Report No. 115

Chapter II

Direct Taxes

2.1. Chapter XIV of the IncomeLtax Act, 1961 prescribes procedure for assessment. There are corresponding provisions prescribing procedure for assessment in the Wealth-tax Act, Gift-tax Act and Companies (Profits) Surtax Act. On a return being filed by the person who under the Law is required to file the return, the Income Tax Officer proceeds to assess the tax payable by the assessee.

2.2. Section 252 of the 1961 Act provides for setting up an Appellate Tribunal, consisting of Judicial and Accountant Members. The Income Tax Appellate Tribunal is, as its name indicates, an appellate authority. An appeal lies to the Appellate Tribunal against the orders of Appellate Assistant Commissioner/ Commissioner (Appeals) at the instance of the assessee as well as Revenue. The width and ambit of the judicial powers conferred on the Appellate Tribunal may be gauged from the language used in section 254 which provides that "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". Thus, the Appellate Tribunal can interfere with finding of facts, as well as, on question of law.

2.3. On a decision rendered by the Appellate Tribunal either the assessee or the Revenue may require the Appellate Tribunal to refer to the High Court, any question of law, arising out of such order. If the appellate Tribunal agrees to make a reference, it shall draw up a statement of the case and refer it to the High Court under section 256(1). If on the other hand, the Appellate Tribulnal is of the opinion that no question of law arises from its order and, therefore, refuses to make a reference, the aggrieved person may approach the High Court under section 256(2) and the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal, require the Appellate Tribunal to state the case and to refer it to the High Court.

If the High Court declines to call for a reference, the aggrieved person can approach the Supreme Court of India under Article 136 of the Constitution Cases are not unknown when the Supreme Court of India differed with the decision of the High Court and remitted the case with a direction to the Appellate Tribunal to draw up the case and to refer it to the High Court.

2.4. Section 257 confers powers on the Appellate Tribunal to make a direct reference to the Supreme Court if it is of the opinion that on account of a Conflict of judicial dicta amongst various High Courts, it is expedient that the matter may be decided by the Supreme Court.

2.5. When the reference is made, the High Court will hear the question of law and render its advisory opinion. Anyone aggrieved by the decision of the High Court on the reference, can appeal to the Supreme Court under Article 136 of the Constitution. If the Supreme Court entertains the appeal and decides the question of law, the same will be remitted to the Income Tax Appellate Tribunal who must dispose of the case in accordance with the opinion of the Supreme Court.

2.6. To appreciate the numerous stages through which an assessment proceeding moves, one may briefly recount the stages such as Income Tax Officer, Appellate Assistant Commissioner/Commissioner (Appeals), Income Tax Appellate Tribunal, reference under section 256(1), reference under section 256(2), a possible appeal at that stage under Article 136 to the Supreme Court of India and then back to the High Court. Vertically, there are as many as 8 stages of review with regard to an assessment order. It is said that the finding on a question of fact by the Appellate Tribunal is final and the advisory jurisdiction of the High Court in a reference under section 256(1) or 256(2), as the case may be, is confined to a question of law.

Though broadly stated the statement is correct, but anyone who has dealt with tax references knows how under the guise of inviting opinion on a question of law, findings of facts are tinkered with. One has merely to look at the form of reference on question of law either drawn up by the Appellate Tribunal or called for by the High Court. It always starts with: 'whether on the facts and in the circumstances of the case etc.'

2.7. Probably, this long cumbersome procedure has been borrowed from corresponding provisions of the Income Tax Act, 1952 of the United Kingdom with minor variations.

2.8. Apart from the relief by way of statutory appeals, a large number of writ petitions are filed questioning the correctness of the orders of the tax authorities under Article 226 of the Constitution to the High Court or Article 32 to the Supreme Court. Numerous writ petitions have been filed at the stage of issue of a mere notice invoking the extraordinary jurisdiction of the High Court or the Supreme Court on the ground that the mere issuance of notice is wholly without jurisdiction. If the matter is entertained, stay of further proceedings follows as matter of course. Proceedings at the initial stage are thus held up for decades and if the writ petition is finally rejected, the proceedings from the stage of notice would start after lapse of a decade or decades.

If initially the jurisdiction of the High Court is invoked under Article 226 and the High Court declines to interfere at the stage of notice, not infrequently a petition for special leave to appeal under Article 136 is moved in the Supreme Court and cases are not unknown where it is entertained. It is equally not unknown that finally the contention was found to be frivolous. Yet and unscrupulous litigant delays the decision adverse to him by decades and wants undeserved respite from the tentacles of revenue laws.