Supreme Court Remands Income Tax Appeals for Fresh Hearing: Ryatar Sahakari Sakkarre Karkhane Niyamit vs. Asst. Commissioner of Income Tax (2019)

Introduction

Date of the Judgment: May 01, 2019

Citation: 2019 INSC 437

Judges: Abhay Manohar Sapre, J., Dinesh Maheshwari, J.

When a High Court hears an appeal under the Income Tax Act, is it mandatory for the court to frame specific questions of law before proceeding? The Supreme Court of India recently addressed this procedural question in a case concerning income tax appeals. The Court clarified that the High Court must frame substantial questions of law as required by Section 260A of the Income Tax Act, 1961 before hearing an appeal on its merits. This judgment emphasizes the importance of adhering to the prescribed legal procedures. The bench comprised Justices Abhay Manohar Sapre and Dinesh Maheshwari, with the judgment authored by Justice Abhay Manohar Sapre.

Case Background

The case involves an appeal by Ryatar Sahakari Sakkarre Karkhane Niyamit (the assessee) against a judgment of the High Court of Karnataka, Circuit Bench at Dharwad. The High Court had dismissed the Income Tax Appeals (ITAs) filed by the assessee and allowed the appeals filed by the Commissioner of Income Tax. The assessee, feeling aggrieved by this decision, filed appeals before the Supreme Court. The core issue revolves around the High Court’s procedure in handling the appeals, specifically whether it followed the correct procedure under Section 260A of the Income Tax Act, 1961.

Timeline

Course of Proceedings

The High Court, in its order, had noted the questions of law raised by both the assessee and the Revenue. However, the Supreme Court observed that the High Court did not frame any questions of law as required under Section 260A(3) of the Income Tax Act, 1961. This procedural lapse became the basis for the Supreme Court’s decision to remand the case.

Legal Framework

The Supreme Court referred to Section 260A of the Income Tax Act, 1961, which outlines the procedure for appeals to the High Court. Specifically, Section 260A(3) states that the High Court should frame substantial questions of law before hearing an appeal. The court emphasized that this is a mandatory requirement.

The relevant provisions of the Income Tax Act, 1961 are:

• Section 260A(2)(c): This section deals with the questions proposed by the appellant for admission of the appeal.
• Section 260A(3): This section mandates that the High Court must frame substantial questions of law for hearing the appeal.
• Section 260A(4): This section specifies that the appeal is heard on the questions framed by the High Court under sub-section (3).
• Section 260A(5): This section allows the respondent to argue that the questions framed by the High Court are not involved in the appeal.

Arguments

The judgment does not detail the specific arguments made by the assessee and the Revenue before the High Court. However, it notes that the High Court listed the questions of law proposed by both parties. The Supreme Court’s primary concern was not with the content of these arguments but with the High Court’s failure to frame its own questions of law as required by Section 260A(3) of the Income Tax Act, 1961.

The High Court noted the questions of law raised by the assessee and the Revenue in separate paragraphs of its order but did not frame the questions of law.

Issues Framed by the Supreme Court

The Supreme Court did not frame specific issues in this case. The primary concern was the procedural lapse by the High Court in not framing substantial questions of law as required by Section 260A(3) of the Income Tax Act, 1961.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authority:

The Supreme Court also considered the following legal provisions:

Judgment

The Supreme Court’s judgment focused on the procedural lapse by the High Court. The Court held that the High Court did not follow the mandatory procedure under Section 260A of the Income Tax Act, 1961, by not framing substantial questions of law.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to ensure strict compliance with the procedural requirements of Section 260A of the Income Tax Act, 1961. The Court emphasized that the High Court’s failure to frame substantial questions of law was a significant error that warranted remanding the case for a fresh hearing. The Court’s reasoning focused on the mandatory nature of the statutory provision and the need to maintain the integrity of the appellate process.

The Supreme Court’s reasoning was based on the following points:

• The High Court did not frame any question as required under Section 260A (3) of the Act.
• The questions set out in the High Court’s order were not the questions framed by the High Court but were the questions urged by the appellant.
• There is a distinction between the questions proposed by the appellant and the questions framed by the Court.
• The appeal is heard on merits only on the questions framed by the High Court under sub-section (3) of Section 260A of the Act.
• If the High Court was of the view that the appeal did not involve any substantial question of law, it should have recorded a categorical finding to that effect.
• The High Court did not decide the appeal in conformity with the mandatory procedure prescribed in Section 260A of the Act.

The Supreme Court quoted from its earlier judgment in PR. Commissioner of Income Tax Central-2 vs. M/s A.A. Estate Pvt. Ltd.:

• “In our view, there lies a distinction between the questions proposed by the appellant for admission of the appeal and the questions framed by the Court.”
• “The appeal is heard on merits only on the questions framed by the High Court under sub-section (3) of Section 260A of the Act as provided under Section 260A (4) of the Act.”
• “We are, therefore, of the view that the High Court did not decide the appeal in conformity with the mandatory procedure prescribed in Section 260A of the Act.”

Key Takeaways

• The High Court must frame substantial questions of law as required under Section 260A(3) of the Income Tax Act, 1961, before hearing an appeal on its merits.
• The questions proposed by the appellant are different from the questions framed by the High Court.
• Failure to frame such questions is a procedural irregularity that can lead to the case being remanded for a fresh hearing.
• The Supreme Court’s judgment emphasizes the importance of adhering to the prescribed legal procedures.

Directions

The Supreme Court directed the High Court to hear the appeals afresh only after framing appropriate substantial questions of law as required under Section 260A(3) of the Income Tax Act, 1961.

Specific Amendments Analysis

Not Applicable

Development of Law

The ratio decidendi of this case is that the High Court must frame substantial questions of law under Section 260A(3) of the Income Tax Act, 1961, before hearing an appeal on its merits. The judgment reinforces the mandatory nature of this provision and clarifies the distinction between questions proposed by the appellant and questions framed by the court. This ruling does not change the previous position of law but rather clarifies and emphasizes the existing procedural requirements.

Conclusion

The Supreme Court allowed the appeals and remanded the case to the High Court of Karnataka, Circuit Bench at Dharwad, for a fresh hearing. The Supreme Court’s decision was based on the High Court’s failure to frame substantial questions of law as required under Section 260A(3) of the Income Tax Act, 1961. This judgment underscores the importance of procedural compliance in appellate proceedings.