Case Law Details
Uzhuva Service Co-Operative Bank Ltd Vs ITO (Kerala High Court)
Uzhuva Service Co-Operative Bank Ltd, a co-operative society registered under the Kerala Co-operative Societies Act, 1969, filed a writ petition (W.P.(C)No.17013 of 2020) challenging the Income-tax Appellate Tribunal’s dismissal of their appeal for non-prosecution. The appellant sought to set aside the assessment order and the consequential orders, restore the appeal, and have it decided on merits. The Kerala High Court examined whether the Tribunal’s dismissal without considering the merits was legally sustainable under Section 254 of the Income Tax Act, 1961.
Legal Context: The case revolves around Section 254 of the Income Tax Act, 1961, which mandates that the Appellate Tribunal should consider all appeals on their merits. The appellant argued that the Tribunal’s dismissal for non-prosecution, without evaluating the merits, was legally unsustainable.
Arguments and Precedents:
- Appellant’s Argument: The appellant relied on the Supreme Court decision in Balaji Steel Re-rolling Mills v. Commissioner of Central Excise and Customs (AIR 2015 SCW 426), which dealt with similar provisions in the Central Excise Act, 1944. The Supreme Court had held that the Tribunal must decide appeals on merits and cannot dismiss them for non-appearance.
- Supreme Court Precedent: The Supreme Court’s judgment in CIT v. S. Chenniappa Mudaliar (1969) further supported the appellant’s stance. It interpreted Section 33(4) of the Income Tax Act, 1922, which corresponds to Section 254 of the 1961 Act, asserting that the Tribunal must give a decision on the merits of the case, even if the appellant fails to appear.
- Income Tax Act Provisions: Section 254(1) and (3) of the Income Tax Act, 1961, parallels Section 33(4) of the 1922 Act, obligating the Tribunal to decide appeals on merits. The relevant Rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963, also mandates that appeals should be disposed of on merits after hearing the respondent, even in the appellant’s absence.
High Court’s Analysis: The High Court noted that the Appellate Tribunal dismissed the appellant’s appeal solely for non-prosecution, without examining the merits, violating the principles set by the Supreme Court. Rule 24 of the 1963 Rules requires the Tribunal to decide appeals on merits, regardless of the appellant’s presence. The Tribunal’s failure to do so rendered its order legally unsustainable.
Court’s Decision:
- Setting Aside the Tribunal’s Orders: The High Court set aside the Tribunal’s dismissal order (Ext.P4) and the subsequent order denying the restoration of the appeal (Ext.P6). It directed the Tribunal to reconsider and decide the appeal on its merits.
- Consideration of Delay: The Court acknowledged a significant delay in the appellant’s application to set aside the ex parte order—filed five years after the Tribunal’s decision. Despite allowing the appeal and the writ petition, the Court imposed a condition: the appellant must pay Rs.5,000 to the Kerala State Mediation and Conciliation Centre within a month and produce the receipt before the Tribunal.
Conclusion: The Kerala High Court’s decision underscores the statutory obligation of the Income-tax Appellate Tribunal to decide appeals on their merits, even in the absence of the appellant. The ruling aligns with the Supreme Court’s interpretation, emphasizing that dismissals for non-prosecution without merit consideration are legally untenable.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The appellant, a Co-operative Society registered under the Kerala Co-operative Societies Act, 1969, filed W.P.(C)No.17013 of 2020 praying to set aside Ext.P1 assessment order and Exts.P4 and P6 consequential orders, to restore Ext.P3 appeal and decide the same on merits and for other reliefs. Ext.P4 is the order passed on Ext.P3 appeal by the Income-tax Appellate Tribunal, dismissing the appeal for non-prosecution, on the ground that assessee failed to appear. The learned Single Judge admitted the writ petition and granted an interim stay of recovery subject to the condition that the appellant pays Rs.10.5 lakhs within one month. The direction to deposit Rs.10.5 lakhs, which according to the appellant amounts to 61% of the demand, has been challenged in the writ appeal.
2. Heard Sri Biju George, learned counsel for the appellant and Sri Jose Joseph, learned Standing Counsel for the Income-tax Department.
