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PETITIONER: THE INCOME TAX APPELLATE TRIBUNAL,TRIBUNAL, HYDERABAD SPECIA

       Vs.

RESPONDENT: THE DEPUTY COMMISSIONER OFINCOME-TAX (ASSTS) III, HYDERABAD,

DATE OF JUDGMENT:       17/01/1996

BENCH: MAJMUDAR S.B. (J) BENCH: MAJMUDAR S.B. (J) JEEVAN REDDY, B.P. (J)

CITATION:  1996 AIR 1066            1996 SCC  (7) 454  JT 1996 (1)   416        1996 SCALE  (1)432

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.B. Majmudar, J.      Leave granted in all these petitions.      By consent  of learned advocates of parties the appeals are heard  finally and  are being disposed of by this common judgment.  These   appeals  are  taken  out  by  Income  Tax Appellate Tribunal (referred to as ‘the Appellate Tribunal’) which is  up in arms against the Income Tax Department. In a way these  are unusual  cases wherein  the Tribunal  has  to voice a  grievance against  the  Income  Tax  Department  in connection with  its functioning  as such.  A  few  relevant background facts  are required  to be noted at the outset to highlight the grievance of the appellant-Appellate Tribunal. Background Facts      M/s. Surana  Steels Pvt. Ltd., M/s. Bnjusaria Metal Box Co. Pvt.  Ltd. and  M/s. Agroha  Extraction  Ltd.,  who  are respondents nos.2 in each of these appeals are the concerned assessees. They  were appellants in three income tax appeals before the  Income Tax  Appellate Tribunal,  Hyderabad.  The Special Bench  thereof disposed  of all the three appeals by common order  dated  4th  February  1993  as  they  involved consideration of  common question  of law  relating  to  the construction of  Section 115-J  of the  Income Tax Act, 1961 (hereinafter referred to as ‘Income Tax Act’).      This decision  of the  Special Bench  resulted in three writ petitions  moved by  the Deputy  Commissioner of Income Tax, Hyderabad  before the High Court of Andhra Pradesh. The assessee-respondents nos.2  in each  of  these  appeals  had succeeded before the Special Bench of the Appellate Tribunal on the  construction of Section 115-J of the Income Tax Act. However, Income  Tax Reference  No.126  of  1992  which  was pending in  the High  Court also  pertained to the very same question centering  round the  construction of Section 115-J and was,  therefore, clubbed  with the  aforesaid three writ petitions moved  by the  Deputy Commissioner  of Income  Tax

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against the  common order  of the  Special Bench  dated  4th February 1993.  All these  matters were  heard by a Division Bench of  the High Court consisting of V. Sivaraman Nair and S.V. Maruthi,  JJ. The  Division Bench  of the High Court by its common  order dated 31st December 1993 allowed the three writ petitions  moved by  the Deputy  Commissioner of Income Tax and  answered the Reference in favour of the Revenue and against  the   assessees.  The   Appellate  Tribunal   being aggrieved by  the findings  reached by the High Court in the writ petitions  has filed  the aforesaid appeals before this Court  on   obtaining  leave   under  Article   136  of  the Constitution of India. The dissatisfied assessees have filed separate Special  Leave Petitions  Nos.12446  and  12835  of 1994. By an order dated 8th August 1994 in the special leave petitions moved  by the  Appellate Tribunal  a bench of this Court consisting of one of us, Jeevan Reddy, J. and Sen, J., issued notice  and directed that pending further orders, the judgment, in  so far  as it  holds that  constitution  of  a Special Bench  consisting of  three or  more members  by the President of  Income Tax Appellate Tribunal can be done only and by  virtue of  a judicial  order,  is  suspended,  while notice was  also issued  and interim  relief was  granted on condition in  the assessee’s Special Leave Petition No.12446 of 1994  arising from  the very  same common judgment of the High Court.      By a later order dated 3rd April 1995, however, Special Leave Petitions Nos.12054-56 of 1994 moved by the Income Tax Appellate Tribunal were declined from other matters. That is how the assessees’ Special Leave Petitions are now no longer a part  of the  present group  and we  are concerned, in the present proceedings,  with the  three appeals arising out of Special Leave  Petition Nos.12054-56  of 1994  moved by  the Income Tax  Appellate Tribunal  against the  common order of the Division  Bench of the High Court in the aforesaid three writ petitions.  Consequently, we  will not be concerned, in these proceedings,  with the  question  of  construction  of Section 115-J  of the  Income Tax  Act and the merits of the decision  of   the  High  Court  on  this  point.  We  will, therefore,  only   consider,  in   these  proceedings,   the grievances voiced on behalf of the Appellate Tribunal by its learned counsel Shri Subba Rao. Rival Contentions      Shri Subba  Rao,  learned  counsel  appearing  for  the appellant-Tribunal  contended   that  the   High  Court  had patently erred  in law in taking the view that the President of the  Income Tax Appellate Tribunal had no jurisdiction to constitute a  Special Bench  for hearing  the appeals of the respondent-assessees. He  submitted that  the Division Bench of the  High Court  had misconstrued  and misinterpreted the relevant statutory  provisions of the Income Tax Act as well as the  regulations in  this connection.  According to  Shri Subba Rao  the High  Court had  wrongly assumed that Special Bench can  be constituted by the President only on the basis of a  judicial order and not in exercise of his powers under sub-section (3)  of Section  255  of  the  Income  Tax  Act. According to  the learned counsel the High Court had equally erred in  taking the  view that  on the facts of the present case the  Special Bench  was constituted  on the  whims  and fancies of  the  President  and  there  was  no  reason  for constituting such  a bench.  He also  further contended that the High  Court was  equally in  error when it held that the Tribunal had committed a breach of the principles of natural justice in  not granting adjournment as asked FOR by learned counsel for  the Revenue.  That on  the facts of the present case enough latitude was shown by the Tribunal in adjourning

