Full Judgment Text
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PETITIONER:
THE INCOME TAX APPELLATE TRIBUNAL,TRIBUNAL, HYDERABAD SPECIA
Vs.
RESPONDENT:
THE DEPUTY COMMISSIONER OFINCOME-TAX (ASSTS) III, HYDERABAD,
DATE OF JUDGMENT: 17/01/1996
BENCH:
MAJMUDAR S.B. (J)
BENCH:
MAJMUDAR S.B. (J)
JEEVAN REDDY, B.P. (J)
CITATION:
1996 AIR 1066 1996 SCC (7) 454
JT 1996 (1) 416 1996 SCALE (1)432
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
S.B. Majmudar, J.
Leave granted in all these petitions.
By consent of learned advocates of parties the appeals
are heard finally and are being disposed of by this common
judgment. These appeals are taken out by Income Tax
Appellate Tribunal (referred to as ‘the Appellate Tribunal’)
which is up in arms against the Income Tax Department. In a
way these are unusual cases wherein the Tribunal has to
voice a grievance against the Income Tax Department in
connection with its functioning as such. A few relevant
background facts are required to be noted at the outset to
highlight the grievance of the appellant-Appellate Tribunal.
Background Facts
M/s. Surana Steels Pvt. Ltd., M/s. Bnjusaria Metal Box
Co. Pvt. Ltd. and M/s. Agroha Extraction Ltd., who are
respondents nos.2 in each of these appeals are the concerned
assessees. They were appellants in three income tax appeals
before the Income Tax Appellate Tribunal, Hyderabad. The
Special Bench thereof disposed of all the three appeals by
common order dated 4th February 1993 as they involved
consideration of common question of law relating to the
construction of Section 115-J of the Income Tax Act, 1961
(hereinafter referred to as ‘Income Tax Act’).
This decision of the Special Bench resulted in three
writ petitions moved by the Deputy Commissioner of Income
Tax, Hyderabad before the High Court of Andhra Pradesh. The
assessee-respondents nos.2 in each of these appeals had
succeeded before the Special Bench of the Appellate Tribunal
on the construction of Section 115-J of the Income Tax Act.
However, Income Tax Reference No.126 of 1992 which was
pending in the High Court also pertained to the very same
question centering round the construction of Section 115-J
and was, therefore, clubbed with the aforesaid three writ
petitions moved by the Deputy Commissioner of Income Tax
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against the common order of the Special Bench dated 4th
February 1993. All these matters were heard by a Division
Bench of the High Court consisting of V. Sivaraman Nair and
S.V. Maruthi, JJ. The Division Bench of the High Court by
its common order dated 31st December 1993 allowed the three
writ petitions moved by the Deputy Commissioner of Income
Tax and answered the Reference in favour of the Revenue and
against the assessees. The Appellate Tribunal being
aggrieved by the findings reached by the High Court in the
writ petitions has filed the aforesaid appeals before this
Court on obtaining leave under Article 136 of the
Constitution of India. The dissatisfied assessees have filed
separate Special Leave Petitions Nos.12446 and 12835 of
1994. By an order dated 8th August 1994 in the special leave
petitions moved by the Appellate Tribunal a bench of this
Court consisting of one of us, Jeevan Reddy, J. and Sen, J.,
issued notice and directed that pending further orders, the
judgment, in so far as it holds that constitution of a
Special Bench consisting of three or more members by the
President of Income Tax Appellate Tribunal can be done only
and by virtue of a judicial order, is suspended, while
notice was also issued and interim relief was granted on
condition in the assessee’s Special Leave Petition No.12446
of 1994 arising from the very same common judgment of the
High Court.
By a later order dated 3rd April 1995, however, Special
Leave Petitions Nos.12054-56 of 1994 moved by the Income Tax
Appellate Tribunal were declined from other matters. That is
how the assessees’ Special Leave Petitions are now no longer
a part of the present group and we are concerned, in the
present proceedings, with the three appeals arising out of
Special Leave Petition Nos.12054-56 of 1994 moved by the
Income Tax Appellate Tribunal against the common order of
the Division Bench of the High Court in the aforesaid three
writ petitions. Consequently, we will not be concerned, in
these proceedings, with the question of construction of
Section 115-J of the Income Tax Act and the merits of the
decision of the High Court on this point. We will,
therefore, only consider, in these proceedings, the
grievances voiced on behalf of the Appellate Tribunal by its
learned counsel Shri Subba Rao.
