TaxTMI 
TaxTMI 
2006 (2) TMI 92
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompany, claimed deduction under section 80-I of the Income-tax Act, 1961 (the Act) in relation to two units-Vatva unit and Mandali unit. The Assessing Officer held while computing the amount allowable as deduction under section 80-I of the Act that a sum of Rs. 1,25,23,324 being late payment interest received from the debtors in the case of the vatva unit and Rs. 53,67,140 being late payment interest received from the debtors in respect of the Mandali unit had to be excluded from the profits of the industrial undertaking. According to the Assessing Officer, as held in the assessment order for the immediately preceding assessment year, viz., the assessment year 1991-92 late payment interest was received by the assessee due to default of the customers and had nothing to do with industrial activity or the manufacturing activity of the assessee. That it was not an integral part of the profits of the industrial undertaking. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals), who followed the appellate order in the assessee's own case for the assessment year 1991-92 and held that the assessee was entitled to include the aforesaid two sums while c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. (5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.' From the above, it is clear that under sub-section (1) an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, only if the High Court is satisfied that the case involves a substantial question of law. Sub-section (2) of the said section permits a party aggrieved by any order passed by the Appellate Tribunal to file an appeal to the High Court and it has to be in the form of memorandum of appeal to the High Court precisely stating therein the substantial question of law involved. Sub-section (3) provides that where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question and the appeal shall thereafter as provided in sub-section (4) be heard on the question so formulated and at the time of hearing the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....annot be said to be derived from the industrial undertaking. Contentions: Question No. 1 Mr. S.N. Soparkar, the learned senior advocate appearing on behalf of the appellant-assessee, submitted that an appeal is nothing else but a continuation of the original proceedings and when a High Court, after adjudication endorses the view expressed by the Tribunal, the High Court endorses the decision on the issue arising before the Tribunal. That the Tribunal had erred in stating that when the High Court dismisses an appeal holding that no substantial question of law arises, there is no merger of the order of the Tribunal. According to him, the High Court in exercise of its appellate jurisdiction is called upon to decide whether a question proposed in the appeal is a question of fact or a question of law, and at the time of dismissal of the appeal, if the High Court concurs with the view of the Tribunal either on facts, or on law, or on both, the order of the Tribunal merges with the order of the High Court and thereafter it is only the order of the High Court which is effective and operative. In support of the submissions made by him he relied upon the following decisions: (i) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h, AIR 2001 SC 279; (x) Amba Bai v. Gopal, AIR 2001 SC 2003; (xi) Rekha Mukherjee v. Ashish Kumar Das, AIR 2004 SC 443. In rejoinder Mr. Soparkar submitted that when the High Court dismisses an appeal holding that no substantial question of law arises it does not mean that the High Court has no powers. By way of illustration it was pointed out that in case of a matter where the tax effect is low the High Court may refuse to entertain the appeal, and the impact of such a decision would be that though the High Court exercises appellate jurisdiction, it is limited qua that matter but the order does not operate as a precedent. However, that cannot be the situation when the High Court in exercise of its appellate jurisdiction dismisses an appeal on the ground that no substantial question of law arises, because whether the High Court dismisses the appeal at the stage of admission or after notice of hearing to the other side, the High Court exercises the same jurisdiction and the same powers. That section 260A of the Act cannot be dissected into two parts as the Revenue contends. Question No. 2 On the merits it was submitted by Mr. Soparkar, in relation to question No. 2, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... describe such an appeal as a "tax appeal" to distinguish the same from other appeals, like first appeal and second appeal. In fact, an appeal gets filed with the registry of the High Court as a matter of fact and the person filing the appeal is not required to seek any leave from any authority, much less the High Court, prior to filing of the appeal. It is not as if the Legislature is not aware of such a procedure, i.e., requirement of leave. Under section 149(2) of the Motor Vehicles Act, 1988 ("the M.V. Act") the grounds on which an insurer can take up defence have been specified. Under section 170 of the Motor Vehicles Act the Motor Accident Claims Tribunal is entitled to make a direction that the insurer shall be impleaded as a party to the proceedings and thereupon, without prejudice to the provisions of section 149(2) of the Motor Vehicles Act, the insurer has a right to contest the claim on all or any of the grounds that would be available to the person against whom the claim is made. Section 173 of the Act provides for appeals before the High Court against an award made by the Claims Tribunal. In this context in the case of Sadhana Lodh v. National Insurance Co. Ltd. [2003....