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the matters  at the  instance of the learned counsel for the Revenue on  11 past  occasions and,  therefore, there was no violation of  principles of  natural  justice  when  further adjournment was  refused and  the matter  was heard  by  the Special Bench.      Shri Ahuja,  learned senior  counsel appearing  for the respondent-Deputy Commissioner  of Income  Tax on  the other hand submitted  that on  the facts  of the  present case the High Court  rightly took  the view  that Special  Bench  was constituted by  the President  of Tribunal without any rhyme or reason  and in any case the Tribunal had committed breach of  basic   principles  of   natural  justice   in  refusing adjournment in  the appeals  posted for  hearing before  the Special Bench  when the  departmental representative who was incharge  of  the  matter  had  taken  ill  and  had  to  be hospitalized and  that the  previous adjournments which were granted before  the constitution  of the  Special Bench were only 8  in number  and that  had  nothing  to  do  with  the situation  in   which  the  department  found  itself  under circumstances beyond  its control  when the  learned counsel for the  Revenue was  busy in  the High Court in tax matters before the Tax Bench and the departmental representative had suddenly taken  ill and  had to  be hospitalized. That these were circumstances  which  called  for  a  judicious  and  a liberal approach  on the part of the Tribunal. That even the written submissions  which were  tendered on  behalf of  the Revenue were  not permitted  to  be  taken  on  record  and, therefore, the  High Court was right in taking the view that the Tribunal  in  deciding  the  Special  Bench  matter  had committed breach of basic principles of natural justice.      In  view   of  the  aforesaid  rival  contentions,  the following points arise for our determination. Point No.1      Whether the  Special Bench  of the Income Tax Appellate Tribunal had  committed  breach  of  principles  of  natural justice and  had denied reasonable opportunity to the Income Tax Department  to put forward its case in the appeals taken up for decision by the Special Bench. Point No.2      Whether the  President  of  the  Tribunal  was  legally competent to  constitute a  Special Bench  for  hearing  the three appeals  moved by  respondent no.2-assessees  in these three cases  and  whether  the  Special  Bench  was  validly constituted.      We shall deal with the aforesaid points one by one. Point No.1      So far as this point is concerned the High Court in the impugned judgment at page 31 has noted that it was true that the matter was adjourned at the instance of the departmental representative from  time  to  time  on  11  occasions  from 28.10.1992 upto  4.1.1993. However,  on  4.1.1993  when  the matter was  posted for hearing before the Special Bench Shri M. Srinivasulu  who was  appointed as  designated officer to argue the  matter before the Special Bench fell sick. It was also not  disputed that  he was shifted to Hyderabad Nursing Home and the doctors had advised him rest for four weeks. It was also  true that  Shri Mani, another Deputy Commissioner, who was  appointed to  assist Shri  Srinivasulu was ready to argue the  matter and  in fact  he argued  the matter to the best of  his ability.  However, in  view of  the complicated nature of  the case  and the  heavy revenue  involved in the matters and  also keeping in view the fact that any decision rendered by  the Special  Bench of the Tribunal will have an all India  effect, to supplement the arguments of Shri Mani, the department  sought permission  of the  Tribunal to  file

