1.1 Any Authority under the direct tax laws who is entrusted with the task of implementing and enforcing the law has to interpret the relevant provision involved. There is administrative and judicial hierarchy under the tax laws, therefore the interpretation placed upon a provision by a higher authority will be binding on the lower authority. Thus an interpretation placed by higher authority becomes a 'precedent' for the lower authority, until it is reversed or modified by a higher authority, or amendment of law by the legislature. 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. The Appellant of the Constitution of India reads as under :
"141. Law declared by Supreme court to be binding on all courts – The law declared by the Supreme Court shall be binding on all courts within the territory of India."
Special leave to appeal are filed before the Supreme Court under Article 136 of the Constitution. The Supreme Court may accept or reject the same. The consequences of rejection are of far reaching effect.
The Apex Court may reject the petition seeking grant of special leave to appeal, for several reasons. When such special leave petition (SLP) is rejected or allowed what are its consequences? Can it be said that the Supreme Court has declared its view on the legal aspects involved and hence by virtue of Article 141 of the constitution, all lower Courts, Tribunals, etc. are bound by the view of the Apex Court? We have tried to explain the legal implication of rejection of Special Leave Application by the Apex Court.
2. Special Leave Petitions – Meaning and Scope
2.1 The Article 136 of the Constitution of India reads as under:
"Art. 136. (1) Notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any Court or Tribunal in the territory of India.
(2) Nothing in clause (1) shall apply to any judgement, determination, sentence or order passed or made by any Court or Tribunal constituted by or under any law relating to the Armed Forces."
2.2 Notwithstanding the provisions for regular appeals from proceedings before the High Courts in Arts. 132-134, of the Constitution of India there may still remain some cases, where justice might require the interference of the Supreme Court with decisions not only of the High Courts but also of any other Court or Tribunal of the land. Accordingly a person aggrieved by any order or judgement of High Court or of Tribunal, may appeal to the Supreme Court by filing special leave petition notwithstanding the provisions for regular appeals. The power of the Supreme Court to grant special leave to appeal from the decision of any Court or Tribunal save military tribunals, is not subject to any constitutional limitation, and is left entirely to the discretion of the Supreme Court.
2.3 Under Article 136 of the Constitution of India the Supreme Court shall have the power to grant special leave to appeal -
a) from any judgment, decree, determination, sentence or order,
b) in any cause or matter,
c) passed or made by any Court or Tribunal, in the territory of India.
2.4 Special Leave can be granted from orders of any Court or Tribunal even where there is an appeal to the High Court. The jurisdiction conferred by the Supreme Court is a plenary jurisdiction in the matter of entertaining and hearing appeals by granting special leave against any kind of the judgment or order made by the Court or Tribunal in any case or matter and the jurisdiction can be exercised inspite of other specific provision for appeal contained in the Constitution or other laws. Any legislation, subordinate to the Constitution, cannot whittle down, the jurisdiction of the Supreme Court under Article 136 or of the Constitutional courts in this country as observed by the Supreme Court in case of Mahendra Saree Emporium II vs. G.V. Srinivasa Murthy (2005) 1 SCC 481. Conclusiveness or finality given by a statute to any decision of a Court or Tribunal cannot deter the Supreme Court from exercising this jurisdiction. It is not restricted even by the appellate provisions enumerated under Cr. P.C or any other statute.
2.5 If the issue raised is essentially one of law of considerable importance, it can be raised before the Supreme Court for the first time with its leave. When special leave is granted only the issues raised alone can be contested and the entire case is not open at large.
2.6 The Supreme Court may refuse to entertain appeal under Art. 136 from the order of inferior Tribunal where the litigant has not availed himself to the ordinary remedies available to him at law, or has not appealed from the final order of the Appellate Tribunal on appeal from the decision of the inferior Tribunal.
2.7 No rules or principles as to when such leave ought to be granted and when it ought to be refused can be laid down, as each case would depend on its own peculiar facts. As the Supreme Court itself observed in one case, "it is not possible to define the limitations on the exercise of the discretionary jurisdiction vested in this Court by Art. 136…….. It being an exceptional and overriding power, naturally, it has to be exercised sparingly and with caution and only in special and extraordinary situations." [Dhakeswari Cotton Mills Ltd. vs. CIT West Bengal AIR 1955 SC 65 / (1954) 26 ITR 775 (SC)]. Article 136 does not give a right to a party to appeal to the Supreme Court. It confers a wide discretionary power on the Supreme Court to interefere in suitable cases.
