Report No. 79

IV. Substitution of Appeal for Reference

17.13. Substitution of appeal for reference.-

A view has also been expressed that the present procedure of the Appellate Tribunal making a reference to the High Court should be done away with, end, instead of that, an appeal should lie to the High Court against the order of the Tribunal on a question of law or a substantial question of law. The position, as already noted1 is that an appeal lies from the Income-tax Authority concerned to the Appellate Tribunal on a question of fact as well as law2.

The finding of the Appellate Tribunal on questions of fact is final3 In case, however, the assessee or the department feels aggrieved with regard to the finding; of the Appellate Tribunal on a question of law, it can file an application to the Appellate Tribunal under section 256(1) of the Income-tax Act, 1961, within the prescribed time, for a reference to the High Court on the question of law arising out of the order of the Tribunal.4 If the Appellate Tribunal finds, after issuing notice to the opposite party, that a question of law arises out of its order, it draws up a statement of case and refers to the High Court the formulated question of law.

If the Appellate Tribunal declines to make a reference to the High Court, it is open to the aggrieved person to apply to the High Court under sub-section (2) of section 256 of the Income-tax Act for an order directing the Appellate Tribunal to make a reference to the High Court regarding the question of law about which the Tribunal had declined to accede to the prayer of the applicant. The High Court in such application can, after hearing both the parties, make an order if the circumstances of the case so warrant, directing the Appellate Tribunal to refer the question of law to the High Court. In pursuance of the order of the High Court the Appellate Tribunal draws up a statement of case and refers the formulated question to the High Court.

1. Para. 17.3, supra.

2. Section 253(1), Income-tax Act.

3. Para. 17.3, supra.

4. Section 256(1), Income-tax Act, 1956.

17.14. Advantage of appeal.-

The advantage- of doing away with the reference, and substituting in its place a right of appeal, is that the time spent before the Appellate Tribunal in proceedings for referring the question of law to the High Court would be saved. It would also obviate the necessity of filing applications under sub-section (2) of section 256 of the Income-tax Act1 in those cases in which the Appellate Tribunal has declined to make a reference about a question of law to the High Court.

1. Para. 17.12, supra.

17.15. Advantage of reference.-

As against the above, the advantage of adhering to the present system of reference is that the time spent at the hearing of the reference is much less, compared with the time which the hearing in the High Court would take if the matter is taken up before it by way of appeal. In a reference, the High Court has before it the statement of the case drafted by the Appellate Tribunal. The statement of the case contains all the relevant facts, and in most cases it is a statement which is agreed to by both the parties to the case. The statement of case, as already mentioned'1 formulates the question of law which has to be answered by the High Court.

At the time of the hearing, the High Court, after looking at the statement of case, straightaway proceeds to hear arguments on the question of law. As against the above, in the event of an appeal, the High Court would have to cull out the necessary facts from the order of the Appellate Tribunal and also to find out the question of law which would arise. This would result in greater time being spent at the time of hearing. We may state that both the High Courts Arrears Committee and the Law Commission in its 58th Report have dealt with this question.

1. See para. 17.12, supra.

17.16. View of Shah Committee.-

The High Courts Arrears f ommittee presided over by Mr. Justice Shah observed in this respect as under1:-

"43. This procedure under our administrative system is entirely archaic and is capable of being an instrument of great injustice. It would be wise to do away with all complicated provisions relating to the application for stating a case either under the order of the Tribunal or the High Court or the Supreme Court and to confer upon the aggrieved litigant a right to appeal from the order of the Tribunal on questions of law, on points raised and/or argued before the Tribunal. It would be necessary to impose certain restrictions on the exercise of that right-

(a) that the appeal shall lie only on questions of law raised and/or argued before the Tribunal; and

(b) that absence of evidence to justify a finding or a perverse finding be deemed a question of law."

1. High Courts Arrears Committee Report, (1912), p. 60, para. 43.

17.17. View of Law Commison (58th Report).-

The Law Commission, in its 58th Report, observed as under1:-

"6.13. In regard to the present provisions relating to the reference proceedings, there appears to be almost complete unanimity for deleting them and for substitution of an appeal in their place; and this trend of opinion can be well appreciated, because it is common experience that the procedure of reference, at present contemplated by section 256, is dilatory and serves no significant or important purpose.

We ought to add that if proceedings relating to reference are omitted from section 256, it is certain that me decisions of the Income-tax Appellate Tribunal would naturally be more elaborate and conform to the traditional requirements of appellate judgment. We are, therefore, satisfied that the present provision about reference should be deleted. We shall deal later with the question of the procedure to be substituted in their place."

"6.23. Therefore, having carefully examined this problem, we are satisfied that the only reasonable solution, which may tend to make the disposal of tax matters more satisfactory and expeditious, would be to delete the present provision relating to reference (section 256, Income-tax Act) and to provide for an appeal against the decision of the Income-tax Appellate Tribunal on a substantial question of law instead of on a simple question of law, as at present, and also to provide that against the appellate decision of the High Court, it should be open to the aggrieved party to move the supreme Court with a certificate of the High Court that the case involves a substantial question of law of general importance which needs to be decided by the Supreme Court."

1. Law Commission of India, 58th Report (Structure and Jurisdiction of the Higher Judiciary), paras. 6.13 and 6.23.

17.18. Direct reference to Supreme Court by the Appellate Tribunal.-

It may also be mentioned that if on an application made under section 256, the Appellate Tribunal is of the opinion that on account of a conflict in the decisions or the High Courts in respect of any particular question of law, it is expedient that a reference should be made direct to me Supreme Court, the Appellate Tribunal may draw up a statement of the case and refer it through its President direct to the Supreme Court.1-2

1. Section 257, Income-tax Act, 1961.

2. See also para. 17.11, supra.

17.19. No further comments.-

Since the matter about the substitution of appeal in place of reference against the order of the Tribunal has already been dealt with1 by the High Courts Arrears Committee and the Law Commission in its 58th Report, sent in 1974, we do not propose to say anything further in the matter.

1. Paras. 17.15 and 17.16, supra.