Case Law Details

Case Name : Maharao Bhim Singh of Kota Thr. Maharao Brij Raj Singh, Kota Vs. CIT (Supreme Court)
Appeal Number : Civil Appeal No. 2812 Of 2015
Date of Judgement/Order : 05.12.2016
Related Assessment Year : 1978-79
Courts : Supreme Court of India (911)
Advocate Akhilesh Kumar Sah

TIME FOR ADAPTING NECESSARY CHANGES, DEFINING OF DISCRETIONARY POWERS OF AUTHORITIES AS WELL AS RECODIFICATION OF THE INCOME TAX ACT, 1961 & INCOME TAX RULES, 1962

Time has come, now, for removing practical difficulties to assessees in the working of Income Tax. For this suitable amendments can be made in the Income Tax Act & Rules thereunder. The monetary limits can be increased for pursuing appeals by Department of Income Tax and defining of the substantial question of law at different levels may be done.

Recently, in Maharao Bhim Singh of Kota vs. CIT, Jaipur (Civil Appeal No. 2812 of 2015, decided on 5.12.2016), Hon’ble Supreme Court judges have held that though principle of res judicata does not apply to income-tax proceedings and each assessment year is an independent year in itself, yet, in our view, in the absence of any valid and convincing reason, there was no justification on the part of the Revenue to have pursued the same issue again to higher Courts. There should be a finality attached to the issue once it stands decided by the higher Courts on merits. This principle, in our view, applies to this case on all force against the Revenue.

Discretionary powers have been given to officials under the Income-tax Act/ Rules for the regulation, functioning and smooth running of the law. The discretion should also be clarified.

Discretion means according to the rules of reason and justice, not according to the private opinion but according to law. It is not to be arbitrary, vague and fanciful, but legal and regular to be exercised, not capriciously but on judicial grounds and for substantial reason. If an authority cast with a public duty of exercising discretion takes into account matters which the court consider to be improper for the guidance of discretion, then in the eye of the law, it is an improper exercise of the discretion (Golam Momen vs. DCIT (2004) 25 SITC 447 (Cal).

A person entrusted with a discretion must direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to the matter that he has to consider. If he does not obey those rules, he may truly be said to be acting unreasonably.

There lies a distinction between the administrative authorities exercising discretionary jurisdiction and the court or the quasi-judicial Tribunal deciding the lis. In the latter case, discretion has been given to the court or the Tribunal to mould the ancillary relief. The discretion is to be exercised with circumspection consistent with justice, equity and good conscience, keeping always the given facts and circumstances of the case [Hindalco Industries Ltd. vs. Union of India (1994) 2 SCC 594].

The Supreme Court in Union of India vs. Vipan Kumar Jain (2003) 174 Taxation 781 has held that the question of bias will have to be decided on the facts of each case. If the assessee is able to establish that the Assessing Officer was in fact biased in the sense that he was involved or interested in his personal capacity in the outcome of the assessment or the procedure for assessment, no doubt, it would be a good ground for setting aside the assessment order.

If a statute invests a public officer with authority to do an act in a specified set of circumstances, it is imperative upon him to exercise his authority in a manner appropriate to the case when a party interested and having a right to apply moves in that behalf and circumstances for exercise of authority are ‘shown to exist. Even if the words used in the statute are prima facie enabling the Courts will readily infer a duty to exercise power which is invested in aid of enforcement of a right -public or private-of a citizen [Hirday Narain v. ITO (1970) 78 ITR 26 (SC): 1971 AIR 33, 1971 SCR (3) 683]. 

“It is settled proposition of law that what cannot be done “per directum is not permissible to be done per obliquum”, meaning thereby, whatever is prohibited by law to be done, cannot legally be effected by an indirect and circuitous contrivance on the principle of “quando aliquid prohibetur, prohibetur et omne per quod devenitur ad illud.” ”
Observation of Rajasthan High Court in Maruti Mills (p) Ltd. v. Union of India & Ors. as reported in (2000) 14 DTC 667 (Raj-HC).

To remove confusion clarificatory circulars are the need of hour keeping in view the judicial pronouncements. The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of mathematical formulae because few words possess the precision of mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that language is at best an imperfect instrument for the expression of human thought and as pointed out by Lord Denning, it would be idle to expect every statutory provision to be “drafted with divine prescience and perfect clarity.” We can do no better than repeat the famous words of Judge Learned Hand when he said: ” it is true that the words used, even in their literal sense, are the primary and ordinarily the most reliable, source of interpreting the meaning of any writing: be it a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary; but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning.”
—observation of Supreme Court in K.P. Varghese vs. ITO 1981 AIR 1922, 1982 SCR (1) 629

It is now a well-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the Court may modify the language used by the legislature or even do some violence to it, so as to achieve the obvious intention of the legislature and produce a rational construction.

-Observation of Apex Court in Oxford University Press v. CIT (2001) 20 DTC 13 (SC) : (2001) 247 ITR 658 (SC). 
“It is well settled that a legal fiction is to be limited to purposes for which it was created and should not be extended beyond the language of the section by which it is created.”

-Observation of Kerala High Court in CIT v. CWS (India) Ltd. (2000) 14 DTC 321 (Ker-HC)  : (2000)  246 ITR 278 (Ker).

A Constitution Bench of Supreme Court in the case of V. V. S. Sugars v. Government of AP (1999) 114 STC 47 : (1999) 4 SCC 192 reiterated the following proposition laid down in the India Carbon Ltd.’s case (1997) 106 STC 460 in the following words :

(Head note of (1999) 4 SCC):

“The Act in question is a taxing statute and, therefore, must be interpreted as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise.”

The Income Tax Act/ Rules can be recodified alike Companies Act, 2013.

“Law is a living organism and its utility depends on its vitality and ability to serve as sustaining pillar of society. Contours of law in evolving society must constantly keep changing as civilization and culture advances. The customs and mores must undergo change with march of time, Justice to the individual is one of the highest interests of the democratic State. Judiciary cannot protect the interests of the common man unless it would redefine the protections of the Constitution and the common law if law is to adapt itself to the needs of the changing society, it must be flexible and adaptable.”

(Justice K. Ramaswamy in Madhu Kishwar & Ors. Etc vs State Of Bihar & Ors on 17 April, 1996 [1996 AIR 1864, 1996 SCC (5) 125].

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