ORDER–Question covered by Full Bench decision of High Court.
Facts :
Tribunal rejected application under s. 260(1)
for amendment of its order. Miscellaneous application of revenue
seeking that Tribunal should add a rider to the answer given by
Full Bench.
Application under s. 256(1).
Held :
It is clear that the decision of the Full Bench
in assessee’s own case in (1981) 127 ITR 192 (Ker)
squarely governs those cases. The said decision was rendered
relating to earlier assessment years. All that the Tribunal did
was to apply the said decision to the appeals pending before it
after getting back the answers to the questions referred tunder
s. 256. The Tribunal, therefore, had only given effect to the
said answers in its order passed under s. 260. What was in effect
sought by the department by filing the application for
modification of the order of the Tribunal made under s. 260 of
the Act was to ask the Tribunal to read a rider into the answer
given by the High Court in the decision reported in (1981)
127 ITR 192 (Ker)(FB). The Tribunal rightly rejected
the said application made by the revenue. By seeking a reference
of the question referred to in the present application under s.
256(1) what the department is really attempting to do is to get
over the effect of the answer given by the Full Bench to question
referred to it for decision. The same is not permissible and
there is no ambiguity about the scope of the answer given by the
Full Bench and that the same would cover even the subsstified in refusing to refer the questions under s. 256(1).
Application :
Also to current assessment years.
Citation :
Income Tax Act 1961 s.256(2)
Res Judicata–APPLICABILITY TO INCOME-TAX ASSESSMENT–Charitable trust granted exemption in earlier years by Full Bench of High Court–No change in circumstances.
Held :
An adjudiciation of the nature as in the present case would operate as res judiciata even as regards proceedings for assessment for subsequent years under the IT Act. The principle of res judicata would apply to proceedings under the Act regarding questions relating to assessment which do not vary with the income every year but depend on the nature of the property or question on which the rights of parties to be taxed are based. The question whether the assessee is entitled to exemption as regards the income derived by it for the purpose of carrying out the directions of the author of the trust and as set apart by him in the deed creating the trust is not a question the answer to which can vary from assessment year to assessment year. In that view, it is clear that the answer given by the Full Bench that the income ear-marked in the will is entitled to full exemption from tax would preclude the department from going behind the said finding for the subsequent assessment years so as to postulate that only such of the income as is actually spent and only such of the accumulation as has been dealth with under s. 11(2) would be entitled to exemption.
–T. M. M. Sankaralinga Nadar & Bros. v. CIT AIR 1930 Mad 209 and CIT v. Murugappa Chettiar (1992) 197 ITR 575 (Ker) followed.
Application :
Also to current assessment years.
Citation :
Criminal Procedure Code 1898 s.11
Charitable trust–EXEMPTION UNDER S. 11–Res judicata.
Facts :
Full Bench of the High Court in earlier years in
case of same assessee on the same question had answered the same
question in favour of assessee. No change in circumstances.
Held :
Sec. 11 was very much in the mind of the Full
Bench of the High Court while the answer to question H was
rendered by the Full Bench. That apart, it could be seen from the
special leave petition filed by the department before the Supreme
Court challenging the said Full Bench decision that the
department also understood the scope of the said decision as is
now canvassed by the assessee. There was no ambiguity in the mind
of the department as well, regarding the scope of the answer
given to question referred to this court for decision. Though no
doubt the dismissal of a special leave petition may not lead to a
merger of the decision of this court with the decision of the
Supreme Court, still the fact that this point was specifically
urged by the department and after hearing both sides the Supreme
Court did not think it necessary to interfere with the decision
of the Full Bench have necessarily to be borne in mind. Even if
there be no merger, it will certainly mean that the answer given
by the Full Bench of this court was not disapproved by the
Supreme Court and that would in turn mean that no impropriety was
found in the said answer. On going through the materials
available in the case and on a reading of the decision in the
assessee’s own case of the Full Bench reported in (1981) 127
ITR 192 (Ker)(FB) the questions posed and the answers rendered
are clear and specific. The effect of the answer given by the
Full Bench is that the assessee is entitled to full exemption
from tax of its income as pleaded and ear-marked for Aryavaidya
sala, Aryavaidya hospital and Aryavaidya padasala.
