http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: COMMISSIONER OF INCOME TAX, MADRAS

       Vs.

RESPONDENT: S.   CHENNIAPPA MUDALIAR, MADURAI

DATE OF JUDGMENT: 24/02/1969

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. RAMASWAMI, V.

CITATION:  1969 AIR 1068            1969 SCR  (3) 818  1969 SCC  (1) 591  CITATOR INFO :  RF         1977 SC1348  (4)

ACT:  Income Tax Act 1922, section 33(4)-Appellate Tribunal Rules 1946;  Rule 24-If Appellate Tribunal has powers  to  dismiss appeal  for default in appearance-Whether Tribunal bound  to pass orders on merits-If rule 24 ultra vires section 33(4).

HEADNOTE: The  respondent’s appeal against an order of assessment  was rejected  by  the Appellate Assistant Commissioner  and  he, thereafter   appealed  to  the  Appellate   Tribunal.    The Tribunal, after having granted some adjournments,  dismissed the appeal for default in appearance On a day fixed for  the hearing, purporting to do so under rule 24 of the  Appellate Tribunal Rules, 1946.  The High Court directed the  Tribunal to refer two questions to itself one relating to the  merits and the other to the effect whether rule 24 of the Appellate Tribunal  Rules, 1946, in so far as it enables the  Tribunal to  dismiss  an appeal in default in  appearance,  is  ultra vires.   A  special bench of the High Court took  the  view that under section 3 3 (4) the Tribunal was bound to dispose of  the  appeal  on the merits, whether  the  appellant  was present or not. On appeal to this Court, HELD  :  It  follows from the language of s.  33(4)  and  in particular  the use of the word "thereon" that the  Tribunal has  to go into the correctness or otherwise of  the  points decided by the departmental authorities in the light of  the submissions made by the appellant.  This can only be done by giving a decision on the merits on questions of fact and law and not by merely disposing of the appeal on the ground that the party concerned had failed to appear. [824 C-D] The provisions contained in s. 66 about making a  ’reference on  questions  of law to the High Court  would  be  rendered nugatory if a power is attributed to the Appellate  Tribunal by which it can dismiss an appeal, which has otherwise  been properly filed, for default, without making an order thereon in  accordance  with s. 33(4).  So far as the  questions  of fact are concerned the decision of the Tribunal is final and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

reference can be sought to the High Court only on  questions of   law.    The  High  Court  exercises   purely   advisory jurisdiction and has no appellate or revisional powers.  The advisory jurisdiction can be exercised on a proper reference being  made  and  that cannot be done  unless  the  Tribunal itself has passed a proper order under s. 33(4). [824 E-H]      Rule 24 clearly comes into conflict with section  33(4) and  in  the event ,of repugnancy  between  the  substantive provisions of the Act and a rule, it is the rule which  must give way to the provisions of the Act. [825 H]      Shri  Bhagwan  Radha Kishen v. Commissioner  of  Income tax,  U.P.  22  I.T.R.  104; Ruvula  Subba  Rao  &  Ors.  v. Commissioner of Income tax Madras, 27 I.T.R. 164; Mangat Ram Kuthiala  & Ors. v. Commissioner of Income tax,  Punjab,  38 I.T.R.  1; Hukumchand Mills Ltd. v. Commissioner  of  Income tax, Central Bombay, 63 I.T.R. 232; Commissioner of Income 819 tax  Madras v. Mtt.  Ar.  S. Ar.  Arunachalam  Chettiar,  23 I.T.R. 180 and Commissioner of Income tax, Bombay v. Scindia Stearn Navigation Co. Ltd. 42 I.T.R. 589, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1015 1968. Appeal  from the judgment and Order dated April 30, 1964  of the Madras High Court in T.C. No. 194 of 1961 (Reference No. 74 of 1961). D.Narsaraju,  R.  H.  Dhebar, R. N. Sachthey  and  B.  D. Sharma, for the appellant.       R.Gopalkrishnan  and  R.  Balasubramaniam,  for  the respondent. The Judgment of the Court was delivered by Grover,  J.     This  is an appeal  by  certificate  from  a judgment  of the Special Bench of the Madras High  Court  in which the sole question that has to be determined is whether Rule 24 of the Appellate Tribunal Rules, 1946, insofar as it enables  the Tribunal to dismiss an appeal for  default  of appearance  was ultra vires the provisions of s. 33  of  the Income tax Act, 1922, hereinafter called the "Act". The facts which gave rise to the reference which was made to the High Court by the Appellate Tribunal lie within a narrow compass.   The assessee owned 1674 shares in Asher  Textiles Ltd. and 9 out of 20 shares in Textile Corporation (Private) Ltd.  at  Tiruppur.   The latter company  was  the  managing agents of the Asher Textiles Ltd.  The assessee was a  Joint Managing Director of the Textile Corporation (Private)  Ltd. along  with one P. D. Asher.  The assessee sold on  December 21,  1954 his entire holding in two companies to  Asher  and some of his relations.  These sales resulted in a profit  of Rs.  72,515/- and Rs. 3,14,100/- respectively.   The  Income tax Officer assessed these amounts to tax for the  assesment year  1956-57  under s. 10(5A) of the  Act  as  compensation earned  for parting with the effective power of  management. The assessment was upheld by the Appellate Assistant Commis- sioner.   The assessee appealed to the  Appellate  Tribunal. After  some  adjournments the appeal was finally  fixed  for hearing on August 26, 1958.  On that date no one was present on behalf of the assessee nor was there any application  for an adjournment.  On August 28, 1958 the Tribunal  dismissed the  appeal  for default of appearance.  This  the  Tribunal purported  to  do under Rule 24 of  the  Appellate  Tribunal Rules,  1946  as amended by notification  dated  January.26, 1948.   Five  weeks  after the disposal of  the  appeal  the assessee  filed  a petition before  the  Appellate  Tribunal

