Tribunal recalled order having mistake apparent from record

Case Name : Reliance Communications Ltd vs. DDIT (ITAT Mumbai)

Appeal Number : 143/M/2014

Date of Judgement/Order : 18/11/2016

Related Assessment Year :

Courts : All ITAT ,ITAT Mumbai

 

In the instant cases, the Tribunal has not dealt with the case of Solid work Corporation (supra), even though the same has been relied upon by Ld Counsel appearing for the assessees and the Tribunal has also recorded the same in its order. In the foregoing case laws, it has been stated that non-consideration of the decision rendered by the co-ordinate bench on identical issue would result in a mistake apparent from record. Accordingly we find merit in the contentions of the assessees that the impugned order of the Tribunal suffers from mistake apparent from record.

Relevant Extract of the Judgment

10. The main contention of the assessees is that the Tribunal did not follow the co-ordinate bench decision rendered in the case of Solid Works Corporation (51 SOT 34) and the same has resulted in a mistake apparent from record. In this regard, the assessees have placed reliance on various decisions referred supra to support their contentions. It is an admitted fact that the decision rendered by co-ordinate bench has been relied upon by the counsel of the assessees and the Tribunal has also noted the same in page 28 of the order. In the case of Solid Works Corporation (supra), the co-ordinate bench of Tribunal has considered the issue, viz., whether the payment received by the assessee cited above from resellers in India on sale of computer software is royalty or not as per DTAA between India and USA. The co-ordinate bench of the Tribunal considered the decisions rendered by the Hon’ble Karnataka High Court in the case of Samsung Electronics Co. Ltd (2009)(185 Taxman 313) and the Hon’ble Delhi High Court in the case of DIT Vs. Ericsson AB (ITA No.504/2007 dated 23.12.2007) and held that the consideration received by the assessee for sale of software was not royalty. The co-ordinate bench held so by following the view expressed by the Hon’ble Delhi High Court in the case of DIT Vs. Ericsson AB, New Delhi (supra) since the same was favourable to the assessee. In this regard, the co-ordinate bench has followed the principle laid down by Hon’ble Supreme Court in the case of Vegetable Products Ltd (88 ITR 192).

11. In the instant appeals, the Tribunal admittedly did not consider the decision rendered by co-ordinate bench in the case of Solid Works Corporation (supra), even though it was relied upon by the assessees The assessees have contended that the non-consideration of the decision of co-ordinate bench, when it was specifically relied upon by the assessee would result in a mistake apparent from record and would warrant recall of the order. In support of this contention, the assessees have placed their reliance on the decision rendered by Hon’ble Supreme Court in the case of Honda Siel Power Products Ltd (supra), wherein the Hon’ble Apex Court has held that the Tribunal was justified in exercising its power u/s 254(2) when it was pointed out to the Tribunal that the judgement of co-ordinate bench was placed before the Tribunal when the original order came to be passed but it had committed a mistake in not considering the material which was already on record.

12. The Hon’ble jurisdictional Bombay High Court had an occasion, in the case of Hatkesh Co. op Hsg Society Ltd Vs. ACIT (ITA No.328 of 2014 dated 22-08-2016), to consider the question as to whether the Tribunal was justified in taking a view contrary to the decision of the co-ordinate bench of the Tribunal rendered in the appellant’s own case on identical facts without making reference to a larger bench. In the above said case, the Tribunal had passed order in favour of the assessee in AY 2003-04, 2004-05 and 2005-06 after considering the decision rendered by Hon’ble Bombay High Court in the case of Sind Co-op Hsg. Society Vs. ITO (2009)(317 ITR 47)(Bom). However, the Tribunal has taken a different view in another year in the subsequent decision rendered by it and for that purpose; the Tribunal placed reliance on the decision rendered by Hon’ble Bombay High Court in the case of Sind Co-op Hsg. Society (supra). When the assessee filed appeals before Hon’ble Bombay High Court, the Hon’ble High Court held as under:-

