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2016 (3) TMI 755 - HC - Income TaxDisallowance u/s 14A - whether Section 14A of the Act would have no application to disallow interest expenditure on fund borrowed in respect of the tax free returns on the securities? - Held that - The impugned order of the Tribunal has an observation therein that there is no such thing as estoppel in law and by virtue of that gives itself a licence to decide the issue before it ignoring the binding precedent in the petitioner s own case in HDFC Bank Ltd(2014 (8) TMI 119 - BOMBAY HIGH COURT )wherein held the investment made by the Assessee would be out of the interest-free funds available with the Assessee - the Tribunal had erred in dismissing the Appeal Once there is a binding decision of this Court, the same continues to be binding on all authorities within the State till such time as it stayed and / or set aside by the Apex Court or this very Court takes a different view on an identical factual matrix or larger bench of this Court takes a view different from the one already taken. The decision of a coordinate bench would continue to be binding till it is corrected by a higher Court. This principle laid down in respect of a coordinate Court would apply with greater force on subordinate Courts and Tribunals. We are also conscious of the fact that we are not final and our orders are subject to appeals to the Supreme Court. However, for the purposes of certainty, fairness and uniformity of law, all authorities within the State are bound to follow the orders passed by us in all like matters, which by itself implies that if there are some distinguishing features in the matter before the Tribunal and, therefore, unlike, then the Tribunal is free to decide on the basis of the facts put before it. However till such time as the decision of this court stands it is not open to the Tribunal or any other Authority in the State of Maharashtra to disregard it while considering a like issue. In case we are wrong, the aggrieved party can certainly take it up to the Supreme Court and have it set aside and / or corrected or where the same issue arises in a subsequent case the issue may be reurged before the Court to impress upon it that the decision rendered earlier, requires reconsideration. It is not open to the Tribunal to sit in appeal from the orders of this Court and not follow it. In case the doctrine of precedent is not strictly followed there would complete confusion and uncertainty. The victim of such arbitrary action would be the Rule of law of which we as the Indian State are so justifiably proud. It is in the above circumstances that we are of the view that we have to exercise our powers under Article 227 of the Constitution of India. This is in view of the manner in which the impugned order of the Tribunal has chosen to disregard and/or circumvent the binding decision of this Court in respect of the same assessee for an earlier assessment year. This is a clear case of judicial indiscipline and creating confusion in respect of issues which stand settled by the decision of this Court. It is in the above view, that we set aside the impugned order of the Tribunal dated 23rd September, 2015 in its entirety and restore the issue to the Tribunal to decide it afresh on its own merits and in accordance with law. However the Tribunal would scrupulously follow the decisions rendered by this Court wherein a view a has been taken on identical issues arising before it. It is not open to the Tribunal to disregard the binding decisions of this Court, the grounds indicated in the impugned order which are not at all sustainable. Unless the Tribunal follows this discipline, it would result in uncertainty of the law and confusion among the tax paying public as to what are their obligations under the Act. Besides opening the gates for arbitrary action in the administration of law, as each authority would then decide disregarding the binding precedents leading to complete chaos and anarchy in the administration of law.
Issues Involved:
1. Applicability of Section 14A of the Income Tax Act, 1961 to disallow interest paid on borrowed funds for investments in tax-free securities. 2. Tribunal's disregard for binding decisions of the High Court. 3. Tribunal's reliance on the decision in Godrej and Boyce Manufacturing Co. Ltd. vs. Deputy Commissioner of Income Tax. 4. Alternative remedy under Section 260A of the Income Tax Act, 1961. 5. Classification of investments in securities as stock in trade. Detailed Analysis: 1. Applicability of Section 14A of the Income Tax Act, 1961: The petitioner challenged the Tribunal's order disallowing a portion of interest paid on borrowed funds for investments in tax-free securities under Section 14A of the Act. The petitioner argued that it had sufficient interest-free funds to cover the investments, supported by the binding decision in CIT Vs. HDFC Bank Ltd. (366 ITR 505). The Tribunal, however, dismissed this argument, citing an earlier decision in Godrej and Boyce Manufacturing Co. Ltd. (328 ITR 81), which the petitioner contended did not address the specific issue at hand. 2. Tribunal's Disregard for Binding Decisions: The High Court emphasized the importance of the doctrine of precedent and the hierarchical structure of the judicial system. It criticized the Tribunal for disregarding the binding decision in HDFC Bank Ltd. (supra) and instead relying on Godrej and Boyce Manufacturing Co. Ltd. (supra), which did not address the presumption of interest-free funds being used for tax-free investments. The High Court underscored that lower courts and tribunals must follow the decisions of higher courts to ensure certainty and uniformity in the law. 3. Tribunal's Reliance on Godrej and Boyce Manufacturing Co. Ltd.: The High Court found that the Tribunal erroneously perceived a conflict between the decisions in Godrej and Boyce Manufacturing Co. Ltd. (supra) and HDFC Bank Ltd. (supra). It clarified that the former did not decide on the presumption of interest-free funds being used for tax-free investments, and thus, there was no conflict. The High Court stressed that the Tribunal should have followed the binding precedent in HDFC Bank Ltd. (supra). 4. Alternative Remedy under Section 260A: The Revenue argued that the petitioner should have pursued an appeal under Section 260A of the Act instead of invoking the High Court's extraordinary jurisdiction under Article 226. The High Court acknowledged the availability of an alternative remedy but chose to exercise its supervisory jurisdiction under Article 227 due to the Tribunal's failure to follow binding precedents, which could undermine the judicial system's integrity. 5. Classification of Investments as Stock in Trade: The petitioner also argued that the investments in tax-free securities were held as stock in trade, and thus, Section 14A should not apply, citing the decision in CIT Vs. India Advantage Securities Ltd. The Tribunal dismissed this argument, stating that the decision in India Advantage Securities Ltd. was not binding as it was dismissed at the admission stage. The High Court disagreed, stating that the Tribunal should have followed the earlier decision unless there were distinguishing facts or applicable laws. Conclusion: The High Court set aside the Tribunal's order and remanded the case for fresh consideration, directing the Tribunal to follow binding precedents. It emphasized the importance of judicial discipline and the need for lower courts and tribunals to adhere to higher courts' decisions to maintain legal certainty and uniformity. The High Court's decision reinforces the hierarchical structure of the judicial system and the doctrine of precedent, ensuring that like cases are treated alike.
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