Bombay H.C : This is an appeal preferred by the IT Department against the judgment dt.16th June, 1982 delivered by the learned Single Judge in Writ Petition No. 1246 of 1978

Counsel Appeared

Ms. Manjula Singh with G.S. Jetley, for the Appellants : S.E. Dastur with S. Ganesh & M.P. Bharucha, for the Respondents 1 & 2

PENDSE, J.:

This is an appeal preferred by the IT Department against the judgment dt.16th June, 1982 delivered by the learned Single Judge in Writ Petition No. 1246 of 1978 partly allowing the petition and directing that various assessment proceedings of M/s Universal Ferro & Allied Chemicals Ltd. and pending at different stages before the IT authorities should be heard and decided expeditiously in the light of the directions given in the judgment. The relevant direction reads as under: “It becomes necessary to direct the Department to decide the petitioner’s assessment proceedings, by considering all aspects, including not only the Special Bench ruling but also the High Court ruling, and without feeling bound by the Special Bench ruling on questions covered by the High Court ruling. Indeed, on such latter questions, the High Court ruling would continue to bind all tax authorities in the State of Maharashtra.” The facts giving rise to the giving of these directions in exercise of writ jurisdiction under Art. 226 of the Constitution of India arise in the following circumstances:

2. Universal Ferro & Allied Chemicals Ltd. is a public limited company registered under the Companies Act and carries on business of manufacturing ferro manganese in the State of Maharashtra. The company exports ferro manganese in large quantities to various countries and this export is being carried out for last 10 years. The average export turnover is about Rs. 2 crores per annum. The company for the purpose of export incurs various expenses such as that of cartage and coolie charges, transportations, insurance, printing and stationeries, postage, etc. Sec. 35B of the IT Act, 1961 (hereinafter referred to as the “Act”), inter alia, provides that where an assessee had incurred after 29th Feb., 1968 any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) referred to in cl. (b), then the assessee shall be allowed a deduction of a sum equal to one and one- third and the amount of such expenditure incurred during the previous year. There are several heads of expenditure like advertisement and publicity outside India, obtaining information regarding markets outside India, distribution, supply or provision outside India of such goods, etc., which are set out in cl. (b)) of s. 35B(1) of the Act. The company had claimed deduction under s. 35B of the Act in respect of returns filed for the asst. yr. 1973-74 till year 1977-78 and the proceedings for completion of assessments in respect of these years are pending before various authorities under IT Act. The particulars of pending matters in respect of these assessment years are set out at Exhibit-D to the petition.

3. M/s Eldee Wire Ropes Ltd. had claimed a weighted deduction under the provisions of s. 35B of the Act in the return filed for the asst. yr. 1971-72. The weighted deduction, inter alia, included Bombay Port Trust Certificate charges in the sum of Rs. 951 and cartage and coolie charges in the sum of Rs. 7,502. These two items were claimed under s. 35B(1)(b)(iii) of the Act. Clause (iii) of s. 35B(1)(b) reads as under: “Distribution, supply or provision outside India of such goods, services or facilities, not being expenditure incurred in India in connection therewith or expenditure (wherever incurred) on the carriage of such goods or on the insurance of such goods while in transit.” While completing the assessment of M/s Eldee Wire Ropes Ltd., ITO disallowed the claim for weighted deduction but the AAC granted the same and that order was upheld by the Tribunal. The CIT, Bombay City VI, Bombay preferred a reference under s. 256(1) of the Act, but the same was rejected by the Tribunal. The Commissioner thereafter sought a reference under s. 256(2) of the Act before this Court and the Division Bench of this Court issued rule only in respect of one question being whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to claim weighted deduction of Rs. 43,853 under s. 35B of the Act. The application for reference which was numbered as IT Appln. No. 258/76 was heard on 31st Oct., 1977 and rule was discharged [reported as CIT vs. Eldee Wire Ropes Ltd. 1978 CTR (Bom) 296 : (1978) 111 ITR 435 (Bom)]. The Division Bench felt that deduction under sub-cl. (iii) is permissible where the expenditure is incurred by the assessee either outside India or in India, but it must pertain to the purposes mentioned in various sub-sections of s. 35B of the Act. After making this observation, the Division Bench declined to grant reference because the amount involved was negligible.

