Supreme Court sets aside High Court order on Section 148 Income Tax Act notice: Pr. Commissioner of Income Tax vs. Nokia India Pvt. Ltd. (2019)

Date of the Judgment: April 08, 2019

Citation: (2019) INSC 330

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

Can a High Court dismiss an appeal in limine by stating that it does not involve any substantial question of law? The Supreme Court recently addressed this question in an appeal concerning the legality of a notice issued under Section 148 of the Income Tax Act, 1961. The core issue revolves around whether the High Court of Delhi was correct in dismissing the Revenue’s appeal without framing substantial questions of law. The judgment was delivered by a two-judge bench comprising Justice Abhay Manohar Sapre and Justice Dinesh Maheshwari.

Case Background

The case originates from an assessment year of 1999-2000. The Assessing Officer (AO) issued a notice to the respondent, Nokia India Pvt. Ltd., under Section 148 of the Income Tax Act, 1961. The respondent raised objections to this notice, arguing that it was based on a “change of opinion,” which is not permissible under the law. The Income Tax Appellate Tribunal (ITAT) upheld the respondent’s objections and allowed their appeal. The Revenue’s appeal against the ITAT order was dismissed by the High Court of Delhi, which held that no substantial question of law was involved.

Timeline:

Legal Framework

The core legal provisions in this case are Section 148 and Section 260A of the Income Tax Act, 1961.

Section 148 of the Income Tax Act, 1961 deals with the issuance of notice where income has escaped assessment. It allows the Assessing Officer to reassess income if they have reason to believe that any income chargeable to tax has escaped assessment. The relevant portion of the section states:

“Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.”

Section 260A of the Income Tax Act, 1961 pertains to appeals to the High Court. It states that an appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law. The relevant portion of the section states:

“An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law.”

Arguments

Arguments by the Revenue (Appellant):

• The Revenue contended that the High Court erred in dismissing their appeal in limine, stating that it did not involve any substantial question of law.
• They argued that the notice issued under Section 148 of the Income Tax Act, 1961 was valid because it contained the necessary details and “reasons to believe” that income had escaped assessment.
• The Revenue submitted that the ITAT erred in holding the notice to be bad in law, as the assessment was originally made under Section 143(1) and not under Section 143(3) of the Income Tax Act, 1961.
• The Revenue argued that the ITAT’s finding that the notice was based on a mere change of opinion was incorrect.

Arguments by the Assessee (Respondent):

• The assessee argued that the notice issued under Section 148 was indeed based on a “change of opinion,” which is not permissible under the law.
• They contended that the ITAT and the High Court were correct in holding that the notice was bad in law.

Issues Framed by the Supreme Court

The Supreme Court framed the following substantial questions of law that the High Court should have considered:

1. Whether the ITAT was justified in holding that the notice issued by the AO under Section 148 was bad in law when admittedly the impugned notice was issued in the case where the assessment was made under Section 143(1) of the Act but not under Section 143(3) of the Act.
2. Whether the ITAT was justified in holding that the notice issued under Section 148 of the Act was bad because it was based on mere change of opinion by overlooking the fact that there was no foundation to form any such opinion.
3. When admittedly the notice in question satisfied the requirements of Section 148 of the Act as it stood, namely, that first, it contained the facts constituting the “reasons to believe” and second, it furnished the necessary details for assessing the escaped income of the assessee, whether the ITAT was still justified in declaring the notice as being bad in law without taking into consideration any of these admitted facts.
4. In case, if the notice is held proper and legal, whether the finding recorded by the ITAT on the merits of the case on each item, which is subject matter of the notice, is legally sustainable.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

Judgment

How each authority was viewed by the Court?

The court considered Section 148 of the Income Tax Act, 1961 and stated that the High Court should have examined whether the notice satisfied the requirements of this section. The court also considered Section 260A of the Income Tax Act, 1961 and stated that the High Court should have framed substantial questions of law as per this provision.

The Supreme Court set aside the High Court’s order, stating that the High Court was not justified in dismissing the appeal on the ground that it did not involve any substantial question of law. The case was remanded to the High Court to decide the Revenue’s appeal afresh on merits and in accordance with the law. The Supreme Court did not express any opinion on the merits of the case.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by the need to ensure that the High Court fulfills its duty to address substantial questions of law. The Court emphasized that the High Court should not have dismissed the appeal in limine without considering the merits of the case. The Court’s reasoning focused on the procedural aspects of the case and the need for the High Court to follow the proper legal framework.

