INCOME TAX ACT, 1961

Appeal (Tribunal)- Reference to third member-Jurisdiction of third member

Assessee was a civil contractor, it was engaged in construction of various projects of the Government of Maharashtra, the Government of Karnataka and various local authorities. It declared its total income after claiming deduction under section 80-IA by furnishing its returns. These amounts were computed after showing net profit from the business of infrastructure project claimed to have been carried on by assessee during the relevant years. It was claimed that gross total income of assessee included profits and gains derived from business referred to in section 80-IA(4), hence, it was entitled to deduction. AO did not allow deduction on the ground that assessee had not fulfilled conditions stipulated in section 80-IA(4) as infrastructure was not owned by assessee-company. There was no agreement between assessee-company and the Central Government or a State Government or a local authority or any other statutory body for developing or operating and maintaining or developing, operating and maintaining any infrastructure facility which fulfilled conditions as set out in clause (i) of sub-section (4). Assessee did not carry any business in infrastructure facility and it was not in any business of infrastructure facility as it had just constructed the properties belonging to the Government/statutory bodies and parted with them after getting the contract amount fixed for this purpose, in other words the construction was done by assessee as per requirements of the Government/statutory bodies and this work was done for and on behalf of the Government and statutory bodies and not for operating any infrastructure facility. AO came to the conclusion that the assessee was not entitled to deduction under section 80-IA in both the years. CIT(A) was of view that assessee could not be called as a developer as per the provisions of section 80-IA because no agreement was signed by it with the Central Government or the State Government or local authorities for development of projects under BOT or BOOT scheme. Assessee was held to be a mere contractor for executing the projects of the various Governmental authorities as the benefit under section 80-IA was available to those enterprises who were engaged in the business of developing, operating or maintaining or developing, operating and maintaining infrastructure projects, assessee was held to be not entitled to same benefit as it did not fall in any of the eligible categories for deduction. Judicial Member accepted contention of assessee and granted the deduction on the basis of Circular No. 733, dated 30-1-1996 after clarifiying that after construction project was to be transferred to the Central Government, hence, assessee could not be denied deduction only on the ground that the projects were owned by the Central Government. It was of view that even consortium of such enterprises or companies could enter into agreement with State Government so as to operate, develop and maintain the infrastructure facility. He further held that the term contractor did not contradict the term developer. Finally, the assessee was held to be developer of an infrastructure facility and, hence, its income from the business of construction activity was made eligible for deduction under section 80-IA. The Accountant Member did not concur with the view expressed by the Judicial Member in granting deduction under section 80-IA(4) in respect of all the projects undertaken by the assessee. Accountant Member was held that even if there was some lack of clarity in the main provision, the new Explanation clarified the position that no deduction could be allowed. Therefore, he disagreed with the Judicial Member on the granting of deduction under section 80-IA. The matter was sent to the President of the Tribunal for making a reference to the Third Member under section 255(4). Matter was referred to a Larger Bench comprising of three Members in exercise of his powers under section 255(3) and 255(4). In the course of proceedings before the Larger Bench, assessee, raised a preliminary objection by contending that before dealing with the points of difference on merits it needed to be clarified as to whether the reference as proposed to be decided was the one made under section 255(4) or 255(3), it could not be under both the sub-sections since the scope and limitations in both the situations were vastly different. Assessee submitted that the Bench would have no power to adjudicate upon the points on which there was no difference of opinion. Accountant Member had expressed his dissenting opinion only on one of such projects. According to the assessee, since there was no difference of opinion between the Members on the remaining projects, the same could not be a subject-matter of reference to the Third Member. Held: It was imperative to deal with the preliminary objection so as to dispel any doubt about the nature of the constitution of this Larger Bench and the sub-section under which it was constituted. [Para 8]

A bare reading of section 255(3) indicated that President may constitute a Special Bench consisting of three or more Members for the disposal of any particular case but section 255(4) is applicable only when there is difference of opinion between the Members of the Division Bench on the point(s) before them and in order to bring the majority rule to the fore, President of the Tribunal refers the point or points of dispute to one or more other Members of Tribunal. Whereas in sub-section (3), Special Bench is constituted for disposal of any particular case which must consist of three or more Members, sub-section (4) talks of one or more of the other members. The latter sub-section clearly empowers the President to nominate one or more other members distinct from those who had earlier heard the matter. Such number of members appointed to act under sub-section (4) may be three or five, etc. The number of members so appointed usually remains odd so that any problem regarding majority of opinion is ruled out. Therefore, in both the sub-sections there cannot be any bar on nominating three or more members. [Para 9]

