Sikkim Manipal University vs The Chief Commissioner, Income Tax

Harish Tandon, J.—The petitioner has challenged the order of the Chief Commissioner of Income Tax (in short CCIT), Jalpaiguri passed under Section 154 of the Income Tax Act, 1961 on the grounds that the aforesaid power can only be exercised for rectification of a mistakes which are apparent on record and not when an elaborate reasoning is to be provided to arrive at the finding that there appears to be a mistake apparent on record. The challenge is further made on the ground that the appellate tribunal which stands on a higher pedestal having decided an issue based on the reasoning is binding on the authority put on the lower pedestal and the subordinate authority cannot pass an order which is directly in conflict with the findings and/or reasoning recorded by the appellate tribunal.

Shorn of unnecessary details, the petitioner, a university recognized by the University Grants Commission. Because of Sikkim Manipal Health and Technological Science Act, 1995, constituted with an object to establish and incorporate Sikkim Manipal University of Health, Medical and Technological Science in the state of Sikkim. By virtue of an agreement dated 12th September, 1992 entered into between the state of Sikkim who was desirous of establishing the educational opportunities and health services with the manipal education and medical group, a registered trust who established medical, dental, nursing, pharmacy and other allied health training as under graduate, graduate and post graduate levels to create a centre of excellence of providing health, medical care, education and research facilities in the field of medical science and technology. A further agreement dated 15th September, 1998 was entered into between the state of Sikkim and Sikkim Manipal University, the petitioner herein, for establishment of a referral cum teaching hospital with super specialties facilities and the land measuring twenty five acres in the city of Gangtok was allotted on lease. The petitioner subsequently became desirous of establishing an engineering college which was accepted by the state of Sikkim and to facilitate the same, a further land measuring seven acres was allotted in terms of the agreement dated 15th May, 2003. It was further agreed that a sum of Rs. 4.78 crores shall be granted by the department of North Eastern Council of India to purchase the equipments and the Government of Sikkim provided an annual grant to the tune of Rs. 2.5 crores. The said agreement was fully implemented and it is the case of the petitioner that till 2010, an aggregate sum of Rs. 2.82 crores was given by the Government of Sikkim. Subsequently the petitioner applied for registration under Section 12AA of the Income Tax Act, 1961 claiming that the university is substantially owned and financed by the Government of Sikkim. Initially the said application stood dismissed by the competent authority which was carried further to an appellate authority, that is the tribunal, and by a reasoned order dated 20th August, 2010, the tribunal set aside the order refusing the registration under the said Act and direct the authority to grant registration to the petitioner under the aforesaid provision. In terms of the order of the tribunal, the Commissioner of Income Tax vide order dated 19th October 2010 granted the registration under Section 12AA read with sub-section (a) of Section 12A of the Income Tax Act, 1961 with effect from 1st April 2009.

According to the petitioner, there was some confusions as to the applicability of the Income Tax Act to the state of Sikkim which constrained the petitioner to file the return until a notice under Section 148 of the Income Tax Act was served upon the petitioner. In pursuance of the said notice, a return pertaining to the assessment year 2004-2005 to 2007-2008 was filed claiming an exemption under Section 10(23C)(vi) of the said Act by the petitioner. However, a revised return is filed by the petitioner claiming an exemption under Section 10(23C)(iiiab) of the said Act which was introduced by the Finance (II) Act, 1998 with effect from 1st April 1999. The University Grants Commission was approached by the petitioner to take up an issue with the Director General (Income Tax) for granting an exemption on the donation received by them. By a letter dated 29th February, 2000 issued by the University Grants Commission, it is communicated that the institutions satisfied the conditions under Section 10(23C)(iiiab) of the Act, University Grants Commission may not have a role to play as exemption is automatic.

The petitioner appears to have filed applications in the year 2002-2008 claiming an exemption under section 10(23C)(vi) of the said Act but subsequently withdrew the same. On 29th July, 2008 the petitioner made further application in prescribed format seeking an exemption for the assessment year 2009-2010 and 2010-2011. The said application stood dismissed as the petitioner is substantially financed by the Government of Sikkim and, therefore, cannot claim an exemption under Section 10(23C)(vi) of the said Act. However, it was observed that the petitioner can at best claim an exemption under Section 10(23C)(iiab) of the said Act. In the mean time the return filed by the petitioner in terms of notice under Section 148 of the Act was taken up and an assessment order was passed on 29th December 2010. The petitioner filed four separate appeals against the assessment order passed on each assessment years, which was decided by a common judgment dated 29th November, 2011 before the Income Tax Appellate Tribunal and by a common judgment dated 29th November, 2011 all the aforesaid four appeals were allowed and it is categorically held that since all the conditions prescribed under Section 10(23C)(iiiab) of the Income Tax Act 1961 is satisfied, the income of the assessee is, therefore, exempted from an assessment. The department has challenged the said order before the High Court under Section 260A of the said Act, which is still pending. Amidst the pendency of the aforesaid proceeding, a notice under Section 154 of the said Act is issued by the Chief Commissioner of Income Tax, Jalpaiguri seeking to rectify the mistake in the order passed by the Chief Commissioner of Income Tax to the extent that the petitioner is substantially financed by the Government of Sikkim and by the department of North Southern Council of India.

