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Radhey Shyam v. Commissioner Of Income-Tax.
Factual and Procedural Background
The petitioner filed a petition under Article 226 of the Constitution seeking quashing of the Commissioner’s order dated 31 October 1979. That order dismissed a revision application under section 264 of the Income Tax Act which had been directed against an earlier order dated 28 March 1978 by the Income Tax Officer (ITO) that disallowed the petitioner’s registration under section 185(5). The impugned revision dismissal was made notwithstanding that the same ITO order had previously been the subject of an appeal to the Commissioner (Appeals), which appeal had been dismissed on 12 September 1979 as barred by time. The petitioner advanced arguments on both merits and procedural/technical grounds; one procedural complaint was that the revision was fixed for hearing on 12 November 1979 but was dismissed on 31 October 1979 after a written reply was communicated to a query by the Commissioner. The court, however, concentrated on the legal question of whether the Commissioner’s jurisdiction under section 264(4)(c) was ousted where the appeal to the Commissioner (Appeals) had been dismissed as barred by time. The court allowed the petition, quashed the Commissioner’s order of 31 October 1979, directed the Commissioner to decide the revision afresh on merits in accordance with law, awarded costs to the petitioner, and granted a certificate under Article 134A for the question of law to be considered by the Supreme Court.
Legal Issues Presented
- Whether the jurisdiction of the Commissioner under section 264(4)(c) of the Income Tax Act is barred when the order of the ITO has been the subject of an appeal to the Commissioner (Appeals) that was dismissed as barred by time — i.e., whether dismissal of an appeal as time-barred means the ITO’s order has been "made the subject of an appeal".
- Whether the Commissioner committed an error apparent on the face of the record by dismissing the revision on 31 October 1979 though it had been fixed for hearing on 12 November 1979 (this issue was raised by the petitioner but the court did not consider it necessary to decide it).
Arguments of the Parties
Petitioner's Arguments
- The Commissioner erred in dismissing the revision application on 31 October 1979 even though the revision had been fixed for hearing on 12 November 1979; the dismissal followed only on communication of a written reply to the Commissioner’s query as to whether an appeal had been filed.
- The Commissioner wrongly construed sub-clause (c) of sub-section (4) of section 264 of the Income Tax Act, and therefore acted against law in refusing to entertain the revision.
Commissioner's Arguments
- The Commissioner contended that once an appeal was filed, entertained and dismissed as barred by time, the order passed by the subordinate authority (ITO) stood affirmed and therefore amounted to an order which had been made the subject of an appeal within the meaning of section 264(4)(c), thereby barring the Commissioner’s revisional jurisdiction.
- Reliance was placed on several precedents (including Mercantile Tobacco Corporation v. CIT and earlier decisions such as Champalal Ashara and Mohd. Nairn Mohd. Alam) to support the submission that dismissal of an appeal on limitation grounds could amount to an effective decision in appeal.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| A.V. Sreenivasalu Naidu v. CIT, [1948] 16 ITR 341 (Mad) | Interpreting an analogous provision (s.35A of the 1922 Act): the order is made the subject of an appeal only when it is the subject-matter of an effective appeal. | The court relied on the reasoning to support the view that dismissal of an appeal as time-barred does not make the subordinate order "the subject of an appeal" in the sense intended by s.264(4)(c). |
| Krishna Flour Mills v. CIT, [1965] 55 ITR 259 (Mys) | Followed the A.V. Sreenivasalu Naidu reasoning on what constitutes being "made the subject of an appeal". | The court noted that this decision followed the A.V. Sreenivasalu Naidu view and treated it as supportive authority for the proposition adopted in this opinion. |
| Mercantile Tobacco Corporation v. CIT, [1965] 57 ITR 483 (Andhra Pradesh) | Held that the test is whether the order passed in appeal was on the merits; if the Tribunal dismissed on limitation, that does not mean there was no appeal in the eye of law (i.e., the nature of disposition should not determine whether an appeal was filed). | The Commissioner relied on this decision to argue that dismissal on limitation still constitutes an appeal for the purposes of section 264(4)(c); the court recorded this reliance but did not accept that it mandated barring revisional jurisdiction in the circumstances of the present case. |
| Champalal Ashara v. CIT, [1953] 23 ITR 464 (Bom) | Held that dismissal of an appeal as barred by time amounted to an order in appeal under the relevant statutory provision. | The court noted this and similar decisions (Mohd. Nairn Mohd. Alam) as authorities relied upon by the Commissioner, but distinguished between an order "in appeal" and an order having been "made the subject of an appeal" in the sense of adjudication on merits. |
| Mohd. Nairn Mohd. Alam v. CIT, [1951] 19 ITR 58 (All) | Similar proposition to Champalal Ashara: dismissal as time-barred can amount to an order in appeal. | Placed by the court alongside Champalal Ashara as supporting the Commissioner's submissions; the court nonetheless maintained its distinction between decision-in-appeal and being "made the subject of an appeal" adjudicated on merits. |
| Mela Ram & Sons v. Commissioner of Income Tax, Punjab, [1956] 29 ITR 607 (SC) | Authority for the proposition that an order dismissing an appeal as barred by time amounts to a decision of appeal. | The court acknowledged that after Mela Ram there is no dispute an order dismissing an appeal as time-barred amounts to a decision in appeal, but emphasized that the specific question before it was whether the ITO’s order could be regarded as having been "made the subject of an appeal" (i.e., adjudicated on merits) and distinguished the concepts. |
Court's Reasoning and Analysis
The court began with a textual analysis of section 264(4), which prevents the Commissioner from revising certain orders in specified cases. The subsection contains sub-clauses (a), (b) and (c). The court observed the different language used in sub-clauses (b) and (c): (b) bars revision where an appeal is "pending" before the Appellate Assistant Commissioner, whereas (c) bars revision where the order "has been made the subject of an appeal" to the Commissioner (Appeals) or the Appellate Tribunal.
