A DECISION OF ONE HIGH COURT IS NOT A BINDING PRECEDENCE UPON ANOTHER HIGH COURT

[Mr. M. GOVINDARAJAN]

Generally the decisions or orders of higher authorities are binding on the lower authorities.  For example the judgment of Supreme Court is binding on all High Courts, lower courts.  The judgment of High Court is binding all lower courts.  The issue to be discussed in this article is whether a decision of High Court is a binding precedent upon another High Court with decided case laws.

Article 141 of the Constitution of India provides that the law declared by the Supreme Court shall be binding on all courts within the territory of India.  But as regards the application of Precedents of the High Courts there is no direct Constitutional provision as Article 141.   in M/s. East India Commercial Co. Ltd. Calcutta and Another v. Collector of Customs, Calcutta 1962 (5) TMI 23 - SUPREME COURT OF INDIA, the Supreme Court held that hold that the law declared by the highest court in the State is binding on authorities or tribunals under its superintendence. 

Conflicts on an issue between the Benches of High Courts even within a High Court have been witnessed in many a case.   In such a case the same would be referred to a Larger Bench or it would be decided by Supreme Court.

In ‘Vodafone India Limited V. Commissioner of Central Excise, Mumbai – II’ – 2015 (9) TMI 583 - BOMBAY HIGH COURT the High Court held that the decision of co-ordinate bench is binding on the High Court of the same State.  The High Court held that-

• An interpretation of a statutory provision and equally a misinterpretation by one Bench of the High Court would be binding on a co-ordinate Bench of that very High Court;
• The subsequent Bench cannot come to the opinion that a particular provision was misinterpreted and under that pretext seek to reinterpret it again;
• If the subsequent Bench is of the view that the statutory provisions are misconstrued and/or misinterpreted, the only recourse available to it would be to refer it to a Larger Bench.

Now we come to the issue whether the decision of one High Court is binding on another High Court or not.

In ‘Valliamma Champaka Pillai V. Siuvathanu Pillai’ – 1979 (8) TMI 210 - SUPREME COURT it was held that it is well settled that the decision of one High Court is not binding precedent upon another High Court and at best can only have persuasive value.   However, at the cost of repetition we must emphasize that the decision of another High Court rendered in the context of an all India Act would have persuasive value and normally to maintain uniformity and certainty we would adopt the view of the High Court.

In ‘Commissioner of Income Tax V. Thana Electricity Supply Limited’ – 1993 (4) TMI 37 - BOMBAY High Court the High Court held that a decision of one High Court is not binding as precedent on another High Court unlike a decision of the apex court.

In ‘Humayun Suleman Merchant V. Chief Commissioner of Income Tax and another’ – 2016 (9) TMI 70 - BOMBAY HIGH COURT the appellant sold a plot of land in Mumbai for a consideration of ₹ 85.33 lakhs on 29.04.1995.  On 16.07.1996 the appellant entered into an agreement to purchase a flat for a consideration of ₹ 69.60 lakhs.  The appellant paid two installments of ₹ 10 lakhs each on 17.7.1996 and 23.10.1996 to the developer before the due date of filing of return of income.  On 01.11.19096 the petitioner paid to the developer a further sum of ₹ 15 lakhs.   On 04.11.1996 the appellant filed his return of income for the assessment year 1996 – 96.  This was after the due date of filing of return of income.

On 13.03.2001 the Assessing Officer passed an assessment order under Section 143(3) read with Section147 of the Act.  The Assessment order determined the net consideration at ₹ 75.39 lakhs. Thereafter the Assessing Officer allowed a proportionate exemption of ₹ 31.55 lakhs from capital gains tax in terms of Section 54F of the Act.  The balance consideration of ₹ 43.84 lakhs was payable for purchase of the flat pursuant to the agreement dated 16.07.1996 was brought to tax under ‘Capital gains’.  This is on account of the appellant’s failure to deposit the unutilized consideration for purchase of the flat in specified bank accounts in accordance with the scheme of the Central Government as prescribed in Section 54F (4) of the Act.

