By: Harshit Joshi
An appeal was brought before the Supreme Court in which both the Delhi High Court and the Punjab & Haryana High Court refused to have territorial jurisdiction over the dispute due to a difference of opinion and dismissed appeals filed before them. The Supreme Court solved the conundrum concerning the appellate jurisdiction of the High Courts under Section 260A of the Income Tax Act, 1961 (hereinafter ‘Act’) in its judgment dated 18 August 2022 in the case of Pr. Commissioner of Income Tax-I, Chandigarh v. M/s. ABC Papers Limited. Another question that the Supreme Court resolved is the jurisdiction of the High Court consequent upon an administrative decision transferring a ‘case’ under Section 127 of the Act from one Assessing Authority to another Assessing Officer (hereinafter ‘AO’) located in a different State.
The court ruled that the jurisdiction of the High Court stands on its own foundation and cannot be susceptible to the executive power of transferring a matter. The Apex Court also overturned the finding rendered by the High Court of Delhi in CIT v. Sahara India Financial Corporation Ltd. (hereinafter ‘Saharan’) and CIT v. Aar Bee Industries Ltd. (hereinafter ‘Aar Bee’) holding they do not lay down the correct law. In this post, we shall dissect and analyze the judgment of the Supreme Court.
The Appellant M/s. ABC Papers Ltd. (hereinafter ‘Assessee’)a company engaged in the manufacture of printing paper filed its income tax returns before AO, New Delhi in 2008. The Deputy Commissioner of Income Tax (hereinafter ‘DCIT’), New Delhi, issued a notice of assessment under Section 143 (2) of the Act and followed it up with an order. Aggrieved by that order, the Assessee preferred an appeal to the Commissioner of Income Tax (hereinafter ‘CIT’) (Appeals) – IV, New Delhi who allowed the appeal. The ITAT, New Delhi, by its order dated 11.05.2017, upheld the order of the CIT (Appeals) – IV, New Delhi, and dismissed the appeal filed by the Revenue.
Meanwhile, by an order of transfer passed under Section 127 of the Act, the CIT (Central), Ludhiana, centralized the cases of the assessee and transferred the same to Ghaziabad. The DCIT, Ghaziabad, passed another assessment order aggrieved by which, the Assessee filed an appeal which came to be allowed by the CIT (Appeals) – IV, Kanpur. Against this appellate order, the Revenue preferred an appeal to ITAT, New Delhi which was also dismissed by its order dated 01.09.2017.
The cases of the Assessee were re-transferred under Section 127 of the Act to the DCIT, Chandigarh, wef 13.07.2017. Revenue decided to file appeals, being ITA No. 517 of 2017 (against the order of the ITAT dated 11.05.2017) and ITA No. 130 of 2018 (against the order of the ITAT dated 01.09.2017) before the High Court of Punjab & Haryana. The High Court by its judgment dated 07.02.2019, disposed of both the appeals by holding that, notwithstanding the order under Section 127 which transferred the cases of the Assessee, the High Court of Punjab & Haryana would not have jurisdiction as the AO who passed the initial assessment order is situated outside the jurisdiction of the High Court.
The Revenue also filed an appeal, being ITA No. 515 of 2019 before the High Court of Delhi. The High Court of Delhi had taken a view that when an order of transfer under Section 127 of the Act is passed, the jurisdiction gets transferred to the High Court within whose jurisdiction the site of the transferee officer is located and dismissed the appeal. The question came up before the Supreme court to resolve the issue as to which High Court would have the jurisdiction to entertain an appeal against a decision of a Bench of the ITAT exercising jurisdiction over more than one state.
JURISPRUDENCE OF APPEAL FROM ITAT
Given that each state has its own High Court and that ITATs are designed to exercise jurisdiction over multiple states, the question of which High Court is the appropriate court for filing appeals under Section 260A emerged. The question arose because Section 260A is open-textual and does not specify the High Court before which an appeal would lie in cases where Tribunals operated for a plurality of states. The structure established in Article 1 of the Constitution is not followed by the jurisdiction the ITAT Benches exercise. Benches are sometimes constituted in a way that their jurisdiction covers territories of more than one state. The Allahabad Bench, for example, comprises areas of Uttarakhand. The Amritsar Bench has jurisdiction over the entire state of Jammu and Kashmir.
