ORDER
Vimal Gandhi, President
1. After considering the opinion of the Vice-President (Mumbai) and the relevant case laws and the conflict between different Benches of the Tribunal on the issue involved, I deem it fit and appropriate to refer the appeal for consideration and disposal by a Special Bench of three Members at Mumbai.
2. In order to help the interveners, who may wish to join the proceeding, the following question is framed:
Whether on the facts and in the circumstances of the case, disallowance of expenditure in the shape of payment to a non-resident by invoking the provisions of Section 40(a)(i) read with Section 195 of the Income-tax Act, 1961 is justified?
3. The Special Bench may modify, change the questions or add other questions as are deemed relevant and necessary for disposing of the controversy raised by the parties before the Bench.
4. The appeal may be fixed before the Special Bench in November/December 2006. The name of the three Members constituting the Bench shall be nominated later on.
(Vimal Gandhi)
President
1. The assessee made an application dated 11.08.2006 to me to constitute a Special Bench (S.B) of the Income Tax Appellate Tribunal for assessment year 2002-03 ITA No. 4348/M/2005 mainly on the ground that view taken by I.T.A.T. in the case of the assessee for immediate preceding assessment year 2000-2001 was contrary to so many other decisions and-in order to resolve conflict of views, a Special Bench be constituted.
2. Vide my letter dated 17th August, 2006, I asked for comments of Hon’ble Vice President, Mumbai Zone on the above request and vide his letter dated 14.09.2006, he recommended to constitute a Special Bench. I decided to constitute a Special Bench to hear ITA No. 4348/M/05 vide my order dated 15.09.2006. Names of Members to constitute the Special Bench were to be given subsequently. Aforesaid order was passed by me on my visit to Mumbai.
3. Before moving the said application, the assessee had filed an appeal against order of the Tribunal for assessment year 2000-01 and the same was admitted by the Hon’ble Bombay High Court. Vide order dated 04.04.2006, the Hon’ble High Court framed the following substantial questions of law:
(i) Whether on the facts and in the circumstances of the case and in law, provisions of Section 195 and Section 40(a)(i) of the Income-tax Act, 1961 are attracted?
(ii) Whether, the finding of the Tribunal that the applicant and the SIPL are agents of the Channel Companies and that the Cable operators provide service to the Channel Companies and, thus, the appellant has a business connection and/or operation in India is perverse and based on no legal evidence?
(iii) Whether the finding of the Tribunal that the channel Companies have income chargeable to tax in India is perverse, erroneous and unjustified?
(iv) Whether, the finding of the Tribunal in holding that the disallowance under Section 40(a)(i) of the Income-tax Act, 1961 must be made on the gross advertisement airtime purchased and not on the income chargeable to lax in India by virtue of CBDT Circular No. 742 dated May 2, 1996 read with CBDT Circular No. 765 dated 15th April, 1998 is justified?
(v) Whether, having held that the appellant is an agent of the Channel Companies, the Tribunal was justified in holding that the payment made by the appellant to the Channel Companies could be processed in the nature of an expenditure covered by provisions of Section 40(a)(i) in the hands of the appellant?
In the light of order dated 15th September, 2006 to constitute a Special Bench, the assessee again approached the Hon’ble High Court requesting for selling aside detailed order of the Tribunal running into 80 pages in the light of unreported decision of Hon’ble High Court in the case of Dhariwal Industries, wherein it has been held as under:
but now that the matters concerning these other assessment years are referred to a larger Bench, Mr. Dastoor submits that it would be desirable that instead of these appeals being heard in this Court, it will be better that the impugned order be set aside and the, appeals be revived and those appeals be directed to be heard along with I.T.A. Nos. 203/96, 864/02, 865/02, 960/03 and 961/03 which arc the appeals concerning the other years.
