TaxTMI 
TaxTMI 
2012 (8) TMI 203
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.... of the Hon'ble Special Bench that the President has constituted the Special Bench to hear and decide the following question in accordance with law; "Whether in the facts and circumstances of the case, the remission of deferred sales tax liability is chargeable to tax as business income of the assessee u/s 41(1) being remission of trading liability or the same is exempt from tax as capital receipt being remission of loan liability." 2.1 It was suggested by the learned Sr. Counsel for the assessee that the question should be redrafted to read as follows:- "Whether on the facts and circumstances of the case and in law, the sum of Rs. 4,14,87,985/- has rightly been charged to tax under Section 41(1) of the Income Tax Act, 1961?" 2.2 The Hon'ble Special Bench has stated that it finds force in the submissions of the learned Sr. Counsel that the Question needs to be redrafted because the present Question before the Hon'ble Special Bench stands with the presumption that it is a case of remission and the learned Sr. Counsel has stressed that most of his arguments will be on the facts of the case that no remission at all is involved and consequently there is no benefit envisaged by Sect....
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....m tax as capital receipt being remission of loan liability as claimed by the assessee before all the lower authorities. The Question was to be answered in the above factual matrix. The whole Question and issue has been changed by the Special Bench, which it is not empowered to do under the provisions of the Act. This is a mistake apparent from records. The Honble Special Bench should, therefore, recall its order and pass fresh orders on the Question referred to it by the Hon'ble President. 2.5 The Hon'ble Special Bench has also committed a mistake in not incorporating the submissions of the CIT (DR) on the above issue objecting to the change of Question requested by the learned Sr. Counsel for the assessee and in not dealing with such objections. 2.6 Further, even the changed Question was never formulated in the course of the hearing. The changed Question has appeared for the first time only in the order passed by the Hon'ble Special Bench. 3. In para 75 of the order, it has been held by the Hon'ble Special Bench that from the definition and equation of PV and FV, it is clear that the present value of a future sum is the same. This concept of NPV and FV as applied by the Hon'ble....
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.... mistake in holding that the Revenue has placed no material to show that the net present value (NPV) of a future sum is not the same or in the process of calculation of present value of a future sum there is a conversion gain to the assessee, which is a mistake apparent from the records. 6. In para 104 of the order, the Honbie Special Bench has held as under; "... to invoke the provisions of Section 41(1) of the Act, the first requirement is as to whether in the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee. ..." In the said para, it has been mentioned that the benefit of deduction was allowed for the purpose of Section 43B of the Act only and not under any other provisions of the Act. However, the Hon'ble Special Bench has gone to hold that the first requirement of Section 41(1) has not been fulfilled in the facts of the present case. Section 43B is a part of the Act itself. Once the Hon'ble Special Bench has held that the benefit of deduction has been allowed u/s.43B, the only finding of the Bench, as per its own admission, and as per settled law, should have been that the f....
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....of liability by the State Government. Thus, one of the requirements spelt out for the applicability of section 41(1)(a) has not been fulfilled in the facts of the present case." It is most respectfully submitted that this finding of the Hon'ble Bench is self- contradictory and perverse. As discussed above, the evidence has already been furnished by the Revenue which has been rightly mentioned by the Hon'ble Bench in para 43 of the order. Further, the CIT (DR) has also made elaborate arguments to show that both remission and cessation had taken place and, which has been incorporated in paras 43 to 46 of the order. But the Hon'ble Special Bench has failed to consider the arguments and evidences at all. 10. The Hon'ble Special Bench has held that the assessee can be deemed to have converted its deferred sales tax liability into a loan liability. This is against the facts and material available on record. The assessee has itself admitted that it had applied for conversion of deferred sales tax liability into interest-free loan liability in 2002. It has also admitted that it has not complied with its procedures and provisions required for such conversion. It was also an admitted posit....
