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Roadmaster Industrie... v. Inspecting Assistant...

Punjab & Haryana High Court
May 29, 2006
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Concise Structured Summary of the Opinion

Factual and Procedural Background

Four writ petitions (C.W.P. Nos. 69, 1080 and 1724 of 1990 and 8499 of 1993) are disposed of by this order. For convenience, the court took the facts from C.W.P. No. 69 of 1990. The petitioner in that petition challenged an order dated June 27, 1989 (annexure P-10) passed by the Commissioner of Income-tax, Patiala, whereby revision petitions filed by the petitioner under section 264 of the Income-tax Act, 1961 for assessment years 1978-79, 1979-80 and 1980-81 were dismissed by a common order.

The petitioner's substantive claim was that the interest entitlement under sections 244(1A) / 214(1A) of the Income-tax Act had not been worked out properly by the Inspecting Assistant Commissioner (Assistant), Patiala. The petition against the order of the Inspecting Assistant Commissioner was dismissed by the Commissioner by a "sketchy and non-speaking order." At the hearing before the court below (the Commissioner), the assessee referred to a series of judgments and argued that its claim should be accepted in full, including entitlement to interest on delayed refund of interest.

Legal Issues Presented

  1. Whether the order passed by the Commissioner of Income-tax in revision under section 264 of the Income-tax Act is a speaking order containing adequate reasons (i.e., whether the Commissioner was required to record reasons in the circumstances).
  2. Whether an administrative or quasi-judicial authority (including revisional authorities) must record reasons for its decisions so as to enable effective appellate and supervisory judicial review and to guard against arbitrariness (as elaborated by the series of authorities relied upon by the court).
  3. Whether the petitioner's entitlement to interest under sections 244(1A) / 214(1A) was properly considered and worked out by the Inspecting Assistant Commissioner and whether the dismissal of the petitioner's revision petition without reasons was appropriate.

Arguments of the Parties

Petitioner's (Assessee's) Arguments

  • The petitioner contended that the interest entitlement under sections 244(1A) / 214(1A) of the Income-tax Act had not been worked out correctly by the Inspecting Assistant Commissioner.
  • At the hearing before the Commissioner, the petitioner referred to a series of judgments and argued that its claim should be accepted in toto, including entitlement to interest on delayed refund of interest.
  • The petitioner sought appropriate relief based on the alleged incorrect computation of interest and on the basis of authorities it cited in support.

