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Pierce Leslie India Ltd. vs Commissioner Of Income-Tax on 15 March, 1988

Karnataka High Court
Pierce Leslie India Ltd. vs Commissioner Of Income-Tax on 15 March, 1988
Equivalent citations: 1988 174 ITR 626 KAR, 1988 174 ITR 626 Karn, 1988 (2) KarLJ 147
Author: R Jois
Bench: M R Jois, S R Babu


JUDGMENT

Rama Jois, J.

1. This application is presented under section 151 of the Code of Civil Procedure praying for setting aside the order of this court passed in I.T.R.C. No. 216 of 1984 (Pierce Lesile India Ltd. v. CIT [1988] 174 ITR 623) and to pass a fresh order after hearing the matter afresh.

2. The following question of law arises for consideration :

“Whether this court has got any inherent power to entertain an application praying for setting aside an order made in a reference under section 256 of the Income-tax Act, 1961, on the ground that the order made was palpably erroneous or had resulted in miscarriage of justice and to set aside the order if it is found to be so and to pass an order in accordance with law ?”

3. The facts of the case, in brief, are as follows : The Income-tax Appellate Tribunal, Bangalore Bench, made a reference under section 256(1) of the Income-tax Act, 1961, referring the following question of law for the opinion of this court :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the applicant is not entitled to deduction under section 35B in respect of the commission of Rs. 90,851 paid by it to the agents in India ?”

4. The said reference was disposed of by this court by order dated July 17, 1986 ([1988] 174 ITR 623). This court answered the question in the affirmative and against the assessee. Thereafter, the present application has been made invoking the inherent power of this court for reviewing the said order on the ground that the order had resulted in manifest injustice to the assessee and that the order also suffers from a patent error of law.

5. Learned counsel for the Revenue has raised a preliminary objection. He submitted that the prayer made in the application amounts to seeking a review of the order made in reference jurisdiction of this court under section 256 of the Income-tax Act, 1961 (“the Act” for short), and no such application was maintainable. In support of the above contention, learned counsel relied on the judgment of the Nagpur High Court in Seth Mathuradas v. CIT [1940] 8 ITR 412. That was a case in which the Nagpur High Court was considering an application for review of the judgment made by the said High Court in a reference under section 66 of the Indian Income-tax Act, 1922, which corresponds to section 256 of the 1961 Act. The Nagpur High Court held that when the High Court exercised its jurisdiction under section 66 of the Indian Income-tax Act, 1922, the High Court did not operate as a civil court and, therefore, the provisions of the Civil Procedure Code were not attracted and, consequently, the review application under Order 47, rule 1, Civil Procedure Code, was not maintainable. He also relied upon the judgment of the Kerala High Court in Jose T. Mooken v. CIT (No. 2) , in which a similar view was taken by the Kerala High Court. In the said decision, the Kerala High Court held that the reference jurisdiction of the High Court under the Income-tax Act was a special jurisdiction and was of an advisory or consultative nature and it was neither original, appellate nor revisional jurisdiction and, therefore, the provisions of Order 47, rule 1 were not attracted and, therefore, a review application as against an order made by the High Court in the reference jurisdiction was not maintainable.

6. We are in agreement with the submission made by learned counsel for the Revenue that a review petition under Order 47, rule 1, Civil Procedure Code, is not maintainable having regard to the nature of the jurisdiction conferred on the High Court under section 256 of the Act.

7. Learned counsel appearing for the assessee also did not dispute that a petition under Order 47, rule 1 of the Civil Procedure Code, for reviewing an order under section 256 of the Act was not maintainable, for it is well settled that a power for review has to be expressly conferred. He, however, submitted that the application was not a review petition. He submitted that the applicant was invoking the inherent power of this court. He said that this court, being a court of plenary jurisdiction, had inherent power to rectify any manifest error which had resulted in miscarriage of justice in exercise.

8. Learned counsel for the Revenue per contra submitted that even the inherent power to exercise any such jurisdiction was under section 151, Civil Procedure Code, and even that provision was inapplicable to a reference under section 256 of the Act. In support of his submission, he relied on a judgment of the Allahabad High Court in Roop Narain Ramchandra (P.) Ltd. v. CIT . The said case arose out of an application made for recalling an order made by the Allahabad High Court returning a reference unanswered on the ground of non-prosecution. An objection was raised by the Revenue to the effect that the application was not maintainable. The Division Bench of the Allahabad High Court held that the court had no inherent power to recall an order made in a reference under section 256 of the Act and the provisions of section 151, Civil Procedure Code, were not applicable.

