TaxTMI 
TaxTMI 
2020 (3) TMI 413
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....r of the assessee, all other issues will be rendered academic and infructuous. He, however, hastens to add that while this issue is now required to be decided in favour of the assessee in the light of binding judicial precedents from Hon'ble Courts above, there are decisions against the assessee, by coordinate benches, in assessee's own cases for preceding assessment years. We are thus urged to take up this issue first, and, thereafter, if necessary, deal with other issues in the appeal. Learned Departmental Representative, even though he is emphatic that there is no reason to deviate from the earlier decisions of the coordinate benches, does not oppose the approach suggested by the learned senior counsel. We, therefore, begin by taking up the related ground of appeal, i.e. ground no. 3, which is as follows: The learned CIT(A) erred, in facts and in law, in upholding that Kaybee Exim Pte Ltd Singapore (KPEPTL) is an associated enterprise (AE) of the appellant within the meanings of Section 92A 3. The material facts, relating to this grievance, are in a narrow compass. The assessee before us is an Indian company and 99.9% of its shareholding is held by a person by the name of G....
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....atisfied then the two enterprises for the purpose of section 92B to 92E of the Act will be treated as AEs. Sub Sec. (2) of section 92A is a deeming fiction and therefore, it expends/enlarges the scope and meaning of expression "AE" provided under s.s. (1) of section 92A. Since s.s. (2) is a deeming fiction, therefore, it can be applied only in the specific facts of the case where any of the conditions stipulated in the clauses of this sub section are fulfilled. It has no general application in respect of the meaning "AE". Even otherwise, s.s. (1) of section 92A does not begun with the subjective clause "subject to s.s. (2)". ................ ................ We have already discussed that s.s. (2) is a deeming fiction and, therefore, the condition/criteria specified therein are required to be fulfilled. As it is clear from the criteria enumerated in clause (a) to (m) of s.s. (2) of section 92A that none of the clauses prescribed any criteria in respect of one enterprise participate directly or indirectly or through one or more intermediaries in the management which is one of the conditions prescribed under clauses (a) & (b) of s.s. (1) of section 92A of the Act. jio Theref....
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....more associated enterprises by a common interests, and such a control is essentially an effective control in decision making process. 11. In our considered view, therefore, the definition of associated enterprises in section 92A( 1 )(a) and (b ) is, what can be termed as, basic rule. In plain terms, the basic rule is that when one enterprise participates in the control or management or capital of the other enterprise (directly or indirectly or through one or more intermediaries) or when persons participating (directly or indirectly or through one or more intermediaries) in control or management or capital of two or more enterprises are the same, the enterprises are said to be associated enterprise. The expression used in the statute is 'participation in control or management or capital', but essentially all these three ingredients refer to de facto control on decision making. In terms of the basic rule thus, whether one enterprise controls the decision making of the other or whether decisions making of two or more enterprise are controlled by same interests, these enterprises are required to be treated as 'associated enterprise'. Section 92A(2) gives practical il....
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....he Diageo group entities from which the CBU has imported raw materials. Clearly, therefore, the assessee, as also the CBU and its Diageo group supplier of raw materials are associated enterprises, and de facto all these enterprises are controlled, directly or indirectly or through intermediaries, by the same person i.e. Diageo PLC. In this view of the matter, as also bearing in mind entirety of the case, the relationship of AEs exist between the assessee, the CBU and Diego group entities from which raw materials were purchased by the CBU. In any case, since the costs of all the raw materials is picked up by the assessee for all effective purposes. the transaction is actually between the assessee and the Diageo group concerns supplying the raw material to the CBU, and since the assessee as also these vendors are admittedly under the control of Diageo PLC, the transactions are clearly between the associated enterprises The objection raised by the assessee to the effect that the transactions of imports of raw material by the CBU, i. e. Konkan Agro, from Diageo group entities cannot be treated as international transactions between the associated enterprises, therefore, is rejected. ....
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.... for the determination of AE's has to be separately established. We have noted that the assessee has not brought any material fact on record to take any contrary view for the year under consideration. Therefore, the alternative submission of the assessee is that each year relationship for the determination of AE's has to be separately established, as also rejected. 6. Learned counsel for the assessee, nevertheless, contends that, notwithstanding the above mentioned judicial precedents in assessee's own case, the issue is required to be decided in favour of the assessee now. His line of reasoning is this. He points out that when the first decision in the case of Diageo India Pvt Ltd Vs DCIT [(2011) 47 SOT 252] was rendered, the bench did not have any occasion to look at the memorandum to the related finance bill which unambiguously reflects the legislative intent behind amendment in section 92 A(2) with effect from 1st April 2002. It is pointed out that while the transfer pricing provisions were brought on the statute with effect from 1st April 2001, there was an amendment in Section 92A(2) in the very next year which specifically provided that "for the purpose of sub section (1)"....
