Of late, there have been many instances where the Supreme Court has dismissed SLPs filed by the Applicant [Assessee or Department] against judgement of various High Courts. Some of the judgements of such High Courts have universal and far reaching implications, as the ratios thereof may sought to be applied to the cases of many other assessees on the ground that the ratios have been approved by the Apex Court. Some of the examples are cases concerning bogus purchase, penny stock, share premium received from shareholders, etc.; the latest being the dismissal of the SLP by the Supreme Court in the case of Suman Poddar v. ITO – (2019) 112 taxmann.com 330 (SC), a case involving the issue of penny stock. A case of an assessee may be situated in a State different then the State under the jurisdiction of that particular High Court which rendered the judgement and there may not be any such judgement rendered by the jurisdictional High Court in the assessee’s case. Further, the fact situation of the assessee may be little different / distinguishable from the facts involved in the case before the High Court.
An issue, therefore, arises as to the precedent value of such judgment of the High Court against which the SLP is dismissed by the Supreme Court. In other words, that issue is: How far the ratios of such judgements are binding on the High Courts of other States and the Tribunals situated in other states. An attempt is made in this article to understand and analyse such a situation.
LAW OF PRECEDENT
1. EFFECT OF DISMISSAL OF SLP WITHOUT REASON
The law regarding binding effect of such dismissal is too well-settled. In a nutshell, such dismissal has no binding force in terms of Article 141 of the Constitution of India. Consequently, it has no binding precedent value, in contradiction with a reasoned order of the Apex Court or an order passed in appeal. Reference, in this regard, can be made to the very well-known decision of the Supreme Court in the case of Kunhayammed v. State of Kerala – [(2000) 245 ITR 360 (SC)], which decision has been approved recently by a Three Judge Bench of the Supreme Court in the case of Khoday Distilleries Ltd. v. Mahadeshwara Sahakara Sakkare Karkhane Ltd. – [(2019) 104 taxmann.com 25 (SC)]. For ready reference, some of the relevant extracts of the later judgement are reproduced herein below:
“20. Exercise of jurisdiction under Article 136 and the manner in which it is dealt with is clarified as under:
“14. The exercise of jurisdiction conferred on this Court by Article 136 of the Constitution consists of two steps:
(i) granting special leave to appeal; and (ii) hearing the appeal……….”
21. The Court thereafter analysed number of cases where orders of different nature were passed and dealt with these judgments by classifying them in the following categories:
(i) Dismissal at the stage of special leave petition – without reasons – no res judicata, no merger Workmen of Cochin Port Trust v. Board of Trustees of the Cochin Port Trust [1978] 3 SCC 119, Western India Match Co. Ltd. v. Industrial Tribunal AIR 1958 Mad. 398, Indian Oil Corpn. Ltd. v. State of Bihar [1986] 4 SCC 146, Rup Diamonds v. Union of India 1989 taxmann.com 633 (SC), Wilson v. Colchester Justices [1985] 2 All ER 97 (HL), Supreme Court Employees Welfare Assn. v. Union of India [1989] 4 SCC 187, Yogendra Narayan Chowdhury v. Union of India [1996] 7 SCC 1, V. M. Salgaocar & Bros. (P.) Ltd. v. CIT [2000] 110 Taxman 67 (SC), Sree Narayana Dharamasanghom Trust v. Swami Prakasananda [1997] 6 SCC 78, State of Maharashtra v. Prabhakar Bhikaji Ingle [1996] 3 SCC 463.
(ii) Dismissal of the special leave petition by speaking or reasoned order – no merger, but rule of discipline and Article 141 attracted Penu Balakrishna Iyer v. Ariya M. Ramaswami Iyer AIR 1965 SC 195, Shankar Ramchandra Abhyankar v. Krishnaji Dattatreya Bapat [1969] 2 SCC 74, Sushil Kumar Sen v. State of Bihar [1975] 1 SCC 774, Gopabandhu Biswal v. Krishna Chandra Mohanty [1998] 4 SCC 447, Junior Telecom Officer Forum v. Union of India 1993 Supp. (4) SCC 693.
(iii) Leave granted – dismissal without reasons – merger results Thungabhadra Industries Ltd. v. Govt. of A.P. AIR 1964 SC 1372.
……….
