Summary- This is an article primarily aimed at the Officers who receive a lot of submissions against any pointed query. Sometimes, taxpayers tend to bye-pass the pointed query by furnishing huge irrelevant details, confusing the Officer. Though a similar situation persists with the courts, but due to face-to-face hearings, matters can be summarized easily with the opposite party objecting to irrelevant details.
In the benefit of the reader, basic legal principles have been explained briefly. While rejecting the replies, the officer has to see that the baby is not thrown with the water and rules are not compromised with. The author has explained in detail the legal hierarchy in India and the use of legal maxims.
[Note-The comments/views/observations etc. made by the author in the article should be taken as his personal opinion and not the official views.]
A lawyer is a person who writes a 10,000-word document and calls it a ‘brief.’
– Franz Kafka
Any Officer having a stint in Corporate or Central charges must have faced the dilemma of going through the huge submissions made by the taxpayer. The Assessing Officer is expected not only to rebut it, but he must also quote it at relevant places in his assessment order. In the ‘Faceless assessment’ era, the situation might have changed a bit, yet the dilemma persists. Now, one can have multiple files in soft copies, sometimes difficult to co-relate.
The taxpayer has his own set of problems. The real culprit may be the first notice from the Assessing Officer, asking for more papers than required for determination of issues in hand. Moreover, the taxpayer, represented by a professional, may not like to take chances with the submissions. Not knowing what may click, he may file more than required details.
At the end of the Assessing Officer, first step is to segregate the useful from the vast details submitted. The papers/submissions relating to the facts can be easily marked out to be used at the time of passing an order. Yet the issue I want to highlight is the rebuttal of the legal arguments on the core issues. The taxpayer claims relief by citing various case-laws holding that the issue has already been settled in his favour.
Such a submission may not be very lengthy, but what may worry an officer is citations of a plethora of case laws of various courts and hierarchy, jurisdictional as well as non-jurisdictional, sometimes from a court outside India also. One may be tempted to dismiss such a submission in a traditional way, by stating that the ‘Submission of the taxpayer was not found satisfactory and relevant, hence not accepted’. However, the real expertise of the Assessing officer tested here. He must stay afloat in the vast sea of information. To do so he must learn the art of distinguishing a judgment and restrict its applicability to the case in his hand, with satisfactory reasons. The legal issue involved must be adjudged on the criterion of various legal doctrines and maxims, countering the case cited and quoting the cases decided in the favour of the revenue. Only after this exercise, a decision may be taken to accept or reject the plea of the taxpayer. The Assessing Officer must be familiar with the legal-craft, logical analysis, relevant laws, and recent judgments.
Legal Hierarchy in India
The Government of India Act, 1935 created hierarchy of courts in India. The federal court was the Superior Court. Section 212 of this Act provided that the law declared by the federal court and any judgment of the Privy Council shall, so far as applicable, be recognised as binding and be followed by all courts in British India.
After independence, the Article 141 of the Constitution expressly provided that the law declared by the Supreme Court of shall be binding on all courts within the territory of India. The “law declared” must be understood as a principle of law that can be clearly concluded from a judgment, or an interpretation of a law or judgment by the Supreme Court, upon which, the case is decided. Hence, we may hold that the “law declared” is the principle culled out on the reading of a judgment in-toto. The court must record its observation on the issue raised in the prayer.
The High Courts are Court of record under Article 215 of the Constitution. By virtue of the provisions of Article 227, the High Courts have power of superintendence over all Courts and tribunals in their respective jurisdiction. Thus, all Courts and Tribunals in the respective State will be bound by the decisions of the High Court.
Like Case Maxim (LCM)
In his book, ‘Nicomachean Ethics’, the great Greek philosopher, Aristotle coined a universally accepted legal maxim known as ‘like cases maxim (LCM). It stipulates that ‘like cases should be treated alike’. This doctrine of precedents was well accepted in English jurisprudence in absence of the codified laws.
Judgments of the courts are based on the given set of facts and interpretation of the law applicable on date. In absence of the doctrine of precedent, there may be confusion in the administration of law. Judiciary promotes equity, and equality. Precedents help to keep the interpretation of the law predictable. It helps the bench as well as bar to mitigate correct decision, assuming that collective wisdom is always better than that of an individual. Uncertainty and ambiguity in law can be minimised due to precedents. The Supreme Court has consistently held that a decision which is not found on reasons or proceeds on consideration of issue can neither be deemed to be a law declared, nor has a binding effect as is contemplated by Article 141 of the Constitution. Case decided by the court without any consideration on principle of law, cannot be treated as precedent.
