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Judgment context


It is well-settled that the import and scope of a judgment or the observations of the Court have to be understood in the light of the questions/issues and the controversy before the Court. It is not desirable and proper to pick out a word and read it as laying down a principle of law divorced from the context of the subject-matter of controversy. Also it is well settled principles of law that the reasons stated in a particular order or judgment has to be taken in view of the particular facts and circumstances prevailing in that particular case. Thus it is a settled law that the ratio of a decision alone is binding and not a stray sentence or a casual remark. The entire judgment has to be considered.


It is well-settled principle of law that the decision of the Court must be read in the context in which it has been rendered. The Supreme Court in CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297  has observed, “it is neither desirable nor permissible to pick out a word or sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treated to be complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment had to be considered in the light of the question which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case Courts must carefully try to ascertain the true principles laid down by the decision.”


Yet again the Constitution Bench of the Supreme Court in case of Padmasundra Rao v. State of Tamil Nadu [2002] 255 ITR 147 observed at page 153 :


“Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morrin in Herrington v. British Railway Board (1972) 2 WLR 537 (HL). Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases.”


Reference may also be drawn to the decision of CIT v. Sudhir Jayantilal Mulji [1995] 214 ITR 154,5 (Bom).


Export profits determination formula


In the matter of determination of export profits the Delhi Tribunal in Deputy Commissioner of Income-tax vs. Lotus Trans Travels (P.) Ltd. (2005) 98ITD115 narrated the settled legal position so as to say that to work out proportionate amount of such profits correctly both the numerator ( export turnover) as well as denominator ( total turnover)  should be found out on a uniform basis.


It is now also settled that section 80HHC would be governed by section 80AB.


Computation and charging provisions


The Kolkata Tribunal in Deputy Commissioner of Income-tax, Central Circle- vs. M.L. Dalmiya & Co. Ltd  (2005) 98ITD93 held that the computation provisions are to be applied subsequent to the charging provisions and in this regard brought on record that it is settled law that the computation provisions cannot supersede the charging provisions. Reading such rule the bench in this case held that if some income cannot become undisclosed income within the definition under section 158B(b), it cannot be brought to tax by way of computation under section 158BB.


Rule of interpretation


The Delhi Tribunal in Deputy Commissioner of Income-tax vs. Paramount Trading Corpn. (2005) 98ITD77T read out the well settled rule of interpretation i.e. the provisions of a statute should be construed harmoniously and reasonably so that the object of the enactment is achieved and not in the manner which defeats the object.


Vide Padmasundra Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC) it is a well settled principle of law that the court cannot read anything into a statutory provision which is plain and unambiguous. It is further settled that the first and primary rule of construction is that the intention of the legislature must be found in the words used by the legislature itself.


Rule of res judicata


The Supreme Court in ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 held that the decision of the ITO given in a particular year did not operate as res judicata in the matter of assessment of subsequent years. In yet another instance the Apex Court in M.M. Ipoh v. CIT [1968] 67 ITR 106 laid down that the assessment and the facts found were conclusive only in the year of assessment. As per the Court the findings of a year may be good and cogent evidence in subsequent year, but they were not binding and conclusive. This is also reiterated in CIT v. Brij Lal Lohia & Mahabir Prasad Khemka [1972] 84 ITR 273 (SC).

At the same time it is also settled vide Radhasoami Satsang vs. CIT (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC) that although strictly speaking, the principle of res judicata may not be applicable to income-tax matters, yet when a settled position has been arrived at after consideration of all the relevant materials, such position should not be disturbed in future years unless compelling circumstances exist for doing so.


Admission or surrender- can be retracted if —–


In the case of Shri Krishan v. Kurukshetra University AIR 1976 SC 376, the Supreme Court held that it is well settled that any admission made in ignorance of legal rights or under duress cannot bind the maker of the admission. In Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 (SC) the Supreme Court held that an admission is an extremely important piece of evidence but it cannot be said that it is conclusive and that it is open to the person who made the admission to show that it is incorrect.


Shareholder & company are separate legal entities


It is settled by the Apex Court in the case of Bacha F. Guzdar v. CIT [1955] 27 ITR 1 that a shareholder in a company does not derive income from the business of the company and, any dividend received by him does not partake the character of income assessed in the hands of the company.


Search assessment and general assessment


The Agra bench of ITAT in Chandra Bhan vs. Assistant Commissioner of Income-tax, Circle 1, Ma (2005) 98ITD6 surfaced the well settled law that while making order under section 158BC, the Assessing Officer does not have the same jurisdiction that he has while assessing the income of assessee under the general provisions of the Act. Under the provisions of section 158BC, the Assessing Officer can bring to assessment only that undisclosed income, which has a nexus with the evidence found as a result of search or requisition of such other materials or information as are available with the Assessing Officer and relatable to such evidence. In the regular assessment under section 143(3), the Assessing Officer is empowered to bring to assessment any income chargeable to tax under the provisions of the Act.


IT Act – self contained code


It is well settled legal position that Income-tax Act is a self-contained code. In the case of Rao Bahadur Ravulu Subba Rao v. CIT [1956] 30 ITR 163 (SC) at page 173, the Supreme Court observed as under:


“… the Income-tax Act is a self-contained code exhaustive of the matters dealt with therein, and its provisions, show an intention to depart from the common rule, qui facit per alium facit se.”




Gopal Nathani


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