By the impugned order dated 17th January, 2012, the order passed by the CCIT on 12th July, 2010 was rectified by deleting the words ''the assessee - institution is substantially financed by the Government'' from the said order.

Mr. Samaraditya Pal, the learned senior advocate appearing for the petitioners submits that the Chief Commissioner of Income Tax (CCIT) cannot take a contrary stand to what has been taken by the appellate tribunal in the guise of rectification of mistakes under Section 154 of the said Act. He thus would submit that the appellate tribunal while considering the appeal filed against assessment orders have categorically held that the income of the petitioner is exempted under Section 10(23C)(iiiab) of the said Act as the petitioner is not a profit making organization and is substantially financed by the Government and, therefore, the stand of the CCIT that the university is not substantially financed by the Government of Sikkim is in effect passed usurping the power of the High Court provided under Section 260A of the said Act. In support of the aforesaid contention, the reliance is placed upon a judgment of the Supreme Court in case of Assistant Collector of Central Excise, Chandan Nagar, West Bengal Vs. Dunlop India Ltd. and Others, . Mr. Pal vehemently submits that there lies a distinction between an erroneous order and the order containing a mistake apparent on the record which is not permissible to be established by a long-drawn process of reasoning as held in case of T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, . By contending that there is a distinction between an erroneous decision and a decision based on error apparent on the record, he relies upon a judgment of the Supreme Court in case of Deva Metal Powders Pvt. Ltd. Vs. Commissioner, Trade Tax, U.P., .

He strenuously submits that there is a distinction between a power conferred under Section 147 and Section 154 of the said Act which has its applicability in the different field and merely by changing the opinion in the guise of mistake apparent from the record for invocation of Section 154 of the Act is impermissible. To buttress the aforesaid submission, the reliance is placed upon a judgment of the Supreme Court rendered in case of Mepco Industries Ltd., Madurai Vs. Commissioner of Income Tax and Another, . He thus submits that the rectification of mistake apparent from the record should be based on patent and obvious mistake and does not require elaborate debate to find the same as held in case of Commissioner of Central Excise Vs. A.S.C.U. Ltd., . He further submits that the efficacy of the judgment is not evaporated even when the same is challenged in a higher forum until it is set aside.

The learned Advocate for the respondent on the other hand submits that the principle of res judicata has no manner of applicability in the taxation matter as assessment of each year gave rise to a fresh cause of action. In support of the aforesaid contention, the reliance is placed upon a judgment of the Supreme Court rendered in case of Instalment Supply (P.) Ltd. and Another Vs. The Union of India (UOI) and Others, . On the alternative remedy, it is submitted that Section 246(1)(c) of the said Act provides an appeal against the order passed under Section 154 and this Court should not exercise the power of judicial review under Article 226 of the Constitution. He thus submits that the CCIT found the mistakes in the order passed on 12th July, 2010, and rectified the same in invocation of Section 154 of the said Act.

Having considered the respective submissions of the parties, there is no dispute that Section 154 of the Act can be invoked by the CCIT to rectify any mistakes apparent from the record. The expression ''mistakes apparent from the record'' should be such that an authority is not obliged to embark a journey of long-drawn process of reasoning unless there is a patent error or obvious mistakes discernible from the record. In case of ASCU Ltd. (supra), an appeal filed before the Custom Excise and Gold (Control) Appellate Tribunal (CEGAT) by the department was remanded to the Commissioner for determination of the duty within the stipulated time. While remanding the matter, it was observed that the CEGAT relied upon the report of the Alipore Test House, Central Laboratory and Commercial Literature of the respondents. An application for rectification of the said order was filed on the ground that the reports, on which the reliance was placed upon, did not pertain to the product of the respondent company therein and those reports could not have been used, the Court held:

"7. This Court has in two judgments viz. T.S. Balaram, ITO v. Volkart Bros. and CIT v. Hero Cycles (P) Ltd. considered the extent to which power can be exercised under Section 154 of the Income Tax Act, 1961. Section 154 is pari materia to Section 35-C(2). In both these decisions, it has been held that a mistake apparent on the face of the record must be an obvious and patent mistake. It is held that "mistake apparent from the record" cannot be something which would have to be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. It has been held that a decision on a debatable point of law cannot be a "mistake apparent from the record"."

