JUDICIAL DISCIPLINE

1.  Prelude

In the
hierarchy of tax, the Assessing Officer is the first authority to determine the
tax liability in accordance with law. One of the most important provisions of
the Constitution of India is Article 265, which provides “no tax
shall be levied or collected except by authority of law”. CBDT vide
Circular No. 14 (XL-35 dt. 11-04-1955 dealing with refunds and reliefs
to the assessee, stated that it is the duty of the Assessing Officer to grant
relief if he is legally entitled though the assessee has not claimed it in the
return of income. First appeal lies u/s. 246A of the Income-tax Act before the
Commissioner of Income-tax (Appeals), who has been stated as a superior
assessing authority to correct and also to cure the assessment. Adversary
proceedings commence with appeal u/s. 253 to the Income Tax Appellate Tribunal,
an independent body functioning under the Ministry of Law, which is the final
fact finding authority and to whom second appeal lies by the assessee as
well as by the Revenue. Third appeal lies u/s. 260A before the State High Court
against order of the Income Tax Appellate Tribunal only on substantial question
of law. Final appeal lies to the Supreme Court of India u/s. 261 and Special
Leave Petition can be filed under Article 136 of the Constitution of India
before the Supreme Court, which is discretionary power, whereas all other
appeals are statutory. Relevant rules govern the procedure in first and second
appeal and third appeal is governed by the Civil Procedure Code and State High
Court rules. In the same order is the subordination and each is bound by the judicial
precedents of the higher authorities, Tribunal, High Court and Supreme
Court. To maintain discipline, decorum and to avoid chaos and arbitrariness ‘Judicial
Discipline’ has been built-up by the judicial precedents, judge made
law.

2. 
Object, sanctity and effect

The basic object of judicial
discipline is to bring in consistency; to avoid unwanted litigation, which is costly
and full of uncertainties; to avoid harassment of tax-payers; to eliminate
denial of justice and to put an end to controversy. It has been rightly said
that if an appeal would have been provided against an order of the Supreme
Court, at least 10% of earlier judgments would have been reversed. Hence, a
four-tier scheme of appeal has been provided under the Income-tax Law.

3. 
Supreme Court   

3.1   The Supreme Court in Bhopal Sugar
Industries Ltd. vs. ITO (1960) 40 ITR 618 (SC) observed that an assessing
authority is bound to carry out the directions given by the superior tribunal.
It stated as under: Refusal by a subordinate court is in effect a denial of
justice, and “is further more destructive of one of the basic principles in
the administration of justice based as it is in this country on a hierarchy of
courts”.

3.2   The Supreme Court in UOI vs. Kamlakshi
Finance Corporation Ltd. AIR 1992 SC 711 at 712 emphasised: The
principles of judicial discipline require that the orders of the higher
appellate authorities should be followed unreservedly by the subordinate
authorities. The mere fact that the order of the appellate authority is not
‘acceptable’ to the Department – in itself an objectionable phrase – and is
the subject-matter of an appeal can furnish no ground for not following it
unless its operation has been suspended by a competent court.

3.3   The principle of judicial discipline as
expounded in the case of Kamlakshi Finance Corporation Ltd.(supra) has
been followed in the case of Nicco Corporation Ltd. vs. CIT (2001) 251 ITR
791 (Cal.) (HC).

3.4   Judgment delivered by the Income-tax
Appellate Tribunal is binding on the Assessing Officer. The Assessing Officer
is bound to follow the judgment in its ‘letter and spirit’. This is
necessary for judicial unity and discipline as the Assessing Officer is an
inferior officer vis-à-vis the Tribunal. Hence, the Assessing Officer should
not attempt to distinguish the same on untenable grounds. In this context, it
will not be out of place to mention 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”.

3.5   Hence, I.T.O. cannot refuse to follow orders
of Tribunal and such order would be without jurisdiction as held in Voest-Apline
Ind. GmbH vs. ITO. (2000) 246 ITR 745 (Cal.) (HC).

