The doctrine of judicial discipline requires that benches of judicial and quasi-judicial bodies, like the ITAT, operate on principles of consistency, continuity, and certainty. This article looks at the binding nature of judgments passed by one bench of a tribunal on another, especially in taxation matters.
Theory of Precedent Over Res Judicata:
In Bharat Sanchar Nigam Ltd. vs. Union of India, ([2006] 282 ITR 272), the Supreme Court clarified that res judicata did not apply to tax matters for different assessment years because the cause of action for each year is different. However, courts and tribunals, under the theory of precedent, normally follow earlier decisions. Judicial and quasi-judicial authorities cannot deviate from established precedents unless:
The earlier decision is distinguishable on new grounds or changes of fact.
The earlier decision is held to be per incuriam (decided in ignorance of binding law).
Relevant Paragraph of the Judgement-
“20. The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar Courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The Courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why Courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a bench of superior strength or in some cases to a bench of superior jurisdiction.”
Judicial Discipline Among Co-ordinate Benches:
In Hatkesh Co-op. Hsg. Society Ltd. vs. ACIT ([2016] 75 taxmann.com 39), the Bombay High Court reiterated that judicial discipline mandates that a later bench of the tribunal should adopt the view taken by an earlier co-ordinate bench on the same issues, except in very limited circumstances such as: The earlier order being per incuriam or sub silentio. A statutory or judicial change in law. Differences in factual circumstances. In case of deviation, the next bench shall record its reasons for not following the earlier decision and, if necessary, refer the matter to a larger bench.
Relevant Paragraph of the Judgement-
“5. The impugned order of the Tribunal after making a note of its Co-ordinate Bench’s order dated 24 June 2011 seeks to take a different view. This different view was taken in the impugned order inter alia by relying upon the decision of this Court in Sind Co-op. Hsg. Society (supra) which was also subjected to consideration in its order dated 24 June 2011. We are of the view that when an identical issue, which had earlier arisen before the Co-ordinate Bench of the Tribunal on identical facts and a view has been taken on the issue then judicial discipline would demand that a subsequent bench of the Tribunal hearing the same issue should follow the view taken by its earlier Co-ordinate Bench. No doubt this discipline is subject to the well settled exceptions of the earlier order being passed per incurim or sub silentio or in the meantime, there has been any change in law, either statutory or by virtue of judicial pronouncement. If the earlier order does not fall within the exception which affects its binding character before a co-ordinate bench of the Tribunal, then it has to follow it. However, if the Tribunal has a view different then the view taken by its Co-ordinate Bench on an identical issue, then the order taking such a different view must record its reasons as to why it does not follow the earlier order of the Tribunal on an identical issue, which could only be on one of the well settled exceptions which affect the binding nature of the earlier order. It could also depart from the earlier view of the Tribunal if there is difference in facts from the earlier order of Co-ordinate Bench but the same must be recorded in the order. The impugned order is blissfully silent about the reason why it choses to ignore the earlier decision of the Tribunal rendered after consideration of Sind Co-op. Hsg. Society (supra), and take a view contrary to that taken by its earlier Co-ordinate Bench. It is made clear that in case a subsequent bench of the Tribunal does not agree with the reasons indicated in a binding decision of a co-ordinate bench, then for reason to be recorded, it must request the President of the Tribunal to constitute a larger bench to decide the difference of view on the issue.”
Resolving Conflicting Views of co-ordinate bench:
In Mercedes Benz India Pvt. Ltd. vs. Union of India (MANU/MH/0285/2010), the Bombay High Court held that one co-ordinate bench finding fault with another without referring the matter to a larger bench undermines judicial discipline. The tribunal must refer conflicting views to the President for the constitution of a larger bench.
Relevant Paragraphs of the Judgement-
“19. Having said so, the impugned view taken by the Tribunal by no means can be said to be correct approach. Needless to mention that if the Tribunal wanted to differ to the earlier view taken by the Tribunal in the identical set of facts, the judicial discipline required reference to the larger bench. One co-ordinate bench finding fault with another co-ordinate bench is not a healthy way of dealing with the matters. In this view of the matter, we have no option but to set aside the impugned judgment passed by the Tribunal on 20th November, 2009 incorporated at Exh.A to the petition.
20. In the result, impugned judgment dated 20th November, 2009 is quashed and set aside. Appeal is restored to the file of the Tribunal with direction to hear and decide the same afresh by a reasoned order following principles of natural justice. If the Tribunal decides to take view contrary to the view holding the field, then in that event it is expected of the Tribunal to pass appropriate order leading to reference to a larger bench to resolve differences, if any.”
Role of Special Bench:
In DCIT vs. Summit Securities Ltd. ([2011] 11 ITR(T) 88 (Mumbai) (SB)), the Special Bench of the ITAT highlighted that a later bench which was not willing to accept an earlier judgment had to seek a reference to the President to constitute a larger bench. This ensures consistency and prevents judicial inconsistency that can dilute public confidence.
