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Report No. 115

Central Tax Court

2.26. Having eliminated the possible source of delay and conflict in the interpretation of tax laws, a suitable forum must be created at a stage above the Income-Tax Appellate Tribunal and below the Supreme Court of India which will have a nation wide jurisdiction. A Central Tax Court having an all-India jurisdiction would have two distinct advantages: (1) that it will introduce an all-India perspective in the matter of interpretation of tax laws, and (2) conflicts of decisions amongst various High Courts making it obligatory for the Supreme Court to deal with the matter would be eliminated. There are some more incidental advantages which may be briefly narrated.

A body dealing with specialist litigation round the year will acquire both speed and consistency in its views. A possibility of difference of opinion amongst benches of the Central Tax Court can be easily resolved by a dissent being examined by a larger Bench of the Central Tax Court. Common questions of law arising in a number of appeals coming before it can be dealt with by a common judgment. There will be thus unanimity in decisions, continuity and consistency in dealing with common questions arising before it. Therefore, a Central Tax Court at a stage midway between Income-Tax Appellate Tribunal and Supreme Court of India must be set up.

2.27. What must be the format of the Central Tax Court? It appears that since the introduction of Part XIVA in the Constitution by the Constitution (Forty-second Amendment) Act, 1976, a belief has gained ground that appropriate legislature may set up Tribunals in respect of all or any of the matters specified in clause (2) of Article 323B with respect to which such legislature has power to make laws. Amongst the subjects referred to in clause (2), is levy, assessment, collection and enforcement of any tax. The appropriate legislature can also be the Parliament in the matter of levy, assessment, collection and enforcement of any tax referable to entries in the Union List. It is not disputed that a Tribunal having all-India jurisdiction can be set up to deal with levy, assessment, collection and enforcement of any centrally leviable tax. But this should not impede a further enquiry whether a court can be set up for the same purpose within the framework of the Constitution. And let it be remembered that there is a recognisable and visible difference between a court and a tribunal both with respect to its capacity, credibility and impact.

2.28. Parliament has powers to enact direct tax laws such as Income-tax Act, Gift-tax Act, Wealth-tax Act and the Companies (Profit) Surtax Act and set up a machinery for its levy, assessment and recovery. Entries 82, 85, 86 in the Union List in the Seventh Schedule of the Constitution confer power on the Parliament to levy tax on income, tax on corporation, tax on the capital value of the assets exclusive of agricultural land, on individuals and companies, and tax on the capital of companies. Where Parliament has power to levy tax it comprehends the power to provide machinery for the collection of tax and for resolution of disputes or complaints arising out of the levy and recovery of tax. The Central Tax Court herein envisaged will be a court with jurisdiction to deal with disputes or complaints arising out of the levy, assessment and recovery of the aforementioned taxes. Entry 95 in the Union List reads:

"Jurisdiction and powers of all courts, except the Supreme Court, with respect to any of the matters in the List."

When the entry deals with jurisdiction and power of court, it comprehends both the creation of courts, conferment of power and jurisdiction or extinguishment thereof. Entry 95 enables the Parliament to deal with the jurisdiction of a High Court. Therefore, on a conspectus of all these entries, Parliament will have power by law to set up a Central Tax Court or as the office of the Ministry of Finance would like to describe it as National Court of Direct Taxes. Undoubtedly, the officers of the Ministry of Finance conceived it as an administrative tribunal under Article 323B of the Constitution. The Commission is of the firm opinion that such a Central Tax Court should not be a tribunal, but a Court of Appeal with all its trappings and having an all-India jurisdiction.

Those who favoured to set up a national tribunal under Article 323B appeared to have overlooked the fact that suitable legislation will have to be enacted for that purpose. If law has to be enacted, it would be comparatively advantageous to set up a Central Tax Court rather than a tribunal envisaged by Article 323B. Now that it is intended to confer jurisdiction on the proposed Central Tax Court to deal with constitutionality of tax legislation, a tribunal would be of no use. Tribunal cannot examine the constitutionality of a statute or subordinate legislation. This approach may, as a whole, defeat the charge of tribunalisation of justice, therefore, the Commission is of the firm opinion that a Central Tax Court/National Court of Direct Taxes be set up under an Act of Parliament having all-India jurisdiction.

2.29. There is near unanimity of opinion that Income-Tax Appellate Tribunal has immensely justified its existence and largely vindicated the trust reposed in it. It has, therefore, to be retained with its regional jurisdiction. It would be the last fact finding authority.

2.30. The proposed Central Tax Court will have jurisdiction to entertain appeal against the decision of the Income-Tax Appellate Tribunal on a question of law. As a at present provided, findings of facts by the Income-Tax Appellate Tribunal shall be final. Every appeal filed before the Central Tax Court shall be listed for admission before a Bench of the Court. If the Bench is satisfied that the appeal does not disclose a question of law, it would have jurisdiction to dismiss it in limine.

