High Court has inherent power of review under Article 215; Section 260A(7) (of Income Tax Act, 1961) allows application of CPC provisions for appeals.

Case Name:

Commissioner of Income Tax vs. Meghalaya Steels Ltd.

Civil Appeal No. 10495 of 2013

Key Takeaways:

- High Courts have an inherent power of review under Article 215 of the Constitution to correct grave errors and prevent miscarriage of justice.

- Section 260A(7) (of Income Tax Act, 1961) allows for the application of relevant provisions of the CPC to appeals under Section 260A (of Income Tax Act, 1961).

- The power of review is not explicitly excluded by Section 260A(7) (of Income Tax Act, 1961), and the High Court's inherent jurisdiction is not affected.

Issue:

Whether High Courts have the power to review their own judgments in income tax appeals under Section 260A (of Income Tax Act, 1961), and whether Section 260A(7) (of Income Tax Act, 1961) allows for the application of the review provisions of the Code of Civil Procedure (CPC) to such appeals.

Facts:

The case arose from two judgments delivered by the Guwahati High Court in an income tax appeal filed by Meghalaya Steels Ltd. under Section 260A (of Income Tax Act, 1961). In the first judgment dated 16.09.2010, the High Court answered two substantial questions of law, allowing deductions under Section 80IB (of Income Tax Act, 1961) in favor of the assessee on one issue and disallowing transport subsidies in favor of the Revenue on another issue.

The assessee filed a review petition against the first judgment, and in a subsequent judgment dated 08.04.2013, the same Division Bench recalled its earlier order, stating that it had erred by not formulating the substantial questions of law before hearing the appeal on merits.

The Revenue challenged the review judgment, arguing that the High Court had no jurisdiction to review its judgment under Section 260A (of Income Tax Act, 1961), as the review provision of the CPC is not referred to in Section 260A(7) (of Income Tax Act, 1961).

Arguments:

- Revenue's argument:

Section 260A(7) (of Income Tax Act, 1961) only allows for the application of CPC provisions relevant to the disposal of appeals, and the review provision is not referred to. Therefore, the High Court had no jurisdiction to review its judgment under Section 260A (of Income Tax Act, 1961).

- Assessee's argument:

High Courts, being Courts of Record under Article 215 of the Constitution, have an inherent power of review to prevent miscarriage of justice. Section 260A(7) (of Income Tax Act, 1961) does not curtail or restrict the application of other provisions of the CPC or the High Court's inherent jurisdiction.

Key Legal Precedents:

- Shivdeo Singh & Ors. vs. State of Punjab and Ors. (AIR 1963 SC 1909):

The Supreme Court held that there is nothing in Article 226 of the Constitution to preclude a High Court from exercising the power of review, which inheres in every court of plenary jurisdiction to prevent miscarriage of justice or correct grave and palpable errors committed by it.

Judgment:

The Supreme Court upheld the High Court's power to review its judgment in the income tax appeal. The Court accepted the assessee's argument that High Courts, being Courts of Record under Article 215 of the Constitution, have an inherent power of review to prevent miscarriage of justice. This power was recognized in the Shivdeo Singh case in the context of writ petitions under Article 226.

The Court also held that Section 260A(7) (of Income Tax Act, 1961) does not purport to curtail or restrict the application of other provisions of the CPC. It only states that provisions relevant to the disposal of appeals in the CPC would apply to appeals under Section 260A (of Income Tax Act, 1961). This does not suggest that other provisions of the CPC or the High Court's inherent jurisdiction are excluded.

FAQs:

Q1: What is the significance of this judgment?

A1: This judgment clarifies that High Courts have an inherent power of review under Article 215 of the Constitution, which extends to income tax appeals under Section 260A (of Income Tax Act, 1961). It also establishes that Section 260A(7) (of Income Tax Act, 1961) does not restrict the application of other provisions of the CPC or the High Court's inherent jurisdiction.

Q2: Can the High Court review any judgment under Section 260A (of Income Tax Act, 1961)?

A2: The judgment does not give High Courts an unrestricted power to review judgments under Section 260A (of Income Tax Act, 1961). The power of review should be exercised to prevent miscarriage of justice or correct grave and palpable errors, as per the principles laid down in the Shivdeo Singh case.

Q3: What is the relevance of Section 260A(7) (of Income Tax Act, 1961) in this case?

A3: Section 260A(7) (of Income Tax Act, 1961) was relevant because the Revenue argued that it restricted the application of the review provision of the CPC to appeals under Section 260A (of Income Tax Act, 1961). The Supreme Court clarified that Section 260A(7) (of Income Tax Act, 1961) does not have such a restrictive effect and only allows for the application of relevant CPC provisions to the disposal of appeals.

Q4: What is the significance of High Courts being Courts of Record under Article 215?

A4: The fact that High Courts are Courts of Record under Article 215 of the Constitution is crucial because it gives them an inherent power of review, which the Supreme Court recognized in the context of income tax appeals under Section 260A (of Income Tax Act, 1961).

The Civil Appeal No. 10495/2013 and Civil Appeal 1619 of 2012 arise out of two judgments delivered by the High Court of judicature at Guwahati. By the first judgment dated 16.09.2010 various points on merits were gone into,

inter alia, as to whether deductions to be made under Section 80IB (of Income Tax Act, 1961) were allowable on facts and whether transport subsidies were or were not available together with other incentives. Ultimately the

High Court after stating in paragraph 2 that two substantial questions of law arose under Section 260A (of Income Tax Act, 1961) went on to answer the two questions. The first question so framed was answered in the negative, that is in favour of Revenue, and against the assessee. However, the second question was answered in the affirmative, in favour of the assessee, and against Revenue, and the appeal was disposed of in the aforesaid terms.