“4. We find that the impugned order makes reference to the appellant’s submission that the issue arising in the appeal before it is covered by the order of a Coordinate Bench of the Tribunal dated 24 June 2011 in its own case in respect of Assessment Years 2003-04 2004-05 and 2005-06. The order dated 24 June 2011 of the Tribunal was with regard to the two issues, which arose for consideration before the Tribunal in these six Assessment Years, namely, the application of principle of mutuality in respect of transfer fees and TDR premium received by the Assessee from its members. The order dated 24 June 2011 inter alia considered the decision of this Court in Sind Co. Op. Hsg. Society vs. ITO (2009) 317 ITR 47 (Bom.) before coming to the conclusion that transfer fees as well as TDR premium received from Cooperative Societies is covered by the principle of mutuality.

5. The impugned order of the Tribunal after making a note of its Coordinate Bench’s order dated 24 June 2011 seeks to take a different view. This different view was taken in the impugned order inter alia by relying upon the decision of this Court in Sind Co.Op. Hsg. Society (supra) which was also subjected to consideration in its order dated 24 June 2011. We are of the view that when an identical issue, which had earlier arisen before the Coordinate Bench of the Tribunal on identical facts and a view has been taken on the issue then judicial discipline would demand that a subsequent bench of the Tribunal hearing the same issue should follow the view taken by its earlier Coordinate Bench. No doubt this discipline is subject to the well settled exceptions of the earlier order being passed per incurim or sub silentio or in the meantime, there has been any change in law, either statutory or by virtue of judicial pronouncement. If the earlier order does not fall within the exception which affects its binding character before a coordinate bench of the Tribunal, then it has to follow it. However, if the Tribunal has a view different then the view taken by its Coordinate Bench on an identical issue, then the order taking such a different view must record its reasons as to why it does not follow the earlier order of the Tribunal on an identical issue, which could only be on one of the well settled exceptions which affect the binding nature of the earlier order. It could also depart from the earlier view of the Tribunal if there is difference in facts from the earlier order of Coordinate Bench but the same must be recorded in the order. The impugned order is blissfully silent about the reason why it chooses to ignore the earlier decision of the Tribunal rendered after consideration of Sind Co. Op. Hsg. Society (supra), and take a view contrary to that taken by its earlier Coordinate Bench. It is made clear that in case a subsequent bench of the Tribunal does not agree with the reasons indicated in a binding decision of a coordinate bench, then for reason to be recorded, it must request the President of the Tribunal to constitute a larger bench to decide the difference of view on the issue.

6. In the present facts, the impugned order of the Tribunal is not legally sustainable. We, therefore, set aside the impugned order and restore the appeal to the Tribunal for fresh disposal.”

13. Identical question was also considered in the case of Mohan Meaking Ltd Vs. ITO (89 ITD 179)(TM), wherein the Third member has held that the non-consideration of a judgment cited before the Tribunal constitutes a mistake apparent from record. The effect of non-consideration of the decision of Tribunal cited before it was discussed by Hon’ble Jurisdictional Bombay High Court in the case of DSP Investment Pvt Ltd Vs. ACIT (ITA No.2432 of 2013), wherein it was held as under:-

“6. In fact the impugned order of the Tribunal in paragraph 6 thereof does record the appellant’s reliance upon the decision of the Court of its coordinate Bench in J.K.Investors (supra). However, thereafter the impugned order does not deal with the appellant’s reliance upon the decision of the Tribunal in J.K. Investors (supra) while dismissing the appellant assessee’s appeal before it. In fact the impugned order of the Tribunal ought to have dealt with its decision in J.K.Investors (supra) and considered its applicability to the present facts.

7. In view of the fact that impugned order of the Tribunal does not deal with its decision in J K Investors (supra) relied upon by the appellant assessee in support of its submissions as recorded in the impugned order itself makes the impugned order a non-speaking order and, therefore, in breach of principles of natural In the above view, the substantial question of law is answered in the affirmative i.e., in favour of the assessee and against the revenue…”

14. Admittedly, in the instant cases, the Tribunal has not dealt with the case of Solid work Corporation (supra), even though the same has been relied upon by Ld Counsel appearing for the assessees and the Tribunal has also recorded the same in its order. In the foregoing case laws, it has been stated that non-consideration of the decision rendered by the co-ordinate bench on identical issue would result in a mistake apparent from record. Accordingly we find merit in the contentions of the assessees that the impugned order of the Tribunal suffers from mistake apparent from record.

