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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • For the Appellant: P. Balachandran
Judges
  • P.K Balasubramanyan
  • C.N Ramachandran Nair, JJ.
Acts
  • S. 148 of the Income Tax Act by Finance (No. 2) Act, 1996
  • S. 148 by the Finance (No. 2) Act, 1996
  • S. 143(1) of the Income Tax Act
  • S. 260A of the Income Tax Act
  • S. 148 of the Income Tax Act
  • S. 263 of the Income Tax Act.
  • FINANCE NO 2 ACT 1996
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • For the Appellant: P. Balachandran
Judges
  • P.K Balasubramanyan
  • C.N Ramachandran Nair, JJ.
Acts
  • S. 148 of the Income Tax Act by Finance (No. 2) Act, 1996
  • S. 148 by the Finance (No. 2) Act, 1996
  • S. 143(1) of the Income Tax Act
  • S. 260A of the Income Tax Act
  • S. 148 of the Income Tax Act
  • S. 263 of the Income Tax Act.
  • FINANCE NO 2 ACT 1996
See more information ...
Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

This appeal was filed by the Commissioner of Income Tax, Cochin against decisions arising from reassessment proceedings for the assessment year 1984-85. The original assessment under S. 143(1) of the Income Tax Act was completed on 27.2.1987. The assessing authority later issued a reassessment notice under S.148 relying on S.147, calling upon the assessee to file a return "within 30 days" (whereas at that time the statute required a notice to give a period "not being less than 30 days"). The reassessment was completed on 30.3.1993.

The assessee appealed before the Commissioner of Income Tax (Appeals) who, by order dated 7.2.1995, accepted the assessee's contention that the notice under S.148 was defective for not giving a period "not being less than 30 days" and set aside the reassessment order dated 30.3.1993. The assessing authority appealed to the Income Tax Appellate Tribunal (ITAT) (I.T.A No. 3400.Coch/95).

While that appeal was pending, S.148 was amended by the Finance (No. 2) Act, 1996 to omit the words "not being less than 30 days" with retrospective effect from 1.4.1989. Meanwhile, the assessing authority issued a second notice under S.148 read with S.147 giving "not less than 30 days"; the assessee filed a return and the assessing authority completed reassessment on 31.7.1996. That subsequent reassessment was not interfered with under S.263 and became final.

The ITAT, when hearing the appeal against the CIT(A)'s order, accepted the assessee's contention that the second reassessment rendered the appeal infructuous and dismissed the assessing authority's appeal. The Commissioner of Income Tax then filed this appeal under S.260A of the Income Tax Act on substantial questions of law.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case and also in view of the fact that S.148 has been amended retrospectively from 1.4.1989 to legalise notices issued stating "within 30 days" instead of "not less than 30 days", the Tribunal was right in law in holding the notice and the reassessment as invalid?
  2. Whether, on the facts and in the circumstances of the case and also in the light of the amendment to S.148 with retrospective effect from 1.4.1989 omitting the words "not less than 30 days", the Tribunal should not have held the notice and the consequential assessment accordingly valid?
  3. Whether, on the facts and in the circumstances of the case and also in the light of the retrospective amendment to S.148 with effect from 1.4.1989, the Tribunal was right in law in disposing of the appeal in the manner it did?

Arguments of the Parties

Revenue's Arguments

  • The Tribunal was bound to take note of the amendment to S.148 (Finance (No.2) Act, 1996) made while the appeal was pending and was required to dispose of the appeal in the light of that amendment, particularly because the amendment was given retrospective effect from 1.4.1989.
  • Reliance was placed on earlier decisions (Federal Court and Supreme Court cases cited in the opinion) for the proposition that an appellate tribunal must apply the changed law when an amendment occurs while an appeal is pending.
  • Consequently, the Tribunal erred in dismissing the appeal as infructuous and not giving effect to the amended S.148; this error of law warrants interference under S.260A.