9. Learned counsel for the applicant submitted that a similar question, viz., as to whether the High Court had the power to restore a reference which it had declined to answer on the ground of non-prosecution and to dispose of the same on merits, in exercise of its inherent power came up for consideration before the Supreme Court in Jaipur Mineral Development Syndicate v. CIT . The facts of the said case were that the assessee who had sought a reference to the High Court on certain questions of law from the Income-tax Appellate Tribunal failed to put in appearance before the High Court and to file paper books. In view of the non-appearance and non-filing of paper books by the assessee, the Rajasthan High Court declined to answer the reference. Thereafter, when the application was made before the Rajasthan High Court for invoking its inherent power the Rajasthan High Court rejected the application on the ground that it had become functus officio and that it had no inherent power to recall the order and rehear the reference. The judgment of the High Court was reversed. The relevant portion of the judgment of the Supreme Court reads (p. 657) :

A party or its counsel may be prevented from appearing at the hearing of a reference for a variety of reasons. In case such a party shows, subsequent to the order made by the High Court declining to answer the reference, that there was sufficient reason for its non-appearance, the High Court, in our opinion, has the inherent power to recall its earlier order and dispose of the reference on merits. We find it difficult to sub-scribe to the view that whatever might be the ground for non-appearance of a party, the High Court having once passed an order declining to answer the question referred to it because of the non-appearance of that party, is functus officio or helpless and cannot pass an order for disposing of the reference on merits. The High Court in suitable cases has, as already mentioned, inherent power to recall the order made in the absence of the party and to dispose of the reference on merits. There is nothing in any of the provisions of the Act which, either expressly or by necessary implication, stands in the way of the High Court from passing an order for disposal of the reference on merits. The courts have power, in the absence of any express or implied prohibition, to pass an order as may be necessary for the ends of justice or to prevent the abuse of the process of the court. To hold otherwise would result in quite a number of cases in gross miscarriage of justice. Suppose, for instance, a party proceeds towards the High Court to be present at the time the reference is to be taken up for hearing and on the way meets with an accident. Suppose further, in such an event, the High Court passes an order declining to answer the question referred to it because of the absence of the person who meets with an accident. To hold that in such a case the High Court cannot recall the said order and pass an order for the disposal of the reference on merits, even though full facts are brought to the notice of the High Court, would result in obvious miscarriage of justice. It is to meet such situations that courts can exercise, in appropriate cases, its inherent power. In exercising inherent power, the courts cannot override the express provisions of law. Where, however, as in the present case, there is no express or implied prohibition to recalling an earlier order made because of the absence of the party and to directing the disposal of the reference on merits, the courts, in our opinion, should not be loath to exercise such power provided the party concerned approaches the court with due diligence and shows sufficient cause for its non-appearance on the date of hearing.”

10. As can be seen from the above portion of the judgment, the Supreme Court held that there was nothing in the provisions of the Act which expressly or by necessary implication prevents the High Court from exercising its inherent power to recall an order made and to dispose of the reference on merits. The court also pointed out that where there was no express or implied prohibition for recalling an earlier order made because of the absence of the party and to dispose of the reference on merits, the court has the inherent power to do so and can do so if the party shows sufficient cause. Though the above decision arose in the context of declining to answer a reference, what is of importance is, the Supreme Court held that the High Court, after passing an order, does not become functus officio and in the absence of any prohibition, express or implied, it could exercise its inherent power to entertain an application for recalling an order made earlier.

11. The question as to whether the High Court had inherent power to set aside an order made on merits, in a petition under article 226, came up for consideration before the Allahabad High Court in Dan Singh Bist v. Addl. Collector, . In the said case, the writ petition presented by the party had been allowed holding that the Additional Collector who had taken steps for acquiring lands had done so without authority of law. But, subsequently, it was brought to the notice of the court that the necessary notification had been issued conferring power on the Additional Collector to exercise the power of the Collector regarding land acquisition. The question for consideration before the High Court was whether in exercise of the inherent power, the court could set aside the order made in the writ petition and rehear the writ petition. There was an earlier Full Bench judgment of the Allahabad High Court holding that the provisions of section 114 and Order 47, rule 1 were not applicable to an order made by the High Court in exercise of its power under article 226 of the Constitution. The learned judge who heard the application took the view that even though the provisions of Order 47, rule 1 were inapplicable, the High Court being a court of record had the inherent power to set aside its own earlier order, if it is found to be patently erroneous or had resulted in miscarriage of justice. The relevant portions of the judgment of James J. read (p. 157) :

