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B.J Bhambhani v. Commissioner Income-Tax.
Structured Summary of the Opinion (S.C. Mohapatra, J.)
Factual and Procedural Background
The reference arises under section 256(1) of the Income-tax Act, 1961, made at the instance of the assessee (a firm). Since assessment year 1965-66 the firm enjoyed registration under section 185(1)(a) of the Act, and for subsequent years it filed the declaration contemplated by section 184(7). For assessment year 1978-79 the declaration was required to be filed before 31 July 1978 (the time allowed under section 139(1) for the return for the subsequent year). The firm did not file the declaration within that period and filed a declaration under section 184(7) belatedly on 28 August 1978. No explanation was furnished with that declaration at that time; a later application explained delay on grounds that the partners were engaged in arbitration cases and in obtaining loans to continue the business. The Assessing Officer (AO) was not satisfied that there was sufficient cause for the delay and did not accept the declaration. The operative portion of the AO's order dated 24 March 1979 (described by the AO as under section 185(3)) stated that renewal of registration was not allowed for that year and the firm was to be treated as an "unregistered firm." The assessee appealed to the Appellate Assistant Commissioner (under section 246(1)(j) as described), who allowed the appeal, finding sufficient cause and directing registration be allowed. The Revenue appealed to the Income-tax Appellate Tribunal (ITAT), Cuttack Bench, contending inter alia that the appeal before the Appellate Assistant Commissioner was not maintainable because the AO's order was not an order under section 185(3). The Tribunal accepted the Revenue's contention, relying upon two decisions of this court (New Orissa Traders and CIT v. Pohop Singh Rice Mill), held the appeal before the Assistant Commissioner was not maintainable, reversed the appellate order and restored the AO's order. The assessee filed an application under section 256(1) and the ITAT made a statement of case to this court on two questions of law.
Legal Issues Presented
- Whether the order of the Income-tax Officer, though labelled as an order under section 185(3), was in fact an order under section 184(4)?
- Whether the aforesaid order was an appealable one?
Arguments of the Parties
Assessee's Arguments (as presented by Mr. R. Sharma)
- The order passed by the Income-tax Officer was one under section 185(3) of the Act and therefore appealable under section 246(1)(j) as it stood then.
- Counsel relied upon the Supreme Court decision in Mela Ram & Sons v. Commissioner of Income Tax, Punjab (1956) to submit that an order rejecting a declaration under section 184(7) on grounds of limitation is appealable because such dismissal on limitation is, in substance, a decision on a preliminary issue and should be open to appeal.
- The submission included that a delayed declaration is a defect which the AO should have intimated under section 185(3) and given opportunity to rectify; if defect not rectified, the AO may declare registration to have no effect by an order in writing, against which appeal lies under section 246(1)(j).
- Counsel cited a number of decisions from other High Courts and tribunals in support of the contention that an appeal lies against such orders (examples recorded in the opinion include ITO v. Vinod Krishna Som Prakash; Addl. Commissioner Of Income-Tax v. Murlidhar Mathura Prasad; Addl. CIT v. Chekka Ayyanna; CIT v. Dineshchandra Industries; Durgaprasad Rajaram Adatiya v. Commissioner Of Income-Tax, M.P.-II; Commissioner Of Income-Tax, M.P.-II v. Jabalpur Transport Development Co.; CIT v. Sitaram Bhagwandas; CIT v. Beri Chemical Industries; National Tractor Co. v. ITO).
Revenue's Arguments
- The Revenue contended before the ITAT that an appeal before the Appellate Assistant Commissioner was not maintainable because the order passed by the Income-tax Officer was not in fact an order under section 185(3) of the Act.
