Introduction

S. Krishnan
1. There are certain terms/phrases used quite frequently in legal circles and some of
FCA
them about which we are going to analyze in this article are the following-

(i)   Precedent.
(ii)   Sub silentio.
(iii)   Obiter dicta
(iv)   Ratio decidendi and
(v)   Per incuriam.

Let us start with the definition of these terms to understand what they mean when
used in law journals and also in decisions rendered by various judicial authorities,
Understanding the concept of these terms will guide tax professionals while
preparing computation of income statements, preparing grounds of appeal before
Appellate Authorities and arguing successfully before them.

2. Definition of legal terms

2.1 Precedent - Wikipedia defines a precedent as a principle or rule established in

a previous legal case that is either binding on or persuasive for a Court or other
Tribunal when deciding subsequent cases with similar issues or facts. Common-law
legal systems place great value on deciding cases according to consistent principled
rules, so that similar facts will yield similar and predictable outcomes, and
observance of precedent is the mechanism by which that goal is attained. The
principle by which judges are bound to precedents is known as stare decisis (a Latin
phrase with the literal meaning of "Let the decision stand")

2.2 Sub-silentio - The Supreme Court in the case of Municipal Corpn. of Delhi v.
Gurnam Kaur [1989] 1 SCC 101 explained the concept of sub silentio as under-

Professor P.J. Fitzgerald, editor of the Salmond on Jurisprudence, 12th edn.,

explains the concept of sub silentio in these words:

"A decision passes sub silentio, in the technical sense that has come to be
attached to that phrase, when the particular point of law involved in the
decision is not perceived by the Court or present to its mind. The Court may
consciously decide in favour of one party because of point A, which it considers
and pronounces upon. It may be shown, however, that logically the Court
should not have decided in favour of the particular party unless it also decided
point B in his favour; but point B was not argued or considered by the Court. In
such circumstances, although point B was logically involved in the facts and
although the case had a specific outcome, the decision is not an authority on
point B. Point B is said to pass sub silentio."

2.3 Obiter dicta - The Hon'ble Chief Justice M.C. Chagla of the Bombay High
Court presiding over the Bench in the case of Mohandas Issardas v. A.N.
Sattanathan, AIR 1955 Bom 113 made the following observations at page 1160
which not only explained what is obiter dicta but also brought out the distinction
between ratio decidendi and obiter dicta.

". . . . an obiter dictum is an expression of opinion on a point which is not

necessary for the decision of a case. This very definition draws a clear
distinction between a point which is necessary for the determination of a case
and a point which is not necessary for the determination of the case. But in both
cases points must arise for the determination of the Tribunal. Two questions
may arise before a court for its determination. The court may determine both
although only one of them may be necessary for the ultimate decision of the
case. The question which was necessary for the determination of the case would
be the 'ratio decidendi'; the opinion of the Tribunal, on the question which was
not necessary to decide the case would be only an 'obiter dictum'. "

2.4 Ratio decidendi - From Wikipedia

Ratio decidendi (Latin plural rationes 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" or "the principle that the case establishes".

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
depends.

It is a legal phrase which refers to the legal, moral, political and social principles
used by a court to compose the rationale of a particular judgment. Unlike obiter
dicta, the ratio decidendi is, as a general rule, binding on courts of lower and later
jurisdiction—through the doctrine of stare decisis. Certain courts are able to
overrule decisions of a court of coordinate jurisdiction—however, out of interests of
judicial comity, they generally try to follow coordinate rationes.(the word 'rationes"
is a Latin word means " the reason."

The process of determining the ratio decidendi is a correctly thought analysis of

what the court actually decided—essentially, based on the legal points about which
the parties in the case actually fought. 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 actually decided in that particular case (whether they are correct
statements of law or not)—are obiter dicta, and are not rules for which that
particular case stands.

2.5 Per incuriam - In paragraph 578 at page 297 of Halsbury's Laws of England,
Fourth Edition, the rule of per incuriam is stated as follows:

"A decision is given per incuriam when the court has acted in ignorance of a
previous decision of its own or of a court of co-ordinate jurisdiction which
covered the case before it, in which case it must decide which case to follow; or
when it has acted in ignorance of a House of Lords decision, in which case it
must follow that decision; or when the decision is given in ignorance of the
 terms of a statute or rule having statutory force."
Having studied definition of these interrelated terms let us focus our attention
on the observations made by judicial authorities with regard to these terms and
go through some of the case laws to understand how these legal terms have
been employed by these judicial authorities in deciding issues that arose before
them.