3. Since the writ petition itself is filed mainly on the ground that the Income-tax Appellate Tribunal cannot, in law, pass an order dismissing an appeal for default or for non-prosecution, we deem it appropriate to call for the records of the writ petition and consider the same along with the writ appeal.
4. The counsel for the appellant relies on the decision of the Hon’ble Supreme Court in Balaji Steel Re-rolling Mills v. Commissioner of Central Excise and Customs, reported in [AIR 2015 SCW 426] in support of his contention. The Hon’ble Supreme Court considered the provisions of the Central Excise Act, 1944 and the Rules made thereunder, dealing with the powers of the Appellate Tribunal. After extracting the statutory provisions, the Hon’ble Supreme Court in paragraphs 10 to 12 held as follows:
“10. From a perusal of the aforesaid provisions, we find that the Act enjoins upon the Tribunal to pass order on the appeal confirming, modifying or annulling the decision or order appealed against or may remand the matter. It does not give any power to the Tribunal to dismiss the appeal for default or for want of prosecution in case the appellant is not present when the appeal is taken up for hearing.
11. A similar question came up for consideration before this Court in CIT v. S. Chenniappa Mudaliar [CIT v. S. Chenniappa Mudaliar, (1969) 1 SCC 591] wherein this Court considered the provisions of Section 33 of the Income Tax Act, 1922 and Rule 24 of the Appellate Tribunal Rules, 1946 which gave power to the Tribunal to dismiss the appeal for want of prosecution. For ready reference, Section 33(4) of the Income Tax Act, 1922 and Rule 24 of the Appellate Tribunal Rules, 1946 are reproduced below:
Section 33(4) of the Income Tax Act, 1922
“33. (4) The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner.”
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Rule 24 of the Income Tax Appellate Tribunal Rules, 1946
“24. 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 or may hear it ex parte.”
12. Considering the aforesaid provisions, this Court held as under: (S. Chenniappa Mudaliar case [CIT v. S. Chenniappa Mudaliar, (1969) 1 SCC 591] , SCC pp. 59596, para 7)
“7. The scheme of the provisions of the Act relating to the Appellate Tribunal apparently is that it has to dispose of an appeal by making such orders as it thinks fit on the merits. It follows from the language of Section 33(4) and in particular the use of the word ‘thereon’ that the Tribunal has to go into the correctness or otherwise of the points decided by the departmental authorities in the light of the submissions made by the appellant. This can only be done by giving a decision on the merits on questions of fact and law and not by merely disposing of the appeal on the ground that the party concerned has failed to appear. As observed in Hukumchand Mills Ltd. v. CIT [Hukumchand Mills Ltd. v. CIT, (1967) 63 ITR 232 (SC)] , the word ‘thereon’ in Section 33(4) restricts the jurisdiction of the Tribunal to the subject-matter of the appeal and the words ‘pass such orders as the Tribunal thinks fit’ include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by Section 31 of the Act. The provisions contained in Section 66 about making a reference on questions of law to the High Court will be rendered nugatory if any such power is attributed to the Appellate Tribunal by which it can dismiss an appeal, which has otherwise been properly filed, for default without making any order thereon in accordance with Section 33(4). The position becomes quite simple when it is remembered that the assessee or the Commissioner of Income Tax, if aggrieved by the orders of the Appellate Tribunal, can have resort only to the provisions of Section 66. So far as the questions of fact are concerned the decision of the Tribunal is final and reference can be sought to the High Court only on questions of law. The High Court exercises purely advisory jurisdiction and has no appellate or revisional powers. The advisory jurisdiction can be exercised on a proper reference being made and that cannot be done unless the Tribunal itself has passed proper order under Section 33(4). It follows from all this that the Appellate Tribunal is bound to give a proper decision on questions of fact as well as law which can only be done if the appeal is disposed of on the merits and not dismissed owing to the absence of the appellant. It was laid down as far back as the year 1953 by S.R. Das, J. (as he then was) in CIT v. Arunachalam Chettiar [CIT v. Arunachalam Chettiar, (1953) 23 ITR 180 (SC)] that the jurisdiction of the Tribunal and of the High Court is conditional on there being an order by the Appellate Tribunal which may be said to be one under Section 33(4) and a question of law arising out of such an order. The Special Bench, in the present case, while examining this aspect quite appositely referred to the observations of Venkatarama Aiyar, J. In CIT v. Scindia Steam Navigation Co. Ltd. [CIT v. Scindia Steam Navigation Co. Ltd., (1961) 42 ITR 589 (SC)] indicating the necessity of the disposal of the appeal on the merits by the Appellate Tribunal. This is how the learned Judge had put the matter in the form of interrogation: (ITR p. 609)
‘… How can it be said that the Tribunal should seek for advice on a question which it was not called upon to consider and in respect of which it had no opportunity of deciding whether the decision of the Court should be sought?’