5. Mr. Kotangale for the Revenue submits that the impugned order under challenge is a correct order and no interference is called for. Even so, from the point of view of uniformity, it will be correct to adopt the course suggested by Mr. Dastoor. In the circumstances, we set aside the common order passed by the Tribunal dated 20th July 2004 in I.T.A. Nos. 1182 of 1997 and 169 of 1998 for assessment years 1994-95 and 1995-96. We make it clear that the order is being set aside only for the sake of uniformity and not on merits about which we express no opinion. These two appeals will stand restored to the file of the Income Tax Appellate Tribunal, Pune and will now be heard along with the above referred I.T.A. Nos. 203/96, 864/02, 865/02, 960/03 and 961/03.
When above facts relating to the constituting of the Special Bench came to the notice of the Revenue, detailed objections were filed through the Office of Director of Income-tax (International Taxation), Mumbai vide letters dated 30.10.2006 and 1.11.2006, received in my office on 3rd or 4th November, 2006 to the constitution of the S.B. It is stated in the objections that the assessee had made a wrong statement about conflict of decisions on the point involved between decisions of different Benches of ITAT. It was contended that matter in issue stood fully covered by decision of I.T.A.T ‘C’ and ‘H’ Bench, Mumbai in the cases of Raymond Ltd. and Maharashtra Slate Electricity Board reported in 86 ITD 791 and 90 ITD 793. Similar contentions raised by the assessee in those cases were considered and after elaborate discussion, rejected. There was no controversy left in respect of issues for formulation and consideration by the Hon’ble Special Bench. In letter dated 30.10.2006 and in detailed letter of Dy. Director of Income-tax dated 26.10.2006, it has been pointed out that a mistake had been committed in constituting the Special Bench, which was constituted without hearing the revenue. It has also been highlighted as to how appeal of the assessee for assessment year 2000-01 came for consideration before the Hon’ble High Court and on 04.04.2006 when 5 substantial questions of law were framed by the Hon’ble High Court for adjudication. The assessee had also filed notice of motion for out of turn hearing which came for consideration on 16 October, 2006. On that date, counsel for the assessee made a mention before the Hon’ble High Court that President, Income-tax Appellate Tribunal has constituted a Special Bench in assessee’s own case for assessment year 2002-03 and, therefore, order for A.Y. 2000-2001 be set aside. At that time, for the first time, it came to the notice of the Revenue that Special Bench had been constituted. The Dy. Director Income-tax had then filed elaborate objections in writing that the constitution of Special Bench in this case was wrong and is leading to unjust results.
4. In the light of objections filed on behalf of the Revenue and other facts and circumstances of the case, it was deemed necessary that notice of objection raised be given to the assessee. Accordingly, copies of letters of Revenue were supplied to the assessee and matter, for consideration was fixed at Mumbai on 21.11.2006.
Shri Girish Dave, appearing for the revenue, drew my attention to the events leading to the constitution of the Special Bench. He pointed out that the Hon’ble High Court, in the appeal of the assessee, had framed substantial questions of law for A.Y. 2000-01 on 4th April 2006. The assessee thereafter moved motion for early hearing of the appeal and the proceedings by the High Court were taken up somewhere in the month of October 2006. After obtaining the order of the President to constitute a Special Bench, the Hon’ble High Court was approached with a request that Division Bench order be set aside. In the light of the decision in the case of Dhariwal Industries, the good order is likely to be set aside. The assessee never brought the proceedings before the High Court to the notice of the President of the Tribunal. This fact do not agree well so far as the judicial discipline is concerned. What happened before the High Court was never passed on to the Tribunal, the effect of constitution of Special Bench would be that a legal and effective order would be wiped off without discussion on merit.
In the application for constitution of a Special Bench, the assessee has contended that view taken by the Tribunal for A.Y. 2000-01 is contrary to that of the Supreme Court and High Court. If it is so, then the assessee should get the matter decided from the High Court rather than from the Tribunal, the revenue further objected.