“(32) TO sum up. Thakur Dan Singh instituted proceedings under article 226 of the Constitution for enforcing or vindicating his civil rights in respect of some land. Through inadvertence, and in ignorance of a fact, viz., the existence of a subsequent notification, I passed an invalid order. This order has done a manifest injustice to the State Government and its agents. I am now asked to review and correct it. There is no statutory bar to my doing so; nevertheless I cannot make the necessary correction unless authorised to do so by some law. The Constitution itself is not such a law, nor are our rules of court. But in passing the order I exercised my civil jurisdiction. Consequently, the proceedings before me must be governed by the Civil Procedure Code. My wrong order can prima facie be reviewed under section 114 and Order XLVII, rule 1, but the majority decision in Abhilakhi v. Sada Nand, ILR 53 All 535; AIR 1931 All 244 [FB], stands in the way of my doing so. But although those provisions cannot be called in aid, I have not only the power under section 151 to undo the injustice but I am bound to do so. No doubt the State Government could have sought relief from the court of appeal, nevertheless it is equally entitled to approach me under section 151, and it becomes my duty to do that real and substantial justice for the administration of which alone my court exists. This compels the recalling of my invalid order.

(33) In these circumstances, I allow these four applications, set aside my judgment of August 28, 1958, and direct that the four writ petitions of Thakur Dan Singh be restored and decided on the merits. Since my invalid order was due to no one’s fault, the parties shall bear their own costs of these applications.”

12. The above view of James J. of the Allahabad High Court that the High Court has the inherent power to set aside its own earlier order if it is found to be manifestly erroneous or had resulted in miscarriage of justice, stands confirmed by the judgment of the Supreme Court in Shivdeo Singh v. State of Punjab, AIR 1963 SC 1909. The relevant portion of the judgment reads (p. 1911) :

“(8) The other contention of Mr. Gopal Singh pertains to the second order of Khosla J., which, in effect, reviews his prior order. Learned counsel contends that article 226 of the Constitution does not confer any power on the High Court to review its own order and, therefore, the second order of Khosla J., was without jurisdiction. It is sufficient to say that there is nothing in article 226 of the Constitution to preclude a High Court from exercising the power of review which inheres in every court of plenary jurisdiction to prevent miscarriage of justice or to correct grave and palpable errors committed by it. Here, the previous order of Khosla J. affected the interests of persons who were not made parties to the proceeding before him. It was at their instance and for giving them a hearing that Khosla J. entertained the second petition. In doing so, he merely did what the principles of natural justice required him to do. It is said that the respondents before us had no right to apply for review because they were not parties to the previous proceedings. As we have already pointed out, it is precisely because they were not made parties to the previous proceedings, though their interests were sought to be affected by the decision of the High Court, that the second application was entertained by Khosla J.”

13. The Supreme Court pointed out that there was nothing in article 226 of the Constitution to preclude a High Court from exercising the power of review which inheres in every court of plenary jurisdiction to prevent miscarriage of justice or to correct grave and palpable errors committed by it.

14. From the above pronouncement of the Supreme Court it is clear that whatever be the jurisdiction vested in the High Court, the High Court does not become functus officio if it passes a final order for, being a court of plenary jurisdiction, it has inherent power to prevent miscarriage of justice or to correct grave and palpable errors committed by it and to pass appropriate orders on an application presented to it by an aggrieved party.

15. Learned counsel for the Revenue, however, places strong reliance on the judgment of the Supreme Court in CIT v. Bansi Dhar and Sons . The question for consideration before the Supreme Court in the said case was whether the High Court had the power to pass an interim order staying the recovery of tax or grant an order of injunction when a reference made under section 256(1) or 256(2) of the Act was pending before the High Court. The Supreme Court held that the nature of the jurisdiction conferred under section 256 of the Act was purely advisory and, therefore, it had no jurisdiction to grant stay of realisation of tax or to grant injunction. The Supreme Court held that such a power was not incidental to the power to answer a reference conferred under section 256 of the Act. In our opinion, the ratio of the said decision is not apposite to the question arising for consideration in this case.

