1969 (2) TMI 10 - SC - Income Tax

Tribunal dismissed the appeal for default of appearance by invoking rule 24 - Rule 24 of Tribunal Rules, 1946, as amended in 1948 clearly comes into conflict of s. 33(4) and is therefore ultra vires - Revenue appeal dismissed

Summary

Issues Involved:
1. Validity of Rule 24 of the Appellate Tribunal Rules, 1946.
2. Taxability of profits under Section 10(5A) of the Income-tax Act, 1922.

Issue 1: Validity of Rule 24 of the Appellate Tribunal Rules, 1946

The primary issue was whether Rule 24 of the Appellate Tribunal Rules, 1946, which allows the Tribunal to dismiss an appeal for default of appearance, is ultra vires the provisions of Section 33 of the Income-tax Act, 1922. The facts leading to this issue involved the assessee's appeal being dismissed for non-appearance under Rule 24, and subsequent rejection of a petition for restoration by the Tribunal. The High Court, upon reference, reframed the question to specifically address the validity of Rule 24.

The Special Bench of the High Court examined the historical context of Rule 24 and its amendments. Initially, Rule 36 (1941) allowed the Tribunal to decide on merits even if the appellant did not appear. However, the 1948 amendment to Rule 24 enabled dismissal for default without a provision for restoration. The High Court concluded that Rule 24, in its amended form, conflicted with Section 33(4) of the Act, which mandates the Tribunal to decide appeals on merits after giving both parties an opportunity to be heard. The High Court held that the Tribunal's duty to adjudicate on merits cannot be circumvented by dismissing an appeal for non-appearance, as this would undermine the statutory remedies available under Section 66 and Section 66A.

The Supreme Court upheld the High Court's decision, affirming that Rule 24, as amended, was ultra vires Section 33(4). The Court reasoned that the Tribunal must dispose of appeals on the merits, irrespective of the appellant's presence, to ensure the statutory right of reference to the High Court and appeal to the Supreme Court is preserved. The Court also noted that while the Tribunal might have inherent powers to restore an appeal dismissed for default, this does not validate Rule 24 if it conflicts with Section 33(4).

Issue 2: Taxability of Profits under Section 10(5A) of the Income-tax Act, 1922

The second issue was whether the profits from the sale of shares amounting to Rs. 72,515 and Rs. 3,14,100 were taxable under Section 10(5A) of the Income-tax Act, 1922. The assessee had sold shares in two companies, resulting in the aforementioned profits, which the Income-tax Officer assessed as compensation for parting with the effective power of management.

The Tribunal initially dismissed the appeal for default of appearance, and thus, did not decide on the merits of the taxability issue. The High Court, however, directed the Tribunal to state the case on this question. The Supreme Court's judgment primarily focused on the procedural validity of Rule 24 and did not delve into the substantive taxability issue, as the appeal was dismissed based on the procedural ground.

Conclusion:

The Supreme Court affirmed the High Court's decision, holding that Rule 24 of the Appellate Tribunal Rules, 1946, as amended, was ultra vires Section 33(4) of the Income-tax Act, 1922. The Tribunal is required to dispose of appeals on merits, ensuring that statutory remedies are not rendered ineffective. The appeal was dismissed with costs.