Larger Bench vs Division Bench – What if Larger Bench decision stayed by High Court?
Recently the ITAT, Pune had a peculiar problem. Two decisions of the Tribunal were cited before it by the two opposing parties – one that of a Special Bench of Five Members and the other of a Division Bench of two members. Normally there would have been no problem – the Tribunal should have followed the Larger Special Bench. But the Division Bench had full knowledge of the Special Bench decision and yet decided not to follow it. Now which decision is the Tribunal to follow?
The Tribunal observed,
We are in a difficult situation in which both these contradictory decisions are cited before us and it is also pointed out to us that the Division Bench was fully aware of the Special Bench decision and yet, based on its independent analysis, came to a conclusion other than the conclusion drawn by the Special Bench. It is only elementary that a judicial forum's approach to disregard a binding precedent from a superior judicial forum, including by larger benches of the same judicial institution, is contrary to the first principles of the theory of judicial precedence. This legal position in this regard is very elaborately set out in a number of judgments by the Hon'ble High Courts and Hon'ble Supreme Court, including by Hon'ble Andhra Pradesh High Court's full bench judgment in the case of CIT Vs B R Constructions Pvt Ltd (202 ITR 222) and Hon'ble Supreme Court's judgment in the case of Union of India Vs Paras Laminates Pvt Ltd (186 ITR 722) = (). As a matter of fact, a Division Bench cannot even disregard decision of another Division Bench of equal strength, leave aside a larger bench. The fact that this a conscious decision not to follow the larger bench does not make things better. When the law mandates that a Division Bench cannot disregard another Division Bench, and here is a Division Bench decision which is directly contrary to a larger bench decision, the order so disregarding the larger bench cannot be said to have any binding force. A decision does not have binding precedence value because the reasoning of the decision is undisputable or because the matter is not capable for another view being taken, even if that be so, but the decision is binding because it is delivered by a higher judicial forum and the elementary principles of judicial discipline warrant that superior wisdom of the tier below has to give way to the higher wisdom of the tier above. It is in this backdrop, we are unable to follow the decision of the Bangalore Division Bench in Phillips Software's case (supra), so far as the question of applicability of transfer pricing provisions in a case in which assessee is eligible for tax exemption under section 10 A is concerned, and we respectfully follow the Five Member Special Bench decision in the case of Aztech Software Technology (supra), and adopt the reasoning of the said decision.”
A very wise decision indeed – but here is the catch. The Larger Bench decision was stayed by the High Court in and so the decision does not exist at all. The Tribunal was right in following the Larger Bench decision – perfect judicial discipline, but unfortunately the ITAT was not informed that the Larger Special Bench decision was stayed. So the decision that survives is the decision of the Division Bench and that should have been followed.
Moral of the story for Advocates and Consultants: Read www.taxindiaonline.com for the latest decisions! If the ITAT was informed that the Larger Bench decision was stayed by the High Court, the Tribunal's decision would have been totally different.
You will have to wait till Monday for this interesting ITAT order.