- The Tribunal accepted that contention relying upon two decisions of this court (New Orissa Traders v. Commissioner of Income-Tax, Orissa and CIT v. Pohop Singh Rice Mill) and held that an appeal before the Appellate Assistant Commissioner was not maintainable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court (as recorded in the opinion) |
|---|---|---|
| New Orissa Traders v. Commissioner Of Income-Tax, Orissa [1977] 107 ITR 553 | Held that an appeal is not maintainable against an order refusing to accept a late declaration under the relevant provisions; treated as settled position in Orissa. | The court treated this decision as establishing a settled position in Orissa which should not be disturbed; ITAT relied on it to hold the appeal not maintainable. |
| CIT v. Pohop Singh Rice Mill [1981] 132 ITR 390 (Orissa) | Affirmed the reasoning in New Orissa Traders; considered earlier High Court decisions and dissented from some of them. | The court relied on this decision as affirming the settled Orissa position; ITAT applied it to dismiss the appeal as not maintainable and the High Court declined to unsettle that view. |
| Mela Ram & Sons v. Commissioner Of Income Tax, Punjab [1956] 29 ITR 607 (Supreme Court) | Holds that an appeal provision should be liberally construed to include orders disposing of appeals on preliminary issues (e.g., limitation); an order dismissing an appeal as barred by limitation is open to further appeal. | The assessee relied on this Supreme Court decision to argue that dismissal on limitation is appealable. The court reviewed the principle but held it not applicable to the specific situation of non-acceptance of a declaration due to unexplained delay under section 184(7). |
| CIT v. Mtt. Ar. S. Ar. Arunachalam Chettiar [1953] 23 ITR 180 (Supreme Court) | Distinguished in later law concerning maintainability of reference/appeal where orders were made not under statutory appeal provisions but by exercise of supposed inherent power. | The opinion records that this decision was distinguished by the Supreme Court in Mela Ram & Sons and was discussed in the historical treatment of the appealability question. |
| Bansidhar Mohanti v. Commissioner of Income-Tax [1955] 28 ITR 625 | Earlier decision that no appeal lies against an appellate order dismissing the appeal as barred by limitation. | The court records that after Mela Ram & Sons this earlier decision was regarded as no longer good law by subsequent authorities in the State's jurisprudence. |
| CST v. Ramakaran Agarwalla [1962] 13 STC 407 : ILR 1961 Cut 585 | Applied the principle of Mela Ram & Sons to hold that an appeal lies against an order summarily dismissing an appeal as barred by limitation. | Recorded as part of the line of authority adopting the Supreme Court's liberal construction on appealability of orders decided on preliminary issues. |
| CST v. Aurobindo Auto Service [1963] 14 STC 46 : ILR 1963 Cut 140 | Held that an appeal lies against an order summarily dismissing an appeal where the Appellate Tribunal can consider both condonation of delay and merits. | Recorded by the court as part of authorities supporting the proposition advanced by the assessee's counsel but distinguished from the present facts. |
| Bhubaneswar Flour Mills v. State Of Orissa [1982] 53 CLT 573 (SJC No. 102 of 1973) | Applied related principles on review/appeal at tribunal/court level (context recorded in opinion). | Recorded by the court as another decision in the line supporting review of preliminary dismissals; used for historical context of the principle. |
| ITO v. Vinod Krishna Som Prakash [1979] 117 ITR 594 (All) | Cited by the assessee as an authority supporting that an appeal lies against non-acceptance/rejection decisions. | Mentioned among a number of decisions relied upon by the assessee; the court noted that some High Court decisions supported the assessee's position but were not followed in Orissa. |
| Addl. Commissioner Of Income-Tax v. Murlidhar Mathura Prasad [1979] 118 ITR 392 (All) | Cited by the assessee as supportive authority. | Mentioned as one of the authorities from other High Courts relied upon by the assessee's counsel. |
| Addl. CIT v. Chekka Ayyanna [1977] 106 ITR 313 (AP) | Cited by the assessee as supportive authority. | Listed among decisions from other jurisdictions relied on by the assessee; the court observed that the Orissa decisions dissented from some of these authorities. |
| CIT v. Dineshchandra Industries [1975] 100 ITR 660 (Guj) | Cited by the assessee as supportive authority. | Mentioned among the authorities which the Orissa decisions had dissented from. |
