Bombay High Court
Hdfc Bank Ltd vs The Deputy Commissioner Of ... on 25 February, 2016
Bench: M.S. Sanklecha
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 1753 OF 2016
HDFC Bank Ltd. Mumbai .. Petitioner
v/s.
The Deputy Commissioner of Income
Tax-2(3), Mumbai & Ors. .. Respondents
Mr. J.D. Mistry, Senior Counsel a/w Madhur Agarwal a/w Atul
Jasani for the petitioner
Mr. Suresh Kumar a/w Ms. Samiksha Kanani for the respondent
CORAM : M.S. SANKLECHA &
B.P. COLABAWALLA, J.J.
DATED : 25th FEBRUARY, 2016.
PER COURT : -
1. Heard. Rule. Respondents wave service. By consent of the
parties, Rule is made returnable forthwith.
This petition under Articles 226 and 227 of the Constitution
2.
of India challenges the order dated 23rd September, 2015 passed
by the Income Tax Appellate Tribunal (Tribunal) under Section
254(1) of the Income Tax Act, 1961 (the Act). By the impugned
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order dated 23rd September, 2015, the Tribunal dismissed the
petitioner's appeal relating to the Assessment Year 2008-09 on the
issue of applicability of Section 14A of the Act to disallow a
portion of the interest paid on borrowed funds in respect of
investments made in tax free securities. This when it has own
funds in excess of investments made in the securities and further
these securities are held as stock in trade. This dismissal of the
appeal, submit the petitioner, inspite of the issue being concluded
on both the grounds in its favour by the binding decisions of this
Court.
3. However, Mr. Suresh Kumar the learned Counsel for the
Revenue urged that as there is an alternative remedy of an
statutory appeal available under Section 260A of the Act from
impugned order of the Tribunal this court should not exercise its
extraordinary jurisdiction under Article 226 of the Constitution of
India. It is submitted that issue raised in this petition could be
examined in appeal. It is true that an order passed under Section
254(1) of the Act by the Tribunal, such as the impugned order is
amenable to an appeal to this Court under Section 260A of the
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Act. Normally we would have directed the petitioner to adopt its
statutory alternative remedy. However, the grievance of the
petitioner here is not so much to the merits or demerits of the
impugned order, but the refusal of the Tribunal to follow the
binding decision of this Court in the case of the petitioner itself
being CIT Vs. HDFC Bank Ltd. 366 ITR 505 for an earlier
Assessment Year 2001-02 on identical issue of applicability of
Section 14A of the Act to partially disallow interest expenditure
when interest free funds available with the Petitioner are in excess
of investments made in tax free securities. Thus, the endeavor of
the petitioner is to bring to our notice that in passing the
impugned order dated 23 September 2015 the Tribunal has
exceeded the bounds of its authority, by disregarding the binding
decisions of this Court, which if not corrected, may sound the
death knell of two established practices of our judicial system viz.
doctrine of Precedent i.e. treating like cases alike and the
hierarchical structure of our judicial system/jurisprudence where
each lower forum / tier is bound by the orders of the higher tier
on like issues till such time as it is set aside by a further higher
forum. It is in the aforesaid circumstances, that we are compelled
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to examine the grievance of the petitioner in the context of our
supervisory jurisdiction under Article 227 of the Constitution of
India.
4. Factual Matrix :-
(a) For the Assessment Year 2008-09, the petitioner filed its
return of income declaring an income of Rs.241.72crores. The
petitioner had in its return of income also declared an income of
Rs.5.81crores from the investments in securities which were
exempt from tax. These investments were treated by the
petitioner as stock in trade. The petitioner had during the subject
Assessment year paid interest on borrowed funds and had claimed
the same as an expenditure. However the petitioner did not
disallow any expenditure on the income earned on the tax free
securities on the ground that the investments in tax free securities
was made out of its own tax free funds as is evidenced by the fact
that it had ample funds of its own to make investments. Thus no
disallowance was made on the expenditure claimed as the interest
paid on borrowed funds.
