CODE OF CIVIL PROCEDURE, 1908

I. Application of Doctrine of Res Judicata to Taxation Laws

Introduction

Res Judicata is the Latin term for "a matter (already) judged", or "a thing adjudicated". It
means a case or suit already decided. It was recently defined as “a final judgment on the merits
by a court having jurisdiction is conclusive between the parties to a suit as to all matters that
were litigated or that could have been litigated in that suit” by the Tennessee Court of Appeals
J. M. Hanner Construction Company,, Inc. v. Thomas Brothers Construction Company,
Inc, 2012

In the Income Tax Act, 1961 (“ITA”) the principle is incorporated, though only to a
degree, in Section 158A of the ITA. This section provides that the decision of the High Court or
the Supreme Court in the case of assessee may be applied by the AO to an identical question
arising in the assessee‟s assessment proceedings in another year, provided the assessee requests
for the same. Even so, res judicata is a wider concept, certain key issues on which shall be
discussed in the subsequent paragraphs.

Inapplicability of res judicata in taxation

The general rule that is being applied over many years is that the doctrine of res
judicata is not applicable in tax matters as has been already introduced earlier. The principle
underlying is that no one should present same set of facts differently so as to reach different
conclusions in different financial years. If the same issue is dealt with, in different financial
years, differently, this will cause a lot of confusion and harassment. Financial law by its very
nature is ever dynamic and changes every year. Consistency in law and its interpretation is hence
essentially expected not only from tax authorities but also from the assesses.

Certain decisions of Supreme Court (SC) have held that the principle of res judicata is
inapplicable in tax matters and the general rule is not to apply this doctrine. In Installment Supply
(Pvt.) Ltd. [Instalment Supply (Pvt.) Ltd. v. Union of India, AIR 1962 SC 53] the SC held that
in tax matters there is no question of res judicata because each year's assessment is final only for
that year and does not govern later years.

In Radhasoami Satsang Vyas [Radhasoami Satsang Vyas v. CIT, 1991 Indlaw SC 948]
the Supreme Court observed that each assessment year is a separate unit. Decision in one year
may not carry forward and hold for a subsequent year. The court held that in taxation matters, the
rule of res judicata, as embodied in Section 11 of Civil Procedure Code, 1908 (CPC) has no
application. Each year‟s assessment and decision is hence final to only that financial year and
hence so determines the liability of the assessee of that particular financial year or period. It is
open to the authorities to consider the issues and position of the assessee in the subsequent years.
The decision was affirmed by the Apex Court in the Municipal Corporation of City of
Thane [Municipal Corporation of City of Thane v. Messrs Vidyut Metallics Limited and
another, 2007 INDLAW SC 900] case.

In India, as early as in 1930, the conflicting views that whether the doctrine is applicable
or not, were reconciled by a Full Bench of the Madras High Court in Sankaralinga [T.M.M.
Sankaralinga Nadar & Bros.v. CIT, (1929) 4 ITC 226 (MAD.)], wherein it was held that
questions relating to rights of parties and not varying with income of the party, if decided by
court should be res judicata and the same question should not be argued subsequently. However,
questions which do depend on factors determining income or considerations which vary every
year forming questions which relate to different years and also vary from year to year cannot be
held res judicata. These questions need to be argued for every year and need to be settled for
each and every year as and when the dispute arises. The principle of res judicata hence should be
applied only if there is a fundamental issue in question and the facts which change every year
cannot utilize this doctrine for defence.

The Allahabad High Court reiterated the same rule regarding the doctrine of res
judicata in Kamlapat [Kamlapat Motilal v. CIT, (1950) 18 ITR 812 (AHD.)] and held that a
general and a fundamental question of right or title once decided should be res judicata and
should govern the question in subsequent years. This should hold even if the question has not
been decided expressly and the same result should follow. However, the Bombay High Court
in H.A. Shah [H. A. Shah and Co. v. CIT, (1956) 30 ITR 618 (Bom)] have a slightly different
view.

It held that "the principle of estoppel or res judicata does not strictly apply to the Income
Tax authorities" and declared that, “An earlier decision on the same question cannot be reopened
if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh
facts are placed before the Tribunal giving the later decision and if the Tribunal giving the earlier
decision has taken into consideration all material evidence."

