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IN THE HIGH COURT OF JUDICATURE AT MADRAS
Mr. S. Ramachandra Iyer, Chief Justice, Mr. Justice K. Srinivasan and Mr. Justice T.Venkatadri
S. Chenniappa Mudaliar, Madurai
Versus
Commissioner of Income-tax, Madras
T.C. No. 194 of 1961.
Decided On : 30 April 1964
INCOME TAX - Appellate Tribunal - Power to dismiss appeal for default of appearance - Rule 24 of the Appellate Tribunal Rules, 1946 - Whether ultra vires section 33 (4) of the Income-tax Act, 1922.
Fact of the Case:
The assessee owned 1,674 shares in Asher Textiles, Limited and nine out of twenty shares, in Textile Corporation (Private), Limited, both at Tiruppur. The Textile Corporation (Private), Limited was the Managing Agent of the other company, its Managing Directors being the assessee and one Mr. Asher. Differences appear to have arisen between these two some time during the year 1954 and the assessee agreed to sell and by a document dated 21st December, 1954, sold his entire holding in the two companies to Mr. Asher and certain relations of his nominated by him. These sales resulted in a profit of Rs. 72,515 and Rs. 3,14,100 respectively. The Income-tax Officer brought them to tax for the assessment year 1956-57 under section 10(5-A) of the Income-tax Act, 1922, as compensation earned for parting with the effective power of management, which the assessee till then had over the two companies. This assessment was upheld by the Appellate Assistant Commissioner on appeal. The assessee then filed a further appeal to the Appellate Tribunal. After some adjournments, the appeal was finally posted for hearing on 26th August, 1958. Neither the counsel engaged by the assessee nor any authorised representative of his appeared before the Tribunal on that day ; there was not even an application on behalf of the assessee for an adjournment. Two days later, on 28th August, 1958, the Tribunal dismissed the appeal for default of appearance, purporting to do so under rule 24 of the Appellate Tribunal Rules, 1946, as amended by the Notification dated 26th January, 1948.
Finding of the Court:
Rule 24 of the Appellate Tribunal Rules, 1946, in so far as it enables the Tribunal to dismiss an appeal for default on the nonappearance of an appellant is challenged as being contrary to the provisions of section 33 (4) of the Income-tax Act, 1922. The contention on behalf of the assessee is that under the latter provision the Tribunal will have to dispose of the appeal on the merits regardless of the fact whether the party appeared before it or not.
Issues: Whether rule 24 of the Appellate Tribunal Rules, 1946 in so far as it enables the Tribunal to dismiss an appeal for default of appearance, is ultra vires ?
Ratio Decidendi: The Appellate Tribunal is the appointed machinery under the Act for finally deciding questions of fact in relation to assessment of income-tax. Its composition, consisting as it does of qualified persons in law and accountancy makes it peculiarly qualified to deal with all questions raised in a case, whether there be assistance from the party or his Counsel or not. Section 33 (4) obliges it to decide an appeal, after giving an opportunity to the parties to put forward their case. The giving of the opportunity only emphasises the character of the quasi-judicial function performed by the Appellate Tribunal. The fact that that opportunity is not availed of in a particular case, will not entitle the Tribunal not to decide the case. There can be no decision of the case on its merits if the matter is to be disposed of for default of appearance of the parties. Further, an adjudication on the merits of the case is essential to enable the High Court to hear an appeal filed under section 66-A. Section 33 (4) itself indicates by the use of the word ‘thereon’ that the decision should ‘relate to the subject-matter of the appeal. Rule 24, therefore, to be consistent with section 33 (4) could only empower the Tribunal to dispose of the appeal on its merits whether there be an appearance of the party before it or not.
Final Decision: Rule 24 of the Appellate Tribunal Rules, 1946, in so far as it enables the Tribunal to dismiss an appeal for default of appearance of the appellant, is ultra vires, as being in conflict with the provisions of section 33 (4) of the Act.
This Reference to a Special Bench has been necessitated by reason of certain doubts felt as to the correctness of the decision in Ravula Subba Rao v. Commissioner of Income-tax1. The question that falls for determination on this Reference can be formulated thus: —
“Whether rule 24 of the Appellate Tribunal Rules, 1946 in so far as it enables the Tribunal to dismiss an appeal for default of appearance, is ultra vires ?”
The facts giving rise to this Reference are these: The assessee owned 1,674 shares in Asher Textiles, Limited and nine out of twenty shares, in Textile Corporation (Private), Limited, both at Tiruppur. The Textile Corporation (Private), Limited was the Managing Agent of the other company, its Managing Directors being the assessee and one Mr. Asher. Differences appear to have arisen between these two some time during the year 1954 and the assessee agreed to sell and by a document dated 21st December, 1954, sold his entire holding in the two companies to Mr. Asher and certain relations of his nominated by him. These sales resulted in a profit of Rs. 72,515 and Rs. 3,14,100 respectively. The Income-tax Officer brought them to tax for the assessment year 1956-57 under section 10(5-A) of the Income-tax Act, 1922, as compensation earned for parting with the effective power of management, which the assessee till then had over the two companies. This assessment was upheld by the Appellate Assistant Commissioner on appeal. The assessee then filed a further appeal to the Appellate Tribunal. After some adjournments, the appeal was finally posted for hearing on 26th August, 1958. Neither the counsel engaged by the assessee nor any authorised representative of his appeared before the Tribunal on that day ; there was not even an application on behalf of the assessee for an adjournment. Two days later, on 28th August, 1958, the Tribunal dismissed the appeal for default of appearance, purporting to do so under rule 24 of the Appellate Tribunal Rules, 1946, as amended by the Notification dated 26th January, 1948 That states:
“Where on the day fixed for hearing or any other day to which the hearing may be adjourned, the appellant does not appear when the appeal is called on for hearing, the Tribunal may dismiss the appeal for default.”
The order passed by the Tribunal cannot be said to be in strict accordance with the rule cited, for there was no dismissal of the appeal on the day to which it stood posted tor hearing ; the day on which the final order was passed was not one to which the hearing of the appeal was adjourned. But we prefer not to pursue this line of approach as the question referred to us is of much wider import.
About five weeks after the disposal of the appeal the assessee filed a petition ‘before the Tribunal praying for its restoration on the ground, that owing to misapprehension on the part of the Auditors at Coimbatore, the date of hearing of the appeal, of which they had been appraised, was not reported to their Counsel at Madras, who had then been convalescing after a major surgical operation. The Tribunal did not accept the excuse as sufficient and declined to restore the appeal to file On a direction given by this Court under section 66(2) of the Act, the following questions were referred to us for opinion:
1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in dismission the appellant’s appeal for default and in refusing to restore the appeal for a fresh hearing?
2. Whether, on the facts and in the circumstances of the case, the two sums of Rs. 72,515 ana Rs. 3,14,100 were assessable to tax under section 10 (5-A) of the Income-tax Act?
The latter of the two questions depends on the merits of the case, which as a result of the procedure adopted by the Tribunal, was not investigated. If, therefore the first question were to be answered in favour of the assessee, it will be but appropriate to leave the second question for adjudication by the Tri
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