The court reasoned that the bar in (b) is lifted once the appeal has been decided because the Appellate Assistant Commissioner is an authority subordinate to the Commissioner (by virtue of the applicable explanation). In contrast, an appeal decided by the Commissioner (Appeals) or the Tribunal involves authorities of co-ordinate or higher jurisdiction and therefore the Legislature, to avoid conflicts of jurisdiction or conflicting orders, enacted sub-clause (c).
The decisive interpretive question was whether dismissal of an appeal as barred by limitation means the ITO’s order has been "made the subject of an appeal" within the meaning of sub-clause (c). The court emphasized two interpretive principles it applied:
- Where the Legislature confers more than one remedy, the provisions must be construed so as to carry out the legislative intention rather than to frustrate it.
- Provisions excluding jurisdiction must be construed strictly.
Applying those principles, the court concluded that the apparent intention of section 264 is to allow an assessee to obtain examination of the correctness of an ITO order either by appeal to the Commissioner (Appeals) under section 246 or by revision to the Commissioner under section 264 — in other words, at least one higher authority should be able to examine the order on merits. If sub-clause (c) were construed to bar revision where an appeal had merely been dismissed for limitation, it would negate the assessee’s revisional remedy and frustrate legislative intent.
The court distinguished between (i) an order "passed in appeal" (which may include an order dismissing an appeal as time-barred) and (ii) an order having been "made the subject of an appeal" in the sense of being adjudicated upon on the merits. It accepted that dismissal on limitation may give finality or even operate as res judicata, and that there is authority that such dismissal amounts to an order in appeal; however, the court held that such dismissal does not mean the ITO’s order was adjudicated on merits by the Commissioner (Appeals) or Tribunal. The court concluded that "subject of an appeal" must be understood as adjudication on the merits, and that only such adjudication can operate to bar the Commissioner’s revisional jurisdiction under section 264(4)(c).
Consequently, the Commissioner’s construction that dismissal of an appeal as time-barred ousted revisional jurisdiction under sub-clause (c) was wrong. The Commissioner’s order of 31 October 1979 was therefore quashed and the Commissioner was directed to decide the revision afresh on merits in accordance with law. The petitioner was awarded costs.
The court also observed that because there is divergence of opinion between different High Courts on this question, it granted a certificate under Article 134A of the Constitution that the question of law is of substantial and general importance and should be decided by the Supreme Court.
Holding and Implications
Holding: The petition is allowed. The court quashed the order dated 31 October 1979 passed by the Commissioner and directed that the revision be decided afresh on merits in accordance with law. The petitioner was awarded its costs.
Implications:
- The direct effect on the parties is that the Commissioner’s dismissal of the petitioner’s revision is set aside and the Commissioner must re-hear and decide the revision on its merits.
- The petitioner recovers costs as ordered by the court.
- The court granted a certificate under Article 134A because there is divergence of opinion among High Courts on whether dismissal of an appeal as time-barred bars the Commissioner’s revisional jurisdiction under section 264(4)(c); this elevates the point to the Supreme Court for authoritative determination. The opinion does not purport to establish a binding precedent beyond the parties; it resolves the matter for the present case and refers the substantial question of law to the Supreme Court.