15. The next main contention of the assessee is that the Tribunal has misread the decision rendered by Hon’ble Delhi High Court in the case of Ericsson (supra). We notice that the Tribunal has proceeded to distinguish the decision rendered by Hon’ble Delhi High Court, wherein it has by upheld the decision rendered by the Special bench in the case of Motorola (supra) and Ericssion, as under:-

“28. There is no dispute with reference to the principles established by the Hon’ble Special Bench as approved by the Hon’ble Delhi High Court in the cases cited above. However, what is to be noted in the above judgements is that the software was supplied along with hardware as part of equipment and there is no separate sale of software. Software was integral part of supply of equipment for Tele-communications in those cases. It is generally called embedded software.

29. The facts in the present case of supply of software to Reliance are that the software was supplied separately and not along with the equipments, even though the software was stated to be specific for certain equipments supplied by LTGL….”

The assessees have contended that the Tribunal has not properly appreciated the decision rendered by Hon’ble Delhi High Court. In this regard it was submitted by the assessees as under:-

“At Para 57 to 60 Pg. 20 to 21 of the said decision (Pgs. 113 and 114 of the LPB filed by the Applicant), it has been stated that in the case of Ericsson, the bifurcation of software and hardware was necessary for customs duty purposes. Further, at Para 59, the opening words read as “Be that as it may.” thereby stating that irrespective of whether or not it was purchase of only software or software along with hardware, the Hon’ble High Court held the purchase of software not to be royalty.”

The Ld A.R stated that the Hon’ble Delhi High Court has amply clarified that the software would not be royalty even if was supplied separately. Accordingly it was submitted that the manner in which the Tribunal has sought to distinguish the decision rendered by Hon’ble Delhi High Court is contradictory to the observations made by Hon’ble Delhi High Court. On a perusal of submissions made by the assessees, which are extracted above, we find merit in the contentions of the assessee that the Tribunal has not properly read the decision rendered by the Hon’ble Delhi High Court.

16. The Ld A.R submitted that the Tribunal has committed error in appreciating the facts also. He submitted that the Tribunal has observed as under in paragraph 36 of the order:-

“36. The principles laid down by the two judgements of the Hon’ble Karnataka High Court are applicable to the present cases as the fact of supply of software is similar.”

The Ld A.R submitted that the assessees have specifically argued that the software purchased by them is specific to telecom hardware, i.e., it was meant to run the hardware. The software does not have any other independent use or application. However, the Hon’ble Karnataka High Court was considering the cases of shrink wrapped software and the assessee has specifically argued, which was also noted by the Tribunal, that the decision of Hon’ble Karanataka High Court shall not apply to them. Accordingly it was contended that the Tribunal has committed an error in observing that the facts of the instant cases are similar to the facts available in the cases decided by Hon’ble Karnataka High Court.

17. In any case, the Tribunal has followed the decision rendered by the Hon’ble Karnataka High Court in the case of Samsung Co. (supra), which was rendered in the case of Shrink wrapped software. However, the Honble Delhi High Court has held in the case of DIT Vs. Infrasoft Ltd that the findings given by it in the case of Ericsson (supra) would hold good even in case of Shrink wrapped software. Accordingly it was contended that the Tribunal should have followed the decision rendered by Hon’ble Delhi High Court as it was favourable to the assessee. In any case, the decision rendered by Hon’ble Delhi High Court would be applicable to the instant cases, since the Hon’ble Delhi High Court has held that the software would not be royalty, even if it was supplied separately. The Ld A.R also submitted that Ericsson was one of the suppliers of the software to the assessees and hence the Tribunal should have given preference to the decision rendered by Hon’ble Delhi High Court over the decision rendered by Hon’ble Karnataka High Court on this count and also on the principle that the view in favour of the assessee should be adopted in case of conflicting decision of non-jurisdictional High Courts.

