Commissioner Of Income Tax-X v. M/S. Kultar Exports

* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 12.05.2014 Pronounced on : 23.05.2014 +ITA 26/2014, C.M. NO. 1596/2014 (for exemption) +ITA 27/2014+ITA 28/2014, C.M. NO. 1597/2014 (for exemption) COMMISSIONER OF INCOME TAX-X …..AppellantThrough:Sh.KamalSawhney,Sr.Standing Counsel. Versus M/S. KULTAR EXPORTS ……..Respondent Through: Sh. Vineet Bhatia and Sh.Puneet Rai, Advocates. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE VIBHU BAKHRU MR. JUSTICE S. RAVINDRA BHAT %C.M. NO. 1596/2014 (for exemption) in ITA 26/2014C.M. NO. 1597/2014 (for exemption) in ITA 28/2014 Allowed, subject to all just exceptions. ITA 26/2014, ITA 27/2014 & ITA 28/2014 1.The revenue, in this appeal under Section 260A of the IncomeTax Act (hereafter “the Act”), challenges the order of the Income TaxAppellate Tribunal (hereafter the “ITAT”) on the ground that it erredin allowing the assessee to belatedly appeal against the orders of theAssessing Officer (hereafter “the AO”), on the basis of a judgment of the Gujarat High Court pronounced subsequent to the AO’s orders, inwhichtheprovisionunderlyingtheassessmentwasheldunconstitutional. 2.The assessee/respondent in this case filed returns claimingdeduction under Section 80HHC of the Act. In view of the Taxation(Amendment) Act, 2005, Act No. 55 of 2005 dated 28.12.2005(hereafter “the amendment”), a modification was introduced in theworking of deductions under the third proviso to Section 80HHC (3)introduced with retrospective effect from 1.4.1998 as well as the fifthproviso introduced with retrospective effect from 1.4.1992. 3.Section 80HHC allows deductions to assessees who areexporters, to the extent of the profits derived from export of goods ormerchandise. Section 80HHC (3) provides for the manner ofcomputing the profits deductible. The third proviso, which wasintroduced by retrospective amendment, essentially required the profitcomputed for an assessee with export turnover greater than `10 crores,to be further increased by an amount which bears to 90% of the sum inSection 28(iiid), the same proportion as the Export Turnover bears tothe Total Turnover of the business, provided the assessee could provecertain requirements with necessary evidence. In accordance with thisamendment, the AO completed reassessment proceedings for the threeassessment years (i.e. AYs 2001-02 and 2002-03 by orders dated19.9.2007 and AY 2003-04 by order dated 1.3.2006) under Section148 of the Act. 4.The amendment was challenged subsequent to the AO’s ordersand by the decision of the Gujarat High Court in Avani Exports v. CIT,Rajkot: [2012] 348 ITR 319 (Gujarat) delivered on 02.07.2012, it washeldthattheretrospectivenatureoftheamendmentwasunconstitutional and that the amendment would be valid only so far asit was applied prospectively. 5.The assessee appealed the orders of the AO before the CIT, butthe appeals were dismissed in limine on ground of delay of 5-6 years.On second appeal, the ITAT, after condoning the delay in filing theappeal on the ground that there was sufficient and reasonable cause,held in favour of the assessee by relying on the decision in AvaniExports (supra). The Revenue approached this Court challenging theorder of the ITAT. 6.The appellant contends that the ITAT erred in holding that theamendment was only prospective in nature, since the legislature isempowered to impose tax through laws applicable retrospectively aswell as prospectively, and in any case, a deduction cannot be availableas a matter of right to assessees and thus, can be curtailed by fettersimposed by the legislature. It was more specifically urged that havingaccepted the reassessment orders made as far back as in 2006 and2007, the assessee could not have disturbed the finality which attacheditself to the assessment order, merely on the basis that some judgmentwas delivered much later. 7.The respondent submits that no question of law even arises fordetermination, since the ITAT without doubt, could not have erred in 6.The appellant contends that the ITAT erred in holding that theamendment was only prospective in nature, since the legislature isempowered to impose tax through laws applicable retrospectively aswell as prospectively, and in any case, a deduction cannot be availableas a matter of right to assessees and thus, can be curtailed by fettersimposed by the legislature. It was more specifically urged that havingaccepted the reassessment orders made as far back as in 2006 and2007, the assessee could not have disturbed the finality which attacheditself to the assessment order, merely on the basis that some judgmentwas delivered much later. 7.The respondent submits that no question of law even arises fordetermination, since the ITAT without doubt, could not have erred in following the judgment of the Gujarat High Court. Particularly, therespondent points out that the Supreme Court had required the GujaratHigh Court to decide the matter of Constitutional validity of theamendment to preclude conflicting judgments being rendered byvarious High Courts. Thus, the assessee argues that no appeal underSection 260A is maintainable. The respondents also submit that theappellants did not challenge the order of the ITAT for havingcondoned the delay, in the grounds of appeal and thus, it is not open tothe Revenue to argue the same as a grievance. 