Recently Supreme Court dismissed an SLP filed by taxpayers in Home Finders Housing Ltd vs ITO Corporate Ward 2(3)  94 taxmann.com 84 (SC) against the judgment of Madras High Court that gave a verdict, contrary to general view, that an assessment order passed without complying with the direction of Supreme Court in GKN Driveshafts (India) Ltd. v. ITO  125 Taxman 963 does not become void ab initio as not passing a speaking order on objection by assessee against notice u/s 148 was merely a procedural lapse .
The SLP dismissal order of the Supreme Court comprises of two lines as under :
1. The Special Leave Petition is dismissed.
2. Pending application stands disposed of.
So, the question to ponder is whether on the dismissal of SLP ‘in limine’ [The phrase “in limine” is Latin and means “at the threshold.”] , the question of law posed before the Supreme Court remains open or the doctrine of merger is applicable?
In other words, whether the direction of Supreme Court in GKN Driveshaft case, after the dismissal of the SLP, is no more sacrosanct or the law of land- that must be followed by assessees and tax authorities while dealing with a case of reassessment u/s 147?
Although the rationale of Madras High Court for the decision in the aforesaid case was based on peculiar facts and circumstances and taxpayers will have to learn from that[ Next week , an article on that will appear on this site ], this post is dedicated to a single issue- the effect of SLP dismissal by the Supreme Court on the GKN Driveshaft case application on all future case of reassessment.
There can be two possible scenarios in case of SLP dismissal by the Supreme Court. Firstly, the Supreme Court has dismissed the SLP after stating some reason. In this case, the matter is final, and the lower court’s decision may not form the basis for a motion. Secondly, however, if the Supreme Court has dismissed the SLP without giving any reason, the lower court’s decision may form the basis for a motion. This differential treatment of dismissals of SLPs has been brought before the Supreme Court in the case of Gangadhara Palo v. Revenue Divisional Officer and is well-settled law.
The difference might be a little confusing but is an application of the doctrine of merger. The doctrine of merger, in layman’s language, says that once a higher court decides on an issue, the lower court’s decision merges with the judgment of the higher court, such that the lower court’s decision does not exist independently. For example, if a lower court says X is a thief but a subsequent judgment of a higher court finds that X is not a thief, according to the doctrine of merger, the lower court’s judgment is said to be merged with the higher court’s decision. No motion or petition may be filed on the basis of the lower court’s decision since it has ceased to exist independently, and is said to be merged with the decision of the Supreme Court.
An interesting piece of trivia is from the decision in Gangadhara Palo v. The Revenue Divisional Officer and Another, 2011 3 SCALE 498, . In that case, the leading issues before Hon’ble Supreme Court was on doctrine of merger and the Apex Court took a view contrary to another decision of the Supreme Court in K. Rajamouli v. A.V.K.N. Swamy, (2001) 5 SCC 37 . The Supreme Court in that case ( K.Rajmouli ) made a distinction between a case where the review petition was filed in the High Court before the dismissal of the special leave petition, and a case where the review petition was filed after the dismissal of the special leave petition.
However, the Apex Court in Gangadhara Palo overruled the decision in K. Rajamouli by stating that ‘it will make no difference whether the review petition was filed in the High Court before the dismissal of the special leave petition or after the dismissal of the special leave petition.’ The Supreme Court opined that the only issue in such cases is whether or not the judgement of the High court has merged into that of the Supreme Court or not.
Two Stages of SLP Dismissal: SC View
The law and other consequential issues out of admittance and dismissal were explained by the Supreme Court itself in case of Kunhayammed v. State of Kerala 2001 (129) E.L.T. 11 (S.C.). the Apex Court explained that there are two distinct stages in case of Special Leave Petition(SLP) :
- Granting of special leave to appeal; and
- Hearing the appeal.
- If the SLP is dismissed at the first stage of special leave without a speaking or reasoned order,there is no res judicata, no merger of the lower order and the petitioner retains the statutory right, if available of seeking relief in review jurisdiction of the High Court.
- If the SLP is dismissed at the first stage of special leave by speaking a reasoned order, there is still no merger but the rule of judicial discipline and declaration of law under Article 141 of the Constitution will apply. The order of Supreme Court would mean that it has declared the law and in that light, the case was considered not fit for grant of leave.
From the order of dismissal of Supreme Court in Home Finders Housing Ltd vs ITO Corporate Ward 2(3), it seems to me that dismissal falls under the first stage as described above by the Supreme Court in Kunahyammed case (supra). So, the doctrine of merger does not apply in the Home finders case and the judgment is not a res judicata.
It means in simple terms the said SLP is not a binding as the rule of judicial discipline and declaration of law under Article 141 of the Constitution will not apply in such a case. Department can not invoke the dismissal order by Supreme Court in Home Finders Housing Ltd case as a tool for not abiding by the Supreme Court ruling in GKN Driveshaft case that enjoins a duty on A.O to pass a speaking order on objection petin against 148 notice.