Respondent's (Revenue's) Position

  • Counsel for the Revenue conceded, upon perusal of the impugned order, that the order passed by the Commissioner of Income-tax could not be described as a speaking order and thus could not stand up to judicial scrutiny.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India, [1981] 130 ITR 928 (as cited) Cited by the petitioner to support its substantive claim (interest entitlement / refund-related relief). The judgment was mentioned by the petitioner at the hearing; the opinion does not expressly apply or analyze this authority further.
CIT v. Leader Engineering Works, [1989] 178 ITR 529 (P & H) (as cited) Cited by the petitioner to support its substantive claim (interest entitlement / refund-related relief). Referenced by the petitioner; the court's opinion does not separately analyze or rely upon it in its reasoning on speaking orders.
Modi Industries Ltd. v. CIT, [1995] 216 ITR 759 (SC) (as cited) Cited by the petitioner in support of its case on interest entitlement. The opinion records that the petitioner relied on this authority; it is not separately discussed in the court's reasoning on recording of reasons.
Commissioner Of Income-Tax v. Saswad Mali Sugar Factory Ltd., [2001] 249 ITR 756 (Bom) (as cited) Cited by the petitioner in support of its substantive claim about interest entitlements. Cited by the petitioner; not otherwise applied or discussed in the court's analysis on speaking orders.
Sandvik Asia Ltd. v. CIT, [2006] 280 ITR 643 (SC) (as cited) Cited by the petitioner to support the claim for interest on delayed refund (substantive point). The opinion notes the petitioner relied on this decision; the court's reasoning focused on requirements for reasons and did not specifically analyze this case.
CIT v. Orissa Cement Ltd., [2001] 119 Taxman 742 (Delhi) (as cited) Cited by the petitioner in support of its submissions on interest entitlement. Mentioned by the petitioner; the court's analysis on speaking orders does not separately apply or discuss this precedent.
Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunvala, [1961] 31 Comp Cas 387; AIR 1961 SC 1669 Principle: Where the Central Government or an authority acts as a tribunal exercising judicial powers and its decisions are subject to appellate jurisdiction, reasons must be given in support of its order so that higher courts can exercise jurisdiction effectively. The court quoted this authority (page 401) to support the foundational proposition that quasi-judicial orders must disclose reasons when subject to appellate review.
Bhagat Raja v. Union of India, AIR 1967 SC 1606 Principle: When the Central Government exercises revisional powers, reasons must be given; absence of reasons handicaps appellate and supervisory courts. The court relied on this authority to underscore that curt dismissals without reasons frustrate effective appellate review and are unsatisfactory.
Travancore Rayons Ltd. v. Union of India, (1969) 3 SCC 868 : AIR 1971 SC 862 Principle: Disclosure of reasons serves two purposes — enables an aggrieved party to show error and deters arbitrary action by the authority. The court cited this authority to explain why reasons are insisted upon by courts when administrative bodies exercise judicial power.
Mahabir Prasad Santosh Kumar v. State of U.P, (1970) 1 SCC 764 : AIR 1970 SC 1302 Principle: Recording reasons ensures decisions are reached according to law and not by caprice; greater necessity to record reasons where order is subject to appeal. The opinion relied on this statement to emphasize the protective role of recorded reasons for parties and appellate authorities.
Woolcombers of India Ltd. v. Woolcombers Workers' Union, (1974) 3 SCC 318 : AIR 1973 SC 2758 Principle: Reasons are essential to prevent unconscious unfairness and arbitrariness, to ensure appearance of justice and to assist appellate courts. The court cited and quoted this authority to reinforce the multiple purposes served by requiring speaking orders.
Ajantha Industries v. Central Board of Direct Taxes, [1976] 102 ITR 281 (SC); (1976) 1 SCC 1001 : AIR 1976 SC 437 Principle: Reiterates requirement for administrative/quasi-judicial authorities to give reasons in support of their decisions. Reiterated by the court as part of the settled line of authority supporting the requirement to record reasons.
Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, (1976) 2 SCC 981 : AIR 1976 SC 1785 Principle: Supports the requirement that authorities exercise judicial functions with recording of reasons. Included by the court among the consistent authorities emphasising the need for reasoned orders.
S.N. Mukherjee v. Union of India, (1990) 4 SCC 594; AIR 1990 SC 1984 Principle: Constitution Bench analysis — administrative authorities exercising quasi-judicial functions must record reasons; reasons aid appellate/supervisory courts, guarantee consideration, introduce clarity and minimise arbitrariness; requirement applies irrespective of whether decision is subject to appeal; extent of reasons depends on facts. The court relied heavily on this Constitution Bench decision, quoted its conclusions at length, and applied its principles to hold that the Commissioner's order lacked requisite reasons and therefore could not stand.
Testeels Ltd. v. N.M. Desai Conciliation Officer, AIR 1970 Guj 1 Principle: Giving reasons is a necessary corollary of rule of law; speaking orders are necessary to enable judicial review under articles 226 and 32. The court quoted this Full Bench exposition to buttress the constitutional and rule-of-law basis for the requirement of speaking orders and the necessity for judicial review.

Court's Reasoning and Analysis

The court examined the impugned order of the Commissioner of Income-tax (dated June 27, 1989) and found that it was "sketchy and non-speaking." Counsel for the Revenue did not dispute that characterization. The court then reviewed and recited a settled line of authority from the Supreme Court and relevant High Court decisions elaborating the legal principle that administrative or quasi-judicial authorities must record reasons when exercising judicial or quasi-judicial powers.