Rival Contentions
Shri Subba Rao, learned counsel appearing for the
appellant-Tribunal contended that the High Court had
patently erred in law in taking the view that the President
of the Income Tax Appellate Tribunal had no jurisdiction to
constitute a Special Bench for hearing the appeals of the
respondent-assessees. He submitted that the Division Bench
of the High Court had misconstrued and misinterpreted the
relevant statutory provisions of the Income Tax Act as well
as the regulations in this connection. According to Shri
Subba Rao the High Court had wrongly assumed that Special
Bench can be constituted by the President only on the basis
of a judicial order and not in exercise of his powers under
sub-section (3) of Section 255 of the Income Tax Act.
According to the learned counsel the High Court had equally
erred in taking the view that on the facts of the present
case the Special Bench was constituted on the whims and
fancies of the President and there was no reason for
constituting such a bench. He also further contended that
the High Court was equally in error when it held that the
Tribunal had committed a breach of the principles of natural
justice in not granting adjournment as asked FOR by learned
counsel for the Revenue. That on the facts of the present
case enough latitude was shown by the Tribunal in adjourning
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the matters at the instance of the learned counsel for the
Revenue on 11 past occasions and, therefore, there was no
violation of principles of natural justice when further
adjournment was refused and the matter was heard by the
Special Bench.
Shri Ahuja, learned senior counsel appearing for the
respondent-Deputy Commissioner of Income Tax on the other
hand submitted that on the facts of the present case the
High Court rightly took the view that Special Bench was
constituted by the President of Tribunal without any rhyme
or reason and in any case the Tribunal had committed breach
of basic principles of natural justice in refusing
adjournment in the appeals posted for hearing before the
Special Bench when the departmental representative who was
incharge of the matter had taken ill and had to be
hospitalized and that the previous adjournments which were
granted before the constitution of the Special Bench were
only 8 in number and that had nothing to do with the
situation in which the department found itself under
circumstances beyond its control when the learned counsel
for the Revenue was busy in the High Court in tax matters
before the Tax Bench and the departmental representative had
suddenly taken ill and had to be hospitalized. That these
were circumstances which called for a judicious and a
liberal approach on the part of the Tribunal. That even the
written submissions which were tendered on behalf of the
Revenue were not permitted to be taken on record and,
therefore, the High Court was right in taking the view that
the Tribunal in deciding the Special Bench matter had
committed breach of basic principles of natural justice.
In view of the aforesaid rival contentions, the
following points arise for our determination.
Point No.1
Whether the Special Bench of the Income Tax Appellate
Tribunal had committed breach of principles of natural
justice and had denied reasonable opportunity to the Income
Tax Department to put forward its case in the appeals taken
up for decision by the Special Bench.
Point No.2
Whether the President of the Tribunal was legally
competent to constitute a Special Bench for hearing the
three appeals moved by respondent no.2-assessees in these
three cases and whether the Special Bench was validly
constituted.
We shall deal with the aforesaid points one by one.
