2000 (8) TMI 1 - SC - Income Tax

Whether under the provisions of section 256 a reference may be made to the High Court of a question of law that arises upon any order of the Tribunal - Held yes

Summary

Issues:
1. Rectification of assessment orders by the Tribunal.
2. Refusal of the Tribunal to make a reference to the High Court on questions of law.
3. Interpretation of sections 254 and 256 of the Income-tax Act.

Detailed Analysis:
1. The case involved assessment years 1987-88 and 1988-89 where the Income-tax Officer added sums to the income of a partnership firm, representing unexplained cash credits in the names of the partners. The Income-tax Appellate Tribunal allowed the firm's appeal, directing a fresh assessment after providing an opportunity to support the documents. The Tribunal rectified the error, deleting the additions made by the Assessing Officer. The Department was permitted to investigate the matter in the partners' hands. The Revenue sought a reference on questions related to the rectification application, which the Tribunal declined, stating them as questions of fact.

2. The Revenue then approached the High Court seeking a reference under section 256(2) of the Income-tax Act, which was dismissed based on a previous judgment. The High Court held that a reference against an order of rectification under section 254(2) was not maintainable. The High Court's interpretation was based on the premise that if an application for rectification is dismissed, there is no amendment of the order passed under section 254(1) of the Act, making it final unless a reference is sought. The Revenue's application was dismissed following this reasoning.

3. The Supreme Court analyzed sections 254 and 256 of the Income-tax Act. Section 254 empowers the Tribunal to pass orders on appeals and rectify mistakes within four years, with implications for the assessee. The Court disagreed with the High Court's interpretation that section 254(1) only applies to orders on appeal, stating it also covers orders on applications made in the appeal. Section 256 allows references on questions of law arising from orders under section 254. The Supreme Court found the High Court's view erroneous and held that a reference can be made on any order of the Tribunal under the provisions of section 256. The Court concluded that the questions sought to be referred were questions of law, and the High Court should have directed the Tribunal to refer them for consideration.

In summary, the Supreme Court allowed the civil appeal, set aside the order under appeal, and directed the Tribunal to refer the questions of law to the High Court for consideration. The Court emphasized the importance of allowing references on questions of law arising from Tribunal orders, ensuring proper legal scrutiny and remedy for the parties involved.