Commissioner of Income-tax Vs. Income-tax Appellate Tribunal and anr. - Court Judgment

Bhaskaran, J.

1. In this writ petition filed by the Commissioner of Income-tax, Tamil Nadu-IV, Madras, an important question touching thejurisdiction of the Income-tax Appellate Tribunal to set aside an ex parte order for re-hearing the appeal disposed of on merits, arises for decision.

2. For the assessment year 1969-70, the ITO, Calicut, brought to tax certain amount representing the capital gains arising out of the acquisition of an item of property belonging to the second respondent-assessee by the Government. The contention of the second respondent that the property sold being agricultural land, the resultant gain was not liable to be taxed as capital gain, rejected by the ITO, however, found favour with the AAC who allowed the appeal and deleted the additions made. Aggrieved by the order of the AAC, the ITO preferred an appeal to the first respondent herein, the Income-tax Appellate Tribunal, Cochin Bench, Ernakulam. The second respondent filed a cross-objection also supporting the order of the AAC. The appeal and the cross-objection filed by the department and the assessee, respectively, after due notice to the parties, were listed for hearing on October 28, 1974, by the Tribunal. On the date appointed for the hearing neither the assessee (second respondent) nor his representative was present. The Tribunal as per Ex. P-3 order allowed the appeal and dismissed the cross-objection. The decision was rendered on merits (presumably to conform to Sub-section (1) of Section 254 of the I.T. Act, 1961, hereinafter referred to as the Act) which enjoins that the Tribunal may 'pass such orders thereon as it thinks fit' as pointed out by the Supreme Court in CIT v. S. Chenniappa Mudaliar : [1969]74ITR41(SC) , holding that the property was not agricultural in character and, as such, the resultant gain was liable to be taxed as capital gain. Against Ex. P-3 order the second respondent filed before the first respondent a reference application under Section 256(1) of the Act, for obtaining an order stating the case for reference to this court. He also filed a miscellaneous petition before the first respondent-Tribunal praying for the restoration of the appeal and the cross-objection for fresh hearing and disposal alleging that there was confusion in the mind of the assessee and the advocate that the appeal which was fixed for hearing on October 28, 1974, had been re-fixed to November 11, 1974, and because of this confusion they had not put in appearance. By Ex. P-4 order dated January 8, 1975, the Tribunal allowed the miscellaneous petition and reposted the appeal for hearing. It is for quashing Ex. P-4 order that this writ petition has been filed.

3. It is urged on behalf of the petitioner that Ex. P-4 order passed by the first respondent Tribunal is illegal and without jurisdiction, inasmuch as Ex. P-3 appellate order having been passed on merits, it was not open to the Tribunal to set aside that order and restore the appeal to the file for fresh hearing. The contention is that there is no provision in the Act or in the Rules framed thereunder which empowers the Tribunal to condonethe absence of the respondent-assessee and to re-hear the appeal on that ground. It is also contended that what was purported to be a cross-objection was not a cross-objection in the real sense inasmuch as, instead of objecting to the order of the AAC who allowed the second respondent's appeal wholly, it was a cross-objection filed to support that order. In any event, it is urged, the first respondent-Tribunal ought to have dismissed the cross-objection for default instead of disposing of that also on merits along with the appeal filed by the petitioner. It is pointed out that Rule 25 of the Income-tax (Appellate Tribunal) Rules, 1963, hereinafter referred to as the Rules, specifically empowers the Tribunal to hear the matter on merits even in the absence of the respondent. It is also submitted that unlike the proviso to Rule 24 of the Rules which empowers the Tribunal to restore to file the appeal dismissed for default if sufficient cause for his non-appearance on the date appointed for hearing is shown by the appellant, there is no provision in Rule 25 to set aside an ex parte order even if sufficient cause for his non-appearance is shown by the respondent. We may extract Rules 24 and 25 of the Rules below :

'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, in its discretion, either dismiss the appeal for default or may hear it ex parte :

Provided that where the appeal has been dismissed for default 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 setting aside the dismissal and restoring the appeal.

25. Where on the day fixed for hearing or any other day to which the hearing may be adjourned, the appellant appears and the respondent does not appear when the appeal is called on for hearing, the Tribunal may hear the appeal ex parte.

Explanation.--In rules 24 and 25 'appear' means appear in person or through an authorised representative.'

