Court caseAIR 1965 SC 1636

The Supreme Court will reconsider its earlier decisions only for substantial and compelling reasons; it must ask whether the earlier view was clearly erroneous, whether it has been followed and acted upon, whether it has stood the test of time and whether revision would serve the public interest rather than merely a different view of the law.

Keshav Mills, a company resident in the princely State of Petlad (outside British India), sold cloth through guaranteed brokers and agents in Bombay and Ahmedabad, who collected the sale proceeds and remitted them. The Revenue taxed the amounts as income received in British India. Earlier Supreme Court decisions on the same question had gone against assessees, and the company asked a larger bench to reconsider them. The appeal thus raised, before the income-tax point, the question of the Court's approach to its own precedents.

Gajendragadkar CJ, for the Court, accepted that the Court has the power to reconsider its decisions (Bengal Immunity) but held that the power must be exercised with caution. The Court should be satisfied that the earlier decision is clearly erroneous and not merely that another view is possible; it should consider whether the decision has been consistently followed, whether transactions and rights have been settled on its basis, how long it has stood, and whether revision would serve the public interest or unsettle the law. Applying these tests the Court declined to revise the earlier decisions and held that the income had been received in British India through the agents.