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written submissions and it is not disputed that the Tribunal did not permit the departmental representative to file those written submissions.  On these facts the High Court took the view that  the Tribunal  was not justified in not adjourning the matter  and in  insisting to hear the matter. Now we may state at  this stage  that even though on merits the Revenue lost before  the Special  Bench of  the Income Tax Appellate Tribunal  the   High  Court  in  writ  petitions  heard  the department fully  on the merits of the question, namely, the construction of Section 115-J of the Income Tax Act and held in favour of the Revenue and against the assessees. Thus the Revenue had  not only  full opportunity  to put  forward its case before  the High  Court in  the writ  petitions but had succeeded therein.  Under the  circumstances the question of violation of  principles of  natural justice by the Tribunal pales into  insignificance and, therefore, we do not deem it fit to pronounce upon that question finally. We have already noted that  the decision  of the  Division Bench of the High Court on  the merits  of the controversy centering round the construction of  Section 115-J  of the  Income  Tax  Act  is already pending  scrutiny of  this  Court  in  the  declined special leave  petitions moved  by the  assessees  and  this Court is  going to  decide that  question on  merits.  Under these circumstances  we do  not think  it fit  to delve deep into the  question  of  failure  of  principles  of  natural justice at  the stage of hearing before the Special Bench of the Tribunal.  However, in passing we may observe that prima facie, the  view of  the High Court that the Tribunal on the peculiar facts of the case was not justified in insisting on hearing  the   matter  and   even  not  taking  the  written submissions on  record as tried to be furnished on behalf of the Revenue  and thus  had  adopted  an  unjustified  stand, appears to  be well  sustained. It is no doubt true that the matter was  adjourned on  11 occasions  earlier. It  is also true that when a senior counsel is not available to argue an adjourned matter for which a Special Bench is constituted at Hyderabad where the President had to come from Delhi and the another member  had to  come from Bombay, the Revenue should have taken all care to see that some alternative arrangement was made so that the matter may not get unduly prolonged and indefinitely adjourned  and  that  in  such  situations  the Special  Bench  of  the  Tribunal  could  have  legitimately required the  Revenue to  make alternative  arrangement  for getting the  matter argued.  But for  that purpose  a  short adjournment of a day or two could have been granted when the departmental representative  who was  incharge of the matter was  admitted  to  a  nursing  home.  In  any  case  written submissions could  have been  taken on record and considered by the  Tribunal instead  of totally  brushing  them  aside. However as  noted earlier  as ultimately the Revenue has not suffered till  date and  its viewpoint  has been accepted by the High  Court on  the construction of Section 115-J of the Income Tax  Act we  do  not  dilate  on  this  question  any further. That disposes of the first point. Point No.2      So far  as this  point is  concerned it is necessary to have a  look at the relevant facts as emerging on the record of the  case which  resulted  in  the  constitution  of  the Special Bench by the President of the Appellate Tribunal. In the  counter   filed  by   Shri  Kalu   Ram  Meena,   Deputy Commissioner  of   Income  Tax,  Hyderabad  in  the  present proceedings the background facts leading to the formation of the Special  Bench by  the President have been stated. It is averred that  the Tax  Bar  Association  of  Andhra  Pradesh addressed a  letter to  the  President  on  25th  July  1992

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requesting him to refer the matter of correct interpretation of Section  115-J to  a Special  Bench to have uniformity of the decisions on the point. The request in the letter was as follows :           "In  the   wake  of  the  divergent           opinions  expressed   by  different           Benches of the tribunal and also in           view of language in which Sec.115-J           is couched, the members of A.P. Tax           Bar Association  have felt the need           to request  your goodself  to refer           the matter  to a  Special Bench  to           have uniformity in the decisions on           this point.  The Governing Body has           received various representations to           this effect  from our  members. May           we,   therefore,    request    your           goodself to consider the request of           constituting  a  Special  Bench  to           decide the  issue relating  to  the           interpretation of the word u/s 115-           J and oblige.      After the  receipt of  the above letter,      the President  forwarded the same to the      Senior   Member    of   the   Income-tax      Appellate  Tribunal,   Hyderabad  Bench,      Hyderabad directing  him to  contact the      members of  the Bar  and suggest  to him      how   far   he   feels   the   need   of      constituting a  Special Bench.  On  that      the   Senior    Member   alongwith   the      Accountant Member after due consultation      with the  Bar suggested  constitution of      the Special Bench and the reason for the      constitution of  the  Special  Bench  is      stated  in   reference  dated  25.9.1992      forwarded to  the President, which reads      thus:      ‘After noting  conflicting decisions  on      the interpretation  of Section 115-J and      also after  going  through  the  several      articles  published  in  50  Taxman  659      (Magazine   Section)   47   Taxman   133      (Magazine   Section)   48   Taxman   347      (Magazine Section)  and 49 Taxman 49 and      133  (Magazine   Section)   and   having      noticed  diametrically   opposite  views      expressed  in   two  decisions   of  the      Tribunal - one reported in 39 I.T.D. 432      Butwelded  Tools  (P)  Ltd.  Vs.  Asstt.      Commissioner  of   Income-tax  and   the      opposite  decision   rendered   by   the      Hyderabad Bench in V.V. Trans Investment      (P) Ltd.  Vs. Income-tax Officer (42 ITD      242) we  are of  the opinion in order to      secure uniformity  in judicial decisions      and prevent  judicial chaos and in order      to avoid  uncertainties on  such a vital      point of public importance, constitution      of a  Full Bench  is very  essential  to      resolve the following questions :      (1) Whether depreciation and loss should           necessarily be  present for purpose           of adjustment  while computing book           profit u/s  115-J of  the I.T.  Act