18. We notice that the assessee has submitted that the software purchased by it is specific to run the hardware and its functionality is that of embedded software. This aspect has been distinguished by the Tribunal by observing that the software has been purchased separately. The Ld A.R submitted that the assessee has purchased software and hardware together in some cases, but the Tribunal has failed to consider those cases, even though the Ld CIT(A) has analysed each of the agreements for purchase of hardwares/softwares. He submitted that these facts show that the Tribunal has not properly considered all the cases of software and decided the issue by generalizing the facts, which renders the order erroneous.

19. Under these set of facts, it was contended that misreading of a decision would amount to mistake apparent from record and for this proposition the assessees have placed reliance on the decision rendered by Hon’ble Allahabad High Court in the case of CIT Vs. Quality steel Tubes Ltd (253 CTR 298), wherein it was held as under:-

“11. In the present case though the Tribunal had referred to the judgment in Swadeshi Cotton Mills Co. Ltd. (supra), but later on, on the application given by the assessee that it wrongly applied the principle of law in Swadeshi Cotton Mills Co. Ltd. (supra) to the present case, found that there is difference between hypothecation and pledge of the stock. The hypothecation of the goods could not be treated as same as in the case of pledge. The Tribunal realized its mistake in wrongly applying the principles laid down in Swadeshi Cotton Mills Co. Ltd. (supra), and rectified the mistake. In the absence of power of review, where the Tribunal finds that there was apparent mistake in its order, which has caused serious prejudice to the assessee, in view of the judgments in Honda Siel Power Products Ltd. (supra) and Saurashtra Kutch Stock Exchange Ltd. (supra), it could have rectified the mistake, which was apparent on record.

12. We do not find any difference in the circumstances where the Tribunal ignores the judgment of the jurisdictional Court, or wrongly relies upon the principle of law laid down by the jurisdictional Court. In case of misreading or relying upon a principle, which was never laid down in such judgment, the reasoning would be the same as if the Tribunal had not noticed the judgment?”

It was also submitted that the co-ordinate bench of Tribunal has also considered an identical issue in the case of Plaza Investments (P) Ltd (108 ITD 239), wherein it has held as under:

“Thus, the question left for consideration in the instant case was as to whether misreading of the Supreme  Court^‟s judgment in Western States Trading Co. (P.)  Ltd.^‟s case (supra ) on the facts of the instant case  would constitute a mistake apparent from records. In the Tribunal^‟s order, which had been called into question by way of instant application, it was observed that in the light of the Supreme Court^‟s judgment in the case of Western States Trading Co. (P.) Ltd. (supra) “when shares are held as part of the trading assets, dividend on those shares would form part of ^„income from business^‟, and, therefore, in the instant case the dividend income was to be assessed as ^„income from business^‟…..

The next issue for consideration is as to whether a  considered view of the Tribunal can be subjected to  rectification of mistake. Undoubtedly, all mistakes cannot be rectified under section 254(2). The rectifiable mistakes are the mistakes which are obvious, patent, and glaring on which no two views are possible. Once a  mistake fits in this category, as in the instant case, it is  immaterial whether it is a conscious mistake or unconscious mistake. If a judicial body like the Tribunal  applies its mind to a situation but reaches a wrong  conclusion because of a simple mistake committed in  the process of reasoning, on which no two views are  possible, it will indeed be unreasonable to suggest that only because this mistake is committed after application  of mind on a situation, this is not a mistake apparent  from record. It cannot be termed as an error of judgment, but it has to be termed as a mistake  apparent from record resulting in a vitiated judgment. The difference between an error of judgment vis-a-vis an error apparent from record leading to an erroneous judgment may be thin but is too subtle to be ignored by a judicial body. The question of error of judgment can  only arise when two views are possible and one of the  views is adopted. That was not in the instant case. It was a simple case of omission to take note of the  context in which the Supreme Court made certain  observations and then interpreting those observations  as complete exposition of law on that subject….

