Reference to Special Bench cannot be withdrawn on the ground that the High Court has admitted an identical question of law — Mere fact that a superior authority is seized of an issue identical to the one before the lower authority, there cannot be any impediment on the powers of the lower authority in disposing of the matters involving such issue as per prevailing law.

The assessee transferred its power transmission business for an agreed consideration of Rs.143 crore and offered the equal amount as capital gain arising out of slump sale. The net worth of the business transferred was determined by the auditors to be negative Rs.157.19 crore. The Assessing Officer (AO) held that the sale consideration should have been taken as Rs.300 crore (agreed sale consideration + additional liabilities taken over). Aggrieved the assessee preferred an appeal to CIT(A). The CIT(A) relying on the two decisions of the Tribunal in Zuari Industries Ltd. v. ACIT, 105 ITD 569 (Mum.) and Paperbase Co. Ltd. v. CIT, 19 SOT 163 (Del.) held that negative net worth has to be treated as zero in the context of the provisions of section 50B. He decided this issue in favour of the assessee. Aggrieved the Revenue preferred an appeal to the Tribunal. When the matter came up for hearing before the Division Bench (DB) and the DB expressed its tentative view that it was not convinced with the view taken by the co-ordinate Bench in the case of Zuari Industries Ltd. (supra) it was submitted on behalf of the assessee that the issue may be referred to the Special Bench. The President, on request of the DB, constituted SB for giving an opinion on the following question.

 “Whether in the facts and circumstances of the case, the Assessing Officer was right in adding the amount of liabilities being reflected in the negative net worth ascertained by the auditors of the assessee to the sale consideration for determining the capital gains on account of slump sale?”

On receipt of the notice for hearing before the SB the assessee vide his letter addressed to the President submitted that since the Bombay High Court has admitted an appeal involving the same issue in the case of Zuari Industries Ltd. (supra) the reference made to the Special Bench be withdrawn. The assessee pointed out that in the past reference to SB was withdrawn when the High Court had taken steps to decide the issue. The President disposed of this application with the remarks “Place before the Special Bench for consideration”. The Special Bench, heard the above issue and held as under:

Held:

The SB, having noted that the High Court has neither decided the point on merits, nor blocked hearing of cases involving identical question of law by the Tribunal till the disposal of the appeal pending before it, held that the mere fact that a superior authority is seized of an issue identical to the one before the lower authority, there cannot be any impediment on the powers of the lower authority in disposing of the matters involving such issue as per law. The consequences of such a course of action would lead to a chaotic situation. The entire working of the Tribunal will come to a standstill if a reference to the Special Bench is withdrawn simply on the ground that identical question of law has been admitted by the High Court. Also, the SB having noticed that the SB was constituted at the request of the assessee, held that when the SB has actually been constituted at the plea of the assessee, now the assessee cannot turn around and argue that the SB be deconstituted. Such vacillating stand of the assessee did not find approval of the SB.

The SB observed that the assessee’s interest is not affected in any manner, whether the case is heard by the DB or the SB. The SB held that the reference to the SB cannot be withdrawn merely for the reason that the High Court has admitted the identical question of law in another case. The preliminary objection of the assessee was not acceptable. The SB finally observed that it has not touched upon, nor does it have jurisdiction to call in question the powers of the President to constitute or deconstitute any SB. He has abundant powers in the matter of constituting or withdrawing reference to the SB in the facts and circumstances of each case. The observations in this case should not be construed in any manner as eclipsing his powers in this regard.