Res judicata was hence excluded from tax matters as has already been discussed earlier.
This along with other judgments as discussed above rendered the doctrine inapplicable to tax
disputes. But, once again, due to judicial wisdom and considerations of public policy, the
advantages of the rule continued to remain available. This took a different form. It needs to be
mentioned that constructive res judicata has lost its role as far as tax matters are concerned.
Constructive res judicata gets its formulation in explanation IV of Section 11 of CPC.

The Supreme Court in The Workmen of Cochin [The Workmen of Cochin Port
Trust v. The Board of Trustees of the Cochin Port Trust and Anr, AIR 1978 SC 1283]
explained the meaning of res judicata with respect to constructive res judicata as: “The rule of
constructive res-judicata is engrafted in Explanation IV of Section 11 of the Code of Civil
Procedure and in many other situations also Principles not only of direct res-judicata but of
constructive res-judicata are also applied, if by any judgment or order any matter in issue has
been directly and explicitly decided, the decision operates as res-judicata and bars the trial of an
identical issue in a subsequent proceedings between the same parties. The Principle of res
judicata comes into play when by judgment and order a decision of a particular issue is implicit
in it, that is, it must be deemed to have been necessarily decided by implications even then the
Principle of res judicata on that issue is directly applicable. When any matter which might and
ought to have been made a ground of defence or attack in a former proceeding but was not so
made, then such a matter in the eye of law, to avoid multiplicity of litigation and to bring about
finality in it, is deemed to have been constructively in issue and, therefore, is taken as decided"
The question had also been earlier addressed by the Apex Court when the matter came up
directly for consideration in Amalgamated Coalfields [Amalgamated Coalfields v. Janapada
Sabha, AIR 1964 SC 1013] “In considering of this question, it may be necessary to distinguish
between decision on questions of law which directly and substantially arise in any dispute about
the liability for a particular year, and questions of law which arise incidentally or in a collateral
manner ... the effect of legal decisions establishing the law would be a different matter.”

The Supreme Court gave a somewhat balanced approach in the understanding and
application of this issue. It distinguished between questions which arise incidentally and
questions of law which arise directly and substantially in any financial year. The effect of
application of the principle and of legal decisions under these different circumstances will be
different. An issue which is significant only for a particular year once decided cannot be held res
judicata for a subsequent year.

Rule of consistency

Though largely, the jurisprudence has been that res judicata is inapplicable to tax proceedings,
courts at times have preferred the rule of consistency. In the case of Sunil Kumar
Ganeriwal [Sunil Kumar Ganeriwal v. Deputy Commissioner of Income-tax, Circle 14(2),
Mumbai, [2011] 16 taxmann.com 311 (Mum.)] for example, the Bombay High Court relied on
the rule of consistency. In this case, the assessing officer had accepted the transaction of shares
as investment and income arising from it under the head short term capital gains in earlier and
also in subsequent assessment years. In a particular year, it was held by the assessing officer to
be under head profits and gains from business owing to the frequency, scale and period of
holding. The ITAT Mumbai held that the rule of consistency demanded that the Assessing
Officer can't take a different view in selective assessment year, and ruled in favour of the
assessee.

Recently, in the case of Man Mohan Kedia [Man Mohan Kedia v. Income Tax Officer,
Kolkata, [2015] 370 ITR 649 (Calcutta)] the Calcutta High Court, though giving a finding
that res judicata is inapplicable to tax proceedings, emphasized on the importance of maintaining
consistency in tax proceedings. It was held by the High Court that in taxation cases the Revenue
Department is taken as one party for all assessment years and the assessees together taken as the
other party. That which is decided between the Revenue and one assessee in an assessment year,
having permanent effects should not be decided otherwise or treated in any other way by the
revenue with regard to any other assessee, so as to maintain consistency and fairness in
government action.

Conclusion

As a general rule, the principle of res judicata is not applicable to tax related
proceedings. An assessment of particular year is final, complete and binding in relation to the
assessment year in which the decision is given. In income-tax proceedings, though the principle
of res judicata does not apply, rule of consistency which in itself emanates from the doctrine
of res judicata does apply, i.e., if no fresh facts come to light on investigation, the assessing
officer is not entitled to reopen the same question on mere ground of suspicion or change of
opinion. This view of courts is also based on principle of natural justice. This principle broadly
safeguards the interests of the assessees against arbitrary actions arising out of prerogative
interpretations and biased actions of the departmental authorities.