In case of M/s. Volkart Brothers (supra), the Apex Court while considering the scope of Section 154 of the Income Tax Act held that the mistake apparent on the record must be a patent mistake and not such mistakes which requires to be find out by a long-drawn process of reasoning in these words:

"5. Section 113 of the Income Tax Act, 1961 corresponded to Section 17(1) of the Indian Income Tax Act, 1922, but that section has now been omitted with effect from April 1, 1965 as a result of the Finance Act, 1965. From what has been said above, it is clear that the question whether Section 17(1) of the Indian Income Tax Act, 1922, was applicable to the case of the first respondent is not free from doubt. Therefore the Income Tax Officer was not justified in thinking that on that question there can be no two opinions. It was not open to the Income Tax Officer to go into the true scope of the relevant provisions of the Act in a proceeding under Section 154 of the Income Tax Act, 1961. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions. As seen earlier, the High Court of Bombay opined that the original assessments were in accordance with law though in our opinion the High Court was not justified in going into that question. In Satyanarayan Laxminarayan Hegde v. Millikarjun Bhavanappa Tirumale this Court while spelling out the scope of the power of a High Court under Article 226 of the Constitution ruled that an error which has to be established by a long drawn process of reasoning on points where there may conceivably be two opinions cannot be said to be an error apparent on the face of the record. A decision on a debatable point of law is not a mistake apparent from the record-see Sidhramappa v. CIT, Bombay. The power of the officers mentioned in Section 154 of the Income Tax Act, 1961 to correct "any mistake apparent from the record" is undoubtedly not more than that of the High Court to entertain a writ petition on the basis of an "error apparent on the face of the record". In this case it is not necessary for us to spell out the distinction between the expressions "error apparent on the face of the record" and "mistake apparent from the record". But suffice it to say that the Income Tax Officer was wholly wrong in holding that there was a mistake apparent from the record of the assessments of the first respondent."

Even in case of Deva Metal Powders (P) Ltd.(supra), the Supreme Court while considering the identical provision contained in UP Trade Tax Act, 1948 held that there lies a distinction between an erroneous decision and a decision based on error apparent, it is held:

"12. A bare look at Section 22 of the Act makes it clear that a mistake apparent from the record is rectifiable. In order to attract the application of Section 22, the mistake must exist and the same must be apparent from the record. The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. "Mistake" means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error, a fault, a misunderstanding, a misconception. "Apparent" means visible; capable of being seen; obvious; plain. It means "open to view, visible, evident, appears, appearing as real and true, conspicuous, manifest, obvious, seeming". A mistake which can be rectified under Section 22 is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration."

In a subsequent judgment rendered in case of Mepco Industries Ltd. (supra), the Supreme Court reiterated the ratio laid down in case of Deva Metal Powder Pvt. Ltd. (supra) and ASCU Ltd. (supra) in these words:

"18. Before concluding, we may state that in Deva Metal Powders (P) Ltd. v. CTT, a Division Bench of this Court held that a "rectifiable mistake" must exist and the same must be apparent from the record. It must be a patent mistake, which is obvious and whose discovery is not dependent on elaborate arguments. To the same effect is the judgment of this Court in CCE v. ASCU Ltd., wherein it has been held that a "rectifiable mistake" is a mistake which is obvious and not something which has to be established by a long-drawn process of reasoning or where two opinions are possible. Decision on debatable point of law cannot be treated as "mistake apparent from the record"."

From the law enunciated in the above noted reports, there is no hesitation to hold that a decision which is erroneous both on fact and law and the decision based on apparent error based on record are two different and distinct situations. The erroneous decision is capable of being challenged before the higher forum but the decision based on a patent error which does not require a long-drawn process of reasoning is amenable to review and rectification jurisdiction, in whatever expression, it is provided in the statute. The review is a creature of a statute which cannot be exercised in guise of an appeal. Unless it is demonstrated from the record that reliance upon a document or the finding on facts are contrary to record which does not require an elaborate scrutiny, same partakes the character of patent error.

There lies a distinction between a patent error and change of opinion. The authority subsequently found that the opinion expressed in the earlier order is not correct and intended to change the same, the same does not confer power to invoke Section 154 of the said Act. In this regard, the reliance can be placed upon Paragraph 13 of Mepco Industries Ltd. (supra) which reads thus:

"13. There is one more reason why Section 154 in the present case was not invocable by the Department. Originally, the Commissioner of Income Tax, while passing orders under Section 264 of the Act on 30-4-1997, had taken the view that the subsidy in question was a capital receipt not taxable under the Act. After the judgment of this Court in Sahney Steel and Press Works Ltd., the Commissioner of Income Tax has taken the view that the subsidy in question was a revenue receipt. Therefore, in our view, the present case is a classic illustration of change of opinion."

