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Commissioner Of Income-Tax v. Dr. (Mrs.) Krishna Rana
Factual and Procedural Background
The references arise under section 256(2) of the Income-tax Act, 1961, concerning assessment years 1970-71 and 1971-72. The assessee, a medical practitioner assessed as an individual, was assessed to total incomes of Rs. 15,860 and Rs. 58,895 for those years respectively. The Appellate Assistant Commissioner dismissed the assessee's appeals with some modifications, granting limited additional relief in each year. The assessee appealed to the Income-tax Appellate Tribunal (the Tribunal). On the hearing date, April 11, 1975, no one appeared for the assessee; the Tribunal heard the Revenue representative and passed ex parte orders on merits, making specific adjustments to deductions for both years. On May 20/21, 1975, the assessee filed an application to restore/rehear the appeals on the ground that she had not been given a reasonable opportunity to present her case. By order dated July 19, 1975, the Tribunal restored the appeals and refixed them for hearing. It is noted in the recorded facts that the membership of the Tribunal had changed by the time the restoration application was allowed. The Revenue challenged the Tribunal's power to restore appeals decided on merits, sought a reference to the High Court, and moved this court under section 256(2). The court framed the following question for opinion: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in restoring the appeal to file, which was already decided on merits, by its order dated April 11, 1975?"
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in restoring an appeal already decided on merits (i.e., did the Tribunal have jurisdiction or power to restore/rehear such an appeal)?
- Whether the reference made to this court under section 256(2) was competent (i.e., whether an order on a miscellaneous petition for rehearing/restoration falls within the class of orders against which a section 256 reference may be made)?
Arguments of the Parties
Revenue's Arguments
- The Tribunal had no jurisdiction to order a rehearing of appeals that had been dismissed on merits because it has no power to review its own judicial orders.
- The order restoring the appeal amounted to a review of the earlier judicial order dismissing the adjournment petition and the appeal, and the Tribunal lacks power to review its judicial orders.
- The Revenue relied upon the Calcutta High Court decision in Shaw Paper Exchange v. ITO, [1974] 93 ITR 186.
Assessee's Arguments
- The Tribunal possesses inherent or incidental powers to act in aid of justice and to do justice between the parties; consequently, it could recall its final order to rehear the appeals when satisfied the assessee had been denied reasonable opportunity to present her case.
- Counsel for the assessee relied on decisions including Murlidhar Sarda v. ITAT ([1973] 92 ITR 189 (Cal)), ITO v. Murlidhar Sarda ([1975] 99 ITR 485 (Cal)) and CIT v. ITAT ([1979] 120 ITR 231 (Ker)) to support the proposition that the Tribunal has such powers.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Murlidhar Sarda v. ITAT, [1973] 92 ITR 189 (Cal) | Authorities relied on by the assessee to support the Tribunal's power to act in aid of justice or exercise incidental powers to rehear/restore appeals. | The court recorded that the assessee relied on this decision but expressed misgivings about extending inherent powers to the Tribunal; it did not adopt the Calcutta view as a binding rule in the present disposition. |
| ITO v. Murlidhar Sarda, [1975] 99 ITR 485 (Cal) | Another Calcutta decision relied upon by the assessee for the Tribunal's incidental or inherent powers. | The court noted reliance on this decision but observed that the Calcutta decisions assumed inherent powers; the court expressed reservations and did not resolve the broader principle because the case was decided on a different ground. |
| CIT v. ITAT, [1979] 120 ITR 231 (Ker) | Kerala High Court decision cited by the assessee that treated the distinction between dismissal for default and dismissal on merits as immaterial (in light of its understanding of rule 24). | The court considered the Kerala view fallacious in reasoning that the Supreme Court had not struck down the current form of rule 24; again the court refrained from an extensive determination because it disposed the matter on another short point. |
| Shaw Paper Exchange v. ITO, [1974] 93 ITR 186 (Cal) | Decision relied upon by the Revenue (Calcutta single-judge decision) concerning the Tribunal's powers. | The court recorded that the Revenue relied on this decision but did not rest its final disposition on it; instead it dealt with the competence of the reference under section 256(2). |
| CIT v. MTT. ARS AR. Arunachalam Chettiar, [1953] 23 ITR 180 (SC) | Authority cited by the court to support its conclusion regarding the limited scope for making a reference under the statutory provisions in question. | The court relied upon this Supreme Court authority to support its view that no reference could properly be made to the High Court in respect of the Tribunal's order on a miscellaneous petition for rehearing; this reinforced the court's conclusion that the reference was incompetent. |
Court's Reasoning and Analysis
The court recited the procedural facts: the Tribunal had fixed a hearing, the assessee sought adjournment which was refused by endorsement of the members, the assessees' representative did not appear on the hearing date (April 11, 1975), and the Tribunal passed ex parte orders dismissing the appeals on their merits. Later, the assessee applied for restoration/rehearing (application received May 21, 1975) and the Tribunal, with different members, allowed restoration on July 19, 1975, on the ground that the assessee had been denied a reasonable opportunity to present her case.