III. Inherent Powers of the Court under the CPC

INHERENT POWER: MEANING

The word “Inherent” is very wide in itself. It means existing and inseparable from something, a
permanent attribute or quality, an essential element, something intrinsic, or essential, vested in or
attached to a person or office as a right of privilege. Hence, inherent powers are such powers
which are inalienable from courts and may be exercised by a court to do full and complete justice
between the parties before it.

Section 151 of CPC reads:

Saving of inherent powers of the code:- Nothing in this code shall be deemed to limit or
otherwise affect the inherent powers of the court to make such orders as may be necessary for the
ends of the justice or to prevent abuse of the process of the court.
HOW DOES THE COURT EXERCISE THIS POWER?

Principle

In the cases where the C.P.C does not deal with, the Court will exercise its inherent power to do
justice. If there are specific provisions of the C.P.C dealing with the specific issue and they
expressly or by basic implication, then the inherent powers of the Court cannot be invoked as
inherent powers itself means those which are not specified in C.P.C.

The section confers on the judges to make such orders that may be necessary to make justice
achievable. The Power can be invoked to support the provisions of the code but not to override
or evade other express provisions as C.P.C. is the basic law which governs the functioning of the
courts.

Judicial Interpretations

Alternative for ‘No other remedy:

In the absence of any special circumstances which amount to the abuse of the process of the
Court, it cannot grant a relief in exercise of its inherent power when the justice can be served by
another remedy is available to the party concerned provided by the Code.

No Powers over the Substantive Rights: The inherent powers saved by S. 151 of the Code are
not over the substantive rights which any litigant possesses. Specific powers have to be conferred
on the Courts for passing such orders.
In Ram Chand and Sons Sugar Mills v. Kanhayalal[[1961] 1 S.C.R. 884]: the SC held that the
Court would not exercise its inherent power under S.151 CPC if it was inconsistent with the
powers expressly or impliedly conferred by other provisions of Code. It had opined that the
Court had an undoubted power to make a suitable order to prevent the abuse of the process of the
Court.
The Apex Court in M/s Jaipur Mineral Development Syndicate v. Commissioner of I.T[AIR
1977 SC 1348], has maintained that the Courts had power under Section 151, in the absence of
any express or implied prohibition, to pass an order as may be necessary for the ends of justice
or to prevent the abuse of the process of the Court.
To Advance Interests of Justice:
In M/s. Ram Chand & Sons Sugar Mills Pvt. Ltd. Barabanki (U.P.) v. Kanhayalal Bhargava[
AIR 1966 SC 1899], the appellant contended that during the pendency of the first suit, certain
subsequent events had taken place due to which the first was not fruitful and in law the said suit
could not be kept pending and continued solely for the purpose of continuing an interim order
made in the said suit.

While examining the question the Supreme Court was to consider whether the court can take
cognizance of a subsequent event to decide whether the pending suit should be disposed or not.
The question arose was whether a defendant could make an application under Section 151 CPC
for dismissing the pending suit on the ground that the said suit has lost its cause of action. The
Court upheld the contention.
Restoration of Money Suit–
Bahadur Pradhani v. Gopal Patel[ AIR 1964 Ori 134]. In this case, the plaint of a Money Suit
was rejected for non-payment of deficit court fee within the time granted by the court. The
plaintiff filed a petition under Section 151, C.P.C. for restoration of the suit in the ends of justice.
The court allowed the petition and the suit were restored to file. This Court examined the scope
of the inherent powers of the Court and expressed that the provisions of the Code do not control
the inherent powers of the court by limiting it or otherwise affecting it. It is a power inherent in
the court by virtue of its duties to do justice between the parties before it.
When there is no scope for getting any relief:- It was held in the case of Manoharlal v. Seth
Hiralal[ 1962 AIR 527] that the provisions of the Code are not exhaustive as the legislature is
incapable of contemplating all possible circumstances which may arise in future litigation.
WHAT IS THE SCOPE OF INHERENT POWER EXERCISED BY THE COURT
UNDER SECTION 151 OF THE CPC?