–P. Krishna Warriyar v. CIT (1981) 127 ITR 192 (Ker)(FB)
applied.
Conclusion :
Question to be answered in favour of assessee for later assessment years also. Tribunal not justified in adding any rider to the answer given by High Court.
Application :
Also to current assessment years.
Citation :
Income Tax Act 1961 s.11
JUDGMENT
P. K. BALASUBRAMANYAN J. – The income-tax referred cases relate to the assessment years 1971-72 to 1975-76 and the original petitions under section 256(2) of the Income-tax Act, 1961, relate to the assessment years 1965-66 to 1970-71. The income-tax references cases are at the instance of the assessee and the petitions under section 256(2) of the Income-tax Act, 1961, are filed by the Revenue.
A few facts are necessary for dealing with the questions arising in these referred cases and the original petitions. Vaidyaratnam P. S. Warriyar executed a will dated September 3, 1939, in respect of his properties including the Kottakkal Aryavaidyasala. P. S. Warriyar died on January 30, 1944. Under the will, P. S. Warriyar created a trust. The object of the trust is set out in the will. It is not necessary to refer to the various terms of the will at this stage since the said questions stand settled by earlier decisions of this court as confirmed by the Supreme Court. Suffice it to say, the object of the trust was charitable. For 20 years after the will came into effect, 40 per cent. of the profits of the property was to be enjoyed by the two tavazies of the tarwad and only 60 per cent. was to be utilised for charitable purposes. But after the expiry of 20 years, the entire 100 per cent. of the income was to be utilised for the purpose of charity. Under section 4(3) (i) of the Indian Income-tax Act, 1922, 60 per cent. of the income set apart for charity was being exempted by the authorities under the Act. This was being done until the amendment brought to section 4(3) (i) of the Act by the addition of a proviso thereto. By the addition of this proviso which came into force with effect from April 1, 1952, according to the Income-tax Department, the position changed and the Department took the view that the trust was hit by the proviso and hence was not entitled to exemption. The matter ultimately came to this court by way of a reference and this court in the decision in CIT v. Krishna Warriar [1962] 44 ITR 828 held, after a reference to the terms of the will, that the proviso had no application and upheld the claim of the assessee. The question that was referred to this court “whether 60 per cent. of the income of the assessee applied to the development of Aryavaidyasala and the conduct of the hospital and school aforesaid is not exempt under section 4(3)(i) having regard to clause (b) of the provision to that sub-section. This court answered the said question in favour of the assessee and held that the income in controversy is exempt under section 4(3) (i) of the Indian Income-tax Act, 1922. On appeal, this decision was affirmed by the Supreme Court by the decision in CIT v. P. Krishna Warriar [1964] 53 ITR 176. Thus 60 per cent. of the income set apart under the will for the purpose of the vaidyasala, hospital and padasala was enjoying exemption until the Income-tax Act, 1961, came into force. The 1961 Act contained a definition of charitable purpose in section 2(15) of the Act. The essential difference was that it was stipulated that the activity should not involve the carrying on of any activity for profit. For the assessment years 1962-63 and 1963-64, the Department denied exemption to the assessee by holding that the definition in section 2(15) was not satisfied. But the Tribunal on appeal by the assessee upheld the claim of the assessee and held that 60 per cent. of the income set apart under the will was liable to be exempted since it qualified for exemption under the Act. At the instance of the Revenue, the question of exemption was refereed to this court and a Division Bench of this court in the decision in CIT v. P. Krishna Warrier [1972] 84 ITR 119 held that the predominant object was the running of the business in the preparation and sale of Ayurvedic medicines and hence the trust is one which has a mixed object of charitable purpose and non-charitable purpose and hence it fell outside the ambit of the definition in section 2(15) of the Income-tax Act, 1961. Though an application for special leave was filed by the assessee before the Supreme Court challenging the said decision, it appears to have been withdrawn.