R.M Sahai, J.:— By this petition filed under art. 226 of the Constitution of India, the principal relief sought is the quashing of the order dated 31st October, 1979, passed by the Commissioner dismissing a revision filed under s. 264 of I.T Act, against the order dated 28th March, 1978, passed by the ITO disallowing registration to the petitioner under s. 185(5), as infructuous because the impugned order had been the subject of an appeal to the Commissioner (Appeals) even though it was dismissed on 12th September, 1979, as barred by time.
2. In order to assail the correctness of this order the petitioner has taken recourse to arguments both on merits and tecnicalities. It is urged that the revision having been fixed for hearing on 12th November, 1979, the Commissioner committed an error apparent on the face of the record in dismissing it on 31st October, 1979, on communication of written reply to the query made by the Commissioner as to whether the petitioner had filed an appeal. We, however, do not consider it necessary to examine this aspect as we are satisfied that the other argument advanced, that the Commissioner acted against law in refusing to entertain revision on an erroneous construction of sub-cl. (c) of sub-s. (4) of s. 264 of the Act, appears to be well founded.
3. Section 264 empowers the Commissioner to revise any order passed by an authority subordinate to him either on the application of the assessee or suo motu. Sub-section (4), however, takes away this jurisdiction, if the remedy to file appeal is available or it is pending. Further, in cases where an order has been made the subject of an appeal to the Commissioner (Appeals) or the Tribunal the jurisdiction of the Commissioner to examine the correctness or otherwise of such order is completely excluded. In this petition we are concerned with this last aspect, namely, whether the jurisdiction of the Commissioner was barred even if the appeal was dismissed as barred by time. In other words, could the dismissal of an appeal by the Commissioner (Appeals) result in the order of ITO having been made the subject of an appeal within the meaning of cl. (c) of sub-s. (4).
4. For deciding this controversy it is necessary to extract the sub-section which runs as under:
“The Commissioner shall not revise any order under this section in the following cases—
(a) where an appeal against the order lies to the Appellate Assistant Commissioner or to the Commissioner (Appeals) or to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired or, in the case of an appeal to the Commissioner (Appeals) or to the Appellate Tribunal, the assessee has not waived his right of appeal; or
(b) where the order is pending on an appeal before the Appellate Assistant Commissioner; or
(c) where the order has been made the subject of an appeal to the Commissioner (Appeals) or to the Appellate Tribunal.”
5. It is obvious that the answer to the question shall depend on the construction of the expression, “order has been made the subject of an appeal” used in cl. (c). It shall be noticed that the two sub-cls. (b) and (c) of the sub-section use different language. In one the jurisdiction is barred if the appeal is pending whereas in the other if it has been made the subject of an appeal. But the bar imposed by cl. (b) is lifted once the appeal has been decided because the AAC, by virtue of Expln. (2), is an authority subordinate to the Commissioner. This does not happen in a case where the appeal has been decided by the Commissioner (Appeals) or the Tribunal as they are authority of either co-ordinate or higher jurisdiction except, of course, in administrative matters. If it would not have been so, it would have resulted in conflicting orders passed by authorities of the same or even higher jurisdiction. It could not have been the intention. The Legislature, therefore, to avoid any conflict or anomaly, enacted this sub-clause.
6. We may now consider if the dismissal of an appeal on the ground of limitation results in the order having been made the subject of an appeal. Before answering this we may point out that where Legislature confers more than one remedy then the provisions have to be construed in a manner in which the intention of the Legislature is carried into effect and not so as to frustrate it. Moreover, a provision excluding jurisdiction must be construed strictly. The apparent intention of s. 264 appears to be to enable an assessee to get the correctness of an order passed by the ITO examined either by the Commissioner (Appeals) under s. 246 or by the Commissioner under S. 264. That is, at least one higher authority may examine it on merits. If cl. (c) is construed in the manner as it has been done by the Commissioner it would result in negativing the remedy of an assessee which would be contrary to the intention of the Legislature.
7. It is urged on behalf of the Commissioner that once an appeal was filed, entertained and dismissed as barred by time the order passed by a subordinate authority stood affirmed and it would amount to an order which has been made the subject of an appeal. According to learned counsel the remedy of the petitioner to approach the Commissioner, therefore, under s. 264 was barred. At the first impression the argument did appear to be attractive. But, on the intention of Legislature and language of the section, we are not inclined to accept it. Appeal, in ordinary sense, means taking the order to a higher authority for examination of its correctness. Where an appeal is dismissed as barred by time or because it was deficiently stamped or it was not presented before the appropriate authority, it may result in finality of order passed by a subordinate authority and may even operate as res judicata but it cannot be considered to have been examined by a higher authority. An order passed in appeal and order having been the subject of an appeal appear to convey different senses. Dismissal of appeal as barred by time is an order passed in appeal against an order of the subordinate authority whereas a decision of a higher authority on merits results in the order having been made the subject of an appeal. The jurisdiction of the Commissioner could be barred under this provision only if the validity or the soundness of the order passed by a subordinate authority has been adjudicated upon by the Commissioner (Appeals). In our opinion, “subject of an appeal” must be understood as adjudication or decision on merits. It may be that for approaching a higher authority even an order dismissing an appeal as barred by time may be construed as an order passed in appeal but that does not amount to the order of having been made the subject of an appeal.