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stance, whether or not, a substantial question of law arises from the order of the Tribunal, it cannot be stated that the High Court does not exercise the appellate powers or that ho appeal lies, or that there is no decision on appeal, when the High Court dismisses an appeal holding that no substantial question of law arises from the order of the Tribunal. Therefore, it is not possible to bifurcate the jurisdiction or powers available to the High Court while dealing with an appeal under section 260A of the Act as canvassed by the Revenue. The view expressed by the Tribunal that there is no decision on appeal, when the High Court holds that no substantial question of law arises from the order of the Tribunal, when the High Court dismisses an appeal, is not a correct reading of law. Before dealing with the contentions of the parties, it is necessary to have a bird's eye view as to the pronouncements made by the apex court from time to time on the doctrine of merger as well as the powers expressed by the apex court under article 136 of the Constitution of India. (I) Gojer Brothers P. Ltd. v. Shri Ratan Lal Singh, AIR 1974 SC 1380: "18. The fundamental reason of the rule that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Ltd. [1963] 2 SCR 563: AIR 1963 SC 1124 is a typical example of that class of cases in which prior to the amendment of article 226 of the Constitution by the insertion of clause 1-A, the High Courts were faced with the question whether a writ could issue against an authority whose seat was situated beyond the territorial jurisdiction of the High Court. The respondent filed a writ petition in the Calcutta High Court against the decision of the Central Board of Revenue which had dismissed his appeal. A Full Bench of the High Court held that though it had no jurisdiction to issue a writ against the Central Board of Revenue which was permanently located outside its territorial jurisdiction, the Board having merely dismissed the respondent's appeal against the order passed by the Collector of Customs, the real effective order was that of the Collector whose seat was located within the jurisdiction of the High Court and therefore a writ could issue as against him. After referring to the decisions of the High Courts of Allahabad, Nagpur, Pepsu and Rajasthan which had taken the view that the order of the original authority merges in the appellate order even when the appellate authority d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....titution against the same decree and allowed it. The Bombay High Court had followed its earlier judgment in Sipahimalani's case [1956] 58 Bom LR 344 which had taken the view that an order passed by the lower court does not merge in the order passed by the revisional court because whereas a right of appeal is a vested right and an appeal is a continuation or rehearing of the suit, a revision is not a continuation or rehearing of the suit and it is not obligatory upon the revisional court to interfere with the order even if it is improper or illegal. This court disapproved of that view and held following a judgment of the Privy Council in Nagendra Nath Dey v. Suresh Chandra Dey, AIR 1932 PC 165 ; 59 Ind App. 283 that the revisional jurisdiction is a part and parcel of the appellate jurisdiction of the High Court and therefore the principle of merger would apply to orders passed in exercise of revisional jurisdiction also. 25. In Somnath Sahu v. The State of Orissa [1969] 3 SCC 384 the principle of merger was extended to an executive order dismissing a Government servant. The appellant in that case was dismissed by an order passed by respondent No. 4, the Indian Aluminium Company L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o discernible principle." (II) Kunhayammed v. State of Kerala [2000] 245 ITR 360, 366, 368, 380 (SC); [2000] 6 SCC 359, 369, 376, 382; [2000] 119 STC 505 (SC); "The doctrine of merger 7. The doctrine of merger is neither a doctrine of constitutional law nor a doctrine statutorily recognised. It is a common law doctrine founded on principles of propriety in the hierarchy of justice delivery system. On more occasions than one this court had an opportunity of dealing with the doctrine of merger. It would be advisable to trace and set out the judicial opinion of this court as it has progressed through the times. 