16. To illustrate, suppose, in a given reference, the High Court makes an order, answers a question of law referred for its opinion under section 256(1) or 256(2) of the Act, in favour of the assessee following its earlier decision and it so happens that even before the High Court made such an order, the earlier decision of the High Court was reversed and a similar question had already been answered by the Supreme Court in favour of the Revenue and the judgment of the Supreme Court was not brought to the notice of the High Court and the Revenue invokes the inherent power of the High Court and prays for setting aside the order and to answer the question in accordance with the law declared by the Supreme Court or in a similar situation, the assessee invokes the inherent power of the High Court, relying on an earlier decision of the Supreme Court, not known and brought to the notice of the court before answering the reference against him. As the law declared by the Supreme Court is binding on the High Court under article 141 of the Constitution, if, on account of inadvertence or mistake or want of information about the latest pronouncement of the Supreme Court, such a binding decision was not brought to the notice of the High Court, if an application is made by the party aggrieved, in our opinion, it becomes the duty of the High Court to recall its earlier order and answer the question so as to be in conformity with the ratio of the decision of the Supreme Court, for, the High Court, being a court of plenary jurisdiction, has inherent power to rectify the manifest error which has resulted in miscarriage of justice. In our opinion, as held by the Supreme Court in Jaipur Mineral Development Syndicate’s case , there is nothing in the provisions of the Act which prevents the High Court from exercising its inherent jurisdiction in order to correct palpable errors and to prevent miscarriage of justice.

17. For the aforesaid reasons, we answer the first question as follows :

“This court has got inherent power to entertain an application praying for setting aside an order made in a reference under section 256(1) of the Income-tax Act, 1961, on the ground that the order made was palpably erroneous or has resulted in miscarriage of justice and set aside the order if it is found to be so and to pass a fresh order in accordance with law.”

18. Now, coming to the merits of the application, learned counsel for the assessee submitted that the Income-tax Appellate Tribunal had given a factual finding to. the effect that a sum of Rs. 90,851 had been paid by the assessee in connection with obtaining information regarding its export business, but had declined to grant weighted deduction on the ground that the payment was made within India and not outside India. The submission was that section 35B of the Act does not require that payment should be made outside India. He submitted that even if the payment was made within India, as the payment so made was in respect of the commission for securing information regarding markets outside India in connection with its export business, the weighted deduction was admissible. The relevant portion of the judgment in which the contention of the assessee was rejected is at paras 5 and 6 of the order which read (at p. 623 of 174 ITR) :

“5. The contention may be good, but we have no sufficient material in the statement of facts much less in the order of the Tribunal that the expenditure was incurred for obtaining information regarding markets outside India for export promotion. In fact, the assessee appears to have not maintained any separate accounts in regard to expenditure incurred for obtaining such information. On the contrary, the assessee has paid a total sum of Rs. 90,851 during the relevant year in India to Indian agents and that payment was proved to have been made as clearly stated by the Income-tax Officer ‘in its usual course of business.

6. Now, the assessee wants to state that 50% of the expenditure should be allowed for the purpose of weighted deduction. We do not know on what basis 50% of that amount has been claimed. In the absence of clear proof and separate accounts maintained for the purpose, we do not think that the conclusion of the Tribunal in negativing the claim of the assessee is in any way arbitary or unjust.”

19. As can be seen from the above paragraphs, this court rejected the contention of the assessee on the ground that no sufficient material was available either in the statement of facts drawn up by the Tribunal or in the order of the Tribunal to the effect that the expenditure was incurred by the assessee for obtaining information regarding markets outside India for its export promotion. It was on the said ground that the question referred for the opinion of this court was answered against the assessee.

20. Learned counsel for the assessee invited our attention to the order of the Tribunal and submitted that there was a specific finding of fact in its favour. But, after going through the order of the Tribunal, we are satisfied that there was no such finding of fact. The Tribunal proceeded on the assumption that the amount of Rs. 90,851 had been paid by the assessee for collecting information about foreign markets for the purpose of its export promotion, but as the amount was paid within the country, weighted deduction under section 35B of the Act was inadmissible. Thus, the Tribunal rejected the plea of the assessee without going into the factual question as to whether the assessee had made payment to foreign agents for collecting information in connection with its export promotion. Learned counsel for the assessee was unable to show any material either in the statement of case or in the annexure to the statement of the case that any material evidence had been adduced in support of the said factual information and that a finding had been recorded by any of the authorities. This court rejected the contention of the assessee by specifically stating that there was no sufficient material to say that the amount of Rs. 90,851 was paid during the relevant accounting year by the assessee as commission for obtaining information regarding markets outside India for its export promotion. Therefore, there is neither any palpable error in the order made by this court earlier nor had it resulted in Miscarriage of justice.

21. For the aforesaid reasons, we make the following order :

22. Application is dismissed.

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