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TMI Blog2020 (5) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... s alleged to be an associated enterprises of the assessee, is not an associated enterprise of the assessee. While holding so, we have observed as follows: 1. This appeal, filed by the assessee, calls into question correctness of the order dated 2nd February 2015, passed by the learned CIT(A) in the matter of assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as "the Act‟), for the assessment year 2006-07. 2. Learned representatives fairly agree that whatever we decide for the assessment year 2007-08, on the learned CIT(A)‟s order dated 30th January 2015, will apply mutatis mutandis for this assessment year as well. 3. Vide our order of even date, we have allowed the appeal of the assessee for the assessment year 2007-08 by observing as follows: 2. When this appeal was called out for hearing, learned senior counsel for the assessee submitted that though this appeal involves several legal issues, including the question on validity of the reassessment proceedings, the fundamental issue in this appeal deals with the question as to whether the assessee can be said to be an "associated enterprises‟, within meanings as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the provisions of section (1) [of section 92A]". In other words, according to the learned Assessing Officer, the provisions of Section 92A(1) are required to be read on standalone basis rather than in conjunction with Section 92A(2). The assessee and KE-S were thus held to be AEs. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in further appeal before us. 4. In all fairness to the learned Departmental Representative, this issue is covered, against the assessee, by two coordinate bench decisions in assessee‟s own case. While dealing with the assessment year 2008-09, a coordinate bench, vide order dated 29th May 2019, had held the issue and observed, inter alia, as follows: " The language of section 92A(1) is unambiguous and does not leave any scope of importing any meaning of expression "AE". The question raised before us is whether the meaning of expression "AE" as per s.s. (1) of section 92A is subjected to s.s. (2) of section 92A. The ld. Sr. counsel for the assessee has asserted that the criteria prescribed under s.s. (2) are necessarily be fulfilled for two enterprises to be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; covers an enterprise "in respect of which one or more persons who participate, directly or indirectly. or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise." In effect, thus, when same persons participate, directly or indirectly or through an intermediary, in the management or control or capital of two or more enterprises, such enterprises are required to be treated as 'associated enterprise'. Interestingly even as definition of 'associated enterprises' has crucial references to 'participation in management or control or capital' at some places, the precise scope of this expression has not been defined under the provisions of the Income- tax Act, and it has not come up for judicial adjudication either. This expression has been used in Article 9(1 of OECD and UN model conventions, but we find no assistance from the OECD and UN commentaries either. All that the OECD commentary says on the scope of this expression is that it refers to "parent and subsidiary compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clearly an incongruous result. In our considered view, as all clauses of deeming fictions set out in section 92:(2) are only illustration of the manner in which this de facto control on decision making exists, It is necessary that, while interpreting these deeming fictions, we interpret the same in such a manner as to make them workable rather than redundant (ut res magis valeat quam pereat), and that the same test of effective control on decision making as are implicit In deeming fiction under section 92(A)(2) we also apply to the situations of more than two associated enterprises envisaged in section 92A(1)(b). In this light, let us analyse the situation before us. The manufacture of goods is carried out by the CBU Konkan Agro, which is controlled by the assessee inasmuch as the CBU is wholly dependent on the use of trade- marks in respect of which the assessee has exclusive rights. This relationship meets the test of de facto control on decision making as set out in section 92A(2)(g). The assessee in turn, as evident from information in Form 3CEB, is controlled, by way of equity participation, by Diageo PLC which also similarly controls other entities in the Diageo group, incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and participating in the management of both the companies not for the name sake but he is holding the key position in taking the Idecision being a Chief Operating Officer of Kaybee Exim Pte Limited, Singapore and almost the entire shareholding of the assessee company, therefore, the condition of one enterprise participates directly or indirectly or through one or more intermediaries in its management or control or capital as prescribed under clause (a) & (b) of s.s. (1) of section 92A is satisfied. Hence, the assessee and Kaybee Exim Pte Limited, Singapore falls under the meaning of AEs as per the provisions of section 92A. 5. When the matter again came up before another coordinate bench of this Tribunal, for the assessment years 2010-11 and 2011-12, learned counsel for the assessee invited attention of the bench to subsequent legal developments by way of judicial precedents, and urged the bench to follow these judicial precedents. Rejecting this plea vide order dated 8th August 2018, the coordinate bench, inter alia, observed as follows: 14. Considering the decision of Co-ordinate Bench in assessee's own case on almost identical ground and on identical