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         read with 205(1) proviso (b) of the           Companies Act?      (2)  For   purpose  of   computing  book           profits under sec. 115J of the I.T.           Act  read   with   Section   205(1)           proviso (b)  of the  Companies  Act           whether depreciation include loss?      (3) If  an  assessee  had  not  incurred           losses in  previous years  but only           had unabsorbed  depreciation claim,           the  claim   for  deduction   under           section 115J(I)  (iv) would  not be           available to such an assessee?      (4) In a case where there is profit in a           year  but   after   adjustment   of           depreciation it  results in a loss,           can no  adjustment in  book  profit           under sec.115J  of the  I.T. Act be           allowed?’      This reference  was made on 25.9.1992 in      the prescribed  form  and  it  was  sent      alongwith covering  letter dated 25.9.92      to the  President  of  the  I.T.A.T.  at      Delhi. Thereupon the President, ITAT had      accepted the reference and constituted a      Special  Bench   vide  letter   No.F.16-      LG(ATNZ-Sectt)92 dated 1.10.1992." The aforesaid  stand taken  in the  counter shows  that  the President appeared  to  have  acted  in  the  light  of  the reference dated  25th September  1992  made  by  two  senior members of  the Tribunal. It is also true that the President was requested  by the  Tax bar Association of Andhra Pradesh to constitute  a Special Bench for resolving the question in controversy. However,  when we  turn to the reference letter dated 25.9.1992  which has  been brought  on record of these proceedings as  an annexure to the Special Leave Petition as Annexure ‘A’,  we find  that the  reference purports  to  be under Section  255(3) of  the Income  Tax Act by two members Shri T.V.  Rajagopala Rao  and Shri  Chander Singh  and they have suggested that the Special Bench of the Tribunal may be constituted for deciding the following four matters : 1. I.T.A.  No. 1045/Hyd/91   -       Hagglunds Lenision Ltd. (Asstt.   Year:    1989-90)          Dy.   Commissioner   of                                    Income Tax  (Asstt), Spl.                                    Range-4, Hyderabad. 2.I.T.A.No.138/Hyd/92      -       Novopan    India    Ltd.,                                    Hyderabad     V.      Dy.                                    Commissioner  of   Income                                    Tax (Assts), Spl. Range-4                                    Hyderabad. 3.I.T.A.  Nos.   797  &   -         Andhra   Printers   Ltd.                                    798/Hyd/92        (Assts.                                    Vijayawada    Vs.     Dy.                                    Years:     1988-89      &                                    Commissioner of Income                                    Tax,       1989-    90)                                    Spl.Range, Vijayawada. 4.I.T.A. No.  812/Hyd/92     -      Sri Raja Rajeswari Paper                                    (Asst.   Year:   1989-90)                                    Mills   Ltd.    Vs.   Dy.                                    Commissioner  of  Income-                                    Tax,     Spl.      Range,                                    Vijayawada. It is  also interesting  to note that it is this D.O. letter of the  Accountant Member and the Judicial Member dated 25th

