COMMISSIONER OF INCOME TAX (CENTRAL) vs SAHARA INDIA LTD

After hearing Sri Alok Mathur, learned counsel for appellant and Sri Wasiqudding Ahead, learned counsel for respondents, we find that only substantial question of law, which has arisen in these appeals, is, "whether it was open to third Member, to whom certain specific points of dissents were referred for opinion, to answer those questions in his own way or decline to answer some of those questions, and due to lack of clear answers given or some questions remained unanswered by third Member, was it open to Regular Bench to hear the matter and decide appeal afresh, in the manner it likes without deciding the matter in the light of majority of opinion of Bench".

Since we are considering the procedure followed by Tribunal in deciding appeals, pending before it, filed by Revenue, as well as Assessee, we are not entering into merits of the matter.

There appears to be a difference of opinion between two Members of the Bench as a result whereof following seven questions were referred to third Member for his opinion. "(1) Whether on the facts and circumstances of the case particularly the fact that both assessee and the revenue have challenged the alternation of system of accounting by the ld. CIT(A) from mercantile to cash in the computation of assessee?s income from the "Golden Key Scheme", the Tribunal with reference to its powers under sub-section (1) of Section 254 of the Income Tax Act, 1961, could adjudicate the issue?

(2) If the answer to question no. 1 is the affirmative whether on the facts and circumstances of the case and in law, system of accounting to be adopted by the assessee should be cash or mercantile?

(3) Whether if mercantile system of accounting is to be adopted the assessee should be entitled to prize money for the entire scheme running over 12 years during the first year itself?

(4) Whether on the facts and circumstances of the case, proviso 1 appended to sub-section (1) of Section 145 of the Income Tax Act, 1961, could be invoked or not?

(5) Whether either with reference to the provisions of Section 211 of the Contract Act or Sections 2(24), 4 and 5 of the Income Tax Act, 1961, any notional interest could be added in the hands of the assessee due to the delayed remittance of collections made by their agent M/s Sahara India in respect of "Golden Key Scheme"?

(6) Whether in law as also according to the principles of natural justice the dissenting Member could refer to certain case laws of different High Courts (no dispute about Supreme Court case laws) not cited by either side during the hearing of the appeals?

(7) Whether if adoption of mercantile system is upheld, the questions of discounting and application prorata in respect of deduction towards prize liability under the "Golden Key Scheme" should go back to the regular Bench for its decision, considering that the A.M. has not adjudicated on these aspects?"

Third Member declined to answer questions-5 and 6 and remaining questions were answered, some categorically, and some, in a vague manner. In view of this kind of opinion rendered by third Member, when matter again went to Regular Bench, it found difficult to decide appeals on the basis of majority opinion of Members in the light of Section 255(4) of Income Tax Act, 1961 (hereinafter referred to as the "Act, 1961") and consequently heard matter and decide appeals by means of impugned judgment dated 31.05.2005 taking its own view.

The question is whether this procedure followed by Tribunal render the judgment in question invalid?

Section 255(4) of Act, 1961 deals with the situation when there is a difference of opinion in two Members of Bench and provides a procedure to be followed in such a contingency. It reads as under: "Procedure of Appellate Tribunal. ... "(4) If the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it."

The aforesaid provision makes it clear that if two Members equally divide or differ on certain point or points, such points shall be formulated by them and those points shall be considered by one or more Members of Tribunal as constituted by President of Appellate Tribunal and such point or points thereafter shall be decided according to opinion of majority of Members, who have heard the case including those who first heard it. In the present case, two Members initially differed in their views and formulated 7 points. A single Member was constituted to hear those points. Such member has no other option but to answer those points and thereafter the decision of Tribunal has to be given by Regular Bench in the light of majority opinion, i.e., 2-1 and not by deciding entire matter after re-hearing the case afresh. The Bench to which matter comes after the opinion of referred Bench, had to decide matter on majority of opinion already available and not to rehear and decide on its own.

In other words, we can say, when specific points of dissent were referred to be answered by third Member, it was not open to him to sit in appeal over the matter and decide some questions and leave some questions unanswered in his own way. Third Member ought to have endeavoured to answer the questions referred to him in a specific manner so that matter ultimately could have been decided by Regular Bench in the light of majority opinion but that has not been done in the case in hand. Therefore, we find that third Member as well as Regular Bench have not acted in the manner, as contemplated in law.

Having gone through the record, we find that dissenting opinion were rendered by Accountant Member and the Judicial member of Tribunal on 16.10.1996 and thereafter both the Members stated points on which they differed which we have noticed above. The third Member, i.e., Senior Vice President, Sri V. Dongzathang, rendered his opinion vide order dated 26.03.1998. It answered Question-1 by observing, when Assessee and Revenue both are aggrieved by order of Commissioner of Income Tax (Appeals) (hereinafter referred to as "CIT(A)") it is incumbent upon Tribunal to adjudicate issue raised before it and pass such order thereon as it thinks fit. Question-1, therefore was answered in affirmative.

Question-2 was answered stating that there is no need of changing entire system of accounting adopted by Assessee as the entries in accounts are correct and complete on the basis of which correct income chargeable to tax can be computed.

