Appeal before High Court Under Income Tax Provisions
Part CC of Chapter XX of the Income Tax Act, 1961 (‘Act’ for short) provides the procedure for filing appeal before the High Court.
Who can file appeal?
Section 260A(1) of the Act provides that an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal if the High Court is satisfied that the case involves a substantial question of law. Section 260A (2) provides that the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court.
Subject to the Instructions for the time being in force on the monetary limits for filing appeals issued by CBDT under section 268A, the jurisdictional CCIT shall be the authority to decide whether to contest an order of the ITAT, in the light of the facts and circumstances of a particular case and the statutory provisions. He shall take a view in the matter after taking into consideration the recommendations of the authorities below. Once the CCIT communicates his decision to contest a particular order of ITAT, it shall be the responsibility of the CIT to ensure timely and proper filing of appeal in the High Court and consequential follow up actions.
Section 260A(2)(a) provides that an appeal before the High Court shall be filed within 120 days on which the order appealed against is received by the assessee or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. Section 260A (2A) provides that the High Court may admit an appeal after the expiry of the period of 120 days, if it is satisfied that there was sufficient cause for not filing the same within that period.
In ‘Somerset Place Co-Operative Housing Society Limited V. Income Tax Officer’ – 2015 (2) TMI 507 – BOMBAY HIGH COURT the High Court held that the legislative mandate in stipulation a limitation to file an appeal within the prescribed limitation cannot be permitted to be defective when a litigant has taken a decision not to pursue further proceedings for five years. A new ruling is no ground for reviewing a previous judgment. Each application for condonation of delay has to be judged on its own facts and circumstances.
In ‘Commissioner of Income Tax V. Ashian Needles Private Limited’ – 2015 (10) TMI 809 – DELHI HIGH COURT the department’s appeal was returned by the Registry raising certain objections. There was a delay of 344 days in re-filing the appeal. The Department informed that the appeals have been filed in the discharge of official duties and that some delay has been taken place since the concerned officer had to perform other functions as Assessing Officer. The High Court held that there is no satisfactory explanation for the extra-ordinary delay. There appears to be some casualness on the part of the counsel for the Revenue in attending to the defects pointed out by the Registry. The Court is not inclined to condone the delay in re-filing the appeal. The High Court dismissed the appeal.
Under section 20 of the Code of Civil Procedure, 1908, suits are to be instituted, where the defendants reside or where a cause of action, wholly or in part, arises. An appeal is nothing but an extension of a suit. Hence, a place where the cause of action, wholly or in part, arises, is the legal venue for institution of an appeal under the Act.
In filing appeal before High Court the territorial jurisdiction is to be taken into account. In ‘Principal Commissioner of Income Tax V. ITW India Limited’ – 2016 (5) TMI 395 – PUNJAB AND HARYANA HIGH COURT the initial order passed under Section 92CA(3) which was rectified under Section 154 was passed by the Additional Commissioner (Transfer Pricing), Hyderabad, the final assessment order was passed by the Deputy Commissioner, Hyderabad, the appeal was filed by the assessee before the Commissioner (Appeals) at Hyderabad and the appeal by the assessee and cross appeal by the Department were filed before the Tribunal, Hyderabad. The High Court held that since the initial process of assessment was started at Hyderabad and the final assessment was framed by the Assessing Officer at Hyderabad, the P&H Court lacked territorial jurisdiction to adjudicate the matter.
In ‘Commissioner of Income Tax (Exemption) V. Tibetan Children’s Village’ – 2016 (4) TMI 990 – PUNJAB AND HARYANA HIGH COURT the Court held that in so far as the assessment as well as appeals before lower appellate fora were handled by the officers at Dharmshala and Simla, which were not under the territorial jurisdiction, the Court did not have jurisdiction and returned the paper to the appellant for filing in a court of competent jurisdiction.
Competency of appeal
In ‘Commissioner of Income tax V. Goodlas Nerolac Paints Limited’ – 2016 (1) TMI 1220 – BOMBAY HIGH COURT the High Court held that the Tribunal passed order following its earlier order which has not been challenged by the Department. The appeal on the same is not competent unless memorandum of appeal or affidavit is furnished giving reasons.
