1995-VIL-199-ITAT-JAI

Equivalent Citation: ITD 056, 001, TTJ 054, 383,

Income Tax Appellate Tribunal JAIPUR

Date: 23.06.1995

PRAKASHCHAND LUNIA.

Vs

INCOME-TAX OFFICER.

BENCH

Member(s)  : M. A. A. KHAN., PRADEEP PARIKH.

JUDGMENT

Per Shri Pradeep Parikh, Accountant Member--- This is an application by the assessee seeking rectification of the order passed by the Tribunal dated 8-2-1995 in R.A. No. 613 /JP/ 1994.

2. It was pointed out by Mr. N.M. Ranka, the ld. counsel, that since the Tribunal has not given any finding as to whether the questions proposed in the Reference Application, are questions of law or of fact, a patent mistake of law, apparent on record, has crept in which needs to be rectified.

3. We heard the ld. D.R. also on the matter.

4. After hearing the parties, we are satisfied that when the impugned reference application was not barred by limitation, the Tribunal was bound by law to decide as to whether the questions proposed, were of law, or fact. Not having done so, it is a mistake of law apparent on record and hence direct that the reference application be restored and the parties be given fresh opportunity of being heard as per rules.

Per Shri M.A.A. Khan, Judicial Member --- I fully agree with the order proposed by my ld. brother. But in view of the arguments advanced before us by the ld. counsels for the parties I would like to elaborate the purport of the proposed order.

2. The ld. D.R. challenged the very maintainability of the application on the grounds that giving an opportunity to the applicant of being heard before the dismissal of the application, may be for absence of the applicant, was not necessary, that no application u/s 254(2) lies against an order passed u/s 256(1), that even if one is assumed to lie the prayer of setting aside the order passed under section 256(1) and restoring the application cannot be accepted as that would amount to reviewing or revising the original order itself which was not permissible under the limited scope of section 254(2) and that, in any case, since the order under section 256(1) was passed after due service of notice of hearing to the applicant there existed no mistake apparent from record.

3. Mr. N.M. Ranka, the ld. counsel for the applicant, in his thought-provoking and learned arguments, asserted that a mistake apparent from record does exist in the order of the Tribunal passed under section 256(1) and the same was apparent also from record and hence rectifiable under section 254(2). The ld. counsel urged that the marked variance in the language of sections 254(1) and 256(1) does certainly prima facie suggest that for disposal of an application under section 256(1) it is not a pre-requirement of law to hear the applicant but that is not the legal position. Mr. Ranka submitted that on reading the relevant rules in the I.T.A.T. Rules, 1963 (the Rules, 1963) it becomes abundantly clear that the applicant has been given a right of being heard before the decision on his application under section 256(1) is given either way. The ld. counsel further submitted that once the right of the applicant of being heard is recognised there would arise the necessity of serving the notice for hearing upon him. Mr. Ranka urged that in the instant case, the service of the notice was not effected upon the applicant as per provisions contained in the relevant Rules under the Act or under the Code of Civil Procedure, 1908 (CPC) as the envelope containing the notice was returned with the report 'left' made on the envelope. Mr. Ranka submitted that the endorsement of 'left' made by the postman on the envelope suggested that the notice could not be delivered or tendered to the addressee and, therefore, such service did not amount to sufficient service so as to authorise the Tribunal to hear the application ex parte and dismiss the same for absence of the applicant. The ld. counsel further submitted that an application under section 256(1) can be disposed off either by dismissing it on the ground of limitation or by refusing to state the case to the Hon'ble High Court or by accepting to state a case. Since the application was not dismissed on any of the three grounds mentioned above, the Tribunal was not legally competent to dismiss the same on a fourth ground of absence of appearance by the applicant. Mr. Ranka thus submitted that in dismissing the application on a ground not sanctioned by law, the Tribunal acted in violation of the principles of natural justice as also of the relevant rules. Therefore, its order being not in conformity with the principles of natural justice and in contravention of the relevant provisions of law constitutes a mistake apparent from record and hence rectifiable under section 254(2) of the Act. In support of such arguments Mr. Ranka made reference to sections 254(1), 254(2), 256(1), 282 of the Act, section 27 of the General Clauses Act, 1897, Rules 10, 12, 15, 17 and 20 of Order V of CPC and Rules 24, 25 and 37 of the Rules, 1963. Reliance was also placed by the ld. counsel on the following cases :

1. ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815 (SC)

2. L. Hirday Narain v. ITO [1970] 78 ITR 26 (SC)

3. CIT v. Ramendra Nath Ghosh [1971] 82 ITR 888 (SC)

4. CIT v. Poonam Chand Manmal Trust [1988] 171 ITR 153 (Raj.)

5. Jaipur Mineral Development Syndicate v. CIT [1977] 106 ITR 653 (SC)

6. K. R. Venkitaperumal Raja v. CAIT [1992] 193 ITR 213 (Ker.)

7. Shah Sohonie & Co. v. State of Rajasthan [1994] 208 ITR 321 (Raj.)

8. Surajmull Ghanshyamdas v. Samadarshan Sur AIR 1969 Cal. 109

9. Textile Machinery Corpn. Ltd v. Board of Revenue [1981] 48 STC 426 (Cal.)

10. Income-tax Laws by Sampat Iyengar VIII th Edn., 56, 53.

4. We find sufficient force in Mr. Ranka's very lucid, logical and learned arguments.

5. Sections 254 and 256 of the Act read as under :

" 254 (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.

(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer.

Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the assessee a reasonable opportunity of being heard.

(3) The Appellate Tribunal shall send a copy of any orders passed under this section to the assessee and to the Commissioner.

(4) Save as provided in section 256, orders passed by the Appellate Tribunal on appeal shall be final.

256 (1) The assessee or the Commissioner may, within sixty days of the date upon which he is served with notice of an order under section 254, by application in the prescribed form, accompanied where the application is made by the assessee by a fee of (two hundred rupees) require the Appellate Tribunal to refer to the High Court any question of law arising out of such order and, subject to the other provisions contained in this section, the Appellate Tribunal shall, within one hundred and twenty days of the receipt of such application, draw up a statement of the case and refer it to the High Court.

Provided that the Appellate Tribunal may, if it is satisfied that the applicant was prevented by sufficient cause from presenting the application with the period herein before specified, allow it to be presented within a further period not exceeding thirty days.

(2) If, on an application made under sub-section (1), the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, may, within six months from the date on which he is served with notice of such refusal, apply to the High Court, and the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal, require the Appellate Tribunal to state the case and to refer it, and on receipt of any such requisition, the Appellate Tribunal shall state the case and refer it accordingly.

(3) Where in the exercise of its powers under sub-section (2), the Appellate Tribunal refuses to state a case which it has been required by the assessee to state, the assessee may, within thirty days from the date on which he receives notice of such refusal withdraw his application, and, if he does so, the fee paid shall be refunded."