Question-4 was also answered in affirmative.

Questions-3 and 7 were taken together and without giving any answer deciding the same in one or other way, it observed that both these questions are decided in the light of observations. The entire observations made in respect to Questions-3 and 7 read as under: "Question Nos. 3 & 7 20. These questions are again closely related. The assessee in this case received a deposit of Rs. 2,500 out of which Rs. 1000 was given to the account holder in the form of N.S.C. The balance of Rs. 1,500 has been treated as revenue receipt by the A.O. and the CIT(A). Out of this amount of Rs. 1500, it is an admitted fact that the assessee has to conduct 144 monthly draws and 48 bumper draws in which the subscribers are entitled to participate. A subscriber to the Scheme who did not win a prize in any draw held during the tenure of the Scheme also is entitled to a minimum guarantee prize of Rs. 2,500 at the termination of the Scheme. In such a case, it is necessary to determine the proportionate income for each of the 12 years. The revenue receipts including the initial deposits and the interest thereon and revenue deductions have to be proportionately worked out so as to enable the assessee to run the full tenure of the Scheme in accordance with the provisions made under the Golden Key Scheme. As discussed earlier, the learned CIT(A) and the learned Membrs of the Tribunal emhasised more on the system of accounting rather than trying to find out the real profit for each of the above years. It is, therefore, necessary for the Tribunal to adjudicate on this point and evolve a basis or manner in which such deduction is to be allowed. In the light of the above, question No. 3 has to be decided accordingly. Consequently the quantum of deduction during the year has to be decided by the Tribunal in the light of question No. 7."

We find that third Member instead of answering questions has looked into the correctness of decision of two differing Members and observed that they have not looked into the relevant circumstances and should re-decide ground of appeal after giving opportunity to both the sides. The third Member, it appears, forgot his position that he was not sitting in appeal over the opinion rendered by two Members of Tribunal since jurisdiction of third member was coordinate and it was his duty to hear the two sides and decide question referred for its opinion in one or other way and not to make comments in the manner in which two differing Members have rendered their opinion for deciding certain issues. Unfortunately, third Member has looked into Question-5 as if he was sitting in appeal over different opinion recorded by two Members and this approach on the part of third Member is clearly erroneous. Whether any purpose would be served by answering Question-5 or not was not within the domain of third Member for the reason that it was under a statutory duty to answer questions referred for its opinion in one or other way. Some of observations made by third Member of Tribunal commenting upon differing Members of Bench are clearly beyond his authority. We have already said, he was not hearing a appeal of judgment of two Members of Tribunal but was under an obligation to render his own opinion after hearing parties on specific points rendered by two differing Members. Interestingly, this strange approach and manner of functioning of third Member has put Regular Bench in a difficult situation. In the order dated 31.12.2003, Division Bench found it a rare case wherein judgment was not possible in the manner in which it was required by Section 255(4). The Bench, however, found itself obliged to comply with third Member''s opinion of re-opening issues and requiring re-hearing of appeals of Assessee/Department as well as cross objection on the points of difference. The awkward situation in which regular Bench was placed by strange order passed by third Member is writlarge from what has been said in para 9 of order dated 31.12.2003, which reads as under: "9. This is one of the rarest case in which the Bench is unable to pass final order u/s 255(4) of the Act. We are supposed to pass the final order as per majority but we are having three orders out of which the two initial orders are of Members, which constituted the Bench and naturally both of them were having their reservations/differences on some points, which were ultimately referred to the Hon''ble Senior Vice President, but facts remain that Hon''ble Senior Vice President, the third Member instead of agreeing with either of the Member, who passed the dissenting order had reopened the same issues afresh implying the fresh disposal of the appeals by this Bench. Under these circumstances, this order u/s 255(4) of the Act is passed to the effect that appeals of the Assessee/Department as well as cross objections shall be disposed off afresh on the points of differences as observed by the Third Member. Registry is directed to fix the same in the second week of February 2004 after issuing notices to the assessee as well as to the Department."

This situation was created by third Member who appears to have forgotten its own duty and statutory obligation that it has to decide specific points referred for its opinion and not to sit in appeal over the entire matter and take its own decision independently and bereft of points formulated by different Members and referred for opinion of third Member.

We have no option but are constrained to observe that order and approach of third Member is patently erroneous, illegal, impermissible and constitutionally unsustainable in law rendering order dated 31.12.2003, passed by Regular Bench, unsustainable.

The Questions formulated above, in these appeals, we answer in favour of appellants and accordingly set aside not only order passed by Regular Bench on 31.12.2003 but also third Member''s order dated 26.03.1998 and remand the matter to President of Tribunal to nominate another Bench constituting one or more members to consider and decide seven points formulated by differing Members in their order dated 16.10.1996 for giving opinion thereon and thereafter the Regular Bench may decide the matter in the light of majority opinion as contemplated in Section 255(4) of Act, 1961.

Since all these are old matters, we expect that the Tribunal shall expedite hearing of these appeals and decide the same at the earliest, preferably within three months from the date of production of a certified copy of this order.

All the appeals are allowed in the manner as aforesaid.