Case Law Details

Case Name : HDFC Bank Ltd. Vs DCIT (Bombay High Court)
Appeal Number : Writ Petition No. 1753 of 2016
Date of Judgement/Order : 25/02/2016
Related Assessment Year : 2008-09
Courts : All High Courts (1346) Bombay High Court (304)

Brief of the Case

Bombay High Court held In the case of HDFC Bank Ltd. vs. DCIT that it is not open for the tribunal to disregard the binding decision of jurisdictional high court. Once there is a binding decision of jurisdictional high Court, the same continues to be binding on all authorities within the State till such time as it stayed and / or set aside by the Apex Court or this very Court takes a different view on an identical factual matrix or larger bench of this Court takes a view different from one already taken. This is in view of the manner in which the order of the Tribunal chosen to disregard and/or circumvent the binding decision of this Court in respect of the same assessee for an earlier assessment year. This is a clear case of judicial indiscipline and creating confusion in respect of issues which stand settled by the decision of this court. So, we set aside the order of tribunal in it’s entirely and restore the issue to the tribunal to decide it afresh on its own merits and accordance with law.

Facts of the Case

By order dated 23rd September, 2015, the Tribunal dismissed the petitioner’s appeal relating to the Assessment Year 2008­09 on the issue of applicability of Section 14A to disallow a portion of the interest paid on borrowed funds in respect of investments made in tax free securities. This when it has own Funds in excess of investments made in the securities and further these securities are held as stock in Trade.This dismissal of the appeal, submit the petitioner, inspite of the issue being concluded on both the grounds in its favour by the binding decisions of this Court.

Contention of Appellant

The ld counsel of the appellant submitted that the issue which arose for consideration before the Tribunal with regard to applicability of Section 14 in respect of the tax free income earned on investments in case of a party possessed of interest free funds in excess of the investments made in tax free securities stood concluded in our of the petitioner by the binding decision of this Court as rendered in the petitioner’s own c viz. HDFC Bank Ltd. 366 ITR 505 on identical facts. Nevertheless the binding decision is disregarded by seeking to hold that the issue is covered by earlier decision this Court in Godrej and Boyce Manufacturing Co. Ltd.  328 ITR 81, where in fact it has not decided the issue. There is no conflict between the decisions of this Court in Godrej and Boyce Manufacturing Co. Ltd.  328 ITR 81 and HDFC Bank Ltd. 366 ITR 505. This is for the reason that this Court in Godrej and Boyce Manufacturing Co. Ltd.  328 ITR 81 not ruled on the issue of disallowance of interest under Section 14 on the ground of presumption where sufficient interest free funds are available to make investment in tax free instruments. This issue was only decided later by this Court for the first time in the petitioner’s own case in HDFC Bank Ltd. 366 ITR 505. In fact, the Tribunal has been consistently following the ratio of the decision of this Court in HDFC Bank in other cases before it, but HDFC Bank itself i.e. the petitioner does not get its benefit.

Similarly, the alternative submissions urged before the Tribunal that these investments in securities are its stock in trade and consequently Section 14A is not applicable is also concluded in favour of the petitioner as held by this Court in India Advantages Securities Ltd.ITA 1131/13 decided on 30th April, 2014.

Contention of the Revenue

The ld counsel of the revenue submitted that as there is an alternative remedy of an statutory appeal available under section 260A from the order of the tribunal, this court should not exercise its extraordinary jurisdiction under article 226 of the Constitution of India.

He further submitted that the appeal filed by the petitioner before the Tribunal arose from orders of the AO and the CIT (A) holding that the petitioner unable to establish that its interest free funds were utilized for the purposes of investment in securities. Consequently, it is submitted that the decision of this Court in HDFC Bank Ltd. 366 ITR 505 would not have any application to the fact of the present case. In fact of the present case, the decision of this Court in Godrej and Boyce Manufacturing Ltd. 328 ITR 81 was applicable and not the decision rendered by the court in HDFC Bank Ltd. .In support reliance is placed upon the impugned order of the Tribunal. He further submitted that the alternative contention that the investment in securities are petitioner’s in stock in trade, raised for the first time only before the Tribunal and thus could not be entertained. In any case, the decision of this Court in India Advantage Securities Ltd. ITA 1131/13 decided on 30th April, 2014 would have no application as the revenue’s appeal was dismissed by this court at the stage of admission.

Held by CIT (A)

CIT (A) dismissed the appeal of the assessee and upheld the order of AO.

Held by ITAT

Before the Tribunal, the petitioner raised two grounds as under: ­ (i) It possessed interest free funds which were more than the tax free investments. Thus no disallowance of expenditure on account of interest paid could be made in view of the binding decision of this Court in the petitioner’s own case in HDFC Bank Ltd. and (ii) The tax free securities were held by it as its stock in trade. Thus no disallowance of any expenditure under Section 14A could be done in view of binding decision of this Court in CIT Vs. India Advantages Securities Ltd. ITA 1131/13 decided on 30th April, 2014.