6. A comparable study of the two sections, viz., sections 254 and 256 show that whereas in the language of section 254(1) the words' after giving both the parties to the appeal an opportunity of being heard' have been used, no such words have been used in the language of section 256. The reason for the absence of those words or other words conveying the same sense and casting duty on the Tribunal to hear the parties to the application under section 256 seems to be that once such an application has been presented before the Tribunal by either of the parties, the same can be disposed off in any of the three ways contemplated in the three sub-sections of section 256. On reading sub-section(1) along with the proviso thereunder it comes out that an application which has not been presented within the prescribed time of sixty days or within the next thirty days, as might have been extended by the Tribunal, may be dismissed on the ground of limitation. Sub-section (2) conveys the message that an application under section 256(1) may be disposed off by the Tribunal by refusing to state the case. Then sub-section (3) says that such application may also be disposed off by stating the case and referring a question of law to the High Court. Thus, an application under section 256(1) may be disposed off by the Tribunal in any of the three ways and on no other grounds. Of the three grounds the ground relating to limitation only may lead to the dismissal of the application without going to the merits of the case. The power of the Tribunal in the matter of extension of the period of limitation is quite limited and restricted. It cannot grant extension beyond thirty days over and above the prescribed time of sixty days. That means that the Tribunal cannot state a case on an application which has been presented after the expiry of ninety days. When it cannot act the other way round even after hearing the applicant there was no sense in giving an opportunity of being heard in the case of an application which is barred by limitation beyond ninety days. But what about the application which has been presented within sixty or say ninety days. If it has been presented within sixty days the Tribunal has no power to dismiss it on the ground of limitation. But if it has been presented within ninety days but beyond sixty days, the Tribunal may or may not extend the time up to ninety days. If it extends the time well and good. But if it does not, it may dismiss it on the ground of limitation. It is in such applications that the principle of natural justice of hearing the applicant before dismissing his application on the ground of limitation intervenes. It shall have, therefore, to be seen whether a right of the applicant of being heard in respect of such application which may be dismissed on the ground of limitation is implied in the language of sub-section (1) of section 256.

7. Sub-sections (2) and (3) require the Tribunal either to refuse to state the case or to state the case and refer a question of law to the High Court. In either of the two situations, the Tribunal is obliged to decide the application on merits. Even if it refuses to state the case it cannot dispose the application otherwise than on merits. It is required to hold that no question of law arises out of its order under section 254(1) and if one arises it is not fit for reference for one or the other reason like the question being of academic interest only as the law thereupon is well-settled by the statute itself or by the judicial pronouncement by the jurisdictional High Court or the apex court, whose decision is the law of the land under Article 41 of the Constitution of India. In any case the Tribunal is required to dispose off the application under section 256 on its own merits and not to dismiss it for absence of the applicant. The question arises whether in the disposal of the application under sub-section (2) of section 256, the applicant has a right of being heard. The right given to an applicant to move the High Court under section 256(2) for the same relief which has been refused to him by the Tribunal by not stating the case may suggest that in the presence of that right, it was not considered necessary by the Legislature to use the same words as were used in the language of section 254(1) with regard to the right of parties of being heard. The answer to this pertinent question requires us to take note of the relevant rules.

8. Section 295 of the Act confers power upon the Central Board of Direct Taxes to make rules for carrying out the purposes of the Act. Similar powers have been given to the Tribunal under section 255(5) to regulate its own procedure and the procedure of its Benches in all matters arising out of the exercise of its powers or of the discharge of its functions. In exercise of its powers under section 255(5), the Tribunal made Rule 1963 to regulate the procedure of the Tribunal and the procedure of the Benches thereof. Rule 37 of Rules, 1963 provides that rules 6, 7, 12, 19, 20, 21, 23, 26 and 34 shall apply mutatis mutandis to an application of sub-section (1) of section 256. Rules 6 & 7 regulate the procedure for filing the appeals and Rule 7 the presentation of the appeals. Rule 12 deals with rejection or amendment of Memorandum of Appeal. It says that the Tribunal may reject a Memorandum of Appeal, if it is not in the prescribed form or return it for being amended within such time as it may allow. Rule 19 mandates that the Tribunal shall notify to the parties specifying the date and place of hearing of the appeal and send a copy of the memorandum of appeal to the respondent either before or with such notice. Sub-rule (2) of Rule 19 further says that the issue of a notice referred to in sub-rule (1) shall not by itself be deemed to mean that the appeal has been admitted. Then Rule 20 provides for the fixation of the date and place of hearing of appeal and Rule 21 deals with grant of time to answer in an appeal under section 253(1). Rule 23 says that on the day fixed, or any other day to which the hearing may be adjourned, the appellant shall be heard in support of the appeal. The Tribunal shall, then, if necessary, hear the respondent against the appeal, and in such case the appellant shall be entitled to reply.