When Special Bench decision of Tribunal on appeal has not been stayed by the High Court, the subordinate authorities are bound to follow the decision of the Special Bench of the Tribunal, as per decision of Hon’ble Delhi High Court in Nokia Corporation v. DIT[1]. In the case of Bajaj Auto Finance Ltd. v. CIT[2], Hon’ble Bombay High Court held that- Issue as to whether claim of a provision for bad debts is deductible under section 36(1)(viii) or not, is debatable, and such a debatable claim cannot be disallowed by way of an intimation under section 143(1)(a).
Hon’ble Court reiterated the well-known principle that “interpretations given by High Courts and Tribunals cannot be ignored by the Assessing Officers”. . . it also observed that- “The above submission that decision of the Court and/or Tribunal interpreting a provision is to be ignored by the Assessing Officer, if accepted will ring the death knell of Rule of law in the country. The Assessing Officer is bound by the views of the Court. The above submission ignores the hierarchal system of jurisprudence in our country”.
To follow the LCM, the Assessing Officer should be conversant with important judgments on the issues raised. He must be able to distinguish the orders of the Jurisdictional/ Supreme Court and case before him based on facts and law.
Stare Decisis Et Non Quieta Movere
Itis a legal doctrine that obligates courts to follow historical cases, when making a ruling on a similar case. Stare decisis ensure that cases with similar scenarios and facts are approached in the same way. It puts the binding precedents for the courts to follow legal precedents set by previous decisions.
The binding precedents should not be taken lightly, disregarded, or set aside but should be strictly adhered to and followed. It is a guiding principle of law, having a binding force on lower courts and should be followed in similar cases, it gives certainty to law and guide to people in predicting the safest course. However, it is open for Supreme Courts not to feel bound by its own previous decision, unless proper reasoning is given to differentiate its own previous decision, based on other possible view and refer the matter to larger bench of Supreme Court for its decision.
The judicial discipline must be observed during the quasi- judicial proceedings. The adjudicating authorities are bound by the precedent of the higher authorities/ forums in the identical cases. It is a self-observed discipline. In case of UOI Vs Kamlakshi Finance Corporation Ltd[3], strictures were passed by Bombay High Court against Central Excise authorities for not observing judicial discipline.
However, the Assessing Officer should understand that there is no precedent on facts. It is legal proposition flowing from judgment which has the binding effect. Keeping it in mind, the cases cited may be analysed for their applicability on the issues in hand.
Ratio decidendi
Ratio decidendi is a Latin phrase meaning “the reason” or “the rationale for the decision”. The ratio decidendi is “the point in a case that determines the judgement” Itis the reasons formulated by the court for resolving an issue sought for determination and not in what may appear to flow from observation on non-issues. It is a Latin phrase with the literal meaning of “Let the decision stand“.
In other words, ratio decidendi is a legal rule derived from, and consistent with, those parts of legal reasoning within a judgment on which the outcome of the case depend. The process of determining the ratio decidendi is a correctly thought analysis of what the court decided—essentially, based on the legal points about which the parties in the case actually fought.
In ITC Ltd. Gurgaon v. CIT (TDS), Delhi[4],) Hon’ Supreme Court observed in Para 26 (page-30) of the order- “It is well settled that a case is an authority, for what it decides, and not for what logically follows from it”.
Doctrine of Merger
It is a common law doctrine under which one order/issue is absorbed, or merged, into another; for example, it will cause lesser included offenses to be absorbed into the subsequent greater offense. In civil law related to property, the doctrine of merger will cause the terms of a contract for sale to be merged into the final deed. Similarly, under mercantile laws, the terms of a prior agreement may be merged into a subsequent final document or legal decree.
In Income tax terminology, when an appeal is filed against the order of Commissioner (Appeals) before tribunal, then the decision of tribunal will prevail over the decision of Commissioner (Appeals). For further remedies, the appeal must be filed against the order of tribunal. If Special Leave Petition is dismissed by giving some reason, however meagre it is, be it even just one sentence, there will be merger of judgement of high court into the order of Supreme Court. When a special leave petition is dismissed by the Supreme Court without giving any reasons, there is no merger of the judgment of the High Court with the order of Supreme Court. Hence, the judgment of the High Court can be reviewed since it continues to exist.
Again, for the Assessing Officer should be cautions that there are exceptions to the Rule of Doctrine of Merger. If for any reason an appeal is dismissed on the ground of limitation or is below the required tax effect, and not on merit, the doctrine of merger will not apply.
