By TIOL News Service

AHMEDABAD, JULY 26, 2017: THE ISSUE BEFRE THE COURT IS - Whether Tribunal can review or reconsider its own decision and render an order entirely different on facts & law already presented, while exercising its powers under rectification. NO is the verdict.

Facts of the case:

The assessee is an Institute of Housing and Estate Developers. The question of taxing its income earned from the contribution of its members reached the ITAT. Case of the assessee was that on the principle of mutuality, the same was not taxable at the hands of the assessee. For the A.Ys 2006-07 to 2011-12, the Tribunal passed a common order confirming the view of AO holding that such income was taxable. In such an order, the Tribunal referred to a relatively recent decision of the Supreme court in case of Bangalore Club vs. Commissioner of Income Tax - 2013-TIOL-05-SC-IT and noted that three basic features would have to be tested i.e. complete identity between the class of contributors and the participators, the action of the participators and contributors should be in furtherance of the mandate of the association and lastly that there should not be any scope of profiteering by the contributors from a fund made by them which could only be extended or returned to themselves. The Tribunal thereafter by a detailed reasoned order proceeded to apply each of the tests to facts on hand and ultimately came to the conclusion that none of the tests were satisfied and therefore the principle of mutuality would not apply. Against such order of the Tribunal, the assesee preferred Misc. Applications requesting to recall the order on an apparent error being committed. The Tribunal thereafter recalled its earlier order of rejection of assessee’s appeals and proceeded to held that principle of mutuality would apply and the income of the assessee would not be taxable.

On appeal, the HC held that,

++ the powers of the Tribunal to rectify its orders flow from Section 254(2) of the Act. Under sub-section (1) of Section 254, the Appellate Tribunal would after hearing both sides on appeal pass such orders as it thinks fit. Sub-section (2) of Section 254 in turn provides that the Appellate Tribunal at any time within six months (previously the period was four years) from the end of the month in which the order was passed, with a view to rectifying any mistake apparent from the record, amend any oder passed by it under sub-section (1). It is well settled that this power of rectification of the Tribunal is for correction of a mistake apparent from the record and is vastly different and far more circumscribed than the review powers. In other words, while exercising powers under rectification, the Tribunal cannot review or reconsider its own decision and render an order entirely different on facts and law already presented. If the error sought to be corrected by the parties is such which would require elaborate consideration, discussion and reasoning, it cannot be stated to be a mistake apparent on the record;

++ in the present case, as noted the Tribunal had given detailed reasons for coming to the conclusion that the principle of mutuality would not apply. While accepting the assessee’s rectification applications, the Tribunal undertook equally painstaking and elaborate consideration of the very same issues and very same facts to come to a contrary conclusion. It is not necessary nor possible for us to hold whether the Tribunal’s first view was correct or the subsequent one. It is enough to hold that the Tribunal could not have undertaken such incisive and detailed examination of facts and law to come to the conclusion which are completely contrary to its own conclusion arrived at after detailed considerations. Such powers simply do not flow from the power of rectification u/s 254(2) of the Act. Under the circumstances, the Tribunal committed a serious error in allowing the assessee’s rectification applications and recalling its earlier order of rejection of appeals.

(See 2017-TIOL-1398-HC-AHM-IT)