8. While examining the analogous provision contained in s. 35A of Indian I.T Act of 1922 in A.V Sreenivasalu Naidu v. CIT, [1948] 16 ITR 341 (Mad) it was observed (p. 345):
“It will be seen from the history of the legislation that section 33A was introduced by Act XXIII of 1941. The revisional jurisdiction, which the Commissioner had before the Amendment Act of 1939, was taken away by the repeal of the old section 33. But the Legislature obviously found that another alternative remedy less costly was necessary to give relief where the stakes involved were small, and introduced the revisional power again. An assessee can either prefer an appeal to the Appellate Tribunal or he may select the cheaper remedy and apply to the Commissioner to revise the order. If he so elects, if the time prescribed for prefer ring an appeal has not expired, he must waive his right to prefer an appeal. The object of the sections is clear. The assessee can agitate the validity of the order of the subordinate authority either before the Tribunal or the Commissioner. That was the intention of the legislature, and, in my view, the provisions of the aforesaid two sections clearly bring out the intention. The learned counsel for the Commissioner contended that the same consequences would follow even if an appeal was filed and dismissed as out of time. If this contention is accepted, it will defeat the purpose of the enactment and I cannot accept the same unless the;words used in the section clearly support such contention………. The order is made the subject of an appeal only when it is the subject matter of an effective appeal.”
9. This decision was followed in Krishna Flour Mills v. CIT, [1965] 55 ITR 259 (Mys).
10. Learned counsel for Commissioner relied on Mercantile Tobacco Corporation v. CIT, [1965] 57 ITR 483, where a Division Bench of the Andhra Pradesh High Court repelled the contention that dismissal of an appeal by the Tribunal on ground of limitation did riot result in effective decision of an appeal. It was observed (p. 487):
“The test to apply to determine whether there was an appeal in the eye of law or not is to see whether the order passed by the Tribunal was on merits or not. As the merits of the case cannot or will not be gone into in a time-barred appeal, it should be held that there was no effective appeal and, therefore, no appeal at all in the eye of law. This line of reasoning is an attempt to argue backwards from the result of the appeal. If the matter was disposed of by the Tribunal on merits, then an appeal must be held to have been preferred to the Tribunal; on the other hand, if the Tribunal disposed of it on a point of limitation, it must be held, according to the petitioner's contention, that there was no appeal at all to the Tribunal in the contemplation of law. The legal character of a proceeding pursued by an aggrieved assessee would thus depend not on what he really intended it to be, nor even on what the relevant provision of law required it to be, but on the nature of the order which the quasi-judicial authority whom he approaches happens to pass eventually on it. This appears to me too strange a position to accept. There is no warrant for it in the provisions of the Act or under the general law.”
11. For taking this view reliance was mainly placed on Champalal Ashara v. CIT, [1953] 23 ITR 464 (Bom) and Mohd. Nairn Mohd. Alam v. CIT, [1951] 19 ITR 58 (All), where it was held that the dismissal of an appeal as barred by time amounted to an order in appeal under s. 31 of the Act. Support was also drawn from Mela Ram & Sons v. Commissioner Of Income Tax, Punjab, [1956] 29 ITR 607 (SC). There can be no dispute specially after Mela Ram's decision that an order dismissing an appeal as barred by time amounts to decision of appeal. But as stated earlier we are not concerned whether the order passed by the Commissioner (Appeals) was an order in appeal but whether the order of the ITO could be held to have been subject of an appeal.
12. For the reasons stated above this petition succeeds and is allowed. The order dated October 31, 1979, passed by the Commissioner is quashed. He shall decide the revision afresh on merits in accordance with law. The petitioner shall be entitled to its costs.
13. Learned counsel for the Commissioner made an oral prayer for grant of certificate under art. 134A of the Constitution of India. As there is divergence of opinion between different High Courts we grant a certificate as the question of law raised is of substantial and general importance which needs to be decided by the Supreme Court.
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