Tribunal Exceeded Jurisdiction: Supreme Court Rules on Income-tax Act Section

The Supreme Court held that the Tribunal in Bombay exceeded its jurisdiction by ruling on the constitutionality of section 140A(3) of the Income-tax Act, 1961. The Tribunal was obligated to follow the law declared by the highest court in the State and consider the section as non-existent based on the Madras High Court decision until a conflicting judgment arose. As there was no contradictory decision, the Tribunal's decision to set aside the penalty was based on the Madras High Court's ruling, not on the section's constitutionality. The High Court ruled in favor of the assessee, directing the revenue to cover the assessee's costs.

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Issues involved: Determination of legality of penalty imposed on the assessee u/s 140A(3) of the Income-tax Act, 1961.

Summary:
The assessee submitted an income return for the assessment year 1968-69 but failed to pay the due tax by the specified date. Consequently, a penalty was imposed u/s 140A(3) by the Income-tax Officer, which was later reduced by the Appellate Assistant Commissioner. The Tribunal, considering a decision by the Madras High Court declaring section 140A(3) unconstitutional, set aside the penalty. The revenue contended that the Tribunal exceeded its jurisdiction by questioning the constitutionality of the Act. The Supreme Court precedent establishes that statutory authorities cannot challenge the vires of the statute under which they operate. The Tribunal in Bombay had no authority to rule on the constitutionality of section 140A(3). The Supreme Court further emphasized that administrative Tribunals must adhere to the law declared by the highest court in the State. Therefore, the Tribunal in Bombay was bound to consider section 140A(3) as non-existent based on the Madras High Court decision until a conflicting judgment was issued by another competent High Court. As no such contradictory decision existed at the time, the Tribunal's decision to set aside the penalty was based on the law pronounced by the Madras High Court, not on a determination of the section's constitutionality.

In conclusion, the High Court answered the referred question in the negative, in favor of the assessee, and directed the revenue to bear the costs incurred by the assessee.

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