Relevant Paragraphs of the Judgement-
“12. It is however not the end of the road. As the Tribunal is quasi-judicial body, its Members cannot work mechanically by following the view taken by the earlier Co-ordinate Bench when they strongly believe that the earlier decision was not rendered by appreciating the legal position in correct perspective. Naturally there cannot be any fetters on the powers of the subsequent Bench of the Tribunal to dispute the correctness of the earlier order in justifiable cases. To presume that a subsequent Bench, despite having strongly entertained the doubt about the accuracy of the earlier decision should follow the same, would make a mockery of the judicial system and act as a speed breaker on the thinking process and flow of thoughts. The Members have freedom to doubt the correctness of an earlier decision in deserving cases from their own point of view. If after due application of mind the subsequent Bench comes to the conclusion that it cannot agree with the earlier view, it should not straight away proceed to record a conflicting decision. In such a situation the subsequent Bench is empowered or rather duty bound to make a reference to the President on the point they perceive to be an error of law in the earlier decision. The Larger Bench is then made up to consider the correctness of the earlier decision on the facts and circumstances of the case before it. The decision thus arrived at by the larger wisdom becomes a binding precedent for all other Benches across the country unless there is a contrary judgment of the Hon’ble jurisdictional High Court on the point. After such order, no Division Bench can or should question the correctness of view taken by the Special Bench.
29. From the above discussion it clearly emerges that if a subsequent Bench of the Tribunal is disinclined to follow the view taken by an earlier Bench on a particular issue, the only course open before it is to make a reference to the Hon’ble President for the constitution of Special Bench so that the issue may be finally decided by a Larger Bench.”
Right to Question Earlier Judgments:
While adherence to earlier decisions promotes stability, tribunals must also ensure the correctness of legal interpretations. In Union of India vs. Paras Laminates (P) Ltd. (MANU/SC/0173/1991), the Supreme Court recognized the necessity of allowing subsequent benches to question earlier decisions in cases of perceived legal error. Such cases must be referred to a larger bench to resolve differences.
Relevant Paragraphs of the Judgement-
“9. It is true that a Bench of two members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. This is particularly true when the earlier decision is rendered by a larger Bench. The rationale of this rule is the need for continuity, certainty and predictability in the administration of justice. Persons affected by decisions of Tribunals or Courts have a right to expect that those exercising judicial functions will follow the reason or ground of the judicial decision in the earlier cases on identical matters.
Classification of particular goods adopted in earlier decisions must not be lightly disregarded in subsequent decisions, lest such judicial inconsistency should shake public confidence in the administration of justice.
It is, however, equally true that it is vital to the administration of justice that those exercising judicial power must have the necessary freedom to doubt the correctness of an earlier decision if and when subsequent proceedings being to light what is perceived by them as an erroneous decision in the earlier case. In such circumstances, it is but natural and reasonable and indeed efficacious that the case is referred to a larger Bench. This is what was done by the Bench of two members who in their reasoned order pointed out what they perceived to be an error of law in the earlier decision and stated the points for the President to make a reference to a larger Bench.”
ITAT is Final Judge of Facts:
In CIT vs. Goodlas Nerolac Paints Ltd., ([1991] 188 ITR 1), Bombay High Court observed that although tribunals are the ultimate decision-makers of fact, inconsistency of conclusions reached by different benches diminishes public confidence. In such a case, the disagreement of a subsequent bench with the findings of an earlier bench would necessitate the reference of the matter to the President for adjudication by a larger bench.
Relevant Paragraphs of the Judgement-
“6. Before parting with this question, we consider it desirable to mention that the Tribunal is a final Judge of facts. The High Court in reference does not interfere with the findings of fact unless such a finding is perverse or is such that no reasonable person can come to such a finding. This will be so even when the High Court feels that it would have come to a different conclusion, if it was sitting in appeal. In that sense, when the High Court declines to interfere with a finding of fact given by the Tribunal in an earlier year, it may not mean that the High Court had approved of such a finding. This, however, does not mean that a subsequent Bench of the Tribunal should come to a conclusion totally contradictory to the conclusion reached by the earlier Bench of the Tribunal in the same case for an earlier year on a similar set of facts. Such a thing may not be in the larger public interest as it is likely to shake the confidence of the public in the system. It is, therefore, desirable that in case a subsequent Bench of the Tribunal is of the view that the finding given by the Tribunal in an earlier year requires reappraisal either because the appreciation in its view was not quite correct or inequitable or some new facts have come to light justifying reappraisal or reappreciation of the evidence on record, it should have the matter placed before the President of the Tribunal so that the case can be referred to a larger Bench of the Tribunal for adjudication and for which there is a provision in the Act.”
In conclusion, A co-ordinate bench of Tribunal must follow precedents laid by another co-ordinate benches, except under limited exceptions. If there is disagreement, matters should be sent to larger bench by placing the matter before the President of Tribunal.
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