Shri Dave further submitted that there was no conflict of decisions between various Benches of the Tribunal or between superior courts. He then referred to the decision in the case of Raymond Ltd. v. Dy. CIT 86 ITD 791; the decision of the Tribunal in the case of Maharashtra State Electricity Board v. DCIT 90 ITD 793. He also referred to the decision of the Supreme Court in the case of Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal 33 ITR 245 as also the decision of the Hon’ble Calcutta High Court in the case of P.C. Ray And Co. (India) Private Ltd. v. A.C. Mukherjee. FTO and Anr. 36 ITR 365. In all these decisions it was hold to be obligatory on the part of the assessee making payment to nonresident to deduct tax at source. The questions, whether income is liable to tax or not and whether TDS is to be deducted from the payment made, without reference to sections Under Section 195(2) and 197 of the Income-tax Act stands concluded. There was no conflict between decisions of different Benches of the Tribunal or higher Courts and the assessee has approached the President by misstating facts. Having regard to the above circumstances, he contended that a mistake has been committed in constituting a Special Bench and the same should be rectified to prevent injustice.
Shri Dastur, the learned senior counsel appearing for the assessee, opposed above submissions. He admitted that the Hon’ble High Court framed substantial question of law in the case of the assessee for A.Y. 2000-01 on 04.04.2006. However, it is for the Hon’ble High Court to follow any course in deciding the appeal. It may decide the case on merits, it may remand the case to the ITAT, for a fresh hearing. The assessee did move an application for early hearing but whether such hearing would be granted or not was not known to the assessee. The learned Counsel also drew my attention to the fact that similar issues were involved in several years and that for A.Y. 2001-02 appeal was decided by the Tribunal ex-parte against the asscssee. Several thousand crores are involved in these appeals as detailed in objections dated 16.10.2006 and as it takes long time before the matter to gel concluded in the High Court, the assessee thought it appropriate to move application and get the matter decided from the Special Bench of the Tribunal. He pointed out that even in the case of Dhariwal Industries (supra), while setting aside the matter, the High Court had insisted and all taxes due from the assessee were paid. Shri Dastur submitted that public notice of hearing of the Special Bench was given in September 2006 and, therefore, the revenue should have known about the Special Bench.
Shri Dastur pointed out that the President, Income Tax Appellate Tribunal, in the present case had legally exercised his powers to constitute Special Bench. It would be dangerous to ask him to change his stand on untenable ground. He argued that the President had no power to review his order. He placed reliance on the following decisions:
i) Patel Narshi Thakershi & Ors. v. Pradyumsinghji Arjunsinghji
ii) ITO v. Shew Paper Exchange 93 ITR 186 Calcutta
iii) CIT v. Ruby Traders & Exporters 270 ITR 526 Calcutta
It was contended that unless there was a specific provision, the power of review cannot be exercised by implications as an inherent power. The Special Bench can be constituted even when matter is pending before the High Court. For this purpose he placed reliance on the decision of the Special Bench in the case of Daks Copy Services (P) Ltd. v. ITO 30 ITD 223. The revenue was not justified in asking for hearing when, as per the practice, hearing is not granted before constituting a Special Bench. In constituting a Special bench there is nothing against the revenue.
In support of his arguments that there was conflict of decisions, Shri Dastur drew my attention to the decision of the Andhra Pradesh High Court in the case of 152 ITR 756, where it upheld deduction/disallowance of tax at source has 10 be restricted to tax on taxable amount out of amount paid to the non-resident without making any reference under Sections 195 or 197 of the Income-tax Act. The said decision was confirmed on appeal by Hon’ble Supreme Court. He also referred to certain other decisions and contended that there was conflict between the decisions of different Benches as also between higher courts and, therefore, it was appropriate to constitute Special Bench to resolve the conflict. Special Bench was properly and legally constituted and there was no scope to review or change it, as there is no allegation of mala fide conduct in constituting the Special Bench here. The matter should not have been fixed for hearing at all.