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.....37 crore. The amount of Rs. 3.37 crore was the NPV i.e. the present worth of the assets of the State Government as per its own calculation, which the State Government was to receive in the future as per the deferral Scheme. This important fact, which is available on records, has been omitted to be considered by the Hon'ble Special Bench. The detailed submissions of the CIT (DR) on this issue have not been considered at all by the Hon'ble Special Bench. The Hon'ble Special Bench has also not given any finding as to how and why the submissions made by the CIT (DR) cannot be accepted and are not relevant. Further, as stated earlier, the liability of the assessee is its current / present liability as admitted by the assessee itself in its books of accounts and Balance Sheet. This present liability was only to be discharged at different future dates as per the 'Package of Incentives' framed by the State Government. The CIT (DR) has raised a question in his submissions, whether, in absence of the amendment brought in the Sales Tax Act, the assessee could have prepaid its liability of Rs. 7.52 crore by paying a mere Rs. 3.37 crore. The Hon'ble Bench has not only not answered this questio....
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.... present value of Rs. 3,37,13,393/- against the future value of Rs. 3,37,13,393/- against the future liability of Rs. 7,52,01,378/- has rightly been charged to tax under section 41(1) of the Income Tax Act, 1961." He further submits that the action of the Special Bench to consider a totally new question is not as per law since it was constituted and mandated to hear and decide the question referred to it by the Hon'ble President, ITAT. He further submits that the powers of the Special Bench are limited to decide the question referred to it by the Hon'ble President, ITAT. The Special Bench cannot usurp the power of framing and deciding the question, which power is only with the President u/s 255(3) of the Act. He further submits that a look at the changed question also shows that the entire factual matrix as found by the lower authorities i.e. the A.O. and CIT(A) and Division Bench of the Tribunal, which had proposed the question to the Hon'ble President and the facts as examined by the Hon'ble President on the basis of which the question was referred to the Special Bench has been changed. It is outside the scope of the Special Bench to frame a question for decision on its own. Th....
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....f any particular case, constitute a Special Bench consisting of three or more Members, one of whom shall necessarily be a Judicial Member and one Accountant Member". At this stage the ld. Sr. Counsel for the assessee refers the key words provided in the said section i.e. "disposal of any particular case" and submits that while constituting the Special Bench, the President has power to modify the question if the question does not cover the entire aspect of the matter. He further submits that during the course of hearing it has been noted by the Special Bench of the Tribunal in para 2 of the order that the ld. counsel for the assessee has suggested that the question should be re-drafted to read as follows:- "Whether on the facts and circumstances of the case and in law, the sum of Rs. 4,14,87,985/- has rightly been charged to tax under Section 41(1) of the Income Tax Act, 1961." He further submits that the Special Bench of the Tribunal after hearing both the parties considered it fair and reasonable that the following question should be re-drafted to cover all aspect of the matter to decide the issue : "Whether on the facts and circumstances of the case and in law, the sum of Rs. ....
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....stakes pointed out by the ld. D.R., the ld. Sr. Counsel for the assessee after reading last eight lines of para 77 of the Tribunal order (supra) submits that the Tribunal after considering the entire material including the arguments of both sides, provisions of section 41(1) of the Act and the provision of the section 38 of the Bombay Sales Tax Act, 1959, has decided the issue in favour of the assessee. On the issue that the arguments advanced by the ld. D.R. in certain paras have not been considered by the Tribunal, the ld. Sr. Counsel for the assessee submits that failure by the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on record and for this proposition, the reliance was also placed on the decision of the Hon'ble Bombay High Court in CIT vs. Ramesh Electric & Trading Co. (1994) 77 Taxman 43 (Bom) : (1993) 203 ITR 497 (Bom). He, therefore, submits that there is no mistake in the order passed by the Tribunal and, therefore, the Misc. Application filed by the Revenue be rejected with cost. 8. We have carefully considered the submissions of the rival parties and perused the material available on record. We find t....
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.... of the matter, therefore, in order to bring out the issue which requires decision more clearly within the parameters of the issue involved has framed the following question keeping in mind the provisions of section 255(3) of the Act as follows:- "Whether on the facts and circumstances of the case and in law, the sum of Rs. 4,14,87,985/- being the difference between the payment of net present value of Rs. 3,37,13,393/- against the future liability of Rs. 7,52,01,378/- has rightly been charged to tax under section 41(1) of the Income Tax Act, 1961." 11. However, the Revenue in the Misc. Application (supra) has stated that the following question has been considered by the Tribunal: "Whether on the facts and circumstances of the case and in law, the sum of Rs. 4,14,87,985/- being the difference between the payment of net present value of Rs. 3,37,13,393/- against the future value of Rs. 3,37,13,393/- against the future liability of Rs. 7,52,01,378/- has rightly been charged to tax under section 41(1) of the Income Tax Act, 1961." (emphasis supplied) 12. On comparison of the question noted by the Revenue and framed and answered by the Special Bench of the Tribunal, we find that t....