24. After elaborate discourse on almost all the aspects, the Court gave its conclusions and also summed up the legal position from paragraphs 39 to 44. We reproduce the same hereunder:
………
40. A petition seeking grant of special leave to appeal may be rejected for several reasons. For example, it may be rejected (i) as barred by time, or (ii) being a defective presentation, (iii) the petitioner having no locus standi to file the petition, (iv) the conduct of the petitioner disentitling him to any indulgence by the court, (iv) the question raised by the petitioner for consideration by this Court being not fit for consideration or deserving being dealt with by the Apex Court of the country and so on. The expression often employed by this Court while disposing of such petitions are — “heard and dismissed”, “dismissed”, “dismissed as barred by time” and so on. May be that at the admission stage itself the opposite party appears on caveat or on notice and offers contest to the maintainability of the petition. The Court may apply its mind to the meritworthiness of the petitioner’s prayer seeking leave to file an appeal and having formed an opinion may say “dismissed on merits”. Such an order may be passed even ex parte, that is, in the absence of the opposite party. In any case, the dismissal would remain a dismissal by a non-speaking order where no reasons have been assigned and no law has been declared by the Supreme Court. The dismissal is not of the appeal but of the special leave petition. Even if the merits have been gone into, they are the merits of the special leave petition only. In our opinion neither doctrine of merger nor Article 141 of the Constitution is attracted to such an order. Grounds entitling exercise of review jurisdiction conferred by Order 47 Rule 1 CPC or any other statutory provision or allowing review of an order passed in exercise of writ or supervisory jurisdiction of the High Court (where also the principles underlying or emerging from Order 47 Rule 1 CPC act as guidelines) are not necessarily the same on which this Court exercises discretion to grant or not to grant special leave to appeal while disposing of a petition for the purpose. Mere rejection of a special leave petition does not take away the jurisdiction of the court, tribunal or forum whose order forms the subject-matter of petition for special leave to review its own order if grounds for exercise of review jurisdiction are shown to exist. Where the order rejecting an SLP is a speaking order, that is, where reasons have been assigned by this Court for rejecting the petition for special leave and are stated in the order still the order remains the one rejecting prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate jurisdiction of this Court. Here also the doctrine of merger would not apply. But the law stated or declared by this Court in its order shall attract applicability of Article 141 of the Constitution. The reasons assigned by this Court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other court, tribunal or authority to express any opinion in conflict with or in departure from the view taken by this Court because permitting to do so would be subversive of judicial discipline and an affront to the order of this Court. However this would be so not by reference to the doctrine of merger.
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27. From a cumulative reading of the various judgments, we sum up the legal position as under:
(a) The conclusions rendered by the three Judge Bench of this Court in Kunhayammed and summed up in paragraph 44 are affirmed and reiterated.
(b) We reiterate the conclusions relevant for these cases as under:
“(iv) An order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed.
(v) If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.
(vi) Once leave to appeal has been granted and appellate jurisdiction of Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation.
(vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court the jurisdiction of High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of Rule 1 of Order 47 CPC.”
………”
More recently, the Supreme Court in the case of State of Orissa and Another v. Dhirendra Sundar Das And Others – [(2019) 6 SCC 270 (SC)] has clarified this position with the following observations at Para 9.27:
“9.27 It is a well settled principle of law emerging from a catena of decisions of this Court, including Supreme Court Employees’ Welfare Association v. Union of India & Anr. and State of Punjab v. Davinder Pal Singh Bhullar, that the dismissal of a S.L.P. in limine simply implies that the case before this Court was not considered worthy of examination for a reason, which may be other than the merits of the case. Such in limine dismissal at the threshold without giving any detailed reasons, does not constitute any declaration of law or a binding precedent under Article 141 of the Constitution.”
One of the latest decisions of the Apex Court is the case of P. Singaravelan & Ors. v. The District Collector – [Civil Appeal Nos. 9533 to 9537 of 2019, Order Dated 18-12-2019].