3. Observations extracted from decisions of the Supreme Court and

High Courts and from orders of Tribunal Benches.

3.1 When matter covered by judgment of Bench of Supreme Court is referred to

larger Bench the latest decision would apply and not order of reference to larger
Bench. It was so held in the case of Johnson Lifts Ltd. v. Dy. Commr. (CT) [2007] 7
VST 660 (AP)

3.2 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. Nokia Corpn. v. DIT [2007] 162 Taxman 369/292
ITR 22 (Delhi)

3.3 The Supreme Court in the cases of Kulwant Kaur v. Gurdial Singh Mann [2001]
4 SCC 262, Uptron India Ltd. v. Shammi Bhan [1998] 6 SCC 538, State of
Rajasthan v. Mahaveer Oil Industries 1999 taxmann.com 1944 (SC) and Director of
Settlement v. Appa Rao [2002] 4 SCC 638 has observed that no law is laid down
when a point is disposed of on a concession. If the court proceeds on the basis of
concession made by any party, the decision cannot, by any stretch, be termed a
binding precedent and cannot have the sanctity and solemnity of a binding
precedent.

3.4 The Delhi High Court in the case of CIT v. SAE Head Office Monthly Paid
Employees Welfare Trust [2004] 141 Taxman 364/271 ITR 159 made the following
observations-

"When in tax matters which are governed by an all-India statute, there is a

decision of another High Court on the interpretation of a statutory provision, it
would be a wise judicial policy and practice not to take a different view barring,
of course, certain exceptions, like where the decision is sub silentio, per
incuriam, obiter dicta or based on a concession or takes a view which it is
impossible to arrive at or there is another view in the field or there is a
subsequent amendment of the statute or reversal or implied overruling of the
decision by a higher court or some such infirmity manifestly perceivable in the
decision."

The Delhi High Court, in this case, followed the principles laid down by the Gujarat
High Court in the case of Arvind Boards and Paper Products Ltd. v. CIT [1982] 9
Taxman 185/137 ITR 635 so far as the principle in following the interpretation given
by the other High Court(s) is concerned.

3.5 Where there are two decisions of the superior court with different conclusions, it
is the latter which would require to be treated as binding. It was so observed in CGT
v. Arunbhai Hargovandas Patel [2003] 264 ITR 586 (Guj.) in the context of what
constitutes gift. In CGT v. Chhotalal Mohanlal [1974] 97 ITR 393 (Guj.), a gift was
inferred in reconstitution of the firm, whereby a partner reduced his interest in the
firm, while it was not so inferred in CGT v. T.M. Louiz [2000] 112 Taxman 622/245
ITR 831 (SC). The High Court, while pointing out the difference in the facts had also
held that even if the two decisions are taken as conflicting, it is the latter decision
which would require to be followed.

3.6 The ITAT Mumbai Bench in the case of ITO v. Ranisati Fabric Mills (P.) Ltd.
[2009] 118 ITD 293 (Mum.) observed that if there is a solitary judgment of any High
Court in the country on a particular point or issue, the same should be followed in
its letter and spirit by all Benches of the Tribunal notwithstanding contrary views
expressed by some Benches of the Tribunal, unless there are strong reasons to
deviate from the view expressed by the High Court. The better wisdom of the Court
below must yield to the higher wisdom of the Court above and once a view taken by
the Tribunal is overruled by any one of the High Courts, then, it is not proper to say
by the other Bench of the Tribunal situated outside the jurisdiction of that High
Court that it would not follow the solitary judgment of the High Court, as it is not
binding upon it.

3.7 The Bombay High Court in the case of CIT v. Smt. T.P. Sidhwa [1981] 6 Taxman
91/[1982] 133 ITR 840 (Bom.) made the following observations with regard to
"obiter dicta."

No doubt, ordinarily, the obiter dicta of the Supreme Court is not only entitled 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, have to follow the decision which lays down
the ratio in preference to the obiter dicta.

