Case Note & Summary
The litigation arose from income-tax assessments concerning a prosperous jute dealer who had gifted substantial sums to his brother and nephew to set them up in business, and who later challenged the inclusion of the partnership income in his individual assessment. The assessee, an individual with self-acquired properties, made gifts of Rs. 5,11,101 and Rs. 2,50,000 to his brother and nephew respectively in 1943, and they formed a partnership under the name Brijlal Nandkishore. The Income-tax Officer held that the gifts were not bona fide and were colourable transactions, and he pooled the partnership's income with the assessee's income, completing the assessment on March 31, 1950. The Appellate Assistant Commissioner accepted the assessee's evidence of bona fide gifts and excluded the partnership income, but the Income-tax Appellate Tribunal reversed this order on January 8, 1953, restoring the Income-tax Officer's assessment. The assessee then filed applications under Section 66(1) of the Indian Income-tax Act, 1922 before the Tribunal, seeking reference of several questions of law to the High Court; the Tribunal referred only one question, and the High Court answered it against the assessee on a concession by his counsel. The assessee also applied under Section 66(2) to the High Court for a direction to refer the remaining questions, but the High Court refused. Instead of appealing against the High Court's orders, the assessee filed the present appeals directly against the Tribunal's order before the Supreme Court under Article 136, relying on Dhakeshwari Cotton Mills Ltd. v. Commissioner of Income-tax, West Bengal and Sardar Baldev Singh v. Commissioner of Income-tax, Delhi and Ajmer. The respondent contended, based on Chandi Prasad Chokhani v. State of Bihar and Indian Aluminium Co., Ltd. v. Commissioner of Income-tax, that the direct appeals were not maintainable. The Supreme Court examined whether special circumstances existed to entertain the appeals. It held that an appeal against an order of the High Court deciding a referred question could be brought under Section 66A, and against a refusal to call for a statement under Article 136; there could be no direct appeal bypassing the High Court's decisions. The Court distinguished Dhakeshwari, where breach of natural justice existed, and Baldev Singh, where limitation was barred without fault, as special circumstances that could not be corrected by the procedure of a stated case. In the present case, the assessee had received a copy of the witness's statement and was offered an opportunity to cross-examine, so there was no breach of natural justice. Therefore, the appeals were dismissed as incompetent, without considering the merits of the tax assessment.
Headnote
A) Income Tax - Appellate Procedure - Competency of Direct Appeal from Income-tax Appellate Tribunal Bypassing High Court - Indian Income-tax Act, 1922, Sections 66(1), 66(2), 66A - Where the High Court answered the referred question under Section 66(1) and refused to direct a reference under Section 66(2), the aggrieved party could not file a direct appeal against the Tribunal's order; the remedy lay under Section 66A against the High Court's decision or under Article 136 against the refusal. Held that the appeals were incompetent and dismissed on this ground (Paras 1-6). B) Natural Justice - Examination of Witness Behind the Back of Assessee - Opportunity to Cross-Examine Cures Defect - Indian Income-tax Act, 1922 - The Income-tax Officer examined Sri A.L. Mazumdar without notice to the assessee, but a copy of the statement was provided and the assessee was given an opportunity to cross-examine the witness. Held that this did not constitute a breach of natural justice, distinguishing Dhakeshwari Cotton Mills (Paras 5-8). C) Precedents - Special Circumstances for Article 136 - Dhakeshwari and Baldev Singh Distinguished - Constitution of India, Article 136; Indian Income-tax Act, 1922, Sections 66(1), 66(2), 66A - The Court held that special circumstances justifying direct appeal from the Tribunal arise only where the error cannot be corrected through the procedure of a stated case, such as breach of natural justice or limitation barred without assessee's fault. Here no such circumstances existed, as no breach was found and the High Court orders were not challenged (Paras 4-8).
Issue of Consideration
Whether direct appeals to the Supreme Court against an order of the Income-tax Appellate Tribunal were maintainable when the High Court's orders under Sections 66(1) and 66(2) of the Indian Income-tax Act, 1922 were not challenged; whether special circumstances existed to justify invoking Article 136, particularly alleged breach of natural justice due to examination of a witness behind the assessee's back
Final Decision
The appeals were dismissed as incompetent. The Supreme Court held that no direct appeal lay against the Income-tax Appellate Tribunal's order because the High Court's decision under Section 66(1) and refusal under Section 66(2) were not challenged. The Court found no special circumstances under Article 136; the examination of the witness without notice did not constitute a breach of natural justice since the statement was supplied and opportunity to cross-examine was offered. The appeals were dismissed without considering the merits of the tax assessment.
Law Points
- Direct appeal from Income-tax Appellate Tribunal order to Supreme Court is not competent if High Court orders under Sections 66(1) and 66(2) of Indian Income-tax Act
- 1922 are not challenged
- appeal lies under Section 66A if High Court decides referred question
- or under Article 136 of Constitution if High Court refuses to call for a statement
- special circumstances under Article 136 must be uncorrectable by procedure of stated case
- no breach of natural justice where witness examined behind back but copy of statement provided and opportunity to cross-examine given