In view of the above, the Tribunal did commit an error,  which was apparent from record, in holding that the  assessee^‟s dividend income could be taxed under the  head ^„Income from business^‟. Merely because the  exercise of powers under section 254(2) in the instant case was close to a review of the Tribunal^‟s order,  negation of a remedy provided to the applicant under the scheme, could not be justified. There cannot conceivably be two opinions on the question as to under which head dividend income can be taxed. Treating the dividend income as ^„income from business^‟ for the purposes of chargeability is a mistake, which is not capable of two views being taken in that respect. The stand taken by the Tribunal being directly contrary  to the law settled by the Supreme Court and directly  opposed to the clear provisions of law, was so  fundamental that it went to the root of the matter and  might directly affect the conclusions arrived at by the  Tribunal. The only ground of appeal in the Tribunal^‟s  order, related to that issue and, therefore, the appeal  had to be recalled in entirety. [Para 10]”

The above cited decisions support the contentions of the assessee that misreading of decision of Hon’ble High Court would result in a mistake apparent from record warranting recall of the order. We have noticed that the assessees have submitted that the software purchased by them is specific to run the hardware and hence it was not a case of shrink wrapped software. Further the Hon’ble Delhi High Court has held in the case of Ericsson (supra) that the software would not be royalty, even it was supplied separately. All these points support the case of the assessee that the Tribunal has misread the decision rendered by Hon’ble Delhi High Court in the case of Ericsson (supra). We also notice that the Tribunal has committed an error in not appreciating the facts prevailing in the instant cases. Hence we find merit in the contentions of the assessees that the impugned order of the Tribunal suffers from mistake apparent from record.

20. In view of the foregoing reasons alone, we are of the view that the impugned orders passed in Reliance Group cases deserve to be recalled.

21. The Applicant, during the course of hearing has relied on a decision of the Mumbai Tribunal in the case of DDIT v/s Reliance Infocomm Ltd. and vice versa (ITA no.5374 & 6093/Mum./2008). These were two appeals where the Applicant had filed Miscellaneous Applications and were recalled by the Tribunal vide order dated 16^thApril, 2014.

22. The Ld A.R also submitted that the Tribunal has considered about the taxability of these payments in the hands of recipients and it has been held that the consideration for sale of software received by them are not royalty. He submitted that those decisions have been rendered prior to the passing of the order by the Tribunal in the hands of the assessees. Accordingly it was submitted that the Tribunal could not have taken a different view in the cases of the assessees, when it has been held in the hands of recipients that the payments received on supply of software are not in the nature of royalty. The Ld A.R fairly admitted that the assessees did not cite those decisions before the Tribunal at the time of hearing, but contended that the Tribunal is bound by the decision rendered by the co-ordinate benches, since they were available at that point of time itself. In our view, the Tribunal cannot be found fault for non-consideration of decisions which were not cited before it, though in principle there may be merit in the contentions of the assessees. Hence we are of the view that these contentions cannot be considered in the miscellaneous petitions filed u/s 254(2) of the Act.

23. The assessees have pointed that the Tribunal has not afforded an opportunity to the assessee to address the contentions raised by the counsel of M/s Lucent, in so far as they are against the case of the assessee. The Ld D.R also fairly conceded that the Ld A.R has sought such an opportunity before the bench. It was also submitted that the assessees have not made any admission as noted down by the Tribunal in paragraph 47 of the order. In our considered view that the co-ordinate bench has passed the order after considering the various contentions raised by the assessee and hence it would be difficult, at this stage, to appreciate specific contentions raised on particular point in the proceedings u/s 254(2) of the Act.

24. The assessees have also urged other grounds viz., mistake in appreciation of certain other facts, specific agreements not considered, embedded theory not argued by Ld D.R. However, we do not find it necessary to address those contentions, since we have held that the impugned orders passed in Reliance group of cases need to be recalled for the reasons discussed in the earlier paragraphs.

24. Accordingly, we hold that the impugned orders passed in Reliance group of cases suffers from mistake apparent from record on account of non-consideration of the decision rendered by co-ordinate bench on identical issue and also on account of misreading of decision rendered by Hon’ble Delhi High Court in the case of Ericsson (supra). Accordingly we recall the impugned orders in exercise of powers granted u/s 254(2) of the Act.

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