2.8 When High Court had passed other orders simultaneously with the order impugned in the SLP and the Revenue, inspite of having been given the opportunity, failed to file an affidavit to explain as to why it did not file appeal against those orders, the Supreme Court may dismiss an appeal without going to the merits of the case so that no likelihood is caused against the orders of the Tribunals order.
2.9 A pure question of law though never raised or argued before High Court can be gone into but not of fact or a mixed question of law and fact or in respect of jurisdiction of the court. In case the question of fact to be decided the Supreme Court may direct the same to be decided by the appropriate authority and where any mixed question of law and fact went to the root of the matter and it became relevant the Supreme Court may remand the matter back to the High Court for fresh consideration. Similar direction was made by Supreme Court in the matter of Anil Jain vs. CIT & Anr (2007) 294 ITR 435 (SC). Interference by the Supreme Court is justified in tax matters where the question is purely one of law and there was a difference of opinion among various High courts.
2.10 Generally Apex Court will not grant special leave, unless it is shown that exceptional and special circumstances exist, that substantial and grave injustice has been done and that the case in question presents features of sufficient gravity to warrant a review of the decision appealed against.
3. Effect of Dismissal of Special Leave Petition
3.1 A mere dismissal of SLP does not mean that High Court decisions is approved on merits so as to be a judicial precedent. In Smt. Tej Kumari vs. CIT (2001) 247 ITR 210 Full Bench of the Patna High Court held that when a SLP is summarily rejected or dismissed under Art 136 of the Constitution such dismissal does not lay down any law. The decision of the High Court against which the SLP is dismissed in limine would not operate as res-judicata.
However, when Supreme Court dismisses an SLP with reason, it might be taken as the affirmation of the High Court views on merits of the case, thus there is no reason to dilute the binding nature of precedents in such cases.
3.2 Under Article 136 of the Constitution the Supreme Court may reverse, modify or affirm the judgement-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing the petition for special leave to appeal.
The Hon'ble Bombay High Court in the case of CIT vs. M/s. Pamwi Tissues Ltd. (2008) 3 DTR 66 (Bom) / 215 CTR 150 (Bom) while considering the issue of interpretation of Sec. 43B, 2(24)(x) r/w sec. 36(1)(va) as to the claim of deductions inrespect of PF, ESIC contribution, held that the Hon'ble Supreme Court in CIT vs. M/s. Vinay Cement Ltd. had dismissed the SLP, [(2007) 213 CTR 268] as it was not a fit case for grant of a SLP therefore cannot be said to be the law decided on the subject and it was not a binding precedent as per Article 141 of the Constitution of India.
3.3 In State of Orissa & Ors. vs. M.D. Illyas, (2006) 1 S.C.C.275 the Supreme Court has held that a decision is a precedent on its own facts and that for a judgment to be a precedent it must contain the three basic postulates. A finding of material facts, direct and inferential. An inferential finding of fact is the inference which the Judge draws from the direct or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) Judgment based on the individual effect of the above.
3.4 In Delhi Administration vs. Madan Lal Nangia AIR 2003 SC 4672 it was held that if a SLP is summarily dismissed, this cannot prevent other parties from filing a SLP against the same judgement.
3.5 The Supreme Court in Indian Oil Corporation Ltd. vs. State of Bihar & Ors. (1987) 167 ITR 897 (SC) has clarified that the dismissal of a special leave petition by the Supreme Court by a non-speaking order would not operate as res judicata by observing that- "When the order passed by this Court was not a speaking one, it is not correct to assume that this Court had necessarily decided implicitly all the questions in relation to the merits of the award, which was under challenge before this Court in the special leave petition. A writ proceeding is a wholly different and distinct proceeding. Questions which can be said to have been decided by this Court expressly, implicitly or even constructively while dismissing the special leave petition cannot, of course, be reopened in a subsequent writ proceeding before the High Court. But neither on the principle of res judicata nor on any principle of public policy analogous thereto, would the order of this Court dismissing the special leave petition operate to bar the trial of identical issues in a separate proceeding, namely, the writ proceeding before the High Court merely on the basis of an uncertain assumption that the issues must have been decided by this Court at least by implication. It is not correct or safe to extend the principles of res judicata or constructive res judicata to such an extent so as to found it on mere guesswork".