12. The logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subject-matter at a given point of time. When a decree or order passed by an inferior court, Tribunal or authority was subjected to a remedy available under the law before a superior forum then, though the decree or order under challenge continues to be effective and binding, nevertheless its finality is put in jeopardy. Once the superior court has disposed of the lis before it either way-whether the decree or order under appeal is set a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... leave petition. Even if the merits have been gone into, they are the merits of the special leave petition only. In our opinion neither the doctrine of merger nor article 141 of the Constitution is attracted to such an order. Grounds entitling exercise of review jurisdiction conferred by order 47, rule 1, CPC or any other statutory provision or allowing review of an order passed in exercise of writ or supervisor)' jurisdiction of the High Court (where also the principles underlying or emerging from order 47, rule 1, CPC, act as guidelines) are not necessarily the same on which this court exercises discretion to grant or not to grant special leave to appeal while disposing of a petition for the purpose. Mere rejection of a special leave petition does not take away the jurisdiction of the court, the Tribunal or forum whose order forms the subject-matter of petition for special leave to review its own order if grounds for exercise of review jurisdiction are shown to exist. Where the order rejecting an SLP is a speaking order, that is, where reasons have been assigned by this court for rejecting the petition for special leave and are stated in the order, still the order remains the one....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and individuality. 43. We may look at the issue from another angle. The Supreme Court cannot and does not reverse or modify the decree or order appealed against while deciding a petition for special leave to appeal. What is impugned before the Supreme Court can be reversed or modified only after granting leave to appeal and then assuming appellate jurisdiction over it. If the order impugned before the Supreme Court cannot be reversed or modified at the SLP stage obviously that order cannot also be affirmed at the SLP stage." (III) Chandi Prasad v. Jagdish Prasad [2004] 8 SCC 724: "10. Where a statutory appeal is provided for, subject, of course to the restrictions which may be imposed, it is a continuation of suit. It is also not in dispute that when a higher forum entertains an appeal and passes an order on merit, the doctrine of merger applies. 23. The doctrine of merger is based on the principles of propriety in the hierarchy of the justice delivery system. The doctrine of merger does not make a distinction between an order of reversal, modification or an order of confirmation passed by the appellate authority. The said doctrine postulates that there cannot be more ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssal this court does not lay down any law, as envisaged by article 141 of the Constitution, as contended by the learned Attorney General. In Indian Oil Corporation Ltd. v. State of Bihar [1987] 167 ITR 897 (SC); [1986] 4 SCC 146 it has been held by this court that the dismissal of a special leave petition in limine by a non-speaking order does not justify any inference that, by necessary implication, the contentions raised in the special leave petition on the merits of the case have been rejected by the Supreme Court. It has been further held that the effect of a non-speaking order of dismissal of a special leave petition without anything more indicating the grounds or reasons of its dismissal must, by necessary implication, be taken to be that the Supreme Court had decided only that it was not a fit case where special leave petition should be granted. In Union of India v. All India Services Pensioners Association [1988] 2 SCC 580, this court has given reasons for dismissing the special leave petition. When such reasons are given, the decision becomes one which attracts article 141 of the Constitution which provides that the law declared by the Supreme Court shall be binding on all....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sdiction not open otherwise and as of right. Thus, a petition seeking grant of special leave to appeal and the appeal itself, though both dealt with by article 136 of the Constitution, are two clearly distinct stages. In our opinion, the legal position which emerges is as under: (1) While hearing the petition for special leave to appeal, the court is called upon to see whether the petitioner should be granted such leave or not. While hearing such petition, the court is not exercising its appellate jurisdiction; it is merely exercising its discretionary jurisdiction to grant or not to grant leave to appeal. The petitioner is still outside the gate of entry though aspiring to enter the appellate arena of the Supreme Court. Whether he enters or not would depend on the fate of his petition for special leave. (2) If the petition seeking grant of leave to appeal is dismissed, it is an expression of opinion by the court that a case for invoking appellate jurisdiction