Point No.1
So far as this point is concerned the High Court in the
impugned judgment at page 31 has noted that it was true that
the matter was adjourned at the instance of the departmental
representative from time to time on 11 occasions from
28.10.1992 upto 4.1.1993. However, on 4.1.1993 when the
matter was posted for hearing before the Special Bench Shri
M. Srinivasulu who was appointed as designated officer to
argue the matter before the Special Bench fell sick. It was
also not disputed that he was shifted to Hyderabad Nursing
Home and the doctors had advised him rest for four weeks. It
was also true that Shri Mani, another Deputy Commissioner,
who was appointed to assist Shri Srinivasulu was ready to
argue the matter and in fact he argued the matter to the
best of his ability. However, in view of the complicated
nature of the case and the heavy revenue involved in the
matters and also keeping in view the fact that any decision
rendered by the Special Bench of the Tribunal will have an
all India effect, to supplement the arguments of Shri Mani,
the department sought permission of the Tribunal to file
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written submissions and it is not disputed that the Tribunal
did not permit the departmental representative to file those
written submissions. On these facts the High Court took the
view that the Tribunal was not justified in not adjourning
the matter and in insisting to hear the matter. Now we may
state at this stage that even though on merits the Revenue
lost before the Special Bench of the Income Tax Appellate
Tribunal the High Court in writ petitions heard the
department fully on the merits of the question, namely, the
construction of Section 115-J of the Income Tax Act and held
in favour of the Revenue and against the assessees. Thus the
Revenue had not only full opportunity to put forward its
case before the High Court in the writ petitions but had
succeeded therein. Under the circumstances the question of
violation of principles of natural justice by the Tribunal
pales into insignificance and, therefore, we do not deem it
fit to pronounce upon that question finally. We have already
noted that the decision of the Division Bench of the High
Court on the merits of the controversy centering round the
construction of Section 115-J of the Income Tax Act is
already pending scrutiny of this Court in the declined
special leave petitions moved by the assessees and this
Court is going to decide that question on merits. Under
these circumstances we do not think it fit to delve deep
into the question of failure of principles of natural
justice at the stage of hearing before the Special Bench of
the Tribunal. However, in passing we may observe that prima
facie, the view of the High Court that the Tribunal on the
peculiar facts of the case was not justified in insisting on
hearing the matter and even not taking the written
submissions on record as tried to be furnished on behalf of
the Revenue and thus had adopted an unjustified stand,
appears to be well sustained. It is no doubt true that the
matter was adjourned on 11 occasions earlier. It is also
true that when a senior counsel is not available to argue an
adjourned matter for which a Special Bench is constituted at
Hyderabad where the President had to come from Delhi and the
another member had to come from Bombay, the Revenue should
have taken all care to see that some alternative arrangement
was made so that the matter may not get unduly prolonged and
indefinitely adjourned and that in such situations the
Special Bench of the Tribunal could have legitimately
required the Revenue to make alternative arrangement for
getting the matter argued. But for that purpose a short
adjournment of a day or two could have been granted when the
departmental representative who was incharge of the matter
was admitted to a nursing home. In any case written
submissions could have been taken on record and considered
by the Tribunal instead of totally brushing them aside.
However as noted earlier as ultimately the Revenue has not
suffered till date and its viewpoint has been accepted by
the High Court on the construction of Section 115-J of the
Income Tax Act we do not dilate on this question any
further. That disposes of the first point.
Point No.2
So far as this point is concerned it is necessary to
have a look at the relevant facts as emerging on the record
of the case which resulted in the constitution of the
Special Bench by the President of the Appellate Tribunal. In
the counter filed by Shri Kalu Ram Meena, Deputy
Commissioner of Income Tax, Hyderabad in the present
proceedings the background facts leading to the formation of
the Special Bench by the President have been stated. It is
averred that the Tax Bar Association of Andhra Pradesh
addressed a letter to the President on 25th July 1992
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requesting him to refer the matter of correct interpretation
of Section 115-J to a Special Bench to have uniformity of
the decisions on the point. The request in the letter was as
follows :
"In the wake of the divergent
opinions expressed by different
Benches of the tribunal and also in
view of language in which Sec.115-J
is couched, the members of A.P. Tax
Bar Association have felt the need
to request your goodself to refer
the matter to a Special Bench to
have uniformity in the decisions on
this point. The Governing Body has
received various representations to
this effect from our members. May
we, therefore, request your
goodself to consider the request of
constituting a Special Bench to
decide the issue relating to the
interpretation of the word u/s 115-
J and oblige.
After the receipt of the above letter,
the President forwarded the same to the
Senior Member of the Income-tax
Appellate Tribunal, Hyderabad Bench,
Hyderabad directing him to contact the
members of the Bar and suggest to him
how far he feels the need of
constituting a Special Bench. On that
the Senior Member alongwith the
Accountant Member after due consultation
with the Bar suggested constitution of
the Special Bench and the reason for the
constitution of the Special Bench is
stated in reference dated 25.9.1992
forwarded to the President, which reads
thus:
‘After noting conflicting decisions on
the interpretation of Section 115-J and
also after going through the several
articles published in 50 Taxman 659
(Magazine Section) 47 Taxman 133
(Magazine Section) 48 Taxman 347
(Magazine Section) and 49 Taxman 49 and
133 (Magazine Section) and having
noticed diametrically opposite views
expressed in two decisions of the
Tribunal - one reported in 39 I.T.D. 432
Butwelded Tools (P) Ltd. Vs. Asstt.