fact and respectfully fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s brought to the notice of the benches, the benches did proceed on the basis that section 92A(2) restricts the scope of section 92A(1)- an antithesis of the conclusions arrived in the Diageo decision. Learned counsel submits that the author of decision in the case of the assessee for the assessment year 2008-09 is co-author of one such subsequent decision in the case of Page Industries Ltd Vs DCIT [(2016) 159 ITD 680]. It is then pointed out that the author of decision in the case of Diageo India Ltd (supra) is also author of two such subsequent decisions in the cases of Orchid Pharma Ltd Vs DCIT [(2016) 76 taxmann.com 63] and ACIT Vs Veer Gems [(2017) 77 taxmann.com 127], and one of these decisions is specifically approved by Hon‟ble Gujarat High Court in the judgment reported as PCIT Vs Veer Gems [(2017) 83 taxmann.com 271] and SLP against the said approval has been rejected by Hon‟ble Supreme Court in the judgment reported as PCIT Vs Veer Gems [(2018) 95 taxmann.16]. Once the contrary view is approved by Hon‟ble Courts above, its no longer to open to the Tribunal to follow the earlier view which has not found favour with the higher judicial forum. He also invit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er than, though he puts it very diplomatically, knowingly perpetuating an error. He also refers to certain judicial precedents in support of relevance of memorandum to the finance bills, but, for the reasons we will set out in a short while, it is not really necessary to deal with this line of reasoning. Suffice to note that we are thus urged to follow the decisions of Hon‟ble Courts above and, notwithstanding the decisions of coordinate benches in assessee‟s own case against the assessee, decide the issue in favour of the assessee now. 9. We find that in the lead order in this case, i.e. in the case of Diageo India Ltd (supra), there was no occasion to take note of the fact that the words "for the purpose of Section 92A(1)" were inserted in Sub Section 92A(2) with a specific purpose, as unambiguously set out in the Memorandum to the Finance Bill 2002, to the effect "It is proposed to amend sub-section (2) of the said section to clarify that the mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative, as indeed by the decisions in assessee‟s own case by the coordinate benches, there was no occasion to refer to this CBDT circular, and the fact that position laid out in the Supreme Court decisions that these CBDT circulars bind the Assessing Officer, as well. These aspects having been missed out by the bench in Diageo‟s case (supra), or not having been brought to the notice of the bench, perhaps renders the said decision per incurium. It cannot obviously be open to us to disregard the law settled by Hon‟ble Supreme Court, which binds all of us under article 141 of the Constitution of India, or to disregard the CBDT circular once it is pointed out to us. What happened in the past was due to sheer inadvertence on this aspect of the matter. The fact that this decision was authored by one us (i.e. the Vice President) does not matter at all. There are two simple things that we must bear in mind. The first one is that what matters is the institutions and not the individuals; sooner or later all the individuals have to be fade into oblivion but the institutions can shine forever, and it is because of the institutions, as long as an individual occupies the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is whether it is permissible in law to rectify the mistake so committed. In the case of K P Verghese vs ITO [(1981) 131 ITR 597 (SC)], Hon‟ble Supreme Court were dealing with a situation in which the construction of newly inserted statutory provisions came up for consideration. It was in this context that Their Lordships observed that the "circulars of the CBDT are, as we shall presently point out, binding on the tax department in administering and executing the provisions enacted ...... but, quite apart from their binding character, they are clearly in the nature of contemporanea expositio furnishing legitimate aid in construction (of the related provision) ....." and then further observed that these circulars "are legally binding on the revenue and this binding character attaches to the circulars even if they be found to be not in accordance with the correct interpretation (of the related provision) and they depart or deviate from such construction. It is now well settled, as a result of decisions of this court, one in Navnit Lal C Jhaveri Vs K K Sen, AAC [(1965) 56 ITR 198 (SC)] and the other in Ellerman Lines Ltd Vs CIT [(1971) 82 ITR 913 (SC)] that circulars issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, which are exhaustive and not simply illustrative- as clarified in the Memorandum explaining the provisions of the Finance Bill 2002 which, while inserting the words "For the purpose of sub section (1) of section 92A" in Section 92A(2), observed that "It is proposed to amend subsection (2) of the said section to clarify that the mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled". In this sense, Section 92A(2) governs the operation of Section 92A(1) by controlling the definition of participation in management or capital or control by one of the enterprise in the other enterprise. If a form of participation in management, capital or control is not recognized by Section 92A(2), even if it ends up in de facto or even de jure participation in management, capital or control by one of the enterprise in the other enterprise, it does not result in the related enterprises being treated as 'associated enterprises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of this Tribunal". We are in considered views with the views so expressed by the coordinate bench. As for the binding nature of the decision of