(b) By an order dated 22nd December, 2010 passed under
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Section 143(3) of the Act, the Assessing Officer assessed the
petitioner's income at Rs.1067.93crores. This after disregarding
the petitioner's contention that Section 14A of the Act would not
apply in respect of its tax free securities as it had ample interest
free funds available and the same was utilized from a common
pool consisting of interest bearing funds and interest free funds to
purchase the tax free securities. This only on the ground that the
petitioner was not able to indicate / lead evidence that the
investments made in tax free securities came out of its interest free
funds. In the circumstances the Assessing officer invoked Section
14A of the Act r/w Rule 8D of the Income Tax Rules (Rules) to
disallow an amount of Rs. 3.39crores on account of interest and
Rs.0.27crore as other expenses aggregating to Rs.3.66crores under
Section 14A of the Act as being an expenditure incurred for
earning tax exempt income of Rs.5.81crores.
(c ) Being aggrieved with the order dated 22nd December, 2010
of the Assessing Officer, the petitioner preferred an Appeal to the
Commissioner of Income Tax (Appeals) [CIT(A)]. By an order
dated 21st November, 2011, the CIT(A) dismissed the petitioner's
appeal upholding the order of the Assessing Officer.
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(d) Being aggrieved, the petitioner inter alia carried the issue of
disallowance of interest to the extent of Rs.3.39crores under
Section 14A r/w Rule 8D of the Rules in appeal to the Tribunal.
Before the Tribunal, the petitioner raised two grounds with regard
to the above issue as under:-
(i) It possessed interest free funds which were more than the
tax free investments. Thus no disallowance of expenditure
on account of interest paid could be made in view of the
binding decision of this Court in the petitioner's own case in
HDFC Bank Ltd. (supra); and
(ii) The tax free securities were held by it as its stock in
trade. Thus no disallowance of any expenditure under
Section 14A of the Act could be made in view of binding
decision of this Court in CIT Vs. India Advantages
Securities Ltd. ITA 1131/13 decided on 30th April, 2014.
However, the Tribunal by the impugned order did not
accept the petitioner's submission on both the grounds. It
disregarded the binding decision of this Court by holding that an
earlier decision of this Court in Godrej and Boyce Manufacturing
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Co. Ltd. Vs. Deputy Commissioner of Income Tax, 328 ITR 81,
which was not brought to the notice of this Court in HDFC Bank
Ltd.(supra) would hold the field. Further on the second issue of
stock in trade the impugned order after holding that it was raised
for the first time before the Tribunal, yet on merits holds that the
decision of this Court in India Advantage Securities Ltd. (supra)
cannot apply. This for the reason that this Court in India
Advantage Securities Ltd. (supra) dismissed the Revenue's appeal
at the stage of admission on the ground that no question of law
arises for consideration from the order of the Tribunal.
Submissions :-
5. Mr. Mistry, learned Senior Counsel in support of the petition
submits as under :-
(a) The issue which arose for consideration before the Tribunal
with regard to applicability of Section 14A of the Act in respect of
the tax free income earned on investments in case of a party
possessed of interest free funds in excess of the investments made
in tax free securities stood concluded in favour of the petitioner by
the binding decision of this Court as rendered in the petitioner's
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own case viz. HDFC Bank Ltd (supra) on identical facts.
Nevertheless the binding decision is disregarded by seeking to
hold that the issue is covered by an earlier decision of this Court in
Godrej and Boyce Manufacturing Co. Ltd(supra), when in fact it
has not decided the issue;
(b) There is no conflict between the decisions of this Court in
Godrej and Boyce Manufacturing Co. Ltd.(supra) and HDFC Bank
Ltd(supra). This is for the reason that this Court has in Godrej and
Boyce Manufacturing Co. Ltd.(supra) has not ruled on the issue of
disallowance of interest under Section 14A of the Act on the
ground of presumption where sufficient interest free funds are
available to make investment in tax free instruments. This issue
was only decided later by this Court for the first time in the
petitioner's own case in HDFC Bank Ltd.(supra).