Key analytical steps in the court's reasoning, drawn from the opinion:

  1. The court identified the essential defect: the Commissioner's order lacked reasons and therefore failed to be a speaking order.
  2. The court placed that defect in the context of established jurisprudence — citing Harinagar Sugar Mills, Bhagat Raja, Travancore Rayons, Mahabir Prasad, Woolcombers, Ajantha, Siemens and, importantly, the Constitution Bench decision in S.N. Mukherjee — which collectively establish that reasons (appropriately tailored to the context) are necessary for decisions by authorities exercising judicial functions.
  3. The court explained the purposes of the requirement (as articulated in the cited authorities): enabling effective appellate and supervisory review (articles 136 and 227 were referenced in the quoted authorities), allowing the aggrieved party to demonstrate error in the reasons relied upon, deterring arbitrary action by administrative authorities, ensuring that the authority gives due consideration to disputed points, introducing clarity, and minimising chances of arbitrariness.
  4. The court noted S.N. Mukherjee's specific holding that the requirement to record reasons applies irrespective of whether a decision is subject to appeal, revision or judicial review, although the extent and nature of reasons will depend on facts and circumstances; reasons need not be as elaborate as those of a court, but must be clear and explicit to show consideration of contested points.
  5. Applying these principles to the facts, the court concluded that the impugned order did not satisfy the prerequisites of a speaking order because it did not contain reasons supporting its conclusion.

The court therefore found the Commissioner's dismissal of the revision petitions defective for want of reasons and proceeded to quash and remit for fresh decision.

Holding and Implications

Holding: The writ petitions are allowed; the impugned order dated June 27, 1989 (annexure P-10) passed by the Commissioner of Income-tax, Patiala, is quashed, and the matter is remitted to the Commissioner for redecision in accordance with law after hearing the petitioner.

Practical consequences and implications:

  • Direct effect on the parties: The Commissioner's order dismissing the revision petitions is set aside and the Commissioner is directed to rehear the matter and pass a reasoned decision in accordance with the legal principles cited.
  • Further directions: The petitioner (through counsel) is directed to appear before the Commissioner of Income-tax on July 24, 2006 at 11:00 a.m. for further proceedings.
  • On precedential effect: The opinion applies and follows a settled line of Supreme Court and High Court authorities concerning the necessity of speaking orders; the ruling in this matter remedies the absence of reasons in the particular impugned order but does not purport to lay down novel legal principles beyond those it cites.
Show all summary ...

1. This order will dispose of four writ petitions bearing C.W.P Nos. 69, 1080 and 1724 of 1990 and 8499 of 1993. For the sake of convenience, the facts are being taken from C.W.P No. 69 of 1990.

2. The petitioner challenged an order dated June 27, 1989, copy annexure P-10; passed by the Commissioner of Income-tax, Patiala, whereby revision, petitions filed by the petitioner under section 264 of the Income-tax Act, 1961 (for short “the Act”), for the assessment years 1978-79, 1979-80, 1980-81, were dismissed by a common order. The claim of the petitioner was that the interest entitlement of the petitioner under section 244(1A)/214(1A) of the Act has not been worked out properly by the Inspecting Assistant Commissioner (Asstt.), Patiala. The petition filed by the assessee against the order of the Inspecting Assistant Commissioner of Income-tax, Patiala, was dismissed by the Commissioner of Income-tax, by passing a sketchy and non-speaking order. Though, the assessee at the time of hearing, while referring to a series of judgments, which according to him support its case, argued that the claim of the petitioner needs to be accepted in toto and the petitioner is entitled to interest on delayed refund of interest as well. The judgments being National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India, [1981] 130 ITR 928 (Delhi), CIT v. Leader Engineering Works, [1989] 178 ITR 529 (P & H), Modi Industries Ltd. v. CIT, [1995] 216 ITR 759 (SC), Commissioner Of Income-Tax v. Saswad Mali Sugar Factory Ltd., [2001] 249 ITR 756 (Bom), Sandvik Asia Ltd. v. CIT, [2006] 280 ITR 643 (SC) and CIT v. Orissa Cement Ltd., [2001] 119 Taxman 742 (Delhi).