However, the Tribunal did not accept the petitioner’s submission on both the grounds. It disregarded the binding decision of this Court by holding that an earlier decision of this Court in Godrej and Boyce Manufacturing Co. Ltd. Vs. Deputy Commissioner of Income Tax, 328 ITR 81, which was not brought to the notice of this Court in HDFC Bank Ltd. 366 ITR 505 would hold the field. Further on the second issue of stock in trade, the impugned order after holding that it was raised for the first time before the Tribunal, yet on merits holds that the decision of this Court in India Advantage Securities Ltd. cannot apply. This is for the reason that this Court in India Advantage Securities Ltd. dismissed the Revenue’s appeal at the stage of admission on the ground that no question of law arises for consideration from the order of the Tribunal.

Held by High Court

High Court held that it is true that an order passed under Section 254(1) by the Tribunal, such as the impugned order is amenable to an appeal to this Court under Section 260A. Normally we would have directed the petitioner to adopt its statutory alternative remedy. However, the grievance of the petitioner here is not so much to the merits or demerits of the impugned order, but the refusal of the Tribunal to follow the binding decision of this Court in the case of the petitioner itself being CIT Vs. HDFC Bank Ltd. 366 ITR 505 for an earlier Assessment Year 2001-2002 on identical issue of applicability of Section 14A of the Act to partially disallow interest expenditure when interest free funds available with the Petitioner are in excess of investments made in tax free securities. Thus, the endeavour of the petitioner is to bring to our notice that in passing the impugned order dated 23 September 2015, the Tribunal has exceeded the bounds of its authority, by disregarding the binding decisions of this Court, which if not corrected, sound the death knell of two established practices of our judicial system viz. doctrine of Precedent i.e. treating like cases alike and the hierarchical structure of our judicial system/jurisprudence where each lower forum / tier is bound by the orders of the higher tier on like issues till such time as it is set de by a further higher forum. It is in the aforesaid circumstances, that we are compelled to examine the grievance of the petitioner in the context of our supervisory jurisdiction under Article 227 of the Constitution of India.

In our system of Jurisprudence the theory of Precedents and the hierarchical structure are inherent parts of our dispute resolution/justice obtaining apparatus i.e. Courts / Tribunal. The theory of precedent ensures that what been done earlier would be done subsequently on identical facts. To wit, like cases are to be treated alike. Thus, the doctrine of precedent ensures certainty of law, uniformity of law and fairness meeting some of the essentials ingredients of Rule of Law. The Supreme Court in Union of India vs. Raghuvir Singh 1989 (2) SCC 754 setting out the objectives of the doctrine of Precedent. Further the apex court in the case of Collector of Central Excise vs. Dunlop India Ltd. 154 ITR 172 explained the importance of hierarchical systems of courts.

Although both the above decisions are rendered in the context of the decision of the Supreme Court, the same principle with equal force would apply to the decisions of the High Court within the State over which it exercises jurisdiction. This issue is long settled by the Apex Court in East India Commercial Co. Ltd. Calcutta and Anr. vs. Collector of Customs, Calcutta 1962 SC 1893. Thus, the law declared by the decisions of the High Court will be binding upon all authorities and Tribunals functioning within the State. Consequently, the decisions of this Court would be binding upon all Authorities, Tribunals and Courts subordinate to the High Court within the state of Maharashtra.

One more aspect which needs to be adverted to and that is a decision would be considered to be a binding precedent only if it deals with/decides an issue which is subject matter of consideration/decision before a coordinate or subordinate court. It is axiomatic that a decision cannot be relied upon in support of the proposition that it did not decide. (Mittal Engineering v. Coll,of Central Excise 1997 (1)SCC 203).Therefore it is only the ratio decidendi i.e. the principle of law that decides the dispute which can be relied upon as precedent and not any obiter dictum or casual observations. (Girnar Tea vs. State of Maharashtra 2007(7) SCC 555 and Shin Estu Chemical Co. Ltd v. Aksh opticfibre Ltd. 2005 (7) SCC 234).

Keeping the aforesaid position of law in mind, we shall now examine the impugned order of the Tribunal. The issue before the Tribunal as raised by the petitioner was that Section 14A would have no application to disallow interest expenditure on fund borrowed in respect of the tax free returns on the securities for the following two reasons:­ The petitioner possessed of sufficient interest free funds of Rs.2153 crores against the investment in tax free securities of Rs. 52.05 crores. Consequently, there is a presumption that the investment which has been made in the tax free securities has come out of the interest free funds available with the petitioner. This is so as it been held by this Court in the petitioner’s own case for an earlier AY being HDFC Bank Ltd. In any event, the tax free investments in securities were the petitioner’s stock in trade. Consequently, there would be no occasion to invoke Section 14A as held by this Court in India Advantage Securities Ltd. wherein the Revenue’s appeal from the order of the Tribunal was dismissed, to contend that no disallowance can be under Section 14A in respect of exempted Income arising from stock in trade.