3.6   In Assistant Collector of Central Excise
vs. Dunlop India Ltd. (1985) 154 ITR 172 at 173 (SC): “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 works only if someone is allowed
to have the last word and that last word, once spoken, is loyally accepted”.
Also refer Bank of Baroda vs. H.C. Shrivastava (2002) 256 272 385 Bom H.C.

3.7   In Cassell and Co. Ltd. vs. Broome (1972)
AC 1027 (HL), the House of Lords observed 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”.
`The better wisdom of the court below must yield to the higher wisdom of the
court above’. That is the strength of the hierarchical judicial system.

3.8   In Cassell vs. Broome (1972) AC 1027,
commenting on the Court of Appeal’s comment that Rookes vs. 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 of 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”.

3.9   In this connection reliance is also placed on
the observations of the Supreme Court in the case of East India Commercial
Co. Ltd. vs. Collector of Customs AIR 1962 SC 1893 at page 1905. “Where
there is a decision of a higher appellate authority, the subordinate authority
is bound to follow such decision. Hence, an order passed by the Income Tax
Officer following the decision of the Appellate Tribunal cannot be held to be
erroneous and such an order cannot be revised u/s. 263”. Russell Properties
Pvt. Ltd. vs. A. Chowdhury, Addl. CIT (1977) 109 ITR 229 (Cal.) (HC)

3.10 Ours is a unified judiciary. According to
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 expression “all
courts means courts other than the Supreme Court”. The decision of the
Supreme Court is binding on all the High Courts. In other words, the High
Courts cannot hold the law laid down by the Apex Court is not binding on the
ground that relevant provisions were not brought to the notice of the Supreme
Court, or the Supreme Court laid down the legal position without considering
all points. The decision of the Apex Court binds both the pending cases and the
future ones. Even the directions of the Apex Court in a decision constitute
binding law under Article 141 Vishaka vs. State of Rajasthan AIR 1997 SC
3011.

3.11 It is pertinent to state that : the Supreme
Court is not bound by its own decisions and may also overrule its
previous decisions either by expressly saying so or impliedly by not following
them in a subsequent case. Dwarka Das Shrinivas vs. Sholapur Spinning and
Weaving Company Ltd.,- AIR 1954 SC 119) and C N Rudramurthy vs. K
Barkathulla Khan (1998) 8 SCC 275.

3.12 Thus, in view of Article 141 of the
Constitution of India, when there is a decision of the Apex Court directly
applicable with all the force to the case on hand, the learned Single Judge
could have decided the Writ Petitions following the decision of the Apex Court,
holding that the decision of the Division Bench is contrary to the law laid
down under Article 141 of the Constitution of India. Sidramappa & Others
vs. State of Karnataka and others AIR 2014 (Karn.)100, at 103 (Full Bench).

3.13 Two member bench not agreeing with opinion of
earlier three member bench, may refer to the President for a larger bench as
held in Union of India vs. Paras Laminates Pvt. Ltd. (1990) 186 ITR 722 (SC).
Judicial discipline and propriety demands that a Bench of two judges of the
Supreme Court should follow a decision of a Bench of three judges. If the Bench
of two judges concludes that an earlier judgment of a Bench of three judges is
so very incorrect that in no circumstances can it be followed, the proper
course for the Bench of two judges to adopt is to refer the matter before it to
a Bench of three judges, setting out the reasons why it could not agree with
the earlier judgment. If, then, the Bench of three judges also comes to the
conclusion that the earlier judgment of a Bench of three judges is incorrect, a
reference to a Bench of five judges is justified Pradip C. Parija vs.
Pramod C. Patnaik (2002) 254 ITR 99 (SC).

3.14 No co-ordinate Bench of Supreme Court can even
comment upon, let alone sit in judgment over the discretion exercised or judgment
rendered in a case or matter before another co-ordinate Bench. Sub-Committee
of Judicial Accountability vs. UOI (1992) 4 SCC 97.

