2009 (9) TMI 79 - AT - Income Tax

Debar from practice - Power of ITAT to adjudicate the matter relating to contract between the employee and the Government of India - Whether Advocate and ex-Accountant Member of the Income Tax Appellate Tribunal (ITAT), is debarred from practicing before the ITAT in view of the insertion of Rule 13 E in the ITAT Members (Recruitment and Conditions of Service) Rules, 1963. It was argued on behalf of the Ministry of Law Justice that the ITAT is constituted only for the purpose of hearing and disposing of the appeals arising under the Income-tax Act. It cannot go into interpretation of the validity or correctness or otherwise of Rule 13E which is the part of the ITAT Members (Recruitment Conditions of Service) Rules, 1963. The proper forum, according to him, is the Central Administrative Tribunal ('CAT') and, therefore, it was vehemently opposed the reference by arguing that this Tribunal has no jurisdiction to adjudicate upon the issues that are being raised before it. HELD THAT - Reference may be made to the decision of the Apex Court in the case of Chhabildas Tribhuvandas Shah v. CIT 1964 (9) TMI 8 - SUPREME COURT . Where there is denial of principles of natural justice in a given case it will give rise to a legal question, as pointed out by the Madhya Pradesh High Court in the case of CIT v. Abhyeshwar. Failure to give proper and effective hearing amounts to denial of opportunity of being herd and is likely to be construed as one being perverse and all such orders are liable to be disturbed. Only on this preliminary ground if the order could be disturbed, there can be no effective disposal of appeal. Therefore, this issue requires to be properly addressed and sorted out in accordance with well laid down principles of law and also the principles of natural justice. In our considered opinion, in the light of the principle laid down in the case of M.K. Mohammed Kunhi 1968 (9) TMI 5 - SUPREME COURT . The Tribunal has inherent jurisdiction to go into the question, whether the parties who are appearing before it are properly entitled under the law to make appearance. For this purpose, they are entitled to go into provisions of Advocates Act, Bar Council Act, Chartered Accountants Act or the Service Regulations or Pension Rules or into provisions of Income-tax Act. They may also interpret laws of contract, Agency, Company Law, Partnership Law, Allied Laws, Branches of International law or any other allied laws, etc., for the purpose. The areas where we are required to look into for this purpose, may thus get extended depending upon the facts and circumstances of each case. After all, it must be appreciated the right of appeal provided under the Income-tax Act to the parties is not an empty formality but a part of judicial process, mandated by the law. Be it revenue or the assessee, has substantive right and the Tribunal cannot run away from its basic duty to adjudicate this preliminary issue, when it raised or arises before it as a part of such a judicial process. We are aware of the limitation. With this caution, we reach a conclusion that the Tribunal is competent to go into the questions as raised in these cases and we proceed to take up the issue that have arisen as a result of the Notification, which has a direct bearing on the process of hearing. The words used in Rule 13E read that the President, Sr. Vice President, Vice President and the Members of the Tribunal shall not practice before the Tribunal after the retirement from the service of the Tribunal. That means it can apply to those persons who are the President, Sr. Vice President, Vice Presidents and the Members on the date when the Notification was issued. In fact Rule 13F which was brought by the same amendment under the same proviso to Article 309 provides that the same persons would not undertake any arbitration work while functioning in those capacities in the Tribunal. Plain language employed in Rules 13E and 13F jointly suggest that it only apply to those persons who were serving in that capacity on 3-6-2009. That means it can admittedly be applied to those persons who are in service in those capacities as on 3-6-2009. To all of us it definitely applies and all the Members who were on the service roll/roaster of the ITAT as on 3-6-2009, when these are made applicable, definitely suffer from the present disqualification. If it is to be treated as condition of service. In our understanding even the plain-reading of the provision of section 13E indicates that it can only apply to the Members who have retired after 3-6-2009. We are not for the moment holding anything about the legislative competence of the President to make the Rules in the manner it is done, but we have only interpreted the provisions that are made as part of conditions of service and from such conditions of service the ban on right to practice can only be made applicable to the employees who are presently serving the Union of India or in connection with the affairs of the State. In our view, having regard to the principle laid down in the decisions of Apex Court in Kailashnath 1988 (11) TMI 346 - SUPREME COURT ; P. Mahandran 1989 (12) TMI 351 - SUPREME COURT ; T.R. Kapur 1986 (12) TMI 366 - SUPREME COURT , Kaishav Madhavan Menon 1951 (1) TMI 32 - SUPREME COURT ; R.S. Ajara 1997 (3) TMI 614 - SUPREME COURT ; P.D. Aggarwal 1987 (6) TMI 393 - SUPREME COURT , Chairman, Central Board, which have been discussed elaborately, we are of the view that these provisions are applicable to those persons who retired from the service on or after the date of publication of this notification. Accordingly, in the light of the discussion, the reference is answered as under 1. Whether, the said Notification applies to the Members who have retired prior to the date of publication of the Notification? - In our view it does not apply to Members who have retired prior to the date of publication of Notification. 2. Whether, the said Notification applies only to the Members who retired from the Tribunal on and from the date of publication of this Notification? - In our view it applies to the Members who retired from the Tribunal on or after the date of the publication of this Notification. 3. Whether, the said Notification applies to those Members who arc recruited before but retire after the date of Notification? - That once the Member retires after the date of Notification, it certainly applies. It does not matter when the Members were recruited. Even it applies to the Members who are recruited prior to tile date of Notification. Crucial date must be the date of retirement. If it is after 3-6-2009, it applies. 4. Whether, the said Notification applies to the Members who retire, if otherwise are qualified to practice u/s 288 of the Income-tax Act, should still be debarred to appear and argue before the Tribunal? - Members who retire on or after 3-6-2009, even if otherwise qualified to practice under section 288 of the bet, would still be debarred to appear and argue before the Tribunal, in the light of Rule 13E of the ITAT Members (Recruitment and Conditions of Service) Rules, 1963. 5. Whether, the said Notification applies to the Members who resigned from services before the date of Notification, without any retirement benefits? - Persons who have resigned from service prior to the date of Notification, without any retirement benefits would not be covered by this Notification because it applies to those persons who have retired after the date of Notification. 6. Whether the said Notification applies to the Members who are appointed on temporary basis and resign from service without being confirmed during the probation period, either before or after the date of Notification, without any retirement benefits? - We say the Notification does not apply to Members who are appointed on a temporary basis and resign from service without being confirmed during probationary period. Accordingly, the reference is answered as above. With these observations, we remit the appeal files before the regular Division Bench to be disposed of in accordance with law, after giving both the parties to appeal an opportunity of being heard.