Commissioner of Income-tax and the
opposite decision rendered by the
Hyderabad Bench in V.V. Trans Investment
(P) Ltd. Vs. Income-tax Officer (42 ITD
242) we are of the opinion in order to
secure uniformity in judicial decisions
and prevent judicial chaos and in order
to avoid uncertainties on such a vital
point of public importance, constitution
of a Full Bench is very essential to
resolve the following questions :
(1) Whether depreciation and loss should
necessarily be present for purpose
of adjustment while computing book
profit u/s 115-J of the I.T. Act
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read with 205(1) proviso (b) of the
Companies Act?
(2) For purpose of computing book
profits under sec. 115J of the I.T.
Act read with Section 205(1)
proviso (b) of the Companies Act
whether depreciation include loss?
(3) If an assessee had not incurred
losses in previous years but only
had unabsorbed depreciation claim,
the claim for deduction under
section 115J(I) (iv) would not be
available to such an assessee?
(4) In a case where there is profit in a
year but after adjustment of
depreciation it results in a loss,
can no adjustment in book profit
under sec.115J of the I.T. Act be
allowed?’
This reference was made on 25.9.1992 in
the prescribed form and it was sent
alongwith covering letter dated 25.9.92
to the President of the I.T.A.T. at
Delhi. Thereupon the President, ITAT had
accepted the reference and constituted a
Special Bench vide letter No.F.16-
LG(ATNZ-Sectt)92 dated 1.10.1992."
The aforesaid stand taken in the counter shows that the
President appeared to have acted in the light of the
reference dated 25th September 1992 made by two senior
members of the Tribunal. It is also true that the President
was requested by the Tax bar Association of Andhra Pradesh
to constitute a Special Bench for resolving the question in
controversy. However, when we turn to the reference letter
dated 25.9.1992 which has been brought on record of these
proceedings as an annexure to the Special Leave Petition as
Annexure ‘A’, we find that the reference purports to be
under Section 255(3) of the Income Tax Act by two members
Shri T.V. Rajagopala Rao and Shri Chander Singh and they
have suggested that the Special Bench of the Tribunal may be
constituted for deciding the following four matters :
1. I.T.A. No. 1045/Hyd/91 - Hagglunds Lenision Ltd.
(Asstt. Year: 1989-90) Dy. Commissioner of
Income Tax (Asstt), Spl.
Range-4, Hyderabad.
2.I.T.A.No.138/Hyd/92 - Novopan India Ltd.,
Hyderabad V. Dy.
Commissioner of Income
Tax (Assts), Spl. Range-4
Hyderabad.
3.I.T.A. Nos. 797 & - Andhra Printers Ltd.
798/Hyd/92 (Assts.
Vijayawada Vs. Dy.
Years: 1988-89 &
Commissioner of Income
Tax, 1989- 90)
Spl.Range, Vijayawada.
4.I.T.A. No. 812/Hyd/92 - Sri Raja Rajeswari Paper
(Asst. Year: 1989-90)
Mills Ltd. Vs. Dy.
Commissioner of Income-
Tax, Spl. Range,
Vijayawada.