(c) In view of the fact that there is only one decision viz. HDFC
Bank Ltd(supra) of this court reigning, it was not open to the
Tribunal to disregard a decision of this court by merely holding
the decision in HDFC Bank Ltd. (supra) was per incuriam. This on
the ground that in HDFC Bank Ltd. (supra) attention was not
invited to the decision of this Court in Godrej and Boyce
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Manufacturing Co. Ltd.(supra). This is more particularly so when
Godrej and Boyce Manufacturing Co. Ltd. (supra) has no
application to the present facts;
(d) In fact the Tribunal has been consistently following the ratio of
the decision of this Court in HDFC Bank (supra) in other cases
before it, but HDFC Bank itself i.e. the petitioner does not get its
benefit.
(e) Similarly, the alternative submissions urged before the
Tribunal that these investments in securities are its stock in trade
and consequently Section 14A of the Act is not applicable is also
concluded in favour of the petitioner as held by this Court in
India Advantages Securities Ltd. (supra). However the impugned
order ignores the same on the ground that this Court in the above
case only dismissed the Revenue's appeal before it and therefore
not binding. Further the impugned order also places reliance upon
the decision of this Court in Godrej and Boyce Manufacturing Co.
Ltd.(supra) even when it has no application to the facts before it.
6. Per contra Mr. Suresh Kumar, learned Counsel for the
Revenue in support of the impugned order submits as under :-
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(a) This petition should not be entertained as there is an
alternative remedy available to the petitioner under Section 260A
of the Act by way of an appeal to this Court from the impugned
order of the Tribunal.
(b) The appeal filed by the petitioner before the Tribunal arose
from orders of the Assessing Officer and the CIT(A) holding that
the petitioner was unable to establish that its interest free funds
were utilized for the purposes of investment in securities.
Consequently, it is submitted that the decision of this Court in
HDFC Bank Ltd. (supra) would not have any application to the
facts of the present case.
(c) In the facts of the present case the decision of this Court in
Godrej and Boyce Manufacturing Ltd. (supra) was applicable and
not the decision rendered by this Court in HDFC Bank Ltd. (supra).
In support reliance is placed upon the impugned order of the
Tribunal.
(d) The alternative contention that the investment in securities
are petitioner's in stock in trade, was raised for the first time only
before the Tribunal and thus could not be entertained. In any case
the decision of this Court in India Advantage Securities Ltd
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(supra) would have no application as the revenue's appeal was
dismissed by this court at the stage of admission.
It is, therefore, submitted that the impugned order passed by
the Tribunal calls for no interference by this Court in its
extraordinary jurisdiction under Articles 226 and 227 of the
Constitution of India.
Consideration :-
7. In our system of Jurisprudence the theory of Precedents and
the hierarchical structure are an inherent part of our dispute
resolution/justice obtaining apparatus i.e. Courts / Tribunal. The
theory of precedent ensures that what has been done earlier
would be done subsequently on identical facts. To wit, like cases
are to be treated alike. Thus, the doctrine of precedent ensures
certainty of law, uniformity of law and fairness meeting some of
the essentials ingredients of Rule of Law. In fact, the Supreme
Court in Union of India vs. Raghuvir Singh 1989 (2) SCC 754
while setting out the objectives of the doctrine of Precedent
observes at para 7, 8 and 9 thereof as under:-
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"7. India is governed by a judicial system identified by a
hierarchy of courts, where the doctrine of binding precedent
is a cardinal feature of its jurisprudence. .......
8. Taking note of the hierarchical character of the
judicial system in India, it is of paramount importance that
the law declared by this Court should be certain, clear and
consistent. It is commonly known that most decisions of the
courts are of significance not merely because they constitute
an adjudication on the rights of the parties and re- solve the
dispute between them, but also because in doing so they
embody a declaration of law operating as a binding
principle in future cases. In this latter aspect lies their
particular value in developing the jurisprudence of the law.
9. The doctrine of binding precedent has the merit of
promoting a certainty and consistency in judicial decisions,
and enables an organic development of the law, besides
providing assurance to the individual as to the consequence
of transactions forming part of his daily affairs. And,
therefore, the need for a clear and consistent enunciation of
legal principle in the decisions of a Court."
(emphasis supplied)
8. Further the Apex Court in the case of Collector of Central
Excise Vs. Dunlop India Ltd. 154 ITR 172 has observed as
under :-
"We desire to add and as was said in Cassell and Co. Ltd.
