The Income Tax Act, 1961can be designated as perhaps one of the most debated, mannered, contested, and deliberated legislative code on tax measures,whose many provisions saw the ray of light and shade ever since thrown open to the judicial scrutiny. Since the taxing straw is dealt with the warmth of ex-cathedra vigour by the authorities concerned blended with the soul of judicial character accompanied by ensuring a chilling effect on the interpretation of provisions at large from assessee’s point of view, the law is still undergoing legal inauguration at many places. With the underlying motor of natural justice accompanying every query, norm, verification and investigative process, the veracity of decision can be tested on the tenets of fairness, prudency and efficacious reasoning. Appeal as the character of the word signifies putting before the jurisdictional appellate authorities, the cause of grievance, action, disservice and injustice arising out of the order of authorities below.
The Chalked Step qua section 261
The right of appeal has to be worked out of a legislative tone as it cannot be the product of inherent outcome and has to arise either out of necessary and unambiguous implication or express provision. An appeal has to sprout out of a statute and just cannot be taken as akin to any other ordinary accustomed right vested in an assesse over the passage of time. Chapter XX of the Income Tax Act, 1961 deals with Appeals and Revisions. Section 261 deals with the distinction of preferring appeals to the Supreme Court of India from any judgement of the High Court subject to granting of certificate of fitness in respect of the matter to be appealed before the Hon’ble Supreme Court as per the constitutional mandate and warrant. Indian constitution perhaps being one of the richest documentary chassis of provisions in the world makes suitable room for infusion of elasticity in so far as the interpretative work of assignments to judicial seats go. One amongst the factors that weigh heavy in causing stringency among the interpretative assignments is the writ apparent confliction between the three pillars of democratic setup namely the judiciary, the legislature and the executive accompanied by allegations of judicial overreach / legislative overreach and executive’s impasse. It is really ironical that instead of searching for the richness embodied in the Indian Magna Carta, we search for indigence and poverty thereby making the document look very weak and resigned.
Part D of Chapter XX (Appeals and Revision) deals with the aspect of preferring appeals before the Apex Court. Catering to just two sections in number primarily 261 and 262 of the Income Tax Act, 1961, it provides skeleton legislation in dealing with the instrumentalities of filing appeals before the highest court accompanied by the manner in which the hearing of appeals would materialize it. Section 261 of the Income Tax Act, 1961 provides,
`An Appeal shall lie to the Supreme Court from any judgement of the High Court delivered [before the establishment of the National Tax Tribunal] on a reference made under section 256 [against an order made under section 254 before the 1st day of October, 1998 or an appeal made to High Court in respect of an order passed under section 254 on or after that date] in any case which the High Court certifies to be a fit one for appeal to the Supreme Court.
Section 262 of the Income Tax Act, 1961 prescribes the manner in which the Hearing would take place before the Highest Court. Section 262 reads:-
(1)The provisions of the Code of Civil Procedure, 1908 (5 of 1908) relating to appeals to the Supreme Court shall, so far as may be, apply in the case of appeals under section 261 as they apply in the case of appeals from decrees of a High Court.
Provided that nothing in this section shall be deemed to affect the provisions of sub-section (1) of section 260 or section 265.
(2)The costs of the appeal shall be in the discretion of the Supreme Court.
(3)Where the judgement of the High Court is varied or reversed in the appeal effect shall be given to the order of the Supreme Court in the manner provided in section 260 in the case of a judgement of the High Court.