5. I have considered objections of both the parties. Their Lordship of Supreme Court in the case of Income-tax Appellate Tribunal v. Dy. C.I.T. 218 ITR 275 has held that power of the President to constitute Special Bench Under Section 255(3) of Income-tax Act, 1961 is an administrative power. However, it was cautioned in the same decision that above power cannot be exercised on whims and fancies. Once it is shown to be exercised bonafidely and in good faith, it cannot be challenged in any Court of Law.
6. The controversy raised through objection of the Revenue that there is no conflict of decision and the matter stands concluded as per decision of the Tribunal and higher courts and there was no scope to constitute a Special Bench in this case. It has been strongly opposed by the counsel for the assessee. In my considered opinion, above controversy cannot be resolved in these proceedings. It is important to be stated that the decision of Bombay High Court in the case of Dhariwal Industries (supra) was neither in the knowledge of the undersigned nor in the knowledge of the Hon’ble Vice President / nor it was brought to our knowledge by the assessee. However, important and new consequences followed from the aforesaid decision. The assessee has already requested for setting aside of 80 pages decision of Income Tax Appellate Tribunal for A.Y. 2000-2001 to the Hon’ble High Court as a Special bench has been constituted. If a Special Bench is constituted on any issue, when a similar matter is pending before the Hon’ble High Court, the High Court is likely to set aside the matter for reconsideration of the S.B. without any arguments on merit. In other words, even a very detailed and comprehensive order of the Bench is likely to set aside without consideration of merits. Therefore in the light of the decision of Dhariwal Industries, it is imperative for the President before constituting a Special Bench to bear in mind not only the effect of constitution of the Special Bench on matters in Tribunal but also before Hon’ble High Court. With utmost respect it is observed that this is a new development with serious consequences. In the present case, the assessee did not bring it to the notice of the President or to the notice of Vice President that its appeal on similar issues for earlier year i.e. assessment year 2000-01 was being considered by the Hon’ble High Court for disposal and substantial questions of law already stood framed in those proceedings in April, 2006. The constitution of Special Bench would enable the assessee to get an adverse decision set aside. A petition to the above effect has already been moved in the Hon’ble High Court.
In my opinion the assessee was not justified in asking the undersigned to constitute a Special Bench to consider the question which the Hon’ble High Court has already framed for consideration. In fact information in respect of proceedings before the Hon’ble High Court was totally withheld. After the Hon’ble High Court had agreed to frame substantial question and decide them, application dated 11.8.2006 to constitute a Special Bench was moved before the undersigned in Delhi. Above facts as now placed before me by the revenue, were important and relevant, should have been placed before me in the application to constitute the Special Bench. If situation like above is brought to the knowledge of the President, it is certain that President (unless there are strong reasons to do otherwise) would not constitute the Special Bench. The I.T.A.T. as a body subordinate to the Hon’ble High Court has to take light and guidance and follow the directions of Hon’ble High Court Under Section 260A of the Income-tax Act read with Article 226/227 of the Constitution. It cannot venture to decide the same issue when the Hon’ble High Court has already taken steps to decide it. The plea that delay would have been caused and other grounds now taken would not furnish good reasons for the Tribunal to start parallel proceedings. The Tribunal must stay it’s hands when the Hon’ble High Court is seized of the same matter. When Hon’ble High Court decides it is not material whether similar issue was considered by a Special Bench or by a regular bench. When the same or similar issue / questions are pending before two forums which forum should consider the questions? which can settle the controversy? These questions have obvious answers.