3.8 The Delhi High Court in the case of DLF Universal Ltd. v. CIT [2008] 172
Taxman 107/306 ITR 271 (Delhi) observed that " it is not only a matter of judicial
propriety but also a matter of judicial discipline that one Bench of the Tribunal takes
a view, another Bench on disagreement does not pass a contrary order but refers the
matter to a larger Bench for getting the matter resolved."

3.9 The court cannot add or mend and by construction make up deficiencies which
are left there. In the case of an ordinary word, there should be no attempt to
substitute or paraphrase the general application. Attention should be confined to
what is necessary for deciding the particular case. (vide Crawford v. Spooner [1846]
6 Moore 1 (PC)). The court is only a jus dicere and not jus dare, which means the
court is to pronounce the judgment and not to make law. (vide CST v. Parson Tools
and Plants [1975] 35 STC 413 (SC)).

SOURCE-CIT v. Pooshya Exports P. Ltd. [2003] 127 Taxman 369/262 ITR 417
(Mad.)

3.10 Whether interpretation given in one Act is binding in other Acts

In Macbeth v. Chislett [1910] AC 220 it was observed by the House of Lords as

follows-

"It would be adding a new terror in the construction of Acts of Parliament if we

were required to limit a word to an unnatural sense because in some Act, which
is not incorporated or referred to, such an interpretation is given to it for the
purposes of that Act alone. "

In Adamson v. Melbourne Board of Works AIR 1929 PC 181, 183 the Privy Council
said:

". . . it is always unsatisfactory and generally unsafe to seek the meaning of

words used in an Act of Parliament in the definition clauses of other statutes
dealing with matters more or less cognate . . . "

In D.N. Banerji v. P.R. Mukherjee AIR 1953 SC 58, 60 the Supreme Court said:

"Though the definition may be more or less the same in two different statutes,
still the objects to be achieved not only as set out in preamble but also as
gatherable from the antecedent history of the legislation may be widely
different. The same words may mean one thing in one context and another in a
different context. This is the reason why decisions on the meaning of particular
words or collection of words found in other statutes are scarcely of much value
when we have to deal with a specific statute of our own; they may be helpful but
they cannot be taken as guides or precedents. "

If a word has a certain meaning in one statute or if a situation is followed by certain

consequences under one statute, it does not follow that the word will have the same
meaning in another statute or that the situation will be followed by the same
consequences under the other statute. Regard must be had to the context, the
intention of the Legislature and the object sought to be achieved by the two statutes.

Source-Dy. CIT v. India Cine Agencies [1995] 54 ITD 257 (Chennai).

The Supreme Court in the case of Municipal Corporation of Delhi v. Children Book
Trust [1992] 63 Taxman 385 observed at para.60 as follows-

"The rulings arising out of Income Tax Act may not be of great help because in
the Income Tax Act "charitable purpose" includes the relief of the poor,
education, medical relief and the advancement of any other object of general
public utility. The advancement of any other object of general public utility is
 not found under the Delhi Municipal Corporation Act. In other words, the
definition is narrower in scope. This is our answer to question No. 1."

These observations were noted at para. 17 in the judgment of the Supreme Court in
the case of Queen's Educational Society v. CIT [2015] 55 taxmann.com 255/231
Taxman 286/372 ITR 699 (SC) while disapproving reliance made by the
Uttarakhand High Court in the case of CIT v. Queens Educational Society [2009]
177 Taxman 326/319 ITR 160 (Uttaranchal) while deciding an issue with regard to
interpretation of provisions of section 10(23C)(iiiad) of the Act.

The Delhi High Court in the case of CIT v. Dinesh Jain HUF [2013] 40 taxmann.com
428/220 Taxman 160 (Mag.) has held that no addition can be made under section
69B of the Income-tax Act (the Act) on account of unexplained investment in rent
yielding property by applying the provisions of Rule 3 of Part B of Third Schedule to
the Wealth Tax Act, 1957.

3.11 This is what the Madras High Court in the case of M/s. Iqra Traders v. CTO
[W.P. Nos.10390 of 1999 and 22939 of 2004-Judgment dated: 05.12.2008]
observed-

"It is true that the question has been referred to a larger Bench. But as on date,
the judgment in Sterling Foods' case binds us. We have decided the issue only
on the basis whether the goods exported were the same as the goods sold by the
assessee."