Thus looking at the substantive provisions of the Act there is no escape from the conclusion that under Section 33(4) the Appellate Tribunal has to dispose of the appeal on the merits and cannot short circuit the same by dismissing it for default of appearance.”
5. It can be seen from the paragraphs extracted above that the Supreme Court considered the issue with reference to the provisions of the Income-tax Act, 1922 and the Appellate Tribunal Rules, 1946, dealing with the powers of the Income-tax Appellate Tribunal also and held that looking at the substantive provisions of the Act, the Tribunal should not have dismissed the appeal for want of prosecution and it ought to have decided the appeal on merits, even if the appellant or its counsel was not present when the appeal was taken up for hearing. Rule 24 as it stood then provided for dismissal of the appeal for default. The Apex Court held that Section 33(4) of the Act does not permit the dismissal of an appeal by the Tribunal, for default or non-appearance. Section 254(1) and (3) of The Income Tax Act, 1961, is in pari materia with Section 33(4) of the Income Tax Act, 1922. However, Rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963, has undergone considerable change from the Rule 24 which existed in the 1946 Rules. Rule 24 of the 1963 Rules reads thus:
“Rule 24. Hearing appeal ex parte for default by the appellant.
Where, on the day fixed for hearing or on any other date to which the hearing may be adjourned, the appellant does not appear in person or through an authorised representative when the appeal is called on for hearing, the Tribunal may dispose of the appeal on merits after hearing the respondent:
Provided that where an appeal has been disposed of as provided above 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 seting aside the ex parte order and restoring the appeal.”
6. A reading of Ext.P4 would clearly show that the Appellate Tribunal has not considered Ext.P3 appeal on merits and the only reason for dismissing it is stated to be for non-prosecution. The appellant filed Ext.P5 Miscellaneous Petition seeking to set aside the ex parte order for restoring the appeal back to file. But the same was also dismissed by the Tribunal as per Ext.P6 order, for the reason that the same is filed beyond time.
7. In the light of the binding judgment of the Apex Court and the provisions contained in Section 254 of the Income Tax Act, 1961 and Rule 24 of the Income Tax (Appellate Tribunal)Rules, 1963, the writ appeal and the writ petition are allowed. We hold that Ext.P4 order passed by the Appellate Tribunal is not issued in accordance with law, and the same is set aside. Since Ext.P4 order is not an order passed on merits, there is no requirement of the appellant approaching the Tribunal for setting aside the ex parte order and restoration of the appeal, as per the Proviso to Rule 24. Ext.P6 order which is consequential, is also set aside. The Tribunal is directed to reconsider the appeal Ext.P3 on merits and dispose of the same in the manner stipulated by the Statute. The parties shall bear their respective costs.
8. We take note of the fact that the order of the First Appellate Authority was passed on 31.01.2014 and that of the Tribunal was passed on 26.06.2014, and the appellant chose to prefer an application to set aside the ex parte order only after five years, on 22.11.2019. Even though the appeal and the writ petition filed by the appellant is allowed, we are of the opinion that there is inordinate delay in challenging the order of the Appellate Tribunal, which all the same is to be treated as non est. The appeal and the writ petition is hence allowed, subject to the appellant paying a sum of Rs.5,000/- (Rupees Five Thousand only) towards costs to the Kerala State Mediation and Conciliation Centre and producing a copy of the receipt within a period of one month before the Tribunal.
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