Hon‟ble non-jurisdictional High Court, in the absence of anything to the contrary by the jurisdictional High Court, we may only refer to the decision of another coordinate bench, in the case of ACIT Vs Aurangabad Holiday Resorts Pvt Ltd [(2009) 118 ITD 1 (Pune)], which, inert alia, analyses the position as follows: 5. As observed by a Co-ordinate Bench of this Tribunal, in the case of Tej International (P.) Ltd. v. DCIT (69 TTJ 650), in the hierarchical judicial system that we have in India, the wisdom of the court below has to yield to the higher wisdom of the court above and, therefore, once an authority higher than this Tribunal has expressed its esteemed views on an issue, normally the decision of the higher judicial authority is to be followed. The Bench has further held that the fact that the judgment of the higher judicial forum is from a non-jurisdictional High Court does not really alter this position, as laid down by the Hon'ble Bombay High Court in the case of CIT v. Godavari Devi Saraf ( 113 ITR 589). For sligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... '. On Godavari Devi Saraf's case (supra), which was delivered by a Division Bench of equal strength of this very Hon'ble High Court, Their Lordships took note of revenue's stand as follows : "Referring to the observations of Godavari Devi (supra), that an all India Tribunal acting anywhere should follow the decisions of any other High Court on the point, it was submitted by the counsel of the revenue that this observation itself would show that the High Court was aware of the fact that different High Courts were not bound by the decisions of each other and, as such, there may be contrary decisions of different High Courts on the same point." 9. The issue of consideration was thus confined to the question whether or not a High Court decision is binding on another High Court or not. That admittedly was the core issue decided by Their Lordships. As for the binding nature of non-jurisdictional High Court decisions on the Tribunal, the observations made by Their Lordships were no more than obiter dictum and in this very judgment, Their Lordships have held that even in the case of Hon'ble Supreme Court judgments, which are binding on all Courts, except Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal in Madras has to proceed on the footing that section 140A(3) was non-existent, the order of penalty under that section cannot be imposed by any authority under the Act. Until a contrary decision is given by any other competent High Court, which is binding on the Tribunal in the State of Bombay (as it then was), it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land .......... an authority like Tribunal has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision on that issue by any other High Court ....." 13. It is thus clear that while the issue before the Hon'ble High Court in Thana Electricity Co. Ltd.'s case (supra) was whether or not a High Court should follow another High Court, whereas in Godavari Devi Saraf's case (supra), Their Lordships dealt with the issue whether or not a non-jurisdictional High Court is to be followed by a Bench of the Income-tax Appellate Tribunal. To that extent, and irrespective of some casual observations on the applicability of non-jurisdictional High Court judgments on subordinate courts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-ordinate Bench in Tej International (P.) Ltd. (supra), our reasons are not exactly the same as adopted by our distinguished colleagues. 12. Viewed thus, the views expressed by the coordinate benches, which have met approval of Hon‟ble Courts above, are required to be followed, in preference over views expressed by any other benches, whether in assessee‟s own case or in any other case and irrespective of the views being that of a division bench or even larger bench. We humbly bow to the wisdom of Hon‟ble Courts above. As we do so, we cannot help quoting from the decision of the Hon‟ble Supreme Court in the case of Assistant Collector of Central Excise v. Dunlop India Ltd. [(1985) 154 ITR 172 (SC)], where the Hon‟ble Supreme Court has itself quoted from the decision of House of Lords as under: We desire to add and as was said in Cassell & Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never be necessary for us to say so again that "in the hierarchical system of courts" which exists in our country, "it is necessary for each lower tier", including the High Court, "to accept loyally the decision of the higher tiers". "It is inevitable in hie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... special bench will be a meaningless ritualistic exercise. 17. The oral prayer for the constitution of special bench must, therefore, be rejected. 18. Learned representatives fairly agree that the case of the Assessing Officer hinges only on application of Section 92A(1) and it does not meet any of the specific conditions set out in Section 92A(2). Once we hold that Section 92A(1) cannot be applied on standalone basis, and has to be essentially considered in conjunction of Section 92A(2) - only when it satisfies at least one of the conditions set out therein, it is clear that the relationship between the assessee company and its KE-S cannot be said to be that of the associated enterprises. The case of the revenue must, therefore, fail on this test. 19. In view of the above discussions, as also bearing in mind entirety of the case, we have to hold that the relationship between the assessee and the KE-S was not of the AEs, and, accordingly, no arm‟s length price adjustments could be made on the transactions between these two entities. Ground no. 3 is thus allowed, and, as a corollary thereto, the impugned ALP adjustment must, therefore, be deleted for this short reason al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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