2013 (12) TMI 369 - HC - Income Tax

High Court stresses substantial questions of law in appeals under Income-tax Act

Meghalaya Steels Ltd. and others Versus Commissioner of Income-tax

The High Court emphasized the need for appeals under section 260A of the Income-tax Act to raise substantial questions of law before admission. It ... Review of the earlier order [2010 (9) TMI 679 - GAUHATI HIGH COURT] - Deduction u/s 80-IB - Whether the High Court can hear the appeal without forming substantial questions - Held that:- The court did not formulate the substantial questions of law for adjudication before hearing of the appeal on the merits - There can be no escape from the conclusion that hearing of the appeal prior to its admission has to be treated as a hearing on the admission of the appeal in order to determine if the substantial questions of law, as contended by the appellants, had or had not arisen - It was only upon having formulated the questions of law, which, according to the High Court, were the substantial questions of law for adjudication in the appeal that the appeal could or ought to have been heard. Following Grindlays Bank Ltd. v. Central Government Industrial Tribunal [1980 (12) TMI 181 - SUPREME COURT] - Supreme Court held that when a review is sought due to a procedural defect, the inadvertent error committed by the court or tribunal must be corrected ex debito justitiae to prevent the abuse of its process and such power inheres in every court or tribunal. Following Lily Thomas v. Union of India [2000 (5) TMI 1045 - SUPREME COURT] - When an order is passed by a High Court in breach of the procedure, which a statute (i.e. section 260A) has laid down, such a procedural defect shall remain open to correction by the High Court by taking resort to its plenary power of review or ex debito justitiae to prevent the abuse of its process. Following Distributors (Baroda) P. Ltd. v. Union of India reported in [1985 (7) TMI 1 - SUPREME Court] - The law should be settled permanently as that it should be settled correctly. But there may be circumstances, where public interest demands that the previous decision be reviewed and reconsidered - The doctrine of stare decisis should not deter the court from overruling an earlier decision, if it is satisfied that such decision is manifestly wrong or proceeds upon a mistaken assumption in regard to the existence or continuance of a statutory provision or is contrary to another decision of the court - To rectify it is the compulsion of judicial conscience - Comfort and strength is derived from the wise and inspiring words of Justice Bronson in Pierce v. Delameter AMY - A judge ought to be wise enough to know that he is fallible and, therefore, ever ready to learn great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead and courageous enough to acknowledge his errors – Decided in favour of petitioner - order to be reviewed and recalled. Issues Involved:1. Whether an appeal under section 260A of the Income-tax Act can be heard without the High Court being satisfied that it raises substantial questions of law.2. Whether the High Court can hear an appeal without formulating the substantial questions of law it deems have been raised.3. Whether the High Court has the power to review its decisions under section 260A in the absence of a statutory provision for review.4. Whether a review petition pending in the High Court becomes incompetent or infructuous if a special leave petition is allowed by the Supreme Court.5. The difference between a procedural review and a review on the merits of an order.Detailed Analysis:1. Satisfaction of Substantial Questions of Law:Section 260A mandates that an appeal to the High Court must involve a substantial question of law. The court emphasized that this is a qualified appeal, not absolute. The High Court must first be satisfied that the appeal raises a substantial question of law before admitting it for hearing. This satisfaction is a sine qua non for the appeal to be admitted.2. Formulation of Substantial Questions of Law:The court clarified that the High Court must formulate the substantial questions of law before hearing the appeal. This procedural requirement is mandatory. The appeal can only be heard on the formulated questions, and the respondents should be allowed to argue that no such questions are involved. The court cited the Supreme Court's decision in M. Janardhana Rao v. Joint CIT, which emphasized the necessity of formulating substantial questions of law before hearing the appeal.3. Power of Review:Despite the absence of a statutory provision for review under the Income-tax Act, the court held that it possesses inherent power to review its orders to correct procedural errors or errors apparent on the face of the record. This power is inherent in the High Court as a court of record, tasked with maintaining the correctness and clarity of its records. The court referred to India Carbon Ltd. v. CIT and other precedents to support this view.4. Review Petition and Special Leave Petition:The court discussed the implications of a pending review petition when a special leave petition is allowed by the Supreme Court. It referred to Kunhayammed v. State of Kerala, which clarified that if a review is filed first and then leave to appeal is granted by the Supreme Court, the High Court retains jurisdiction to dispose of the review petition. If the review is allowed, the appeal in the Supreme Court becomes infructuous.5. Procedural Review vs. Review on Merits:The court distinguished between procedural review and review on merits. A procedural review corrects errors due to procedural defects or misapprehensions, while a review on merits addresses errors of law apparent on the face of the record. The court emphasized that it is empowered to conduct a procedural review to prevent miscarriage of justice, even in the absence of a statutory provision for review.Conclusion:The court acknowledged its procedural error in not formulating substantial questions of law before hearing the appeal. It allowed the review petitions, recalling the impugned judgment and order. The appeals were to be listed for admission, with the substantial questions of law to be formulated and then heard accordingly. This decision underscores the High Court's inherent power to review its orders to correct procedural errors and ensure justice.