If at the time of admission, the Bench of the Central Tax Court hearing the appeal is satisfied that the appeal discloses a question or questions of law, it should frame the question or questions and the appeal would be admitted limited to those questions. Guidance in this behalf may be obtained from section 100 of the Code of Civil Procedure, 1908. Final hearing of the appeal will be confined to the question or questions of law so framed unless the bench hearing the appeal considers, in the circumstances of the case, appropriate to allow any other question of law arising from the judgment of the Income-Tax Appellate Tribunal which needs to be examined by it.

2.31. Who would man the Central Tax Court is a question of primary importance. Judges of the High Courts may be inducted in the Central Tax Court. The principal judge of the Central Tax Court will always be a person who is or has been a judge of the High Court. Members of the Income-Tax Appellate Tribunal who have rendered not less than seven years of service in the Appellate Tribunal may be eligible for being elevated to the Central Tax Court, subject to the further condition that they were qualified for being elevated as a Judge of the High Court. Those who are eligible for being appointed as Judges of the High Courts would equally be eligible for membership of the Central Tax Court.

2.32. The terms and conditions of service of the members of the Central Tax Court would be on par with the conditions of service, in the matter of pay, perquisites, pension and leave, in force at the relevant time for the Judges of the High Court. Similarly, the terms and conditions of service of the Principal Judge of the Central Tax Court will be on par with the Chief Justice of a High Court.

2.33. In order to attract Judges of the High Court coming over to the Central Tax Court, some incentive is necessary. It can be provided in the form of age of retirement fixed at 65 years, as has been done under the Administrative Tribunals Act.

2.34. The Headquarters of the proposed Central Tax Court should be, of course, at Delhi. But, in order to make access to justice nearer to the door step of the consumers of justice, it must have benches in the first instance, at places like Ahmedabad, Bombay, Calcutta and Madras.

2.35. Some of the persons with whom the Commission held discussions relevant to the subject were of the opinion that specific statutory appeal to the Supreme Court against the decision of the Central Tax Court must be provided in the legislation setting up the Central Tax Court. The Commission did not find any justification for this approach. Whenever a statutory appeal is provided, as the law now stands, it will have to be admitted as a matter of right even if the appeal is wholly frivolous. In Sita Ram v. State of Uttar Pradesh, 1979(2) SCR 1085, a five Judges Constitution Bench of the Supreme Court held that such an appeal cannot be disposed of in the light manner as is done under Article 136 of the Constitution. Article 136 confers a discretionary jurisdiction on the Supreme Court which may be exercised for weighty reasons.

While exercising jurisdiction under Article 136, Supreme Court is not a regular court of appeal. Now if a statutory appeal is provided, the Supreme Court would be a regular court of appeal and in view of Sita Rams decision, records will have to be called, notice will have to be issued to either side and both sides will have to be heard before the appeal can be disposed of. If Central Tax Court, a High Court level appellate forum, has heard the appeal, there is no necessity nor justification for providing a statutory appeal to the Supreme Court. To correct any error of law, the Supreme Court will always have jurisdiction under Article 136 of the Constitution. Therefore, it is made crystal clear that no statutory appeal to the Supreme Court should be provided against the decision of the Central Tax Court.

2.36. On the setting up of the Central Tax Court, all present references pending in any High Court shall stand transferred to the Central Tax Court.

2.37. One interesting feature of the Central Tax Court which attracted a good number of conflicting opinions is with regard to the question whether the Central Tax Court should be invested with jurisdiction to examine the contention as to the constitutional validity of a taxing statute or any rule or regulation made thereunder. The Central Tax Court is conceived as an all-India body replacing various High Courts. The High Court today has jurisdiction to examine the question of constitutional validity of a statute or rules or regulation made thereunder. If the Central Tax Court is not to be a Tribunal under Article 323B, but a court, it can be confidently conferred with jurisdiction to examine the question of constitutional validity of taxing statutes and subordinate legislation thereunder.

If, as suggested by the officers of the Ministry of Finance, it were to be a Tribunal, it could never be invested with jurisdiction to examine the constitutional validity of provisions aforementioned. This is one additional reason why there has to be a Central Tax Court and not a Tribunal as envisaged by Article 323B. It will have an added advantage in that those who would complain about the abolition of the jurisdiction of the High Court, can be effectively answered by saying that an equally competent forum is created to deal with constitutionality of taxing statute.

2.38. The officers of the Ministry of Finance also discussed some suggestions for restructuring tax authorities at the level below the Income-Tax Appellate Tribunal. There is enough scope for the same in as much as when it comes to deprivation of life (Capital punishment) only one appeal on facts is available while more than one appeal on facts is available in the matter of tax litigation. The Commission has, however, not undertaken this exercise because at present, it is dealing with the question of inflow of work in the High Court and the Supreme Court, as stated at the. Commencement of this Report.

2.39. Setting up of a Central Tax Court will make a deep dent on the arrears in the High Court and the other pending proceedings will get accelerated treatment.



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