For the assessment year 1964-65, the claim had again been put forward by the assessee for exemption. The claim was denied by the Income-tax Officer but the claim was upheld by the Appellate Assistant Commissioner. But on appeal to the Tribunal, the Tribunal denied the claim. On a reference of the question to this court in Income-tax References Nos. 95 of 1974 and 40 of 1976 at the instance of the assessee, the correctness of the decision in CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker) was questioned. The income-tax reference came up before a Division Bench presided over by Justice P. Govindan Nair himself (as he then was), who had rendered the decision in CIT. v. P. Krishna Warrier [1972] 84 ITR 119 (Ker) sitting along with Mr. Justice M. U. Issac. By order dated December 15, 1976, the learned Chief Justice thought that the decision in CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker) required reconsideration in view of the fact that the effect of certain vital aspects did not appears to have been properly appreciated while rendering that decision. Meanwhile assessments for the assessment years 1965-66 to 1970-71 also were completed ultimately following the decision in CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker). At the instance of the assessee questions were referred to this court in respect of those assessment years as well. They were all dealt with along with Income-tax references Nos. 95 of 1974 and 40 of 1976 by a Full Bench. The Full Bench in the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192 overruled the decision in CIT v. P. Krishna Warrier [1972] 84 ITR 119 (Ker) and held that the assessee satisfied the definition of section 2(15) of the Income-tax Act and was hence entitled to exemption. It is to be noticed at this stage that at this point of time the 20 years for which 40 per cent. of the income was to be diverted for family members had also become available for charitable purposes interims of he will executed by Vaidyaratnam P. S. Warriyar. The claim, therefore, involved the entire income of the assessee. Pursuant to the answers contained in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB], the Tribunal passed orders under section 260 of the Income-tax Act holding that no part of the income of the assessee was exigible to tax. Subsequently, the Department filed applications for rectification of the order passed under section 260 of the Income-tax Act and the said applications were rejected by the Tribunal holding that no case for rectification is made out in the light of the answers given by the Full Bench in the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192. The Department then sought a reference of certain questions of law as arising out of the order dismissing the applications for rectification under section 256(1) of the Income-tax Act. The said request was not acceded to by the Tribunal and that has resulted in the Revenue coming up with the original petitions under section 256(2) of the Income-tax Act. Thus the applications under section 256(2) of the Income-tax Act related to the assessment years 1964-65 to 1970-71 which are the assessment years covered by the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB]. It is necessary to observe at this stage that the Revenue sought to challenge the decision in P. Krishna Warier v. CIT [1981] 127 ITR 192 (Ker) [FB] before the Supreme Court by moving Special Leave Petitions Nos. 1184 to 1193 of 1980. But after hearing both sides, the special leave petitions were dismissed with the order “special leave petitions are dismissed”.
The question again arose in respect of the assessment years 1971-72 to 1975-76. The Income-tax Officer had held that the clear and unequivocal direction of the founder of the trust showed that Aryavaidyasala was treated as a business activity of the trust and that the assessee was not entitled to full exemption. On appeal by the assessee. The Appellate Assistant Commissioner had held that although the business of Aryavaidyasala was a property held under trust, the income allotted for the development and running of Aryavaidyasala was outside the filed of exemption provided under section 11 of the Income-tax Act and that the assessee was entitled only to exemption on income utilised for Aryavaidyasala hospital, Aryavaidyasala and Aryavaidya padasala and was not entitled to full exemption as claimed. This decision of the Appellate Assistant Commissioner was modified by the Tribunal Which applied the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB] and remitted the matters to the assessing authority by holding that the effect of the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB] was that the entire income of the trust derived from the properties held in trust including Aryavaidyasala would be exempt if the other requirements of section 11 of the Act are found satisfied. The assessee sought a reference questioning the condition imposed by the Tribunal for exemption on satisfying of the requirements under section 11 of the Act while competing the assessments. The Tribunal refused to refer the question sought for by the assessee but this court under section 256(2) of the act directed the Tribunal to refer the concerned question to this court. The question thus referred to this court regarding the assessment years 1971-72 to 1975-76 is involved in Income-tax References Nos. 530 to 539 of 1985. The question referred at the instance of the assessee is :
“Is not the assessee entitled to full exemption of tax on its income as pleaded and earmarked or spent for Aryavaidyasala, Aryavaidya Hospital and Aryavaidya Padasala for the years 1971-72 to 1975-76 applying the judgment of the Kerala High Court in Income-tax Reference No. 95 of 1974 (P. Krishna Warrier v. CIT [1981] 127 ITR 192] [FB]) ?”