Article 141 of the Constitution fiats that law declared by the Hon’ble Supreme Court shall be binding on all courts within the territory of India. Such being the space of legal conviction that no party can ever deny to be guided by the factum decided, declared, signed and sealed by the highest court in its wisdom.Interpretation and elucidation of any provision by the Supreme Court makes room for its conclusive acceptance by the society at large. The state instrumentalities can be guided by the under-mentioned verdicts to acknowledge the very fact of its legal acceptance, adoption and approval since times:-
Commissioner of Income Tax vs. Aluminium Corporation of India Limited (1972) 85 ITR 167 / 172 (SC), Madras Fertilizers Limited vs. Assistant CCE (1994) 2 SCC 295 / 302 (SC), Union of India vs. Kantilal Hematram Pandya (1995) 3 SCC 17, 21 (SC), Amalgamated Coalfields Limited vs. Janapada Sabha, Chhindwara AIR 1964 SC 1013 / 1020, Star Diamond Co. India vs. Union of India AIR 1987 SC 179 / 180, Ganga Sugar Corporation Limited vs. State of Uttar Pradesh (1979) Taxation 55(3) 165 / 168 (SC), East India Commercial Company Limited vs. CC AIR 1962 SC 1893 / 1905, Valliama Champaka Pillai vs. Sivathanu Pillai AIR 1979 SC 1937, Shenoy & Company vs. CTO (1985) 155 ITR 178 / 187 (SC) etc.
Revenue’s Right of appeal
Ever since the advent of time, various observations having the force of declaratory impressions were introduced primarily in nature of either restraining the revenue from preferring an appeal to the higher pedestal or approving its action of preferring an appeal at a higher forum.Making rule of consistency as an impressionable stamp, in certain cases Revenue authorities were just estopped from preferring an appeal just because the tax effect was neutralized or countered by quantum pursuant to CBDT guidelines in the matter or the same could not find to be meritorious in view of being a persuasive appreciable matter to be taken care of. In certain matters, the things acquire celebrated proportions where the tax effect involved in the matter was reigning in lakhs, the Supreme Court ought not to consider the matter in exercise of its discretionary power vested with it under Article 136 of the Constitution i.e. Special Leave to appeal by the Supreme Court. In a case titled as Alexander George vs. Commissioner of Income Tax (2015) 373 ITR 49 (SC) / 278 CTR (SC) 112, the Hon’ble Supreme Court bench comprising Hon’ble Justice A.K.Sikri & Hon’ble Justice Rohinton Fali Nariman in their order dated 20th March, 2015 for the Assessment Year 1986-87, Civil Appeal No.1378 of 2004dismissed the matter in the following terms:-
`The tax effect in the present case is Rs.4,22,830. On this ground alone we refuse to entertain the appeal and to decide the same on merits. The appeal is accordingly, dismissed.
Divergent opinions manifestly sitting upon the very proposition of filing and withdrawing appeals before the court can very well be understood in respect of its generic expressions advanced to it by the Hon’ble Supreme Court of India inC.K.Gangadharan vs. Commissioner of Income Tax (2008) 304 ITR 61 (SC) and Commissioner of Income Tax vs. J.K.Charitable Trust (2009) 308 ITR 161 (SC).To the factual understanding, the controversy has been put to rest by the due settlement of law in case of Commissioner of Income Tax vs. J.K.Charitable Trust (2009) 308 ITR 161 (SC)and the order deservesacknowledgementdue to the doctrine of precedence, supremacy and preference as both the decisions comprise of an equal three judge bench ratio.
A) Qua C.K.Gangadharan vs. Commissioner of Income Tax (2008) 172 Taxmann 87 (SC)
The Hon’ble Supreme Court of India in C.K.Gangadharan vs. Commissioner of Income Tax, Cochin, Civil Appeal Nos. 5210-5216 of 2002 dated 21st July, 2008, a three judge bench comprising JJs. Dr.Arijit Pasayat, P.Sathasivam & Aftab Alamhad categorically pushed the tide of legitimacy in tracing the pick and choose policy while marking demarcations for preferring appeal before the adjudicating authorities barring certain exceptions. In Para No.12 & 13 of the said verdict authored by Hon’ble Mr.Justice Dr.Arijit Pasayat, the court held in its wisdom as under:-
Para 12 `If the assesse takes the stand that the revenue acted mala fide in not preferring an appeal in one case and filing the appeal in other case, he has to establish mala fides. As a matter of fact, there may be certain cases where because of the small amount of revenue involved, no appeal is filed. Policy decisions have been taken not to prefer an appeal where revenue involved is below a certain amount. Similarly, where the effect of decision is revenue neutral, there may not be any need for preferring an appeal. All these cases certainly provide the foundation for making a departure.’