| Durgaprasad Rajaram Adatiya v. Commissioner Of Income-Tax, M.P.-II [1982] 134 ITR 601 (MP) | Cited by the assessee as supportive authority. | One of several decisions from other High Courts cited by the assessee's counsel; recorded by the court for completeness of the argument. |
| Commissioner Of Income-Tax, M.P.-II v. Jabalpur Transport Development Co. [1983] 143 ITR 964 (MP) | Cited by the assessee as supportive authority. | Recorded among authorities cited by counsel; no further substantive application recorded in the opinion beyond that. |
| CIT v. Sitaram Bhagwandas [1976] 102 ITR 560 (Patna) | Cited by the assessee as supportive authority. | Mentioned as one of the High Court decisions cited by the assessee. |
| CIT v. Beri Chemical Industries [1980] 121 ITR 87 (P & H) | Cited by the assessee as supportive authority. | Mentioned among the authorities relied upon by the assessee's counsel; the Orissa decisions dissented from such authorities. |
| National Tractor Co. v. ITO [1983] 143 ITR 95 (P & H) | Cited by the assessee as supportive authority. | Recorded as another High Court decision cited by the assessee's counsel. |
| Pannalal Ramkumar and Co. v. ITO [1970] 75 ITR 309 (Mad) | Relied upon in New Orissa Traders as persuasive authority. | The court noted New Orissa Traders relied upon Madras decisions including this case; used to show how Orissa interpretation was formed. |
| Chandrasekaran and Bros. (A.S.S.S.S) v. CIT [1974] 96 ITR 711 (Mad) | Relied upon in New Orissa Traders as persuasive authority. | Recorded as a Madras decision that influenced the Orissa approach in New Orissa Traders. |
| The Board Of Revenue, Madras v. Raj Brothers Agencies (1973) 4 SCC 216 : AIR 1973 SC 2307 | Statement about not upsetting a long-accepted interpretation at a late stage. | The court cited this Supreme Court statement as supporting the proposition that settled positions should not be disturbed where long accepted; used to justify not upsetting the Orissa line of authority. |
| CIT v. Narayandas Satyaranjan [1987] 167 ITR 280 | Distinguished by the court: there the declaration was rejected for a defect (not for delay) and an order under section 185(3) was correctly treated as appealable. | The court distinguished this decision from the present facts, observing it does not apply because that case involved a defect in the declaration (within section 185(3)) rather than mere delay. |
Court's Reasoning and Analysis
The court proceeded by examining the line of authorities and the proper legal characterization of the AO's order which was labelled as under section 185(3) but in substance arose from non-acceptance of a late declaration under section 184(7).
The court recalled the Supreme Court's rule in Mela Ram & Sons that appeals should be liberally construed to include orders disposing of appeals on preliminary issues (for example, limitation), and recognised the resulting line of authorities which held that where an appeal is dismissed on preliminary grounds such as limitation, a further appeal may lie.
However, the court drew a distinction between (a) appellate dismissals on grounds such as limitation in the context of an appeal properly before the appellate authority and (b) the non-acceptance of a declaration under section 184(7) on account of unexplained delay. The court held that the principle from Mela Ram & Sons and related authorities was not applicable to the latter situation because:
- Where a declaration under section 184(7) is not accepted on account of unexplained delay, that non-acceptance is not an order under section 185(3) even if the AO describes it as such.
- An order that in reality rejects a belated declaration for lack of sufficient cause is not appealable under section 246(1)(j) of the Act.
The court emphasised that the Orissa decisions (New Orissa Traders and CIT v. Pohop Singh Rice Mill) have consistently interpreted the provisions to mean that a late declaration not accepted for unexplained delay does not attract the appeal provision, and that those decisions form a settled position in the State's jurisprudence which ought not to be disturbed. The court invoked the principle from The Board of Revenue, Madras v. Raj Brothers Agencies that it is not proper to upset a long-accepted interpretation at a late stage.
The court also considered and distinguished the decision in CIT v. Narayandas Satyaranjan, noting that in that case the declaration was rejected for a defect (which is within the ambit of section 185(3)) and thus appealable — a fact which made that decision inapplicable to the present case arising solely from delay.