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.... jurisdictional High Court, in the absence of anything to the contrary by Hon'ble jurisdictional High Court, is equally binding on the Tribunal. We are thus urged to follow the decision which has been approved by Hon'ble High Court and has thus merged therein. In any case, a decision unmindful of unambiguous legislative intent, cannot be followed- more so when contrary view taken by another coordinate bench has been approved by a Hon'ble High Court. 7. Learned Departmental Representative, on the other hand, urges us to follow the coordinate bench decision in assessee's own case. He submits that only a larger bench can overturn this approach, and since we are a bench of equal strength, i.e. a division bench of two members, it cannot be open to us to deviate from the coordinate bench decisions in assessee's own case. In any case, he submits that even on the first principles the Diageo India decision, which is what the coordinate benches have followed in assessee's own case, makes more sense and satisfies the natural meanings of the expressions of 'associated enterprises. When the decision of Hon'ble Gujarat High Court and the CBDT circular was pointed out to him, he did not have mu....
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.... clarify that where any of the criterion specified in sub section (2) is fulfilled, two enterprises shall be deemed to be associated enterprises" (emphasis supplied by us now). The only insertion in section 90A(2) was of the words "for the purposes of sub section (1)" of Section 92A, which thus restricted the scope of section 92A(1). Except for these words, all the provisions of Section 92A(2) were anyway there prior to amendment as well. The clarification was possible only on this restriction on section 92A(1). In our humble understanding, what, in effect, this circular lays down is the principle that only when the criterion specified in sub section (2) is satisfied, two enterprises can be treated as associated enterprises. Now, it is only elementary that the circulars issued by the CBDT, in exercise of the powers under section 119 of the Act- which is what admittedly this circular is, bind all the field authorities. Section 119(1) provides that the CBDT "may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execu....
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....ns of the Tribunal and are completely at par so far as precedence value is concerned. The second thing is that, even as judicial officers, all of us evolve every day, and, with the benefit of experience and exposure, we learn every day. In this learning process, when we sometimes discover our mistakes and errors, and we should not shy away from putting these learnings to use rather than perpetuating our mistakes, when we can do so within permissible legal framework. On the first limb of the second proposition, we are reminded of the words of Justice Cardozo, in his classic book 'The Nature Of Judicial Process', (first published by Yale University Press, United States, in December 1921; also at http://www.constitution.org/cmt/cardozo/jud_proc.htm) had said, "I own that it is a good deal of a mystery to me how judges, of all persons in the world, should put their faith in dicta. A brief experience on the bench was enough to reveal to me all sorts of cracks and crevices and loopholes in my own opinions when picked up a few months after delivery, and reread with due contrition. The persuasion that one's own infallibility is a myth leads by easy stages and with somewhat grea....
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.... down by Hon'ble Supreme Court in the cases of UCO Bank (supra), K P Verghese (supra), Ellerman Lines Ltd (supra) and Navnit Lal Jhaveri (supra), such a decision clearly per incurium and do not constitute binding judicial precedents. It cannot be open to the Assessing Officer to take a stand on an issue contrary to the assurance given in the Memorandum to the Finance Bill in most unambiguous terms as also in the CBDT circular. It is on the basis of these factors that Diageo decision was deviated from, and must be held to be per incuriumparticularly as these aspects were not even brough to the notice of the bench. Learned senior counsel who had also pleaded Diageo's case (supra) before this Tribunal fairly concedes that these aspects of the matter were not even then brought to the notice of the bench, and that the entire discussion in Diageo's case proceeded on the first principles and without reference to this position in the CBDT circular and the Memorandum to the Finance Bill. Whatever be the academic merits of that discussion, it has to yield to the correct legal position. That, however, is not the only, or even predominant, reason as to why we must take a different stand in thi....