8.This Court has considered the submissions of both parties. Thelaw on the question of whether a litigant can take advantage of adecision in another litigation belatedly, was made clear in TilokchandMotichand & Ors. vs H.B. Munshi & Anr, [1969] 2 SCR 824, by themajority comprising Hidayatullah, Mitter, and Bachawat, JJ., onsimilar facts. In that case, the sales tax authorities had directed arefund of the tax amount paid by the petitioners to the State, since thepetitioners had also paid to the State, the sales tax amount realisedfrom the customers. The condition for the refund was that the refundedamount ought to be passed on to the customers. Since the petitionersfailed to comply with this condition, the sales tax authorities forfeitedthe amount under Section 21(4) of the Bombay Sales Tax Act, 1953.The petitioners moved a writ petition in the High Court challengingthis provision on certain grounds; the writ petition was dismissed bythe Single Judge and at all levels of appeal pursued. However, theSupreme Court in a subsequent decision struck down Section 12A(4) of the Bombay Sales Tax Act, 1946 (corresponding to Section 21(4) ofthe 1953 Act) on grounds different from those urged by the petitionerin its earlier writ proceedings. The petitioner then filed a writ petitionunder Article 32 of the Constitution of India seeking refund of theamount, using the ground of unconstitutionality laid down in thissubsequent decision. The majority held against the petitioner, in theseterms: of the Bombay Sales Tax Act, 1946 (corresponding to Section 21(4) ofthe 1953 Act) on grounds different from those urged by the petitionerin its earlier writ proceedings. The petitioner then filed a writ petitionunder Article 32 of the Constitution of India seeking refund of theamount, using the ground of unconstitutionality laid down in thissubsequent decision. The majority held against the petitioner, in theseterms: “The petitioner moved the High Court for relief on theground that the recovery from him was unconstitutional.He set out a number of grounds but did not set out theground on which ultimately in another case recovery wasstruck down by this Court. That ground was that theprovisions of the Act were unconstitutional. The questionis: can the petitioner in this case take advantage, after alapse of a number of years, of the decision of this Court?He moved the High Court but did not come up in appeal tothis Court. His contention is that the ground on which hispetition was dismissed was different and the ground onwhich the statute was struck down was not within hisknowledge and therefore he did not know of it and pursue itin this Court. To that I answer that law will presume thathe knew the exact ground of unconstitutionality. Everybodyis presumed to know the law. It was his duty to havebrought the matter before this Court for consideration. Inany event, having set the machinery of law in motion hecannot abandon it to resume it after a number of years,because another person more adventurous than he in histurn got the statute declared unconstitutional, and got afavourable decision. If I were to hold otherwise, then thedecision of the High Court in any case once adjudicatedupon and acquiesced it may be questioned in a fresh litigation revived only with the argument, that the correctposition was not known to the petitioner at the time when”he abandoned his own litigation. [emphasis supplied] 9.ThispositionwassubsequentlycrystallisedinMafatlalIndustries Ltd. v. Union of India, (1997) 5 SCC 536, in which theCourt was faced with the same question i.e. whether it is open to theassessee to belatedly claim refund of tax paid by him under orders thathave become final, on the basis of having discovered a mistake in thelaw, as found in the decision of a court in another assessee’s litigation.The Court held at paragraph 70: “One of the important principles of law, based upon publicpolicy, is the sanctity attaching to the finality of anyproceeding, be it a suit or any other proceeding. Where aduty has been collected under a particular order which hasbecome final, the refund of that duty cannot be claimedunless the order (whether it is an order of assessment,adjudication or any other order under which the duty ispaid) is set aside according to law. So long at that orderstands, the duty cannot be recovered back nor can anyclaim for its refund be entertained.But what is happeningnow is that the duty which has been paid under aproceeding which has become final long ago - may be anyear back, ten years back or even twenty or more yearsback - is sought to be recovered on the ground of allegeddiscovery of mistake of law on the basis of a decision of aHigh Court or the Supreme Court. …An assessee mustsucceed or fail in his own proceedings and the finality ofthe