9. Rule 24 which deals with the hearing of appeal ex parte for default by the appellant and rule 25 which deals with the hearing of appeal ex parte for default by the respondent are conspicuous by absence in Rule 37 of the Rules. Rule 26 which deals with continuation of proceedings after the death or adjudication of a party as insolvent and Rule 34 which requires the order of the Bench to be signed and dated are not relevant for our purpose.

10. It may be noted that Rule 19 specifically provides that the Tribunal shall notify to the parties specifying the date and place of hearing of the appeal and send a copy of the memorandum of appeal to the respondent either before or with such a notice. Sub-rule (2) of Rule 19 speaks over the extent of effect of the notice. The Rule 20 again provides that the date and place of hearing of the appeal shall be fixed with reference to the current business of the Tribunal and the time necessary for the service of the notice of appeal, so as to allow the parties sufficient time to appear and be heard in support of or against the appeal. Reading both these rules together it becomes quite clear that it is obligatory on the part of the Tribunal to notify to the parties specifying the date and place of hearing of the appeal and also to effect service of the notice of appeal upon them and to allow sufficient time to them to appear and be heard in support of or against the appeal. A right of a party in an appeal of being heard, is therefore, statutorily recognises in rules 19 and 20 which are applicable to the applications under section 256(1), whose procedure is governed by Rule 37 of the Rules, 1963. Rules 19 and 20 assume somewhat more significance in the matter of hearing the applications under section 256(1) for the obvious reason that rules 24 & 25 which permit the hearing of appeal ex parte either for the default by the appellant or by the respondent respectively, are not applicable to the hearing of applications under section 256(1) in view of Rule 37 of the Rules, 1963.

11. It may be noted that the proviso under Rule 24 permits the restoration of an appeal heard and dismissed ex parte for default by the appellant. Though a similar provision has not been made in Rule 25 in respect of hearing of appeal ex parte for default by the respondent, yet it is well-settled opinion of the Tribunal that such a right is also available to the aggrieved party under Rule 25 of the Rules, 1963. It is, therefore, note worthy that whereas the Legislature has given a right of seeking revival or restoration of an order passed ex parte against the appellant or respondent, no such right has been conferred upon the parties to an application under section 256(1) of the Act. In view of such position of law, the right of the parties to an application under section 256(1) of being given proper opportunity of being heard, as has been recognised under rules 19 and 20 of the Rules, 1963 assumes much importance and deserves to be given due respect and value. It, therefore, follows that in the matter of hearing applications under section 256(1) of the Act, the Tribunal is under a statutory duty to allow the parties sufficient time to appear and be heard in support of or against the appeal.

12. It is well-settled proposition of law that rules framed by an authority in exercise of its delegated rule making powers are to supplement to and advance the object of the substantive provisions of the Act. Rules are meant to carry out the purpose of the Act and not to run counter to the main provisions of the relevant sections of the Act. If the rules framed in exercise of the delegated authority are in aid of the substantive provisions of the Act and advance the purpose of the Act, they have the same force as the substantive provisions in the Act have. For the reasons recorded above, while discussing the scope of section 256(1),(2) and (3), it had been pointed out that those substantive provisions of the Act do not provide for dismissal of an application under section 256(1) ex parte for the default of the applicant. Rules 19 & 20 read with Rule 37 of the Rules, 1963 seem to support that conclusion and carry out the purpose of those substantive provisions of the Act. We, therefore, hold that before disposing off an application under section 256(1), it is obligatory on the part of the Tribunal to allow proper opportunity of being heard to the parties and for that purpose to serve a notice of hearing upon them as required by rule 19(1) of the Rules, 1963.