One more fact which must be emphasized is that merely because a decision has been cited before the Court and a reference to that has been made in the order of the Court such as in the case of Godrej and Boyce Manufacturing Co. Ltd. reference was made to CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 by itself would not lead to the conclusion that Reliance Utilities and Power Ltd. been considered and the opinion on the same been rendered in the case of Godrej and Boyce Manufacturing Co. Ltd. The test to decide whether or not two decisions are in conflict with each other is to first determine the ratio of both the cases and if the ratio in both cases are in conflict to each other, then alone, can it be said that the two decisions are in conflict. We find that no such exercise has been done in current case.

It is clear that for the first time in the case of HDFC Bank Ltd., this court took a view that the presumption which has been laid down in Reliance Utilities and Power Ltd. with regard to investment in tax free securities coming out of assessee’s own funds in case the same are in excess of the investment made in the securities applies, when applying sec.14A. Thus decision of this court in HDFC Bank Ltd. for the first time on 23rd July,2014 has settled the issue by holding that the test or presumption as held by the court in Reliance Utilities and Power Ltd. would apply while considering the application of sec.14A. The above decision has also been accepted by the revenue inasmuch no appeal has been filed against this order in apex court. Therefore the issue which arose for consideration before the tribunal had not been decided by this court in Godrej and Boyce Manufacturing Ltd. 328 ITR 81. It arose and was so decided for the first time by this court in HDFC Bank Ltd. Thus there is no conflict as sought to be made out of the order. Thus the order of tribunal has proceeded on a fundamentally erroneous basis.

The alternative submission which was forth by the petitioner before the Tribunal that the investment in securities are its stock in trade. Consequently, Section 14A of the Act would be inapplicable by placing reliance upon the decision of this Court in India Advantage Securities Ltd. However this also disregarded by the impugned order on the ground that this Court did not entertain an appeal of the Revenue from the order of the Tribunal holding that Section 14 is inapplicable where the investment has been made in stock in trade. This non entertainment of an appeal being on the ground that this Court found no substantial question of law. Therefore, the impugned order holds that the decision relied upon in India Advantage Securities Ltd does not lay down any binding proposition of law. We are unable to comprehend how and the impugned order of the Tribunal is of the view that if an appeal is not admitted from an order of the Tribunal, then it is open to the Tribunal in another case to decide directly contrary to the view taken by the earlier order of the Tribunal, which is not entertained by this court in appeal. This without even as much as a whisper of any explanation with regard to how and the facts of the two cases are different warranting a view different from that taken by the Tribunal earlier. In fact when an appeal is not entertained then the order of the Tribunal holds the field and the coordinate benches of the Tribunal are obliged to follow the same unless there is some difference in the facts or law applicable and the difference in fact and / or law should be reflected in its order taking a different view. Moreover the impugned order of the Tribunal places reliance upon the decision of this Court in Godrej and Boyce Manuturing Co. Ltd. to deny the claim. On this issue no decision rendered by this court in Godrej and Boyce Manuturing Co. Ltd. and therefore how it could be relied upon to deny the claim of the petitioner is beyond comprehension. This again shows that the Tribunal acted beyond the limits of its authority.

We also note that the impugned order of the Tribunal an observation therein that there is no such thing as estoppel in law and by virtue of that gives itself a licence to decide the issue before it ignoring the binding precedent in the petitioner’s own case in HDFC Bank Ltd. Once there is a binding decision of this Court, the same continues to be binding on all authorities within the State till such time as it stayed and / or set de by the Apex Court or this very Court takes a different view on an identical factual matrix or larger bench of this Court takes a view different from one already taken.

In the above circumstances, we are of the view that we have to exercise our powers under Article 227 of the Constitution of India. This is in view of the manner in which the impugned order of the Tribunal chosen to disregard and/or circumvent the binding decision of this Court in respect of the same assessee for an earlier assessment year. This is a clear case of judicial indiscipline and creating confusion in respect of issues which stand settled by the decision of this court. So, we set aside the order of tribunal in its entirely and restore the issue to the tribunal to decide it afresh on its own merits and accordance with law. It is not open for the tribunal to disregard the binding decision of this court.

Accordingly, appeal disposed of.

Download Judgment/Order

More Under Income Tax

Posted Under

Category : Income Tax (20866)
Type : Judiciary (8910)

Search Posts by Date

September 2016
MTWTFSS
« Aug  
 1234
567891011
12131415161718
19202122232425
2627282930