Para 13 `Hence, merely because in some cases the revenue has not preferred an appeal, that does not operate as a bar for the revenue to prefer an appeal in another case where there is just case for doing so or it is in public interest to do so or is for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts’.
What can be validly extracted from the reasoning cited above is the very fact that onus of establishing mala fides sounds to be a pre-mediated bounden duty levied on the assesse in order to constrain the revenue from fighting appeal in higher courts of adjudication.Apart from this, revenue neutral norm, policy makingissues, just cause and contrary verdicts of foras of parallel jurisdiction will actively participate to free the revenue from the bondage of not preferring an appeal at higher forums. Thus, brakes in such a matter can only be applied whenever thereassesse invokes the mala fide clause to dent the revenue’s defence in the matter put up for adjudication.
B) Qua Commissioner of Income Tax vs. J.K.Charitable Trust (2008) 220 CTR 105 (SC)
Hon’ble Supreme Court of India in Commissioner of Income Tax vs. J.K.Charitable Trust, Civil Appeal Nos.2092 & 2423 of 2006, 682 of 2007 and 1698 & 1699 of 2008 dated 07th November, 2008, a three judge bench comprising JJs Dr.Arijit Pasayat, C.K.Thakker & Lokeshwar Singh Panta had assailed the Rule of Consistency as a simpliciter in restraining revenue from fighting appeals at higher pedestals. The verdict again authored by Hon’ble Mr.Justice Arjit Pasayat holds the validity of revenue’s constrainin not preferring an appeal as `Revenue having not filed any appeal in other assessment years, it is precluded from filing appeals in the relevant assessment years involving identical fact situation’.What is given due weightage is the very factual matrix of disputing an identical question of fact before the authorities. The cogent reasoning behind not preferring an appeal where disputed identical question is involved for all assessment years finds a mention in Para No.17 of the verdict which is produced below:-
Para No.17 `In C.K.Gangadharan’s case, it was held that merely because in some cases Revenue has not preferred an appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher courts when divergent views are expressed by the different High courts. In this case, it has been accepted by the learned counsel for the appellant Revenue that the fact situation is all the assessment years is same. According to him, if the fact situation changes then the Revenue can certainly prefer an appeal notwithstanding the fact that for some years no appeal was preferred. This question is of academic interest in the present appeals as undisputedly the fact situation is the same.
What has travelled beyond C.K.Gangadgaran’s verdict(Supra) is the pacifying legality of having an identical question of fact pending behind the disputed proposition under consideration to restrain revenue from preferring an appeal before the higher courts. The due application of principles of consistency goes to the root of the matter and bends upon the authoritative propriety in raising grievance before the courts of appropriate jurisdiction.Furthermore the action contemplated by the authoritative verdict of J.K.Charitable Trust (Supra)is given the legal colour through the revenue’s route to arrive at a discernable proposition.
Chapter XIV-A of the Income Tax Act, 1961 deals with the special provisions for avoiding repetitive appeals before the higher appellate forums. Section 158AA operative from 01st June 2015 prescribes procedure when in an appeal by revenue on an identical question of law is pending before Supreme Court. The explanatory notes to the provisions of Finance Act, 2015 further strengthen the route of section 158AA of the Income Tax Act, 1961. Departmental Circular No.19 of 2015 dated 27th November, 2015 clarified
40.1 Section 158A of the Income-tax Act provides that during pendency of proceedings in his case for an assessment year, an assessee can submit a claim before the Assessing Officer or any appellate authority that a question of law arising in the instant case is identical with the question of law already pending in his own case before the High Court or Supreme Court for another assessment year and if the Assessing Officer or any appellate authority agrees to apply the final decision on the question of law in that earlier year to the present year, he will not agitate the same question of law once again for the present year before higher appellate authorities.
