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Commissioner of Income-tax Vs. Belpahar Refractories Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtOrissa High Court
Decided On
Case NumberSpecial Jurisdiction Case Nos. 21 and 22 of 1977
Judge
Reported in51(1981)CLT365; (1981)22CTR(Ori)155; [1981]128ITR610(Orissa)
ActsIncome Tax Act, 1961 - Sections 256(1)
AppellantCommissioner of Income-tax
RespondentBelpahar Refractories Ltd.
Appellant AdvocateStanding Counsel
Respondent AdvocateB.K. Mohanty, Adv.
Cases ReferredAtherton v. British Insulated and Helsby Cables Ltd.
Excerpt:
.....(2) glt 246, are not good law]. - we should also like to sound a note of warning especially with regard to a tribunal like the appellate tribunal, that it should be extremely slow to depart from a finding given by an earlier tribunal. 29): i own that it is a good deal of a mystery to me how judges, of all persons in the world, should put their faith in dicta......not apply to assessment proceedings, but two exceptions have usually been indicated, namely, an earlier decision on the same question cannot be reopened unless that decision is arbitrary or perverse or arrived at without due enquiry. the second limitation is that the effect of revising the earlier decision should not lead to injustice and the court may prevent an assessing authority from doing something which would be unjust and inequitable. chagla c.j., speaking for the court in the case of h. a. shah and co. v. cit : [1956]30itr618(bom) , indicated:'therefore, in our opinion, an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the tribunal giving.....
Judgment:

Misra, C.J.

1. The Income-tax Appellate Tribunal, Bombay, Bench on an application of the revenue under Section 256(1) of the I.T. Act of 1961 stated these two cases and referred the following two questions for the opinion of the court:

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the payments of Rs. 6,65,915 and Rs. 6,65,372, respectively, made by the assessee in the assessment years 1968-69 and 1969-70 under the terms of the agreement dated November 6, 1957, were allowable as revenue expenditure ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that it was not a case of sharing the net profit but was a case of payment of remuneration for specific services rendered by the German company to the assessee-company ?'

2. The relevant assessment years are 1968-69 and 1969-70. At the instance of the revenue, two similar questions had been referred to us earlier and by judgment dated 16th of August, 1976, a Bench of this court, including one of us, held in favour of the revenue and against the assessee. [CIT v. Belpahar Refractories Ltd. : [1977]109ITR667(Orissa) ]. We are told at the Bar that the matter is pending in appeal at the instance of the assessee before the Supreme Court. The questions then referred were:

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting:

Rs.3,08,012(in assessment year 1962-63)5,57,658(in assessment year 1963-64)5,79,336(in assessment year 1964-65)3,57,681(in assessment year 1965-66)5,87,729(in assessment year 1966-67) on the ground that the said capital expenditures were converted into revenue expenditures and if the said deletions were legal ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that it was not a case of sharing the net profit, but on the other hand, it was a case of remuneration for specific services rendered ?'

3. Counsel for the assessee concedes that, in substance, the two questions considered by this court on the earlier occasion are the same as here. In view of the fact that in the reported decision in CIT v. Belpahar Refractories Ltd. : [1977]109ITR667(Orissa) as all the facts relevant have been stated, we do not propose to restate them. Clause 8 of the relevant agreement stipulated payment at 6 1/4% of the net profits of the refractories company to Didier-Works for eight years. Payments for the first five years in terms of Clause 8 of the agreement were for consideration in the reported decision and in the present case, payments made during the next two years are for consideration. After referring to all the aspects that were placed before the court, it has been held that the deletion was inappropriate.

4. Mr. Mohanty for the assessee contends that the opinion given on the earlier occasion is not binding so far as the present reference is concerned, as the rule of res judicata has no application and contends that the Supreme Court has in two later cases indicated the tests in a somewhat different way and, therefore, a fresh look should be given to the matter. According to him, different tests have been applied on different occasions such as the 'substance test' [Usher's Wiltshire Brewery Ltd. v. Bruce [1914] 6 TC 399]; 'Payment once or in a recurring way' test (Vallambrosa Rubber Co, Ltd. v. Farmer [1910] 5 TC 529); the test of 'return of an enduring advantage' [Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155]; the test of 'clear reference to an acquisition of specific asset' [Assam Bengal Cement Co. Ltd. v. CIT : [1955]27ITR34(SC) ]; and in a slightly different way, the test of 'specific assets for specific price' [Travancore Sugars and Chemicals Ltd. v. CIT : [1966]62ITR566(SC) ]. In the case of Empire Jute Co. Ltd. v. CIT : [1980]124ITR1(SC) , the Supreme Court observed (pp. 3, 4):