proceedings in his own case cannot be ignored andrefund ordered in his favour just because in another 'assessees case a similar point is decided in favour of the”manufacturer/assesses. [emphasis supplied] 'assessees case a similar point is decided in favour of the”manufacturer/assesses. [emphasis supplied] 10.In this case, the reassessment orders of the AO were made on1.3.2006 and 19.9.2007 on the basis of the retrospective amendment.Thus, in the assessee’s own proceedings, the orders of the AO hadattained finality, given that the assessee neither promptly filed anappeal against the orders (i.e. within the 30 day requirement underSection 249(2) of the Act) nor moved writ proceedings against theretrospective amendment. Moreover, the assessee was also paying taxunder the orders. The assessee only appealed against the AO’s ordersafter a period of 5-6 years i.e. on 23.7.2012. It is clear that this appealwas moved on this date only in order to take advantage of the GujaratHigh Court decision in Avani Exports (supra) pronounced on 2.7.2012.Thus, based on the law laid down in Tilokchand (supra) and Mafatlal(supra), this Court is of the opinion that the assessee cannot succeed inits appeal. 11.This Court is also of the opinion that this view does not put theassessee at an unequal position in comparison with the litigants inAvani Exports (supra). Materially, the point at which their positionsmust be compared, to determine whether they were similarly placedvis-à-vis each other was the point in time when the first reassessmentorder was passed against each of the assessees under the retrospectiveamendment. At that point, the assessee which chose to challenge theconstitutionality of the reassessment in terms of the retrospectiveamendment is entitled to benefit from the outcome of the litigation pursued. The assessees who chose not to lay any challenge, cannotseek to stake an equal claim to benefiting from the subsequentoutcome of litigation pursued by another assessee, since its ownproceedings before the income tax authorities attain finality, when itrefrains from pursuing any challenge. For this reason, even thepossibility of an appeal against Avani Exports (supra) pending beforethe Supreme Court does not affect the opinion of this Court. This isbecause the possibility of the assessee being disadvantaged by theoutcome of the appeal in Avani Exports (supra), and thus being treatedunequally from the set of litigants in Avani Exports (who may benefitfrom the outcome of the appeal) is one that rightfully weighs againstthe assessee for the reason underlined above. 12.It would be useful at this stage to advert to a decision of theSupreme Court in Devilal Modi v Sales Tax Officer AIR 1965 SC1150, where it was observed that: “One important consideration of public policy is that thedecisions pronounced by courts of competent jurisdictionshould be final..and the other principle is that no oneshould be made to face the same kind of litigation twiceover, because such a process would be contrary toconsiderations of fair play and justice… It may be conceded in favour of Mr.Trivedi that the rule ofconstructive res judicata which is pleaded against him inthe present appeal is in a sense a somewhat technical orartificial rule prescribed by the Code of Civil Procedure.This rule postulates that if a plea could have been taken bya party in a proceeding between him and his opponent, hewould not be permitted to take that plea against the sameparty in a subsequent proceeding which is based on the same cause of action; but basically, even this view isfounded on the same considerations of public policy,because if the doctrine of constructive res judicata is notapplied to writ proceedings, it would be open to the partyto take one proceeding after another and urge new groundseverytime;andthatplainlyisinconsistentwithconsiderations of public policy to which we have justreferred….” same cause of action; but basically, even this view isfounded on the same considerations of public policy,because if the doctrine of constructive res judicata is notapplied to writ proceedings, it would be open to the partyto take one proceeding after another and urge new groundseverytime;andthatplainlyisinconsistentwithconsiderations of public policy to which we have justreferred….” 13.In the present case the retrospective amendment was introducedafter the original assessment. The introduction of the amendmentoccasioned the re-assessment. The reassessment order gave effect tothe amendment. The assessee was content; it accepted this order whichbecame final. In these circumstances, the reassessment order cannot besought to be indicted in as much as the finality which attaches itself tothe reassessment order cannot be affected, merely because a laterjudgment of the Gujarat High Court held the amendment to bearbitrary, to the extent of its retrospectivity. 14.For the above reasons, the question of law framed is answeredin favour of the revenue and against the assessee. The appeals areaccordingly allowed. S. RAVINDRA BHAT(JUDGE) VIBHU BAKHRU(JUDGE) MAY 23, 2014