of the court was not made out; (3) If leave to appeal is granted the appellate jurisdiction of the court stands invoked; the gate for entry in the appellate arena is opened. The petitioner is in and the respondent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ision alone which subsists and is operative and capable of enforcement. That there is no difference in principle and it is not possible to draw any distinction between the first two kinds of orders made by the appellate authority and the third kind of order made by the appellate authority. In law the terms "affirm" and "confirm" are synonymous. Both the terms denote ratification of a judgment. In the case of Somnath Sahu v. State of Orissa [1969] 3 SCC 384, when the matter came up before the apex court it was observed that the learned single judge of the High Court of Orissa had in terms expressed opinion that where an appellate court merely dismisses the appeal, the principle of merger will have no application, but the position would be otherwise where there is modification or variation by the appellate authority. The apex court stated that "this distinction is unsound and is based on no discernible principle". Therefore, the view expressed by the Tribunal in the impugned order that when the High Court dismisses the appeal by holding that no substantial question of law arises, the High Court does not render any decision is an incorrect proposition and cannot be accepted. Whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... its own order for earlier years, ignore the fact that the only effective order for earlier years is that of the High Court. The Tribunal cannot also state that a particular argument was not raised or considered and hence, the Tribunal will not follow and apply the earlier decision of the High Court: ... As laid down by the apex court in the case of Ambika Prasad Mishra v. State of U.P., AIR 1980 SC 1762; [1980] 3 SCC 719: "Every new discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. ... a decision does not lose its authority 'merely because it was badly argued inadequately considered and fallaciously reasoned'..." Similarly in the case of Kesho Ram and Co. v. Union of India [1989] 3 SCC 151, it is stated by the Supreme Court thus: "The binding effect of a decision of this court does not depend upon whether a particular argument was considered or not, provided the point with reference to which the argument is advanced subsequently was actually decided in the earlier decision". In a case where the appeal is dismissed on account of (i) being barred by limitation, (ii) being defective in nature, (iii) the appellant having no lo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ises for the opinion of the High Court from such order of the Tribunal, which has followed the High Court decision on the question which is already settled so far as it is concerned, and would be a binding precedent until reconsidered and departed from by a larger Bench of the same court or overruled by the Supreme Court." In an order of affirmation, repetition of reasons may not be elaborate, but once the order shows that the points urged have been dealt with and reasons for affirmation/approval stated, the matter ends. It is a decision of the superior court viz., the High Court and the Tribunal cannot ignore it. Where by a process of incorporation, the High Court refers to and relies upon its own order made earlier in the point of time in the case of the same assessee, or even some other assessee, by necessary implication the reasons stated in the earlier order become reasons for the subsequent order, and it is not open to anyone to contend that the High Court has dismissed the appeal only on the facts without rendering any decision. The decision of the High Court could be both on the facts and law, or on any one, where the High Court does not find any reason to interfere with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and on facts. The Tribunal instead of recording findings on the facts proceeded to discuss law. This litigation could have been avoided if the parties had invited attention to the basic facts. Neither the approach nor the reasons advanced by the Tribunal deserve acceptance. It is an incorrect proposition to state that interest paid by the debtors for late payment of the sale proceeds would not form part of the eligible income for the purpose of computing relief under section 80-I of the Act. The reliance on the general meaning of the term interest as well as drawing distinction between the source of sale proceeds and the source of interest is erroneous in law. In the case of CIT v. Govinda Choudhury and Sons [1993] 203 ITR 881 the apex court was called upon to decide as to the nature of interest received by the assessee therein. In the case before the apex court the assessee who was executing Government contracts found itself involved in disputes with the State Government with regard to the payments due under the contracts and upon reference to arbitrators, the award included the principal sum as well as the interest for delay in payment of the principal sum. The assessee claime....