2017 (7) TMI 778 - HC - Income Tax

Rectification applications - Power of ITAT - application of principle of mutuality - Held that - In the present case, as noted the Tribunal had given detailed reasons for coming to the conclusion that the principle of mutuality would not apply. While accepting the assessee s rectification applications, the Tribunal undertook equally painstaking and elaborate consideration of the very same issues and very same facts to come to a contrary conclusion. It is not necessary nor possible for us to hold whether the Tribunal s first view was correct or the subsequent one. It is enough to hold that the Tribunal could not have undertaken such incisive and detailed examination of facts and law to come to the conclusion which are completely contrary to its own conclusion arrived at after detailed considerations. Such powers simply do not flow from the power of rectification under sub-section (2) of Section 254 of the Act. Thus Tribunal committed a serious error in allowing the assessee s rectification applications and recalling its earlier order of rejection of appeals. The impugned order dated 29.07.2016 is therefore set aside. Consequently, the order passed by the Tribunal of allowing all the tax appeals of the assessee by order dated 25.11.2016 would therefore automatically be rendered non-est.

Summary

Issues:
Challenge to the Tribunal's order recalling earlier decision based on rectification powers.

Analysis:
The case involved writ petitions filed by the Income Tax department challenging the order passed by the Income Tax Appellate Tribunal and the subsequent decision to allow the appeals filed by the assessee. The Tribunal initially held that the income earned by the respondent from its members was taxable, based on the principle of mutuality. The Tribunal referred to the Supreme Court's decision in a similar case and applied three basic features to determine taxability. The Tribunal concluded that the principle of mutuality did not apply, dismissing the appeals of the assessee.

The assessee then filed Misc. Applications requesting the Tribunal to recall the order due to an apparent error. The Tribunal allowed the Misc. Applications, conducted a detailed discussion, and ultimately allowed the appeals of the assessee based on the principle of mutuality. The department challenged this decision through tax appeals. The High Court, after hearing both parties, analyzed the Tribunal's power to rectify orders under Section 254(2) of the Act. The Court emphasized that rectification powers are limited to correcting mistakes apparent from the record and cannot be used to review or reconsider decisions extensively. The Tribunal's detailed re-examination of the issues and facts to reach a contrary conclusion was deemed beyond the scope of rectification powers.

Consequently, the High Court held that the Tribunal erred in allowing the rectification applications and recalling its earlier order. The impugned order was set aside, and the appeals of the assessee were rendered non-est. The original order of the Tribunal confirming taxability was restored, allowing the assessee to file fresh tax appeals if necessary. The Court disposed of all writ petitions and tax appeals with these directions.