The submission of learned counsel for the assessee in these income-tax references is that a Full Bench of this court had already held relating to the assessment years 1964-65 to 1970-71, that the assessee was entitled to full exemption of its income as pleaded and earmarked or spent for Aryavaidyasala, Aryavaidya Hospital and Aryavaidya Padasala and that the said answer should govern the subsequent years also in view of the principle of res judicata applicable to the cases. According to learned counsel, what is earmarked under the will is the entire income of the trust and the question that has to be answered is identical and the rule of res judicata is not excluded in such a situation. In fairness to learned senior counsel appearing for the Department we must observe that he did not controvert this proposition as such and his arguments were directed against the scope of the answer given by the Full Bench of this court. According to learned counsel for the assessee, if the answer given by the Full Bench is properly appreciated the Tribunal should not have added a rider to the order of remand by asking the Income-tax Officer to see whether the other requirements of section 11 of the Income-tax Act are found satisfied. Learned counsel for the Revenue submitted that the order of remand was essentially a direction to make fresh assessments following the ratio of the judgment of the Full Bench of this court and in accordance with the provisions of section 11 of the Income-tax Act. It is, therefore, necessary at this stage to consider the scope of the questions referred to this court and the answers given by the Full Bench in the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192.
Relating to the assessment years 1965-66 to 1970-71 one of the questions referred to this court as question (H) was the following (at page 208) :
“H. Is not the assessee entitled to full exemption from tax of its income as pleaded and earmarked or spent for Aryavaidyasala, Aryavaidya Hospital and Aryavaidya Padasala for all the six years (1965-66 to 1970-71) ?”
Question H was answered by the Full Bench thus (at page 209) :
“We answer the question in the affirmative, that is, in favour of the assessee and against the Department.”
It is the contention of the assessee that in the light of this answer holding that the assessee is entitled to full exemption from tax of its income as pleaded and earmarked or spent for Aryavaidyasala, Aryavaidya Hospital and Aryavaidya Padasala, there is no question of any further enquiry under section 11 of the Act or of the assessee being compelled to comply with the requirements of section 11 of the Act. This submission is controverted by learned counsel for the Department by pointing out that the said answer should be appreciated in the light of the scheme of the Income-tax Act and since the exemption under the Act is itself provided by section 11 of the Act, it cannot be taken that this court intended that there should be no examination by the Department as to whether the assessee satisfies the requirements of section 11 of the Act. He submits that the earlier decisions and the answers in the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB] only establish that the purpose set out by the testator P. S. Warriyar are charitable purposes within the definition contained in section 2(15) of the Act and nothing more and that it cannot therefore be said that any enquiry into the question as to whether the requirements of section 11 of the Act are satisfied is precluded.