V. Broome (1972) AC 1027 (HL), 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
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necessary for each lower tier", including the High Court,
"to accept loyally the decisions of higher tiers." 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 only works if
someone is allowed to have the last word and that last
word, once spoken, is loyally accepted" (See observations
of Lord Hailsham and Lord Diplock in Broome V. Cassell).
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. In Cassell V. Broome
(1972) AC 1027, commenting on the Court of Appeal's
comment that Rookes V. 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 in 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."
It is needles 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
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under art. 144 all authorities, civil and judicial, in the
territory of India shall act in aid of the Supreme Court."
(emphasis supplied)
9. Although both the above decisions are rendered in the
context of the decision of the Supreme Court, the same principle
with equal force would apply to the decisions of the High Court
within the State over which it exercises jurisdiction. This issue is
long settled by the Apex Court in East India Commercial Co. Ltd.
Calcutta and Anr. vs. Collector of Customs, Calcutta 1962 SC
SC 1893 wherein it has been held as under:-
"29. ...... This raises the question whether an
administrative tribunal can ignore the law declared by the
highest court in the State and initiate proceedings in direct
violation of the law so declared. Under Art.215, every
High Court shall be a court of record and shall have all the
powers of such a court including the power to punish for
contempt of itself. Under Art. 226, it has a plenary power
to issue orders or writs for the enforcement of the
fundamental rights and for any other purpose to any
person or authority, including in appropriate cases any
Government, within its territorial jurisdiction. Under
Art. 227, it has jurisdiction over all courts and tribunals
throughout the territories in relation to which it exercises
jurisdiction. It would be anomalous to suggest that a
tribunal over which the High Court has superintendence
can ignore the law declared by that court and start
proceedings in direct violation of it. If a tribunal can do
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so, all the subordinate courts can equally do so, for there is
no specific provision, just like in the case of Supreme Court,
making the law declared by the High Court binding on
subordinate courts. It is implicit in the power of
supervision conferred on a superior tribunal that all the
tribunals subject to its supervision should conform to the
law laid down by it. Such obedience would also be
conducive to their smooth working: otherwise, there would
be confusion in the administration of law and respect for
law would irretrievably suffer. We, therefore, hold that
the law declared by the highest court in the State is
binding on authorities or tribunals under its
superintendence, and that they cannot ignore it either in
initiating a proceeding or deciding on the rights involved in
such a proceeding. If that be so, the notice issued by the
authority signifying the launching of proceedings contrary
to the law laid down by the High Court would be invalid
and the proceedings themselves would be without
jurisdiction."
(emphasis supplied)
Thus, the law declared by the decisions of the High Court
will be binding upon all authorities and Tribunals functioning
within the State. Consequently, the decisions of this Court would
be binding upon all Authorities, Tribunals and Courts subordinate
to the High Court within the State of Maharashtra.
10. One more aspect which needs to be adverted to and that is
that a decision would be considered to be a binding precedent
only if it deals with/decides an issue which is subject matter of
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consideration/decision before a coordinate or subordinate court. It
is axiomatic that a decision cannot be relied upon in support of the
proposition that it did not decide.(see Mittal Engineering v.
Coll,of Central Excise 1997 (1)SCC 203).Therefore it is only the
ratio decidendi i.e. the principle of law that decides the dispute
which can be relied upon as precedent and not any obiter dictum
or casual observations. (See Girnar Tea vs. State of Maharashtra
2007(7) SCC 555 and Shin Estu Chemical Co. Ltd v. Aksh
opticfibre Ltd 2005 (7) SCC 234).
11. Keeping the aforesaid position of law in mind, we shall now
examine the impugned order of the Tribunal. The issue before
the Tribunal as raised by the petitioner was that Section 14A of
the Act would have no application to disallow interest expenditure
on fund borrowed in respect of the tax free returns on the
securities, for the following two reasons :-
(a) The petitioner was possessed of sufficient interest free funds
of Rs.2153 crores as against the investment in tax free securities of
Rs.52.02 crores. Consequently, there is a presumption that the
investment which has been made in the tax free securities has
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come out of the interest free funds available with the petitioner.
