CANARA BANK V. COMMISSIONER OF INCOME TAX APPEALS AND 2 ORS.

WTAX/394/2016

AI Insights

The case involves Canara Bank challenging the jurisdiction of the Commissioner of Income Tax (Appeals) to pass an order under sections 154/250 of the Income Tax Act, 1961, concerning the non-deduction of TDS on interest payments made to the New Okhla Industrial Development Authority (NOIDA). The primary legal contention was whether the CIT (Appeals) could revisit an order that had already merged into a higher appellate decision, specifically after the Income Tax Appellate Tribunal and the Supreme Court had upheld the initial exemption. The court found that the CIT (Appeals) had no jurisdiction to alter the order post-merger with the Tribunal's decision, leading to the quashing of the CIT (Appeals)'s order.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 694476 (HC-INDIA)
• Appeal Type: Others
• Pronouncement Date: 03-12-2018
• Assessment Year: misc
• Other Referred Cases: T.S. Balram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, Kunhayammed v. State of Kerala, Union of India v. Kamlakshi Finance Corporation Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MANISH GOYAL
• Assessee Lawyers: ABHINAV MEHROTRA
• Keywords: Exemption; Interest payments; Jurisdiction; Noida; Rectification Application; T.D.S.
• Section: 250; 154; 194A; 201(1); 201(1A); 194A(3)(iii)(f)

Judgement Text

"1 Court No. - 7 Case :- WRIT TAX No. - 394 of 2016 Petitioner :- Canara Bank Respondent :- Commissioner Of Income Tax (Appeals) And 2 Ors. Counsel for Petitioner :- Abhinav Mehrotra Counsel for Respondent :- S.C.,Manish Goyal (I.T.) Hon'ble Saumitra Dayal Singh,J. 1. Heard Sri Abhinav Mehrotra, learned counsel for the petitioner- Bank; Sri Manish Goyal, Sri Gaurav Mahajan, Sri Praveen Kumar, Sri Krishna Agarwal & Sri Shubham Agarwal, learned counsel for the respondent-revenue. 2. The present and the connected matters have been filed by the different Banks against similar orders passed by the Commissioner of Income Tax (Appeals)-1, NOIDA under Section 154/250 of the Income Tax Act, 1961 (hereinafter referred to as the Act), dated 30.11.2015. For the sake of convenience, the present writ petition is being decided as the lead case. Challenge raised is to the jurisdiction of the Commissioner of Income Tax (Appeals)-1, NOIDA to pass any order under section 150/254 of the Act, in view of the order dated 02.12.2013 (order sought to be rectified) having merged in the order in the order of the Income Tax Appellate Tribunal dated 07.08.2015. 3. Admittedly, the petitioner in the normal course of its business as a banker had received deposits from the New Okhla Industrial Development Authority (NOIDA in short), for different terms at fixed/contracted rates of interest to be paid by the Bank. The interest that thus became due was also paid by the Bank to the NOIDA. On these interest payments made by the petitioner did not make any tax- deduction-at source (T.D.S. in short). The revenue claims such deduction should have been made before making payments of interest, to NOIDA. Such obligation is stated to have arisen by virtue of Section 194A of the Act. The petitioner bank on its part claimed to be exempt from that liability by virtue of Section 194 A(3)(iii)(f) of the Act, it having made payments to NOIDA, perceived to be an authority established 2 under an enactment of the State of U.P. 4. The petitioner's assessing authority differed in its understanding of the law and by order dated 28.02.2013 he passed an order under Section 201(1)/201(1A) read with Section 194A of the Act and declared the petitioner an assessee-in-default under the Act on account of non- deduction of T.D.S. on interest payments made to NOIDA. Accordingly a demand was raised on the petitioner. 5. The petitioner-bank carried the matter in appeal before the CIT(Appeals), NOIDA who by his order dated 02.12.2013 set aside the order treating the petitioner bank to be an assessee-in-default. Arising from that order the revenue appears to have availed two remedies, by filing appeal before Income Tax Appellate Tribunal, which appeal came to be dismissed by order dated 07.08.2015, and also another remedy in the shape of rectification application under Section 154 of the Act. It was allowed by the Commissioner of Income Tax (Appeals), NOIDA by order dated 30.11.2015, more than three months after the original order dated 02.12.2013 came to be upheld by the Tribunal, by its order dated 07.08.2015. 