40.2 There were no parallel provisions in the Income-tax Act before amendments made by the Finance Act, 2015, enabling revenue not to file appeal for subsequent years where the Department is in appeal on the same question of law for an earlier year. As a result, appeals had been filed by the revenue year after year on the same question of law until it is finally decided by the Supreme Court thus, multiplying litigation.
40.3 Accordingly, a new section 158AA has been inserted to provide that where any question of law arising in the case of an assessee for any assessment year(relevant case) is identical with a question of law arising in his case for another assessment year which is pending before the Supreme Court, in an appeal or in a special leave petition under Article 136 of the Constitution filed by the revenue, against the order of the High Court, the Commissioner or Principal Commissioner may, instead of directing the Assessing Officer to appeal to the Appellate Tribunal under sub-section (2) or sub-section (2A) of section 253 (normal provisions of appeal by revenue to Appellate Tribunal), direct the Assessing Officer to make an application to the Appellate Tribunal in the prescribed form within sixty days from the date of receipt of order of the Commissioner (Appeals) stating that an appeal on the question of law arising in the relevant case may be filed when the decision on the question of law becomes final in the earlier case.
40.4 The Commissioner or Principal Commissioner shall give such direction only if an acceptance is received from the assessee to the effect that the question of law in the other case is identical to that arising in the relevant case. However, in case no such acceptance is received, the Commissioner or Principal Commissioner may, if he objects to the order passed by the Commissioner (Appeals), direct the Assessing Officer to appeal to the Appellate Tribunal as per the normal provisions of appeal to Appellate Tribunal.
40.5 It has also been provided that where the order of the Commissioner (Appeals) is not in conformity with the final decision on the question of law in the other case (if the Supreme Court decides the earlier case in favour of the Department), the Commissioner or Principal Commissioner may direct the Assessing Officer to appeal to the Appellate Tribunal against such order within sixty days from the date on which the order of the Supreme Court in the other case is communicated to the Commissioner or Principal Commissioner and save as otherwise provided in the said section 158AA, all other provisions of Part B of Chapter XX shall apply accordingly.
What is noteworthy here is the very lifeblood of the issue that Question of Lawfinds a mention in the language of statutory provision. What if a Question of fact arises in a disputed proposition?In addition where the Income Tax Appellate Tribunal being the final fact finding authorityfor adjudicating the factual matters andplethora of matters pending before the writ Courts can be entertained solely on the footing of Substantial Question of Law, can it be discerned that on an appeal on a Question of Fact, revenue cannot be stopped from preferring appeal even though the entire process serves the ends of multiplicity of litigation. What is substantially lawful might not be substantially factual and vice versa. Hon’ble Supreme Court of India in Santosh Hazari vs. Purushottam Tiwari, Civil Appeal No.1117 of 2001 dated 08th February, 2001 reported in 251 ITR 84 (SC) held, as under:-
`The word substantial, as qualifying question of law, means – of having substance, essential, real, of sound worth, important or considerable.The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest Court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.
A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be substantial, a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, in so far as the rights of the parties before it are concerned. To be a question of law involving in the case there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis.
What has been suffered as a statement in J.K.Charitable Trust’s verdict (Supra) by the counsel for the revenue is total clearance of filing appeal before the higher forums when the factual aspects differ in character, proportion, magnitude and dimensions even though for some years no appeal was preferred. Though on a complete appraisal of the said statement, it is understood to be not in parity and conformity with the view expressed by the Hon’ble Supreme Court of India in a case titled as Berger Paints India Limited vs. Commissioner of Income Tax, Civil Appeal Nos.1081-1083of 2004, dated 17th February, 2004 wherein a bench comprising JJs K.G.Balakrishnan and B.N.Srikrishna settled:-
`If the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assesse, then it is not open to the revenue to challenge its correctness in the case of other assesse, without just cause’.