The Revenue contended that the Tribunal had no jurisdiction to rehear appeals decided on merits because it cannot review its own judicial orders. The assessee argued that the Tribunal had incidental inherent powers to act in aid of justice and therefore could reopen a matter where a party had been denied reasonable opportunity to be heard.
The court examined the statutory context and rules governing the Tribunal. It noted rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963, which permits dismissal of an appeal for default or hearing ex parte and contains a proviso expressly allowing restoration where an appeal has been dismissed for default and the appellant satisfies the Tribunal that there was sufficient cause for non-appearance. The court observed that rule 24 as it now stands draws a clear distinction between dismissal for default (where restoration is provided) and dismissal on merits (for which no similar provision is made).
The court expressed reservations about some High Court decisions (Calcutta and Kerala) that had treated the Tribunal as possessing broader incidental/review powers, and it pointed out that the Supreme Court had not struck down the present form of rule 24 (contrary to some reasoning used by the Kerala Court). Nevertheless, the court stated it need not decide the broader question of inherent powers because it would dispose of the matter on a narrower, dispositive point.
That dispositive point was statutory competence to invoke a reference under section 256. The court analysed sections 253(1), 254(1) and 256 and concluded that a reference to the High Court under section 256 can be made only in respect of an order which falls within the ambit of section 254 (i.e., orders passed after hearing the parties and thus properly appealable under section 253). The order before the court was an order passed on a miscellaneous petition for rehearing/restoration — not an order falling within the class of orders contemplated by section 253 and 254 — and therefore the reference itself was incompetent.
The court supported its conclusion by reference to the Supreme Court decision in CIT v. MTT. ARS AR. Arunachalam Chettiar ([1953] 23 ITR 180), stating that this authority aligned with the view that no reference could have been made to the High Court in the present circumstances.
Holding and Implications
Holding: The court held that the reference was incompetent and therefore refused to answer the question referred to it. In the court's words, "no reference could be made to this court" in respect of the Tribunal's order on the miscellaneous petition for rehearing/restoration.
Implications:
- The immediate and direct effect is that the question framed (whether the Tribunal was correct in restoring the appeal decided on merits) was not answered because the reference itself was incompetent under section 256(2).
- The court did not decide the broader substantive question whether the Tribunal possesses inherent/incidental powers to reopen or rehear appeals decided on merits; it expressly refrained from resolving that point because of the procedural incompetence of the reference.
- The judgment directs that a copy be transmitted to the Assistant Registrar, Income-tax Appellate Tribunal, in terms of section 260 of the Income-tax Act, 1961.
- No new legal precedent on the broader question of the Tribunal's power to rehear appeals on merits was laid down by this court in the present opinion; the decision is confined to the competency of the reference and the refusal to entertain the question on that ground.
Both judges on the bench (Uday Sinha, J. and Ashwini Kumar Sinha, J.) concurred in the result.
Uday Sinha, J.:— These are references under section 256(2) of the Income-tax Act, 1961, in relation to the assessment years 1970-71 and 1971-72.