2. PRECEDENT VALUE OF A JUDGMENT WHERE FACT SITUATION IS DIFFERENT
A judgement rendered by the Apex Court has the highest precedent value and is binding on all subordinate courts, under Article 141 of Constitution of India. However, and at the same time, it is equally a well-settled position on the law of precedent that a ruling of a court is to be read, understood and interpreted in the context of not only the issue that was under adjudication but also in the context of the points of arguments canvassed by both the sides. Though there is plethora of judicial precedents on this aspect, it will suffice here to refer the judgment of the Apex Court in the case of CIT v. Sun Engineering Works (P) Ltd. – [(1992) 198 ITR 297 (SC)], rendered in the context of Income-tax Act, 1961. The following extract of the judgment is self-explanatory and illuminating:
“It is neither desirable nor permissible to pick out a word or sentence from the judgment of this court, divorced from the context the question under consideration and treat it to be the complete law declared by this court. ….”.
Corollary to the above principle is the principle that while appreciating precedent value of a decision, it may also be relevant to ascertain whether the decision is rendered per incuriam or is passed sub silentio. In the case of UOI & Ors. v. Dhanwanti Devi & Ors. – [(1996) 6 SCC 44], the Apex Court, while dealing with this aspect, observed as under:
“9. …….What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgement. Every judgment must be read as applicable to the particular facts proved, since the generality of the expressions which may be found there is not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found.
10. Therefore, in order to understand and appreciate the binding force of a decision is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgment can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full exposition of law. Law cannot afford to be static and therefore, Judges are to employ an intelligent interpretation in the use of precedents………” {Emphasis supplied}
Similarly, in the case of Municipal Corporation of Delhi v. Gurnam Kaur – [(1989) 1 SCC 101], the Apex Court observed as under:
“Precedents sub silentio and without argument are of no moment……… The weight accorded to dicta varies with the type of dictum. Mere casual expressions carry no weight at all. Not every passing expression of a Judge, however eminent, can be treated as an ex cathedra statement, having the weight of authority.”
In fact, the Supreme Court in the case of Gangadhar Behera and Ors. v. State of Orissa – [(2002) 8 SCC 381], made this aspect very clear with the observation at Para 28 therein, which are reproduced herein for ready reference:
“So far as the observations made in Kamaksha Rai case are concerned, it is to be noted that the decision in the said case was rendered in a different factual scenario altogether. There is always peril in treating the words of a judgement 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. Circumstantial flexibility, one additional or different fact may make a world of differencebetween conclusions in two cases {see Padma Sundara Rao v. State of T.N. – [(2002) 3 SCC 533]}.” {Emphasis supplied}
Similarly, in the case of Haryana Financial Corporation & Anr. v. Jagdamba Oil Mills & Ors. – [(2002) 3 SCC 496], the Apex Court has observed as under:
“19. Court 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. Observations of courts are not to be read as Euclid’s theorems nor as provisions of the statute.
………
21. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.
22. The following words of Hidayatullah, J. in the matter of applying precedents have become locus classicus: (Abdul Kayoom v. CIT, AIR p. 688, para 19)
“19. …Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cardozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.”
………..”
Similar observations are made by the Apex Court in the case of UOI v. Amrit Lal Manchanda & Anr. – [(2004) 3 SCC 75], as under [Para 15]:
“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.”
Refer also the following observation of the Supreme Court in the case of S. V. Kondaskar, Official Liquidator & Liquidator of the Colaba Land & Mills Co. Ltd. v. V. M. Deshpande, ITO – [(1972) 83 ITR 685 (SC)]:
“In order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts of the case in which the decision was given and what was the point which had to be decided.”
A useful reference can also be made, among other, of the Kerala High Court in the case of CIT v. K. Ramakrishnan – [(1993) 202 ITR 997 (Ker)], in which the Court also analysed the legal principles on the aspect of Law of Precedent and held thus:
“It is uncontrovertible that neither of these decisions directly covers the point in question before us, nor do they touch the matter even incidentally. In making their submissions as they have done, we are afraid, counsel are attempting to do what Lord Denning LJ. of the Court of Appeal in England cautioned against in his judgment in Paisner v. Goodrich [1955] 2 QB 353, 358; [1955] 2 All ER 330, 332 (CA):
“When the judges of this court give a decision on the intepretation of an Act of Parliament, the decision itself is binding on them and their successors (see Cull v. Inland Revenue Commissioners [1940] AC 51 (HL), Morelle Ltd. v. Wakeling [1955] 1 All ER 708; 2 WLR 672 (CA), but the words which the judges use in giving the decision are not binding. This is often a very fine distinction, because the decision can only be expressed in words. Nevertheless, it is a real distinction which will best be appreciated by remembering that, when interpreting a statute, the sole function of the court is to apply the words of the statute to a given situation. Once a decision has been reached on that situation, the Doctrine of Precedent requires us to apply the statute in the same way in any similar situation; but not in a different situation. Whenever a new situation emerges, not covered by previous decisions, the courts must be governed by the statute and not by the words of the judges. As Lord Porter has pointed out: ‘each case must be brought back to the test of the statutory words’ (see, his address to the Holdsworth Law Club on case-law in the Interpretation of Statutes, page 18). If a point should be reached where the words of the judges lead to a different result from the words of the statute, then the statute must prevail; because the judges have no right to supplant the words of the statute and would not wish to do so.”