An AO is given the authority and jurisdiction over anyone conducting business or exercising a profession in any area that has been assigned to them by virtue of Section 124. A case may be transferred from one AO to another AO under Section 127 at the discretion of a higher authority. These clauses are all located in Chapter XIII of the Act and exclusively relate to the executive or administrative authority of the Income Tax Authorities.
The issue regarding the appropriate High Court for filing an appeal is well settled since when it fell for consideration before a Division Bench of the High Court of Delhi way back in 1978 in the case of Seth Banarsi Dass Gupta v. Commissioner of Income Tax. It was held that the most appropriate High Court for filing an appeal would be the one where the AO is located. This was held so that the authorities would be bound to follow the decision of the concerned High Court and has been followed and abided in subsequent judgments of the High Court of Delhi. However, the question in the instant case is in the context of an order of transfer under Section 127 of the Act, which transfers the case of an assessee from an AO in one State to another AO, situated in another state under the jurisdiction of a different High Court.
ANALYSIS OF PREVIOUS HIGH COURT FINDINGS
The AO, Lucknow, issued the assessment order in the case of Sahara. An appeal against that order was decided by CIT (Appeals), Lucknow, and a further appeal was decided by ITAT, Lucknow. An appeal was brought before the Lucknow Bench of the Allahabad High Court in response to the ITAT order. The records of the assessee were eventually transferred from Lucknow to New Delhi while this appeal was pending. Therefore, an appeal was brought before the Delhi High Court which departed from the long-standing decisions and held that upon order of transfer under Section 127 of the Act, the case of the assessee would get transferred ‘lock, stock and barrel’ including the High Court.
The decision in the case of Sahara is followed by a subsequent Bench of the High Court of Delhi in Aar Bee. The court denied agreeing with the view of the Punjab and Haryana High Court in their judgment of Commissioner of Income Tax v. Motorola India Ltd. based on the meaning that it is attributed to the expression ‘cases’ in the explanation to Section 127(4) of the Act. The use of expression ‘cases’ was used to contend that the expression shall cover proceedings filed before a High Court as well. This contention was negatived and held as wholly misplaced by the Punjab and Haryana High court in the case of Motorola India Ltd.
DECISION OF THE SUPREME COURT
As a matter of principle, it is against the independence of the judiciary to move a case from one legal forum to another without the intervention of a court of law. According to Section 127, the authorities may transfer a case at the request of the assessee or for other purposes. The power of transfer granted by Section 127 applies only to the jurisdiction of the Income Tax Authorities and has no influence on the jurisdiction of High Courts. The court must steer clear of any interpretation that would make the appellate jurisdiction of the High Court dependent on the executive branch. Such an interpretation will clearly be against the interest of justice.
For these reasons, the court overruled the judgments in Sahara and Aar Bee and held that the only High Court to which appeals against any ITAT decision may be brought is the one whose jurisdiction includes the AO who issued the assessment order. Even if an assessee’s case or cases are transferred in accordance with Section 127 of the Act, the High Court in whose jurisdiction the AO made the order will continue to exercise its appellate jurisdiction. This principle is applicable even if the transfer is under Section 127 for the same assessment year(s).
It is beyond dispute that it is the prerogative of the Superior Courts to interpret the law consistently and methodically to avoid ambiguity. The clarification by the Supreme Court is absolutely necessary and progressive steps have been taken to eliminate such anomalies and interpret the law in a consistent jurisprudential manner. A judicial remedy must be effective, independent, and also certain, and the Supreme Court made the proper choice in this case. Certainty of the forum would involve unequivocal vesting of jurisdiction to adjudicate and determine the dispute in a named forum.
The court also took cognizance of arguments and was right in noting that the decisions of the High Court in whose jurisdiction the transferee AO is situated will not bind the Authorities or the ITAT which had passed orders before the transfer of the case has taken place. The court prevented an anomaly situation where, even if the High Court corrected the erroneous order by the Authorities, it would not have been binding on the authorities as they would be outside the jurisdiction of the High Court. The Apex Court has also rightly clarified the otherwise open-textual and ambiguous scope of Section 260A. The court however did not decide the merits of the case and ordered the Delhi High Court and the Lucknow Bench of Allahabad High Court to decide the 2 appeals.
(Harshit Joshi is a 5th-year BALL.B. student at Vivekananda Institute of Professional Studies. He may be contacted via mail at [email protected])
Cite as: Harshit Joshi, ‘Supreme Court Settles Jurisdictional Conundrum for Appeals from ITAT Orders’ (The Rmlnlu Law Review Blog, 07 October 2022)