The judgment of the court was delivered by
1. After hearing Sri Alok Mathur, learned counsel for the appellant and Sri Wasiquddin Ahmad, learned counsel for the respondents, we find that only substantial question of law, which has arisen in these appeals, is, "whether it was open to Third Member, to whom certain specific points of dissents were referred for opinion, to answer those questions in his own way or decline to answer some of those questions, and due to lack of clear answers given or some questions remained unanswered by Third Member, was it open to the Regular Bench to hear the matter and decide the appeal afresh, in the manner it likes without deciding the matter in the light of majority of opinion of the Bench ?"
2. Since we are considering the procedure followed by the Tribunal in deciding appeals, pending before it, filed by the Revenue, as well as the assessee, we are not entering into merits of the matter.
3. There appears to be a difference of opinion between two Members of the Bench as a result whereof the following seven questions were referred to the Third Member for his opinion.
"(1) Whether on the facts and circumstances of the case particularly the fact that both the assessee and the Revenue have challenged the alternation of system of accounting by the learned Commissioner of Income-tax (Appeals) from mercantile to cash in the computation of the assessee's income from the 'Golden Key Scheme', the Tribunal with reference to its powers under sub-section (1) of section 254 of the Income-tax Act, 1961, could adjudicate the issue ?
(2) If the answer to question No. 1 is in the affirmative whether on the facts and circumstances of the case and in law, system of accounting to be adopted by the assessee should be cash or mercantile ?
(3) Whether if mercantile system of accounting is to be adopted the assessee should be entitled to prize money for the entire scheme running over 12 years during the first year itself ?
(4) Whether on the facts and circumstances of the case, proviso 1 appended to sub-section (1) of section 145 of the Income-tax Act, 1961, could be invoked or not ?
(5) Whether either with reference to the provisions of section 211 of the Contract Act or sections 2(24), 4 and 5 of the Income-tax Act, 1961, any notional interest could be added in the hands of the asses see due to the delayed remittance of collections made by their agent M/s. Sahara India in respect of 'Golden Key Scheme' ?
(6) Whether in law as also according to the principles of natural justice the dissenting Member could refer to certain case law of different High Courts (no dispute about Supreme Court case law) not cited by either side during the hearing of the appeals ?
(7) Whether if adoption of mercantile system is upheld, the questions of discounting and application pro rata in respect of deduction towards prize liability under the 'Golden Key Scheme' should go back to the Regular Bench for its decision, considering that the Accountant Member has not adjudicated on these aspects ?"
4. Third Member declined to answer questions-5 and 6 and remaining questions were answered, some categorically, and some, in a vague manner. In view of this kind of opinion rendered by Third Member, when the matter again went to the Regular Bench, it found it difficult to decide appeals on the basis of majority opinion of Members in the light of section 255(4) of the Income-tax Act, 1961 (hereinafter referred to as the "Act, 1961") and consequently heard the matter and decided the appeals by means of impugned judgment dated May 31, 2005 taking its own view.
5. The question is whether this procedure followed by the Tribunal render the judgment in question invalid ?
6. Section 255(4) of the Act, 1961 deals with the situation when there is a difference of opinion in two Members of Bench and provides a procedure to be followed in such a contingency. It reads as under :
"Procedure of Appellate Tribunal.- . . .
(4) If the members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority, but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Appellate Tribunal for hearing on such point or points by one or more of the other members of the Appellate Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Appellate Tribunal who have heard the case, including those who first heard it."
7. The aforesaid provision makes it clear that if two Members equally divide or differ on certain point or points, such points shall be formulated by them and those points shall be considered by one or more Members of the Tribunal as constituted by the President of the Appellate Tribunal and such point or points thereafter shall be decided according to the opinion of majority of Members, who have heard the case including those who first heard it. In the present case, two Members initially differed in their views and formulated 7 points. A single Member was constituted to hear those points. Such member has no other option but to answer those points and thereafter the decision of the Tribunal has to be given by the Regular Bench in the light of majority opinion, i.e., 2-1 and not by deciding the entire matter after re-hearing the case afresh. The Bench to which the matter comes after the opinion of the referred Bench, had to decide the matter on majority of opinion already available and not to rehear and decide on its own.
8. In other words, we can say, when specific points of dissent were referred to be answered by Third Member, it was not open to him to sit in appeal over the matter and decide some questions and leave some questions unanswered in his own way. The Third Member ought to have endeavoured to answer the questions referred to him in a specific manner so that the matter ultimately could have been decided by Regular Bench in the light of majority opinion but that has not been done in the case in hand. Therefore, we find that the Third Member as well as the Regular Bench have not acted in the manner, as contemplated in law.
9. Having gone through the record, we find that the dissenting opinion were rendered by the Accountant Member and the Judicial Member of the Tribunal on October 16, 1996 and thereafter both the Members stated points on which they differed which we have noticed above. The Third Member, i.e., Senior Vice-President, Sri V. Dongzathang, rendered his opinion vide order dated March 26, 1998. It answered question No. 1 by observing, when the assessee and Revenue both are aggrieved by an order of the Commissioner of Income-tax (Appeals) (hereinafter referred to as "CIT(A)") it is incumbent upon the Tribunal to adjudicate issue raised before it and pass such order thereon as it thinks fit. Question No. 1, therefore was answered in the affirmative.
10. Question No. 2 was answered stating that there is no need of changing entire system of accounting adopted by the assessee as the entries in accounts are correct and complete on the basis of which correct income chargeable to tax can be computed.