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September 1992  to which  the President  agreed and  by  his order  in   the  light   of  the  said  D.O.  the  President constituted a  Special Bench.  That is  clearly indicated by communication dated  1st October 1992 addressed by Assistant Registrar of the Income Tax Appellate Tribunal, New Delhi to Shri T.V.  Rajagopala  Rao,  Member,  Income  Tax  Appellate Tribunal, Hyderabad.  The said  communication is at Annexure ‘B’ to  the S.L.P. at page 135 of the Paper Book. It is also brought on  the record  of this case that one of the members of the  Tribunal, namely,  Shri  Chander  Singh  who  was  a signatory to the reference dated 25.9.1992 had earlier taken the view  by his  order  dated  30th  July  1992  that  this question was not required to be referred for decision to the Special Bench. But even that apart even though he might have subsequently changed  his view  and recommended constitution of a  Special Bench  for resolving  the  questions  involved centering round  construction of Section 115-J of the Income Tax Act  in company  of Shri  T.V. Rajagopala  Rao, Judicial Member only  four listed matters were suggested to be placed before Special  Bench for  decision.  However,  the  Special Bench was  constituted by  the President  not  for  deciding these four  matters but  for deciding  the three tax appeals being I.T.A.  Nos. 1845/Hyd/90,  811/Hyd/92  and  822/Hyd/92 which were  moved by  the present three assessee-respondents in these  proceedings and  it is the decision of the Special Bench in  these appeals  that has  resulted in  the  present proceedings. We  wanted, therefore, to know from the learned counsel for  the appellant  as to  how the  aforesaid  three income tax appeals of the present three respondent-assessees were placed  before the  Special Bench by the President when the President had agreed to the suggestion of the members of the Income  Tax Appellate  Tribunal for  placing four  other appeals which were listed in the reference of 25th September 1992 for  being placed  before the  Special Bench.  In  this connection by our order dated 1st December 1995 the required details were asked for from the appellant-Tribunal. We shall deal with  the material supplied by the Tribunal pursuant to our aforesaid order a little later.      In the background of the aforesaid facts the High Court took the  view that  on the  facts and  circumstances of the case the  President of  the Tribunal  was not  justified  in constituting the  Special Bench  for deciding the appeals of the aforesaid  three respondents.  The High  Court has taken the view  that the  President has to exercise his discretion judiciously and  judicially and  it may  not be exercised at whims and  fancies of  the President.  The  High  Court  has further observed  that in  the present  case  there  was  no conflict at  all between  39 ITD  432 (But  welded Tools (P) Ltd. v.  Asst. Commissioner  of Income  Tax) and  42 ITD 242 (V.V. Trans-Investment  (P) Ltd.  v. Income Tax Officer) and that there  was no  reason for  the President  to constitute Special Bench.  The High  Court has  also made the following observations in this connection at page 41 of its judgment :      "... As  already stated,  the  power  to      constitute a Special Bench under Section      255(3) of  the Act  shall  be  exercised      judiciously  and   judicially  and   the      discretion    cannot     be    exercised      arbitrarily at  the whims and fancies of      the authority vested with such power.           We see  considerable force  in  the      submission   of    counsel    for    the      petitioners  that  unless  reference  is      made in a judicial order by Bench of the      Tribunal pointing  out the  reasons  for

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    constitution of  a  Special  Bench,  the      President of  the Income  Tax  Tribunal,      was  not   competent  to   constitute  a      Special  Bench.  In  the  present  case,      admittedly, none  of the  Benches of the      Tribunal had  made any  reference  by  a      judicial order when the question came up      for consideration  and the  conflict  of      decisions of  the coordinate Benches was      adverted to.  The procedure  adopted  in      this case  seems to us to be curious. On      receipt of  a representation  by the Tax      Bar Association,  the President  of  the      tribunal  invited   comments  from   the      senior member  for a  Hyderabad Bench of      the Tribunal.  It is  more curious  that      the very  same member  who had  rendered      judgment which  was reported in (42) ITD      242 replied  to the President suggesting      the constitution  of the  Special Bench,      Counsel for  the petitioner submits that      in the  facts and  circumstances of  the      case that  was but a command performance      at the  instance of  the  President.  He      submits further  that since there was no      judicial   order    requesting   for   a      reference of  any question  to a Special      Bench, the  constitution of the same was      not justified. We see considerable force      in the  submission, since  a Court  or a      judicial   tribunal   is   expected   to      discharge their  judicial  functions  by      passing  judicial   orders  and  not  by      intra-departmental  communications.   We      also see  force  in  the  submission  of      counsel that  had the matter been posted      for hearing  on the  judicial side,  the      Department would have had an opportunity      to  project   its   views   before   the      Hyderabad  Bench  deliberated  upon  the      alleged conflict  of authorities, rather      than depending  on  views  expressed  in      articles  and  journals  as  reason  for      constitution of a Special Bench."      In our view the aforesaid decision of the High Court to the effect  that the  President of  the Income Tax Appellate Tribunal cannot  constitute a  Special Bench save and except under a  judicial order cannot be sustained on the scheme of the Act  and  the  relevant  regulations.  The  reasons  are obvious.      Section 255  of the  Income  Tax  Act  deals  with  the procedure of Appellate tribunal. The said section along with relevant sub-sections thereof reads as under :      "255.     (1) The  powers and  functions      of  the   Appellate  Tribunal   may   be      exercised  and   discharged  by  Benches      constituted  by  the  President  of  the      Appellate  Tribunal   from   among   the      members thereof.           (2)  Subject   to  the   provisions      contained in  sub-section (3),  a  Bench      shall consist of one judicial member and      one accountant member.           (3)  The  President  or  any  other      member   of   the   Appellate   Tribunal