Furthermore due emphasis is laid on the standard prescribed by Circular No.21 of 2015 dated 10th December, 2015 in supersession of the Board Instruction No. 5/2014 dated 10th July, 2014 revising monetary limits for filing appeals by the Department before Income Tax Appellate Tribunal, High Courts and Special Leave Petition before Supreme Court. The said circular in letter and spirit aimed at reducing the monumental scale of litigations pursued before the appellate forums by the revenue by subscribing that appeals/SLPs shall not be filed in cases where the tax effect does not exceed the monetary ceilings of Rs.10,00,000/- before the Income Tax Appellate Tribunal, Rs.20,00,000/- before the High Court and Rs.25,00,000/- before the Supreme Court.However there seems to be no estoppel against the revenue in preferring appeals in matters involving the following issues wherein it is resolved `Adverse judgements relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 of the above noted circular or there is no tax effect.
a) Where Constitutional validity of the provisions of an Act or Rule are under challenge, or
b) Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires
c) Where Revenue Audit Objection in the case has been accepted by the Department, or
d) Where the addition relates to undisclosed foreign assets/bank accounts.
In addition, para 9 of the above said Circular also states that the monetary limits specified in para 3 shall not apply to writ matters and direct tax matters other than Income Tax. Filing of appeals in other Direct tax matters shall continue to be governed by relevant provisions of statute & rules. Further, filing of appeal in cases of Income Tax, where the tax effect is not quantifiable or not involved, such as the case of registration of trusts or institutions under section 12A of the IT Act, 1961, shall not be governed by the limits specified in para 3 above and decision to file appeal in such cases may be taken on merits of a particular case.
Though in cascading effect matters, revenue found support from the Supreme Court in Commissioner of Income Tax, Central – III vs. Surya Herbal Limited, Petition for special leave to appeal (Civil) CC 13694/2011 dated 29th August, 2011 arising out of Income Tax Appeal No. 379/2011 dated 21/02/2011, Delhi High Court, wherein a three judge bench held on allowability of departmental appeal on following terms:-
`Liberty is given to the Department to move the High Court pointing out that the Circular dated 9th February, 2011, should not be applied ipso facto, particularly, when the matter has a cascading effect. There are cases under the Income – Tax Act, 1961, in which a common principle may be involved in subsequent group of matters or large number of matters. In our view, in such cases if attention of the High Court is drawn, the High Court will not apply the Circular ipso facto. For that purpose, liberty is granted to the Department to move the High Court in two weeks. The special leave petition is, accordingly, disposed of.’The nucleus of the matter bore an incidence of department’s appeal facing dismissal on the very context of tax effect being less than the prescribed limit of Rs.10,00,000/- as per the then operative instruction prevalent at that point of time governing the filing of appeals.
Though revenue is wise enough to withdraw appeals retrospectively preferred before the High Court as per Circular No.21/2015, but to an act of astonishment, liberty is sought by the department counsels to file an application for survival of the appeal in case something survives therein. It is also liberalized that there will be no merger apparent as to the order of Income Tax Appellate Tribunal into the withdrawl of present appeal preferred before the High Court leaving the issue of law open to be debated, narrated and adjudicated before appropriate forum. Such state of affairs can lead to circumstances of never ending, imperishable, perdurable and ageless litigations thereby bestowing indifferently the very purpose of withdrawing such petitions solely at the risk of assesse. In allowance further, the CBDT must be guided by the tall and bold initiatives taken by its parallel body CBEC (Circular No.1006/13/2015-CX dated 21st September, 2015) regulating the affairs of indirect taxes in Indiawith regard to a total discard and tossing out of such circulars/notifications/press releases which are contrary and stand in confliction to the judgements of Hon’ble Supreme Court. Even cascading effect can be countered by given due legitimacy to the dictums of Hon’ble Courts in order to repose a confidence building measure and patronize the non-adversarial tax regime at large.