Balkrishna V. Jhaveri

Advocate, High Court

DOCTRINE OF RES JUDICATA, BINDING PRECEDENT AND

MERGER

March 24, 2017

Principle of Res judicata

The principle of finality of litigation is based on high principle of public

policy. In the absence of such a principle great oppression might result

under the colour and pretence of law inasmuch as there will be no end of

litigation and a rich and malicious litigant will succeed in infinitely vexing

his opponent by repetitive suits and actions. This may compel the weaker

party to relinquish his right. The doctrine of Res Judicata has been evolved

to prevent such an anarchy. That is why it is perceived that the plea of

Res Judicata is not a technical doctrine but a fundamental principle

which sustains the Rule of Law in ensuring finality in litigation. This

principle seeks to promote honesty and a fair administration of justice and

to prevent abuse in the matter of accessing Court for agitating on issues

which have become final between the parties.

-(M. Nagabhushana v. State of Karnataka & Others[(2011) 3 SCC 408])

•

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Section 11 of the Code of Civil Procedure, 1908

• The principle of res-judicata is laid down in Section 11 of the Code of Civil

Procedure 1908, which reads as follows:

“No Court shall try any suit or issue in which the matter directly and

substantially in issue has been directly and substantially in issue in a

former suit between the same parties, or between parties under whom they

or any of them claim litigating under the same title, in a Court competent to

try such subsequent suit or the suit in which such issue has been

subsequently raised, and has been heard and finally decided by such

Court.”

Explanation I - The expression “former suit” shall denote a suit which has

been decided prior to the suit in question whether or not it

was instituted prior thereto.

Explanation II to VIII – Not reproduced.

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Res judicata and taxation matters

Is principle of res judicata applicable to tax matters?

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Res judicata - Generally not applicable

• The principle of res judicata is strictly not applicable to proceedings under

the Income-tax Act because every assessment year is an independent unit of

assessment. The assessment is final and conclusive between the parties

only in relation to the assessment for the particular year for which it is

made.

• H.A. Shah & Co. vs. Commissioner of Income-tax (30 ITR 618, Bom.)

• The Amalgamated Coalfields Ltd. vs. The Janapada Sabha

Chhindwara (AIR 1964 SC 1013)

• C.I.T vs. Brij Lal Lohia and Mahabir Prasad Khemka (84 ITR 273,

SC)

• C.I.T vs. Micro Land Ltd. (347 ITR 613, Karn.)

• Dharmesh R. Shah vs. JCIT (60 SOT 182, Mum.)

Cont….

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Res judicata – Applicable in certain circumstances

• The principle of res judicata does not strictly apply to the Income-tax

Authorities is not without any limitations:

If the first decision was not an arbitrary or a perverse decision

if the first decision was arrived at after due inquiries,

if no fresh facts were placed before the Income-tax Authorities including

Tribunal giving the second decision and

if the Tribunal giving the earlier decision has taken into consideration all

material evidence,

in such circumstances, the principles of res judicata will be applicable even

in the case of taxation matters.

However the effect of revising a decision in a subsequent year should not

lead to injustice and the court must always be anxious to avoid injustice to

the assessee.

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Cont…

• In following cases the courts have held that the principle of res judicata is

applicable :

Radhasoami Satsang vs. CIT (193 ITR 321, SC)

The Supreme Court held as under:

“Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each

assessment year being a unit, what was decided in one year might not apply in the

following year; where a fundamental aspect permeating through the different assessment

years has been found as a fact one way or the other and parties have allowed that

position to be sustained by not challenging the order, it would not be at all appropriate to

allow the position to be changed in a subsequent year.”

The aforesaid observations have been approved by the Division Bench of the Supreme

Court in the case of Municipal Corporation of Thane vs. M/s. Vidyut Metallics Ltd.

[(2007) 8 SCC 688].

C.I.T. vs. Durga Prasad More (82 ITR 540, SC)

C.I.T. vs. Dalmia Dadri Cement Ltd. (77 ITR 410, P&H)

Ipoh (MM) vs. C.I.T. (67 ITR 106, SC)

CIT vs. Excel Industries Ltd. (358 ITR 295, SC)

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Principle of Consistency

• CIT vs. Darius Pandole (330 ITR 485, Bom)

The Court held that the principles of res judicata could not as an abstract

principle applies to the assessment proceedings since each year of

assessment had to be considered separately, yet where a fundamental aspect

was duly considered after a query was raised by the Assessing Officer and

was answered by the assessee on the same facts, a change in view was

evidently not warranted for the assessment year in question.