If there are two conflicting provisions in the same section or clause, the special provision will prevail as the same is excluded from the general provision. In simple words, if a specific provision is made for a certain subject, that matter is excluded from the general provision. From the above discussion it can be seen that a specific provision is made under sub-section (4) to appoint one or more members for dealing with a situation in which members, who heard the appeal have passed the dissenting orders. On the other hand, sub-section (3) contains a general provision for appointing three or more members for disposal of any particular case. It boils down to that no Special Bench can be constituted under sub-section (3) of section 255 in a particular case where dissenting orders have already been passed by the Members constituting the Division Bench. [Para 11]

Judicial Member who allowed the assessees appeals, but the Accountant Member was held that assessee to be ineligible for deduction. Both the members made reference to the President for appointment of the Third Member under section 255(4) on two questions mutually framed by them with consensus. The President initially heard the case as a Third Member and noted that the Accountant Member had unilaterally relied on the Explanation to section 80-IA(13) inserted by the Finance Act, 2007 which was introduced by the Finance Bill, 2007, i.e., after the conclusion of hearing, without giving any opportunity to the parties to address on it. While exercising his power under section 255(3) and 255(4), referred the matter in dispute to a Larger Bench comprising of three members so that there was no problem of majority. As the reference stood already made by the Members of the Division Bench under section 255(4) when they shortlisted their difference of opinion by formulating, the constitution of the Larger Bench by the President under such compelling circumstances was only under sections 255(4) and not under section 255(3). The reference to sub-section (3) by the President in this reference appeared to be only with a view to nominate a Larger Bench of three members so that there might not be any problem of majority opinion on the applicability or otherwise of the Explanation to section 80-IA(13) inserted by the Finance Act, 2007. Therefore, for all practical purposes it was a reference to the Larger Bench comprising of three members under section 255(4). [Para 12]

There is no dispute on the fact that the proceedings under section 255(4) are confined to the point or points on which the members of the Division Bench differ. One or more of the other members appointed under sub-section (4) are supposed to confine himself/themselves only to the facts of the case before the Bench. When the point of difference is restricted only to the evaluation and examination of the factual position prevailing in that case and no substantial question of law is involved, it is not permissible to allow any intervener to jump in the proceedings. Because of the very nature of such proceedings under sub-section (4) confined to the facts of a particular case, ordinarily the interveners cannot be allowed to participate. It is more so for the reason that each case is based on its own facts and a small variation in the facts of one case from another alters the entire character of the transaction. If the intervener is allowed to argue in the proceedings under section 255(4), which are obviously distinct proceedings it may cause some problem in the adjudication of the matter of the inter-vener. Since the decision by the Bench under section 255(4) has to be based on the facts of that very case, no general proposition can be laid down which may also apply to other factual situations prevailing in other cases. [Para 14]

Another question that came up for consideration was whether the Tribunal has to decide an issue on the basis of the law as it stands on the day of the passing of the order. The assessee argued that the Accountant Member passed his order by taking cognizance of the provisions of the Finance Bill, 2007 which were not enacted by that time. According to the assessee the reliance by the Accountant Member on the Explanation to section 80-IA(13) was bad, in law, for the reason that he took note of a provision in the Finance Bill at the time of passing his order. Assessee referred to section 294 for seeking assistance in support of its submission that the Explanation ought not to have been considered by the Accountant Member because at the time of passing of his order it was not there on the statute and in the absence of such Explanation, only the provisions of section 80-IA, without the Explanation, should have been taken note of. [Para 16] It was found that section 294 was not applicable to the circumstances. On a bare perusal of this section it is observed that the same refers to for the charging of income-tax for that assessment year. When one considers the language of section 4, which is a charging section, it turns out that the same, inter alia, refers to the rate or rates of income-tax which shall be charged for the assessment year in accordance with and subject to the provisions of this Act in respect of the total income of the previous year of every person. Though section 4 is a charging section, yet the rates of tax are provided by the relevant Finance Act. Thus, section 4 is a medium for giving effect to the provisions of the Finance Act. It is in this context that section 294 is relevant. Ex consequent the net effect of section 294, read with section 4, on the one hand and the relevant Finance Bill/Act on the other hand is that if the Finance Bill providing rates of tax has been enacted, then the rates as per the Finance Act as on the 1st day of April in the assessment year shall be applicable, but if the relevant provisions in the Finance Bill have not been enacted then the rates so proposed or those already applicable, whichever are more beneficial to the assessee, shall be applicable. [Para 17]