Madras Fertilisers Ltd. vs Deputy Commissioner of Income Tax

P.D. Dinakaran, J.—The above tax case appeals are directed against the order of the Income Tax Appellate Tribunal dated February 24, 2004, in M.P. No. 107 of 2001 in I.T.A. No. 440/Mds/1999 for the assessment year 1997-98 and in M.P. Nos. 61 to 65 of 2003 against I.T.A. Nos. 31, 27, 28, 32 and 38/Mds/1992, respectively, for the assessment years 1979-80, 1983-84 and 1985-86.

Concededly, the appellant is a public sector undertaking.

The appellant has raised the following substantial questions of law for consideration.

(i) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in dismissing the appeals of the appellant without considering the Explanation "loss shall not include depreciation" as provided in Section 115JA of the Income Tax Act, 1961? and

(ii) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in calculating the MAT provisions in Section 143(1)(a) proceedings?

Before proceeding further on the above questions, it is settled law that the appellant ought to have obtained clearance of the High Powered Committee, which is set up not only to conciliate between the Government Departments, but also to prevent frivolous litigations, among the Departments or public sector undertakings, as held by the apex court.

(a) Oil and Natural Gas Commission Vs. Collector of Central Excise, , wherein it is held that (page 46):

There are some doubts and problems that have arisen in the working out of these arrangements which require to be clarified and some creases ironed out. Some doubts persist as to the precise import and implications of the words and recourse to litigation should be avoided. It is clear that order of this Court is not the effect that--nor can that be done--so far as Union of India and its statutory corporations are concerned, the statutory remedies are effaced. Indeed, the purpose of the constitution of the High Powered Committee was not to take away those remedies. The relevant portion of the order reads:

We direct that the Government of India shall set up a Committee consisting of representatives from the Ministry of Industry, the Bureau of Public Enterprises and the Ministry of Law, to monitor disputes between Ministry and Ministry of Government of India; Ministry and public sector undertakings of the Government of India and public sector undertakings in between themselves to ensure that no litigation comes to court or to a Tribunal without the matter having been first examined by the Committee and its clearance for litigation. Government may include a representative of the Ministry concerned in a specific case and one from the Ministry of Finance in the Committee. Senior Officers only should be nominated so that the Committee would function with status, control and discipline.

It is abundantly clear that the machinery contemplated is only to ensure that no litigation comes to court without the parties having had an opportunity of conciliation before an in-house Committee.

(b) In Canara Bank v. National Thermal Power Corporation [2001] 1 SCC 43, wherein it is held that frivolous litigations between Government Departments and public sector undertakings should not be dragged on in the courts, and

(c) In Chief Conservator of Forests, Govt. of A.P. Vs. The Collector and Others, , it is held that (page 481):

Under the scheme of the Constitution, Article 131 confers original jurisdiction on the Supreme Court in regard to a dispute between two States of the Union of India or between one or more States and the Union of India. It was not contemplated by the framers of the Constitution or the CPC that two Departments of a State or the Union of India will fight a litigation in a court of law. It is neither appropriate nor permissible for two Departments of a State or the Union of India to fight litigation in a court of law. Indeed, such a course cannot but be detrimental to the public interest as it also entails avoidable wastage of public money and time. Various Departments of the Government are its limbs and, therefore, they must act in co-ordination and not in confrontation. Filing of a writ petition by one Department against the other by invoking the extraordinary jurisdiction of the High Court is not only against the propriety and polity as it smacks of indiscipline but is also contrary to the basic concept of law which requires that for suing or being sued, there must be either a natural or a juristic person. The States/Union of India must evolve a mechanism to set at rest all inter-Departmental controversies at the level of the Government and such matters should not be carried to a court of law for resolution of the controversy. In the case of disputes between public sector undertakings and Union of India, this Court in Oil and Natural Gas Commission v. Collector of Central Excise [1992] Supp (2) SCC 432 called upon the Cabinet Secretary to handle such matters. In Oil and Natural Gas Commission v. Collector of Central Excise [1995] Supp (4) SCC 541, this Court directed the Central Government to set up a Committee consisting of representatives from the Ministry of Industry, the Bureau of Public Enterprises and the Ministry of Law, to monitor dispute between Ministry and Ministry of the Government of India, Ministry and public sector undertakings of the Government of India and public sector undertakings in between themselves, to ensure that no litigation comes to court or to a tribunal without the matter having been first examined by the Committee and its clearance for litigation. The Government may include a representative of the Ministry concerned in a specific case and one from the Ministry of Finance in the Committee. Senior officers only should be nominated so that the Committee would function with status, control and discipline.

The facts of this appeal, noticed above, make out a strong case that there is a felt need of setting up of similar committees by the State Governments also to resolve the controversy arising between various Departments of the State or the State and any of its undertakings. It would be appropriate for the State Governments to set up a Committee consisting of the Chief Secretary of the State, the Secretaries of the Departments concerned, the Secretary of Law and where financial commitments are involved, the Secretary of Finance. The decision taken by such a committee shall be binding on all the Departments concerned and shall be the stand of the Government.

Reiterating the same view, the apex court in Mahanagar Telephone Nigam Ltd. Vs. Chairman, Central Board, Direct Taxes and Another, , again has held as under (page 652):

Undoubtedly, the right to enforce a right in a court of law cannot be effaced. However, it must be remembered that courts are overburdened with a large number of cases. The majority of such cases pertain to Government Departments and/or public sector undertakings. As is stated in Chief Conservator of Forests, Govt. of A.P. Vs. The Collector and Others, it was not contemplated by the framers of the Constitution or the CPC that two Departments of a State or Union of India and/or a department of the Government and a public sector undertaking fight a litigation in a court of law. Such a course is detrimental to public interest as it entails avoidable wastage of public money and time. These are all limbs of the Government and must act in co-ordination and not confrontation. The mechanism set up by this Court is not, as suggested by Mr. Andhyarujina, only to conciliate between Government Departments. It is also set up for purposes of ensuring that frivolous disputes do not come before courts without clearance from the High Powered Committee. If it can, the High Powered Committee will resolve the dispute. If the dispute is not resolved the Committee would undoubtedly give clearance. However, there could also be frivolous litigation proposed by a Department of the Government or a public sector undertaking. This could be prevented by the High Powered Committee. In such cases there is no question of resolving the dispute. The Committee only has to refuse permission to litigate. No right of the Department/public sector undertaking is affected in such a case. The litigation being of a frivolous nature must not be brought to court. To be remembered that in almost all cases one or the other party will not be happy with the decision of the High Powered Committee. The dissatisfied party will always claim that its rights are affected, when in fact, no right is affected. The Committee is constituted of highly placed officers of the Government, who do not have an interest in the dispute, it is thus expected that their decision will be fair and honest. Even if the Department/public sector undertaking finds the decision unpalatable, discipline requires that they abide by it. Otherwise the whole purpose of this exercise will be lost and every party against whom the decision is given will claim that they have been wronged and that their rights are affected. This should not be allowed to be done.

In the instant case, learned Counsel appearing for the appellant submits that the appellant has not obtained clearance from the High Powered Committee, as contemplated. Hence, the appeals are dismissed, of course, with liberty to the appellant to revive the appeals, if they are so advised. Consequently, connected M.P. Nos. 1 and 2 of 2006 are also dismissed.