Logical Reasoning:

The Court did not delve into the merits of the case, including whether the notice under Section 148 was valid or if it was based on a “change of opinion.” Instead, the Court focused on the procedural error made by the High Court in dismissing the appeal without framing substantial questions of law. The Court emphasized that the High Court should have examined the issues raised by the Revenue in detail and decided the appeal on its merits.

The Court noted that the High Court should have considered whether the ITAT was correct in holding that the notice was bad in law, especially since the assessment was made under Section 143(1) and not under Section 143(3) of the Income Tax Act, 1961. The Court also pointed out that the High Court should have examined whether the ITAT was justified in holding that the notice was based on a mere change of opinion. The Court also noted that the High Court should have examined whether the notice satisfied the requirements of Section 148 of the Income Tax Act, 1961.

“We are, therefore, constrained to allow this appeal, set aside the impugned order and remand the case to the High Court for deciding the appellant’s appeal afresh on merits in accordance with law.”

“In our considered view, the aforementioned four questions framed need to be answered by the High Court on their respective merits while deciding the appeal filed by the Revenue (appellant herein) under Section 260A of the Act.”

“Since we have formed an opinion to remand the case to the High Court for its fresh disposal on merits, we have not expressed any opinion on the merits of the case while deciding this appeal.”

Key Takeaways

• The High Court must frame substantial questions of law when an appeal is filed under Section 260A of the Income Tax Act, 1961.
• The High Court cannot dismiss an appeal in limine by stating that it does not involve any substantial question of law without examining the merits of the case.
• The validity of a notice issued under Section 148 of the Income Tax Act, 1961 must be examined by the High Court if it is challenged in an appeal.
• The High Court must consider whether the ITAT was correct in its findings on the legality of the notice.

Directions

The Supreme Court directed the High Court to decide the appeal afresh on merits in accordance with law. The High Court was instructed to answer the four substantial questions of law framed by the Supreme Court. The High Court was also directed to decide the appeal uninfluenced by any observations made by the Supreme Court in this order.

Development of Law

The ratio decidendi of this case is that the High Court cannot dismiss an appeal under Section 260A of the Income Tax Act, 1961 in limine by stating that it does not involve any substantial question of law. The High Court must frame substantial questions of law and decide the appeal on its merits. This judgment reinforces the High Court’s duty to properly consider appeals and ensures that substantial questions of law are addressed.

Conclusion

The Supreme Court allowed the appeal filed by the Revenue, set aside the order of the High Court, and remanded the case back to the High Court for a fresh decision on merits. The Supreme Court emphasized that the High Court should have framed substantial questions of law and considered the merits of the case instead of dismissing the appeal in limine. This decision ensures that the High Court fulfills its duty to address substantial questions of law in appeals under Section 260A of the Income Tax Act, 1961.

Category

Parent Category: Income Tax Act, 1961

Child Categories: Section 148, Income Tax Act, 1961; Section 260A, Income Tax Act, 1961; Reassessment; Substantial Question of Law; Income Tax Appellate Tribunal; High Court Appeals

Parent Category: Indian Tax Law

Child Categories: Income Tax Reassessment, Tax Appeals, High Court Jurisdiction

FAQ

Q: What is Section 148 of the Income Tax Act, 1961?

A: Section 148 allows the Assessing Officer to issue a notice to reassess income if they believe that some income has escaped assessment.

Q: What is Section 260A of the Income Tax Act, 1961?

A: Section 260A provides for appeals to the High Court from orders of the Income Tax Appellate Tribunal, if a substantial question of law is involved.

Q: What did the Supreme Court decide in this case?

A: The Supreme Court set aside the High Court’s order and remanded the case, stating that the High Court should have framed substantial questions of law and decided the appeal on merits.

Q: What does “dismissed in limine” mean?

A: “Dismissed in limine” means that the High Court dismissed the appeal at the initial stage without going into the merits of the case.

Q: What are the implications of this judgment?

A: This judgment clarifies that the High Court must properly consider appeals under Section 260A and cannot dismiss them without framing and addressing substantial questions of law. This ensures that taxpayers have the right to a proper hearing of their appeals.