More than seven decades back, the Privy Council in the case of Emperor v. Khwaja Nazir
Ahmed[ (1945) 47 BOMLR 245], observed that Section 561A (corresponding to Section 482 of
the Code) had not given increased powers to the Court which it did not possess before that
section was enacted. It was observed
“The section gives no new powers, it only provides that those which the court already
inherently possess shall be preserved and is inserted lest, as their Lordships think, it should be
considered that the only powers possessed by the court are those expressly conferred by the
Criminal Procedure Code and that no inherent power had survived the passing of the Code.”
In the very recent verdict of K.K. Velusamy v. N. Palaanisamy [ (2011) 11 SCC 275], the
Hon‟ble Supreme Court upheld that Section 151 of the Code recognizes the discretionary power
inherited by every court as a necessary corollary for rendering justice in accordance with law, to
do what is „right‟ and undo what is „wrong‟. The Court summarized the scope of Section 151 of
the CPC as follows:

(a) Section 151 is not a substantive provision which confers any power or jurisdiction on courts.
It merely recognizes the discretionary power of every court for rendering justice in accordance
with law, to do what is `right‟ and undo what is `wrong‟, that is, to do all things necessary to
secure the ends of justice and prevent abuse of its process.
(b) The provisions of the Code are not exhaustive; Section 151 says that if the Code does not
expressly or impliedly cover any particular procedural aspect, the inherent power can be used by
the court to deal with such situation, to achieve the ends of justice, depending upon the facts and
circumstances of the case.
(c) A Court has no power to do things which is prohibited by law or the Code, in the exercise of
its inherent powers. The court cannot make use of the special provisions of Section 151 of the
Code, where the remedy or procedure is expressly provided in the Code.

(d) The inherent powers of the court being complementary to the powers specifically conferred, a
court is free to exercise them and the court should exercise it in a way that it should not be in
conflict with what has been expressly provided in the Code.

(e) While exercising the inherent power, there is no such legislative guidance to deal with those
special situations of the case and so the exercise of power depends upon the discretion and
wisdom of the court, and also upon the facts and circumstances of the case. So, such a
consequential situation should not, however, be treated as a carte blanche to grant any relief.

(f) The power under section 151 will have to be used with care, only where it is absolutely
necessary, when there is no provision in the Code governing the matter or when the bona fides of
the applicant cannot be doubted or when such exercise is to meet the ends of justice and to
prevent abuse of process of court.

LIMITATIONS

It can be clearly seen that the inherent powers of the court are extensively wide and residuary in
nature. Though, one cannot rule out the fact that the same inherent powers can be exercised ex
debito justitae only in the absence of express provisions in the code.[ MahendraManilal v.
SushilaMahendra AIR 1965 SC 364 p. 399] The restrictions on the inherent powers are not
there because they are controlled by the provisions of the Code, but because of the fact that it
shall be presumed that the procedure provided by the legislature is dictated by ends of justice.

REFERENCES:
[i] Concise Oxford English Dictionary (2002).
[ii] In Ram Chand and Sons Sugar Mills v. Kanhayalal [1961] 1 S.C.R. 884
[iii] M/s Jaipur Mineral Development Syndicate v. The Commissioner of I.T AIR 1977 SC 1348
[iv] Ibid 6
[v] M/s. Ram Chand & Sons Sugar Mills Pvt. Ltd. Barabanki (U.P.) v. Kanhayalal Bhargava
AIR 1966 SC 1899
[vi] http://www.legalindia.in/inherent-power-of-civil-court-a-hand-maid-of-justice
[vii] Bahadur Pradhani v. Gopal Patel AIR 1964 Ori 134
[viii] Manoharlal v. Seth Hiralal 1962 AIR 527
[ix] Mahanth Ram Das v. Ganga Das AIR 1961 SC 882
[x] Ramesh Bejoy v. Pashupati Rai (1979) 4 SCC 27
[xi] Ram Das v. Ganga Das, AIR 1961 SC 882
[xii] Chinnamarkathian v. Ayyavoo (1982) 1 SCC 159
[xiii] http://www.shareyouressays.com/114335/legal-provisions-of-section-149-of-code-of-civil-
procedure-1908-c-p-c-india
[xiv] Emperor v. Khwaja Nazir Ahmed (1945) 47 BOMLR 245
[xv]K.K. Velusamy v. N. Palaanisamy (2011) 11 SCC 275
[xvi]MahendraManilal v. SushilaMahendra AIR 1965 SC 364 p. 399
[xvii]Ram Chand & Sons Sugar Mills Ltd. V. Kanhayalal Bhargava AIR 1966 SC 1899