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....ar that as long as the provisions of one of the clauses in Section 92A(2) are not satisfied, even if an enterprise has a de facto participation capital, management or control over the other enterprises, the two enterprises cannot be said to be associated enterprises. That is a what coordinate bench decisions in the cases of Orchid Pharma Ltd Vs DCIT [(2016) 76 taxmann.com 63 (Chennai - Trib.)] and Page Industries Ltd Vs DCIT {(2016) 159 ITD 680 (Bang)] also hold. [Emphasis, by underlining, supplied by us now] 10. The views expressed by the coordinate bench were approved by Hon'ble Gujarat High Court i.e. jurisdictional High Court in that case, in the judgment reported as PCIT Vs Veer Gems (supra). The Special Leve Petition filed by the Principal Commissioner of Income Tax against the aforesaid judgment was dismissed by Hon'ble Supreme Court, vide judgment dated 5th January 2018- also reported as PCIT Vs Veer Gems (supra). The view contrary to the view taken in assessee's own case has thus been approved by Hon'ble Courts above, and have thus achieved finality. 11. It is also important to note that once a higher judicial forum takes a decision one way or the other, all the deci....
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....itted by the learned Departmental Representative. 7. It is also important to bear in mind that the question requiring adjudication by Their Lordship was whether or not decision of one of the High Courts was binding on the other High Courts. This will be clear from following observations made by Their Lordships in the beginning of the judgment : "On a careful consideration of the submissions of the learned counsel for the assessee, we find that before taking up the issue involved in the question of law referred to us in this case for consideration, it is necessary to first decide.... whether this Court, while interpreting an all India statute like Income-tax Act, is bound to follow the decisions of any other High Court and to decide accordingly, even if its own view is contrary thereto, because of the practice followed in this Court. Because, if we are to accept this submission, it will be an exercise in futility to examine the real controversy before us...." 8. One of the propositions that Their Lordships took note of was that 'the decisions of the High Court on the subordinate Courts and authorities or Tribunals under its superintendence throughout the territories in ....
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.... out a word or a sentence from the judgment of this Court, divorced from the context of question under consideration, and treat it to be complete law declared by this Court." [Emphasis supplied]. 10. In this light, and bearing in mind the fact that limited question before Their Lordships was whether or not decision of one of the High Courts is binding on another High Court, it would appear to us that ratio decidendi in Thana Electricity Co. Ltd. (supra), is on the non-binding nature of a High Court's judgment on another High Court. In any case, this Division Bench did not, and as stated in this judgment itself, could not have differed with another Division Bench of the same strength in the case of Godavari Devi Saraf (supra). Therefore, it cannot be open to a subordinate Tribunal like us to disregard any of the judgments of the Hon'ble Bombay High Court, whether in the case of Thana Electricity Co. Ltd. (supra) or in the case of Godavari Devi Saraf. It is indeed our duty to loyally extend utmost respect and reverence to the Hon'ble High Court, and to read these two judgments by the Division Benches of equal strength of the Hon'ble jurisdictional High Court, i.e....
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....ch was acknowledged in so many words, that a Co-ordinate Bench decision cannot be overruled. In this view of the matter, it is difficult to hold, as has been strenuously argued before us by the learned Departmental Representative, that the Hon'ble Bombay High Court's judgment in the case of Godavari Devi Saraf's case stands overruled by Their Lordship's judgment in the case of Thana Electricity Co. Ltd.'s case. The only way in which we can harmoniously interpret these judgments is that these decisions deal with two different issues and ratio decidendi of these decisions must be construed accordingly. 14. Let us also see this issue from a different perspective. Even if we are to assume that it is possible to interpret that Godavari Devi Saraf's decision stands overruled by judgment in the case of Thana Electricity Co. Ltd.'s case, one cannot be oblivious to the fact that an interpretation is indeed possible to the effect that even nonjurisdictional High Court's judgment, for the reasons set out above, is binding on the Tribunal. This non-jurisdictional High Court's judgment is in favour of the assessee. Now, as held by the Hon'ble Supreme C....
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.... Court above. That is the strength of the hierarchical judicial system. [Emphasis, by underlining, supplied by us] 13. Such being the guidance of Hon'ble Supreme Court on the issue, and for the detailed reasons set out above, we are inclined to follow the line of reasoning expressed by the coordinate benches in the cases of Page Industries (supra), Orchid Pharma (supra) and Veer Gems (supra). One of the decisions, on this line of reasoning, in case of Veer Gems was carried in appeal before Hon'ble Gujarat High Court, and Their Lordships, in the judgment reported as PCIT vs Veer Gems (supra), were pleased to confirm the said order of the Tribunal. We, therefore, follow this line of reasoning. 14. As regards the request for reference to a larger bench, we donot think that will be appropriate on the facts and in the circumstances of this case. 15. The reasons are more than one. 16. Firstly, once a higher judicial forum has expressed its view on the subject, it will be wholly inappropriate for us to do, or to be seen to be doing, a parallel exercise and thus sit, directly or indirectly, in judgment over what a higher judicial forum has already decided. Secondly, Hon'ble jurisd....