4. Several Benches of the Tribunal, Bombay had taken conflicting views in respect of interpretation of s. 35B of the Act and to resolve this difference and uncertainly, a Special Bench was constituted to determine the scope and applicability of s. 35B of the Act. The Special Bench heard several appeals and the petitioners intervened at the hearing. It was claimed before the Special Bench that the decision recorded by the High Court in the case of Eldee Wire Ropes Ltd. as regards the ambit of sub-cl. (iii) of sub-s. (1)(b) of s. 35B is binding and it is not open for the Special Bench to examine the applicability over again. The Special Bench examined the question in great detail and after pointing out the considerable difference of opinion emerging from various decisions, examined the issue as to whether in the decision of this Court in Eldee Wire Ropes Ltd., a final pronouncement with regard to sub-cl. (iii) was made. The Special Bench, after a careful examination, observed that the High Court did not record any express finding that the assessee was entitled to the full weighted deduction. The Special Bench noticed that the decision of the High Court makes a reference to sub-cl. (iii) but pointed out that the decision of the High Court does not conclusively lay down that the second part of sub-cl. (iii) permits deduction of expenditure wherever incurred. In a detailed judgment, the Special Bench of the Tribunal held that under sub-cl. (iii), though expenditure incurred wholly and exclusively on distribution, supply or provision outside India of such goods, services or facilities would generally qualify for weighted deduction, the rule is subject to exception that expenditure incurred in India in connection with such distribution, supply or provision will not get such benefit.

5. The petitioner company which had intervened before the Special Bench of the Tribunal preferred Writ Petn. No. 1246 of 1978 under Art. 226 of the Constitution of India on the original side of this Court challenging the decision of the Tribunal complaining that it is contrary to the decision of the High Court in the case of Eldee Wire Ropes Ltd. The reliefs sought are: (a) quashing and setting aside the judgment of the Special Bench of the Tribunal in so far as it holds that the expenditure (wherever incurred) in the carriage of such goods to their destination outside India or on the insurance of such goods while in transit, which is the subject-matter of s. 35B(1)(b)(iii) of the Act is not permissible for the purposes of weighted deduction, (b) quashing and setting aside orders mentioned in Exhibit-D to the extent that they disallow for the purposes of weighted deduction of all expenditure whenever incurred on the carriage of such goods to their destination outside India or on the insurance of goods while in transit, and (c) writ of mandamus directing the respondents to follow the judgment of the High Court in the case of Eldee Wire Ropes Ltd. and not to follow the judgment of the Special Bench to the extent mentioned in prayer (a) and to allow weighted deduction expenditure as claimed under s. 35B(1)(b)(iii) of the Act. The relief sought in the petition was resisted by the Department by filing return sworn by Miss P.D. Advani, ITO, Company Circle- VI(12). The Department pointed out that several matters of the petitioner company are pending before the various authorities and where the issue in respect of weighted deduction is involved, the Department claimed that it is open for the petitioner company to challenge the assessment order passed by the authorities by adopting proper remedies and it is not necessary or desirable for the High Court to exercise jurisdiction under Art. 226 of the Constitution of India.

The learned Single Judge by the impugned order dt. 16th June, 1982 referred to the decision of the High Court in Eldee Wire Ropes Ltd.’s case and to the facts which required constitution of the Special Bench of Tribunal and then observed that the ruling of the Special Bench has given rise to a rather disturbing situation. The learned Judge felt that it does appear at least in regard to s. 35B(1) (b)(iii) of the Act that Special Bench ruling is not consistent with the High Court ruling and the conflict is obvious. The learned Judge felt that the High Court judgment would prevail over any ruling of the Tribunal and the authorities under IT Act are not free to follow Special Bench ruling and ignore the High Court judgment. The learned Judge then observed that the apprehension sounded on behalf of the petitioner company that the authorities under the IT Act, while finalising assessment, would follow the decision of the Special Bench and ignore the High Court ruling was justified and then gave directions which are quoted hereinabove. Save and except giving the directions, the learned Judge did not consider any other relief sought by the petitioner company and made rule absolute accordingly and the judgment is under challenge in this appeal.