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

praying for its restoration.  It was stated, inter alia,  in that petition 11 Sup CI/69-3 820 that it was owing to some misapprehension on the part of the assessees  auditors  at  Coimbatore that  the  date  of  the hearing  of the appeal was not intimated to the  counsel  at Madras   who  was  convalescing  there  after   a   surgical operation.   The  Tribunal did not consider that  there  was sufficient cause for restoration and rejected the  petition. The: assessee applied for a reference under S. 66(1) of  the Act  on  two  questions  of law  but  that  application  was rejected by the Tribunal.  The assessee approached the  High Court  under  S. 66(2) of the Act and on April 5,  1960  the High  Court directed the Tribunal to state the case  on  two questions.   The matter was first heard by a division  bench but owing to the validity of Rule 24 having been canvassed a special bench consisting of the Chief Justice and two judges was  constituted.   The  special bench  reframed  the  first question thus :               "Whether  rule  24 of the  Appellate  Tribunal               Rules,  1946  in  so far  as  it  enables  the               tribunal  to dismiss an appeal for default  of               appearance, is ultra vires." The second question was               "Whether on the facts and in the circumstances               of the case the two sums of Rs. 72,515 and Rs.               3,14,100  were  assessable  to  tax  under  s.               10(5A) of the Income tax Act ?"    Rule 24 was framed under sub-s. (8) of s. 5A of the  Act. This  provision confers power on the Appellate  Tribunal  to frame  Rules  regulating its own procedure.   Section  5A(8) reads :               "Subject  to the provisions of this  Act,  the               appellate   tribunal  shall  have   power   to               regulate  its own procedure and the  procedure               of  Benches  of the Tribunal  in  all  matters               arising out of the discharge of its functions,               including  the  places at  which  the  Benches               shall hold their sittings." The  Appellate Tribunal first made certain Rules which  were published by means of a notification dated Feburary 1, 1941. Rule  36  provided  that the Tribunal  shall  determine  the appeal   ’on  merits  notwithstanding  the  fact  that   the appellant  did not choose to appear.  The Tribunal was  also empowered  to restore an appeal which had been  disposed  of without hearing the appellant.  The Rules made in 1941  were substituted by the Appellate Tribunal Rules, 1946 which were promulgated  by  means  of  Income-tax  Appellate   Tribunal Notification,  dated October 31, 1946.  Rule 24 was  in  the following terms               Where  on  the day fixed for  hearing  or  any               other   day  to  which  the  hearing  may   be               adjourned, the appel-               821               lant does not appear when the appeal is called               on  for  hearing,  the Tribunal  may,  in  its               discretion,  either  dismiss  the  appeal  for defau lt or may hear it ex parte." This  Rule  was  amended by means of  a  notification  dated January 26, 1948 and it took the following shape               "Where  on  the day fixed for hearing  or  any               other   day  to  which  the  hearing  may   be               adjourned,, the appellant does not appear when               the  appeal  is  called on  for  hearing,  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

