2009 (2) TMI 96 - HC - Income Tax

Application for rectification filed by revenue before Tribunal for deciding the issue regarding surplus received by assessee on cancellation of foreign exchange contract - Tribunal in impugned order rejected the applications holding that the Tribunal has no powers of review and no error apparent on record existed - impugned order of Tribunal cannot be faulted with no question of law arise not a fit case to admit the Appeal

Summary

Issues:
1. Rectification of Tribunal's order regarding surplus on cancellation of foreign exchange contract.
2. Tribunal's powers of review and rectification under section 254(2) of the Income Tax Act, 1961.

Analysis:

Issue 1: Rectification of Tribunal's order regarding surplus on cancellation of foreign exchange contract
The case involved a dispute between the assessee and the Revenue regarding the treatment of surplus realized on the cancellation of a forward foreign exchange contract. The assessee argued that the surplus was only on Capital Account, related to the principal amount, and not to any interest component. On the other hand, the Revenue contended that part of the surplus should be taxed on the revenue account as it was related to the payment of interest. The Tribunal, in its order dated 16.08.1999, rejected both applications for rectification, stating that it had no powers of review and that no error apparent on record existed. The Court upheld the Tribunal's decision, emphasizing that the Tribunal's order did not establish any legal proposition but merely concluded that without any error apparent on record, rectification was not permissible. The Court found that the Tribunal's decision was in line with established legal principles, leading to the dismissal of the Appeal due to the absence of a substantial question of law.

Issue 2: Tribunal's powers of review and rectification under section 254(2) of the Income Tax Act, 1961
The Appellant-Revenue raised two questions challenging the Tribunal's refusal to rectify the order under section 254(2) of the Income Tax Act. The questions pertained to the Tribunal's decision on the issue of surplus on the cancellation of the foreign exchange contract and whether the Tribunal's rejection of the application for rectification amounted to an application for review. The Court, after hearing arguments from both parties, concluded that the Tribunal's order was not flawed as it adhered to the legal position that without any error apparent on record, rectification was not permissible, and the Tribunal did not have powers of review. Therefore, the Court found no grounds to admit the Appeal, leading to its dismissal.

In summary, the judgment clarified the limitations on the Tribunal's powers of review and rectification, emphasizing that rectification is only permissible in the presence of an error apparent on record. The Court's decision highlighted the importance of adhering to established legal principles in tax matters, ultimately leading to the dismissal of the Appeal due to the absence of a substantial question of law.