6. It has also come on record that subsequently, the further appeal filed by the revenue against the order of the Income Tax Appellate Tribunal dated 07.08.2015 came to be dismissed by this Court vide order dated 04.04.2016 passed in Income Tax Appeal No.64 of 2016. That judgment itself became subject matter of appeal before the Supreme Court in Civil Appeal No.6020 of 2018 which appeal was also dismissed by the Supreme Court by judgment dated 02.07.2018. 7. In the aforesaid factual background, learned counsel for the petitioner has submitted that in the first place, the issue whether NOIDA is a corporation formed by a State enactment (which is a pre- condition for claiming exemption under section 194A(3)(iii)(f) of the Act), was considered by the CIT(Appeals) where after he had reached a conclusion that NOIDA was a corporation entitled to the benefit of Section 194A(3)(iii)(f) of the Act since it was incorporated under a 3 notification no. 50348 dated 22.02.1979 issued by the Central Government. In any case, it has been submitted that the issue was elaborately further thrashed out at all forums starting from the Tribunal as also before this court and subsequently before the Supreme Court. In such facts, once the order of the CIT(Appeals) had merged in the order of the Tribunal on 07.08.2015, the rectification order has to necessarily fall on merits. 8. Second, even if the subsequent order passed by this Court and the Supreme Court are ignored, still, upon merger of the order of the CIT(Appeals) dated 02.12.2013 in the order of the Tribunal on 07.08.2015, it was no longer open to the CIT(Appeals) to revisit or reconsider his earlier order dated 02.12.2013 so as to reach different conclusion on the issue dealt with by the Tribunal. 9. Third, it has been submitted, in any case, the issue itself being debatable, that had been dealt with and decided in the Original Order dated 02.12.2013, even if it were to be assumed that some power of rectification survived on the CIT(Appeals), it would still fall outside the scope of jurisdiction of the CIT(Appeals) to make any alteration in the order dated 02.12.2013 being a wholly debatable issue. Reliance has been placed on the decision of the Supreme Court in the case of T.S. Balram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay reported in 1971 82 ITR 50 (SC). 10. Responding to the above submissions, Sri Manish Goyal would concede though as on date, the order of the CIT(Appeals) dated 02.12.2013 stands merged not only in the order passed by the Income Tax Appellate Tribunal but as on date, it stands merged in the final judgment of the Supreme Court dated 02.08.2018. However, in those orders an important aspect of the matter had escaped consideration. Placing reliance on the language of Section 194A(3)(iii) Clauses (a) to (f) it has been submitted, the principle of ejusedem generis had to be applied to interpret the words 'such other Institution' (which the Central Government may notify in this behalf), appearing in section 194A(3)(iii) 4 of the Act. According to him Clause (f) cannot be read in isolation to determine the eligibility of exemption for the applicability of T.D.S. provisions. The exemption has been made available to specific entities described in Clause (a) to (f) of clause (iii) of sub-section 3 of section 194A of the Act. He thus submits the NOIDA is neither a Tribunal that may fall within description of a banking company nor a financial company nor the Unit Trust of India nor any entity carrying business of banking. Also, no specific reason emerges from the relevant notification issued by the Central Government being No.3489 dated 02.04.2017 as may warrant inclusion of NOIDA as an entity having special status entailing the benefit of exemption under Section 194A(3)(iii) of the Act to it. He therefore submits, the bar created under section 154 does not apply and the decision of the Supreme Court is not binding on the revenue. 11. On the question of debatable issue being involved, Sri Manish Goyal would submit that once the NOIDA is not shown to be covered under the clear language of the exemption clause, it was no longer a debatable issue and the CIT(Appeals) had the jurisdiction to decide the rectification application on merits. 