3. On a perusal of the impugned order, even counsel for the Revenue could not dispute that the order passed by the Commissioner of Income-tax cannot be termed to be a speaking order which could stand in judicial scrutiny. As to whether in exercise of quasi-judicial powers, the authorities are required to pass orders by giving reasons in support thereof is well settled by a series of judgments by the hon'ble Supreme Court of India.

4. In Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunvala, [1961] 31 Comp Cas 387; AIR 1961 SC 1669, while dealing with an order passed by the Central Government in exercise of its appellate powers under section 111(3) of the Companies Act, 1956, in the matter of refusal of a company to register the transfer of shares, the hon'ble Supreme Court Observed (page 401):

“If the Central Government acts as a Tribunal exercising judicial powers and the exercise of that power is subject to the jurisdiction of this court under article 136 of the Constitution, we fail to see how the power of this court can be effectively exercised, if reasons are not given by the Central Government in support of its order.”

5. Another Constitution Bench of the hon'ble Supreme Court in Bhagat Raja v. Union of India, AIR 1967 SC 1606, considered the question whether, while exercising revisional power under section 30 of the Mines and Minerals (Regulation and Development) Act, 1957, read with rules 54 and 55 of the Mineral Concession Rules, 1960, the Central Government was required to give reasons in support of its decision and held (page 1610):

“The decisions of the Tribunals in India are subject to the supervisory powers of the High Courts under article 227 of the Constitution and of appellate powers of this court under article 136. It goes without saying that both the High Court and this court are placed under a great disadvantage if no reasons are given and the revision is dismissed curtly by the use of the single word ‘rejected’, or ‘dismissed’. In such a case, this court can probably only exercise its appellate jurisdiction satisfactorily by examining the entire records of the case and after giving a hearing come to its conclusion on the merits of the appeal. This will certainly be a very unsatisfactory method of dealing with the appeal.”

6. In Travancore Rayons Ltd. v. Union of India, (1969) 3 SCC 868 : AIR 1971 SC 862, the hon'ble Supreme Court observed (page 866):

“The court insists upon disclosure of reasons in support of the order on two grounds: one, that the party aggrieved in a proceeding before the High Court or this court has the opportunity to demonstrate that the reasons which persuaded the authority to reject his case were erroneous: the other, that the obligation to record reasons operates as a deterrent against possible arbitrary action by the executive authority invested with the judicial power.”

7. In Mahabir Prasad Santosh Kumar v. State of U.P, (1970) 1 SCC 764 : AIR 1970 SC 1302, the hon'ble Supreme Court while quashing the cancellation of the petitioner's licence by the District Magistrate, observed (page 1304):

“Recording of reasons in support of a decision on a disputed claim by a quasi-judicial authority ensures that the decision is reached according to law and is not the result of caprice, whim or fancy or reached on grounds of policy or expediency. A party to the dispute is ordinarily entitled to know the grounds on which the authority has rejected his claim. If the order is subject to appeal, the necessity to record reasons is greater, for without recorded reasons the appellate authority has no material on which it may determine whether the facts were properly ascertained, the relevant law was correctly applied and the decision was just.”

8. In Woolcombers of India Ltd. v. Woolcombers Workers' Union, (1974) 3 SCC 318 : AIR 1973 SC 2758, the hon'ble Supreme Court quashed the award passed by the Industrial Tribunal on the ground that it was not supported by reasons and observed (page 2761):

“The giving of reasons in support of their conclusions by judicial and quasi-judicial authorities when exercising initial jurisdiction is essential for various reasons. First, it is calculated to prevent unconscious, unfairness or arbitrariness in reaching the conclusions. The very search for reasons will put the authority on the alert and minimise the chances of unconscious infiltration of personal bias or unfairness in the conclusion. The authority will adduce reasons which will be regarded as fair and legitimate by a reasonable man and will discard irrelevant or extraneous considerations. Second, it is a well-known principle that justice should not only be done but should also appear to be done. Unreasoned conclusions may be just but they may not appear to be just to those who read them. Reasoned conclusions, on the other hand, will have also the appearance of justice. Third, it should be remembered that an appeal generally lies from the decision of judicial and quasi-judicial authorities to this court by special leave granted under article 136. A judgment which does not disclose the reasons will be of little assistance to the court.”