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....ad 'Income from other sources'. The question is framed in order to enable the possible interveners to understand the issue or the range of controversy going to be considered by the Special Bench, so that they could assist the Bench by placing their views on the issue concerned. However the entire appeal is open before the Special Bench, and is not confined to the question framed like a question of law framed and referred to the High Court u/s 256 of the Income-tax Act, 1961. We overrule the preliminary objections of the Revenue." 16. In Saipem S.P.A. vs. Dy. Commissioner of Income tax (2003) 86 ITD 572 (Delhi) it has been observed and held as under (para 8): "At the outset, a distinction has to be drawn between the proceedings before a Special Bench, a Division Bench and lastly those before a Third Member pursuant to a reference under section 255(4). In the first two, it is the hearing on the question posed and the grounds raised respectively and the entire issue is open before the Bench whereas in the last the hearing is primarily with reference to the views expressed by the two ld. Members constituting the Division Bench and where admittedly there has been a difference ....
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....e proposition that the sanctity of Third Member decision and the Special Bench decision is of the same nature, we are of the view that there is no quarrel on the principle laid down by the Special Bench of the Tribunal in the above cases. However, the case before us the issue is with regard to the framing of question which has been framed within the parameters of the reference made by the Hon'ble President, ITAT and the original question, therefore, the decisions relied on by the ld. D.R. are distinguishable and not applicable to the facts of the present case. 19. As regards the decision in Dynavision Ltd. (supra) it has been held as under (Headnote) : "The order of reference to the Third Member shall contain the difference of opinion between the Members of the Bench. The President or the Third Member has no right to go beyond the scope of reference and he has to consider only the difference of opinion stated by the Members of the Bench. Section 255(4) does not vest such power with the President or the Third Member. He has also no right to formulate the question of his own. Framing the question on his own goes beyond the jurisdiction. The Third Member must confine himself to the ....
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....or: PV = FV (1+i)n 1. PV is the value at time=0 2. FV is the value at time=n 3. i is the rate at which the amount will be compounded each period 4. n is the number of periods (not necessarily an integer) 5. Future value of a present sum The future value (FV) formula is similar and uses the same variables. FV = PV - (1+i)n From the above definition and equation it is clear that the present value of a future sum is the same and if there is a difference i.e., positive NPV then the project repays original investment plus the required rate of return. In other words a positive NPV means a better return and negative NPV means a worse return, than the return from zero NPV meaning thereby the similar value of a future sum." 23. In this view of the matter, the objection raised by the Revenue is devoid of any merit and, hence, rejected. 24. As regards the objection of the Revenue in para 4 & 7 of the Misc. Application (supra) that the finding given by the Tribunal in para 76 & 105 of the Tribunal order are factually in-correct inasmuch as it is not correct to say that the State Government has treated the Sales tax collected by the assessee amounting to Rs. 7,52,....
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....rnment. Thus, one of the requirements spelt out for the applicability of section 41(1)(a) has not been fulfilled in the facts of the present case." 25. The above finding of the Tribunal are based on the entries recorded in the books of the assessee, fourth proviso to section 38(4) of the BST Act, 1959 and the Certificate dtd. 25-8-2003 issued by SICOM and the provisions of section 41(1)(a) of the Act, therefore, in the absence of any material to show that there is any difference in the amount of loan or there is no such proviso to section 38(4) of the BST Act, 1959 or there is no such Certificate dtd. 25-8-2003, we are of the view that the objections raised by the Revenue are outside the scope of section 254(2) of the Act and accordingly the same are rejected. 26. As regards the objection of the Revenue in para 5 of the Misc. Application (supra) that the Tribunal while deciding the issue in para 77 of its order has failed to consider the submission of the ld. D.R. , we find that the Tribunal after considering the arguments of the ld. D.R., incorporated in paras 22 to 47 appearing at page 20 to 49 of the Tribunal order has observed and held in para 77 as under:- "Pursuant to the ....