This is so as it has been held by this Court in the petitioner's own
case for an earlier Assessment year being HDFC Bank Ltd.(supra).
This decision on the above issue has been accepted by the
Revenue. This is evidenced by the fact although an appeal has
been filed to the Supreme Court with regard to another issue
arising from the order in HDFC Bank Ltd. (supra) namely broken
period interest, no appeal on this issue as raised before the
Tribunal has been challenged before the Supreme Court; and
(b) In any event, the tax free investment in securities were the
petitioner's stock in trade. Consequently, there would be no
occasion to invoke Section 14A of the Act as held by this Court in
India Advantage Securities Ltd. (supra) wherein the Revenue's
appeal from the order of the Tribunal was dismissed, to contend
that no disallowance can be made under Section 14A of the Act in
respect of exempted Income arising from stock in trade.
12. The impugned order of the Tribunal in so far as contention
(a) above is concerned, chose to disregard the binding decision of
this court in petitioner's own case being HDFC Bank Ltd.(supra).
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The impugned order of the Tribunal after recording that it is
conscious that the decision of this Court are binding upon it
proceeds on the basis that it had to decide which of the two
decisions rendered in Godrej and Boyce (supra) and HDFC Bank
Ltd. (supra) is to be followed. Thereby implying and proceeding
on the basis that there is a conflict between the two decisions
rendered by this Court in Godrej and Boyce Manufacturing Co.
Ltd. (supra) and HDFC Bank Ltd. (supra). We are unable to
understand on what basis the impugned order has proceeded on
the basis that there is a conflict between the two decisions. This is
so as with the assistance of the Counsel we closely examined the
decision of this court in Godrej and Boyce Manufacturing Co. Ltd.
(supra). On examination we find that the issue arising in this
case before the Tribunal viz. where interest free funds are
available with an Assessee which are more than the investments
made in the tax free securities, then a presumption arises that the
investments were made from its interest free funds, was not
decided therein. In fact, no view even as an obiter dictum on the
issue was expressed by this court in the above case. This issue
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along with other issues were restored by this Court in Godrej and
Boyce Manufacturing Co. Ltd. (supra) to the Assessing officer for
passing an order afresh, after the Court upheld the
Constitutionality of Section 14A of the Act.
13. One more fact which must be emphasized is that merely
because a decision has been cited before the Court and a reference
to that has been made in the order of the Court such as in the case
of Godrej and Boyce Manufacturing Co. Ltd. (supra) reference was
made to CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340
by itself would not lead to the conclusion that Reliance Utilities
and Power Ltd. (supra) has been considered and the opinion on
the same has been rendered in the case of Godrej and Boyce
Manufacturing Co. Ltd.(supra). The test to decide whether or not
two decisions are in conflict with each other is to first determine
the ratio of both the cases and if the ratio in both the cases are
in conflict with each other, then alone, can it be said that the two
decisions are in conflict. We find that no such exercise has been
done. If it was done, the Tribunal would have noted that this
Court in Godrej and Boyce Manufacturing Co. Ltd. (supra) has not
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decided the issue of applicability of Reliance Utilities and Power
Ltd. (supra) inasmuch as it has restored the entire issue to the
Assessing officer after upholding the constitutional validity of
Section 14A of the Act.
14. The only basis for proceeding on the basis that there is a
conflict between the two decisions of this court which emerges
from the impugned order is that in petitioner's own case in HDFC
Bank Ltd. (supra), reliance was placed upon the decision of this
Court in Reliance Utilities and Power Ltd. (supra) to conclude that
where both interest free funds and interest bearing funds are
available and the interest free funds are more than the
investments made, the presumption is that the investment in the
tax free securities would have been made out of the interest free
funds available with the assessee. Though, the decision of this
Court in Reliance Utilities and Power Ltd. (supra) was rendered in
the context of Section 36(1)(iii) of the Act, it was consciously
applied by this Court while interpreting Section 14A of the Act in
HDFC Bank Ltd. (supra). The impugned order of the Tribunal
proceeds on the basis that Godrej and Boyce Manufacturing Co.