12. Having heard learned counsel for the parties and having perused the record, in the first place, without adverting to the issue on merits, it is seen that by the order dated 02.12.2013, the CIT (Appeals) had upon consideration of the case set up by the present petitioner passed an order to the effect that NOIDA was eligible to the benefit of Section 194A(3)(iii)(f) of the Act. Accordingly, he opined that the petitioner-Bank was entitled in law not to make deduction of TDS on interest payment made to NOIDA. That issue was specifically carried in appeal by the revenue to the Tribunal who by its order dated 07.08.2015, held as below : “Adverting to the facts of the instant case, we find that the assessee is a statutory corporation established by means of the U.P. Industrial Area Development Act, 1976. It has been noticed above from the preamble of this Act that it has been made for development of certain areas in the State into 5 industrial and urban township. Instead of enacting area-wise Industrial Area Development Acts, the U.P. Government enacted a common U.P. Industrial Area Development Act, 1976 to cover Authorities under different areas with its distinct name. But, for the creation of various area-wise authorities such as NOIDA and Ghaziabad Authorities, there is no other purpose of the U.P. Industrial Area Development Act, 1976. In other words, we can also say that this Act is nothing but a culmination of several area-wise Industrial Area Development Acts. Since NOIDA has been notified under the U.P. Industrial Area Development Act, we are of the considered opinion that the expression 'any corporation established by a State Act' shall include NOIDA (New Okhla Industrial Development Authority) in the given circumstances. We find that identical issue involving payment of interest by some banks to Ghaziabad Development Authority without tax withholding came up for consideration before the Delhi Bench of the Tribunal in the case of Chief/Senior Manager, Oriental Bank of Commerce Vs. ITO. Vide its order dated 15.07.2011 in ITA No.2228/Del/2011, the Tribunal has held that the payment of interest by Oriental Bank of Commerce to Ghaziabad Development Authority is covered within the provisions of Section 194A(3)(iii)(f) and, hence, there is no obligation for deduction of tax at source. Consequently, the order passed u/s 201(1) was set aside. Similar view has been taken by the Amritsar Bench of the Tribunal in the case of ITO (TDS) Vs. Branch Manager Jammu & Kashmir Bank Ltd. Vide its order dated 24.04.2012 in ITA No.206 to 210/Asr/2011, the Tribunal has held that payment of interest by the bank to Jammu Development Authority (Jammu) is exempt u/s 194A(3)(iii)(f) and, hence, there can be no liability u/s 201(1A) on the bank and resultantly, the bank cannot be treated as an assessee in default u/s 201(1) and 201(1A). Likewise view has been taken by the Amritsar Bench of the Tribunal in ITO Vs. the Branch Manager, Jammu, Jammu & Kashmir Bank Ltd., by its order dated 02.07.2012, a copy of which has also been placed on record. All these precedents support the proposition that the payment of interest by banks to the State Industrial Development Authorities does not require any deduction of tax at source in terms of Section 194A(3)(iii)(f) and, hence, the failure to deduct tax at source on such interest cannot lead to the banks being treated as assessee in default. No material has been placed on record to demonstrate that all/any of the above orders have either been reversed or modified in any manner by the Hon'ble High Courts. Further, the learned DR failed to point out any contrary decision. In view of the legal position discussed supra and these precedents, we are of the considered opinion that the learned CIT(A) was justified in reversing the order passed by the Addl. CIT(TDS), Ghaziabad declaring the assessee liable u/s 201(1) and 201(1A) of the Act. We, therefore, uphold the impugned order. ” 13. That being the finding of the Tribunal it has to be accepted that 6 the order of the CIT (Appeals) stood merged in the order of the Income Tax Appellate Tribunal, Delhi dated 07.08.2015. Further merger of that order in the subsequent orders of the High Court and the Supreme Court apart, their did not remain or survive any jurisdiction with the Commissioner to seek any rectification or correction in his order dated 02.12.2013 on an issue specifically examined by the Tribunal. Clearly, that exercise undertaken and completed (on 30.11.2015), after the order of the Tribunal dated 07.08.2015 had come into existence, was without jurisdiction. In Kunhayammed v. State of Kerala, (2000) 6 SCC 359, the Supreme Court reasoned as under: “12. The logic underlying the doctrine of merger is that there cannot be more than one decree or operative orders governing the same subject-matter at a given point of time. When a decree or order passed by an inferior court, tribunal or authority was subjected to a remedy available under the law before a superior forum then, though the decree or order under challenge continues to be effective and binding, nevertheless its finality is put in jeopardy. Once the superior court has disposed of the lis before it either way — whether the decree or order under appeal is set aside or modified or simply confirmed, it is the decree or