* 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 .....Appellant
Through: Sh. Kamal Sawhney, 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 BHAT
HON'BLE MR. JUSTICE VIBHU BAKHRU
MR. JUSTICE S. RAVINDRA BHAT
%
C.M. NO. 1596/2014 (for exemption) in ITA 26/2014
C.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 Income
Tax Act (hereafter "the Act"), challenges the order of the Income Tax
Appellate Tribunal (hereafter the "ITAT") on the ground that it erred
in allowing the assessee to belatedly appeal against the orders of the
Assessing Officer (hereafter "the AO"), on the basis of a judgment of
ITA 26/2014, 27/2014 & 28/2014 Page 1
the Gujarat High Court pronounced subsequent to the AO's orders, in
which the provision underlying the assessment was held
unconstitutional.
2. The assessee/respondent in this case filed returns claiming
deduction 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 the
working of deductions under the third proviso to Section 80HHC (3)
introduced with retrospective effect from 1.4.1998 as well as the fifth
proviso introduced with retrospective effect from 1.4.1992.
3. Section 80HHC allows deductions to assessees who are
exporters, to the extent of the profits derived from export of goods or
merchandise. Section 80HHC (3) provides for the manner of
computing the profits deductible. The third proviso, which was
introduced by retrospective amendment, essentially required the profit
computed for an assessee with export turnover greater than `10 crores,
to be further increased by an amount which bears to 90% of the sum in
Section 28(iiid), the same proportion as the Export Turnover bears to
the Total Turnover of the business, provided the assessee could prove
certain requirements with necessary evidence. In accordance with this
amendment, the AO completed reassessment proceedings for the three
assessment years (i.e. AYs 2001-02 and 2002-03 by orders dated
19.9.2007 and AY 2003-04 by order dated 1.3.2006) under Section
148 of the Act.
ITA 26/2014, 27/2014 & 28/2014 Page 2
4. The amendment was challenged subsequent to the AO's orders
and 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 was
held that the retrospective nature of the amendment was
unconstitutional and that the amendment would be valid only so far as
it was applied prospectively.
5. The assessee appealed the orders of the AO before the CIT, but
the appeals were dismissed in limine on ground of delay of 5-6 years.
On second appeal, the ITAT, after condoning the delay in filing the
appeal on the ground that there was sufficient and reasonable cause,
held in favour of the assessee by relying on the decision in Avani
Exports (supra). The Revenue approached this Court challenging the
order of the ITAT.
6. The appellant contends that the ITAT erred in holding that the
amendment was only prospective in nature, since the legislature is
empowered to impose tax through laws applicable retrospectively as
well as prospectively, and in any case, a deduction cannot be available
as a matter of right to assessees and thus, can be curtailed by fetters
imposed by the legislature. It was more specifically urged that having
accepted the reassessment orders made as far back as in 2006 and
2007, the assessee could not have disturbed the finality which attached
itself to the assessment order, merely on the basis that some judgment
was delivered much later.
7. The respondent submits that no question of law even arises for
determination, since the ITAT without doubt, could not have erred in
ITA 26/2014, 27/2014 & 28/2014 Page 3
following the judgment of the Gujarat High Court. Particularly, the
respondent points out that the Supreme Court had required the Gujarat
High Court to decide the matter of Constitutional validity of the
amendment to preclude conflicting judgments being rendered by
various High Courts. Thus, the assessee argues that no appeal under
Section 260A is maintainable. The respondents also submit that the
appellants did not challenge the order of the ITAT for having
condoned the delay, in the grounds of appeal and thus, it is not open to
the Revenue to argue the same as a grievance.
8. This Court has considered the submissions of both parties. The
law on the question of whether a litigant can take advantage of a
decision in another litigation belatedly, was made clear in Tilokchand
Motichand & Ors. vs H.B. Munshi & Anr, [1969] 2 SCR 824, by the
majority comprising Hidayatullah, Mitter, and Bachawat, JJ., on
similar facts. In that case, the sales tax authorities had directed a
refund of the tax amount paid by the petitioners to the State, since the
petitioners had also paid to the State, the sales tax amount realised
from the customers. The condition for the refund was that the refunded
amount ought to be passed on to the customers. Since the petitioners
failed to comply with this condition, the sales tax authorities forfeited
the amount under Section 21(4) of the Bombay Sales Tax Act, 1953.
The petitioners moved a writ petition in the High Court challenging
this provision on certain grounds; the writ petition was dismissed by
the Single Judge and at all levels of appeal pursued. However, the
Supreme Court in a subsequent decision struck down Section 12A(4)
ITA 26/2014, 27/2014 & 28/2014 Page 4
of the Bombay Sales Tax Act, 1946 (corresponding to Section 21(4) of
the 1953 Act) on grounds different from those urged by the petitioner
in its earlier writ proceedings. The petitioner then filed a writ petition
under Article 32 of the Constitution of India seeking refund of the
amount, using the ground of unconstitutionality laid down in this
subsequent decision. The majority held against the petitioner, in these
terms:
"The petitioner moved the High Court for relief on the
ground that the recovery from him was unconstitutional.
He set out a number of grounds but did not set out the
ground on which ultimately in another case recovery was
struck down by this Court. That ground was that the
provisions of the Act were unconstitutional. The question
is: can the petitioner in this case take advantage, after a
lapse of a number of years, of the decision of this Court?
