2020 (11) TMI 652 - HC - Income Tax

TDS on interest on borrowings - Assessment of Trust - Tribunal upholding the order of the lower authorities that the share of the beneficiaries is indeterminate and therefore the appellant is liable for tax at maximum marginal rate? - Power of Tribunal when it disagree with earlier decision of Tribunal - as per assessee individual beneficiaries for whose benefit the funds have been borrowed do not have taxable income and are not liable to deduct tax at source - Application of principle of mutuality - HELD THAT - The Substantial Questions of Law raised in this appeal were considered viz., in the case of Sarvodaya Mutual Benefit Trust, Thellar 2019 (7) TMI 1151 - MADRAS HIGH COURT wherein held there are only two methods of dealing such a situation. Firstly, if the decision is per incurium, a finding to the said effect has to be given. Secondly, the Court or the Tribunal can refuse to follow the decision by distinguishing it on the factual matrix. If for other than these two reasons, the Court or the Tribunal is of the view that the decision rendered earlier is not acceptable to it, then the option is to refer it to a Larger Bench of the Court or the Tribunal. The Methodology adopted by the Tribunal, while passing the impugned order, is incorrect. Therefore, we are inclined to remand the matter to the Tribunal for fresh consideration. We left it open to the Tribunal to take note of the decision in Sarvodaya Mutual Benefit Trust 2013 (11) TMI 1270 - ITAT CHENNAI and if for reasons acceptable to it, the decision can be applied to the facts of the case which is well open to do so, or for if any other reasons, the decision is found to be not acceptable to the Tribunal, then the matter may be referred to the Larger Bench of the Tribunal for consideration in an appropriate manner. Thus the appeal by the appellant / assessee is allowed, impugned order is set aside and the matter is remanded to the Tribunal for fresh consideration.

Summary

Issues:
1. Interpretation of tax liability for beneficiaries' share.
2. Tax deduction on interest despite non-taxable beneficiaries.
3. Applicability of mutuality principle for tax liability.

Issue 1: Interpretation of tax liability for beneficiaries' share

The appeal challenged an order by the Income Tax Appellate Tribunal regarding the tax liability of the appellant under the Income Tax Act, 1961. The Tribunal upheld that the share of the beneficiaries was indeterminate, making the appellant liable for tax at the maximum marginal rate. The High Court considered a similar case involving Sarvodaya Mutual Benefit Trust and emphasized the importance of following precedent. It was noted that the Tribunal was aware of a previous decision but provided reasons for not following it. The Court highlighted that any departure from established decisions should be justified by specific reasons or referred to a Larger Bench. Citing a Supreme Court ruling on judicial discipline, the Court emphasized the importance of following higher appellate authorities' orders. The Court decided to remand the matter to the Tribunal for fresh consideration, leaving the option open for the Tribunal to apply the previous decision if found acceptable or refer the matter to a Larger Bench if necessary.

Issue 2: Tax deduction on interest despite non-taxable beneficiaries

The second issue revolved around the appellant's liability to deduct tax at source on interest from borrowings, even though the individual beneficiaries did not have taxable income. The Tribunal had disregarded this fact. The High Court referenced a case law to highlight the incorrect methodology adopted by the Tribunal in passing the order. The Court emphasized the need for proper consideration of facts and adherence to judicial precedents. Consequently, the Court set aside the impugned order and remanded the matter to the Tribunal for fresh consideration, instructing the Tribunal to not be influenced by the previous observations.

Issue 3: Applicability of mutuality principle for tax liability

The final issue concerned the Tribunal's decision that the principle of mutuality did not apply to the appellant, rendering its income taxable. The High Court referenced a previous judgment to underscore the incorrect approach taken by the Tribunal. The Court stressed the importance of following established decisions and maintaining judicial decorum. Consequently, the Court allowed the appeal, set aside the impugned order, and remanded the matter to the Tribunal for fresh consideration without delving into the merits of the case or answering the Substantial Questions of Law raised. The Court directed the Tribunal to decide in accordance with the law, following the principles outlined in the earlier judgment.

This detailed analysis of the judgment illustrates the High Court's thorough consideration of the issues raised and the legal principles applied in remanding the matter to the Tribunal for fresh consideration.