It is also interesting to note that it is this D.O. letter
of the Accountant Member and the Judicial Member dated 25th
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September 1992 to which the President agreed and by his
order in the light of the said D.O. the President
constituted a Special Bench. That is clearly indicated by
communication dated 1st October 1992 addressed by Assistant
Registrar of the Income Tax Appellate Tribunal, New Delhi to
Shri T.V. Rajagopala Rao, Member, Income Tax Appellate
Tribunal, Hyderabad. The said communication is at Annexure
‘B’ to the S.L.P. at page 135 of the Paper Book. It is also
brought on the record of this case that one of the members
of the Tribunal, namely, Shri Chander Singh who was a
signatory to the reference dated 25.9.1992 had earlier taken
the view by his order dated 30th July 1992 that this
question was not required to be referred for decision to the
Special Bench. But even that apart even though he might have
subsequently changed his view and recommended constitution
of a Special Bench for resolving the questions involved
centering round construction of Section 115-J of the Income
Tax Act in company of Shri T.V. Rajagopala Rao, Judicial
Member only four listed matters were suggested to be placed
before Special Bench for decision. However, the Special
Bench was constituted by the President not for deciding
these four matters but for deciding the three tax appeals
being I.T.A. Nos. 1845/Hyd/90, 811/Hyd/92 and 822/Hyd/92
which were moved by the present three assessee-respondents
in these proceedings and it is the decision of the Special
Bench in these appeals that has resulted in the present
proceedings. We wanted, therefore, to know from the learned
counsel for the appellant as to how the aforesaid three
income tax appeals of the present three respondent-assessees
were placed before the Special Bench by the President when
the President had agreed to the suggestion of the members of
the Income Tax Appellate Tribunal for placing four other
appeals which were listed in the reference of 25th September
1992 for being placed before the Special Bench. In this
connection by our order dated 1st December 1995 the required
details were asked for from the appellant-Tribunal. We shall
deal with the material supplied by the Tribunal pursuant to
our aforesaid order a little later.
In the background of the aforesaid facts the High Court
took the view that on the facts and circumstances of the
case the President of the Tribunal was not justified in
constituting the Special Bench for deciding the appeals of
the aforesaid three respondents. The High Court has taken
the view that the President has to exercise his discretion
judiciously and judicially and it may not be exercised at
whims and fancies of the President. The High Court has
further observed that in the present case there was no
conflict at all between 39 ITD 432 (But welded Tools (P)
Ltd. v. Asst. Commissioner of Income Tax) and 42 ITD 242
(V.V. Trans-Investment (P) Ltd. v. Income Tax Officer) and
that there was no reason for the President to constitute
Special Bench. The High Court has also made the following
observations in this connection at page 41 of its judgment :
"... As already stated, the power to
constitute a Special Bench under Section
255(3) of the Act shall be exercised
judiciously and judicially and the
discretion cannot be exercised
arbitrarily at the whims and fancies of
the authority vested with such power.
We see considerable force in the
submission of counsel for the
petitioners that unless reference is
made in a judicial order by Bench of the
Tribunal pointing out the reasons for
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constitution of a Special Bench, the
President of the Income Tax Tribunal,
was not competent to constitute a
Special Bench. In the present case,
admittedly, none of the Benches of the
Tribunal had made any reference by a
judicial order when the question came up
for consideration and the conflict of
decisions of the coordinate Benches was
adverted to. The procedure adopted in
this case seems to us to be curious. On
receipt of a representation by the Tax
Bar Association, the President of the
tribunal invited comments from the
senior member for a Hyderabad Bench of
the Tribunal. It is more curious that
the very same member who had rendered
judgment which was reported in (42) ITD
242 replied to the President suggesting
the constitution of the Special Bench,
Counsel for the petitioner submits that
in the facts and circumstances of the
case that was but a command performance
at the instance of the President. He
submits further that since there was no
judicial order requesting for a
reference of any question to a Special
Bench, the constitution of the same was
not justified. We see considerable force
in the submission, since a Court or a
judicial tribunal is expected to
discharge their judicial functions by
passing judicial orders and not by
intra-departmental communications. We
also see force in the submission of
counsel that had the matter been posted
for hearing on the judicial side, the
Department would have had an opportunity
to project its views before the
Hyderabad Bench deliberated upon the
alleged conflict of authorities, rather
than depending on views expressed in
articles and journals as reason for
constitution of a Special Bench."
In our view the aforesaid decision of the High Court to
the effect that the President of the Income Tax Appellate
Tribunal cannot constitute a Special Bench save and except
under a judicial order cannot be sustained on the scheme of
the Act and the relevant regulations. The reasons are
obvious.
Section 255 of the Income Tax Act deals with the
procedure of Appellate tribunal. The said section along with
relevant sub-sections thereof reads as under :
"255. (1) The powers and functions
of the Appellate Tribunal may be
exercised and discharged by Benches
constituted by the President of the
Appellate Tribunal from among the
members thereof.
(2) Subject to the provisions
contained in sub-section (3), a Bench
shall consist of one judicial member and
one accountant member.