3.15 On 18.01.2018 a Division Bench of the Supreme
Court in National Travel Services vs. CIT (2018) 401 ITR 154 (SC), directed,
after giving detailed reasons to place the matter before the Hon’ble Chief
Justice for reconsideration of decision in CIT vs. Madhur Housing and
Development Co. (2018) 401 ITR 152 (SC). Incidentally it is noticed
that Hon’ble Mr. Justice Rohinton Fali Nariman is common in both the cases. Matter
stands referred to the larger bench.

3.16 Further if the order of an appellate authority
is the subject-matter of further appeal, that cannot be the ground for not
following it, unless its operation has been suspended by a competent court.
If this rule is not followed, the result will not only be undue harassment to
assessees but also chaos in the administration of tax laws. The State is bound
to be fair to those with whom it has to deal, and to the extent possible, it
must avoid any harassment to the assessee public without causing any loss to
the exchequer. Nokia Corporation vs. DIT (2007) 292 ITR 22 (Delhi) (HC).

3.17 In case for any reason the Executive /
Department does not agree with the decision of the Supreme Court it can seek
review of the decision. However, the experience has been that the executive has
sought to amend the law.

4. 
Precedent

It would be appropriate to consider
the doctrine of precedent. In Krishnakumar vs. UOI AIR 1990 SC 1782,
the Hon’ble Apex Court considered the doctrine of precedent i.e., being bound
by a previous decision was limited to the decision itself and not as to what
was necessarily involved in it. It does not mean that the Court was
bound by the various reasons given in support of it, especially when they
contain proportions wider than the case required. In other words, the
enunciation of the reason or principle upon which a question before a Court has
been decided alone is a precedent. The ratio decidendi is the
underlying principle, namely the general reasons or the general grounds
upon which the decision is given devoid of peculiarities of the particular case
which give rise to the decision. Hence, it is the principle laid down in the
judgement that becomes the law of the land and not every word mentioned in
the judgement. Bharat Petroleum 117 Taxman 377 Sc.

5. 
Supreme Court & High Court decision

5.1   It is needless to add that in India under
Article 141 of the Constitution, the law declared by the Supreme Court shall be
binding on all courts within the territory of India and under Article 144 all
authorities, civil and judicial, in India shall act in aid of the Supreme
Court. It may be added under Article 226 of the Constitution all authorities
civil and judicial, in a State shall act according to the decision of the
relevant High Court.

5.2   The Tribunal has to follow decision of
jurisdictional High Court without making any comment upon the decision and/or
without ignoring it on any ground. National Textile Corporation Ltd. (M.P.)
vs. CIT. (2011) 338 ITR 371 (MP) (HC).

5.3   A view expressed by the High Court is of
binding nature on all the subjects and authorities functioning within its
territorial jurisdiction [Motor Industries Co. Ltd. vs. JCIT (2007) 292 ITR
70 (Karn.) (HC)] Precedent law must be followed by all concerned; deviation
from the same should be only on a procedure known to law. A subordinate
court is bound by the law enunciated by the superior court.

5.4   A co-ordinate Bench of a court cannot
pronounce judgment contrary to law declared by another Bench. It can only refer
it to a larger Bench if it disagrees with the earlier pronouncement. [(CIT
vs. Travancore Titanium Products Ltd. (2004) 265 ITR 526 (Ker. HC)]. The
same principle will apply to the decision of the Tribunal. Hence, we have
experienced the constitution of special benches of the Tribunal CIT vs.
Travancore Titanium Products Ltd (2004) 265 ITR 526 KER.H.C.

5.5   The Supreme Court in Sub-Inspector Rooplal
and Anr. vs. Lt. Governor (2000) 1 SCC 644 considered the situation where a
co-ordinate Bench of the Central Administrative Tribunal had in effect
overruled an earlier judgment of another co-ordinate Bench of the same
Tribunal. The Court observed: “If at all, the subsequent Bench of the
Tribunal was of the opinion that the earlier view taken by the co-ordinate
Bench of the same Tribunal was incorrect, it ought to have referred the matter
to a larger Bench so that the difference of opinion between the two co-ordinate
Benches on the same point could have been avoided. This Court has laid down
time and again that precedent law must be followed by all concerned; deviation
from the same should be only on a procedure known to law. It can only refer it
to a larger Bench if it disagrees with the earlier pronouncement”.
Also refer the following :