Assessee's Arguments

  • The assessing authority had issued a fresh notice under S.148 in exercise of S.147 and completed reassessment by order dated 31.7.1996, which had become final; therefore, the appeal against the CIT(A)'s order dated 7.2.1995 had become infructuous.
  • Because the subsequent reassessment became final, there was no question of reviving or reopening the earlier attempt at reassessment dated 30.3.1993.
  • The principle that an appellate tribunal should take note of amendments to law, advanced by Revenue, was said to be irrelevant in view of the fresh and final reassessment.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Raja Bahadur Kamakshya Narain Singh v. Commr. of Income Tax, Bihar, 15 ITR 311 (Federal Court) Supported the proposition that an appellate forum must take note of amendments to the law pending the appeal. The decision was cited by Revenue for that principle; the Court described it as one of the authorities relied upon but did not elaborate further in the opinion.
State of Uttar Pradesh v. Raja Syed Mohammad Saadat Ali Khan, 41 ITR 737 (Supreme Court) Authority cited in support of the principle that an appellate tribunal must apply amendments to law when disposing pending appeals. Cited by Revenue; the Court noted it among the authorities relied upon to show that the Tribunal should have applied the amended S.148.
Commissioner of Sales Tax v. Bijli Cotton Mills, AIR 1964 SC 1594 Cited for the general principle that amendments to law pending appeal must be given effect by appellate forums. Cited by Revenue; the opinion records the citation as supporting Revenue's contention that the Tribunal was bound to apply the retrospective amendment.
Commissioner of Income Tax v. Straw Products Ltd., 60 ITR 156 Another authority cited for the proposition that a tribunal must consider statutory amendments in hearing appeals. Included among Revenue's authorities; the Court referenced it as part of the jurisprudential basis relied upon by Revenue.
Kapurchand Shrimal v. Commissioner of Income Tax, 131 ITR 451 Cited to support the contention that appellate bodies should give effect to amendments made while appeals are pending. Noted by the Court as one of the cases relied upon by Revenue in arguing that the ITAT should have applied the amended S.148.
C.I.T v. Sun Engineering Works P. Ltd., 198 ITR 297 Cited for the general rule that an appellate tribunal must take into account statutory amendments with retrospective operation. Cited by Revenue; the Court treated it as part of the authorities supporting the Revenue's submission.
I.T.O v. Srihari, 250 ITR 193 (Supreme Court) Raised an apparent conflict on a related point; in that case the order showed a fresh assessment effacing the first assessment. The Court observed that the decision was brought to its notice but held that it did not assist in deciding the present questions one way or the other.

Court's Reasoning and Analysis

The Court proceeded by identifying and applying a set of legal and procedural principles as follows:

  1. The Court accepted the premise that there can be only one valid reassessment in exercise of power under S.147 read with S.148 of the Income Tax Act.
  2. The Court analyzed the procedural effect of an appeal: an appeal is a continuation of the original proceeding and, on general principles, an appellate process keeps the original order in "suspended animation" until final determination. Thus the first reassessment order dated 30.3.1993 remained subject to final decision by the Tribunal.
  3. Because the validity of the first reassessment depended on the Tribunal's final decision, the assessing authority could not validly treat the later reassessment (31.7.1996) as finally displacing the earlier reassessment for purposes of rendering the pending appeal infructuous. In the Court's view, both orders could not survive; one had to fall depending on the Tribunal's decision.
  4. The Tribunal, when deciding the appeal, was bound to apply the law as it stood on the date of hearing (i.e., take note of the amendment to S.148 that had retrospective operation). The Court concluded that the Tribunal erred in holding that the appeal was infructuous and in failing to decide the appeal based on the amended S.148.
  5. On the merits of the substantial questions of law, the Court answered them in favour of Revenue and against the assessee because the Tribunal did not apply the retrospective amendment to S.148 and incorrectly dismissed the appeal as infructuous.
  6. Regarding the appropriate remedy under S.260A, the Court examined whether it should merely remit the matter to the Tribunal or could remand further to the Commissioner of Income Tax (Appeals). The Court noted that the Commissioner of Income Tax (Appeals) had set aside the reassessment only on the narrow ground of insufficiency of the notice period (then required by statute as "not being less than 30 days"). Because S.148 had been retrospectively amended to omit that requirement, the CIT(A)'s order was unsustainable.
  7. The Court concluded that the ITAT, applying the amended law, could only set aside the CIT(A)'s decision and remit the matter to the CIT(A) to decide the issues on merits other than the sufficiency-of-notice point. To avoid redundant remands (this Court → ITAT → CIT(A)), the High Court exercised its S.260A jurisdiction to set aside the Tribunal's order and the CIT(A)'s order and directly remand the appeal to the CIT(A) for fresh adjudication on the merits in accordance with law.

Holding and Implications

Holding: The Court answered the substantial questions of law in favour of the Revenue and against the assessee. It held that the Income Tax Appellate Tribunal was substantially in error in dismissing the appeal as infructuous and in not deciding the appeal by applying the retrospective amendment to S.148.