In the present case, while passing an order dated 12th July, 2010, the CCIT after scanning the materials and documents arrived at the definite finding that the petitioner is substantially financed by the State of Sikkim and entitled to an exemption under Section 10(23C)(iiiab) of the Act. In the impugned order, the authorities have held that the said expression "substantially financed by the government of Sikkim" is a mistake by making a long-drawn process of reasoning which is impermissible under Section 154 of the said Act. It can at best be said to be change of opinion which obviously does not attract the invocation of the said provision.

The matter can be viewed from another angle. The assessment order, passed on the return file in pursuance of the notice under Section 148 of the Act, was based on the fact that the petitioner is not entitled to an exemption under the said Section. The Appellate Tribunal reversed the said order with categorical finding that the petitioner is substantially financed by the Government of Sikkim and is, therefore, entitled to an exemption under Section 10(23C)(iiiab) of the said Act. The CCIT is bound by the decision of the Appellate Tribunal which is admittedly a superior forum. The hierarchical system of dispensation of justice, which exists in our country, requires a strict adherence and respect to avoid any abuse or misuse of the power and conflict in views. The authority of the Court standing on a lower pedestal is bound by the decision of the higher authority or the Court and it is not open to disregard the decision. The reliance can be placed upon a judgment of the Supreme Court rendered in case of Dunlop India Ltd.; (supra) wherein it is held:

"We desire to add and as was said in Cassell and Co. Ltd. v. Broome [1972]AC 1027 (HL), we hope it will never he necessary for us to say so again that "in the hierarchical system of courts" which exists in our country, "it is necessary for each lower tier", including the High Court, "to accept loyally the decisions of the higher tiers". "It is inevitable in a hierarchical system of courts that there are decisions of the supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary... But the judicial system only works if some-one is allowed to have the last word and that last word, once spoken, is loyally accepted" (See observations of Lord Hailsham and Lord Diplock in Bromme v. Cassell). The better wisdom of the court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical system. In Cassell v. Broome [1972] AC 1027, commenting on the Court of Appeal''s comment that Rookes v. Barnard [1964] AC 1129, was rendered per incuriam, Lord Diplock observed.

"the court of Appeal found themselves able to disregard the decision of this House in Rookes v. Barnard by applying to it the label per incuriam. That label is relevant only to the right of an appellate court to decline to follow one of its own previous decisions, not to its right to dis-regard a decision of a higher appellate court or to the right of a judge of the High Court to disregard a decision of the Court of Appeal."

It is needles to add that in India under art. 141 of the Constitution, the law declared by the Supreme Court shall be binding on all courts within the territory of India and under art. 144 all authorities, civil and judicial, in the territory of India shall act in aid of the Supreme Court."

The Appellate Tribunal have categorically held that the petitioner is substantially financed by the Government of Sikkim and the said order is carried to the High Court under Section 260A of the said Act. Admittedly there is no interim order of stay passed in the said appeal. Mere filing an appeal does not tantamount to stay of the operation of the order as held in case of Hans Raj Dhir Vs. State of Himachal Pradesh and Others, in the following:

"It requires to be emphasised, in this connection, that mere preferment of an appeal does not automatically operates as a stay of the decision under appeal and that till an application for stay is moved and granted by the appellate court, in the alternative, the court which rendered the decision is moved and grants an interim stay of the decision pending the preferment of an appeal and grant of stay by the appellate court, the decision continues to be operative. Indeed, non-compliance with the decision on the mere ground that an appeal is contemplated to be preferred or is actually preferred, and that, therefore, the matter is sub judice, may amount to contempt of court punishable under the Contempt of Courts Act, 1971. The decision of the Supreme Court in Shri Baradakanta Mishra Ex-Commissioner of Endowments Vs. Shri Bhimsen Dixit, places the matter beyond dispute, doubt or debate as regards this aspect."

It does not require any debate on the proposition of law that the principle of res judicata cannot be applied in a matter of taxation because each year''s assessment is final in that year and does not have any bearing at the time of determination of the tax for a subsequent period or other period as held in Installment Supply (P) Ltd. & Another (supra). It is not a case of the petitioner that the principle of res judicata is applicable in the present case. The CCIT has wrongfully invoked the jurisdiction under Section 154 of the Act by recording an elaborate reasoning in the garb of the mistake apparent from the record and has, in fact, percolate the sense of change of opinion. Furthermore, the CCIT cannot sit as an Appellate Authority over the decision of the Appellate Tribunal. The CCIT is bound by the decision of the Appellate Tribunal which is a higher forum and cannot take a contrary view to what has been taken therein.

This Court, therefore, finds that the order impugned suffers from illegality and/or infirmity and cannot be allowed to stand. Accordingly, the order dated 17th January, 2013 is hereby quashed and set aside.

The writ petition succeeds.

However, there shall be no order as to costs.

Urgent photostat certified copy of the judgment, if applied for, be given to the parties on priority basis.