13. In the instant case, it is an undisputed position that the notice of hearing sent to the applicant was returned by the postal authorities with the remark 'left'. The ld. D.R. contended that the service of the notice was sufficient but Mr. Ranka, on the basis of several authorities and provisions under different laws, submitted that the service of the notice effected in the manner it has been done in the present case was not proper service of such notice. Section 282 of the Act says that a notice or requisition under the Act may be served on the person therein named either by post or as if it were a summons issued by a court under the Code of Civil Procedure. This section, therefore, requires that a notice or requisition be served upon the person concerned in the first instance by the post or in the second instance, like a summon issued by a Civil Court.

Rule 10 of order V CPC says that the service of summons should be effected by delivery or tender of the summons to the party concerned. Rule 12 requires that the service should be on the person concerned when practicable or on his agent. Rule 15 permits service of summon on adult members also. Rule 17 CPC permits service by affixture only when the noticee refuses to receive the summon or cannot be found.

14. Section 282 of the IT Act and the various Rules and order V CPC thus attempt to effect the service of a notice/summons on the person concerned by delivery or tender of the notice/summon to him in person, whether such notice/summon is sent by post or through process server.

15. Section 88 read with section 4 of Indian Evidence Act, 1872 raises a rebuttable presumption in respect of a message forwarded from a telegraph office to a person. But no such rebuttable presumption has been made in respect of other letters sent by post, registered or unregistered, in any other provision under the Indian Evidence Act, 1872. Section 27 of the General Clauses Act, 1897, however, lays down that if a letter has been duly posted with necessary particulars and address of the addressee thereupon then there may arise a rebuttable presumption to the effect that the letter was delivered or tendered to the addressee. This provision too creates a rebuttable presumption. Such rebuttal may come either from the endorsement of the postman himself or through the addressee. If the postman reports that the letter was delivered or tendered to the assessee, then there may arise rebuttable presumption in favour of the delivery or tender of the letter having been made on the addressee. The addressee himself may rebut the reports of the postman by filing some evidence to the contrary including an affidavit of himself or other persons. Similarly, a report regarding refusal by the addressee to take delivery of the letter may be rebutted by the addressee in the same way. But where the postman has returned the posted letter with the endorsement 'left', such endorsement itself suggest that delivery or tender of the letter could not be made on the addressee. The very endorsement itself, thus, would rebut the presumption created under section 27 of the General Clauses Act, 1897 in favour of the service of the posted letter on the addressee. This view finds support from the Calcutta High Court decisions in the cases of Textile Machinery Corpn. Ltd. and Surajmull Ghanshyamdas. Since in the present case, the postman had returned the notices sent by the Tribunal to the applicant with the endorsement 'left', no effective service of the notice on the applicant took place. Once the service of the notice of hearing is held to have not been effected as per requirement of Rules 19 & 20 of the Rules, 1963, the Tribunal has no jurisdiction to decide the appeal for the absence of the applicant. Where the service of notice was not found in accordance with the law it cannot be said that the assessee had been given a proper opportunity to put forward his case as required by Rule 20 of the Rules, 1963. The question, therefore, arises whether the application of the applicant dismissed for his absence may be restored for hearing. If so, under what provisions of law ?

16. In the case of M.K. Mohammed Kunhi, the Supreme Court observed that section 254 of the IT Act, 1961, which confers on the Appellate Tribunal powers of the widest amplitude in dealing with appeals before it, grants by implication the power of doing all such acts, or employing such means, as are essentially necessary to its execution. The statutory power under section 254 carries with it the duty in proper cases to make such orders for staying recovery proceedings pending an appeal before the Tribunal. The Supreme Court further observed that it is firmly established that an express grant of statutory power carrying with it by necessary implication the authority to use all reasonable means to make such grant effective. This decision does not specifically speak Tribunal's power under section 254(2).