On that basis the court concluded that the AO's order, though described as under section 185(3), was not to be treated as an appealable order under that section when the rejection was founded on unexplained delay; accordingly the appeal to the Appellate Assistant Commissioner was not maintainable.
Holding and Implications
Holding: Both questions submitted in the statement of case are answered against the assessee.
Implications:
- The court determined that an order rejecting a declaration under section 184(7) on the ground of unexplained delay is not, by virtue of that rejection, an order under section 185(3) that is appealable under section 246(1)(j).
- Consequently, the appeal before the Appellate Assistant Commissioner was not maintainable; the Tribunal's conclusion to that effect was consistent with this court's view and the Orissa line of authority.
- No broader change to the settled Orissa position was made; the court declined to disturb the earlier interpretations (New Orissa Traders; CIT v. Pohop Singh Rice Mill) and distinguished authorities relied upon by the assessee where those authorities addressed defects in declarations (not mere delay).
- The opinion records there shall be no order as to costs.
This summary is prepared strictly from the content of the provided opinion. No information beyond the text of the opinion has been added or inferred.
S.C Mohapatra, J.:— This is a reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), at the instance of the assessee.
2. The assessee is a firm. Since the assessment year 1965-66 it was enjoying the benefit of registration granted under section 185(1)(a) of the Income-tax Act. In respect of the subsequent years, this registration had its effect as the assessee was filing the declaration as provided under section 184(7) of the Act.
3. In respect of the assessment year 1978-79, the assessee was required to file the declaration before July 31, 1978, the time allowed under section 139(1) of the Act for furnishing the return of income for the subsequent assessment year. Within that period the assessee did not file the declaration and, after expiry of the time, a declaration was filed under section 184(7) of the Act on August 28, 1978. Along with such declaration, no explanation for the delay was furnished. Later on, however, an application was filed explaining that the partners of the firm were engaged in arbitration cases and in obtaining loans for the purpose of continuing the business. The Assessing Officer was not satisfied that the firm was prevented by sufficient cause from furnishing the declaration within the time allowed. Accordingly, the declaration was not accepted. The operative portion of the order is as follows:
“As the declaration in Form No. 12 has not been filed within the time allowed and the delay has not been satisfactorily explained, renewal of registration is not allowed for this year. Accordingly, the status of the firm is taken as unregistered firm.”
4. This order dated March 24, 1979, was described to be one under section 185(3) of the Act. In view of such description, the assessee preferred an appeal as provided under section 246(1)(j) of the Act. The Appellate Assistant Commissioner held that the explanation offered indicates that the firm was prevented by sufficient cause from furnishing a declaration within the time so allowed. He directed the Income-tax Officer to allow registration to the firm. Against the appellate order, the Revenue preferred an appeal before the Income-tax Appellate Tribunal, Cuttack Bench, where, amongst other grounds, it was urged that an appeal before the Appellate Assistant Commissioner was not maintainable under section 246 of the Act since the order passed was not under section 185(3) of the Act.
5. Relying upon two decisions of this court in New Orissa Traders v. Commissioner Of Income-Tax, Orissa. [1977] 107 ITR 553 and CIT v. Pohop Singh Rice Mill [1981] 132 ITR 390, the Tribunal accepted the contention of the Revenue and it held that an appeal before the Appellate Assistant Commissioner was not main-tainable. Accordingly, the appellate order was reversed and the order of the Income-tax Officer was restored. The assessee filed an application under section 256(1) of the Income-tax Act. On that basis, a statement of case has been made to this court by the Income-tax Appellate Tribunal for decision in accordance with our opinion on the following questions of law:
“(i) Whether the order of the Income-tax Officer, though labelled as an order under section 185(3), was in fact an order under section 184(4)?
(ii) Whether the aforesaid order was an appealable one?”
