2019 (3) TMI 903 - SC - Income Tax

Eligibility to deduction u/s 35D to the respondent Bank as an industrial undertaking - High Court justification in dismissing the appellant s appeal - non forming substantial question of law - HELD THAT - The need to remand the case to the High Court is called for due to the following reasons. First, the High Court did not frame any substantial question of law as is required to be framed under Section 260A of the Act though heard the appeal bipartite. High Court did not dismiss the appeal in limine on the ground that the appeal does not involve any substantial question of law; Second, the High Court dismissed the appeal without deciding any issue arising in the case saying that it is not necessary. The main issue involved in this appeal, as rightly taken note of by the High Court in para 6, was with regard to the applicability of Section 35D of the Act to the respondent assessee( Bank). It was, however, not decided. In our view, the High Court should have framed the substantial question of law on the applicability of Section 35D of the Act in addition to other questions and then should have answered them in accordance with law rather than to leave the question(s) undecided. As the issue with regard to applicability of Section 35D of the Act to the respondent Bank is already pending consideration before the High Court at the instance of the respondent in one appeal. If that be so, both the appeals, in our view, should be decided together - Thus we are of the view that the impugned order of HC is not legally sustainable - The appeal is accordingly remanded to the High Court for its decision on merits in accordance with law

Summary

Issues:
1. Interpretation of Section 35D of the Income Tax Act, 1961.
2. Justifiability of the High Court's decision to dismiss the appeal.
3. Compliance with the legal requirements for framing substantial questions of law under Section 260A of the Act.

Analysis:

1. The primary issue in this case revolved around the interpretation of Section 35D of the Income Tax Act, 1961, concerning the eligibility of the respondent Bank as an industrial undertaking to claim deductions under this section. The Assessing Officer's order, subsequent proceedings before the Commissioner, and the ITAT's decision were all part of the background leading to the appeal filed by the Income Tax Department in the High Court under Section 260A of the Act.

2. The High Court's decision to dismiss the appeal without framing substantial questions of law and without addressing the core issue of the applicability of Section 35D to the respondent Bank was deemed unjustified by the Supreme Court. The lack of a proper consideration of the essential legal questions and failure to provide a reasoned decision led to the Supreme Court setting aside the High Court's order and remanding the case for a fresh decision on merits.

3. The Supreme Court highlighted the importance of complying with the legal requirements for framing substantial questions of law under Section 260A of the Act. It emphasized that the High Court should have framed substantial questions of law related to the applicability of Section 35D and other pertinent issues, ensuring a comprehensive and lawful decision-making process. Additionally, the Supreme Court suggested that if similar issues were pending consideration before the High Court in another appeal, both appeals should be decided together for consistency and coherence in legal interpretation.

In conclusion, the Supreme Court allowed the appeal, set aside the High Court's order, and remanded the case for a fresh decision on merits, emphasizing the necessity of framing substantial questions of law and addressing all relevant legal issues comprehensively. The Supreme Court refrained from expressing any opinion on the case's merits, directing the High Court to decide the appeal without being influenced by any previous observations.