While appreciating the scope of the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB], it cannot be assumed that the attention of the Full bench was not invited to section 11 of the Act. Learned counsel for the Revenue attempted to argue that the Full Bench was not really dealing with the question in the context of section 11 of the Act and was only addressing itself to the question as to whether the purpose set out in the will of the late P. S. Warriyar were charitable purposes within the definition contained in the Income-tax Act, 1961. We find it difficult to accept this admission made by senior counsel on behalf of the Revenue. Firstly, the papers leading to the decision in P. Krishna Warrier v. CIT [1981] 127 (Ker) [FB], indicate that the Appellate Assistant Commissioner had specifically made the exemption subject to section 11 of the Act and the Tribunal had also dealt with that aspect. In fact, the Full Bench itself had stated in the beginning of the judgment as follows (at page 194) :
“The main question involved is weather the income derived from the Arya Vaidya Sala is liable to be excluded under section 11(1) (a) of the Income-tax Act, 1961, read with section 2(15) or section 4(3) of the Indian Income-tax Act, 1922.”
Moreover the questions referred at the instance of the Revenue dealt with in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB] also referred to section 11 and the justifiability of the grant of exemption under that section on the amounts spent towards Aryavaidya Padasala and the Aryavaidya Hospital for the concerned years. Even in the orders of reference to the Full Bench dated December 15, 1976, Govindan Nair, Chief Justice, had referred to section 11(4) of the act and had posed the question with reference to the said provision. It is in the context of this that the Full Bench had answered question No. H referred to above in the affirmative, in favour of the assessee. Thus the effect of the answer was that the assessee was entitled to full exemption from that of its income as pleaded and earmarked or spent for Aryavaidyasala, Aryavaidya Hospital and Aryavaidya Padasala.
Learned counsel for the Revenue pointed out that section 11(1) (a) makes it clear that what is exempt is income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India, and in the case of a trust which had been created before the commencement of the Act of 1961 to the extent to which such income is applied to such purposes in India, and where any such income is finally set apart for such purposes in India to the extent to which the income is so set apart is not in excess of 25 per cent. of the income from such property. He also submits that though the assessee may be entitled to accumulate or set apart either in whole or in part the balanced 75 per cent. of the income for application for a charitable purpose, such income so secured or set apart is not to be included in the income of the assessee only on its satisfying the conditions laid down in section 11(2) of the Act. It is his submission that the court should understand the earlier decision or the answers given in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB] in the context of the relevant provisions of the Act and if sos understood there cannot be any doubt that the assessee had to show that he satisfied the requirements of section 11(1) and 11(2) of the Act. Learned counsel relies on the decision in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1 (SC) especially the observations at pages 29 and 35 to point out that the exemption is conditional on the observance of the statutory conditions stipulated in the scheme carefully enacted by the Income-tax Act. He also submits relying on the decision of this court in CIT v. K. Ramakrishnan [1993] 202 ITR 997 at page 1002 to contend that when the court gives a decision on the interpretation of an Act of Parliament the decision itself is binding on the parties but the words which the judges use in giving the decision are not binding. He emphasises the passage quoted from Lord Dennings judgment in Paisner v. Goodrich [1955] 2 All ER 330 (CA) based on the observations of Lord Porter that such must be brought back to the test of the statutory words. If a point should be reached where the words of the judges lead to a different result from the words of the statute, then the statute must prevail because the judges have no right to supplant the words of the statute and would not wish to do so. According to learned counsel, the answer given to question H by the Full Bench if understood literally would mean supplanting the scheme provided by section 11 of the Income-tax Act and, therefore, this court should proceed on the basis that the statute itself would prevail over the words of the question and the answer contained in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB].
In the light of this stand adopted by learned counsel for the Revenue what is relevant to consider is whether there is any ambiguity in the answer to question H rendered by the Full Bench of this court. We are normally bound by the decision of the Full Bench of this court and if the words are clear and the answer is clear there is no question of our undertaking an interpretative exercise in that regard. Only if there is any absence of clarity can a question of understanding the scope of the answer arise and only in such a context the proposition canvassed for by learned counsel for the Revenue may arise at all. We, therefore, propose to consider in a little detail the nature of the answer given by the Full Bench and how it was understood by the parties themselves.