In ‘Commissioner of Income Tax V. TATA Autocomp Systems Limited’ – 2015 (4) TMI 681 – BOMBAY HIGH COURT the order of the Tribunal had followed the decision of the Bombay Bench of the Tribunal to reach the conclusion at the arm’s length price in the case of loans advanced to associate enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. The Revenue had not preferred any appeals against the decision of the Tribunal on the above issue. No reason had been shown as to why the Revenue sought to take a different view in the present case from that taken in those decisions of the Tribunal. The Revenue not having filed any appeal against those decisions had in fact accepted the decisions of the Tribunal. The appeal is not maintainable.
Maintainability of appeal
It is trite law that appeal is a creation of statute and a right of appeal inheres in no one and therefore an appeal for its maintainability must have a clear authority of law and that explains why the right of appeal is described as a creature by Statue. Right of appeal is not a mere matter of procedure, but is a substantive and vested right to be governed by a law and can be held to be barred only if it is expressly barred or is barred by necessary implication. It is in this context that though all the parties in both the appeals argue in favor of their maintainability, the court will have to independently consider the question of maintainability particularly when it is also a well established law that even by consent of the parties jurisdiction which is otherwise not conferred on the Court cannot be assumed by the Court and an appeal otherwise not maintainable cannot be held to be maintainable and heard on merits even if the parties consent.
In ‘Commissioner of Income Tax V. Saroop Tanneries Limited’ – 2015 (8) TMI 464 – PUNJAB & HARYANA HIGH COURT the Tribunal, while passing an order in an appeal, did not notice the decision of the Supreme Court. Hence it corrected a mistake and recorded that the applicability of the decision could not be adjudicated under the provisions of Section 254(2) of the Act, as the issue was covered under Section 254(1). The assessee agreed that as and when an order was ultimately passed under Section 254(1) in accordance with the order under Section 254(2), the order would be appealable under Section 260A. The Revenue filed an appeal against the order under Section 254(2) which was dismissed. On appeal, the High Court dismissed the appeal of the Revenue holding that the Revenue was not without a remedy in the event of the order under Section 254(1) being adverse to it. An appeal under Section 260A was not maintainable against the order passed by the Tribunal under Section 254(2).
Vide Circular No. 05/2014, dated 10.07.2014 the Board revised the monetary limit for filing appeal before High Court under Section 260A of the Act. ₹ 10 lakhs is fixed as monetary limit for filing appeal by the Department before High Court. The Circular clarifies that that an appeal should not be filed merely because the tax effect in a case exceeds the monetary limits prescribed above. Filing of appeal in such cases is to be decided on merits of the case.
Tax effect is defined as the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues against which appeal is intended to be filed. However the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions. In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.
The circular further clarifies that adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified above or there is no tax effect-
where the Constitutional validity of the provisions of an Act or Rule are under challenge, or
where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or
where Revenue Audit objection in the case has been accepted by the Department.
In ‘Commissioner of Income Tax and another V. Shyam Biri Works’ – 2015 (5) TMI 320 – ALLAHABAD HIGH COURT the Revenue preferred an appeal relating to the Assessment year 1993-94. The appeal was filed on 24.12.2004 on the basis of instruction No.1979, dated 27.3.2000. The assessee raised a preliminary objection on the issue of maintainability of the appeal. Reliance was placed on Section 268A as well as Instruction No. 3 of 2011, dated 09.02.2011, laying down the monetary limit for filing of the appeals. The monetary limit for filing an appeal by department was ₹ 10 lakhs whereas the tax effect is less than ₹ 10 lakhs and therefore the appeal should be dismissed as non maintainable. The High Court dismissed the appeal as non maintainable.
In ‘Commissioner of Income Tax V. South Travancore Distilleries and allied products’ – 2015 (8) TMI 470 – KERALA HIGH COURT the High Court held that the High Court can ignore circulars fixing monetary limits for appeal and consider question of law which raises important issue.
Substantial question of law
Section 260A (3) provides that where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. Section 260A (4) provides that the appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question. Nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.
The ‘substantial question of law’ has not been defined in anywhere of the statute. The Supreme Court in ‘Sir Chunilal Mehta & Sons v. Century Spinning & Mfg. Co. Ltd.’ – 1962 (3) TMI 77 – SUPREME COURT has laid down the following tests to determine whether a ‘substantial question of law’ is involved:
whether the issue directly or indirectly affects substantial rights of the parties?
whether the question is of general public importance?
whether it is an open question in the sense that the issue has not been settled by pronouncement of Supreme Court?
whether the issue is not free from difficulty?
whether it calls for a discussion for alternative views?