2. The assessee is a doctor in the town of Arrah in this State. She was assessed as an “individual” on income from salary and medical profession. She was assessed on a total income of Rs. 15,860 and Rs. 58,895 for the two assessment years. The assessee appealed against the orders of assessment for the two years which were disposed of by a common order by the Appellate Assistant Commissioner. The appeals were dismissed with some modifications inasmuch as the total income for the assessment year 1970-71 was reduced by Rs. 1,000 and for the subsequent assessment year 1971-72, expenses were allowed at Rs. 12,000 instead of Rs. 5,800 allowed by the Income-tax Officer. Thus, a further relief of Rs. 6,200 was allowed to the assessee for the second assessment year. The assessee filed appeals before the Tribunal. On the date fixed for hearing, i.e, April 11, 1975, no one appeared on behalf of the assessee. The Tribunal heard the departmental representative and disposed of the appeals on merits. Whereas for the assessment year 1970-71 expenses had been allowed to the tune of Rs. 2,000, the Tribunal allowed a further deduction of Rs. 1,000. The deduction ultimately came to Rs. 3,000 as against Rs. 5,000 claimed by the assessee. In regard to the subsequent assessment year 1971-72, the Tribunal while upholding the estimate of income, further allowed deduction of Rs. 6,000 on account of expenses. The deduction thus for that year came to Rs. 18,000. Long after the appeals had been disposed of, on May 20, 1975, an application was filed by the assessee before the Tribunal for restoration/rehearing of the appeals. The ground for restoration advanced was that the assessee had not been given reasonable opportunity of pleading her case. The Tribunal, by order dated July 19, 1975, restored the appeals and refixed them for hearing. Being aggrieved by the order of the Tribunal restoring the appeals for rehearing, the Revenue moved the Tribunal for making a reference to this court in regard to its power to restore an appeal disposed of on merits. The Revenue failed before the Tribunal. The Revenue thereafter moved this court under section 256(2) of the Act. This court allowed the application and called for the following question, noted below for our opinion. Hence, the references:
“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in restoring the appeal to file, which was already decided on merits, by its order dated April 11, 1975?”
3. When the case had been heard for some time on February 27, 1986, and February 28, 1986, this court called for a supplementary statement of facts. That having been received, the case was again listed for hearing.
4. From the statement of the case, original and supplementary, the comprehensive facts are that the assessee filed appeals on December 7, 1973. On March 13, 1975, the Tribunal fixed April 10, 1975, for final hearing. Notice of hearing was issued and served upon the assessee and the Revenue. On April 7, 1975, the assessee filed a petition in the office for adjournment. The office put up a note for necessary order by the members. On April 9, 1975, the members ordered that the petition for adjournment be put up in court. On April 10, 1975, the judicial member and the accountant member made an endorsement on the petition “refused The prayer for adjournment was thus rejected. A copy of the petition with the necessary endorsement is annexure-F to the supplementary statement. On April 11, 1975, the Tribunal passed an ex parte order dismissing the appeal on merits after modifying the order of the Appellate Assistant Commissioner. On May 20, 1975, the assessee filed an application for restoration/rehearing of the appeals which was received in the office of the Tribunal on May 21, 1975. By order dated July 19, 1975, the Tribunal allowed the application for restoration on the ground that the assessee had been denied reasonable opportunity to place her case through her counsel in true perspective. It may also be stated here that the Members of the Tribunal had changed when the restoration application was ultimately allowed.
5. On the above facts, the contention urged on behalf of the Revenue is that the Tribunal had no jurisdiction to order rehearing of the appeals, as it had no power to review its order. The appeals having been dismissed on merits, the order passed for rehearing would amount to reviewing the order dismissing the adjournment petition, and since such power has not been conferred upon the Tribunal, it cannot review its own judicial order. The stand on behalf of the assessee, on the other hand, is that the Tribunal has inherent power to act in aid of justice. According to Mr. K.N Jain, learned counsel for the assessee, the Tribunal like any other quasi-judicial authority has some incidental power to do justice between the parties and, therefore, when the Tribunal was satisfied that the assessee did not have reasonable opportunity of presenting her case, the Tribunal was justified in recalling the final order in order to rehear the appeals afresh.
