TAX APPEAL IS NOT A ‘LIS’

The primary purpose of the statute is to levy and collect the income tax.  This is based on the cardinal principle, which has been incorporated as a veritable constitutional provision, that no tax can be levied or collected save under authority of law.  The administration and management of the income tax is to ascertain the taxpayer’s liability correctly, to the last pie, if it were possible the various provisions relating to appeal, second appeal, reference etc., 

The tax is paid by the assessee on self assessment basis.   If the authority finds that the assessee fails to pay the income tax with intention to evade the payment of duty or for any other reason or during the conduct of audit or search and seizure  the authority concerned will issue show cause notice to the assessee for giving him a reasonable opportunity of presenting his case before the authority with required documentary evidences and arguments.  The Adjudicating Authority will take into considerations of the contentions put forth by the assessee and decide the case accordingly.   He may drop the show cause notice issued by him or he may confirm the demand indicated in the show cause notice along with interest and penalty, if any.   The Income Tax Act, 1961 provides for first appeal before Commissioner (Appeals) and the second appeal with the Tribunal.

The appeal at various stages in this process cannot be compared to a civil litigation.  In England it is considered that the authorities sitting in appeal in a tax cannot be regarded as deciding a list, but they are only engaged in an administrative act of adjusting the taxpayer’s liability.  

In ‘Rex V. Special Commissioners of Income Tax’- (1935) 20 TC 381 (CA)  it was held that the argument upon the side of the assessee is manifestly based upon a misapprehension that n appeal under the Income Tax Act is the same in substance as an appeal where two private persons are engaged in litigation.   It is, of course, totally different.  At once that in making the assessment and in dealing with the appeals the Commissioners are exercising their statutory authority and their statutory duty which they are bound to carry out, not as judges deciding an issue between two particular parties, their obligation is wider than that.   It is to exercise their judgment on such material s comes before them, and to obtain any material which they think is necessary and which they think they ought to have, and on that to make the assessment or estimate which the law requires them to make.  It was further held that they are assessing or estimating the amount which in the interests of the country at large the taxpayer ought to have to deal with as the basis on which he is to be taxed.

In ‘IRC V. Sneath’ - (1932) 17 TC 149, it was held that in an appeal the estimating authorities are not acting as judges deciding litigation between the subject and the Crown.  They are merely in the position of valuers whose proceedings are regulated by statute to enable them to make an estimate of the taxpayer for the particular year in question.

In our country the task of an appellate authority under the taxing statute, especially a non departmental authority like the Tribunal is to address its mind to the factual and legal basis of an assessment for the purpose of properly adjusting the taxpayer’s liability to make it accord with the legal provisions governing his assessment.  This process can hardly be equated to a lis or dispute as arises between the two parties in a civil litigation.   The American writers expressed that even though the income tax statute makes the department or its officers as parties in appeal proceedings they are not in the strict sense to adversary proceedings.

In ‘Commissioner of Income Tax V. Mahalakshmi Textile Mills Limited’ - 1967 (5) TMI 4 - SUPREME Court  the Supreme Court observed that under our fiscal jurisprudence, the appellate authorities may be regarded as exercising quasi judicial functions in the same sense as tax officer does.  But, even so, the proceedings before them lack the basic elements of adversary proceedings.  It, therefore, follows that the discussion and the scope of the appellate jurisdiction of the Tribunal and other authorities under the tax code cannot be pursued by drawing a parallel to civil litigation with particular reference to appeals from  being  decrees and the like.  The insistence of one party to the appeal being entitled to the fruits of finality and the appellate authority being confined to the subject matter of the appeal and are ideas which might have relevance if the discussion centres on purely civil litigation and such adversary proceedings as in industrial dispute.  But in a case where the Revenue is all the while a party, in a manner of speaking, and is also at the same time, an authority vested with the responsibilities of drawing up the assessment  and laying down the correct liability, it would not be in accord with the scheme of the Act to impose restrictions on the ambit and the power of the Tribunal by such like notions and finality, subject matter of the appeal and the like.

In  ‘State of Tamil Nadu  V. Arulmurugan and Co’ - 1982 (11) TMI 143 - MADRAS HIGH COURT  it was held that the appellate authorities perform precisely the same functions as the assessing authority.  It is a rehearing of the entire assessment and it cannot be equated to adversary proceedings in appeal in civil cases.   The full bench further held that an appeal is a continuous of the process of assessment and an assessment is but another for adjustment of the tax liability to accord with the taxable event in the particular taxpayer’s case.  There can be no analogy or parallel between a tax appeal and an appeal, say, in civil cases.   A civil appeal, like a law suit in the court of first instance out of it arises, is really and truly an adversary proceedings, that is to say, a controversy or tussle over mutual rights   and obligations between contesting litigants ranged against each other as opponents.  A tax appeal is quite different.  Even assessing authority is not the taxpayer’s ‘opponent’, strictly procedural sense of the term, so too the appellate authority sitting in appeal over the assessing authority’s order of assessment is not strictly an arbitral tribunal deciding a contested issue between two litigants ranged on opposite sides.  In a tax appeal, the appellate authority is very much committed to the assessment process.  The appellate authority can itself enter the arena of assessment, either by pursuing further investigation or causing further investigation to be done.   It can do on its own initiative, without being prodded by any of the parties.   It can enhance the assessment, taking advantage of the opportunity afforded to the taxpayer’s appeal, even though the appeal itself has been mooted only with a view to a reduction in the assessment.   These are special and exceptional attributes underline the truth that the appellate authority is no different, functionally and substantially, from the assessing authority itself.