In this regard some case laws are discussed as below:
In ‘Commissioner of Bank V. Indusind Bank Limited’ – 2014 (10) TMI 587 – BOMBAY HIGH COURT in relation to a claim under Section 43B (d) of the Act for the assessment year 2003-04, the Revenue contended that the assessee was bank and it derived income by way of interest from security which had accrued in terms of the books of account maintained by it. However that was not offered to tax on accrual basis but on actual receipt. The interest liability had accrued under the mercantile system of accounting but, on the other hand, that interest was not payable. The Tribunal dismissed the appeal. The Tribunal upheld and followed its order in the case of the very assessee for assessment year 2000 – 01. In such circumstances, the High Court held that the question of law projected as substantial could not be entertained.
In ‘Commissioner of Income Tax V. Smt. Anju Jindal’ – 2016 (11) TMI 793 – PUNJAB AND HARYANA HIGH COURT the Assessing Officer made addition on account of certain purchases made by the assessee holding them as bogus and the assessee failed to prove the genuineness of such purchases in spite of opportunities being granted. The Commissioner (Appeals) found that the books of account of the assessee were duly audited and that they were not considered by the Assessing Officer. The Tribunal found that for all the disallowed purchases, payments were made through account payable cheque and that the assessee had fully co-operated in the proceedings and furnished the particulars. The High Court held that the Commissioner (Appeals) and the Tribunal had concurrently upheld the assessee’s contention after appreciating the rival contentions. That decisions essentially determined by the questions of fact. No question of law arose. The High Court dismissed the appeal filed by the Revenue.
In ‘Bihar State Warehousing Corporation Limited V. Commissioner of Income Tax and another’ – 2016 (7) TMI 940 – PATNA HIGH COURT the High Court held that the Tribunal recorded that it was not the case of the assessee that it had made the provisions for the purpose of payment of gratuity by way of any contribution towards an approved gratuity fund or for the purpose of any gratuity that had become payable during the financial year under consideration. It is evident that only before the Court for the first time had the plea been taken by the assessee that the provision had been made for the purpose of payment to an approved gratuity fund. The assessee was trying to raise a pure question of facts which had been raised by it before any of the three lower authorities. Such a pure question of fact could not be permitted to be raised by the assessee at the belated stage.
In ‘Principal Commissioner of Income Tax and another V. Sarni Labs Limited’ – 2016 (7) TMI 1098 – KARNATAKA HIGH COURT the High Court held that the material on record disclosed that coleus was a rare herbal plant. The assessee had been in the manufacture and export of herbal extracts including cultivation of coleus. To maximize the production and sale of herbal extract, the assessee incurred expenditure on cultivation activities for the development of coleus. The expenditure incurred in cultivation on the herbs was deductible. In any even the question was already covered by the decision of the Court. No substantial questions of law arose.
In ‘Jai Hind Cycle Company Limited V. Commissioner of Income Tax’ – 2016 (12) TMI 105 – SUPREME COURT the Supreme Court held that since no jurisdiction of the High Court is confined to substantial questions of law, such questions would required to be framed before answering them. Where the assessee’s appeal was dismissed without framing such questions such decision was liable to be set aside with a direction to decide the matter de novo after formulating substantial question.
In ‘Commissioner of Income Tax V. Bahubali Neminath Muttin’ – 2017 (1) TMI 820 – KARNATAKA HIGH COURT the High Court held that where the decision of the Tribunal is solely based on evidence relating to facts, there could be no question of law and much less a substantial question of law for adjudication of the High Court.
In ‘Mangalore Ganesh Beedi Works V. Commissioner of Income Tax and another’ – 2015 (10) TMI 1283 – SUPREME COURT the Supreme Court held that there was a clear finding of fact by the Tribunal that the legal expenses incurred by the assessee were for protecting its business and that the expenses were incurred after 18.11.1994. There was no reason to reverse this finding of fact nor was there material to conclude that the finding of fact was perverse in any manner whatsoever. That apart, if the finding of the fact arrived at by the Tribunal were to be set aside, a specific question regarding a perverse finding of fact ought to have been formed by the High Court. The Department did not seek the framing of any such question. The High Court was not justified in upsetting a finding of fact arrived at by the Tribunal, particularly in the absence of a substantial question of law being framed in this regard.