6. Mr. R. Sharma, learned counsel for the assessee, submitted that the order passed by the Income-tax Officer was one under section 185(3) of the Act and, as such, is appealable under section 246(1)(j) of the Act as it stood then. Mr. Sharma further submitted that in case the order of the Income-tax Officer is not appealable, no second appeal would lie to the Income-tax Appellate Tribunal and interference by the Tribunal would be without jurisdiction.
7. Mr. Sharma relied upon the decision of the Supreme Court in Mela Ram & Sons v. Commissioner Of Income Tax, Punjab [1956] 29 ITR 607, and submitted that an order rejecting the declaration under section 184(7) of the Act on the grounds of limitation is appealable as an order decided on merits. Mr. Sharma submitted that a declaration furnished in pursuance of section 184(7) being not in order on account of delay is a defect and the Assessing Officer was required to intimate the defect and give an opportunity to the assessee to rectify the defect in the declaration as provided under section 185(3). If the defect is not rectified, the Assessing Officer may declare, by an order in writing, that the registration granted to the firm shall not have any effect for the relevant assessment year. Against such an order, appeal is provided under section 246(1)(j) of the Act.
8. As regards the two decisions of this court, Mr. Sharma submitted that the decision of the Supreme Court was not taken into consideration while rendering judgments in those cases and the decision of the Supreme Court would prevail over the two decisions of this court. Mr. Sharma relied upon various decisions rendered by other courts in support of his contention that an appeal lies against the order. They are:
ITO v. Vinod Krishna Som Prakash [1979] 117 ITR 594 (All); Addl. Commissioner Of Income-Tax v. Murlidhar Mathura Prasad. [1979] 118 ITR 392 (All); Addl. CIT v. Chekka Ayyanna [1977] 106 ITR 313 (AP); CIT v. Dineshchandra Industries [1975] 100 ITR 660 (Guj); Durgaprasad Rajaram Adatiya v. Commissioner Of Income-Tax, M.P-Ii. [1982] 134 ITR 601 (MP); Commissioner Of Income-Tax, M.P-Ii v. Jabalpur Transport Development Co. [1983] 143 ITR 964 (MP); CIT v. Sitaram Bhagwandas [1976] 102 ITR 560 (Patna); CIT v. Beri Chemical Industries [1980] 121 ITR 87 (P & H); National Tractor Co. v. ITO [1983] 143 ITR 95 (P & H).
9. In the decision reported in CIT v. Pohop Singh Rice Mill [1981] 132 ITR 390 (Orissa) this court considered Addl. CIT v. Chekka Ayyanna [1977] 106 ITR 313 (AP); CIT v. Dineshchandra Industries [1975] 100 ITR 660 (Guj); ITO v. Vinod Krishna Som Prakash [1979] 117 ITR 594 (All); CIT v. Beri Chemical Industries [1980] 121 ITR 87 (P & H) and dissented from them. In New Orissa Traders v. Commissioner Of Income-Tax, Orissa. [1977] 107 ITR 553 (Orissa), this court relied upon the decisions of the Madras High Court in Pannalal Ramkumar and Co. v. ITO [1970] 75 ITR 309 (Mad) and Chandrasekaran and Bros. (A.S.S.S.S) v. CIT [1974] 96 ITR 711 (Mad). Therefore, unless the decision of the Supreme Court in Mela Ram & Sons v. Commissioner Of Income Tax, Punjab [1956] 29 ITR 607 would prevail, the decision of this court would have full effect in preference to the decision of other High Courts having persuasive effect only.
10. In the decision in Mela Ram & Sons v. Commissioner Of Income Tax, Punjab [1956] 29 ITR 607, the Supreme Court was considering the right of appeal under section 31 against an order under section 30 of the Indian Income-tax Act, 1922. It was observed that (p. 618):
“There is thus abundant authority for the position that section 31. should be liberally construed so as to include not only orders passed on a consideration of the merits of the assessment but also orders which dispose of the appeal on preliminary issues such as limitation and the like.” In the said decision, the Supreme Court was considering a case where an appeal was dismissed as barred by limitation. It was held that, against such an order, a further appeal lies to the Income-tax Appellate Tribunal. An earlier decision of the Supreme Court in CIT v. Mtt. Ar. S. Ar. Arunachalam Chettiar [1953] 23 ITR 180 was distinguished. In this decision the maintainability of a reference application from an order in a miscellaneous petition before the Tribunal was the question. It was held that the order having been made in exercise of its supposed inherent power and not in an appeal under section 33(1) of the Indian Income-tax Act, 1922, there could be no reference under section 66(1) or (2) of the Act.