'This question (whether a particular expenditure incurred by an assessee is of capital or revenue nature) has always presented a difficult problem and continually baffled the courts, because it has not been possible, despiteoccasional judicial valour, to formulate a test for distinguishing between capital and revenue expenditure which will provide an infallible answer in all situations. There have been numerous decisions where this question has been debated but it is not possible to reconcile the reasons given in all of them, since each decision has turned upon some particular aspect which has been regarded as crucial and no general principle can be deduced from any decision and applied blindly to a different kind of case where the constellation of facts may be dissimilar and other factors may be present which may give a different hue to the case. Often cases fall on the borderline and, in such cases, as observed by Lord Greene M. R. in IRC v. British Salmson Aero Engines Ltd, [1938] 22 TC 29, 'the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons'.'

5. Before us, however, there is no dispute that the basic facts here are the same as were before the court on the earlier occasion. There is no dispute that the payments were in terms of the same obligation, i.e., under Clause 8 of the agreement. We do not think it appropriate to differ from the view expressed on the earlier occasion particularly when it is the same dispute in one and the same setting. It is true that the rule of res judicata in terms does not apply to assessment proceedings, but two exceptions have usually been indicated, namely, an earlier decision on the same question cannot be reopened unless that decision is arbitrary or perverse or arrived at without due enquiry. The second limitation is that the effect of revising the earlier decision should not lead to injustice and the court may prevent an assessing authority from doing something which would be unjust and inequitable. Chagla C.J., speaking for the court in the case of H. A. Shah and Co. v. CIT : [1956]30ITR618(Bom) , indicated:

'Therefore, in our opinion, an earlier decision on the same question cannot be reopened if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier decision has taken into consideration all material evidence. We should also like to sound a note of warning especially with regard to a Tribunal like the Appellate Tribunal, that it should be extremely slow to depart from a finding given by an earlier Tribunal. Even though the principle of res judicata may not apply, even though there may be no estoppel by record, it is very desirable that there should be finality and certainty in all litigations including litigations arising out of the Income-tax Act.'

6. This view has received support in the case of Annamalai Reddiar v. CIT : [1964]53ITR601(Ker) and Jivatlal Puriapshi v. CIT : [1967]65ITR261(Bom) . The famous judge, Cardozo, in his inimitable language, had once observed (The Nature of the Judicial Process--p. 29):

'I own that it is a good deal of a mystery to me how judges, of all persons in the world, should put their faith in dicta. A brief experience on the bench was enough to reveal to me all sorts of cracks and crevices and loopholes in my own opinions when picked up a few months after delivery, and reread with due contrition.'

7. Roscoe Pound observed :

'Law must be stable and yet it cannot stand still.'

8. Justice Holmes joined by saying:

'The truth is that the law is always approaching, and never reaching, consistency. It is forever adopting new principles from life at one end, and it always retains old ones from history at the other, which have not yet been absorbed or sloughed off. It will become entirely consistent only when it ceases to grow.' (The Common Law.)

9. Notwithstanding these observations, we think it appropriate to follow the guideline indicated by Lord Devlin in Samples of Law Making, where the Law Lord stated:

'Precedent keeps the law predictable and so more or less ascertain-able. A lawyer cannot always say with confidence exactly how a judge will decide a point of law. But he can put the decision between fairly narrow limits. In any matter of novelty he will know that the boldest judge will not move more than a small distance beyond that which has already been decided.'

10. We think it unwise to deviate from the earlier conclusions and would, therefore, answer the two questions referred to us against the assessee by saying:

On the facts and in the circumstances of the case, the Tribunal was not justified in law in holding that the two payments were allowable as revenue expenditure and also that the Tribunal was not justified in holding that it was not a case of sharing of net profit but that it was a case of payment of remuneration for specific services rendered by the German company to the assessee.

11. There would be no order for costs.

B.N. Misra, J.

12. I agree.


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