The Full Bench of the Kerala High Court in the case of CIT v. Poonjar Service Co-Operative Bank Ltd[5], while discussing the claims u/s 80P(4), observed that “merely because the appeal to the Supreme Court from the judgment in Chirakkal Service Co-operative Bank Ltd. v. CIT[6] was dismissed in view of Circular No. 3 of 2018 dated July 11, 2018 of the Central Board of Direct Taxes since the tax effect was less than Rs. 1 crore it does not mean that the judgment of the High Court has merged with the order of the apex court in that civil appeal.”
Res Judicata
Is the principle that a cause of action may not be raised again once it has been judged on the merits. “Finality” is the term which refers to when a court renders a final judgment on the merits.
The Officer hearing the case must note that, in case of Instalment Supply (Pvt.) Ltd.v.Union of India[7], it was held that Principles of Res Judicata, would not apply to tax matters. However, the exception to this doctrine is that if the fact of case and legal provision remains the same, then the principles of Res-Judicata would apply.
Hon’ble Bombay High Court in the case of Pr. CIT v. Quest Investment Advisors (P.) Ltd[8]. held that–Where entire expenditure of assessee for earlier years and subsequent years was set off against professional income and no expenditure was allocated to capital gain, in absence of any change in circumstances, following rule of consistency, Tribunal was justified allowing same in relevant assessment years also.
Res integra
The termres integrais applied to those points of law which have not been decided, which are untouched by dictum or decision. In case of decision on a point which was sub-silentio, as no decision was rendered on the said issue can be termed as res integra. The Assessing Officer can go ahead without being bound by such issues untouched by Courts.
Sub- Silento
It is a Latin term meaning “under silence” or “in silence”. It is used as a reference to something that is implied but not expressly stated. Commonly, the term is used when a court overrules the holding of a case without specifically stating that it is doing so. In some cases, the Court may make no pronouncement on a point about which there was no argument, and yet the decision of the case assumes a decision about a particular point. Such decisions are said to passsubsilentio, and they do not constitute a precedent. “In case a portion of decision is sub silentio, such portion of decision cannot be set as a precedent for any other case.
The concept ofsub silentiosimply means when a rule or principle on a particular point of law in a decision is passed and applied by the court in silence without any consideration to the applicable law or any argument. According to the Black’s Law Dictionary, “the precedents that pass sub silentio are of little or no authority.” Literally, it means ‘in silence’ and is used to refer to something that is not expressly stated. The use ofsub silentioas an exception to the doctrine of precedents is not an uncommon one. The Assessing Officer need not feel limited by such issues untouched by Courts.
Obiter dicta
Obiter dicta is “incidental statement”. Specifically, in law, it refers to a passage in a judicial opinion which is not necessary for the decision of the case before the court. Such statements lack the force of precedent but may nevertheless be significant. All other statements about the law in the text of a court opinion—all pronouncements that do not form a part of the court’s rulings on the issues decided in that case (whether they are correct statements of law or not)—are obiter dicta and are not rules for which that particular case stands.
The Bombay High Court in the case of CIT v. Smt. T.P. Sidhwa[9] made the following observations about “obiter dicta.”
For the Assessing Officer also, no doubt, ordinarily, the obiter dicta of the Supreme Court is not only entitle to respect but also is binding on this court. This, however, would not be the position where the obiter dicta contradict the ratio laid down by the Supreme Court. In such a situation this court will, with respect, must follow the decision which lays down the ratio in preference to the obiter dicta.
Per incuriam
Per incuriam is a Latin term which means “through lack of care”. A court decision made per incuriam is one which ignores a contradictory statute or binding authority and is therefore wrongly decided and of no force. A judgment that’s found to have been decided per incuriam does not then have to be followed as precedent by a lower court.In criminal cases a decision made per incuriam will usually result in the conviction being overturned. The exception ofper incuriamunder the doctrine of precedents can be understood in two ways.Per incuriammeans “carelessness”, although in practice it is understood as per ignoratium, meaning ignorance of law. When courts ignore law and proceed to pass judgment, the said decision falls under the spectrum ofper incuriamand does not necessarily need to be followed.
The significance of a judgment having been decidedper incuriamis that it need not be followed as precedent by a lower court. Ordinarily, in the common law, therationaleof a judgment must be followed thereafter by lower courts while hearing similar cases. A lower court is free, however, to depart from an earlier judgment of a superior court where that earlier judgment was decidedper incuriam. Also, the said doctrine is an exception to article 141 of Constitution of India which embodies the doctrine of precedents as a matter of law.