The Commissioner (Appeals) did not disturb the order of Assessing Officer.  Against this order the appellant filed appeal before the Tribunal.  The Tribunal dismissed the appeal.  Therefore the appellant approached the High Court.  The appellant contended that-

• Section 54F of the Act has been brought into the Act with the object of encouraging the housing sector;
• Therefore a liberal/beneficial interpretation/construction be given to Section 54F(4) of the Act;
• Once an agreement to purchase the flat was executed on 16.07.1996 and the consideration was set aside though not paid it would be considered to be appropriated towards the purchase of the flat and the benefit of Section 54F would stand extended;

The Revenue contended the following-

• On plain interpretation of Section 54F(4) the petitioner has not utilized the entire net consideration taxable under the head Capital Gains for purchase of the flat;
• Nor the appellant deposited the balance unutilized consideration in a specified bank account as notified in terms of Section 54F(4) of the Act;
• The assessee is not entitled to the benefit of exemption from capital gains under Section 54F of the Act to the extent the mandate of Section 54F(4) of the Act is not satisfied;

The appellant relied on the judgment in ‘Commissioner of Income Tax V. Ramachandra Rao (K)’ – 2015 (4) TMI 620 - KARNATAKA HIGH COURT in which the High Court held that even where the assessee had not deposited the unutilized capital gain in an account which was duly notified by the Central Government in terms of Section 54F(4) of the Act, the benefit of Section 54F(1) of the Act would still be available.  The Court held that if the intention was not to retain the capital gains but was to invest it in construction of property within the period stipulated in Section 54F(1) of the Act then section 54F(4) of the Act is not at all attracted.

The Bombay High Court did not accept the decision of Karnataka High Court in the above case.  The High Court held that the mandate of Section 54F(4) of the Act is clear that amount which has not been utilized in construction and/or purchase of property before filing the return of income, must necessarily be deposited in an account duly notified by the Central Government, so as to be exempted.  The aforesaid aspect it appears was not noticed by the Karnataka High Court.

The Bombay High Court held that in interpreting a fiscal statute one must have regard to the strict letter of law and intent can never override the plain and unambiguous letter of law.  It is true that normally while construing an all India statute like Income Tax Act, 23 would not easily depart from a view taken by another High Court on an issue arising for our consideration.  This is on consideration of certainty and consistency in law.  However the view of the other High Courts is not binding upon us unlike a decision of the apex court or of larger or a co-ordinate Bench of this Court.  Thus if on an examination of the decisions of the other High Court we are unable to accept the same, we are not bound to follow/accept the interpretation of the other High Courts leading to a particular conclusion.   In this case the High Court found that the decision of Karnataka High Court was rendered sub silentio i.e., no argument was made with regard to the requirement of deposit in notified bank account in terms of Section 54F(4) of the Act before the due date as provided in Section 193(1) of the Act.  Therefore the Bombay High Court distinguished the decision of Karnataka High Court.  The High Court held that net consideration must be appropriated where purchase was earlier or utilized where purchase is after sale and any balance should be deposited in specified bank.  Exemption is not available for the portion of net considered neither utilized nor invested as required.

Thus it may be concluded that the decision of one High Court is not a binding precedent upon another High Court and at best can only have persuasive value.

Discussions to this article

[ALWAN RAMAN]

A moot point could be how do we synchronise the observation by the S.C. that

22. The court must have the requisite territorial jurisdiction. An order passed on writ petition questioning the constitutionality of a Parliamentary Act whether interim or final keeping in view the provisions contained in Clause (2) of Article 226 of the Constitution of India, will have effect throughout the territory of India subject of course to the applicability of the Act.

2004 (168) ELT 3 Kusum Ingots

[MARIAPPAN GOVINDARAJAN]

Your view is correct. But in a case before Madras High Court and suppose your rely on the decision of the High Court, the Madras High Court is not binding on the decision of the Delhi High Court and it may take it for consideration.