1977 (9) TMI 24 - HC - Income Tax

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, ... Penalty under section 140A(3) - vires of a statutory provision / constitutionality of statutory provision - jurisdiction of a statutory tribunal to pronounce on the validity of the statute under which it is constituted - binding effect of a High Court's decision on subordinate tribunals under its superintendence - respect for law declared by a High Court of another State in absence of a contrary decisionPenalty under section 140A(3) - vires of a statutory provision / constitutionality of statutory provision - binding effect of a High Court's decision on subordinate tribunals under its superintendence - Legality of the penalty imposed under section 140A(3) for assessment year 1968-69 in view of the Madras High Court's decision in A. M. Sali Maricar. - HELD THAT: - The Income-tax Tribunal, being a creature of statute, has no jurisdiction to go into the question of the constitutionality of the statute under which it functions; it must act within the Act. The Supreme Court's decision in K. S. Venkataraman and Co. (P.) Ltd. establishes that a statutory authority cannot question the vires of the enabling statute. Further, an administrative tribunal cannot ignore the law declared by the highest court in the State; having regard to the supervisory jurisdiction of High Courts under articles 215, 226 and 227 of the Constitution, tribunals subject to such supervision must conform to the law laid down by that High Court. In the present case the Madras High Court had held section 140A(3) to be unconstitutional in A. M. Sali Maricar, and at the time the Tribunal in Bombay decided the appeal there was no contrary decision of any other High Court. Consequently the Tribunal was entitled to proceed on the footing that section 140A(3) was non-existent and to set aside the penalty; its order did not amount to pronouncing on intra vires or ultra vires but took effect from the law declared by the Madras High Court. The principle in East India Commercial Co. Ltd. was applied to hold that a tribunal cannot proceed in direct violation of a High Court's decision binding on it.Penalty imposed under section 140A(3) for AY 1968-69 cannot be sustained; the Tribunal correctly set aside the penalty in view of the Madras High Court's decision.Final Conclusion: Question answered in the negative in favour of the assessee; the penalty under section 140A(3) for assessment year 1968-69 is quashed and the revenue is directed to pay the costs of the assessee. 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.