•    District Manager,
  APSRTC, Vijayawada vs. K. Sivaji and Ors. (2001) 2 SCC 135

•    Dr. Vijay Laxmi Sadho
  vs. Jagadish (2001) 2 SCC 247

•    Gopabandhu Biswal vs.
  Krishna Chandramohanty and Ors. (1998) 4 SCC 447 para 16

•    Usha Kumar vs. State of
  Bihar and Ors. (1998) 2 SCC 44 para 3 and

•    State of A.P. vs. V.C.
  Subbarayudu (1998) 2 SCC 516 para 10.

5.6   Hence, it is well-settled that if a Bench of
co-ordinate jurisdiction disagrees with another Bench of coordinate
jurisdiction whether on the basis of “different arguments” or otherwise, on
a question of law, it is appropriate that the matter be referred to a
larger Bench for resolution of the issue rather than leave two conflicting
judgments to operate, creating confusion”.

5.7   In a multi-judge court, it is essential the
judges are bound by precedents and procedure. They could use their discretion
only when there is no declared principle, no rule and no authority is found.
Judicial decorum and legal propriety demand that where a single judge or a
Division Bench does not agree with the decision of a Bench of co-ordinate
jurisdiction, the matter may be referred to a larger Bench.

It would be subversion of judicial process not to follow this procedure.
Sundardas Kanyalal Bhatija and Others vs. Collector, Thane, Maharashtra and
Others (1990) 183 ITR 130 (SC).

5.8   If a division bench expresses a view without
noticing a contrary view of a concurrent bench the lower judicial /
administrative authorities face a dilemma. It has been held that the later
decision will prevail and the subordinate court / authority would follow the
later view. However, the division bench of the High Court would have to
refer the matter to the Chief Justice for constituting larger bench.

6. Mixed Question of law and fact

6.1   The final authority on facts is the Tribunal.
However, the High Court and Supreme Court can consider the facts of a case if
the decision of Tribunal is perverse. Hence, the Supreme Court or High Court
can go into facts on a mixed question of law and fact. The Supreme Court in CIT
vs. Bedi & Co. P. Ltd. (1998) 230 ITR 580 observed: “Where the High
Court has to deal with various facts on record to determine whether the amount
in question was a loan or income, if the discussion of the High Court leads to
the conclusion that the amount was a loan and not income, it cannot be urged
that the High Court disturbed the findings of fact recorded by the Tribunal”.

The Supreme Court in Kailash
Devi Burman vs. CIT (1996) 219 ITR 214 (SC) observed: “Even when the High
Court is required to decide whether the findings of fact reached by the
Tribunal are perverse, the High Court is confined to the evidence that was
before the Tribunal. The High Court cannot look at evidence that was not
before the Tribunal when it reached the impugned findings to hold that those
findings are perverse”.

7. Substantial Question of Law  

7.1        Appeal u/s. 260-A can be preferred only
on substantial question of law since 01.10.1998. The Supreme Court in Santosh
Hazari vs. Purshottam Tiwari (2001) 251 ITR 84 stated: “To be
“substantial”, a question of law must be debatable, not previously settled by
law of the land or a binding precedent, and must have a material bearing on the
decision of the case, if answered either way, in so far as the rights of the
parties before the court are concerned. The substantial question of law need
not necessarily be a substantial question of law of general importance”.

7.2   In Premier Breweries Ltd. vs. CIT (2015)
372 ITR 180 it was held: “The legal inference that should be drawn from
the primary facts is eminently a question of law”.

8. Tribunal
and sanctity of its decision(s)

8.1   Income Tax Appellate Tribunal is the final
fact finding authority. Facts found by the Tribunal are final, unless perverse.
Facts found, if proper, cannot be tinkered with and will govern the decision of
the High Court and Supreme Court. Order passed by the Tribunal is binding on
all Revenue authorities functioning under the jurisdiction of the Tribunal.