DISPOSITION: The Court set aside the decision of the Income Tax Appellate Tribunal and the decision of the Commissioner of Income Tax (Appeals) dated 7.2.1995, and remanded the appeal I.T.A No. 9-T/CIT/93-94 to the Commissioner of Income Tax (Appeals), Cochin, for fresh decision on merits in accordance with law.

Implications:

  • Direct effect on the parties: The CIT(A)'s order setting aside the reassessment dated 30.3.1993 on the sole ground of insufficiency of notice is reversed as unsustainable in view of the retrospective amendment to S.148; the matter is remitted to the CIT(A) to be heard and decided on merits (other than the sufficiency-of-notice point).
  • The Court's decision corrects the ITAT's procedural disposition (dismissing the appeal as infructuous) and requires adjudication of the substantive issues by the CIT(A).
  • The opinion does not purport to lay down a broader novel principle of law beyond applying established procedural concepts (appeal as continuation of the original proceeding; duty of appellate forums to apply changes in law when relevant and retrospective). The decision's immediate consequence is the remand for fresh merits consideration rather than the creation of an express new precedent.
Show full summary ...

    Commissioner Of Income Tax v. P.N Krishnakumar

    The Judgment of the Court was delivered by

    P.K Balasubramanyan, J.:— This appeal at the instance of the Commissioner of Income Tax, Cochin raises the following substantial questions of law accepted by this Court while issuing notice to the respondent:

    “1. Whether, on the facts and in the circumstances of the case and also in view of the fact that S. 148 has been amended retrospectively from 1.4.1989 to legalise the notices issued stating “within 30 days” instead of “not less than 30 days” the Tribunal is right in law in holding the notice and the re-assessment as invalid?

    2. Whether, on the facts and in the circumstances of the case and also in the light of the amendment to S. 148 with retrospective effect from 1.4.1989 omitting the words “not less than 30 days” should not the Tribunal have held the notice and the consequential assessment accordingly valid?

    3. Whether, on the facts and in the circumstances of the case and also in the light of the retrospective amendment to S. 148 with effect from 1.4.1989 the Tribunal is right in law in disposing of the appeal in the manner it did?”

    2. Subsequent to the notice the respondent has appeared and argued on the above substantial questions of law.

    3. For the assessment year 1984-85 the assessing authority completed the assessment under S. 143(1) of the Income Tax Act on 27.2.1987

    4. Subsequently the assessing authority issued a reassessment notice under S. 148 of the Act invoking the power under S. 147 of the Act. In that notice, the assessing authority called upon the assessee to file a return of income within 30 days. This was against the Scheme of S. 148 of the Act, as it then stood, since the provision at the relevant time insisted on a notice requiring him to furnish a return within such period “not being less than 30 days”. The reassessment was completed on 30.3.1993 Aggrieved by that order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). By order dated 7.2.1995, the Commissioner of Income Tax accepted the contention of the assessee that the notice under S. 148 of the Income Tax Act was defective in that the assessee was not given a notice not being less than 30 days, for submitting a return of income. The Commissioner of Income Tax (Appeals) therefore, set aside the revised order of the assessing authority dated 30.3.1993 The appellate authority did not go into the merits of the contentions sought to be raised by the assessee in the appeal. The assessing authority challenged the order of the Commissioner of Income Tax (Appeals) in a further appeal before the Income Tax Appellate Tribunal, Cochin Bench as I.T.A No. 3400.Coch/95. Pending that appeal before the Tribunal, S. 148 of the Income Tax Act was amended by the Finance (No.2) Act, 1996 omitting the words “not being less than 30 days” with retrospective effect from 1.4.1989 Thus, when the appeal was taken up for hearing by the Income Tax Appellate Tribunal, there was no insistence by S. 148 of the Act, that the notice period should not be less than 30 days. Meanwhile, the assessing authority purported to issue a second notice under S. 148 of the Act read with S. 147 of the Act giving the assessee a period of not less than 30 days for submitting his return. The assessee submitted his return and the assessing authority completed the assessment by order dated 31.7.1996 That order of assessment was not interfered with in exercise of powers by the Commissioner of Income Tax under S. 263 of the Income Tax Act. In that sense the order of reassessment dated 31.7.1996 became final.

