206 ITR 727 with the submissions that the Order passed by the non jurisdictional High Court are not binding upon the Tribunal and at the most it can only have persuasive value. In this regard, we have examined the judgment of the Apex Court, rendered in the case of Asst. Collector v. Dunlop India Limited 154 ITR 172 in which their Lordship have held that the better wisdom of the Court below must yield to the higher wisdom of the Court above and that has been held to the strength of the hierarchical judicial system. The relevant observations of the Apex Court in this regard is extracted hereunder:
We. desire to add and as was said in Cassell and 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 decisions of the higher tiers." "It is inevitable in a 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 some one 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 unsdom. 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 Court of Appeal's comment that Rookes v. Barnard (1964) AC 1129, was rendered per incuriam, Lord Diplock observed (p). 1131).
The Court of Appeal found themselves able to disregard the decision of this House in Rookes v. Barnard by applying to it the label per incuriam. That label is relevant only to the right of an appellate court to decline to follow one of its own previous decisions, not to its right to disregard a decision of a higher appellate court or to the right of a judge of the High Court to disregard a decision of the Court of Appeal.
13. In the case of CIT v. G.M. Miltan Stainless Steel 142 Taxman 349 (M.P.) it has been held that every effort must be made by the Tribunal to decide the issue by taking help from the decisions of the Supreme Court and if there is no direct authority of the Supreme Court on the point, then of a jurisdictional High Court and lastly of any other High Court. It has also been held in the said case that it is the duty of the Tribunal to decide the cases on the basis of law laid down by the Supreme Court/ High Court and not what the Tribunal itself decides on a particular issue. A similar view was also expressed by the Third Member of the Tribunal in the case of ITO v. P.M. Suthar 53 ITD 1 (TM) in which it has been held that in the absence of decision of jurisdictional High Court or conflicting decision of the High Courts, the Tribunal has to follow the decision of the High, Court of the different State notwithstanding the decision to the contrary by Bench of the Tribunal and in such a. case there is no necessity to refer the matter to the Larger Bench of the Tribunal. The relevant observation of the Tribunal is extracted hereunder:
The Tribunal acting any where in the country has to follow the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question notwithstanding the fact that it has taken another view of the mutter in a number of cases decided by it. A matter to a Larger Bench may be referred where two co-ordinate Benches of the Tribunal have taken conflicting views on the same point. In this behalf the principle embodied in Section 255(4) may be applied with some modification in deciding the conflicting opinions of the co-ordinate Benches on the same point. But where there is the only decision of a High Court: on a particular point and there is no decision of any other High Court contrary to that decision on the same point, the Tribunal has to follow that view notwithstanding the fact that earlier bench of the Tribunal even after considering the High Court decision has taken a view contrary to that of the High Court on that point. If that is not done, the doctrine of hierarchical obedience in judicial matters and the practice of following the decision of superior authority, would stand frustrated. The necessity of referring the matter to a Larger Bench may only arise where there is no such decision of a High Court on that point or there are conflicting decisions on the same point by the different High Courts. In the instant case there was no such situation and, therefore, there was no such necessity for the succeeding bench to have thought of referring the matter to a Larger Bench on the ground that one of the members of the succeeding Bench took or proposed to take a view different from that taken by the earlier Bench.