3.6 In all cases of admission of the SLP the further decision on merits follows whereas in every case of dismissal there is no question of further decision or proceedings from the Supreme Court and effectively the order of the lower Court/authority which is challenged before the apex Court is affirmed and becomes final. In such a situation the question whether the person/s aggrieved by the order of the lower Court could agitate his grievance by way of an application for review or rectification of mistakes apparent from record so as to pursuade the lower authority to modify its final order in the light of the application for rectification or review, to the extent and in the manner found appropriate is still open for consideration. The respondent often pleads that the order of the lower Court having been affirmed by the Supreme Court it is no more open to the lower authority, after the dismissal of the SLP to entertain any application and/or decide the same for the purpose of review, revision or modification of the order which has been upheld by the Supreme Court. The controversy is not free from doubt. The effect of dismissal of SLP by the Supreme Court is that the order of the Supreme Court does not constitute res judicata to deny the petitioner the right to agitate matters on merits before the competent Court/Tribunal.
3.7 Before the Delhi Tribunal Special Bench in the case of Dy. CIT Circle II Meerut vs. Padam Prakash (HUF)  117 ITD 129 (Del.)(SB) the assessee had filed a Miscellaneous Application against the decision of the Special Bench alleging certain mistake in the decision. On the date of hearing it was noticed that the decision of Special Bench was challenged in appeal before High Court u/s. 260A of the Act and the Hon'ble High Court held that the order of Spl. Bench was not sustainable. In view of the above the Tribunal held that as the Special Bench decision was merged with the order of High Court there was no question of rectification.
3.8 Similarly where a question has been decided in favour of the assessee or the Department, as the case may be by the High Court, the mere fact that a SLP from the judgment of the High Court is pending before the Supreme Court will not be a ground for allowing an application u/s. 256(2) of the Act, for directing the Tribunal to state the case and refer a question of law to the High Court because, until the question is finally decided by the Supreme Court, the High Court would be bound by its own earlier decision. [See CIT vs. Desai Brothers Ltd. (1991) 189 ITR 88 (Bom) and CIT vs. Godavari Sugar Mills Ltd. (1992) 198 ITR 196 (Bom)]
Effect of dismissed of appeal by High Court holding that no substantial question of law arose:
3.9 Before the Delhi Special Bench in the case of Medicare Investments Ltd. vs. Jt. CIT Sp. R. 20 (2008) 114 ITD 34 the issue arose for consideration was, whether the decision of Hon'ble Delhi High Court dismissing the appeal filed by the Revenue against the order of the Tribunal passed in the case of Abhinandan Investment Ltd. & Ors.  254 ITR 538 (Del.) holding that no substantial question of law arose, is a decision on merits and constitutes a binding precedent which this Special Bench is bound to follow.
The Delhi Spl. Bench relied on the judgement Hon'ble Gujarat High Court (2006) 283 ITR 402 (Guj), wherein it had been held that dismissal of tax appeal by the High Court holding that no substantial question of law arises implies that the order of the Tribunal on the issue stands merged in the order of the High Court and for all intents and purposes, it is the decision of the High Court which is operative and which is capable of being given effect to. The Hon'ble Gujarat High Court, observed that a plain reading of s. 260A inclusive of sub-sections of the said section makes it clear that the only jurisdictional powers that the High Court can exercise are to hear an appeal and the High Court does not have any powers under the statute to grant any leave as such for filing an appeal. Explaining further, it was observed by their Lordships that the person filing the appeal is not required to seek any leave from any authority much less the High Court prior to filing of the appeal and it is, therefore, not possible to bifurcate the jurisdiction or powers available to the High Court while dealing with an appeal under s. 260A of the Act.