4. Sri Ravindranatha Menon, the standing counsel for the revenue, submitted that the Appellate Tribunal being a creature of the statute, it can exercise only such powers as are conferred on it by the statute. In the absence of any specific provision in that behalf the Tribunal cannot review its own order as it becomes functus officio after rendering the ex parte order, whether on merits or not. He placed reliance on the decision of a Division Bench of this court in Jose T. Mooken v. CIT : [1979]117ITR921(Ker) to which one of us (Bhaskaran J.) was a party. In para. 9, at p. 119 of KLT it was held as follows (see also 117 ITR at p. 929):

'The power of review is not conferred on the High Court in the matter of a reference under the I.T. Act. In the absence of specific conferment of power it is too much to say that the High Court could exercise that power. Exercising of the review power cannot be in the exercise of an inherent power as Chief Justice Govindan Nair so clearly pointed out in K. Ahamad v. CIT : [1974]96ITR29(Ker) . The High Court exercising inherent power in a reference under the Indian I.T. Act, 1922, acts there independent of the powers conferred under the Civil Procedure Code, We are in agreement with the view expressed by the Nagpur High Court as early as in 1940 in Seth Mathuradas v. C1T that the court when acting under the powers conferred by Section 66 of the Indian I.T. Act, 1922 (corresponding to present Section 256 of Act of 1961), was exercising a special jurisdiction and that its proceedings were not governed by the Code of Civil Procedure. In the present application for review what is sought to be corrected is not a mere clerical or accidental error. The petitioner is invoking the powers of a civil court under Order 47, Rule I, C.P.C. In the jurisdiction conferred on it the High Court cannot exercise that power.'

5. The argument of the counsel is that if this court cannot exercise the power of review, either by virtue of the inherent power or by the provisions contained in the CPC, by no stretch of imagination could it be said that such powers not specifically conferred on it, could be exercised by the Appellate Tribunal. Reliance was also placed by him on the decision of the Supreme Court in Martin Burn Ltd. v. R. N. Banerjee, : (1958)ILLJ247SC , wherein, in para. 13, at p. 82, dealing with the powers of the Labour Appellate Tribunal, Bhagavati J., has stated as follows :

'The Labour Appellate Tribunal is the creature of the statute and all its powers must be found within the four corners of the statute.'

6. He also relied on the decision of this court in P.C. Poulose v. K.P. Sukumaran Nair [1974] KLT 47. In that case, Isaac J. held that an arbitrator has no jurisdiction to entertain an application to set aside an ex parte award and restore the case for hearing. We have also been shown the decision of Ghose J. in Shew Paper Exchange v. ITO : [1974]93ITR186(Cal) , wherein the view taken is that the Income-tax Appellate Tribunal has no power to review its own order. The counsel also submitted that though the Allahabad High Court in ITO v. S. B. Singar Singh & Sons : [1970]75ITR646(All) and the Calcutta High Court in Murlidhar Surda v. Income-tax Appellate Tribunal : [1973]92ITR189(Cal) confirmed by a Division Bench ruling in ITO v. Murlidhar Sarda : [1975]99ITR485(Cal) , have spoken about the inherent power of the Tribunal, the view expressed by Bhagwati J. in Martin Burn's case : (1958)ILLJ247SC , in para. 13, at p. 82, does not appear to have been brought to the notice of the concerned learned judges.