The learned counsel appearing on behalf of the Revenue submitted that the learned Single Judge was in error in entertaining the petition under Art. 226 of the Constitution of India and giving directions that the assessment proceedings of the petitioners should be completed by the authorities without feeling bound by the Special Bench ruling on questions covered by the High Court ruling. It was urged by the learned counsel that the Special Bench had examined extensively the judgment delivered by the High Court while disposing of application made by the CIT for reference under s. 256(2) of the Act and after careful consideration, the Special Bench held that the decision of the High Court does not conclude the issue. The counsel for the appellants submits that the view taken by the Special Bench about the applicability of the High Court judgment may be right or wrong, and it was open for the learned Single Judge to set aside the part of the decision of the Special Bench if the learned Judge felt that it was erroneous, but it is not permissible to give directions to the various authorities under the IT Act that Special Bench ruling should be ignored so far as it is in conflict with the High Court ruling. It was urged that such a direction would cause absolute chaos in the working of the IT Department. We find considerable merit in the submission of the learned counsel. The petitioner company had approached this Court under Art. 226 of the Constitution of India and the relief sought was setting aside the judgment of the Special Bench in so far as it deals with interpretation of the provision of s. 35B(1)(b)(iii) of the Act. The learned Single Judge did not choose to examine that aspect of the matter, but merely sounded a feeling that there is a conflict between the judgment of the High Court and the decision given by the Special Bench. The judgment under challenge does not examine whether the view taken by the Special Bench of the Tribunal is correct or otherwise. We have examined the decision given by the Special Bench and we find that the Special Bench has given various reasons as to why the observations made by the High Court does not conclude the issue. It is not possible to hold that the decision recorded by the Special Bench is, on the face of it, erroneous and was recorded by ignoring the decision of the High Court. Once the Special Bench of the Tribunal records the decision after considering the judgment given by the High Court, then the decision of the Special Bench of the Tribunal is binding on other authorities subordinate to the Tribunal and it is not permissible for those subordinate authorities to ignore the decision of the Tribunal on the spacious ground that the decision of the High Court is in conflict. Take for example, High Court considers and interprets the decision given by the Supreme Court on a certain issue. Now, is it permissible for the District Court to ignore the High Court judgment by claiming that the High Court has not properly interpreted the decision of the Supreme Court ? If the District Court is permitted to do so, it would make chaos in the administration of justice and this must be prevented at any cost. In our judgment, the direction given by the learned Single Judge that the IT authorities should ignore that part of the decision of the Special Bench which is in conflict with the High Court order is, with respect, misconceived. Indeed, it was not necessary for the learned Single Judge even to entertain the petition under Art. 226 of the Constitution and to give any such direction. In case learned Judge felt that the decision of the Tribunal on the interpretation of s. 35B(1)(b)(iii) of the Act was erroneous, then the relief should have been granted to the petitioner company in terms of prayer (a). The learned Judge not having entered into that aspect of the matter need not have given any direction but should have dismissed the petition.

8. Mr. Dastur, learned counsel appearing on behalf of the company, vehemently urged that the learned Single Judge was not only satisfied that there was a conflict between the decision of the Special Bench and the observation made by the High Court, but also felt that the decision of the Special Bench was erroneous. We are unable to see any observation in the judgment to support this submission. Indeed, in case the learned Judge would have come to the conclusion that the decision of the Special Bench was erroneous, then the learned Judge would have certainly granted relief in terms of prayers (a) and (b) of the petition. The learned Judge not having done so is a clear indicator that the learned Judge was not inclined to examine whether the view taken by the Special Bench is correct or otherwise or whether that view is in conflict with the view taken by the High Court. The mere observation that “it does appear at least as regards s. 35B(1)(b)(iii) of the Act, that Special Bench ruling is inconsistent with the High Court ruling and, indeed, the conflict is obvious” is not enough to hold that the learned Judge felt that the decision of the Special Bench was erroneous. Mr. Dastur then submitted that the learned Judge granted prayer (c) where the company sought a direction that the Department should follow the judgment of the High Court and ignore the judgment of the Special Bench to the extent mentioned in prayer (a). Surely, writ of mandamus is not issued for grant of such prayers. As rightly pointed out by the leaned Judge, the decision of the High Court is binding on every authority within the State of Maharashtra and that being the constitutional provision, writ of mandamus is not required to be issued for directing the subordinate authorities to obey the order of the High Court. It cannot be overlooked that the Special Bench was not only conscious of the order given by the High Court, but carefully examined the same and found that it was not a binding decision as regards interpretation of s. 35B(1)(b)(iii) of the Act. In these circumstances, in our opinion, there was no occasion whatsoever to give any direction to the Department.

We are also of the opinion that the petition filed by the company under Art. 226 of the Constitution of India should not have been entertained when it was open for the company to raise this contention in several assessment proceedings pending before different authorities and then to challenge the decision of the Special Bench of the Tribunal in High Court if the occasion arises. Exercise of writ jurisdiction under Art. 226 of the Constitution of India should be very sparing and whenever there is alternate efficacious remedy, the writ jurisdiction should not be exercised. In our judgment, the decision given by the leaned Single Judge cannot be sustained on the facts and circumstances of the case and the appeal of the Department must succeed.

9. Accordingly, appeal is allowed and the judgment dt. 16th June, 1982 delivered by the learned Single Judge in Writ Petn. No. 1246 of 1978 is set aside and the petition is dismissed. The petitioner company shall pay the costs of the Department throughout.

[Citation : 172 ITR 30]