17. In the case of L. Hirday Narain, the Supreme Court observed that a statute invests a public officer with authority to do an act in a specified set of circumstances, it is imperative upon him to exercise his authority in a manner appropriate to the case when a party interested and having a right to apply moves in that behalf and circumstances for exercise of authority are shown to exist. Even if the words used in the statute are prima facie enabling, the courts will readily infer a duty to exercise power which is invested in aid of enforcement of a right -- public or private -- of a citizen. Endorsing the views of Lord Blackburn in Julius v. Bishop of Oxford [1880] 5 App. Cases 214 (HL), the Supreme Court further observed that the enabling words give a power which prima facie might be exercised or not, but if the object for which the power is conferred is for the purpose of effectuating a right there may be a duty cast upon the donee of the power to exercise it for the benefit of those who have that right when required on their behalf. The Supreme Court finally held that---

" Exercise of power to rectify an error apparent from the record is conferred upon the Income-tax Officer in aid of enforcement of a right. The Income-tax Officer is an Officer concerned with assessment and collection of revenue, and the power to rectify the order of assessment conferred upon him is to ensure that injustice to the assessee or to the revenue may be avoided. It is implicit in the nature of the power and its entrustment to the authority invested with quasi-judicial functions under the Act, that to do justice it shall be exercised when a mistake apparent from the record is brought to his notice by a person concerned with or interested in the proceedings."

18. The decisions in Jaipur Mineral Development Syndicate's case, Poonam Chand Manmal Trust's case and Shah Sohonie & Co.'s case all mentioned above, advance the same proposition laid down by the Supreme Court in L. Hirday Narain's case. In the case of K.R. Venkitaperumal Raja, the Kerala High Court observed that equity is the life of a legal fiction and the fiction should be limited to the purpose for which it is created. Section 64(1) of the Kerala Agricultural Income-tax Act, 1950, created a legal fiction for definite purpose, namely, for the service of a notice on a person. If the registered letter was received back through the post office stating that it could not be delivered to the addressee or the addressee was dead when the letter was taken, the presumption stood rebutted and the presumption afforded by section 64(1)(c) regarding due service of notice would not be available.

19. Judged in the light of the proposition of law laid down by apex court on the subject, the answer to the question posed by us above becomes quite simple. In the instant case, the service of the notice was not proper and, therefore, no opportunity of being heard was given to the applicant. That apart, the Tribunal could not have dismissed the application for absence of the applicant but it did. That means that the Tribunal exercised jurisdiction which was not vested in it. In exercising its jurisdiction in that way, a breach of the principles of natural justice took place. Breach of principles of natural justice resulted in an order which is a nullity. Such order shall have, therefore, to be either ignored altogether or to be cured by treating the same as a mistake apparent from record. It is in that way that my learned brother has come to the conclusion that since the Tribunal happened to pass an order which it had no power to pass, therefore, such an order being nullity in law as having been passed without jurisdiction constitutes a mistake apparent from record rectifiable under section 254(2) of the Act.

20. Going strictly by the language of the statute an order passed under section 256(1) may not be rectifiable under section 254(2) of the Act. But that position of the letters of law does not leave the Tribunal unarmed so as to allow an invalid order to perpetuate to the disadvantage of the applicant particularly when the applicant was not a contributing party to the invalidity committee. A party should not suffer for a fault which was not committed by him. The peculiar facts and circumstances of the case, therefore, require that the principle enunciated in the case of M.K. Mohammed Kunhi be applied to this application in order to do away with the injustice done to the applicant by not allowing him opportunity of being heard before dismissal of his application under section 256(1). In my opinion the power of setting aside an ex parte order with a view to afford an opportunity of being heard to the aggrieved party and thus do away with the violation of the principle of natural justice which has taken place in this case, inherently lies with the Tribunal irrespective of the provisions of section 254(2) of the Act and those under Rules, 1963. I borrow support for my above-mentioned views and approach from Kerala High Court decision in the case of CIT v. ITAT [1979] 120 ITR 231.

21. In the final analysis, therefore, I fully agree with the conclusions arrived at by my learned brother in the proposed order.

 

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