7. Sri T. L. Viswanatha Iyer, counsel for the second respondent-assessee, submitted that by virtue of the provisions contained in Sub-section (1) of Section 254 of the Act it is imperative that the Appellate Tribunal should give an opportunity of being heard to both parties before it passes an order on the appeal. According to him, an opportunity of being heard really means a reasonable opportunity of being heard, otherwise it will be illusory. Whether the aggrieved party was able to avail of the opportunity of being heard is essentially a question of fact depending on the satisfaction of the Tribunal on an objective consideration of the material before it. In a case where the Appellate Tribunal happened to pass an ex parte order, when the aggrieved party appeared before the Tribunal and showed sufficient cause for his non-appearance on the date appointed for bearing, and the Tribunal accepted the explanation, it amounts to the Tribunal having been satisfied that the aggrieved party could not by due exercise of diligence avail of the opportunity of being heard in spite of the fact that the notice fixing the date of hearing was issued to and received by the party. It is out of the anxiety of the Tribunal to conform to the spirit of the provisions of Sub-section (1) of Section 254 which require that an order on the appeal was to be passed after giving both parties an opportunity of being heard that the Tribunal on being satisfied that such opportunity could not be availed of by the aggrieved party it passes an order to set aside the ex parte order and to post the appeal for re-hearing. In our view, this power to set aside the ex parte order, in the interest of justice, is inherent in the Tribunal and could be traced to Sub-section (1) of Section 254 of the Act. Giving a reasonable opportunity of being heard, as stated in Sub-section (1) of Section 254 of the Act, is essentially part of the jurisdiction of the Tribunal, and when the Tribunal is satisfied that the ex parte order happened to be passed was without giving a reasonable opportunity of being heard to the aggrieved party, it has the jurisdiction to set aside that order and to proceed to pass a fresh order after hearing both sides as enjoined in that provision. We find similar view being expressed by the Calcutta High Court in ITO v. Murlidhar Sarda : [1975]99ITR485(Cal) (confirming the decision in Murlidhar Sarda v. Income-tax Appellate Tribunal : [1973]92ITR189(Cal) ). In this context, it would be profitable to notice that Bhagwati J., in para. 13, at p. 82, of the decision in Martin Burn Ltd. v. R. N. Banerjee : (1958)ILLJ247SC , after having observed that the Labour Appellate Tribunal being a creature of the statute, all its powers must be found within the four corners of the statute, has also found in the very same judgment that though there is no express provision to that effect in the Industrial Disputes (Appellate Tribunal) Act, 1950, the Appellate Tribunal could also exercise the original jurisdiction of the Industrial Tribunal tracing such power to the provisions contained in Sections 9 and 10 of the said Act which had provided that theAppellate Tribunal shall have the same powers as are vested in a civil court and that it shall follow such procedure as may be prescribed and subject to certain conditions mentioned therein.

8. The Supreme Court in ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815 has held that the appellate authority has in appropriate cases the power to stay proceedings relating to the recovery of penalty or tax due from an assessee though by the provisions of the Act or the Rules powers have not been expressly conferred upon the Appellate Tribunal in that behalf. Grover J. has in para. 6, at page 818, of the above-said decision stated as follows :

'The argument advanced on behalf of the appellant before us that, in the absence of any express provisions in sections 254 and 255 of the Act relating to stay of recovery during the pendency of an appeal, it must be held that no such power can be exercised by the Tribunal, suffers from a fundamental infirmity inasmuch as it assumes and proceeds on the premise that the statute confers such a power on the Income-tax Officer who can give the necessary relief to an assessee. The right of appeal is a substantive right and the questions of fact and law are at large and are open to review by the Appellate Tribunal. Indeed, the Tribunal has been given very wide powers under section 254(1), for it may pass such orders as it thinks fit after giving full hearing to both the parties to the appeal. If the Income-tax Officer and the Appellate Assistant Commissioner have made assessments or imposed penalties raising very large demands and if the Appellate Tribunal is entirely helpless in the matter of stay of recovery, the entire purpose of the appeal can be defeated if ultimately the orders of the departmental authorities are set aside. It is difficult to conceive that the legislature should have left the entire matter to the administrative authorities to make such orders as they choose to pass in exercise of unfettered discretion......It is a firmly established rule that an expressgrant of statutory power carries with it by necessary implication the authority to use all reasonable means to make such grant effective (Sutherland's Statutory Construction, third edition, articles 5401 and 5402). The powers which have been conferred by section 254 on the Appellate Tribunal with widest possible amplitude must carry with them by necessary implication all powers and duties incidental and necessary to make the exercise of those powers fully effective.'