The words used by judges in their judgments are not to be read as if they are words in an Act of Parliament. (See the judgment of Lord Reid in the appeal from the above decision — Goodrich v. Paisner [1957] AC 65 (HL) at page 88). We have to remember that the words in a judgment are not used after weighing the pros and cons of all conceivable situations that may arise. They constitute just the reasoning of the judges in the particular case, tailored to a given set of facts and circumstances. What is made relevant and binding is only the ratio decidendi and no more. The careful drafting— perhaps with reference to analogous statutes—the multiple reading in the Legislature and the discussion which go behind the making of a statute inject a certain degree of sanctity and definiteness of meaning to the words used by the Legislature. The same cannot be said of a judgment which deals only with the particular fact situation on hand. It will be too much to ascribe and read precise meaning to words in a precedent which the judges who wrote them may not have had in mind at all. Equally, it is not possible to impute an intent to render a decision on a point which was not before them and which they never intended to deal with, even though such an inference may seem to flow logically from the ratio decidendi of the case. That was why it was stated by Lord Halsbury LC in Quinn v. Leathern [1901] AC 495 (HL), at page 506:
“. . . . there are two observations of a general character which I wish to make, and one is to repeat what I have very often said before, that every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical code, whereas every lawyer must acknowledge that the law is not always logical at all.”
A case is thus a precedent, and binding for what it explicitly decides and no more. It would be too much to imply and read into its propositions what may seem to flow even incidentally or logically from it —precisely what Sabyasachi Mukharji J., stated in Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402, 424; AIR 1990 SC 781, 793:
“…. a precedent is an authority only for what it actually decides and not for what may remotely or even logically follow from it.”
Bes C.J., had echoed these sentiments as early as in 1826 in Fletcher v. Lord Sondes (3 Bing 501 at 569; 130 English Reports 606, at page 633) in the following words:
“Although the courts below will not impugn your Lordships’ judgments in cases ad idem, yet they do not hold that they are bound by them beyond the point actually decided. The courts below truly say, we cannot know that the House of Lords would carry this determination farther than they have carried it.””
3. BINDING PRECEDENT FOR NON-JURISDICTIONAL HIGH COURT JUDGEMENT
It is a well-settled position that a judgement of non-jurisdictional High Court is not binding on the Tribunal, especially when there are contrary decisions of other High Courts and Tribunal. Reference, in this regard, can be made to the decision of the Bombay High Court in the case of CIT v. Thane Electricity Supply Ltd. – [(1994) 206 ITR 727 (Bom)] and the observations of the Mumbai Tribunal, in this regard, in the case of ACIT v. Pahilajrai Jaikishin – [(2016) 157 ITD 1187 (Mum-Trib.)] to the following effect:
“………We are also fully aware that law declared by Hon’ble Supreme Court is binding on all courts within the territory of India under Article 141 of Constitution of India which is binding on us and we are bound to follow the same. In the case of CIT v. Smt. Godavari Saraf [1978] 113 ITR 589 (Bom.), the Bombay High Court held that the Judgment of non-Jurisdictional High Court was binding on the Tribunal if there were no contrary judgments. The above Judgment runs contrary to Article 141 of the Constitution as per which only the Supreme Court’s Judgments are binding on all Courts within India. The Bombay High Court in the case of CIT v. Thane Electricity Supply Ltd. [1994] 206 ITR 727 overruled the Judgment in the above case of Godavari Saraf (supra) holding that the decision of one High Court was not a binding precedent for another High Court or Lower Courts outside the jurisdiction.”