1. Petitioner No. 1, Universal Ferro & Allied Chemicals Ltd., is a public limited company carrying on, inter alia, the business of manufacturing ferro, manganese. It has been, for the last several years, exporting ferromanganese in large quantities to different countries, incurring for the said purpose various expenses such as that of cartage and coolie charges, transportation, insurance, printing and stationery, postage, telegram, telephones and other general expenses.
2. Another company, M/s. Eldee Ropes Ltd. (hereinafter 'Eldee'), had been exporting various types of wire ropes and had in that behalf and, during a period, incurred an expenditure of Rs. 1,31,560 which included, inter alia, BPT certificate charges and cartage and collie charges. For their previous year ending March 31, 1971 (assessment year 1971-72), Eldee claimed weighted deduction of Rs. 43,853 under s. 35B of the I.T. Act, 1961 (hereinafter 'the Act). The ITO disallowed the said claim. The AAC allowed Eldee's appeal therefrom, holding that the items for which weighted deduction was claimed were admissible under s. 35B of the Act. The correctness of this decision was challenged by the Department before the Income-tax Appellate Tribunal, but to no avail. The aggrieved Commissioner's reference under s. 256(1) of the Act was also rejected by the Tribunal. The Commissioner thereupon preferred to this court an application under s. 256(2) of the Act. It was stated therein that the Department also wanted a decision of this court as to whether the two items in question, namely, BPT certificate charges and cartage and coolie, charges, were permissible as weighted deduction to the assessee.
3. The Division Bench (per Chandurkar and Desai JJ.) of this court hearing the said matter held thus in CIT v. Eldee Wire Ropes Ltd. : 114ITR485(Bom) :
'It would appear that as far as the claim in respect of export duty is concerned, there may be some substance in the contention of the Revenue. If at all, such claim could be made only under the first part of sub-clause (iii) of section 35B(1)(b) and expenses incurred in India are expressly excluded. It is found, however, that the amount of export duty in respect of which weighted deduction is claimed by the assessee and allowed comes to only Rs. 1,437. As far as other of expenditure are concerned, it is urged that under items other than sub-clause (iii) there is no warrant for excluding expenditure incurred in India. It would appear that where the Legislature desired to exclude the expenditure incurred in India for the purpose of giving benefit of weighted deduction to the assessee, it expressly did so specifically mentioning such exclusion in the sub-clause, for example, sub-clause (iii). It must follow that where this was not done, the expenditure can be incurred by the assessee either outside India or in India, but it must pertain to the purposes mentioned in the various sub-sections, which purposes are indicated as pertaining to the various activities outside India. If then an assessee, under this clause, claims the benefit of weighted deduction, he will have to satisfy the revenue authorities that the purpose is one which is satisfied by reference to the language of the section; and in such a case where the assessee is able to discharge this burden, he would be entitled to a weighted deduction irrespective of whether the expenditure is incurred within or without India. It is true that in respect of export duty it may follow that benefit has been allowed to the assessee without proper application of mind. But as a very small amount is involved, it appears to us to be unnecessary to make the rule absolute and invite a reference.'
4. (Exh. B to the petition and hereinafter referred to as the High Court ruling).
5. Subsequently however - to quote the Special Bench - as the
'... views expressed on its (s. 35B) different aspects by different Benches of the Tribunal sitting in various parts of the country and even at the same station, have not always been uniform and on some points patently divergent.'
a Special Bench of the Tribunal was constituted to resolve the
'... welter of indefiniteness and uncertainty' and the
'... amplitude of the operation arena of section 35B.'
6. And after considering, inter alia, the High Court ruling in Eldee's case : 114ITR485(Bom) , the Special Bench pronounced its own judgment, laying down its own interpretation of s. 35B of the Act. The petitioner herein, an assessee intervened before the Special Bench, who stood to gain under the High Court ruling but stands to lose under the Special Bench ruling, has hence approached this court by the instant petition under art. 226 of the Constitution.
7. Mr. S. E. Dastur, learned counsel for the assessee, contends that the high Court ruling being binding on the Tribunal it was not open to the Special Bench to take of s. 35B, a view different from the one taken by the High Court. Though the High Court ruling benefits the assessee, yet, and notwithstanding the same, the authorities under the I.T. Act, apprehends the learned counsel, will now, to the detriment of the assessee, uniformly follow and apply the Special Bench ruling. Mr. P.M. Pradhan, learned counsel for the Revenue, submits that there is no cause for such apprehension. According to him, the High Court ruling will still be considered by the Department and proceedings would still be decided in the light thereof.
8. Considering the rival contentions and the two rulings in question, I find that the ruling of the Special Bench has given rise to a rather disturbing situation. While seeking to settle the controversy arising out of various divergent rulings on s. 35B by different Benches of the Tribunal and for which specifically the Special Bench was constituted, the Special Bench ruling has given rise, as this petition indicates, to a new controversy vis-a-vis the High Court ruling. It does appear at least as regards s. 35B(1)(b)(iii) of the Act that the Special Bench ruling is not consistent with the High Court ruling. Indeed, the conflict is obvious. The High Court held that weighted deduction would be permissible in respect of any expenditure incurred outside or inside India provided it pertains to the purpose stated in the various sub-clauses and which purposes are indicated as pertaining to various activities outside India. Thus, whereas under the High Court ruling the petitioner-assessee would be entitled to a weighted deduction on the BPT certificate charges and cartage and coolie charges as in Eldee's case : 114ITR485(Bom) , under the Special Bench ruling that would not be permissible. Same would be the position qua transport charges. In fact, under the Special Bench ruling, Eldee's case itself would have stood decided differently than the actual decision ending with and under the High Court ruling.
9. Despite this position and though a High Court judgment would prevail over any ruling of the Tribunal on the same question, the authorities would hereafter feel bound - erroneous though that feeling be - by the Special Bench ruling and consequently feel free not a follow the High Court ruling. The petitioner's apprehension accordingly cannot be said to be unwarranted. Indeed, paragraph seventeen of the affidavit in reply categorically states that the authorities '... are bound to follow the decision of the Special Bench'. In this contest, therefore, it becomes necessary to direct the Department to decide the petitioners' assessment proceedings by considering all aspects, including not only the Special Bench ruling but also the High Court ruling, and without feeling bound by the Special Bench ruling on questions covered by the High Court ruling. Indeed, on such latter questions, the High Court ruling would continue to bind all tax authorities in the State of Maharashtra. It is well to remember that the rule of law and legal certainly necessitates implicit reliance by the authorities, including tax authorities within the State of Maharashtra, on judgments of this High Court whose writ runs throughout the State and so long as these hold the field unaffected by any decision of a court higher in the judicial hierarchy, namely, the Supreme Court, or unless rendered obsolete through statutory changes.
10. This petition thus succeeds and is allowed. The petitioners' various assessment proceedings, vide Ex. D to the petition and pending at different stages, will now be heard and decided expeditiously but in the light of this judgment and in accordance with law. Stay of recovery proceedings by virtue of this court's order at the time of admission will stand vacated with effect from September 18, 1982.
11. Rule earlier issued on this petition is made absolute in terms aforesaid. In the circumstances of this case, however, parties are directed to bear their own respective costs of this petition.