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....Accordingly the assessee has paid an amount of Rs. 3,37,13,393/- to SICOM which according to the assessee represented the NPV as determined by SICOM. The payment was made to SICOM on 30.12.2002 as per certificates dated 25.8.2003 appearing at page 188 and 207 of assessee's paper book. The revenue has placed no material on record to show that the present value (NPV) of a future sum is not the same or in the process of calculation of present value of a future sum there is any conversion gain to the assessee. It is also not the case of the revenue that there is no such conversion provided under the BST Act, or the Table provided for determination of NPV is not applicable in the case of the assessee. In the absence thereof it is not possible for us to accept the contention of the ld. DR that there was a remission or cessation of the trading liability." 27. In the absence of any material to show that the Tribunal has not considered any other argument of the ld. D.R. apart from the arguments mentioned in paras noted above, we are of the view that there is no apparent mistake in the order of the Tribunal in terms of provisions of section 254(2) of the Act and accordingly we reject th....
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....ed recently in CIT vs. Tara Agencies (2007) 292 ITR 444 (SC). This being so we are of the view the first requirement of section 41(1) has not been fulfilled in the facts of the present case." 29. In view of the above, we find that there is no mistake in the order of the Tribunal under the provisions of section 254(2) of the Act and, therefore, we reject the plea of the Revenue in this regard. 30. As regards the objection of the ld. D.R. that the Tribunal in para 108 of the order has discussed the provisions of section 63 of the Indian Contract Act, 1872 which was never a subject matter of the discussion, we are of the view that the Tribunal after holding in the preceding paras i.e. upto paras 107 of the order that there was no remission of trading liability as per the provisions of section 41(1) of the Act has examined the issue from another angle in the light of provisions of section 63 of the Indian Contract Act, 1872 and has held that the provisions of section 41(1)(a) are not applicable. This exercise of the Tribunal is not beyond the question before the Special Bench of the Tribunal and, hence, there is no mistake. This view also finds support from the decision of the Hon'bl....
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....ting practice cannot override section 56 or any other provision of the Act As was pointed out by Lord Russell in the case of B. S. C. Footwear Ltd. [1970] 77 ITR 857, 860 (CA), the income-tax law does not march step by step in the footprints of the accountancy profession." 33. In the absence of any material to show that the finding given by the Tribunal are contrary to the settled position of law that making of an entry or absence of an entry cannot determine rights and liabilities of the parties, we are of the view that the plea taken by the Revenue is devoid of any merit and accordingly the same is rejected. 34. As regards the objection of the Revenue in para 10,11 and 12 of the Misc. Application (supra) that the finding recorded by the Tribunal are contrary to the facts and the submissions of the ld. D.R. have been totally omitted to be considered by the Bench, we find that in view of the reasoned finding recorded by the Tribunal in paras 73,74,75,76,77,104, 105,106,107, 108 & 109, there is no apparent mistake in the order of the Tribunal in terms of scheme of section 254(2) of the Act and, hence, the submissions of the Revenue in paras 10,11 and 12 of the Misc. Application (s....
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....of the important reasons for giving the power of rectification to the Tribunal under section 254(2) was to see that no prejudice was caused to either of the parties appearing before it. The rule of precedent was an important aspect of certainty in the rule of law, and prejudice had resulted to the assessee since the precedent had not been considered by the Tribunal. The Tribunal was justified in rectifying the mistake on record." 38. In Ramesh Chand Modi (supra) relied on by the ld. D.R. it has been held (Headnote of (2001) 249 ITR 323 [Raj.]): "Where the Tribunal fails to decide some of the questions raised before it inadvertently or by oversight, the only appropriate method of correcting such mistake is to recall the order and make a fresh order after affording an opportunity of hearing to such party. In all such cases, ordinarily the court or Tribunal acts ex debito justitiae to prevent abuse of process even in the absence of any power. Once a mistake on the face of the record is established what order should follow to correct that mistake shall always depend on the facts and circumstances required to rectify the mistake. If the mistake is one which requires determination of ....