We have already noticed that section 11 was very much in the mind of the Full Bench while the answer to question H was rendered by the Full Bench. That apart, it could be seen from the special leave petition filed by the Department before the Supreme Court challenging the said Full Bench decision that the Department also understood the scope of the said decision as is now canvassed by the assessee. In the said application for special leave which is marked as exhibit R-1 in the counter to Original Petition No. 5756 of 1983 which is also being dealt with by us in this judgment, the Department itself took up the specific ground as ground No. VII to the following effect :
“That it is submitted that the High Court has allowed blanket exemption to the assessee without examining the question whether the other qualifying conditions that is the actual spending of the income on charitable purposes have been fulfilled or not.”
This indicates that there was no ambiguity in the mind of the Department as well, regarding the scope of the answer given to question H referred to this court for decision. It is in the light of this contention as well, that the Supreme Court by exhibit R-2 order dismissed the special leave petitions after hearing both sides. Though no doubt the dismissal of a special leave petition may not lead to a merger of the decision of this court with the decision of the Supreme Court, still the fact that this point was specifically urged by the Department and after hearing both sides the Supreme Court did not think it necessary to interfere with the decision of the Full Bench have necessarily to be borne in mind. In our view, even if there be no merger, it will certainly mean that the answer given by the Full Bench of this court was not disapproved by the Supreme Court and that would in turn mean that no impropriety was found in the said answer. On going through the materials available in the case and on a reading of the decision of the Full Bench in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker), we are of the view that the questions posed and the answers rendered are clear and specific. We are of the view that there is no scope for interpreting the said answers in the context of the Act as urged by learned counsel for the Revenue or to water down or whittle down the effect of the answers given by the Full Bench by reference to some of the provisions of the Act which had been considered by the Full Bench while giving the answer to the question. In this view, therefore, the effect of the answer given by the Full Bench is that the assessee is entitled to full exemption from tax of its income as pleaded and earmarked for the Aryavaidyasala, Aryavaidya Hospital and Aryavaidya Padasala. The question referred to us for subsequent years, as noticed already, is also practically identical with question H dealt with by the Full Bench and answered in favour of the assessee by the Full Bench.
As noticed by us, there is no serious dispute that an adjudication of this nature would operate as res judicata even as regards proceedings for assessment for subsequent years under the Income-tax Act. The principle of res judicata would apply to proceedings under the Act regarding questions relating to assessment which do not vary with the income every year but depend on the nature of the property or questions on which the rights of parties to be taxed are based. This principle is laid down in the decision in T. M. M. Sankaralinga Nadar and Bros. v. CIT [1929] 4 ITC 226; AIR 1930 Mad 209 [FB] and the decision of this court in CIT v. S. Murugappa Chettiar [1992] 197 ITR 575. The question whether the assessee is entitled to exemption as regards the income derived by its for the purpose of carrying out the directions of the author of the trust and as set apart by him in the deed creating the trust is not a question the answer to which can vary from assessment year to assessment year. In that view, it is clear that the answer given by the Full Bench that the income earmarked in the will is entitled to full exemption from tax would preclude to the Department from going behind the said finding for the subsequent assessment years so as to postulate that only such of the income as is actually spent and only such of the accumulation as has been dealt with under section 11(2) of the Act would be entitled to exemption. We, therefore, find the Tribunal while remanding the matter in the light of decision of the Full Bench in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) was not justified in adding a rider to the effect that the Income-tax Officer should make fresh assessment applying the ratio of the decision of the Full Bench and in accordance with the provisions of section 11 of the Income-tax Act. We are, therefore, inclined to answer the question referred to us for decision in favour of the assessee and against the Revenue.
Coming now to the applications under section 256(2) of the Act filed by the Revenue as noticed by us, they relate to the assessment years covered by the Full Bench decision. Pursuant to the decision of the Full Bench, the Tribunal passed orders under sections 260 of the Act after hearing both sides. The Tribunal held as follows :
“In the light of these answers and particularly in the light of the answer given to question H, the Tribunal orders have to be modified. In conformity with the judgment of the High Court it is declared that for these assessment years no portion of the income of the Kottakkal Aryavaidyasala is assessable because the High Court by their questions answered that 75 per cent. of the income is not taxable. The other 25 per cent. is admittedly not taxable and was not taxed at any stage. Hence no portion of the income is taxable.”