14. It has also been held by the Special Bench of the Tribunal in the case of DCIT v. Omen International Bank SAOG 100 ITD 285 (SB) Bom. that Third Member decision of the Tribunal has a binding force upon the Division Benches. Meaning thereby, the Third Member decision should be followed by the Division Benches of the Tribunal and according to Third Member a solitary judgment of the any High Court on particular issue should be followed by the Tribunal and there is no necessity to refer the matter to the Larger Bench of the Tribunal for the reasons that contrary view is expressed by the other coordinate Benches. The Third Member has expressed his views following the judgments of jurisdictional High Court in the case of CIT v. Smt. Godavaridevi Saraf 113 1TR 589 (Born.) in which their Lordship have held that Income-tax Appellate Tribunal acting anywhere in the country has to respect: the law laid down by the High Court though of a different State so long as there is no contrary decision of any other High Court on that question. The view expressed by the jurisdictional High Court in the case of CIT v. Godavaridevi Saraf (supra), has not been over ruled till date and it still holds the field and as such all respect should be given to the judgment of the non-jurisdictional High Court and if it is solitary judgment, it should be followed in its letter and spirit as the Tribunal is at lower pedestal than the High Courts and the better wisdom of the Court below must yield to the higher wisdom of the Court above as held by the Apex Court in the case of Asst. Collector v. Dunlop India Limited 154 ITR 172 supra. In the case of CIT v. thane Electricity Supply 206 ITR 727 their Lordship of the jurisdictional High Court have not over ruled the view expressed by the earlier Bench of the Bombay High Court in the case of CIT v. Godavaridevi Saraf 113 ITR 589 as the said judgment was not referred before their Lordships during the course of hearing of the Thane Electricity Supply. More over, in the case of Thane Electricity Supply (supra), their Lordship have also held that the judgment of the non-jurisdictionaJ High Court has a persuasive value and should not be out rightly ignored. In any case, the Income Tax Appellate Tribunal is a National Body having jurisdiction throughout the country and is also a subordinate to the High Court situated any where in the country. Once a view taken by the Tribunal is over ruled by any one of the High Court, then, it is not proper to say by the other Bench of the Tribunal situated out side the jurisdiction of that High Court that they would not follow the solitary judgment of the High Court, as it is not binding upon them. No doubt, the judgments of the High Court has only a binding effect in its territorial jurisdiction, but, it does not mean that it should not be followed by the other non-jurisdictional subordinate bodies whether judicial or non-judicial. It. should be rather followed to maintain the hierarchical judicial system.
15. We have considered the aforesaid judgments rendered by the Apex Court in the case of Assistant Collector v. Dunlop India Ltd. (supra) and other judgments of different High Courts on the subject and we are of the view that if all these judgments are read conjointly, only one inference would be drawn that a due respect should be given to the judgment of the non-jurisdictional High Court and it should ordinarily be followed by other subordinate judicial or non-judicial bodies situated out side the jurisdiction of that High Court, unless and until, subordinate authorities have strong reasons to deviate from the view taken by the non-jurisdictional High Court. If it is not: done, the hierarchical judicial system would collapse. In the case of CIT v. Vegetable Products Ltd. 88 ITR 192 their Lordship of the Apex Court, have held that if two contrary views are taken by different High Courts, view favourable to the assessee should be adopted, but, nowhere, it has been stated that the view expressed by a solitary High Court can be ignored by the non-jurisdictional subordinate bodies without any reasons.
16. We, therefore, of the view that a solitary judgment of any High Court in the country on a particular point or issue, should be followed in its letter and spirit by all Benches of the Tribunal notwithstanding contrary views are expressed by some Benches of the Tribunal, unless there are strong reasons to deviate from the view expressed by the High Court. Otherwise, the hierarchical judicial system would collapse. Turning to the facts of the case, we are of the view that since the view taken by the Special Bench of the Tribunal in the case of Kwality Foods v. ACIT (supra) was over ruled by its jurisdictional High Court in the case of Synergy Finance Exchange Ltd. (supra), it. looses its binding effect upon the Division Bench of the Tribunal. At present, the solitary judgment on this issue, i.e., effect of omission of the 2nd proviso to Section 43 B of the I.T. Act, is of the Madras High Court in the case of Synergy Finance Exchange Ltd. (supra) and there is no contrary view available of any other High Court in the country. In these circumstances, the solitary judgment of Madras High Court in the case of Synergy Finance Exchange Ltd. (supra), should be followed by the all Benches of the Tribunal unless there are strong reasons to deviate, to maintain the hierarchical judicial system. We, therefore, following the judgment in the case of Synergy Finance Exchange Ltd. (supra), are of the view that, assessee is not entitled for deduction under section 43B of the I-T Act for payment of KSI, as it was not. paid even within the grace period prescribed under the relevant Act. We, Order accordingly. In the result, appeal of the Revenue is partly allowed. Order pronounced in the open Court, on this the 7th day of August, 2007.