2017 (7) TMI 1384 - HC - Income Tax

Substantial question of law - filing of appeal from the second order - existence of two opinions - HELD THAT - There can be no two opinions on the issue that even if appeal has not been filed from an earlier order, which has been relied upon by the impugned order, the appellant could file an appeal to this Court from the second order. However, this filing of appeal from the second order has to be supported by the averments/submissions showing distinction in the facts and/or in law which would evidence that the impugned order give rise to substantial question of law in the backdrop of the distinctive features in the subsequent order, even though no appeal has been filed from the earlier order. No such averment is found either in the appeal memo nor any such submission has been made at the bar. This Court has consistently taken a view that one of the important elements of rule of law is certainty of law. Therefore, mere change in the Assessment Year, Assessing Officer or assessee will not warrant a filing of appeal. Where the relied upon order has been accepted by the Revenue and they are able to show by either making an averment in the appeal memo or filing an affidavit showing distinctive features either in facts or in law which would warrant different considerations for entertaining the appeal, the Court would entertain the appeal. However, the Revenue cannot pick and choose the matters which it would agitate before a Higher Forum without there being any distinctive features in fact and /or law. Even if the principle of res judicata does not apply in tax matters, yet consistency and certainty of law would require the State to take uniform position and not change their stand in the absence of change in facts and/or law. In this case, admittedly there is no change in the facts and/or in law. As held by the Apex Court in C.K.Gangadharan v. CIT 2008 (7) TMI 10 - SUPREME COURT and in CIT vs. J.K. Charitable Trust 2008 (11) TMI 8 - SUPREME COURT this challenge would depend upon the appellant pointing out some distinction in fact and/or law which would justify filing of an appeal. The Supreme Court in the above two cases has observed that though no appeal has been preferred by the Revenue in earlier cases, that would not by itself bar the preferring of an appeal from subsequent order provided there is a change in fact situation. The Court illustrated the same by pointing out the issue being revenue neutral in the earlier year, smallness of tax involved, pronouncement of Higher Court, divergent views of the High Courts as justification for filing appeals from orders of subsequent years. We are of the view that, the absence of the above, would lead to arbitrariness and unsettling of law. This is so as on the basis that consequent to the decision of the Tribunal on an issue, various assessee in the State would plan its affairs on that basis. In fact, at the very outset, the Revenue must point out why the earlier decision is not correct and the circumstances which led to its acceptance. No such attempt has been made.

Issues:
1. Interpretation of agricultural income under Section 2(1A) of the Income Tax Act, 1961.
2. Applicability of res judicata principle in tax matters.
3. Entitlement of Revenue to file an appeal based on earlier orders.
4. Consideration of substantial questions of law at the final hearing of the appeal.

Analysis:

Issue 1: Interpretation of Agricultural Income
The appeal challenged the Tribunal's order regarding the classification of certain receipts as agricultural income under Section 2(1A) of the Income Tax Act for Assessment Year 2002-03. The appellant argued that the income in question did not directly arise from agricultural activities on the land. The Tribunal's reliance on its previous decision for the Assessment Year 2003-04 was contested, emphasizing the need for a fresh adjudication on the issue due to its wider applicability and judicial principles involved.

Issue 2: Applicability of Res Judicata
The appellant contended that the Tribunal's decision for the previous assessment year should not automatically preclude the Revenue from challenging the impugned order. The Court considered the principle of res judicata in tax matters and highlighted the importance of consistency and certainty of law. It was emphasized that a mere change in the assessment year or parties involved does not warrant the filing of an appeal unless there are distinctive features in facts or law.

Issue 3: Entitlement to File Appeal
The Revenue's entitlement to file an appeal based on earlier orders was debated. The appellant argued that in tax matters, there is no bar to challenging decisions even if no appeal was filed from a previous order. However, the Court stressed the need for the Revenue to provide justifiable reasons, such as changes in law or factual distinctions, to support the filing of an appeal. The absence of such distinctions could lead to arbitrariness and unsettlement of law.

Issue 4: Substantial Questions of Law
The Court deliberated on the formulation of substantial questions of law and their consideration at the final hearing of the appeal. It was clarified that the mere admission of an appeal on substantial questions of law does not preclude the respondent from contesting the validity of those questions at the final hearing. The Court underscored the importance of ensuring that the questions raised indeed give rise to substantial legal issues for consideration.

In conclusion, the Court dismissed the appeal, emphasizing that in the absence of distinctive features in facts or law between the impugned order and the earlier decision, no substantial question of law arose for consideration. The judgment highlighted the significance of consistency, certainty of law, and the need for justifiable reasons to support the filing of appeals in tax matters.

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