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    authorised in this behalf by the Central      Government may,  sitting singly, dispose      of any  case which  has been allotted to      the Bench  of which  he is  a member and      which  pertains  to  an  assessee  whose      total  income   as   computed   by   the      Assessing Officer  in the  case does not      exceed one lakh rupees and the President      may, for  the disposal of any particular      case,   constitute   a   Special   Bench      consisting of three of more members, one      of whom  shall necessarily be a judicial      member and one an accountant member.           (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.           (5) Subject  to the  provisions  of      this Act,  the Appellate  Tribunal shall      have power to regulate its own procedure      and the  procedure of Benches thereof in      all matters  arising out of the exercise      of its powers or of the discharge of its      functions, including the places at which      the Benches shall hold their sittings." Now a  mere look  at sub-section  (1) shows  that it  is the administrative  function  of  the  President  to  constitute benches  from  amongst  the  members  of  the  Tribunal  for exercising  the   powers  and  functions  of  the  Appellate Tribunal. Similarly  sub-section (3)  empowers the President for disposal  of any particular case to constitute a Special Bench consisting  of three or more members one of whom shall necessarily be  a judicial  member  and  one  an  accountant member. The  functions entrusted  under sub-sections (1) and (3) of  Section  255  to  the  President  of  the  Appellate Tribunal are  obviously administrative  functions. They have nothing to  do with exercise of any judicial power. It is of course true  that  as  per  sub-section  (5)  the  Appellate Tribunal can regulate its own procedure and the procedure of benches  and   for  that   purpose  can   frame  appropriate regulations. In  exercise  of  that  power  the  Income  Tax Appellate tribunal  has  framed  regulations.  The  relevant regulation for the present purpose is Regulation 98(A). It reads as under :      "Regulation 98(A)      With a view to bring about uniformity in      the procedure  for reference of cases to      President I.T.A.T.  for constitution  of      Special Benches  consisting of  three or      more  members   instructions  have  been      issued from  time to  time.  For  making      such  reference   the  concerned   bench

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    should pass  the order  similar to order      of Tribunal "the reference shall be made      by the  bench as far as possible" in the      proforma as appended in XIX(B).               APPENDIX XIX (B)         INCOME TAX APPELLATE TRIBUNAL      PROFORMA FOR MAKING REFERENCE BY A BENCH      TO THE  PRESIDENT, ITAT FOR CONSTITUTION      OF SPECIAL BENCH.           ’We  the   member   of   ..........      Bench(es) at .......... (Station) are of      the opinion  that the  appeal(s)  No.(s)      .......... in  the matter  of ..........      which were  posted for hearing before us      on  ..........  is/are  fit  and  proper      appeal(s) which  should be  heard  by  a      Special  Bench  consisting  of  three/or      .......... members  of the  Tribunal. We      accordingly forward  the records  of the      appeal(s)   mentioned   above   to   the      President of  the Tribunal  and  request      him to  constitute a  Special Bench  for      the reasons given below :              Reasons in brief :               Signature:     1.                              2.      Note:1. This  form should be sent to the           President  of   the   Tribunal   in           duplicate.      alongwith       the           observations of  the Vice President           of the concerned Zone.      Note:2. Document/materials in support of           the reasons  for constitution  of a           Special Bench should be enclosed.’" The aforesaid  regulation shows  that  the  concerned  Bench which is  seized of  the  matter  may  in  exercise  of  its judicial function  in appropriate  case make  a reference to the President to constitute a Special Bench. The exercise of that function  by the  Bench of  the  Tribunal  hearing  the matter is  of course  a judicial  function but so far as the President’s power  under  sub-section  (1)  read  with  sub- section (3) of Section 255 to constitute Benches or for that matter Special  Benches is  concerned the  said power  is an administrative power.  It is  obvious that  the President in this connection  may even  act suo  motu if it is brought to his notice  that any important point is pending for decision in a  matter which requires to be decided by a larger bench. If the  President acting on such information and in bonafide exercise of  his powers  constitutes a  larger  bench  or  a Special Bench  for deciding  a matter it cannot be said that he acts ultra vires his powers or functions entrusted to him by the  legislature under  Section 255(1)  read with Section 255(3) of  the Income  Tax Act.  Consequently, the  Division Bench of  the High  Court with  respect was in error when it took the view that a Special Bench can be constituted by the President only  pursuant to  a judicial  order  and  not  in exercise of  his administrative powers. It is of course true that in  any pending  matter before  a bench  of two learned members, if it is felt by the learned members that a Special Bench is  required  to  be  constituted,  they  can  pass  a judicial order  in the  light of  the procedure laid down by Regulation 98(A).  But such  a situation had never arisen on the facts  of the  present case.  We have already seen above that  the   two  learned  members  had  recommended  to  the President to  constitute a  Special Bench  for resolving the

