CHAPTER-1

INCOME TAX APPELLATE TRIBUNAL

IT’S ROLE AND CHALLENGES

INTRODUCTION

The development of  welfarism led to an increase in governmental functions and the executive

saw in this a need to perform a number of quasi- legislative and  quasi- judicial functions, thus

blurring the traditional positions of the various wings of the government under the doctrine of

separation of powers, under which the powers of the government were divided between the

legislature, executive and the judiciary which were to be entrusted with the power of making

law, executing it and interpreting the law respectively. The welfare state radically changed

governmental functions and compelled it to involve itself in a host of wide ranging socio-

economic activities which included the regulation of industrial activities, providing health

services, education and other allied welfare measures.

The issues which arose from disputes on such matters raised not only legal matters but also

matters which affect the society at large. Courts therefore became deluged with litigations arising

directly and incidentally from such increased governmental interventions. The inherent

procedural limitations made it difficult for the courts to dispose these cases promptly thus

leading to a huge backlog of cases in all levels of the judiciary. It was also felt in many quarters

that the members of the judiciary were neither adequately trained nor equipped to deal with the

complex socio-economic and technical matters at hand. Thus it was felt specialized adjudicatory

bodies such as tribunals needed to be created to resolve such disputes fairly and effectively.

Tribunals are a “Judgment seat; a court of justice; board or committee appointed to adjudicate on

claims of a particular kind”. Though the term tribunal is present in the Constitution of India in

Articles 136 and 227, it has not been specifically defined. However the essence of the meaning

of the word tribunal which can be culled out from the various Supreme Court authorities is that

they are adjudicatory bodies (except ordinary courts of law) constituted by the State and invested

with judicial and quasi-judicial functions as distinguished from administrative or executive

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functions [2] as was held in Durga Mehta v. Raghuraj Singh[3]. The basic test of a tribunal

within the meaning of Arts. 136 and 227 is that they are adjudicatory bodies vested with the

power of adjudicating between conflicting rights.

The proper thing to do here is to examine each case specifically and ascertain whether the

powers vested in that body are truly judicial functions or not. Generally, it would seem that

anybody vested with the power to determine the conflicting rights of two or more parties

conclusively would satisfy the test of exercising a judicial function and can be regarded as a

tribunal within the meaning of Arts. 136 and 227. A tribunal as described aforesaid is to act

judicially when determining the dispute between the parties concerned. However, the mere fact

that an authority is to act judicially does not clothe the authority with the judicial power of the

State. The Supreme Court in Jaswant Sugar Mills v.Lakshmi Chand[4] laid down the following

characteristics or tests to determine whether an authority is a tribunal or not:

1.      Power of adjudication must be derived from a statute1 or statutory rule.

2.     It must possess the trappings of a court and thereby be vested with the power to summon

witnesses, administer oath, compel production of evidence, etc.

3.     Tribunals are not bound by strict rules of evidence.

4.     They are to exercise their functions objectively and judicially and to apply the law and

resolve disputes independently of executive policy.

5.     Tribunals are supposed to be independent and immune from any administrative interference

in the discharge of their judicial functions.

Income Tax Appellate Tribunal is the highest appellate authority under the Income Tax act 1961.

The Appellate Tribunal is called final fact finding authority because the decision of the appellate

tribunal on a point of fact is final. If the decision involves point of law, it may be referred to the

High Court or Supreme Court. The Appellate Tribunal performs judicial act in judicious manner.

The Tribunal’s finding on facts is final and no appeal lies to the Hon’ble High Court. The powers

of the Appellate Tribunal are very wide but there is no power of enhancement.

1 http://legalsutra.org/1446/tribunalisation-in-india/ (January 03, 2011)

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All questions, whether of law or of fact which relate to the assessment of an assessee may be

raised before the Tribunal. In disposing of the appeal, the Tribunal has the power to give

appropriate directions and to pass such orders as it thinks fit, after giving an opportunity of being

heard to both parties to an appeal. The powers include the power to annul an assessment order or

set it aside. The powers have been expressed in the widest possible terms similar to the powers of

the Civil Appellate Court u/s. 96 and order 41 of the Code of Civil procedure. Duty is to avoid

multiplicity of proceedings and to make a detailed well discussed order after incorporating facts

emerging from records, considering the arguments raised by both the parties and the judicial

precedents cited at the time of hearing. The Tribunal being a final fact finding authority has to

consider and decide all issues that are brought before it. It cannot decide only one issue arising

out of many issues and decline to go into the other issues raised before it on the ground that

further issues will not arise in view of the finding on the issue decided by it. If the Tribunal

declines to consider and decide the other issues it will only protract and delay the proceedings for

the assessee has to get the decision of the Tribunal on the initial point set aside by approaching

the High Court and thereafter, again go back to the Tribunal for a decision on other issues left

undecided by it earlier. This will amount to multiplicity of proceedings. It is desirable that the