    5. The appeal filed by the assessing authority before the Income Tax Appellate Tribunal challenging the decision of the Commissioner of Income Tax (Appeals) dated 7.2.1995 came up for hearing before the Tribunal. The assessing authority pursued the appeal before the Tribunal presumably on the basis of the amendment brought about to S. 148 of the Income Tax Act by Finance (No. 2) Act, 1996 with effect from 1.4.1989 On behalf of the assessee it was contended that a fresh proceeding had been initiated under S. 147 of the Act and since a reassessment was finally completed by order dated 31.7.1996, the appeal against the order of the Commissioner of Income Tax (Appeals) dated 7.2.1995 had become infructuous. The Income Tax Appellate Tribunal accepted this contention on the side of the assessee and dismissed the appeal filed by the assessing authority on the ground that it has become infructuous. It is feeling aggrieved by this decision of the Tribunal that the Commissioner of Income Tax has filed this appeal under S. 260A of the Income Tax Act on the substantial questions of law as indicated above.

    6. Learned counsel for the Revenue submitted with reference to the decision of the Federal Court in Raja Bahadur Kamakshya Narain Singh v. Commr. of Income Tax, Bihar, 15 ITR 311, the decisions of the Supreme Court in State of Uttar Pradesh v. Raja Syed Mohammad Saadat Ali Khan, 41 ITR 737, Commissioner of Sales Tax v. Bijli Cotton Mills, AIR 1964 SC 1594, Commissioner of Income Tax v. Straw Products Ltd., 60 ITR 156, Kapurchand Shrimal v. Commissioner of Income Tax, 131 ITR 451 and C.I.T v. Sun Engineering Works P. Ltd. 198 ITR 297, that an Appellate Tribunal was bound to take note of an amendment brought about to the law pending the appeal and was bound to dispose of the appeal in the light of that amendment especially when the amendment is given clear retrospective operation. Counsel, therefore, submitted that the Appellate Tribunal was in error in not giving effect to the amended law as on the date of consideration of the appeal and consequently, the dismissal of the appeal as infructuous suffers from a substantial error of law warranting interference by this Court in exercise of its jurisdiction under S. 260A of the Income Tax Act. Learned counsel for the assessee on the other hand, contended that the assessing authority having issued a fresh notice under S. 148 of the Act in exercise of power under S. 147 of the Act and having completed a reassessment by order dated 31.7.1996, the Tribunal was justified in dismissing the appeal against the order of the Commissioner of Income Tax (Appeals) dated 7.2.1995 as infructuous and the principle canvassed by counsel for the Revenue, which cannot be disputed, has no relevance to the case on hand. Counsel also submitted that the subsequent order of reassessment dated 31.7.1996 having become final, there was no question of reviving the earlier attempt at reassessment and the order dated 30.3.1993 based on such reassessment by the assessing authority.

    7. Before proceeding further, we may notice that both counsel for the Revenue and Counsel for the assessee brought to our notice the decision of the Supreme Court in I.T.O v. Srihari 250 ITR 193 in which though apparent conflict was noticed by the Supreme Court, the question was not decided since according to Their Lordships the order of assessment in that case showed that there was a fresh assessment which effaced the first order of assessment. That decision, in our view, does not help us to decide the questions falling for decision in this case, one way or the other.

    8. There is no dispute before us that there can only be one reassessment in exercise of power under S. 147 of the Act read with S. 148 of the Act. According to counsel for the assessee, that re-assessment order is the order dated 31.7.1996 and so long as that order is not got rid of in any mode known to law, there can be no question of the first attempt at reassessment under S. 147 of the Act being reopened or resurrected. There is some difficulty in accepting this decision. In our procedural jurisprudence, an appeal is a continuation of the original proceeding. There is no exception made in the Income Tax Act in that regard. Therefore, on general principles, it has to be taken that the first order of reassessment made by the assessing authority on 30.3.1993 is in suspended animation in view of the fact that an appeal against the decision of the Commissioner of Income Tax (Appeals) setting aside that order, was pending before the Tribunal. In other words, the validity or otherwise of the order dated 30.3.1993 would depend upon the final decision to be taken by the Tribunal in the appeal pending before it. Therefore, if the Tribunal were to decide that the order of reassessment dated 30.3.1993 is validly made, the consequence would be that the assessing authority could not have issued yet another notice for reassessment in terms of S. 147 of the Act and could not have made a reassessment as reflected by the order dated 31.7.1996 Since it is not disputed that both orders cannot survive and one of them has to fall, on the principle that an order becomes final only when the appeal filed against it is finally decided, it has to be held that the life of the second order dated 31.7.1996 would depend upon the decision of the Income Tax Appellate Tribunal in the appeal pending before it relating to the re-assessment order dated 30.3.1993 If that be so, the so called finality attained by the order dated 31.7.1996 cannot have any efficacy or cannot render the hearing and disposal of the appeal by the Tribunal infructuous or bar the jurisdiction of the Tribunal from deciding the appeal on merits as it is enjoined to do otherwise. In other words, the validity of the second reassessment order would depend upon the validity or otherwise of the first re-assessment order made in this case by the assessing authority. In that view of the matter when the assessing authority pursued the appeal filed by him against the order of the Commissioner of Income Tax (Appeals) dated 7.2.1995 before the Tribunal, the Tribunal was bound to decide that appeal by applying the law as it stood on the date of hearing of that appeal. By holding that the appeal has become infructuous because of the second order of the assessing authority dated 31.7.1996, the Tribunal has committed a substantial error of law warranting correction by this court in exercise of its second appellate jurisdiction.