It is thereafter that the Revenue filed applications before the Tribunal praying for amending the orders under section 260(1) of the Act and praying for a direction of the Income-tax Officer to redo the assessments in accordance with the provisions of section 11 of the Income-tax Act as well. The Tribunal by its decision which is marked as annexure “C” in Original Petition No. 5756 of 1985 held that there is no scope for rectification or amendment of its order under section 260(1) of the Act. The Tribunal also noticed that if the Department was dissatisfied with the order under section 260(1) of the Act it should have moved for a reference to the High Court in respect of any question that may arise out of that order. It was held that no ground was made out for rectification or amendment as prayed for the Department. The Department moved the applications under section 256(1) of the Act seeking a reference of the following questions as arising out of the order refusing rectification or amendment of the order under section 260(1) of the Act :
“i. Whether, on the facts and in the circumstances of the cases the Tribunal is right in law in holding that there is, therefore, no mistake apparent from the record, which requires to be rectified ?
ii. Whether, on the facts and in the circumstances of the case, the Tribunal is right in understanding the judgment of the High Court to have declared that no portion of the income……….. is assessable ?”
By order dated October 20, 1984, the Tribunal dismissed the applications under section 256(1) of the Act. Learned counsel for the Revenue challenges the reasoning of the Tribunal that when the application for rectification is dismissed the effect is that original order of the Tribunal remains untouched and a reference if any can arise only of the original order and not from the order declining to rectify the original order. According to learned counsel, it is not correct to say that a reference would not arise out of proceedings for rectification. Learned counsel refers to the decision in Chemicals and Allied Products v. ITAT [1989] 175 ITR 344 (All) to contend that there could be reference of question arising from an order passed on an application for rectification since the said order would be different in nature from the original order. He also pointed out with reference to [1991] 187 ITR (St.) 75, that the question as to whether a reference would lie is now pending before the Supreme Court.
As far as the assessments in question here are concerned it is clear that the decision of the Full Bench in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker), squarely governs those cases. The said decisions was rendered relating to the said assessment years. All that the Tribunal did was to apply the said decision to the appeals pending before it after getting back the answers to the questions referred under section 256 of the Act. The Tribunal, therefore, had only given effect to the said answers in its order passed under section 260 of the Act. What was in effect sought by the Department by filling the application for modification of the order of the Tribunal made under section 260 of the Act was to ask the Tribunal to read a rider into the answer given by the High Court in the decision in P. Krishna Warrier v. CIT [1981] 127 ITR 192 (Ker) [FB]. In effect, the attempt for the Department was to get the order of the Appellate Assistant Commissioner restored. The Tribunal rightly rejected the said application made by the Revenue and observed that in any view no grounds for rectification are made out and if at all aggrieved the Revenue could have and should have a sought a reference against the order of the Tribunal made under section 260 of the Act in respect of questions that may arise out that order. By seeking a reference of the questions referred to in the present application under section 256(1) of the Act what the Department is really attempting to do is to get over the effect of the answer given by the Full Bench to question H referred to it for decision. In the connected tax reference cases we have held that the same is not permissible and there is no ambiguity about the scope of the answer given by the Full Bench and that the same would cover even the subsequent years. In that view of the matter, the Tribunal was perfectly justified in holding that no question of rectification or modification of the order under section 260 of the Act arose in the case and consequently no question of reference arises out of the order refusing the amendment or rectification sought for by the Department. In the light of this position, we are satisfied that the Tribunal was justified in refusing to refer the questions under section 256(1) of the Act. We find no ground to allow these applications under section 256(2) of the Act.
In result, in the tax reference cases we answer the question in the affirmative that is in favour of the assessee and against the Department. We also dismiss the original petitions. In the circumstances, we make no order as to costs.
A copy of this judgment under the signature of the Registrar and the seal of this court will be communicated to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.