8.2   A single member of the Tribunal is bound by
the view of another single member. If the single member wants to differ the decision must have the support of a decision of a division bench.
The Gujarat High Court in Sayaji Iron and Engineering Co. vs. CIT (2002) 253
ITR 749, dealing with an almost similar situation laid down guidelines for
resolution of such controversy as follows: the
Tribunal on facts had no right to come to a conclusion contrary to the one reached by another Bench of the Tribunal on the same facts. If the
Tribunal wanted to take a view different from the one taken by an earlier
Bench, it ought to place the matter before the President of the Tribunal so
that he can refer to a Bench consisting of three or more members under the
provision in the Income-tax Act itself”. In the instant case, the learned
Members of the Indore Bench of the Tribunal instead of reviewing their own
earlier judgment, ought to have referred the matter to the larger Bench. This
finds support in Agarwal Warehousing and Leasing Ltd. (2002) 257 ITR 235
(MP) (HC).

8.3   The requisite provision is sub-section (3) of
section 255 where the President of the Tribunal is authorised to constitute a
Special Bench of three or more members.

8.4   Constitution of benches is the prerogative of
the President. The President can constitute a Special Bench constituting of
three or more members, on any particular case. The Supreme Court in ITAT vs.
DCIT (1996) 218 ITR 275(SC) stated: “The administrative decision of the
President that a case is of all-India importance and requires to be decided by
a larger Bench or a Special Bench of three members is an administrative order
and such an order is not open to scrutiny under article 226 of the Constitution
of India except in extraordinary cases wherein the order is shown to be mala
fide one”.

8.5   Status of decision of Tribunal on CIT(A) or AO

A decision of
Special Bench of the Tribunal is a binding precedent on all single and division
Benches of the Tribunal and if any, division or three member Bench has
different opinion, the matter must be referred to the President of the Tribunal
u/s. 255(4) and if the President is satisfied can constitute larger Bench to
resolve the controversy.

8.6   A decision of Special Bench is not binding on
the High Court, but it is permissible to refer and if convinced the High Court
may adopt the same reasoning.

8.7   The CIT(A) or AO being subordinate to the
Tribunal are bound to follow the decision of the Tribunal. K.N. Agarwal vs.
CIT (1991) 189 ITR 769 (All) (HC). In case the AO or the CIT differ from
the decision it is the bounden duty of the CIT(A) or AO to refer the cited case
law and to distinguish on facts. One single non-similar fact may justify the
CIT(A) or AO’s decision not to follow. But it cannot be laid aside at
the ipse-dixit of the subordinate authority. Ratio decidendi has to be
followed and cannot be commented upon or legal lapse or fault found by the
subordinate authority.

8.8   On the same facts the A.O. and CIT (A) needs
to follow an earlier decision.

8.9   The ITO is bound by decision of a single
judge. K. Subramanian vs. Siemens India 156 ITR 11.

8.10 Full Bench decision is binding on the A.O. even
if an appeal is pending before the Supreme Court Koduru Venkata Reddy ITO
ITR 15 A.P.

8.11 In Eagle Flask Industries 72 ITD 455 Pune:
it is observed

‘The action on the part of the
authorities below was flagrant disregard and disrespect to the provisions of
law. It may be considered as settled law that the decision of higher
authorities is binding on the lower authorities in the judicial hierarchy. Accordingly,
it would stand to reason that the CIT Appeals and the A.O. would be bound by
the decision of the Tribunal because at the time of passing the order, they
were working within the jurisdiction of the Pune Tribunal’.

8.12 In DCWT vs. Ashwin C Shah 82 ITD 573 BOM: it
is observed

Judicial adventurism or originality
has its limitations and cannot be taken to such absurd lengths where each and
every judgement of a higher judicial forum is sought to be circumvented on some
slender or tenuous ground. Every discovery of argumentative novelty cannot
compel reconsideration of a binding precedent. This would lead to judicial
chaos and indiscipline.

9. Impact
of decision of non-jurisdictional High Court over appellate authorities and the
Tribunal

9.1   In CIT vs. Sarabhai Sons Ltd 147 ITR 473
the Gujarat High Court has observed that one High Court should follow the other
High Court with a view to maintain uniformity in tax matters.