Against the aforesaid judgment dated 16.09.2010, a

Review Petition being No. 108/2010 was filed by the assessee

before the very Division Bench. In a long judgment dated

08.04.2013, the Division Bench recalled its earlier order

dated 16.09.2010 in the following terms:

“125. In the present case, since this Court did

not formulate the substantial questions of law

for adjudication before hearing of the appeal

on merit, there can be no escape from the

conclusion that hearing of the appeal prior to

its admission has to be treated as a hearing on

the admission of the appeal in order to

determine if the substantial questions of law,

as contended by the appellants, had or had not

arisen and it was only upon having formulated

the questions of law, which according to the

High Court, were the substantial questions of

law for adjudication in the appeal that the

appeal could or ought to have been heard.

126. As the omission, on our part, to

formulate the substantial questions of law and,

then, invite the parties to have their say in

the matter amount to denial of opportunity of

effective hearing to the parties concerned,

particularly, to the review petitioners, we

must have the magnanimity and courage to

acknowledge our mistake, recall the judgment

and order dated 16.09.2010, and, then, decide

the appeal, on merit, after having formulated

the substantial questions of law, which this

Court may deem necessary for adjudication of

the appeal.

127. Because of what have been discussed and

pointed out above, these review petitions

succeed. The impugned judgment and order stand

accordingly reviewed and recalled.”

Mr. Radhakrishnan, learned Senior Advocate appearing

on behalf of the Revenue, assailed the aforesaid judgment

dated 08.04.2013 stating that it was factually incorrect

that no substantial questions of law have been framed and

that such questions are to be found in the very beginning of

the judgment dated 16.09.2010 itself. He further argued,

referring us to Section 260A(7) (of Income Tax Act, 1961), that only those provisions

of the Civil Procedure Code could be looked into for the

purposes of Section 260A (of Income Tax Act, 1961) as were relevant to the disposal of

appeals, and since the review provision contained in the

Code of Civil Procedure is not so referred to, the High

Court would have no jurisdiction under Section 260A (of Income Tax Act, 1961) to

review such judgment.

Mr. Gopal Subramaniam, learned senior counsel

appearing on behalf of the assessee countered this

submission. He pointed out to us that in point of fact the

question as to whether there were substantial questions of

law at all had been argued before the very Division Bench

which Division Bench had in fact reserved order and then

gone on to dispose of the appeal on merits without any

pronouncement on whether there were substantial questions of

law at all. The Division Bench, however, went ahead and by

its judgment dated 16.09.2010 referred to two questions and

went on to answer them. Insofar as the second submission of

Mr. Radhakrishnan is concerned, Mr. Subramaniam argued that

the High Court being a Court of Record under Art. 215 of the

Constitution of India, the power of review would inhere in

it as such.

We have heard both the parties. We find that as a

matter of fact what Mr. Subramaniam has argued before us is

reiterated by the very Division Bench which heard and

reserved judgment on 16.09.2010. By the review order dated

08.04.2013, the Division Bench felt that it should not have

gone into the matter at all given the fact that on an

earlier occasion, before 16.09.2010, it had reserved

judgment on whether substantial questions of law in fact

exist at all or not. This being the case, in a lengthy

order the very Division Bench has thought it fit to recall

its own earlier judgment.

In the above circumstances, we do not feel inclined to

interfere with the impugned judgment in view of what has

been recorded in the impugned judgment dated 08.04.2013.

Insofar as the second question is concerned, we accept the

submission of Mr. Subramaniam that High Courts being Courts

of Record under Art. 215 of the Constitution of India, the

power of review would in fact inhere in them. This was in

fact so decided in a slightly different context while

dealing with the power of review of writ petitions filed

under Art.226 by a judgment reported in AIR 1963 SC 1909

(Shivdeo Singh & Ors. Vs. State of Punjab and Ors.). This

Court said:

“The other contention of Mr. Gopal

Singh pertains to the second order of Khosla,

J., which, in effect, reviews his prior

order. Learned counsel contends that Art.226

of the Constitution does not confer any

power on the High Court to review its own

order and, therefore, the second order of

Khosla,J., was without jurisdiction. It is

sufficient to say that there is nothing in

Art. 226 of the Constitution to preclude a

High Court from exercising the power of

review which inheres in every court of

plenary jurisdiction to prevent miscarriage

of justice or to correct grave and palpable

errors committed by it. Here the previous

order of Khosla,J., affected the interests of

persons who were not made parties to the

proceeding before him. It was at their

instance and for giving them a hearing that

Khosla,J., entertained the second petition.

In doing so, he merely did what the

principles of natural justice required him to

do. It is said that the respondents before

us had no right to apply for review because

they were not parties to the previous

proceedings. As we have already pointed out,

it is precisely because they were not made

parties to the previous proceedings, though

their interests were sought to be affected by

dthe decision of the High Court, that the

second application was entertained by

Khosla,J.”

We are in respectful agreement with what is stated in

the aforesaid judgment. Apart from what has been said by

us, it is also clear that on a cursory reading of Section

260A (7), the said Section does not purport in any manner to

curtail or restrict the application of the provisions of the

Code of Civil Procedure. Section 260A(7) (of Income Tax Act, 1961) only states that

all the provisions that would apply qua appeals in the Code

of Civil Procedure would apply to appeals under Section

260A. That does not in any manner suggest either that the

other provisions of the Code of Civil Procedure are

necessarily excluded or that the High Court's inherent

jurisdiction is in any manner affected.

We accordingly dispose of all the above appeals with

no order as to costs.

(A.K.SIKRI)

(ROHINTON FALI NARIMAN)

New Delhi;

Date: 5.8.2015.