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controversy centering round the construction of Section 115- J of  the Income  Tax Act  by their communication dated 25th September 1992. That was styled as a reference under Section 255(3) of the Income Tax Act. It was merely a recommendation for invoking  the administrative  powers  of  the  President under Section  255(3) for constituting Special Bench. It was certainly not  a reference  under Section  255(3) read  with Regulation 98(A).  We fail  to appreciate how the High Court in  exercise   of  its   power  under  Section  226  of  the Constitution could  sit  in  appeal  or  judgment  over  the administrative decision of the President who might have felt that the  case was  of all India importance and was required to be  decided by  a larger  Bench of three members. Such an administrative order  is not  open to scrutiny under Article 226 of  the Constitution  of India  except in  extraordinary cases wherein  the order  is shown  to be a malafide one. No such allegation  was made  by  the  Department  against  the President of  the Tribunal on the facts of the present case. It may  be that  the President  of the  Tax Bar  Association might have  initially moved in the matter o r it may be that the two learned members of the Tribunal might have suggested to the  President to  place listed  four  matters  before  a Special Bench. But being so apprised of the situation if the President felt  that the  present three matters moved by the concerned three  respondents in  these proceedings  involved the same  points and  which were required to be thrashed out by a Special Bench we do not see any reason for holding that the constitution  of a  Special Bench  by the  President for deciding present three matters was an illegal or injudicious exercise or  an exercise  based on  whims and fancies of the President. The Division Bench of the High Court on the facts of this  case appears  to  have  been  uncharitable  to  the President of  the Tribunal when it observed as aforesaid. It is also  difficult for  us to  appreciate how the High Court could persuade  itself to hold that when none of the Benches of the Tribunal had made any reference by judicial order the President of  the Income  Tax Tribunal  was not competent to constitute a  Special Bench.  As we have already noted above Special Benches  can be constituted by the President both in exercise of  his administrative  powers under Section 255(1) read with  Section 255(3) as also on the basis of a judicial order passed by any bench of the Tribunal making a reference to the  President in that connection under Regulation 98(A). But it  is not  as if  that such  a reference by the members under Regulation  98(A) by  passing a  judicial order is the only mode  and manner in which the President can be moved to constitute a  Special Bench.  Even  independent  of  such  a reference on  the judicial  side the  President  can  in  an appropriate case  even suo  motu may  move in the matter and can constitute  a Special Bench of course on appropriate and germane grounds.  It is, however, true that the President in exercise of  its administrative  powers under Section 255(3) cannot just  constitute a Special Bench without any rhyme or reason. Such  an administrative exercise can be demonstrated to be unreasonable, capricious or malafide on a given set of facts. But  in our  view present  case was not of that type. There was  a conflict  of opinion between two Benches of the Tribunal,  namely,   Madras  and  Hyderabad  Bench.  It  is, however, true  that Madras  Bench decision  was by  a single member while  the Hyderabad Bench decision was by a Division Bench. Still it could not be said that there was no conflict of decisions  between two  benches  of  the  Tribunal.  That itself constituted  a rational  and  valid  ground  for  the President to act in exercise of his administrative powers to constitute a  Special Bench  if he  thought it fit to do so.