11. When an appeal was not admitted by the Appellate Assistant Commissioner against an order of assessment on the grounds of the same having been filed beyond the time prescribed, a second appeal was filed which was dismissed as not maintainable and a reference was made to this court under section 66(1) of the Act. Relying upon the decision of the Supreme Court in CIT v. Mtt. Ar. S. Ar. Arunachalam Chettiar [1953] 23 ITR 180, this court held, in the decision in Bansidhar Mohanti… v. Commr. Of Income-Tax…Opposite Party. [1955] 28 ITR 625, that no appeal lies against an appellate order dismissing the appeal as barred by limitation. However, after the decision of the Supreme Court in Mela Ram & Sons v. Commissioner Of Income Tax, Punjab [1956] 29 ITR 607, this court held in CST v. Ramakaran Agarwalla [1962] 13 STC 407 : ILR 1961 Cut 585, that an appeal lies against such order and declared that the decision in Bansidhar Mohanti… v. Commr. Of Income-Tax…Opposite Party. [1955] 28 ITR 625 is no longer good law. In CST v. Aurobindo Auto Service [1963] 14 STC 46 : ILR 1963 Cut 140, relying on Mela Ram & Sons v. Commissioner Of Income Tax, Punjab [1956] 29 ITR 607, it was held that an appeal lies against an order summarily dismissing an appeal where the Appellate Tribunal can consider not only the correctness of the order refusing to condone delay but also the merits of the assessment. The same principle has been decided in S.J.C No. 102 of 1973 decided on September 22, 1975 (Bhubaneswar Flour Mills… v. State Of Orissa…Opp. Party. [1982] 53 CLT 573. Thus, it is clear that where an appeal, otherwise maintainable, is not decided on merits but on grounds of limitation and the like, a second appeal would lie.
12. Such a principle would not be applicable to a case where the declaration under section 184(7) is not accepted on account of unexplained delay since no appeal lies against such non-acceptance under section 246(1)(j) of the Act. An order passed to that effect is not an order under section 185(3) of the Act even though the same is described by the Income-tax Officer to be such an order.
13. In The Board Of Revenue, Madras v. Raj Brothers Agencies, (1973) 4 SCC 216 : AIR 1973 SC 2307, it was held (p. 2308):
“It has accepted that interpretation to be correct ever since 1963. Under these circumstances it is not proper for this court to upset that ‘decision at this late stage and disturb a settled position in law….’”
14. Applying the aforesaid principle, when interpretation has been made as early as in New Orissa Traders v. Commissioner Of Income-Tax, Orissa. [1977] 107 ITR 553 (Orissa), which has been affirmed in a direct decision of this court in CIT v. Pohop Singh Rice Mill [1981] 132 ITR. 390, the settled position should not be unsettled so far as this court is concerned.
15. In support of the second contention, Mr. Sharma has relied upon a decision of this court in CIT v. Narayandas Satyaranjan [1987] 167 ITR 280 where the decision in New Orissa Traders v. Commissioner Of Income-Tax, Orissa. [1977] 107 ITR. 553 (Orissa) was distinguished. In this decision the declaration was not rejected on the ground that it was not furnished within the time allowed. There was a defect in the application and on that ground, the order under section 185(3) was passed. It was held that an appeal lies against such order. The said decision has no application to the facts of this case since the defect envisaged under section 185(3) is a defect in the declaration but does not include a delayed declaration.
16. In view of the aforesaid discussion, both the questions are answered against the assessee. There shall be no order as to costs.
J.M Mahapatra, J.:— I agree.
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