The issue was that the earlier decisions of the Supreme Court in Sterling Foods v.
State of Karnataka [1986] 63 STC 239 (SC) and Vijayalaxmi Cashew Co. v. Dy.
CTO [1996] 100 STC 571 (SC), in interpreting the words "in relation to such export"
occurring in section 5(3) were referred to larger bench by the Supreme Court in the
case of State of Karnataka v. Azad Coach Builders (P.) Ltd. 2006 taxmann.com
2087 (SC)

3.12 No decision should be followed mechanically without understanding the

doctrine of precedent

The Chennai Bench of the ITAT in the case of Jt. CIT v. Virudhunagar Textile Mills
Ltd. [2005] 97 ITD 306 (Chennai) made the following observations in its order-

"It is important to note the observation of the Hon'ble Supreme Court regarding
doctrine of precedent in case of the CIT v. Sun Engg. Works (P.) Ltd. [1992] 198
ITR 297/[1992] 64 Taxman 442 (SC) (at page 299 of ITR). It was observed as
under: "It is neither desirable nor permissible to pick out a word or a sentence
from the judgment of the Supreme Court divorced from the context of the
question under consideration and treat it to be the complete law declared by the
Court. The judgment must be read as a whole and the observations from the
judgment have to be considered in the light of the questions which were before
the Court. A decision of the Supreme Court takes its colour from the questions
involved in the case in which it is rendered and, while applying the decision to a
 later case, Courts must carefully try to ascertain the true principle laid down by
the decision."

3.13 Binding precedent and per incuriam

It may be noticed that precedent ceases to be a binding precedent-

(i)   if it is reversed or overruled by a higher court,

(ii)   when it is affirmed or reversed on a different ground,
(iii)   when it is inconsistent with the earlier decisions of the same rank,
(iv)   when it is sub silentio, and
(v)   when it is rendered per incuriam.

In Punjab Land Development and Reclamation Corporation Ltd. v. Presiding

Officer, Labour Court [1990] 3 SCC 682, the Supreme Court explained the
expression "per incuriam" thus (at page36 of 77 FJR):

"The Latin expression per incuriam means through inadvertence. A decision

can be said generally to be given per incuriam when the Supreme Court has
acted in ignorance of a previous decision of its own or when a High Court has
acted in ignorance of a decision of the Supreme Court."

3.14 Hon'ble Justice V. R. Krishna Iyer in the case of Ambika Prasad Mishra v.
State of U.P. AIR 1980 SC 1762, pointed out that a decision did not lose the
authority because "it was badly argued, inadequately considered and fallaciously
reasoned". Even the Supreme Court of India would not differ from its earlier
decision merely because a contrary view appears preferable, as was held in the case
of Union of India v. Raghubir Singh [1989] 178 ITR 548 (SC).

3.15 The Full Bench of the Kerala High Court in the case of CIT v. Poonjar Service
Co-Operative Bank Ltd. [2019] 110 taxmann.com 87/414 ITR 67 observed that
"merely because the appeal to the Supreme Court from the judgment in Chirakkal
Service Co-operative Bank Ltd. v. CIT [2016] 68 taxmann.com 298/239 Taxman
417/384 ITR 490 (Kerala) was dismissed in view of Circular No. 3 of 2018 dated
July 11, 2018 ([2018] 405 ITR (St.) 29) 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."

4. Case laws wherein precedents were specifically followed

4.1 The Supreme Court in the case of S.E. Graphites (P.) Ltd. v. State of Telangana
[Civil Appeal No. 7574 of 2014, dated 10 th July, 2019] following its earlier Bench
decision consisting of 3 Hon'ble Judges rendered in the case of Kunhayammed v.
State of Kerala [2000] 113 Taxman 470/245 ITR 360 (SC) held that "once a special
leave petition has been granted the doors for the exercise of appellate jurisdiction of
the Supreme Court have been left open and resultantly the order impugned before
the Supreme Court became an order appealed against and any order passed
thereafter would be an appellate order and attract the doctrine of merger despite the
fact that the order, is of reversal or of modification or of affirming the order
appealed against. It would also not make any difference if the order is a speaking
one or a non-speaking one."