However, in tax cases relating to a subsequent year involving the same issue as an earlier year, the court can differ from the view expressed if the case is distinguishable, for the reason there was change in facts during the subsequent period or there was change in legal position of law or the previous relied upon decision wasper incuriam. The Assessing Officer need not feel limited by such issues untouched by Courts.
Legal fiction
A legal fiction is an assertion which may be untrue or unproven, but it is accepted as true for legal purposes. Legal fictions are pervasive in modern acts and legislations. The deeming provisions of the Income tax Act are good examples of it. The Assessing Officers charge tax on the deemed income, if permitted under the Act.
Mischief rule
The Mischief Rule involves an out of the context approach in respect of judicial interpretation. One needs to look for the ‘purposive construction’ in construing an Act of Legislature: (i) what was the law before the making of the Act, (ii) what was the mischief or defect for which the law did not provide (iii) What is the remedy that the Act has provided, and (iv) What is the reason of the remedy. The rule then directs that the judiciary must adopt that construction which “shall suppress the mischief and advance the remedy.”
Mischief Rule is also called as the Rule in Heydon’s case (1584). The mischief rule was established in Heydon’s Case[10]. In Re Sussex Peerage, it was held that the mischief rule should only be applied where there is ambiguity in the statute. Under the mischief rule the court’s role is to suppress the mischief the Act is aimed at and advance the remedy.
The Income tax case of CIT, M.P.S. Bhopal v. Sodra Devi[11] is an example of application of the mischief rule, in the construction of Section 16(3) of the Indian Income Tax Act, 1922, corresponding to section 64 of the Income tax 1961 mandating that the Income of individual must include income of spouse, minor child, etc.
Deciding the issue in favour of the taxpayer, it was held by Hon’ble Supreme Court that -Words ‘any individual’ and ‘such individual’ occurring in section 16(3) of 1922 Act restricted in their connotation to mean only male of species and do not include female of species. A partnership was entered into between assessee and her three major sons, three minor sons of assessee admitted to benefits of partnership, in view of aforesaid construction of section 16(3) of 1922 Act, income of three minor sons of assessee was not liable to be included in her total income.
Justice Bhagwati found that the word ‘individual’ in the context was ambiguous. He further observed: “It is clear that the evil which was sought to be remedied was the one resulting from the widespread practice of husbands entering into nominal partnerships with their wives and fathers admitting their minor children to the benefits of the partnerships of which they were members. This evil was sought to be remedied by the enactment of Section 16(3) in the Act. If this background of the enactment of Section 16(3) is borne in mind there is no room for any doubt that howsoever that mischief was sought to be remedied by amending the Act,
English courts do not consider the preliminary discussions before the enactment was made law. Thus, the courts do not look at debates in Parliament, or the reports of the law commissions preceding the framing of the legislation. The binding value of a decision of the court is only extended when the judgment raises, discusses, and considers a question directly, and indirect references are excluded.
The art of distinguishing a decision seeks intense effort and professional acumen. Officers should not leap up merely based on the head note of a judgment. The practice of citing judgments relying the head notes or on a telephonic advice must be avoided.
Recently, during the hearing in a (non-taxation) case[12], Hon’ble Supreme Court directed[13] that- “The parties will, needless to say, file a short synopsis running into not more than three pages each and confine their submissions in the line of that synopsis with not more than one judgment cited per proposition”.
Though the above observation was made in a non-taxation case, the judicial process is same in all cases. As Edmund Burke once said- “Laws, like houses, lean on one another.
Submitted by,
CHANDRA PRAKASH BHATIA, IRS
Additional Commissioner of Income Tax, Kolkata.
[1] [2007] 162 Taxman 369 (Delhi)
[2] [2018] 93 taxmann.com 63
[3] 1991 (55) ELT 433 (SC)
[4] CIVIL APPEAL NOS. 4435-37 of 2016 (arising out of SLP (CIVIL) Nos’, 20822-20824 of 2011
[5] 110 taxmann.com 87 (Kerala) (FB)
[6] [2016] 68 taxmann.com 298 (Ker)
[7] AIR 1962 SC 53
[8] [2018] 96 taxmann.com 157
[9] [1981] 6 Taxman 91
[10] [1584] EWHC Exch J36
[11] [1957] 32 ITR 615 (SC)
[12] <https://www.hindustantimes.com/india-news/supreme-court-bench-sets-time-limit-for-lawyers-says-time-to-change-old-habits-101627502991740.html>
[13] Writ Petition(s) (Civil) No(s). 734/2020 dated 28/07/2021
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