6. Learned counsel for the assessee placed reliance upon the decisions in the cases of Murlidhar Sarda v. IT AT, [1973] 92 ITR 189 (Cal), ITO v. Murlidhar Sarda, [1975] 99 ITR 485 (Cal) and CIT v. IT AT, [1979] 120 ITR 231 (Ker).
7. Learned senior standing counsel, Income-tax, on the other hand, placed reliance upon a single judge decision of the Calcutta High Court in Shaw Paper Exchange v. ITO, [1974] 93 ITR 186.
8. It is well established that the Income-tax Tribunal is not a court. It is also well established that it has no power to review its own orders. Thereafter, it seems incongruous to clothe it with some incidental powers; thus permitting it to do indirectly what it cannot do directly. That is the effect of the decision of the Calcutta High Court. The decision of the Kerala High Court has taken note of rules 24 and 25 of the Income-tax Rules. Rule 24 expressly permits a Tribunal to restore an appeal for rehearing, where the appeal has been dismissed for default. No such provision has been made in regard to dismissal of appeals on merits. The Kerala High Court has brushed aside the distinction only on the footing that the Supreme Court held rule 24 as invalid. The view of the Kerala High Court appears to be fallacious. The Supreme Court did not strike down rule 24 of the Appellate Tribunal Rules as it now stands since 1963. The Supreme Court was considering the validity of rule 24 of the Appellate Tribunal Rules, 1946, which read as under:
“Where on the day fixed for hearing or any other day to which the hearing may be adjourned, the appellant does not appear when the appeal is called on for hearing, the Tribunal may, in its discretion, either dismiss the appeal for default or may hear it ex parte.”
9. In 1948, it was amended by a notification dated January 26, 1948, which read as under:
“Where on the day fixed for hearing or any other day to which the hearing may be adjourned, the appellant does not appear when the appeal is called on for hearing, the Tribunal may dismiss the appeal for default.”
10. Rule 24 as it now stands under the Income-tax (Appellate Tribunal) Rules, 1963, reads as under:
“24. Dismissal of appeal for appellant's default, etc.—Where on the day fixed for hearing or any other day to which the hearing may be adjourned, the appellant does not appear when the appeal is called on for hearing, the Tribunal may, in its discretion, either dismiss the appeal for default or may hear it ex parte:
Provided that where the appeal has been dismissed for default and the appellant appears afterwards and satisfies the Tribunal that there was sufficient cause for his non-appearance when the appeal was called on for hearing, the Tribunal shall make an order setting aside the dismissal and restoring the appeal.”
11. It will be appreciated that the rule as it now stands along with the proviso brings about a sea change in the law. It would now be a moot point whether rule 24 as it now stands would be ultra vires. The Calcutta decisions have not taken note of the Appellate Tribunal's Rules and seem to have assumed that the Appellate Tribunal has inherent powers. To do justice, I seem to have some misgivings about the views of the Calcutta and Kerala High Courts. It is, however, not necessary to go into this matter at any depth, as the case has to be disposed of on another short point.
12. Learned counsel for the assessee submitted that the reference is itself bad. Section 256(1) provides for reference to the High Court in which notice of an order under section 254 has been passed. Section 254(1) provides that the Appellate Tribunal shall, after hearing the parties, pass such orders thereon, as it thinks fit. Section 253 provides for appeal to the Appellate Tribunal. On reading sections 253(1), 254(1) and 256, it appears obvious that an application for reference can be filed only against the order which comes within the ambit of section 254 and no other orders.
13. The order in question before us was passed on a miscellaneous petition for rehearing of the appeals by the Appellate Tribunal. The order passed on such a petition does not come within the periphery of section 253. In my view, therefore, no reference could have been made to this court.
14. The views that I have taken receive support from the case of CIT v. MTT. AR.S AR. Arunachalam Chettiar, [1953] 23 ITR 180 (SC). In my view, therefore, no reference could be made to this court. The reference is thus obviously incompetent. Since the reference is incompetent, we refuse to answer the question of of law referred to us for our opinion.
15. Let a copy of this judgment be transmitted to the Assistant Registrar, Income-tax Appellate Tribunal, in terms of section 260 of the Income-tax Act, 1961.
Ashwini Kumar Sinha, J.:— I agree.
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