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Ltd. (supra) had considered the decision of this Court in Reliance
Utilities and Power Ltd. (supra), which is factually not so. The
decision of this Court in Godrej and Boyce Manufacturing Co. Ltd.
(supra) only makes a reference to the decision of this Court in
Reliance Utilities and Power Ltd. (supra) and gives no findings on
the issue which arose in that case and its applicability while
interpreting Section 14A of the Act. This Court in Godrej and
Boyce Manufacturing Co. Ltd. (supra) has in fact restored all the
issues to the Assessing Officer for fresh consideration. This court
in Godrej and Boyce Manufacturing Co. Ltd. (supra) did not
decide whether or not the principles laid down in Reliance
Utilities and Power Ltd. (supra) can be invoked while applying
Section 14A of the Act. Thus by no stretch of reasoning can it be
countenanced that there is conflict in the decisions of this Court in
Godrej and Boyce Manufacturing Co. Ltd.(supra) and HDFC Bank
Ltd.(supra). The decision in Godrej and Boyce Manufacturing Co.
Ltd.(supra) is not a precedent for the issue arising before the
Tribunal and could not be relied upon in the impugned order of
the Tribunal to disregard the binding decision in HDFC Bank Ltd.
(supra).
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15. It is clear that for the first time in the case of HDFC Bank
Ltd. (supra) that this Court took a view that the presumption
which has been laid down in Reliance Utilities and Power Ltd.
(supra) with regard to investment in tax free securities coming out
of assessee's own funds in case the same are in excess of the
investments made in the securities (notwithstanding the fact that
the assessee concerned may also have taken some funds on
interest) applies, when applying Section 14A of the Act. Thus, the
decision of this Court in HDFC Bank Ltd. (supra) for the first time
on 23rd July, 2014 has settled the issue by holding that the test of
presumption as held by this Court in Reliance Utilities and Power
Ltd. (supra) while considering Section 36(1)(iii) of the Act would
apply while considering the application of Section 14A of the Act.
The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on
the above issue has also been accepted by the Revenue inasmuch
as even though they have filed an appeal to the Supreme Court
against that order on the other issue therein viz. broken period
interest, no appeal has been preferred by the Revenue on the issue
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of invoking the principles laid down in Reliance Utilities and
Power Ltd. (supra) in its application to Section 14A of the Act.
Therefore, the issue which arose for consideration before the
Tribunal had not been decided by this Court in Godrej and Boyce
Manufacturing Co. Ltd.(supra). It arose and was so decided for
the first time by this Court in HDFC Bank Ltd. (supra). Thus,
there is no conflict as sought to be made out by the impugned
order. Thus, the impugned order has proceeded on a
fundamentally erroneous basis as the ratio decindi of the order in
Godrej and Boyce Manufacturing Co. Ltd.(supra) had nothing to
do with the test of presumption canvassed by the petitioner before
the Tribunal on the basis of the ratio of the decision of this Court
in HDFC Bank Ltd.(supra).
16. At the hearing Mr. Suresh Kumar, learned Counsel for the
Revenue urged that on the facts of this case no fault can be found
with the order of the Tribunal. It is submitted that, the petitioner
was not able to establish before the Assessing Officer and the
CIT(A) that the amounts invested in the interest free securities
came out of interest free funds available with the petitioner. In
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that view of the matter, it is submitted by him that the order of
this Court in HDFC Bank Ltd. (supra) would not apply to the facts
of the present case. We are unable to understand the above
submission. The Assessing Officer passed the Assessment order
on 22nd December, 2010 under Section 143(3) of the Act. The
CIT (A) passed an order on 21 st November, 2011 dismissing the
petitioner's appeal. On both the dates, when the orders were
passed by the Assessing Officer and CIT (A), the authorities did
not have the benefit of the order of this Court in HDFC Bank Ltd.