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Such an  exercise on the facts of the present case cannot be styled as  an arbitrary  or whimsical  or  fanciful  one  as wrongly and  uncharitably assumed  by the  Division Bench of the High Court.      It is  now time  for  us  to  deal  with  one  apparent inconsistency underlying  the order  of the President of the Tribunal,  constituting   the  Special   Bench,  which   was highlighted by  learned counsel  for respondent-Revenue.  As noted earlier the President of the Tribunal does not seem to have acted  suo motu simply relying upon the recommendations of  the   Income  Tax   Bar   Association,   Hyderabad   for constituting a Special Bench for deciding the controversy in issue. He  seems to  have obtained opinion of senior members of the  Tribunal and  in the  light of their recommendations contained in  the communication  dated 25.9.1992 the Special Bench was constituted for hearing the appeals of the present three respondents.  It is  also true  that the  members  had recommended placing  before the  Special Bench  four  listed matters which  did not  include the appeals of these present three respondents. Thus the order constituting Special Bench appeared to  be inconsistent with the recommendations of the members of  the Tribunal. In this connection further details as noted earlier were sought for from the Appellate Tribunal by our  order dated 1st December 1995. It is in the light of what the  Tribunal has stated in response to our order dated 1st December  1995 that  we now  proceed to  deal with  this aspect of the matter.      Pursuant to our order dated 1.12.1995, an affidavit has been filed  by Shri Kishan Rao, Asstt. Registrar, who worked as Asstt.  Registrar, Income Tax Appellate Tribunal Bench at Hyderabad at  the relevant  time. In  the said affidavit, he has clarified  that on  receipt of  letter  dated  28.7.1992 addressed by  the President  of Income  Tax Tribunal to Shri T.V. Rajagopala  Rao, Member,  Tribunal, Bench at Hyderabad, the learned  Member Shri Rajagopala Rao, by his letter dated 25.9.1992 addressed  to then  President of the Tribunal Shri G. Krishnamurthy,  stated that after verifying the files, he felt the  justness of the demand made by the Bar and that he discussed the matter with the learned brother Member Shri G. Krishnamurthy and  formulated the questions referable to the Full Bench,  that it  was true  that in  the said  letter of reference four  matters were  mentioned but  it  is  further pointed out  that on  receipt of  the said letter a circular was issued  by the  Tribunal to  all other 18 Benches of the Tribunal intimating  that the  Special Bench  of Income  Tax Appellate Tribunal,  Hyderabad Bench-A was being constituted to consider  the  questions  which  were  mentioned  in  the circular. A copy of the circular is annexed to the affidavit as Annexure-V. This circular shows that all the four matters which were  sought to  be referred  to the  Special Bench by reference letter of 25.9.1992 by two Members of the Tribunal were sought  to be  placed  before  the  Special  Bench.  In addition thereto  is found  at serial no.6 Income Tax Appeal No.1845/Hyd/90 which  is one  of the  matters in the present proceedings which  was disposed  of by the Special Bench. It is thereafter  that nine  cases in  which common question of construction of Section 115-J read with Section 143(1)(a) of the Income  Tax Act  was involved  were  placed  before  the Special Bench.  The cause  list of  cases posted for hearing before  the   Special  Bench  at  Hyderabad  is  annexed  as Annexure-VI to  the affidavit.  It shows  that  the  matters pertaining  to  the  present  proceedings  were  placed  for hearing before  the Special  Bench along  with four  matters which have  been mentioned  in the  reference  letter  dated 25.9.1992 of  the two  Members of the Tribunal, namely, Shri

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T.V. Rajagopala  Rao and  Shri Chander  Singh. It is further clarified in  the affidavit that arguments were concluded in all these  appeals on  5.1.1993 and judgment was reserved in four cases  to which  reference was  made. However,  at  the conclusion of  the arguments,  the learned  counsel in those four cases  submitted that there were some additional issues which were  not specifically  covered by the questions which came up for decision before the Special Bench and hence they requested that those appeals be released from Special Bench, and as  the Full  Bench felt  that it  was not necessary for them to  go into  other points  and once  the main questions referred to  in the  matters were decided, the said judgment will abide  the other  cases also,  the said four cases were released by  the Special  Bench to  be heard by the Division Bench after the judgment in Surana Steels case and others.      In  view  of  the  aforesaid  affidavit  based  on  the relevant events  which transpired  prior to the constitution of the  Special Bench,  and in  the light  of  the  relevant documentary evidence  produced in  support of the affidavit, we have  no doubt  that the  learned President  in  bonafide exercise of his administrative power constituted the Special Bench for  deciding the  Income Tax  Appeals with  which the present  proceedings   are  concerned.   Consequently,   the observation of  the High  Court that  the Special  Bench was constituted at  the whims  and fancies  of the President for deciding these  appeals must  be held  to be unjustified and unsustainable.      In the  light of  the aforesaid  discussion, therefore, point no.2 must be decided in the affirmative.      In view  of our conclusion on point no.2 and as we have held that  point no.1  does not  survive for our decision as aforesaid, the  judgment and  order rendered by the Division Bench of the High Court in the three writ petitions moved by the Deputy  Commissioner of  Income Tax on the aforesaid two points are  quashed and  set aside.  So far  as the question about true  construction of  Section 115-J  is concerned, we keep it  open for  decision in  the declined  S.L.Ps. of the assessees. All  the three  appeals are  allowed accordingly. The  writ   petitions  before  the  High  Court  will  stand dismissed  to   the  aforesaid  extent.  On  the  facts  and circumstances of the case there will be no order as to costs all throughout.