It was held that in all eventualities, what merges is the operative part of the order under appeal after its confirmation, reversal or modification and there would be a merger even in a case where the reasoning of the subordinate forum is not expressly approved. It was held that if the merger is issue-specific, there is fusion of order only to that limited extent but it cannot be successfully contended that where the appellate Court merely accords approval to the reasoning of the lower Court or forum, there is no decision of the appellate Court or forum. It was also clarified by the Hon'ble Gujarat High Court that where the appeal is dismissed on account of being barred by limitation, being defective in nature or the appellant having no locus standi to prefer the appeal, the theory of merger of the order of the subordinate forum in the order of the superior forum cannot be applied because there is no "order" made by the superior forum on merits and the controversy between the parties has not been gone into by the appellate forum. It was also held that it is thus not open to any person to contend that there is no decision of the High Court and the subordinate forum is entitled to take a contrary view than the one adopted in the earlier proceedings which has been affirmed by the High Court by a process of dismissal of appeal simpliciter.
Inview of the above Gujaarat High Court decision the Spl. Bench held that Hon'ble Delhi High Court in the case of Abhinandan Investment Ltd. & Ors. (supra), upholding the order of the Tribunal and dismissing the appeal filed by the Revenue on a similar issue holding that no substantial question of law arose, is a decision on merits and since the issue involved in the present case as well as all the material facts relevant thereto, as discussed above, are similar to that of Abhinandan Investment Ltd. & Ors. (supra), the said decision is binding on the subordinate forums within the jurisdiction of Hon'ble Delhi High Court including this Special Bench.
4. Doctrine of Merger: speaking & non-speaking order:
4.1 The term merger means to sink or disappear in something else, to become absorbed or extinguished to be combined or be swallowed up. Merger in law is defined as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist. The doctrine is neither a doctrine of Constitutional law nor a doctrine statutorily recognized. It is a common law doctrine founded on the principles of propriety in the hierarchy of justice delivery system.
4.2 It is a settled law that when the SLP is dismissed, whether by a speaking or non-speaking order whether in limine or on contest, second SLP would not lie. However the statement cannot be stretched and applied to hold that such an order attracts applicability of doctrine of merger and excluded jurisdiction of the court or authority passing the order to review the same.
4.3 It may be that inspite of having granted leave to appeal , the Court may dismiss the appeal on such grounds as may have provided foundation for refusing the grant at the earlier stage. But that will be a dismissal of appeal. The decision of the Supreme Court would result in superseding the decision under appeal attract doctrine of merger. But if same reason has prevailed with the Court for refusing leave to appeal, the order would not have been an appellate order but only an order refusing to grant the leave to appeal.
4.4 The Supreme Court considered the scope of Article 136 in a case Kunhayammed vs. State of Kerala (2000) 245 ITR 360 (SC) where the main issue related to the doctrine of merger and the effect of dismissing a special leave petition by either a speaking or non speaking order. After a brief discussion of the earlier case law on the subject, the court summarized its conclusions as under:-
- i. Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law.
- ii. When the leave to appeal is granted, the special leave petition is converted into an appeal.
- iii. 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. If the Petition seeking grant of leave to appeal is dismissed, it is an expression of opinion by the Court that a case for invoking appellate jurisdiction of the Court was not made out. Therefore, neither the doctrine of merger nor Article 141 of the Constitution will apply to such a case.
- iv. 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.
- v. 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.
- vi. On an appeal having been referred or a petition seeking leave to appeal having been converted into an appeal before Supreme Court the jurisdiction of the High Court to entertain a review petition is lost thereafter as provided by sub rule(1) of Rule (1) of order 47 of the CPC.
- vii. Inspite of a petition for special leave to appeal having been filed, the judgment, decree or order against which leave to appeal has been sought for continues to be final, effective and binding as between the parties. Once leave to appeal has been granted, the finality of the judgement, decree or order appealed against is put in jeopardy, though it continues to be binding and effective between the parties unless it is a nullity or unless the court may pass a specific order staying or suspending the operation or execution of the judgment, decree or order under challenge.