(supra) rendered on 23rd July, 2014. Once the issue is settled by
the decision of this Court in HDFC Bank Ltd. (supra), there is now
no need for the assessee to establish with evidence that the
amounts which has been invested in the tax free securities have
come out of interest free funds available with it. This is because
once the assessee is possessed of interest free funds sufficient to
make the investment in tax free securities, it is presumed that it
has been paid for out of the interest free funds. Consequently,
we do not find any merit in the above submission made at the
hearing on behalf of the Revenue.
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17. At the hearing before us the Petitioner drew our attention to
various orders of the Tribunal where a consistent view has been
taken by the coordinate benches of the Tribunal in applying the
presumption laid down by this Court in Reliance Utilities and Ltd.
(supra) as well as the decision of this Court in HDFC Bank Ltd.
(supra) while deciding on application of Section 14A of the Act to
disallow interest claimed as expenditure. Besides reliance is also
placed upon a decision of this Court in the case of the petitioner
itself before this Court in Income Tax Appeal No.860 of 2012
rendered on 24th September, 2014 wherein question (b) as
formulated by the Revenue raised the same issue namely
applicability of the Godrej and Boyce Manufacturing Co. Ltd.
(supra) while interpreting Section 14A of the Act in the context of
the test of presumption as arising in the appeal before the
Tribunal. For the purposes of this order, we are not taking into
account the above decisions as they were not cited at the hearing
before the Tribunal. Thus we are only examining whether the
action of the Tribunal is within the bounds of its authority on the
basis of the materials placed before it leading to the impugned
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order and we unfortunately find it is not so. This is for the
reason that it failed to follow the binding precedent in HDFC Bank
Ltd. (supra).
18. The alternative submission (b) which was put forth by the
petitioner before the Tribunal that the investment in securities are
its stock in trade. Consequently, Section 14A of the Act would be
inapplicable by placing reliance upon the decision of this Court in
India Advantage Securities Ltd. (supra). However this was also
disregarded by the impugned order on the ground that this Court
did not entertain an appeal of the Revenue from the order of the
Tribunal holding that Section 14A of the Act is inapplicable where
the investment has been made in stock in trade. This non
entertainment of an appeal being on the ground that this Court
found no substantial question of law. Therefore, the impugned
order holds that the decision relied upon in India Advantage
Securities Ltd. (supra) does not lay down any binding proposition
of law.
19. We are unable to comprehend how and why the impugned
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order of the Tribunal is of the view that if an appeal is not
admitted from an order of the Tribunal, then it is open to the
Tribunal in another case to decide directly contrary to the view
taken by the earlier order of the Tribunal, which is not entertained
by this court in appeal. This without even as much as a whisper of
any explanation with regard to how and why the facts of the two
cases are different warranting a view different from that taken by
the Tribunal earlier. In fact when an appeal is not entertained
then the order of the Tribunal holds the field and the coordinate
benches of the Tribunal are obliged to follow the same unless
there is some difference in the facts or law applicable and the
difference in fact and / or law should be reflected in its order
taking a different view. Moreover the impugned order of the
Tribunal places reliance upon the decision of this Court in Godrej
and Boyce Manufacturing Co. Ltd.(supra) to deny the claim. On
this issue no decision was rendered by this court in Godrej and
Boyce Manufacturing Co. Ltd.(supra) and therefore how could it
be relied upon to deny the claim of the petitioner is beyond
comprehension. This again shows that the Tribunal has acted
beyond the limits of its authority.
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20. Mr. Suresh Kumar on behalf of the Revenue states that this
ground was raised for the first time before the Tribunal and not
urged before the lower authorities and therefore no fault can be
found with the order of the Tribunal. Once Tribunal has
considered the issue on merits and dealt with it in detail, it is not
open to the Revenue to urge an objection when the Tribunal has
itself decided the issue on merits.
21. The impugned order of the Tribunal seems to question the
decision of this Court in HDFC Bank Ltd. (supra) to the extent it
relied upon the decision of this Court in Reliance Utilities and
Power Ltd. (supra). This is by observing that the decision in
Reliance Utilities and Power Ltd.(supra) it must be appreciated
was rendered in the context of Section 36(1)(iii) of the Act and its
parameters are different from that of Section 14A of the Act. This
Court in its order in HDFC Bank Ltd.(supra) consciously applied
the principle of presumption as laid down in Reliance Utilities and
Power Ltd. (supra) and in fact quoted the relevant paragraph to
emphasize that the same principle / test of presumption would
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apply to decide whether or not interest expenditure could be
disallowed under Section 14A of the Act in respect of the income
arising out of tax free securities. It is not the office of Tribunal to
disregard a binding decision of this court. This is particularly so
when the decision in Reliance Utilities and Power Ltd. (supra)
has been consciously applied by this Court while rendering a
decision in the context of Section 14A of the Act.
