Supreme Court clarifies scope of mistake under Section 254(2) of Income Tax Act in Saurashtra Kutch Stock Exchange Ltd. (September 15, 2008)

Date of the Judgment: September 15, 2008

Citation: [Not Available in Source]

Judges: C.K. Thakker, J., Lokeshwar Singh Panta, J.

Can the Income Tax Appellate Tribunal rectify an order if it fails to consider a decision from the High Court? The Supreme Court addressed this question in the case of Assistant Commissioner, Income Tax vs. Saurashtra Kutch Stock Exchange Ltd. The core issue revolved around the interpretation of Section 254(2) of the Income Tax Act, 1961, specifically what constitutes a ‘mistake apparent from the record’ that warrants rectification. The judgment was delivered by a two-judge bench comprising Justice C.K. Thakker and Justice Lokeshwar Singh Panta.

Case Background:

The Saurashtra Kutch Stock Exchange Ltd., registered under Section 25 of the Companies Act, 1956, and recognized under the Securities Contracts (Regulation) Act, 1956, claimed exemption from income tax under Sections 11 and 12 of the Income Tax Act, 1961, as a charitable institution. The timeline of events is as follows:

Timeline:

Course of Proceedings:

Initially, the Assessing Officer rejected the assessee’s claim for exemption under Section 11 of the Income Tax Act. The Commissioner of Income Tax (Appeals) upheld this decision. The Income Tax Appellate Tribunal also ruled against the assessee. Subsequently, the assessee filed a miscellaneous application under Section 254(2) of the Act, arguing that the Tribunal had overlooked a binding precedent from the High Court of Gujarat. The Tribunal allowed this application, recalling its earlier order. The Revenue then filed a writ petition before the High Court, which was dismissed, leading to the appeal before the Supreme Court.

Legal Framework:

The case primarily revolves around Section 254 of the Income Tax Act, 1961, which deals with the powers and procedures of the Income Tax Appellate Tribunal. Key provisions include:

• Section 254(1): “The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.” This section grants the Tribunal the authority to issue orders after hearing both parties.
• Section 254(2): “The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer.” This allows the Tribunal to rectify mistakes apparent from the record within four years, especially if the mistake is pointed out by either the assessee or the Assessing Officer.
• Section 254(4): “Save as provided in Section 256, orders passed by the Appellate Tribunal on appeal shall be final.” This provision emphasizes the finality of the Tribunal’s orders, subject to the provisions for reference to the High Court under Section 256.

Arguments:

Arguments by the Revenue:

• The Tribunal erred in exercising its power under Section 254(2) of the Income Tax Act and recalling its earlier order.
• The Tribunal does not have plenary powers and cannot review its own decisions; its power is limited to rectifying mistakes apparent from the record.
• Even if the Tribunal’s order was incorrect, it does not constitute a mistake apparent on record.
• The order passed by the Tribunal under Section 254 is final, and invoking Section 254(2) destroys this statutory finality.
• The Tribunal incorrectly relied on the Gujarat High Court’s decision in Hiralal Bhagwati v. Commissioner of Income Tax [(2000) 246 ITR 188], as a contrary view was taken by the Supreme Court in Delhi Stock Exchange Assn. Ltd. v. Commissioner of Income Tax [(1997) 225 ITR 234 (SC)].

Arguments by the Assessee:

• The Tribunal was functioning in Gujarat and is subject to the supervisory jurisdiction of the High Court of Gujarat under Article 227 of the Constitution, making it bound by the High Court’s decisions.
• The issue related to exemption in favor of a ‘trust,’ which the High Court of Gujarat addressed in Hiralal Bhagwati, holding that a ‘trust’ could claim such exemption.
• The Tribunal’s attention was not drawn to the Hiralal Bhagwati decision initially, constituting a ‘mistake apparent from the record.’
• The Tribunal merely recalled its earlier order in light of a decision of the High Court of Gujarat, causing no prejudice to the Revenue.
• The view taken by the High Court of Gujarat in Hiralal Bhagwati has been approved by the Supreme Court in Assistant Commissioner of Income Tax, Surat v. Surat City Gymkhana [Civil Appeal Nos. 4305-06 of 2002; decided on March 04, 2008].

Submissions Table:

Issues Framed by the Supreme Court:

1. Whether the Income Tax Appellate Tribunal, Gujarat, was right in exercising power under sub-section (2) of Section 254 of the Act on the ground that there was a ‘mistake apparent from the record’ committed by the Tribunal while deciding the appeal and whether it could have recalled the earlier order on that ground.
2. Whether on merits, the assessee is entitled to exemption as claimed.

Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”

Authorities:

The court considered the following authorities:

Judgment:

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Hiralal Bhagwati v. Commissioner of Income Tax [(2000) 246 ITR 188]: The Court acknowledged that the Tribunal relied on this case, which held that a ‘trust’ could claim exemption from payment of tax.
• Delhi Stock Exchange Assn. Ltd. v. Commissioner of Income Tax [(1997) 225 ITR 234 (SC)]: The Court noted that the Revenue cited this case to show a contrary view but did not express an opinion on the merits.
• Assistant Commissioner of Income Tax, Surat v. Surat City Gymkhana [Civil Appeal Nos. 4305-06 of 2002; decided on March 04, 2008]: The Court acknowledged that the assessee claimed this case approved the view in Hiralal Bhagwati but did not delve into the merits.
• Patel Narshi Thakershi & Ors. V. Pradyumansinghji Arjunsinghji, (1971) 3 SCC 844: The Court cited this case to support the principle that the power of review is not an inherent power and must be conferred by law.
• T.S. Balaram v. Volkart Brothers, Bombay, (1971) 2 SCC 526: The Court referred to this case to define “mistake apparent from the record.”
• Hari Vishnu Kamath v. Syed Ahmad Ishaque, (1955) 1 SCR 1104: The Court cited this case for its discussion on “error apparent on the face of the record.”
• Satyanarayan Laxminarayan Hegde & Ors. v. Mallikarjun Bhavanappa Tirumale, (1960) 1 SCR 890: The Court referred to this case to explain what cannot be considered an error apparent on the face of the record.
• Syed Yakoob v. K.S. Radhakrishnan & Ors., (1964) 5 SCR 64: The Court cited this case for explaining the scope of certiorari jurisdiction.
• Suhrid Geigy Limited v. Commissioner of Surtax, Gujarat, (1999) 237 ITR 834 (Guj): The Court cited this case for the principle that non-consideration of a decision of the Jurisdictional Court is a “mistake apparent from the record.”
• Golak Nath v. Union of India, (1967) 2 SCR 762: The Court cited this case for its acceptance of the doctrine of prospective overruling.
• S. Nagaraj & Ors. v. State of Karnataka, 1993 Supp (4) SCC: The Court cited this case for the principle that rectification of an order stems from the fundamental principle that justice is above all.

What weighed in the mind of the Court?:

The Supreme Court’s decision was primarily influenced by the principle that a failure to consider a binding judgment from the jurisdictional High Court constitutes a ‘mistake apparent from the record.’ This is a ground for rectification under Section 254(2) of the Income Tax Act. The Court emphasized that justice is paramount and that technicalities should not prevent the rectification of errors to ensure a fair outcome.

Fact:Law Ratio

Logical Reasoning:

The Court reasoned that the Tribunal’s failure to consider the High Court’s decision was indeed a mistake apparent from the record. The Court also reiterated that a judicial decision acts retrospectively, clarifying the legal position from the date the law came into force.

The Court quoted:

“Justice is a virtue which transcends all barriers. Neither the rules of procedure nor technicalities of law can stand in its way… If the Court finds that the order was passed under a mistake and it would not have exercised the jurisdiction but for the erroneous assumption which in fact did not exist and its perpetration shall result in miscarriage of justice then it cannot on any principle be precluded from rectifying the error.”

“It may therefore be taken as settled that a writ of certiorari could be issued to correct an error of law. But it is essential that it should be something more than a mere error; it must be one which must be manifest on the face of the record.”

“The Appellate Tribunal may, at any time, within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer.”

Key Takeaways:

• Failure to consider a binding judgment from the jurisdictional High Court constitutes a ‘mistake apparent from the record’ under Section 254(2) of the Income Tax Act.
• Tribunals have the power to rectify such mistakes to ensure justice.
• Judicial decisions act retrospectively, clarifying the legal position from the date the law came into force.

Directions:

The Tribunal was directed to re-hear the matter on merits, without being influenced by any observations made in the impugned order, the order of the High Court, or the Supreme Court’s judgment.

Development of Law:

The ratio decidendi of the case is that the non-consideration of a binding judgment from the jurisdictional High Court constitutes a ‘mistake apparent from the record,’ which can be rectified under Section 254(2) of the Income Tax Act. This clarifies the scope of what constitutes a rectifiable mistake under the Act.

Conclusion:

The Supreme Court dismissed the appeal, holding that the Income Tax Appellate Tribunal was justified in rectifying its order after failing to consider a binding precedent from the High Court of Gujarat. The Court emphasized the importance of justice and the retrospective application of judicial decisions.