• CIT vs. Gopal Purohit (336 ITR 287, Bom)

The Bombay High Court upheld the decision of the Tribunal that there

ought to be uniformity in treatment and consistency when the facts and

circumstances are identical, particularly in the case of the same assessee.

• CIT vs. Mahindra Lifespace Developers Ltd. (218 Taxman 317, Bom.)

• DCIT vs. Gujarat Narmada Valley Fertilizers Ltd. (215 Taxman 616,

Guj.)

• DCIT vs. Sulabh International Social Service Organisation. (350 ITR

189, Patna)

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Res judicata & doctrine of promissory estoppel

• Res judicata is sometimes treated as part of the doctrine of estoppel, but the

two are essentially different.

• The doctrine of promissory estoppel is that, where one party has, by his

words or conduct, made to another a promise or assurance which was

intended to affect the legal relations between them and to be acted on

accordingly, then, once the other party has taken him at his word and acted

on it, the party who gave the promise or assurance cannot afterwards be

allowed to revert to the previous legal relationship as if no such promise or

assurance had been made by him, but he must accept their legal relations

subject to the qualification which he himself has so introduced, even

though it is not supported on point of law by any consideration, but only by

his word.

• Thus estoppel is part of the law of evidence and prevents a man from

saying one thing one time and the opposite thing at another time, while res

judicata precludes a man from evolving the same thing in successive

litigations as explained earlier. Cont....

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Cont..

• CIT vs. D.K.B. & Co. (243 ITR 618, Ker)

The Kerala High Court held that the promise not to levy penalty at the time

of assessment made by the Assessing Officer cannot constitute promissory

estoppel since an assessing office has no authority to promise non levy of

penalty under the Statute. The decision could have been different, if such

assurance has been granted by the Commissioner, who has the necessary

authority to waive penalty u/s. 273A of the Act.

• Abdul Quane vs. CIT [184 ITR 404, All]

• Nirmala L. Mehta vs. A. Balasubramaniam, CIT & Ors. [ 269 ITR 1,

Bom.]

• Mindtree Ltd. vs. Union of India (34 taxman.com 250, Kar. )

• Motilal Padampat Sugar Mills Co. Ltd. vs. State of U.P. (118 ITR 326,

SC)

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Conclusion

Thus, it can be stated that the principle of res judicata is not generally

applicable to decisions of Income-tax Authorities. An assessment for a

particular year is final and conclusive between the parties only in relation to

the assessment for that year and it is not binding either on the assessee or

the Department in a subsequent year. However, if the earlier decision is not

arbitrary or perverse or if it had been arrived at after due inquiry or if no

fresh facts are placed before the Tribunal (which is the last fact finding

authority) giving the later decision, and if the Tribunal giving the earlier

decision has taken into consideration all material evidence, in that case the

principle of res judicata will apply.

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Doctrine of binding precedent

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What is binding?

• It is well settled that it is only the ratio decidendi that has a precedent value.

As observed by the Supreme Court in S. P. Gupta v. President of India,

AIR 1982 SC 149 (at page 231):

"It is elementary that what is binding on the court in a subsequent case is

not the conclusion arrived at in a previous decision, but the ratio of that

decision, for it is the ratio which binds as a precedent and not the

conclusion.“

• A judicial precedent is only an authority for what it actually decides and not

what may come to follow logically from it. Judgments of courts are not to

be construed as statutes.

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Whose decision binds whom?

• This question is very succinctly answered by the Bombay High Court in the

case of CIT vs. Thane Electricity Supply Ltd. (206 ITR 727) :

(a) The law declared by the Supreme Court is the law of the land and therefore, it is

binding on all courts in India. However, the Supreme Court itself which is free to review

the same and depart from its earlier opinion if the situation so warrants. What is binding

is, of course, the ratio of the decision and not every expression found therein.

(b) The decisions of the High Court are binding on the subordinate courts and authorities

or Tribunals under its superintendence throughout the territories in relation to which it

exercises jurisdiction. It does not extend beyond its territorial jurisdiction.

(c) The position in regard to the binding nature of the decision of a High Court on

different Benches of the same court, may be summed up as follows:

A single judge of a High Court is bound by the decision of another single judge or a

Division Bench of the same High Court. It would be judicial impropriety to ignore

that decision. Judicial comity demands that a binding decision to which his attention

had been drawn should neither be ignored nor overlooked.

…Cont

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Cont…

A Division Bench of a High Court should follow the decision of another Division

Bench of equal strength or a Full Bench of the same High Court. If one Division

Bench differs from another Division Bench of the same High Court, it should refer

the case to a larger Bench.