11. Question No. 4 was also answered in affirmative.
12. Questions Nos. 3 and 7 were taken together and without giving any answer deciding the same in one or other way, it observed that both these questions are decided in the light of observations. The entire observations made in respect to Questions Nos. 3 and 7 read as under :
"Questions Nos. 3 and 7
20. These questions are again closely related. The assessee in this case received a deposit of Rs. 2,500 out of which Rs. 1,000 was given to the account holder in the form of N.S.C. The balance of Rs. 1,500 has been treated as revenue receipt by the Assessing Officer and the Commissioner of Income-tax (Appeals). Out of this amount of Rs. 1,500, it is an admitted fact that the assessee has to conduct 144 monthly draws and 48 bumper draws in which the subscribers are entitled to participate. A subscriber to the scheme who did not win a prize in any draw held during the tenure of the scheme also is entitled to a minimum guarantee prize of Rs. 2,500 at the termination of the scheme. In such a case, it is necessary to determine the proportionate income for each of the 12 years. The revenue receipts including the initial deposits and the interest thereon and revenue deductions have to be proportionately worked out so as to enable the assessee to run the full tenure of the scheme in accordance with the provisions made under the Golden Key Scheme. As discussed earlier, the learned Commissioner of Income-tax (Appeals) and the learned Members of the Tribunal emphasised more on the system of accounting rather than trying to find out the real profit for each of the above years. It is, therefore, necessary for the Tribunal to adjudicate on this point and evolve a basis or manner in which such deduction is to be allowed. In the light of the above, question No. 3 has to be decided accordingly. Consequently the quantum of deduction during the year has to be decided by the Tribunal in the light of question No. 7."
13. We find that the Third Member instead of answering questions has looked into the correctness of decision of two differing Members and observed that they have not looked into the relevant circumstances and should re-decide ground of appeal after giving opportunity to both the sides. The Third Member, it appears, forgot his position that he was not sitting in appeal over the opinion rendered by two Members of the Tribunal since jurisdiction of Third Member was co-ordinate and it was his duty to hear the two sides and decide question referred for its opinion in one or other way and not to make comments in the manner in which two differing Members have rendered their opinion for deciding certain issues. Unfortunately, Third Member has looked into question No. 5 as if he was sitting in appeal over different opinions recorded by two Members and this approach on the part of the Third Member is clearly erroneous. Whether any purpose would be served by answering question No. 5 or not was not within the domain of the Third Member for the reason that it was under a statutory duty to answer questions referred for its opinion in one or other way. Some of the observations made by the Third Member of the Tribunal commenting upon differing Members of the Bench are clearly beyond his authority. We have already said, he was not hearing an appeal of judgment of two Members of the Tribunal but was under an obligation to render his own opinion after hearing the parties on specific points rendered by two differing Members. Interestingly, this strange approach and manner of functioning of the Third Member has put the Regular Bench in a difficult situation. In the order dated December 31, 2003, the Division Bench found it a rare casewherein judgment was not possible in the manner in which it was required by section 255(4). The Bench, however, found itself obliged to comply with the Third Member's opinion of reopening issues and requiring re-hearing of appeals of the assessee/Department as well as cross-objection on the points of difference. The awkward situation in which the Regular Bench was placed by strange order passed by the Third Member is writ large from what has been said in para 9 of order dated December 31, 2003, which reads as under :
"9. This is one of the rarest case in which the Bench is unable to pass final order under section 255(4) of the Act. We are supposed to pass the final order as per majority but we are having three orders out of which the two initial orders are of Members, which constituted the Bench and naturally both of them were having their reservations/differences on some points, which were ultimately referred to the hon'ble Senior Vice-President, but facts remain that the hon'ble Senior Vice-President, the Third Member instead of agreeing with either of the Member, who passed the dissenting order had reopened the same issues afresh implying the fresh disposal of the appeals by this Bench. Under these circumstances, this order under section 255(4) of the Act is passed to the effect that appeals of the assessee/Department as well as cross-objections shall be disposed of afresh on the points of differences as observed by the Third Member. Registry is directed to fix the same in the second week of February 2004 after issuing notices to the assessee as well as to the Department."
14. This situation was created by the Third Member who appears to have forgotten its own duty and statutory obligation that it has to decide specific points referred for its opinion and not to sit in appeal over the entire matter and take its own decision independently and bereft of points formulated by different Members and referred for opinion of the Third Member.
15. We have no option but are constrained to observe that the order and approach of the Third Member is patently erroneous, illegal, impermissible and constitutionally unsustainable in law rendering the order dated December 31, 2003, passed by the Regular Bench, unsustainable.
16. The questions formulated above, in these appeals, we answer in favour of the appellants and accordingly set aside not only the order passed by the Regular Bench on December 31, 2003 but also the Third Member's order dated March 26, 1998 and remand the matter to the President of the Tribunal to nominate another Bench constituting one or more Members to consider and decide the seven points formulated by differing Members in their order dated October 16, 1996 for giving opinion thereon and thereafter the Regular Bench may decide the matter in the light of the majority opinion as contemplated in section 255(4) of the Act, 1961.
17. Since all these are old matters, we expect that the Tribunal shall expedite hearing of these appeals and decide the same at the earliest, preferably within three months from the date of production of a certified copy of this
ORDER
18. All the appeals are allowed in the manner as aforesaid.