1988 (3) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Inherent power of the High Court to set aside an order made under section 256 of the Income-tax Act, 1961.
2. Maintainability of a review petition under Order 47, rule 1, Civil Procedure Code, in reference jurisdiction.
3. Merits of the application regarding the deduction under section 35B of the Income-tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Inherent Power of the High Court:
The primary issue was whether the High Court has inherent power to set aside an order made in a reference under section 256 of the Income-tax Act, 1961, if the order was palpably erroneous or resulted in miscarriage of justice. The court concluded that it does possess such inherent power. It cited the Supreme Court's judgment in *Jaipur Mineral Development Syndicate v. CIT [1977] 106 ITR 653*, which held that the High Court has inherent power to recall an order made in the absence of a party and to dispose of the reference on merits, provided there is no express or implied prohibition against it. The court emphasized that the inherent power is essential to prevent miscarriage of justice or to correct grave and palpable errors.

2. Maintainability of Review Petition:
The court addressed the preliminary objection raised by the Revenue that a review petition under Order 47, rule 1, Civil Procedure Code, is not maintainable in reference jurisdiction under section 256 of the Income-tax Act. The court agreed with this objection, referencing the judgments of the Nagpur High Court in *Seth Mathuradas v. CIT [1940] 8 ITR 412* and the Kerala High Court in *Jose T. Mooken v. CIT (No. 2) [1979] 117 ITR 921*. Both judgments held that the High Court, when exercising jurisdiction under section 256, does not operate as a civil court, and therefore, the provisions of the Civil Procedure Code, including Order 47, rule 1, are not applicable. However, the court differentiated between a review petition and an application invoking inherent power, stating that the latter is maintainable.

3. Merits of the Application:
On the merits of the application, the court examined whether the assessee was entitled to a deduction under section 35B of the Income-tax Act, 1961, for a commission of Rs. 90,851 paid to agents in India. The court had previously rejected the assessee's claim due to insufficient material proving that the expenditure was incurred for obtaining information regarding markets outside India for export promotion. The court reaffirmed its earlier decision, stating that there was no palpable error or miscarriage of justice. The Tribunal had not provided sufficient factual findings to support the assessee's claim, and no new material evidence was presented to alter this conclusion.

Conclusion:
The court concluded that it has inherent power to entertain an application for setting aside an order made under section 256 of the Income-tax Act, 1961, to prevent miscarriage of justice or correct palpable errors. However, the application was dismissed on merits as there was no sufficient material to support the assessee's claim for deduction under section 35B of the Act.