4.2 The Bombay High Court in the case of Bajaj Auto Finance Ltd. v. CIT [2018] 93
taxmann.com 63/404 ITR 564 reiterated the well-known principle that
"interpretations given by High Courts and Tribunals cannot be ignored by the
Assessing Officers" after noting the written submissions made in the following
words on behalf of the Revenue-

"Litera Leges, certainty concept and on the concept that there is no equity on
fiscal law irrespective of any judgment of any Hon'ble Court or Tribunal a go-by
cannot be given to the aforesaid interpretations given in this written
submission".

With regard to the above written submissions made on behalf the Revenue, the High
Court gave a fitting reply at para.6 of its judgment in the following words-

"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".

4.3 The facts in the case decided by the Kerala High Court in CIT v. Malayala
Manorama Co. Ltd. [2018] 95 taxmann.com 136/258 Taxman 238/[2019] 410 ITR
423 were that the Assessing Officer had disallowed the assessee's claim for
deduction under section 37(1) of the Act on account of payment of salary to a
sweeper for cleaning and maintaining the premises of a Hall, on the ground that the
said hall was in the name of the founder of the assessee-company and the hall was
not owned by the assessee- company itself. It was contended on behalf of the
assessee that the claim was to be allowed as keeping the hall clean, enhanced the
assessee-company's goodwill. The High Court, however, sustained the said
disallowance relying on a binding precedent in the assessee's own case [Malayala
Monorama Co. Ltd. v. CIT [2006] 150 Taxman 505/284 ITR 69 (Kerala) for another
assessment year involving similar claim.]

4.4 In the case which arose before the Supreme Court in the case of CIT v. Carpet
India [2018] 93 taxmann.com 434/255 Taxman 438/405 ITR 469 (Consisting of 2
Hon'ble Judges) the assessee was engaged in the business of manufacture and sale
of carpets to one I Ltd. as supporting manufacturer and had claimed deduction
under 80HHC of the Act which was denied by the Assessing Officer on the ground
that the assessee was receiving export incentives in the form of Duty Draw Back
(DDB) and Duty Entitlement Pass Book (DEPB). The Commissioner of Income-tax
(Appeals), however, allowed the assessee's appeal holding that it was entitled to the
deduction of export incentives under section 80HHC of the Act at par with the
exporter. The appeal of the Revenue was dismissed by the Tribunal and the High
Court. The Revenue then filed an appeal before the Supreme Court and the question
that was identified for adjudication was "whether the assessee was entitled for
deduction at par with the exporter who also received export incentives in the form of
DDB and DEPB?" The Supreme Court referring the matter to a larger bench stated
that the precedents, i.e. CIT v. Baby Marine Exports [2007] 160 Taxman 160/270
ITR 323 (SC) and CIT v. Sushil Kumar Gupta [2012] 210 taxmann.com 257 (SC),
cited were not identical and could not be accepted as Explanation (baa) of section
80HHC specifically reduces deduction of 90 per cent of the amount referable to in
section 28 (iiia) to (iiie). In the light of substantial question of law, the matter was
sent for re-consideration to a larger bench

The larger Bench (consisting of 3 Hon'ble Judges) in the case of CIT v. Carpet India
[2019] 109 taxmann.com 35/267 Taxman 93 (SC) agreed with the views of the
referring Bench in the following words at para. 6 of its judgment-

"6. We agree with the reasoning and analysis of the referring judgment, namely,
that Baby Marine Exports case (supra) dealt with an issue related to the
eligibility of export house premium for inclusion in business profit for the
purpose of deduction under Section 80HHC of the Act. Whereas in the present
appeals, the point for consideration is completely different, being as to whether
the assessees being supporting manufacturers, are to be treated on par with the
direct exporter for the purpose of deduction of export incentives under Section
80HHC of the Act. We, therefore, answer the question referred to us by stating
that Baby Marine Exports case (supra) deals with an entirely different question
and cannot be relied upon to arrive at the conclusion that the supporting
manufacturers are to be treated on par with the direct exporter for the purpose
of deduction under Section 80HHC of the Act, as has been pointed out by us
herein above. Consequently, the decision in Sushil Kumar Gupta (supra) is
overruled."

