Fact of the Case
In the instant matter of Ri Kynjai Serenity & Hotel Centre Point v. Principal Commissioner of Income Tax, The Income-Tax Appellate Tribunal decided that the statute established in Commissioner of Income-Tax v. Mahari and Sons was no longer valid in response to appeals filed against its judgement and decision. The Gauhati High Court questioned, in Mahari and Sons, whether the exemption provided by Section 10(26) of the Income Tax Act, 1961 was limited to individuals or extended to groupings of persons, notably family members. The court had previously ruled that members of the same family who established a business together would be eligible for the exemption. The Tribunal determined that the Mahari and Sons decision was invalid because later Supreme Court rulings refuted the prior tenet that a taxing act must be rigidly read and the assessee should be given the benefit of the doubt. The Tribunal further stated that a legal entity must belong to the group of people to whom an exemption has been extended to be eligible for its benefits and that a waiver provision cannot be compassionately interpreted to extend benefits to parties who were not originally intended to be governed by it.
Issue
- Would the Mahari and Sons judgment’s ratio decidendi apply to the current matters?
- Whether the Supreme Court’s conflicting rulings on taxation statute exemption clause interpretation in Mahari and Sons may still apply, considering the dicta’s implications?
Conclusion of the court
The chief justice of the Meghalaya High Court’s Division Bench, Justice Sanjib Banerjee, and Justice W. Diengdoh did not offer a decisive ruling on the main legal question of whether the Mahari and Sons ratio decidendi would apply to the current cases. The Bench had decided to send the case back to the Appellate Tribunal and had given the President of the Income Tax Appellate Tribunal the order to appoint a special bench to revisit the case.
The Court emphasised that people may have set up their firms in conformity with the norm stated in Mahari and Sons, which has been in operation for more than three decades. The dicta was acknowledged by the Appellate Tribunal, although the process seemed hasty and did not fully address the topic at hand. The Tribunal’s challenged ruling, according to the Court, made no distinction between a partnership business with close family members as partnerships and any other joint venture with unrelated partners. The Court further observed that none of the Supreme Court decisions cited in the challenged order specifically addressed the scenario in Mahari and Sons. The Court emphasised the need for extraordinary caution and attention when Constitutional Courts review orders issued by specialised Tribunals since they are assumed to have a stronger understanding of the relevant legal standards.
The Court referred the matter to the Appellate Tribunal, citing the Mahari and Sons declaration that they had controlled the field for thirty years and the order that had been called into question by a specialised Tribunal. The President asked for a broader bench of at least three people, but he left out the parties to the contested order. The Court ordered that the case be concluded as soon as possible, ideally within three months of the initial session. The Common Impugned Order was Overturned by the Court, and the Appellate Tribunal’s Special Bench was instructed to Reconsider the Case.
CASE NAME – Ri Kynjai Serenity & Hotel Centre Point v. Principal Commissioner of Income Tax, ITA No. 1/2019