(3) The President or any other
member of the Appellate Tribunal
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authorised in this behalf by the Central
Government may, sitting singly, dispose
of any case which has been allotted to
the Bench of which he is a member and
which pertains to an assessee whose
total income as computed by the
Assessing Officer in the case does not
exceed one lakh rupees and the President
may, for the disposal of any particular
case, constitute a Special Bench
consisting of three of more members, one
of whom shall necessarily be a judicial
member and one an accountant member.
(4) If the members of a Bench
differ in opinion on any point, the
point shall be decided according to the
opinion of the majority, if there is a
majority, but if the members are equally
divided, they shall state the point or
points on which they differ, and the
case shall be referred by the President
of the Appellate Tribunal for hearing on
such point or points by one or more of
the other members of the Appellate
Tribunal, and such point or points shall
be decided according to the opinion of
the majority of the members of the
Appellate tribunal who have heard the
case, including those who first heard
it.
(5) Subject to the provisions of
this Act, the Appellate Tribunal shall
have power to regulate its own procedure
and the procedure of Benches thereof in
all matters arising out of the exercise
of its powers or of the discharge of its
functions, including the places at which
the Benches shall hold their sittings."
Now a mere look at sub-section (1) shows that it is the
administrative function of the President to constitute
benches from amongst the members of the Tribunal for
exercising the powers and functions of the Appellate
Tribunal. Similarly sub-section (3) empowers the President
for disposal of any particular case to constitute a Special
Bench consisting of three or more members one of whom shall
necessarily be a judicial member and one an accountant
member. The functions entrusted under sub-sections (1) and
(3) of Section 255 to the President of the Appellate
Tribunal are obviously administrative functions. They have
nothing to do with exercise of any judicial power. It is of
course true that as per sub-section (5) the Appellate
Tribunal can regulate its own procedure and the procedure of
benches and for that purpose can frame appropriate
regulations. In exercise of that power the Income Tax
Appellate tribunal has framed regulations. The relevant
regulation for the present purpose is Regulation 98(A).
It reads as under :
"Regulation 98(A)
With a view to bring about uniformity in
the procedure for reference of cases to
President I.T.A.T. for constitution of
Special Benches consisting of three or
more members instructions have been
issued from time to time. For making
such reference the concerned bench
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should pass the order similar to order
of Tribunal "the reference shall be made
by the bench as far as possible" in the
proforma as appended in XIX(B).
APPENDIX XIX (B)
INCOME TAX APPELLATE TRIBUNAL
PROFORMA FOR MAKING REFERENCE BY A BENCH
TO THE PRESIDENT, ITAT FOR CONSTITUTION
OF SPECIAL BENCH.
’We the member of ..........
Bench(es) at .......... (Station) are of
the opinion that the appeal(s) No.(s)
.......... in the matter of ..........
which were posted for hearing before us
on .......... is/are fit and proper
appeal(s) which should be heard by a
Special Bench consisting of three/or
.......... members of the Tribunal. We
accordingly forward the records of the
appeal(s) mentioned above to the
President of the Tribunal and request
him to constitute a Special Bench for
the reasons given below :
Reasons in brief :
Signature: 1.
2.
Note:1. This form should be sent to the
President of the Tribunal in
duplicate. alongwith the
observations of the Vice President
of the concerned Zone.
Note:2. Document/materials in support of
the reasons for constitution of a
Special Bench should be enclosed.’"
The aforesaid regulation shows that the concerned Bench
which is seized of the matter may in exercise of its
judicial function in appropriate case make a reference to
the President to constitute a Special Bench. The exercise of
that function by the Bench of the Tribunal hearing the
matter is of course a judicial function but so far as the
President’s power under sub-section (1) read with sub-
section (3) of Section 255 to constitute Benches or for that
matter Special Benches is concerned the said power is an
administrative power. It is obvious that the President in
this connection may even act suo motu if it is brought to
his notice that any important point is pending for decision
in a matter which requires to be decided by a larger bench.