4.5 Jayant Saha v. Dy. CIT [2018] 54 CCH 22 (Kol.) 19th Septmber, 2018

The Tribunal held that if because of wrong advice given by the advocate, the assessee
could not prefer the appeal before the Tribunal, then the assessee could not be
faulted for not preferring the appeal on time. The Tribunal held that the Supreme
Court in the case of Collector of Land Acquisition v. Mst Katiji AIR 1987 SC 1353
emphasized that substantial justice should prevail over technical consideration. The
Supreme Court also observed that "a litigant does not stand to benefit by lodging the
appeal late." The Supreme Court also observed that every day's delay must be
explained would not mean that a pedantic approach should be taken. The doctrine
must be applied in a rational, common sense and pragmatic manner. In the light of
the aforesaid judicial precedent and taking into consideration the fact that because
the wrong advice given by the Advocate caused the assessee in not preferring an
appeal before theTribunal, the assessee could not be faulted for not preferring
appeal on time. Taking into consideration the aforesaid facts given for causing the
delay, the Tribunal was of the opinion that the delay should be condoned and the
Tribunal did so and admitted the appeal for adjudication.

4.6Asstt. CIT v. G.V.S.L Kantha Rao [2018] 54 CCH 26

A search under section. 132 of the Act was carried out in the assessee's case and
based on the noting found among the seized materials that certain amount was
given to MR and to ANR, the Assessing Officer held that amount was nothing but
unaccounted advances given by the assessee and assessed the same along with
accrued interest as undisclosed income for block period. The Commissioner of
Income-tax (Appeals), however on first appeal filed by the assessee, deleted such
addition holding that the amount was not money advanced by the assessee but it
was the money borrowed by the assessee and the same, on appeal by the Revenue,
was upheld by the Tribunal. The Joint CIT then initiated penalty proceedings under
section 271D of the Act on the alleged contravention of the provisions of section
269SS of the Act and levied penalty which was, however later, deleted by the
Commissioner of Income-tax (Appeals).The Tribunal noted that the department had
taken two different stands i.e. while framing the assessment it was held as monies
advanced and assessed as undisclosed income and when the appellate authorities
deleted addition holding that the said sum represented loans borrowed, the
department had made 'U' turn and initiated penalty proceedings under section 271
D of the Act. The Tribunal relying on the decision of the Delhi High Court in the case
of CIT v. Standard Brands Ltd. [2006] 155 Taxman 383/285 ITR 295 held that once
amount in question was assessed as undisclosed income of the assessee in block
assessment, provisions of section. 269SS of the Act read with section271D of the Act
could not be resorted to. Thus, following the judicial precedent, the Tribunal
dismissed the appeal of the revenue.

4.7 The Supreme Court in the case of Pr. CIT v. Aarham Softronics [2019] 102
taxmann.com 343/261 Taxman 529/412 ITR 623 (SC) (a Bench of 3 Hon'ble Judges)
overruled its earlier decision in the case of CIT v. Classic Binding Industries [2018]
96 taxmann.com 405/257 Taxman 324/407 ITR 429 (SC) (a Bench of 2 Hon'ble
Judges) after observing that "the earlier decision omitted to take note of the
definition 'initial assessment year' contained in section 80-IC of the Act itself and
instead based its conclusion on the definition contained in section 80-IB of the Act,
which does not apply in these cases. The definitions of 'initial assessment year' in the
two sections, viz. sections 80-IB of the Act and 80-IC of the Act are materially
different. The definition of 'initial assessment year' under section 80-IC of the Act
has made all the difference. Therefore, it is opined that the aforesaid judgment does
not lay down the correct law."

The Supreme Court, not being bound by precedent on this issue, and without any
hesitation overruled its earlier decision when certain crucial points of difference
between two sections of the Act escaped its attention which deciding the issue in the
earlier case.

4.8 ITA No.1285/Ahd/2014 Assessment year: 2010-11 in Dr. Rajiv I. Modi v. Dy.
CIT [2017] 86 taxmann.com 253/167 ITD 318 (Ahd.).