It was contended that I have no power to review my order constituting a Special Bench. In support of above arguments, the decision noted above were cited. There may not be statutory power to review. However, the power to rectify a wrong committed by court or officer which is leading to unjust results to party is a power different from power to review. In the case of Shrew Paper Exchange (supra), a decision cited by the assessee, the Hon’ble Calcutta High Court after holding that the Tribunal had no power to review further observed as under:
Inherent power to rectify a wrong committed by itself, by a court or tribunal, is not, really speaking; a power to review. The two powers operate in different fields and are different in essential quality or nature
It is difficult to accept that a Bench found to be wrongly constituted for any reason (advance cause of one party) cannot be withdrawn or rescinded. There arc umpteen number of instances where Benches so constituted were withdrawn
In the case of S. Nagaraj v. State of Karnataka (1993) Supplement (4) SCC 595, their Lordship the Supreme Court observed as under:
18. Justice is a virtue which transcends all barriers. Neither the rules of procedure nor technicalities of law can stand in its way. The order of the Court should not be prejudicial to any one. Rule of stare decisis is adhered for consistency but it is not an inflexible in Administrative Law as in Public Law. Even the law bends before justice. Entire concept of writ jurisdiction exercised by the higher courts is founded on equity and fairness. If the Court finds that the order was passed under a mistake and it would not have exercised the jurisdiction but for the erroneous assumption which in fact did not exist and its perpetration shall result in miscarriage of justice then it cannot on any principle be precluded from rectifying the error. Mistake is accepted as valid reason to recall an order. Difference lies in the nature of mistake and scope of rectification, depending on if it is of fact or law. But the root from which the power flows is the anxiety to avoid injustice. It is either statutory or inherent. The latter is available where the mistake is of the Court. In Administrative Law the scope is still wider. Technicalities apart if the Court is satisfied of the injustice then it is its constitutional and legal obligation to set it right by recalling its order….
19. Review literally and even judicially means re-examination or re-consideration. Basic philosophy inherent in it is the universal acceptance of human fallibility. Yet in the realm of law the courts and even the statutes lean strongly in favour of finality of decision legally and properly made. Exceptions both statutorily and judicially have been carved out to correct accidental mistakes or miscarriage of justice.
The Apex Court further observed as under:
Rectification of an order thus stems from the fundamental principle that justice is above all. It is exercised to remove the error and not for disturbing finality.
In the case of Lily Thomas v. UOI , it was held as under:
…It cannot be denied that justice is a virtue which transcends all barriers and the rules or procedures or technicalities of law cannot stand in the way of administration of justice. Law has to bend before justice. If the court finds that the error pointed out in the review petition was under a mistake and the earlier judgment would not have been passed but for erroneous assumption which in fact did not exist and its perpetration shall result in a miscarriage of justice nothing would preclude the court from rectifying the error.
From above, it is clear that Special Bench was constituted without considering material facts. It is likely to help the applicant to get an unfair advantage. It would knock out vested rights acquired by the succeeding party without it’s fault and even after it’s best efforts. The act is likely to lead to setting aside of a good and deliberated order of Tribunal without its consideration on merit. It is an impediment. It can lead to unintended unjust results. It can have demoralizing effect on Members who worked hard and passed an elaborate order. Special Bench was constituted without knowledge of material facts and their consequences. It was not known that the Hon’ble High Court has already framed substantial questions of law and a motion to take case out of turn hearing was pleaded by the assessee. Otherwise too the decision by Special Bench is not going to settle the issue and even after ITAT’s decision the matter would again come before the High Court for consideration and decision. It would lead to multiplicity of proceedings without any benefit. Conflict if any can be best resolved by Hon’ble High Court, rather than by a Special Bench. That decision would be a decision, which is to be followed with respect and applied. There is no point in hearing the matter by the Special Bench more particularly when at Page 14, the revenue before the Hon’ble High Court has stated as under:
The revenue would not have any objection if applicant’s request for an early hearing made through its earlier notice of motion were acceded to.
In the light of above discussion, it is held that the decision to constitute Special Bench without knowledge of material facts was a mistake leading to unfair and unjust results. The order, dated 15.9.2006 is, hereby rectified and withdrawn.