9.2   The Bombay High Court in Godavari Das
Saraf 113 ITR 589 has held that decision of another High Court should have
more than persuasive value for another High Court and would generally be
binding on the Tribunal.

9.3   In Arvind Boards & Paper Products Ltd.
vs. CIT (1982) 137 ITR 635 the Gujarat High Court observed: “If one High
Court has interpreted the provision or section of a taxing statute, which is an
All India statute, and there is no other view in the field, another High Court
should ordinarily accept that view in the interest of comity of judicial
decisions and consistency in matters of application of a taxing statute”.
Also refer CIT vs. Virajlal Manilal 127 ITR 512 MP.

9.4   Hence as Income-tax Act is a Central
legislation and applies on all the tax payers and tax administration
alike, a decision of a non-jurisdictional High Court is of persuasive value and
must be followed unless and until any contrary decision is available of any
other High Court. In case of conflict between High Courts or debatable issue
between different High Courts, the appellate authority or the Tribunal would
be justified to follow one which convinces its conscience and ignore the other.
In C.I.T. vs. Alcock Ashdown & Co. Ltd. (1979) 119 ITR 164 (Bom.) (HC)
High court observed at 170: “if any High Court has construed any section or
rule and come to a particular interpretation thereof, that interpretation
should be followed by this court unless there are compelling reasons brought to
our notice for departing from the view taken by another High Court.”

9.5   If different High Courts have expressed
different view and it is a debatable issue, the view taken by the
jurisdictional High Court would prevail and need to be followed. Refer Taylor
Instrument Co. (India) Ltd. vs. CIT (1998) 232 ITR 771 (Delhi) (HC), CGT vs.
J.K. Jain (1998) 230 ITR 839 (P&H) (HC), CIT vs. Sunil Kumar (1995) 212 ITR
238 (Raj.) (HC), CIT vs. Thana Electricity Supply Ltd. (1994) 206 ITR 727
(Bom.) (HC), Indian Tube Company Ltd. vs. CIT (1993) 203 ITR 54 (Cal.) (HC),
CIT vs. P.C. Joshi and B.C. Joshi (1993) 202 ITR 1017 (Bom.) (HC), and
CIT vs. Raja Benoy Kumar Sahas Roy (1957) 32 ITR 466 (SC). Same view expressed
in DCIT vs. Raghuvir Synthetics Ltd. (2017) 394 ITR 1 (SC).

9.6   It is pertinent to note that if a decision of
a particular High Court is cited and the other High Court does not agree with
the same – the differing High Court would issue what in legal parlance is
termed a ‘speaking order’.

10. 
Hope & Expectation

Judicial Discipline deserves to be
followed religiously and its sanctity must be understood. It is painful that
despite a plethora of decisions commencing with Bhopal Industries, the AO. and
CIT(A) and few of the members of the Tribunal are flouting judicial discipline
and committing contempt. It is high time that appellate authorities correct the
errant authorities with heavy hand. It is being noticed that the Supreme Court
and High Courts are taking indiscipline seriously. Recently the Hon’ble Supreme
Court in UOI. v. Prithwi Singh(SC) (www.itatonline.org) dismissed the appeal
with cost of Rs.1,00,000/-. It held that, Union of India has created a huge
financial liability by engaging so many lawyers for an appeal whose fate can be
easily decided on the basis of existing orders in similar cases. Yet the Union
of India is increasing its liability and asking the taxpayers to bear an
avoidable financial burden for the misadventures. The Bombay High Court has
also levied cost and passed strictures against errant officers, and has
directed that even cost be realised from such officers. However, there remain
deafening ears. The subordinate authorities should remain within their bounds
and do justice to the harassed tax payers. It is suggested that the Central
Board of Direct Taxes must keep a watch and vigil and take disciplinary action
against the wrong doers. Malady must go. Law is Supreme – Not the Tax
Authorities. I conclude by stating : Judicial discipline is the essence of
`rule of law’.