1990 (6) TMI 107 - AT - Income Tax

Summary

Issues Involved:
1. Deductibility of interest payment on bank borrowings from interest received on FDRs.
2. Tribunal's authority to deviate from its previous year's decision on identical facts.
3. Requirement to refer the matter to a Special Bench when reviewing a previous decision.
4. Tribunal's adherence to principles of natural justice and consistency in its rulings.
5. Tribunal's jurisdiction to contradict its own previous decisions without new facts or material.

Issue-wise Detailed Analysis:

1. Deductibility of Interest Payment on Bank Borrowings from Interest Received on FDRs:
The assessee claimed a deduction of Rs. 7,685 paid as interest on bank borrowings against the interest earned from FDRs amounting to Rs. 22,551. The Tribunal rejected this claim, referencing the Supreme Court judgment in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519, which emphasized that the purpose of the expenditure must be to earn income. The Tribunal concluded that the purpose of the expenditure (borrowing to meet personal obligations) had no correlation with the income from FDRs, thus disallowing the deduction under Section 57(iii) of the IT Act.

2. Tribunal's Authority to Deviate from Its Previous Year's Decision on Identical Facts:
The Tribunal acknowledged that it had allowed a similar claim in the previous assessment year (1980-81). However, it justified its deviation by highlighting that the earlier decision did not consider the Supreme Court's ruling in Rajendra Prasad Moody. The Tribunal emphasized that it must follow the Supreme Court's guidance over its prior decision.

3. Requirement to Refer the Matter to a Special Bench When Reviewing a Previous Decision:
The assessee argued that the Tribunal should have referred the matter to a Special Bench before overturning its previous decision. The Tribunal rejected this request, stating that since the issue was conclusively settled by the Supreme Court, referring the matter to a Special Bench was unnecessary.

4. Tribunal's Adherence to Principles of Natural Justice and Consistency in Its Rulings:
The assessee contended that the Tribunal was bound by principles of natural justice to adhere to its earlier findings in the absence of new facts or material. The Tribunal countered this by stating that adherence to the Supreme Court's ruling took precedence over maintaining consistency with its prior decisions.

5. Tribunal's Jurisdiction to Contradict Its Own Previous Decisions Without New Facts or Material:
The Tribunal justified its contradiction of the previous year's decision by emphasizing the binding nature of the Supreme Court's judgment. It asserted that the earlier decision was made without considering the Supreme Court's ruling, which provided a clear legal precedent.

Separate Judgments Delivered:
- The Judicial Member, V.P. Elhence, dissented, arguing that the question of law regarding the deductibility of interest payment should be referred to the High Court for its opinion. He emphasized that the issue involved a mixed question of fact and law, warranting judicial scrutiny.
- The President, Ch. G. Krishnamurthy, agreed with the Judicial Member, concluding that the matter should be referred to the High Court as it involved interpretation and application of the Supreme Court's decision, which constituted a question of law.

Conclusion:
The Tribunal, by majority view, decided to refer the question of law regarding the deductibility of interest payment to the High Court for its opinion, recognizing it as a mixed question of fact and law.