He moved the High Court but did not come up in appeal to
this Court. His contention is that the ground on which his
petition was dismissed was different and the ground on
which the statute was struck down was not within his
knowledge and therefore he did not know of it and pursue it
in this Court. To that I answer that law will presume that
he knew the exact ground of unconstitutionality. Everybody
is presumed to know the law. It was his duty to have
brought the matter before this Court for consideration. In
any event, having set the machinery of law in motion he
cannot abandon it to resume it after a number of years,
because another person more adventurous than he in his
turn got the statute declared unconstitutional, and got a
favourable decision. If I were to hold otherwise, then the
decision of the High Court in any case once adjudicated
upon and acquiesced it may be questioned in a fresh
ITA 26/2014, 27/2014 & 28/2014 Page 5
litigation revived only with the argument, that the correct
position was not known to the petitioner at the time when
he abandoned his own litigation."
[emphasis supplied]
9. This position was subsequently crystallised in Mafatlal
Industries Ltd. v. Union of India, (1997) 5 SCC 536, in which the
Court was faced with the same question i.e. whether it is open to the
assessee to belatedly claim refund of tax paid by him under orders that
have become final, on the basis of having discovered a mistake in the
law, 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 public
policy, is the sanctity attaching to the finality of any
proceeding, be it a suit or any other proceeding. Where a
duty has been collected under a particular order which has
become final, the refund of that duty cannot be claimed
unless the order (whether it is an order of assessment,
adjudication or any other order under which the duty is
paid) is set aside according to law. So long at that order
stands, the duty cannot be recovered back nor can any
claim for its refund be entertained. But what is happening
now is that the duty which has been paid under a
proceeding which has become final long ago - may be an
year back, ten years back or even twenty or more years
back - is sought to be recovered on the ground of alleged
discovery of mistake of law on the basis of a decision of a
High Court or the Supreme Court. ...An assessee must
succeed or fail in his own proceedings and the finality of
the proceedings in his own case cannot be ignored and
refund ordered in his favour just because in another
ITA 26/2014, 27/2014 & 28/2014 Page 6
assessee's 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 on
1.3.2006 and 19.9.2007 on the basis of the retrospective amendment.
Thus, in the assessee's own proceedings, the orders of the AO had
attained finality, given that the assessee neither promptly filed an
appeal against the orders (i.e. within the 30 day requirement under
Section 249(2) of the Act) nor moved writ proceedings against the
retrospective amendment. Moreover, the assessee was also paying tax
under the orders. The assessee only appealed against the AO's orders
after a period of 5-6 years i.e. on 23.7.2012. It is clear that this appeal
was moved on this date only in order to take advantage of the Gujarat
High 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 in
its appeal.
11. This Court is also of the opinion that this view does not put the
assessee at an unequal position in comparison with the litigants in
Avani Exports (supra). Materially, the point at which their positions
must be compared, to determine whether they were similarly placed
vis-à-vis each other was the point in time when the first reassessment
order was passed against each of the assessees under the retrospective
amendment. At that point, the assessee which chose to challenge the
constitutionality of the reassessment in terms of the retrospective
amendment is entitled to benefit from the outcome of the litigation
ITA 26/2014, 27/2014 & 28/2014 Page 7
pursued. The assessees who chose not to lay any challenge, cannot
seek to stake an equal claim to benefiting from the subsequent
outcome of litigation pursued by another assessee, since its own
proceedings before the income tax authorities attain finality, when it
refrains from pursuing any challenge. For this reason, even the
possibility of an appeal against Avani Exports (supra) pending before
the Supreme Court does not affect the opinion of this Court. This is
because the possibility of the assessee being disadvantaged by the
outcome of the appeal in Avani Exports (supra), and thus being treated
unequally from the set of litigants in Avani Exports (who may benefit
from the outcome of the appeal) is one that rightfully weighs against
the assessee for the reason underlined above.
12. It would be useful at this stage to advert to a decision of the
Supreme Court in Devilal Modi v Sales Tax Officer AIR 1965 SC
1150, where it was observed that:
"One important consideration of public policy is that the
decisions pronounced by courts of competent jurisdiction
should be final..and the other principle is that no one
should be made to face the same kind of litigation twice
over, because such a process would be contrary to
considerations of fair play and justice...
It may be conceded in favour of Mr.Trivedi that the rule of
constructive res judicata which is pleaded against him in
the present appeal is in a sense a somewhat technical or
artificial rule prescribed by the Code of Civil Procedure.
This rule postulates that if a plea could have been taken by
a party in a proceeding between him and his opponent, he
would not be permitted to take that plea against the same
party in a subsequent proceeding which is based on the
ITA 26/2014, 27/2014 & 28/2014 Page 8
same cause of action; but basically, even this view is
founded on the same considerations of public policy,
because if the doctrine of constructive res judicata is not
applied to writ proceedings, it would be open to the party
to take one proceeding after another and urge new grounds
every time; and that plainly is inconsistent with
considerations of public policy to which we have just
referred...."
13. In the present case the retrospective amendment was introduced
after the original assessment. The introduction of the amendment
occasioned the re-assessment. The reassessment order gave effect to
the amendment. The assessee was content; it accepted this order which
became final. In these circumstances, the reassessment order cannot be
sought to be indicted in as much as the finality which attaches itself to
the reassessment order cannot be affected, merely because a later
judgment of the Gujarat High Court held the amendment to be
arbitrary, to the extent of its retrospectivity.
14. For the above reasons, the question of law framed is answered
in favour of the revenue and against the assessee. The appeals are
accordingly allowed.
S. RAVINDRA BHAT
(JUDGE)
VIBHU BAKHRU
(JUDGE)
MAY 23, 2014
ITA 26/2014, 27/2014 & 28/2014 Page 9
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