With regard to precedent this is what the Tribunal observed at para.6 of its order-

"We have noted that the concerned CIT(A) has declined to follow the decision
of the Tribunal even though he was fully aware of the same. Merely because a
judicial precedent is challenged in further appeal, the precedence value of such
a judicial precedent does not get diluted. The stand of the CIT(A), in conscious
disregard of a binding judicial precedent, cannot but be condemned. Be that as
it may, in any event, we see no reason to take any other view of the matter than
the view so taken by the co-ordinate bench. Respectfully following the same, we
uphold the plea of the assessee in respect of the credit for the state tax paid in
the USA. This is, however, subject to the rider that the credit for all taxes paid
abroad in any case cannot exceed the Indian income-tax liability in respect of
the same income. While giving effect to this order, the Assessing Officer will
verify this aspect of the matter. With these observations, the matter stands
restored to the file of the Assessing Officer for granting admissible relief, if
any."

The issue was whether the assessee was entitled to credit of State as well as Federal
taxes paid in USA in India.

The ITAT Delhi Bench in the case of Aditya Khanna v. ITO (International
Taxation) [2019] 105 taxmann.com 323 (Delhi - Trib.) following the order passed by
the Ahmedabad Bench of the Tribunal in the case of Dr. Rajiv I. Modi (supra) as
judicial precedent held that "we hold that assessee is entitled for tax credit of federal
as well as state taxes paid by him under section 91 of the Act."

4.9 The Bombay High Court in the case of Pr. CIT v. Quest Investment Advisors
(P.) Ltd. [2018] 96 taxmann.com 157/257 Taxman 211/409 ITR 545 analysed the
principles defining res judicata and rule of consistency and extracted the
observations, from the decision of the Supreme Court in the case of Bharat Sanchar
Nigam Ltd. v. Union of India [2006] 152 Taxman 135 (SC) which were made by the
Supreme Court after referring to its earlier judgment in the case of Radhasoami
Satsang v. CIT [1992] 60 Taxman 248/193 ITR 321 (SC), at para.8 of its order, as
under- (reference to no.20 is the paragraph no. of the Supreme Court decision)

"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 of
where the earlier decision is per incuriam. However, these are fetters only on a
co-ordinate 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."

4.10 The Madras High Court in the case of CIT v. A.L. Homes [2018] 401 ITR 285
(Mad.) held that "the binding value of a judgment as a precedent does not depend
on its length." The High Court was referring to the decision of the Supreme Court in
the case of Sargam Cinema v. CIT [2011] 197 Taxman 203/328 ITR 513 (SC)
wherein the Supreme Court, through a brief judgment, allowed the appeal of the
assessee by holding that "an assessing authority cannot refer any matter to
Departmental Valuation Officer without rejecting books of account." When an
identical issue arose before the Madras High Court in the case of A.L. Homes
(supra), the High Court held that "since the issue is covered by the judgment of the
Supreme Court in Sargam Cinema (supra), this tax case appeal is not entertained."

4.11 The Rajasthan High Court in the case of Prime Chem Oil Ltd. v. Asstt. CIT
[2018] 409 ITR 309 (Raj.) remanded the issue to the Tribunal on noticing that the
Tribunal had not given cogent reasons to reverse the findings of the Commissioner
of Income-tax (Appeals) and also that the decision of the jurisdictional High Court
in the case of CIT v. Shri Ram Singh [2008] 306 ITR 343 (Raj.) was not followed by
the Tribunal. The issue before the Rajasthan High Court in the case of Shri Ram
Singh (supra) was that "once the Assessing Officer comes to the conclusion that
income with respect to which he had entertained "reason to believe" to have escaped
assessment, was found to have been explained, his jurisdiction comes to a stop at
that, and he does not continue to possess jurisdiction to put to tax any other income
which subsequently came to his notice in course of proceedings, which was found by
him to have escaped assessment"

In the case which arose before the Rajasthan High Court in the case of Prime Chem
Oil Ltd. (supra) there were 2 appeals for two different assessment year 1999-2000
and 2000-01 and questions for determination of answer(s) by the High Court were
identically worded as under-

"Whether in the facts and in the circumstances of the case, the learned Tribunal
was justified in holding that the proceedings for reassessment under section
148/147 of the Income-tax Act, 1961 were initiated by the learned Assessing
Officer on non-existing facts because ultimately the assessee has been able to
explain that the income which was believed to have escaped assessment was
explainable but some other additions were made under the assessment order ?"