             tribunal may dismiss the appeal for default." The  Rule  contained no provision for  restoring  an  appeal dismissed for default.      The  Special  Bench  of  the  High  Court  noticed  the previous  history of Rule 24 as also the terms in  which  it came  to be framed after the passing of the Income tax  Act, 1961  which enables the Tribunal, in its discretion,  either to dismiss the appeal for default or to hear it ex parte  in case  of non-appearance of the parties and  further  enables the Tribunal to set aside the dismissal on sufficient  cause being  shown for non-appearance. After referring to  various decided  cases and examining the relevant provisions of  the Act, the Special Bench summed up the position thus               "To   sum  up  the  position,  the   Appellate               Tribunal is the appointed machinery under  the               Act for finally deciding questions of fact  in               relation  to, assessment of income-tax,.   Its               composition,   consisting   as  it   does   of               qualified  persons  in  law  and  accountancy,               makes it peculiarly qualified to deal with all               questions  raised in a case, whether there  be               assistance  from the party or his  counsel  or               not.   Section 33(4) obliges it to  decide  an               appeal,  after  giving an opportunity  to  the               parties to put forward their case’ The  giving               of   the  opportunity  only   emphasises   the               character of the quasi-judicial function  per-               formed  by the Appellate Tribunal.   The  fact               that that opportunity is not availed of in  ’a               ’particular   case,  will  not   entitle   the               Tribunal not to decide the case.  There can be               no  decision of the case on its merits if  the               matter  is  to be disposed of for  default  of               appearance   of  the  parties.   Further,   an               adjudication  on  the merits of  the  case  is               essential to enable the High Court to  perform               its  statutory duty and for the Supreme  Court               to  hear  an appeal filed under  section  66-A               Section 33 (4) itself indicates by the use  of               the  word "thereon, that the  decision  should               relate  to the subject matter of  the  appeal.               Rule 24, therefore, to be consistent with s. 3               3  (4)  could  only empower  the  Tribunal  to               dispose of the appeal on               822               its merits, whether there be an appearance  of               the  party before it or not.  This was  indeed               the rule when it was first promulgated in  the               year  1941.  The rule in its present form,  as               amended  in  the year 1948, in so  far  as  it               enables the dismissal of an appeal before  the               Income  tax Appellate Tribunal for default  of               appearance of the appellant, Wm, therefore, be               ultra  vires, as being in conflict  ’with  the               provisions of Section 3 3 (4) of the Act." On  behalf of the appellant it was urged that the powers  of the  Appellate  Tribunal relating to an appeal  are  derived from  s.  3 3 (4) as also from S. 5A(8) and the  Rules  made thereunder and when Rule 24 cannot be said to be ultra vires the  latter  provision  it  cannot  be  impugned  as   being repugnant to S. 33(4).  There is nothing, either express  or implied, in the language of S. 33(4) from which it could  be held  that  the  order of the Tribunal in  an  appeal  must always  be  made  on  the  merits.   The  decisions  of  the Allahabad,  Madras  and Punjab High Courts in  Shri  Bhagwan