9. The same view was reiterated in Ajantha Industries v. Central Board of Direct Taxes, [1976] 102 ITR 281 (SC); (1976) 1 SCC 1001 : AIR 1976 SC 437 and Siemens Engineering and Manufacturing Co. of India Ltd. v. Union of India, (1976) 2 SCC 981 : AIR 1976 SC 1785.

10. In S.N Mukherjee v. Union Of India., (1990) 4 SCC 594; AIR 1990 SC 1984, a Constitution Bench reviewed various judicial precedents on the subject and observed (page 1995):

“The decisions of this court deferred to above indicate that with regard to the requirement to record reasons the approach of this court is more in line with that of the American courts. An important consideration which has weighed with the court for holding that an administrative authority exercising quasi-judicial functions must record the reasons for its decision, is that such a decision is subject to the appellate jurisdiction of this court under article 136 of the Constitution as well as the supervisory jurisdiction of the High Courts under article 227 of the Constitution and that the reasons, if recorded, would enable this court or the High Court to effectively exercise the appellate or supervisory power. But this is not the sole consideration. The other considerations which have also weighed with the court in taking this view are that the requirement of recording reasons would (i) guarantee consideration by the authority; (ii) introduce clarity in the decisions; and (iii) minimise chances of arbitrariness in decisionmaking. In this regard, a distinction has been drawn between ordinary courts of law and the Tribunals and authorities exercising judicial functions on the ground that a judge is trained to, look at things objectively uninfluenced by considerations of policy or expediency whereas an executive officer generally looks at things from the stand point of policy and expediency.

Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.”

11. In Testeels Ltd. v. N.M Desai Conciliation Officer, AIR 1970 Guj 1, a Full Bench of the Gujarat High Court speaking through P.N Bhagwati, C.J (as his Lordship then was) made a lucid enunciation of law on the subject in the following words (headnote):

“The necessity of giving reasons flows as a necessary corollary from the rule of law which constitutes one of the basic principles of the Indian constitutional set up. The administrative authorities having a duty to act judicially cannot therefore decide on considerations of policy or expediency. They must decide the matter solely on the facts of the particular case, solely on the material before them and apart from any extraneous considerations by applying pre-existing legal norms to factual situations. Now, the necessity of giving reasons is an important safeguard to ensure observance of the duty to act judicially. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and excludes or, at any rate minimises arbitrariness in the decision-making process.

Another reason which compels making of such an order is based on the power of judicial review which is possessed by the High Court under article 226 and the Supreme Court under article 32 of the Constitution. These courts have the power under the said provisions to quash by certiorari a quasi-judicial order made by an administrative officer and this power of review can be effectively exercised only if the order is a speaking order. In the absence of any reasons in support of the order, the said courts cannot examine the correctness of the order under review. The High Court and the Supreme Court would be powerless to interfere so as to keep the administrative officer within the limits of the law. The result would be that the power of judicial review would be stultified and no redress being available to the citizen, there would be insidious encouragement to arbitrariness and caprice. If this requirement is insisted upon, then they will be subject to judicial scrutiny and correction.”

12. Keeping in view the above settled principles of law and applying the same in the facts and circumstances of the present case, we are of the view that the order passed by the Commissioner of Income-tax does not satisfy the prerequisites of a speaking order, as the same does not contain reasons to support the order. In view of our above discussions, the writ petitions are allowed, the impugned order, dated June 27, 1989, copy annexure P-10 is quashed and the matter is remitted back to the Commissioner of Income-tax, Patiala, for redecision in terms of the law laid down on the subject, after hearing the petitioner.

13. The petitioner through his counsel is directed to appear before the Commissioner of Income-tax on July 24, 2006, at 11.00 a.m