22. We also note that the impugned order of the Tribunal has an
observation therein that there is no such thing as estoppel in law
and by virtue of that gives itself a licence to decide the issue
before it ignoring the binding precedent in the petitioner's own
case in HDFC Bank Ltd(supra). Once there is a binding decision
of this Court, the same continues to be binding on all authorities
within the State till such time as it stayed and / or set aside by the
Apex Court or this very Court takes a different view on an
identical factual matrix or larger bench of this Court takes a view
different from the one already taken.
23. We are conscious of the fact that we are fallible and,
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therefore, an order passed by us may not meet the approval of all
and some may justifiably consider our order to be incorrect.
However the same has to be corrected/rectified in a manner
known to law and not by disregarding binding decisions of this
Court. In fact our court in Panjumal Hassomal Advani Vs.
Harpal Singh Abnashi Singh Sawhney & Ors. AIR 1975(Bom)
120 has observed that a coordinate bench cannot refuse to follow
an earlier decision on the ground that it is incorrect and / or
rendered on misinterpretation. This for the reason that the
decision of a co-ordinate bench would continue to be binding till it
is corrected by a higher Court. This principle laid down in respect
of a co-ordinate Court would apply with greater force on
subordinate Courts and Tribunals. We are also conscious of the
fact that we are not final and our orders are subject to appeals to
the Supreme Court. However, for the purposes of certainty,
fairness and uniformity of law, all authorities within the State are
bound to follow the orders passed by us in all like matters, which
by itself implies that if there are some distinguishing features in
the matter before the Tribunal and, therefore, unlike, then the
Tribunal is free to decide on the basis of the facts put before it.
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However till such time as the decision of this court stands it is not
open to the Tribunal or any other Authority in the State of
Maharashtra to disregard it while considering a like issue. In case
we are wrong, the aggrieved party can certainly take it up to the
Supreme Court and have it set aside and / or corrected or where
the same issue arises in a subsequent case the issue may be re-
urged before the Court to impress upon it that the decision
rendered earlier, requires reconsideration. It is not open to the
Tribunal to sit in appeal from the orders of this Court and not
follow it. In case the doctrine of precedent is not strictly followed
there would complete confusion and uncertainty. The victim of
such arbitrary action would be the Rule of law of which we as
the Indian State are so justifiably proud.
24. It is in the above circumstances that we are of the view that
we have to exercise our powers under Article 227 of the
Constitution of India. This is in view of the manner in which the
impugned order of the Tribunal has chosen to disregard and/or
circumvent the binding decision of this Court in respect of the
same assessee for an earlier assessment year. This is a clear case
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of judicial indiscipline and creating confusion in respect of issues
which stand settled by the decision of this Court.
25. It is in the above view, that we set aside the impugned order
of the Tribunal dated 23rd September, 2015 in its entirety and
restore the issue to the Tribunal to decide it afresh on its own
merits and in accordance with law. However the Tribunal would
scrupulously follow the decisions rendered by this Court wherein a
view a has been taken on identical issues arising before it. It is
not open to the Tribunal to disregard the binding decisions of this
Court, the grounds indicated in the impugned order which are not
at all sustainable. Unless the Tribunal follows this discipline, it
would result in uncertainty of the law and confusion among the
tax paying public as to what are their obligations under the Act.
Besides opening the gates for arbitrary action in the
administration of law, as each authority would then decide
disregarding the binding precedents leading to complete chaos
and anarchy in the administration of law.
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26. Accordingly, the Rule is made absolute in above terms. No
order as to costs.
(B.P. COLABAWALLA, J.) (M.S. SANKLECHA, J.)
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