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

Radha Kishen v. Commissioner of Income tax, U.P., (1) Ruvula Subba  Rao & Ors. v. Commissioner of Income tax, Madras  (2) and  Mangat  Ram Kuthiala & Ors. v. Commissioner  of  Income tax,  Punjab  (3) have also been pressed in support  of  the appellants  contention.   Now S. 5A of the  Act  appears  in Chapter 2A relating to the Appellate Tribunal.  Sub-ss.  (1) to (4) provide for the constitution of the Tribunal and  the appointment of its President and Members.  Sub-sections (5) to  (7) provide for the manner in which the benches  of  the Tribunal have to function.  Sub-section (8)  is   to    this effect               "Subject  to  the provisions of this  Act  the               Appellate  Tribunal  shall have the  power  to               regulate  its own procedure and the  procedure               of  benches  of the Tribunal  in  all  matters               arising out of the discharge of its  functions               including the places at which the bench  shall               hold their sittings." The  powers, functions and duties of the Appellate  Tribunal are  set  out  in ss. 28, 33, 35, 37,48  and  66.   For  Our purpose  reference may be made only to ss. 33 and 66.   Sub- sections (1) and (2)     of  S.  33  give  a  right  to  the assessee  and  the Commissioner to appeal to  the  Appellate Tribunal against the order passed by the Appellate Assistant Commissioner within sixty days of the cornmunication of  his order.  Under sub.’s. (2A) the Tribunal can admit an  appeal after  the  expiry of sixty days if it  is,  satisfied  that there was sufficient cause for not presenting it within that period. Sub-section (3) lays down the formalities  in  the matter  of  the filing of an appeal.  Sub-s. (4) is  to  the effect that the Appellate (1) 22 I.T.R. 104. (3) 38 I.T.R. 1. (2) 27 I.T.R. 164. 823        Tribunal may, after giving both parties to the appeal an  opportunity of being heard, pass such orders thereon  as it  thinks fit and shall communicate any such orders to  the assessee  and "to the Commissioner.  Sub-s. (5)  deals  with the changes lo be made in the assessment as a result of  the orders  of the Appellate Tribunal Sub-section (6) makes  the orders  of the Tribunal on appeal final,, the  only  saving being with reference to the provisions of s. 66.  Under that section  the  assessee or the Commissioner can  require  the Appellate Tribunal to refer to the High, Court any question. of  law arising out of the order of the  Appellate  Tribunal and if the Tribunal refuses to state the case on the  ground that  no  question  of  law  arises  the  assessee  or   the Commissioner can, within the prescribed period, apply to the High  Court  and  the High Court can  direct  the  Appellate Tribunal  to  state the case and make a  reference.   It  is unnecessary  to refer to all the previsions of s. 66  except to notice the power of the High Court to decide the question of law which decision has to be implemented by the Appellate Tribunal.       Now  Rule 24 cannot be said to be ultra  vires  sub-s. (8) of s. 5A but what has to be essentially seen is  whether it  is  repugnant  to the provisions of s.  3  3  (4).   The reasoning which prevailed with the Special Bench of the High Court,  in the present case, was that under s. 3 3  (4)  the Tribunal  is bound to dispose of the- appeal on the  merits, no matter whether the appellant is absent or not.  Reference in  particular  was  made  to  the  remedies,  namely,   the provisions  contained  in  s. 66 relating  to  reference  on question  of  law and the further right of  appeal  to  this

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

Court  under s. 66A if the case is certified to be  fit  one for appeal.  The Special Bench found it difficult to  accept that  by  exercising  the power to  dismiss  an  appeal  for default  of appearance under Rule 24, these  remedies  which were  open to an aggrieved party could be defeated  or  ren- dered infructuous.  The fact that there was no provision  in Rule  24 or any other Rule for restoring an appeal  once  it was dismissed for default was also considered weighty in the matter.  The cases in which the validity of Rule 24 has been upheld may now be considered.  In Shri Bhagwan Radha  Kishen v. Commissioner of Income tax, U.P.(1) the discussion on the question of validity of the rule is somewhat meagre.  It was no  doubt  said that Rule 24 did not in any  way  come  into conflict with s. 33(4) but hardly any reasons were given  in respect of that view.  It was recognoised’ that there was no specific  rule empowering the Tribunal to restore an  appeal dismissed for default of appearance but it was observed that the  Tribunal would have inherent jurisdiction to set  aside such an order if satisfied with regard to the existence of a sufficient  cause.  According to Ravula Subba Rao & Ors.  v. Commissioner of Income tax, kadras(2) a very- wide power was given to (1) 22 I.T.R. 104. (2) 27 I.T.R. 164. 824           the  Appellate Tribunal by s. 33(4) and  it  could pass any order which the circumstances of the one  required. it was immaterial whether the opportunity of  being  heard had  be en availed of by the party or not.  This  provision, it  was held, did not make it obligatory for  the  Appellate Tribunal  to dispose of the appeal on merits.  In this  case again there, was hardly much discussion and the  Allahabad decision was simply followed.  In Mangat Ram Kuthiala & Ors. v. Commissioner of Income tax, Punjab(1), the points  raised were different and arose in a petition filed under Arts. 226 and  227 of the Constitution.  It does not appear  that  the validity of Rule 24 was canvassed. The  scheme  of the provisions of the Act  relating  to  the Appellate  Tribunal apparently is that it has to dispose  of an  appeal  by making such orders as it thinks  fit  on  the merits.   It follows from the language of s. 33 (4)  and  in particular  the use of the word "thereon" that the  Tribunal has  to go into the correctness or otherwise of  the  points decided, by the departmental authorities in the light of the submissions made by the appellant.  This can only be done by giving A decision on the merits on questions of fact and law and  not  by merely disposing. of the appeal on  the  ground that the party concerned has failed to appear.  As  observed in  Hukumchand  Mills Ltd. v. Commissioner  of  Income  tax, Central Bombay (2) the word "thereon" in s. 33(4)  restricts the  jurisdiction of the Tribunal to the subject  matter  of the  appeal and the words "pass such orders as the  Tribunal thinks  fit"  include all the powers  (except  possibly  the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by S. 31 of the Act.  The  provisions contained in s. 66 about making a reference on question  of law to the High Court will be rendered nugatory if any  such power  is attributed to the Appellate Tribunal by  which  it can  dismiss  an appeal, which has otherwise  been  Properly filed,  for  default  without making any  order  thereon  in accordance  with  S.  33 (4).  The  position  becomes  quite simple  when  it  is remembered that  the  assessee  or  the Commissioner  of Income tax, if aggrieved by the  orders  of the  Appellate  Tribunal,  can  have  resort  only  to   the provisions  of s. 66.  So far as the questions of  fact  are