Where there are conflicting decisions of courts of co-ordinate jurisdiction, the later

decision is to be preferred if reached after full consideration of the earlier decisions.

(d) the decision of one High Court is neither binding precedent for another High Court

nor for courts or Tribunals outside its territorial jurisdiction.

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Judicial precedents

• Decisions on binding precedents :

Siemens India Ltd. vs. K Subramanian (143 ITR 120, Bom.)

UOI vs. K.S. Subrmanian (AIR 1976 SC 2433)

CIT vs. Oberoi Hotels Pvt. Ltd. (334 ITR 293, Cal.)

• Effect of Order of Dismissal of SLP / Appeal by Non-Speaking Order:

Smt. Tej Kumari V. Commissioner Of Income Tax & Ors. [247 ITR 210,

PAT-FB]

Gangadhara Palo vs. The Revenue Divisional Officer [(2011) 4 SCC 602]

• Binding principle of Tribunal on the co-ordinate bench

DLF Universal Ltd. vs. CIT (306 ITR 271, Del.)

• Decision of the Tribunal is binding on CIT(A) and also the Assessing

Officer functioning under its jurisdiction.

UOI vs. Kamlakashi Finance Corporation Ltd.(AIR 1992 SC 711).

C.I.T vs. Goodlas Nerolac Paints Ltd. (188 ITR 1, Bom.)

• …Cont

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Cont…

• The Binding nature of the circular vis-a-vis High decision or Supreme

Court decision.

If a circular is in conflict with the law laid down by the High Court or the

Supreme Court, the Revenue authorities while acting quasi judicially should

ignore such circular in discharge of their quasi judicial functions.

Bharatia Industries Ltd. vs. CIT [(2011) 243 CTR 328, Cal.]

Hindustan Aeronautics Ltd. vs. CIT [(2000) 160 CTR 524, SC]

• Binding nature of earlier decision of the AAR

Re Caselton Investment ltd.(348 ITR 537, AAR)

The Authority for Advance Ruling (AAR) observed that the Authority should be slow in

disagreeing with a proposition of law unrelated to facts, enunciated in an earlier ruling.

But, when the Authority is convinced that a view already expressed may not be correct, it

should not deter the Authority from expressing itself.

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Doctrine of merger

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Doctrine of merger

• The doctrine of merger is a common law doctrine founded on principles of

propriety in the hierarchy of the justice delivery system. The logic

underlying the doctrine is that there cannot be more than one decree or

operative order governing the same subject matter at a given point of time.

When a decree or order passed by an inferior Court, Tribunal or Authority

is subjected to a remedy available under the law before a superior forum

then, though the decree or order under challenge continues to be effective

and binding, its finality is put in jeopardy. Once the superior court has

disposed of the lis before it either way- whether the decree or order under

appeal is set aside or modified or simply confirmed- it is the decree or order

of the superior court, tribunal or authority which is the final, binding and

operative decree or order wherein the decree or order of the inferior Court,

Tribunal or Authority merges.

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Judicial precedents

• The principles relating to the doctrine of merger are explained by the Delhi

High Court in the case of CIT vs. Uttam Chand Jain (245 ITR 838) as

under:

The doctrine of merger is not a doctrine of rigid and universal application.

Whether there is a fusion of merger of the order of the inferior Tribunal into an

order by a superior Tribunal will have to be determined by finding out the

subject matter of the appellate or revisional order and the scope of the appeal or

revision contemplated by the particular statute.

Ordinarily, a judgment pronounced in appellate or revisional jurisdiction after

issuing a notice of hearing to both the parties would replace the judgment of the

lower court thus constituting the appellate or revisional judgment, the only final

judgment.

The doctrine of merger does not apply where an appeal is dismissed:

• for default,

• as having abated by reason of the omission of the appellant to implead the legal

representatives of a deceased Respondent;

• as barred by limitation.

….Cont

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Cont…

• V.M. Salgaonkar & Bros. Pvt. Ltd. vs. CIT [243 ITR 383 (SC)]

– It was held that where an appeal is dismissed by the Supreme Court by a non-

speaking order, the order of the High Court or the Tribunal from which the

appeal arose, merges with that of the Supreme Court. In such a case, the

Supreme Court upholds the decision of the High Court or the Tribunal from

which the appeal is provided under Article 133(3) of the Constitution.

• CIT vs. ICICI Bank Ltd. (343 ITR 74, Bom)

• Kanoria Chemicals & Industries Ltd. vs. CIT (222 Taxman 212, Cal.)

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Thank you

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Balkrishna V. Jhaveri

Advocate, High Court