Does the doctrine of res judicata applies to Tax proceedings? Give reasons in support of your answer and also refer to judicial decisions, if any, on the point.

Question: Does the doctrine of res judicata applies to Tax proceedings? Give reasons in support of your answer and also refer to judicial decisions, if any, on the point.

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Answer

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 the 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 assessees.

In the case of Instalment Supply (Pvt.) Ltd. v. UOI AIR 1962 SC 53, the Supreme Court 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.

Similarly, In Radhasoami Satsang Vyas v. CIT 1991 Indlaw SC 948 the Supreme Court observed that each assessment year is a separate unit. The 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 the 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.

Hence, in view of the above decisions given by the Supreme Court, it is now clear that the doctrine of res judicata does not apply to tax proceedings.

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