4.5 The Hon'ble Apex Court in case of V.M. Salgaocar & Bros. P. Ltd.. (2000) 243 ITR 384 (SC) held that when an appeal is dismissed by the Supreme Court by a non speaking order the order of the High Court or the Tribunal from which the appeal arose, merges with that of the Supreme Court. In such a case the Supreme Court upholds the decision of the High Court or the Tribunal from which the appeal is provided under clause (3) of Article 133 of the Constitution.
5. SLP — Authority for Advance Ruling –Settlement Commission
5.1 The aggrieved assessee / revenue in certain cases can challenge the order of the AAR in a SLP before the Supreme Court under Art 136 of the Constitution of India and if the Supreme Court is satisfied that the order passed by Authority of Advance Ruling is incorrect and untenable, whether on facts or in law and hence liable to be set aside, it would be proper for the Apex Court to set it aside so as to prevent miscarriage of justice by continuing an erroneous order to survive, operate and bind the parties. The assessee and / or Revenue cannot plead that the AARs having passed an order which is final under the statute and is not open to challenge in the normal course like the order of the Tribunal, the finality to the order of AARs cannot and should not be disturbed at the instance of one of the parties to whom it is not found suitable.
5.2 The fact that AAR is the original as well as the final authority in normal circumstances cannot be lost sight of nor can one plead that because of the statute giving finality to such an order, no one has any remedy against the same and has to face the consequences of an order. The pleas that no judicial review is open in respect of such cases decided by AAR cannot be sustained because judicial review is one of the basic structures of the Constitution and the same cannot be denied by taking shelter under the provision in the statute for making the orders of the AAR final and binding on both the parties to the dispute agitated before it. In the case of DIT (International Taxation vs. Morgan Stanley & Co. Inc, (and vise versa)  292 ITR 416 (SC) the Department as well as the assessee both filed Special Leave Petition before the Hon'ble Supreme Court against the ruling of AAR.
5.3 The jurisdiction exercised by the Supreme Court over the orders of the Settlement Commission is in the nature of judicial review. The Settlement Commission established under the Income-tax Act, Wealth-tax Act and also the Central Excise and Customs Acts would also enjoy similar position and powers in regard to the orders passed by it on the application for settlement made by the taxpayers. The finality to the orders of the Settlement Commission has been held to be not proper to conclude wherever the orders suffer from serious infirmities or illegalities vitiating the same for which the orders of the Settlement Commission could be challenged before the High Court in a writ petition under Article 226, or before the Supreme Court in a Special Leave Petition under Article 136. However as a trend, orders of settlement commission are primarily challenged before respective High Court under Article 226 of the Constitution of India.
6. Procedure for filing Special Leave Petition (Slp)
6.1 The Rules governing SLP are contained in order XVI of the Supreme Court Rules 1966. Under the said rules, SLP can be filed against either the order of High Court rejecting petition for leave to appeal to Supreme Court of India; i.e. on High Court refusing to grant certificate of fitness for leave to appeal to Supreme Court or against the order/judgement itself. It is also possible to file SLP against the judgement of the High Court either in Writ Petition or in the Income tax Reference. If the petition is filed against the judgement of the High Court, the time limit is 90 days from the date of judgement/order and if the petition is filed against the order of High Court refusing to grant certificate of fitness for appeal, the time limit is 60 days from the date of order refusing to grant certificate. The above time limit is subject to the time taken for obtaining certified copy of the judgement/order i.e. subject to sections 4,5,12 and 14 of the Limitation Act, 1963. In exceptional circumstances the Apex Court may condone the delay in the filing of an SLP.
7.1 The Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works P. Ltd. (1992) 198 ITR 297 (SC) observed that the judgement must be read as a whole and the observations from the judgement have to be considered in the light of the questions which were before the Court.
7.2 A perusal of the aforesaid judicial analysis in regard to the effect of rejection of SLP and its consequences and the scope of Article 136 of Constitution of India would show that the jurisdiction conferred by the Supreme Court is a plenary jurisdiction and the wide discretionary power has to be exercised sparingly and in exceptional cases only. Secondly every order of Supreme Court would not have a binding effect unless it is a speaking order deciding the law on the subject. Thus mere dismissal of SLP without any reasons cannot be said to be law decided and consequently it would not be a binding precedent, however if the Supreme Court has given reasons for dismissing the SLP that will attract Article 141 of the Constitution which will have binding precedent.
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