Summary

Issues Involved:
1. Jurisdiction of ITAT to adjudicate Rule 13E.
2. Applicability of Rule 13E to Members who retired before the notification.
3. Applicability of Rule 13E to Members who retired after the notification.
4. Applicability of Rule 13E to Members who resigned before the notification.
5. Applicability of Rule 13E to Members appointed on a temporary basis and resigned during probation.

Detailed Analysis:

1. Jurisdiction of ITAT to adjudicate Rule 13E:
The Tribunal under Section 254(1) of the Income-tax Act, 1961, is required to hear both parties before passing any order. The Tribunal has inherent jurisdiction to determine whether representatives appearing before it are legally entitled to do so. This includes interpreting provisions of various Acts and rules, such as the Advocates Act, Bar Council Act, and the ITAT Members (Recruitment and Conditions of Service) Rules, 1963. The Tribunal's powers are similar to those of an appellate court under the Civil Procedure Code, and it must ensure that proper parties are heard to maintain the principles of natural justice. The Tribunal cannot determine the constitutional validity of provisions but can interpret them within its jurisdiction.

2. Applicability of Rule 13E to Members who retired before the notification:
Rule 13E, inserted by Notification G.S.R. 389(E), dated 3-6-2009, prohibits the President, Sr. Vice President, Vice President, and Members of the Tribunal from practicing before the Tribunal after retirement. The rule cannot be applied retrospectively to Members who retired before the date of notification. The Tribunal concluded that the rule applies only to those who retired on or after the date of the notification, thus protecting the vested rights of those who retired earlier. The decision is supported by the principle that amendments to service conditions cannot have retrospective effect unless explicitly stated.

3. Applicability of Rule 13E to Members who retired after the notification:
The rule applies to Members who retired from the Tribunal on or after the date of publication of the notification (3-6-2009). This includes Members recruited before the notification but retired after its publication. The Tribunal emphasized that the crucial date is the date of retirement, not the date of recruitment. Therefore, Members retiring after the notification, even if otherwise qualified to practice under Section 288 of the Income-tax Act, are debarred from appearing before the Tribunal.

4. Applicability of Rule 13E to Members who resigned before the notification:
Members who resigned from service before the date of the notification are not covered by Rule 13E. This includes those who resigned during their probation period or from temporary posts. The Tribunal differentiated between resignation and retirement, noting that resignation entails forfeiture of past service and does not equate to retirement. Therefore, such individuals are not subject to the practice prohibition under Rule 13E.

5. Applicability of Rule 13E to Members appointed on a temporary basis and resigned during probation:
The Tribunal held that Rule 13E does not apply to Members appointed on a temporary basis who resigned from service without being confirmed during their probationary period. The resignation during probation does not constitute retirement, and thus, these individuals are not barred from practicing before the Tribunal.

Conclusion:
The Tribunal concluded that Rule 13E applies prospectively to Members retiring on or after 3-6-2009 and does not affect those who retired or resigned before this date. The rule's applicability is limited to current and future Members serving on the date of the notification. The Tribunal remitted the appeal files to the regular Division Bench for disposal in accordance with the law, ensuring both parties have an opportunity to be heard.