    9. In the light of our conclusion as above, the substantial questions of law formulated for decision have to be answered in favour of the Revenue and against the assessee. It has to be held that the Income Tax Appellate Tribunal was substantially in error in holding that the appeal had become infructuous and was also substantially in error in not deciding the appeal based on the amended S. 148 of the Act as it stood when the appeal was being heard and decided by the Tribunal.

    10. The question is whether this Court, exercising jurisdiction under S. 260A of the Act, can only set aside the decision of the Tribunal and remand the appeal to the Tribunal for a fresh decision. We find that in view of the amendment of S. 148 by the Finance (No. 2) Act, 1996 with effect from 1.4.1989 omitting the words ‘not less than 30 days’ relating to the notice requiring the assessee to furnish a return, the decision of the Commissioner of Income Tax (Appeals) dated 17.2.1995 has obviously become unsustainable since that appellate authority allowed the appeal only on the ground that the notice issued to the assessee under S. 148 of the Act did not give him time, not being less than 30 days, for the submission of a return. The Commissioner of Income Tax (Appeals) did not go into the merits of the contentions raised by the assessee in that appeal. In view of the clear retrospective amendment of S. 148 of the Act relating to the notice period, all that the Income Tax Tribunal can do is to set aside the decision of the Commissioner of Income Tax (Appeals) and send down the appeal filed by the assessee before that authority to hear and dispose of on merits and on contentions other than the contention of want of sufficient notice under S. 148 of the Act. In that situation, a remand by us of the appeal to the Income Tax Appellate Tribunal would only mean that the parties will have to appear before that Tribunal and that Tribunal will have to remand the proceeding again to the Commissioner of Income Tax (Appeals) for being heard on merits. In this situation, the question is whether this court exercising jurisdiction under S. 260A of the Act cannot directly remand the appeal filed by the assessee to the Commissioner of Income Tax (Appeals) for a decision on merits. Though, normally under S. 260-A of the Act, an appeal has to be heard on the substantial questions of law formulated for decision under sub-s. (6) of S. 260-A of the Act, the High Court can determine any issue which has not been determined by the appellate tribunal and the High Court can also decide an issue which has been wrongly determined by the Tribunal by reason of the decision on a question of law as is formulated for decision in the second appeal. Therefore, according to us, this Court has jurisdiction to decide the issue whether the Commissioner of Income Tax (Appeals) was justified in interfering with the order of the reassessment dated 30.3.1993 on the sole ground that the notice issued under S. 148 of the Act did not give the assessee a time of not less than 30 days for filing a return. Here, this court has necessarily to take note of the assessment brought about to S. 148 of the Act with effect from 1.4.1989 and in the light of that amendment, this court has necessarily to hold that the Commissioner of Income Tax (Appeals) was in error in interfering with the order of the assessing authority on the ground that there was no sufficient notice under S. 148 of the Act. In this situation, we think that it will be appropriate to set aside the decision of the Commissioner of Income Tax (Appeals) to the effect that the order of reassessment dated 30.3.1993 has to be set aside on the short ground of want of sufficiency of notice under S. 148 of the Act and to remand the appeal before the Commissioner of Income Tax (Appeals) filed by the assessee to be heard and disposed of in accordance with law. Incidentally we may also notice that the first substantial question of law formulated in the memorandum of appeal does in fact cover the question decided by us as above on merits. Even apart from that, we are of the view that this Court's power under S. 260-A of the Act is wide enough to justify the adoption of the course as adopted by us.

    11. In the light of what we have stated above, we set aside the decision of the Income Tax Appellate Tribunal and that of the Commissioner of Income Tax (Appeals) dated 7.2.1995 and remand the appeal I.T.A No. 9-T/CIT/93-94 for decision afresh by the Commissioner of Income Tax (Appeals), Cochin on merits in accordance with law.

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    Commissioner Of Income Tax v. P.N Krishnakumar
    (Oct 15, 2001)