1984 (3) TMI 192 - AT - Income Tax

Summary

Issues Involved:

1. Validity of following the amendment to section 80J and section 35 of the Income-tax Act, 1961, amidst pending writs in the Supreme Court.
2. Computation of deduction under section 80J.
3. Disallowance of depreciation on assets used for scientific research under section 35(2)(ia).

Issue-wise Detailed Analysis:

1. Validity of Following the Amendment to Section 80J and Section 35 Amidst Pending Writs:

The primary issue in this appeal was whether the amendment to section 80J and section 35 of the Income-tax Act, 1961, by the Finance (No. 2) Act, 1980, with retrospective effect, should be followed despite pending writs in the Supreme Court challenging its constitutional validity. The Tribunal referenced decisions from the Madhya Pradesh High Court in the case of CIT v. K.N. Oil Industries [1982] 134 ITR 651 and the Kerala High Court in Traco Cable Co. Ltd v. CIT [1982] 138 ITR 385, both of which decided in favor of the revenue, rejecting the assessee's contention that the matters should be sent back to be decided in accordance with the Supreme Court's pending decision. The Tribunal emphasized that it is bound to follow the law as it stands on the statute book, and the amendment is considered the law until the Supreme Court decides otherwise. The Tribunal noted that holding cases in abeyance without a specific stay order would set a bad precedent and lead to non-finality of matters, which is neither in the interest of justice nor public policy. The Tribunal concluded that there was no substance in the appeal and confirmed the impugned orders, directing the Income Tax Officer (ITO) to rectify the assessment order in accordance with the Supreme Court's decision on the constitutional validity of the amendments.

2. Computation of Deduction under Section 80J:

The Judicial Member and the Accountant Member had differing opinions on whether the Tribunal should follow the procedure of remitting the matter back to the ITO to await the Supreme Court's decision. The Judicial Member, P.S. Dhillon, held that the Tribunal should follow the majority view of the High Courts and previous Tribunal decisions, which were in favor of the revenue. He argued that the Tribunal cannot disregard the amended law until its constitutional validity is determined by the Supreme Court. On the other hand, the Accountant Member, C.R. Nair, disagreed, stating that the specific issue of pending writ petitions was not considered in the cited High Court decisions. He referenced the Tribunal's decision in Sundaram Fasteners Ltd., where the matter was remitted back to the ITO for recomputation after the Supreme Court's decision. Nair argued that this procedure was in line with the Gujarat High Court's decision in CIT v. Surat District Co-operative Milk Producers Union Ltd., which aimed to save public time and cost. He stressed that the issue before the Tribunal was procedural, not legal, and that remitting the matter back was in the interest of justice.

3. Disallowance of Depreciation on Assets Used for Scientific Research under Section 35(2)(ia):

The difference of opinion extended to the disallowance of depreciation on assets used for scientific research. The Judicial Member upheld the ITO's disallowance and the Commissioner (Appeals)' direction, while the Accountant Member proposed setting aside these findings and remitting the matter back to the ITO for fresh decision after the Supreme Court's decision. The Accountant Member emphasized that this procedure was consistent with the Tribunal's practice and the Gujarat High Court's guidelines, which aimed to prevent miscarriage of justice and save public resources.

Third Member's Decision:

The Third Member, Ch. G. Krishnamurthy, Vice President, was nominated to resolve the difference of opinion. He highlighted the Tribunal's convention of following earlier decisions unless new points arise or the law changes. He referenced the Madras High Court's guidelines in CIT v. L.G. Ramamurthi and CIT v. S. Devaraj, which emphasized consistency in Tribunal decisions to maintain public confidence. Krishnamurthy agreed with the Accountant Member, stating that the Tribunal should follow the earlier decision in Sundaram Fasteners Ltd., remitting the matter back to the ITO for recomputation after the Supreme Court's decision. He noted that this procedure received commendation from the Gujarat High Court and did not affect the parties' rights, only requiring reassessment by the department.

Conclusion:

The appeal was dismissed, with the Tribunal confirming the impugned orders but directing the ITO to rectify the assessment order in accordance with the Supreme Court's decision on the constitutional validity of the amendments to sections 80J and 35. The Third Member's decision emphasized the importance of consistency and following established procedures to ensure justice and efficiency in the judicial process.