As the question raised before the High Court in Prime Chem Oil Ltd (supra) was
already answered by its earlier Bench in Shri Ram Singh (supra), the Rajasthan
High Court, as stated above, remanded the issue to the Tribunal.

5. Concluding remarks

As the professionals dealing in direct taxes would be dealing with issues in income-
tax on a daily basis, it is better for themto understand the judicial system with
regard to binding nature of similar issues vis-à-vis precedent from the observations
extracted below- one taken out from a Supreme Court decision and the other from a
Tribunal order

5.1 With regard to precedent-following an earlier judgment- reference may be made

to the following passages extracted from the Supreme Court in the case of S I
Rooplal v. Governor of New Delhi [2000] I SCC 644 (consisting of 3 Hon'ble
Judges) which succinctly explain the concept of "healthy principles of judicial
decorum and propriety".

A coordinate Bench of a Court cannot pronounce judgment contrary to declaration

of law made by another Bench. It can only refer it to a larger Bench if it disagrees
with the earlier pronouncement. This Court in the case of Tribhuvandas
Purshottamdas Thakar v. Ratilal Motilal Patel [1968] 1 SCR 455 while dealing with
a case in which a Judge of the High Court had failed to follow the earlier judgment of
a larger Bench of the same court observed thus:

"The judgment of the Full Bench of the Gujarat High Court was binding upon
Raju, J. If the learned Judge was of the view that the decision of Bhagwati, J., in
Pinjare Karimbhai's case and of Macleod, C.J., in Haridas `s case did not lay
down the correct Law or rule of practice, it was open to him to recommend to
the Chief Justice that the question be considered by a larger Bench. Judicial
decorum, propriety and discipline required that he should not ignore it Our
system of administration of justice aims at certainty in the law and that can be
achieved only if Judges do not ignore decisions by Courts of coordinate
authority or of superior authority. Gajendragadkar, C.J. observed in Lala Shri
Bhagwan v. Shri Ram Chand AIR 1965 SC 1767
"It is hardly necessary to emphasise that considerations of judicial propriety
and decorum require that if a learned single Judge hearing a matter is inclined
to take the view that the earlier decisions of the High Court, whether of a
Division Bench or of a single Judge, need to be re- considered, lie should not
embark upon that enquiry sitting as a single Judge, but should refer the matter
to a Division Bench, or, in a proper case, place the relevant papers before the
Chief Justice to enable him to constitute a larger Bench to examine the
question. That is the proper and traditional way to deal with such matters and it
is founded on healthy principles of judicial decorum and propriety."

6.2 Smt. Hemlata S. Shetty v. Asstt. CIT [IT Appeal Nos.1514/Mum/2010 and
6513/Mum/2011, dated 1-12-2015].

Observations of the Learned Judicial Member at para.6 of its order-

"The doctrine of judicial precedents; judicial discipline and judicata have been
evolved to ensure stability and certainty in law otherwise any judge could take
any view on the interpretation of the law resulting in chaos. The judgement of
the High Court in the state is binding as a judicial precedent in that state is
'ratio decidendi'. The expression ratio decidendi means the underlying
principle, viz., the general reasons upon the decision has been rendered. It has
to be ascertained by analysis of the facts of the case and the process of
reasoning involving major premise consisting of rule of law, either statutory or
judge made and a major premise consisting of material facts of the case under
consideration. There cannot be a judicial precedent on a question of fact. It is
only the legal principle laid down on the basis of fact and the law that becomes
judicial precedent. The precedent may not be binding when the judgement is
per incuriam i.e. in ignorance of the law or contrary to the law or its own earlier
decisions of own or by inadvertence.
Sometimes, there are conflicting judgements of the same court and the question
arises whether latter judgement or earlier judgement becomes a binding
precedent. In such a situation, if the two decisions are delivered by a Bench of
equal strength, latter judgement may be followed specially when the earlier
judgement is referred while deciding the matter in latter judgement."
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