If the President acting on such information and in bonafide
exercise of his powers constitutes a larger bench or a
Special Bench for deciding a matter it cannot be said that
he acts ultra vires his powers or functions entrusted to him
by the legislature under Section 255(1) read with Section
255(3) of the Income Tax Act. Consequently, the Division
Bench of the High Court with respect was in error when it
took the view that a Special Bench can be constituted by the
President only pursuant to a judicial order and not in
exercise of his administrative powers. It is of course true
that in any pending matter before a bench of two learned
members, if it is felt by the learned members that a Special
Bench is required to be constituted, they can pass a
judicial order in the light of the procedure laid down by
Regulation 98(A). But such a situation had never arisen on
the facts of the present case. We have already seen above
that the two learned members had recommended to the
President to constitute a Special Bench for resolving the
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controversy centering round the construction of Section 115-
J of the Income Tax Act by their communication dated 25th
September 1992. That was styled as a reference under Section
255(3) of the Income Tax Act. It was merely a recommendation
for invoking the administrative powers of the President
under Section 255(3) for constituting Special Bench. It was
certainly not a reference under Section 255(3) read with
Regulation 98(A). We fail to appreciate how the High Court
in exercise of its power under Section 226 of the
Constitution could sit in appeal or judgment over the
administrative decision of the President who might have felt
that the case was of all India importance and was required
to be decided by a larger Bench of three members. Such an
administrative order is not open to scrutiny under Article
226 of the Constitution of India except in extraordinary
cases wherein the order is shown to be a malafide one. No
such allegation was made by the Department against the
President of the Tribunal on the facts of the present case.
It may be that the President of the Tax Bar Association
might have initially moved in the matter o r it may be that
the two learned members of the Tribunal might have suggested
to the President to place listed four matters before a
Special Bench. But being so apprised of the situation if the
President felt that the present three matters moved by the
concerned three respondents in these proceedings involved
the same points and which were required to be thrashed out
by a Special Bench we do not see any reason for holding that
the constitution of a Special Bench by the President for
deciding present three matters was an illegal or injudicious
exercise or an exercise based on whims and fancies of the
President. The Division Bench of the High Court on the facts
of this case appears to have been uncharitable to the
President of the Tribunal when it observed as aforesaid. It
is also difficult for us to appreciate how the High Court
could persuade itself to hold that when none of the Benches
of the Tribunal had made any reference by judicial order the
President of the Income Tax Tribunal was not competent to
constitute a Special Bench. As we have already noted above
Special Benches can be constituted by the President both in
exercise of his administrative powers under Section 255(1)
read with Section 255(3) as also on the basis of a judicial
order passed by any bench of the Tribunal making a reference
to the President in that connection under Regulation 98(A).
But it is not as if that such a reference by the members
under Regulation 98(A) by passing a judicial order is the
only mode and manner in which the President can be moved to
constitute a Special Bench. Even independent of such a
reference on the judicial side the President can in an
appropriate case even suo motu may move in the matter and
can constitute a Special Bench of course on appropriate and
germane grounds. It is, however, true that the President in
exercise of its administrative powers under Section 255(3)
cannot just constitute a Special Bench without any rhyme or
reason. Such an administrative exercise can be demonstrated
to be unreasonable, capricious or malafide on a given set of
facts. But in our view present case was not of that type.
There was a conflict of opinion between two Benches of the
Tribunal, namely, Madras and Hyderabad Bench. It is,
however, true that Madras Bench decision was by a single
member while the Hyderabad Bench decision was by a Division
Bench. Still it could not be said that there was no conflict
of decisions between two benches of the Tribunal. That
itself constituted a rational and valid ground for the
President to act in exercise of his administrative powers to
constitute a Special Bench if he thought it fit to do so.
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Such an exercise on the facts of the present case cannot be
styled as an arbitrary or whimsical or fanciful one as
wrongly and uncharitably assumed by the Division Bench of
the High Court.
It is now time for us to deal with one apparent
inconsistency underlying the order of the President of the
Tribunal, constituting the Special Bench, which was
highlighted by learned counsel for respondent-Revenue. As
noted earlier the President of the Tribunal does not seem to
have acted suo motu simply relying upon the recommendations
of the Income Tax Bar Association, Hyderabad for
constituting a Special Bench for deciding the controversy in
issue. He seems to have obtained opinion of senior members
of the Tribunal and in the light of their recommendations
contained in the communication dated 25.9.1992 the Special
Bench was constituted for hearing the appeals of the present
three respondents. It is also true that the members had
recommended placing before the Special Bench four listed
matters which did not include the appeals of these present
three respondents. Thus the order constituting Special Bench
appeared to be inconsistent with the recommendations of the
members of the Tribunal. In this connection further details
as noted earlier were sought for from the Appellate Tribunal
by our order dated 1st December 1995. It is in the light of
what the Tribunal has stated in response to our order dated
1st December 1995 that we now proceed to deal with this
aspect of the matter.