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

concerned  the decision of the Tribunal is final  and  refe- rence  can be sought to the High Court only on questions  of law.  The High Court exercises purely advisory  jurisdiction and  has  no appellate or revisional powers.   The  advisory jurisdiction  can be exercised on a proper  reference  being made and that cannot be done unless the Tribunal itself  has passed  proper  order under s. 33(4).  It follows  from  all this  that the Appellate Tribunal is bound to give  approper decision on questions of fact as well as law which can  only be done,if the appeal is disposed of on the merits (1) 38 I.T.R. 1. (2) 63 I.T.R. 232. 8 25 and not dismissed owing to the absence of the appellant.  It was  laid down as far back as the year 953 by S. R. Das,  J. (as  he then was) in Commissioner of Income tax,-Madras  v.. Mtt.    Ar.   S.  Ar.   Arunahalam  Chettiar(1)   that   the jurisdiction  of  the  Tribunal and of  the  High  Court  is conditional  on  there  being  an  order  by  die  Appellate Tribunal  which may be said to be one under s. 33 (4) and  a question  of law arising out of such an order.  The  Special Bench,  in  the present case, while  examining  this  aspect quite’   appositely   referred  to   the   observations   of Venkatarama Aiyar, J. in Commissioner of Income tax,  Bombay v.  Scindia  Steam Navigation Co. Ltd.  (2)  indicating  the necessity of the disposal of the appeal on the merits by,the Appellate  Tribunal.  This is how the learned judge had  put the matter in the form of interrogation               "How  can it be said that the Tribunal  should               seek for advice on a question which it was not               called  upon  to consider and  in  respect  of               which  it  had  no  opportunity  of   deciding               whether  the decision of the Court  should  be               sought.       Thus looking at the substantive provisions of the Act there  is no escape from the conclusion that under s.  33(4) the  Appellate Tribunal has to dispose of the appeal on  the merits  and cannot short circuit the same by  dismissing  it for default of appearance. Now although Rule 24 provides for dismissal of an appeal for the  failure  of  appellant  to appear,  the  Rules  at  the material time did not contain any provision for  restoration of  the appeal.- Owing to this difficulty some of  the  High Courts  had tried to find an inherent power in the  Tribunal to set aside the order of dismissal [vide Shri Bhagwan Radha Kishen v. Commissioner of Income tax, U.P.(3) and Mangat Ram Kuthiala  & Ors. v. Commissioner of Income tax,  Punjab(4)]. There is a conflict of opinion among the High Courts whether there is any inherent power to restore fin appeal  dismissed for default under the Civil Procedure.  Code. (Mulla, Civil. Procedure   Code,  Vol.   II,  pp.  1583,  1584).    It   is unnecessary  to resolve that conflict in the  present  case. It  is  true  that the Tribunal’s  powers  in  dealing  with appeals are of the widest amplitude and have, in some cases, been  held  similar to- and identical with the power  of  an appellate  court under the Civil Procedure  Code.   Assuming that  for  the aforesaid reasons the Appellate  Tribunal  is competent  to  set aside an order dismissing an  appeal  for default in exercise of its inherent power there are  serious difficulties  in  upholding  the validity of  Rule  24.   It clearly comes into conflict with sub.-s. (4) of s. 33 and in the  event of repugnancy between the substantive  provisions of the Act and a rule it is (1) 23 I.T.R. 180.            (2) 42 I.T.R. 589. (3) 22 I.T.R. 104.            (4) 38 I.T.R. 1.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

826 the  rule which must give way to the provisions of the  Act. We  would  accordingly affirm the decision  of  the  Special Beach  of  the High Court and hold that the  answer  to  the question  which  was  referred  was  rightly  given  in  the affirmative. The appeal fails and it is dismissed with costs.  R.K.P.S.                              Appeal dismissed. 827