Appeal No 1015 1968
Appeal from the judgment and Order dated April 30 1964 of the Madras High Court in TC No 194 of 1961 Reference No 74 of 1961
DNarsaraju R H Dhebar R N Sachthey and B D Sharma for the appellant
RGopalkrishnan 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 section 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 72515 and Rs 314100 respectively
The Income tax Officer assessed these amounts to tax for the assesment year 1956 57 under section 105A 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 January26 1948
Five weeks after the disposal of the appeal the assessee filed a petition before the Appellate Tribunal praying for its restoration
It was stated inter alia in that petition 11 Sup CI69 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 section 661 of the Act on two questions of law but that application was rejected by the Tribunal
The assessee approached the High Court under section 662 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 72515 and Rs 314100 were assessable to tax under section 105A of the Income tax Act  Rule 24 was framed under sub section
8 of section 5A of the Act
This provision confers power on the Appellate Tribunal to frame Rules regulating its own procedure
Section 5A8 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 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 334 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 section 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 section 3 3 4 as also from section 5A8 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 section 334
There is nothing either express or implied in the language of section 334 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 Radha Kishen vs Commissioner of Income tax UP 1 Ruvula Subba Rao  Ors
vs Commissioner of Income tax Madras 2 and Mangat Ram Kuthiala  Ors
vs Commissioner of Income tax Punjab 3 have also been pressed in support of the appellants contention
Now section 5A of the Act appears in Chapter 2A relating to the Appellate Tribunal
Sub sections
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 sections 28 33 35 3748 and 66
For Our purpose reference may be made only to sections 33 and 66
Sub sections 1 and 2 of section 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 section 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 section
4 is to the effect that the Appellate 1 3 2 823 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 section
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 section 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 section 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 section
8 of section 5A but what has to be essentially seen is whether it is repugnant to the provisions of section 3 3 4
The reasoning which prevailed with the Special Bench of the High Court in the present case was that under section 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 section 66 relating to reference on question of law and the further right of appeal to this Court under section 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 vs Commissioner of Income tax UP1 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 section 334 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
vs Commissioner of Income tax kadras2 a very wide power was given to 1 2 824 the Appellate Tribunal by section 334 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
vs Commissioner of Income tax Punjab1 the points raised were different and arose in a petition filed under articles 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 section 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 vs Commissioner of Income tax Central Bombay 2 the word thereon in section 334 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 section 31 of the Act
The provisions contained in section 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 section 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 section 66
So far as the questions of fact are 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 section 334
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 doneif the appeal is disposed of on the merits 1 2 8 25 and not dismissed owing to the absence of the appellant
It was laid down as far back as the year 953 by section R Das J as he then was in Commissioner of Income tax Madras vs Mtt
section Ar
Arunahalam Chettiar1 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 section 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 vs Scindia Steam Navigation Co Ltd 2 indicating the necessity of the disposal of the appeal on the merits bythe 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 section 334 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 vs Commissioner of Income tax UP3 and Mangat Ram Kuthiala  Ors
vs Commissioner of Income tax Punjab4
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
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
section
4 of section 33 and in the event of repugnancy between the substantive provisions of the Act and a rule it is 1 2  3 4 826 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
RKPS Appeal dismissed


Summary:
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 section 334 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 section 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 section 334
So far as the questions of fact are concerned the decision of the Tribunal is final and 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 section 334
824 E H Rule 24 clearly comes into conflict with section 334 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 vs Commissioner of Income tax UP  Ruvula Subba Rao  Ors
vs Commissioner of Income tax Madras  Mangat Ram Kuthiala  Ors
vs Commissioner of Income tax Punjab  Hukumchand Mills Ltd vs Commissioner of Income tax Central Bombay  Commissioner of Income 819 tax Madras vs Mtt
section Ar
Arunachalam Chettiar and Commissioner of Income tax Bombay vs Scindia Stearn Navigation Co Ltd   referred to