order of the superior court, tribunal or authority which is the final, binding and operative decree or order wherein merges the decree or order passed by the court, tribunal or the authority below. However, the doctrine is not of universal or unlimited application. The nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or which could have been laid shall have to be kept in view.” 14. It then held - “44. To sum up, our conclusions are: (i) Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law. (ii) The jurisdiction conferred by Article 136 of the Constitution is divisible into two stages. The first stage is upto the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and the special leave petition is converted into an appeal. (iii) The doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction 7 exercised by the superior forum and the content or subject- matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under Article 136 of the Constitution the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can therefore be applied to the former and not to the latter. (iv) An order refusing special leave to appeal may be a non- speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed. (v) If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties. (vi) Once leave to appeal has been granted and appellate jurisdiction of Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation. (vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court the jurisdiction of High Court to entertain a review petition is lost thereafter as provided by sub- rule (1) of Rule 1 of Order 47 CPC.” 15. Therefore, applying that principle, on 30.11.2015, there did not exist any order of the CIT(Appeals) dated 20.12.2013 as may have been open to rectification proceedings. That order having merged in the order of the Tribunal dated 7.08.2015, rectification application if any or other statutory remedy of appeal could have been invoked and pursued only with reference to the order of the Tribunal dated 7.8.2015 and no other. 8 16. Also, it may be noted, in Union of India v. Kamlakshi Finance Corporation Ltd., 1992 Supp (1) SCC 648, the Supreme Court held : “6. ............................. ..................................It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi- judicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the department — in itself an objectionable phrase — and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws\". 17. Almost by way of corollary or perhaps an exception section 154(1-A) of the Act reads as under: “Section 154. Rectification of mistake ........ (1-A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.” 18. As noted above, the Tribunal having dealt with the issue of interest income of NOIDA being eligible to exemption under section 194A(3)(iii)(f) of the Act, the provision of section 154(1-A) of the Act also did not come into play, to any extent. 19. Even on merits, as on date, the matter had been carried to the Supreme Court, by the revenue, and the Supreme Court had also held the interest income of NOIDA to be eligible to exemption under Section 194A(3)(iii)(f) of the Act. No contrary decision is permissible to be reached by any revenue authority, on any reasoning. The revenue 9 authorities are solemnly obliged to efficiently and promptly apply that law without offering the least resistance to the decision reached by the Supreme Court. That being the necessary and unavoidable obligation. 20. As to the second aspect, whether even otherwise such an issue may have been permitted to be raised by way of rectification, it is seen even if the submissions advanced by Shri Goyal could be examined to any extent so as to draw a point of distinction in the decision of the Supreme Court, even then, certainly a wholly new and debatable issue would be involved in such a scenario. One opinion having been formed by the CIT(Appeals) in his order dated 02.12.2013, it no longer remained open to him to engage in a fresh exercise to determine whether another opinion could be formed on the same issue. The position in law is fairly settled in view of the decision of the Supreme Court in the case of T.S. Balram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay (supra). 21. Even if any point of debate may ever arise, then in absence of any legislative action preceding, the forum for that debate, would remain only before the highest Court of the land and before no other authority, Tribunal or Court. 22. Therefore, the CIT(Appeals) wholly lacked in jurisdiction to pass the impugned order. . 23. The order dated 30.11.2015 is quashed. The writ petition is allowed. No order as to costs. Order Date :- 3.12.2018 Abhilash "