9. The power under Sub-section (1) of section 254 of the Act which enables the Appellate Tribunal to stay proceedings for recovery of amounts due from the assessee, even in the absence of any other provision in the Act or the Rules expressly conferring such power on it, as held by the Supreme Court in the above case, should be deemed to be comprehensive enough to enable it to set aside the ex parte order in case it is satisfied that though there wasnotice to the respondent, in spite of the exercise of due diligence, the reasonable opportunity of being heard could not be availed of by him. We have also been referred to a recent decision of the Supreme Court in Jaipur Mineral Development Syndicate v. CIT : [1977]106ITR653(SC) . The facts of the case were : Upon reference being made to the High Court at the instance of the appellant-firm, notice was sent to the appellant to file paper books within three months of the receipt thereof. The clerk of the firm received the notice on May 9, 1970, but he misplaced that notice and consequently the paper books were not filed. The reference came on for hearing on August 26, 1970, when no one appeared for the appellant firm. The High Court passed an order declining to answer the reference because the appellant had not put in an appearance and had also not filed the paper books. On September 21, 1970, when handing over charge to another, the clerk discovered that the notice had been received from the High Court. Finding on enquiry that the matter had been disposed of on August 26, 1970, the appellant filed an application for permission to file the paper books and for rehearing of the reference. The High Court dismissed that application observing that it had become functus officio to entertain the application because of its earlier order declining to answer the reference. The Supreme Court, on appeal, observed that the High Court was not junctus officio in entertaining the application for rehearing the reference and disposing of the matter on merits. Sri Ravindranatha Menpa, counsel for the revenue, sought to distinguish the decision of the Supreme Court by pointing out that whereas in the Supreme Court case there was a total failure on the part of the High Court to answer the question referred to it, in the instant case, an order on merits has already been passed. We find little merit in this reasoning. The question is one of jurisdiction. The order declining to answer the question referred to it is also an order of disposal just like Ex. P-3 order passed by the first respondent in this case. If, after passing Ex. P-3 order, the Appellate Tribunal was functus officio in entertaining the application for re-hearing, it should be so with the High Court also after having passed an order declining to answer the questions referred to it. In Khushalchand B. Daga v. T. K. Swendran. 4th ITO : [1972]85ITR48(Bom) , the Bombay High Court has held that the Tribunal should not allow a party to suffer for its own mistake. The decision in Sub-Divisional Officer (Compensation Officer), Mirzapur v. Raja Srinivasa Prasad Singh : [1966]2SCR970 , also is relied on by Sri Viswanatha Iyer. In that case, it was held that a decision reached behind the back of a necessary party to whom notice must be sent is not binding upon such a party, and the court may in such a case reopen the proceedings to give the party an opportunity to state its case. No doubt, that was a case in which notice to the necessary party was not served, unlike in the present case in which admittedlynotice was served on the respondent. All the same, on the basis of the above ruling of the Supreme Court, the 2nd respondent appears to be entitled to contest the correctness of the submission of the revenue that after passing the ex parte order the Tribunal becomes functus officio. It may also be noticed that Rule 24 of the Appellate Tribunal Rules, 1946, as amended in 1948, in so far as it enables dismissal of an appeal before the Tribunal for default of appearance of the appellant was declared ultra vires by the Supreme Court, as it clearly came into conflict with Section 33(4) of the Indian I.T. Act, 1922, corresponding to Section 254(1) of the Act. We do not agree with the argument of Sri Ravindranatha Menon that the absence of a specific provision in Rule 25 of the Rules for setting aside an ex parte order and posting it for rehearing, similar to the provision for restoration of an appeal dismissed for default under Rule 24, is by itself indicative of the fact that the legislature really wanted to make a deliberate distinction between the dismissal of an appeal for default on the one hand and the ex parte decisions on merits in the absence of the respondent on the other hand. We have already noticed the view expressed by the Supreme Court on the validity of Rule 24 in so far as it enables the dismissal of an appeal before the Tribunal for default of appearance of the appellant. Apart from that, merely for the reason that there is no specific provision in Rule 25 of the Rules enabling the Tribunal to set aside the ex parte order passed on merits, it cannot be said that the power of the Tribunal under Section 254(1) of the Act would not carry with it the power to make available a reasonable opportunity of being heard to the aggrieved party when it has subsequently realised that the ex parte order happened to be passed virtually without the aggrieved party having had the benefit of being heard. No express provision prohibiting the Tribunal from exercising the power to set aside ex parte order has been shown to us, and that being the position, it must be presumed that the power under Section 254(1) of the Act extends to the power for setting aside an ex parte order in the interest of justice when the Tribunal is clear in its mind that the provision under the sub-section in its true spirit had not been complied with while passing the ex parte order.

10. In our opinion, the petitioner appears to be under a misconception that the power of setting aside an ex parte order to afford an opportunity of being heard to the aggrieved party is the same as the power of review. The question of review ordinarily arises where the order impugned is vitiated on account of some mistake or error apparent on the face of the record, or where there was failure to consider the material on record. The purpose of setting aside an ex parte order is to consider the whole matter afresh affording an opportunity of being heard to the respondent. When this distinction is borne in mind, there is no scope for the argument for the position that because the Tribunal has no power to review its own order, itcannot also set aside the ex parte order for affording an opportunity of being heard to the respondent.

11. After all, the Tribunal has only set aside the ex parte order and reopened the matter to afford an opportunity of being heard to the aggrieved party. In the absence of any manifest injustice to any party, even assuming that the Tribunal had committed an irregularity, a technical error in doing so, this court will be slow to exercise the extraordinary power under Article 226 of the Constitution to perpetuate an injustice.

12. For the foregoing reasons the writ petition is dismissed ; however, in the circumstances of the case, without any order as to costs.