In ‘Commissioner of Income Tax V. Goodwill Theatres Private Limited’ – 2016 (6) TMI 534 – BOMBAY HIGH COURT the assessee received mesne profits from its tenant who was in wrongful possession of its property after the relationship of the landlord and tenant had ended. The sum of such mesne profits were treated as revenue receipts by the Department. The Tribunal, following the decision of the Special Bench of the Tribunal on a similar issue, held that the mesne profits received by the assessee were capital receipts and not taxable. On appeal the High Court held that the issue of law was settled by the decision of the Special Bench of the Tribunal which had held that mesne profits were a capital receipt. Unless the order has been challenged by the Department, the rule of law was that, it equally applied to all assessees. No question of law arose.
Procedure for filing appeal before High Court
The following is the procedure involved in filing appeal before the High Court-
The appeal shall be in the form of memorandum of appeal precisely stating therein the substantial question of law involved along with fee prescribed under Civil Procedure Code;
The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit;
The High Court may determine any issue which-
has not been determined by the Appellate Tribunal; or
has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law;
Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section;
The appeal shall be heard by a bench of not less than two Judges of the High Court, and shall be decided in accordance with the opinion of such Judges or of the majority, if any, of such Judges;
Where there is no such majority, the Judges shall state the point of law upon which they differ and the case shall then be heard upon that point only by one or more of the other Judges of the High Court and such point shall be decided according to the opinion of the majority of the Judges who have heard the case including those who first heard it.
Plea not raised before Commissioner or Tribunal cannot be raised before High Court for the first time. In appeal, normally new plea could not be raised. New plea is admitted by the High Court under special circumstances only.
In ‘Girish Bansal and another V. Union of India and others’ – 2016 (5) TMI 119 – DELHI HIGH COURT the High Court found that the Revenue cannot be permitted to shift its stand from one forum to another. The consistent case of the Revenue is to be tested at various levels for its correctness. It is possible that in the interregnum there might be decision of the Supreme Court which might support or negate the case of the Revenue. That would then have to be taken to its logical end. In the circumstances, the Court is not prepared to permit the Revenue to urge anew plea for the first time in this count.
In ‘Commissioner of Income Tax and another V. Gulbarga Electricity Supply Company Limited’ – 2016 (5) TMI 1149 – KARNATAKA HIGH COURT the High Court held that the High Court is having no power to consider the new issue which has not been raised before the Tribunal. The order treating payment for purchase of power and transmission to consumers falls under Section 194J. The Revenue contended that the payment was covered by Section 194I which was not raised before Commissioner (Appeals) or Tribunal. The contention cannot be considered by the High Court in appeal.
In ‘Commissioner of Income Tax V. Synchem Chemicals (I) Limited’ – 2016 (6) TMI 893 – BOMBAY HIGH COURT the High Court found that the Tribunal passed order following its own earlier order on grounds of facts being identical. There is no reason in memorandum of appeal or affidavit by department for filing appeal where earlier order of the Tribunal was not challenged. The inference is that the earlier order of the Tribunal was accepted by the Department. However the Department was at liberty to apply to have the appeal called in case any appeal had been filed by it against the earlier order that was followed by the Tribunal.
Assessee filed certain documents before Supreme Court for the first time which are some relevance and are required to be looked in to by the High Court for deciding the appeal. Accordingly the order of High Court was set aside and the matter remanded back to the High Court for fresh disposal of the appeal after accepting the documents filed by the assessee (Tek Ram (Dead) Through LRs v. CIT, 2013 (8) TMI 459 – SUPREME COURT.
In an appeal filed by the department against the order of Tribunal, the High Court set aside the order of Tribunal, without hearing the assessee. The Apex court held that the assessee must be heard and it is the duty of the High Court to pass the reasoned order. Accordingly the order of High Court was set aside to decide de novo as held in ‘Rajesh Mahajan v. Commissioner of Income Tax’ – 2011 (10) TMI 23 – Supreme Court of India.
High Court has inherent power to review its decision. Procedure laid down in section 260A must be followed strictly. In the event of failure to formulate substantial question of law, the error ought to be rectified. As held in ‘Meghalaya Steels Ltd. V. Commissioner of Income Tax’ – 2013 (12) TMI 369 – GAUHATI HIGH COURT.
High court has not only the power but a duty to correct any apparent error in respect of any order passed by it. High Court can entertain the application for review arising out of a judgment passed under section 260A as held in ‘D. N. Singh V. Commissioner of Income Tax’ – 2010 (4) TMI 896 – Patna High Court [LB].