S. 254(1) of the Income-tax Act, 1961 — Principle of consistency qua judicial forums is not unexceptionable; if the subsequent Bench finds it difficult to follow the earlier view due to any convincing reason, the earlier view cannot be thrust upon it; whe

(a) S. 254(1) of the
Income-tax Act, 1961 — Principle of consistency qua judicial forums is not
unexceptionable; if the subsequent Bench finds it difficult to follow the
earlier view due to any convincing reason, the earlier view cannot be thrust
upon it; when a matter is referred to the Larger Bench, the appeal needs to be
decided on merits rather than following the earlier view taken by the Tribunal
in assessee’s own case.

(b) S. 80P(2)(a)(i) of the
Income-tax Act, 1961 — Interest u/s.244A received by assessee, a co-operative
bank, on refund of income-tax paid by it in relation to the banking business
carried on by it is covered within the expression ‘profits and gains of
business’ occurring in S. 80P(2)(a) and the assessee is entitled to deduction
u/s.80P(2)(a)(i).

The principle of consistency
qua the judicial forums is not unexceptionable. It is true that ordinarily the
order passed by the earlier Bench on the same point should be respected and
followed. But if the subsequent Bench finds it difficult to follow the earlier
view due to any convincing reason, such as change in the factual or legal
position or non-raising or non-consideration of an important argument by the
earlier Bench having bearing on the issue, then the earlier view cannot be
thrust upon it. So when a matter is referred to the Larger Bench, the view
earlier taken by the Division Bench ceases to be binding on the Special Bench
though it retains the persuasive value. In view of the above-discussed legal
position, the action of the Division Bench in referring the matter for
consideration by a Special Bench is perfectly in order since it found itself
unable to agree with the earlier view taken by another Division Bench of the
Tribunal in the assessee’s own case. Therefore, there is no infirmity in the
action of the Division Bench in making reference for the constitution of the
Special Bench when it found it difficult to accept the earlier view taken in the
assessee’s own case. Under these circumstances the exception to the application
of principle of consistency gets attracted and the appeal needs to be decided on
merits rather than following the earlier view taken by the Tribunal in its own
case.

The Tribunal relied on the
decisions in the following cases :

(a) Union of India &
Anr. v. Paras Laminates (P) Ltd., (1990) 87 CTR (SC) 180/(1990) 49 ELT 322
(SC)

(b) Dy. CIT v. Reliance
Industries Ltd., (2004) 82 TTJ (Mumbai) (SB) 765/(2004) 88 ITD 273
(Mumbai) (SB)

The Assessing Officer,
during the reassessment proceedings, opined that the interest received by the
assessee on income tax refund was on account of non-banking activity. The CIT(A)
also accepted the Assessing Officer’s order.

The Special Bench, relying
on the decisions in the following cases, ruled in favour of the assessee :

(a) ITO (ITA No.
4252/Mumbai/2000) and Punjab State Co-op. Bank v. Dy. CIT, (2000) 113
Taxman 128 (CHD) (Mag.)

(b) Cambay Electric
Supply Industrial Co. Ltd. v. CIT, 1978 CTR (SC) 50/(1978) 113 ITR 84 (SC)

The Special Bench noted as
under :

(1) The assessee was
carrying on banking business over the years and tax was collected by the
Revenue in relation to such banking business. Thus, there is a nexus between
the payment of income-tax, its refund and interest on such refund with the
business of banking. But for the carrying on of the banking business, the
assessee would not have paid the income-tax which was refunded to it. Since
income-tax was paid in relation to the banking business, the interest on
income-tax refund will be considered as ‘gain’ (not ‘profit’) of banking
business covered within the expression ‘profits and gains’ of banking
business. Therefore, interest on refund of income-tax would be covered within
the expression ‘profits and gains of business’, notwithstanding the
fact that it falls under the head ‘income from other sources’.

(2) The direct nexus of
interest on income-tax refund is with the payment of income-tax but when the
relation between income-tax and the income on which it was paid is traced, it
comes to light that the same was for the business of banking. Thus, there
exists a commercial and casual connection between the interest on income-tax
refund and the banking business.

(3) Therefore, the
assessee is entitled to deduction u/s.80P(2)(a)(i) on the amount of interest
received u/s.244A on the refund of tax.