Pursuant to our order dated 1.12.1995, an affidavit has
been filed by Shri Kishan Rao, Asstt. Registrar, who worked
as Asstt. Registrar, Income Tax Appellate Tribunal Bench at
Hyderabad at the relevant time. In the said affidavit, he
has clarified that on receipt of letter dated 28.7.1992
addressed by the President of Income Tax Tribunal to Shri
T.V. Rajagopala Rao, Member, Tribunal, Bench at Hyderabad,
the learned Member Shri Rajagopala Rao, by his letter dated
25.9.1992 addressed to then President of the Tribunal Shri
G. Krishnamurthy, stated that after verifying the files, he
felt the justness of the demand made by the Bar and that he
discussed the matter with the learned brother Member Shri G.
Krishnamurthy and formulated the questions referable to the
Full Bench, that it was true that in the said letter of
reference four matters were mentioned but it is further
pointed out that on receipt of the said letter a circular
was issued by the Tribunal to all other 18 Benches of the
Tribunal intimating that the Special Bench of Income Tax
Appellate Tribunal, Hyderabad Bench-A was being constituted
to consider the questions which were mentioned in the
circular. A copy of the circular is annexed to the affidavit
as Annexure-V. This circular shows that all the four matters
which were sought to be referred to the Special Bench by
reference letter of 25.9.1992 by two Members of the Tribunal
were sought to be placed before the Special Bench. In
addition thereto is found at serial no.6 Income Tax Appeal
No.1845/Hyd/90 which is one of the matters in the present
proceedings which was disposed of by the Special Bench. It
is thereafter that nine cases in which common question of
construction of Section 115-J read with Section 143(1)(a) of
the Income Tax Act was involved were placed before the
Special Bench. The cause list of cases posted for hearing
before the Special Bench at Hyderabad is annexed as
Annexure-VI to the affidavit. It shows that the matters
pertaining to the present proceedings were placed for
hearing before the Special Bench along with four matters
which have been mentioned in the reference letter dated
25.9.1992 of the two Members of the Tribunal, namely, Shri
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T.V. Rajagopala Rao and Shri Chander Singh. It is further
clarified in the affidavit that arguments were concluded in
all these appeals on 5.1.1993 and judgment was reserved in
four cases to which reference was made. However, at the
conclusion of the arguments, the learned counsel in those
four cases submitted that there were some additional issues
which were not specifically covered by the questions which
came up for decision before the Special Bench and hence they
requested that those appeals be released from Special Bench,
and as the Full Bench felt that it was not necessary for
them to go into other points and once the main questions
referred to in the matters were decided, the said judgment
will abide the other cases also, the said four cases were
released by the Special Bench to be heard by the Division
Bench after the judgment in Surana Steels case and others.
In view of the aforesaid affidavit based on the
relevant events which transpired prior to the constitution
of the Special Bench, and in the light of the relevant
documentary evidence produced in support of the affidavit,
we have no doubt that the learned President in bonafide
exercise of his administrative power constituted the Special
Bench for deciding the Income Tax Appeals with which the
present proceedings are concerned. Consequently, the
observation of the High Court that the Special Bench was
constituted at the whims and fancies of the President for
deciding these appeals must be held to be unjustified and
unsustainable.
In the light of the aforesaid discussion, therefore,
point no.2 must be decided in the affirmative.
In view of our conclusion on point no.2 and as we have
held that point no.1 does not survive for our decision as
aforesaid, the judgment and order rendered by the Division
Bench of the High Court in the three writ petitions moved by
the Deputy Commissioner of Income Tax on the aforesaid two
points are quashed and set aside. So far as the question
about true construction of Section 115-J is concerned, we
keep it open for decision in the declined S.L.Ps. of the
assessees. All the three appeals are allowed accordingly.
The writ petitions before the High Court will stand
dismissed to the aforesaid extent. On the facts and
circumstances of the case there will be no order as to costs
all throughout.