Tribunal should avoid disposing of matters on preliminary issues alone, without deciding all the

issues raised before it and it should, as far as possible express its view on all points raised before

it, so that the higher Courts have the benefit of its decision on other points also, if necessary.

The Income-Tax Appellate Tribunal (ITAT) is one of the oldest temple of justice in our country.

It is said that the older the temple, the greater is its sanctity and reverence. The Income-Tax

Appellate Tribunal (ITAT) rededicates itself to the lofty ideals which inspired its creation,

namely, "Sulabh Nyay & Satwar Nyay” which means easy and quick justice. It has adopted the

following criteria for the working of the Tribunal Inexpensive; Accessibility; Freedom from

technicalities; Expedition; and An expert knowledge of their particular subject. We adopted the

tribunal system over the normal judiciary system as an independent quasi-judicial body to hear

second appeals from the decisions of the Commissioner of Income Tax (Appeals). The Frank’s

Committee on Administrative Tribunals and Enquiries has stated that the advantages which

Tribunals have over Courts lay in cheapness, accessibility, Freedom from technicality,

expedition and expert knowledge of the Members over the particular subjects.

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INCOME TAX APPELLATE TRIBUNAL IN INCOME TAX ACT 1961

Sections 252 to 255 of the Income-tax Act, 1961 and sections 24 and 26 of Wealth Tax Act deal

with provisions relating to appeals to the Appellate Tribunal as Section 252(1) of Income Tax act

1961 deal with the provision of an appellate tribunal as “The Central Government shall

constitute an Appellate Tribunal consisting of as many judicial and accountant members as it

thinks fit to exercise the powers and discharge the functions conferred on the Appellate Tribunal

by this Act.” Section 252(2) and section 252(2A) of Income Tax act 1961 have the provisions

related to the qualifications of the judicial and accountant members respectively while section

252(3) deal with the provision related to appointment of the president of the tribunal. Section

252(4) and252 (4A) talked about the appointment of the senior vice-presidents and vice-

presidents of the tribunal respectively and section 252(5) of Income Tax act 1961 has the

provision regarding the powers and functions of the senior vice-president and vice-president to

be exercise by them which is delegated by the president.

Section 253(1) of Income Tax act 1961 has the provision as under what circumstances any

assessee can file the appeal before the tribunal as Any assessee who is aggrieved by an order

passed by Commissioner (Appeals) or an order passed by a Commissioner under section 12AA;

or 263; or 271; or 272A; or 154 amending an order passed under s.263; or an order passed by the

Chief Commissioner or a Director General or a Director u/s. 272A; may prefer an appeal to the

Appellate Tribunal. Similarly, the Commissioner may prefer an appeal to the Appellate Tribunal

against the order of Commissioner of Income Tax (Appeals). It has been held by High Courts

that even a third party has a right of appeal if, as a result of an order passed in an appeal by the

first appellate authority before whom he is not a party, he is saddled with a liability for any

tax or other sum. (1957) 32 ITR 762 (Bom) Kikabhai Abdulali vs. ITAT; (1998) 234 ITR 617

(Ker) Benoy Kurian vs. Agrl. ITO; (1983) 144 ITR 557 (Cal) CIT vs. N. Ch. R. Row & Co. The

Board has issued Instruction No. F-279/126/98 – 17 dated 27-3-2000 stating that the

Commissioner should not file an appeal to the Tribunal if the tax effect is less than Rs.

1,00,000/-, appeal to High Court if the tax effect is less than Rs. 2,00,000 and appeal to Supreme

Court if tax effect is less than Rs. 5,00,000/-. In CIT vs. Camco Colour Co. (2002) 254 ITR 565

(Bom), the Hon’ble Court dismissed the appeal of the Department, only on the ground that tax

effect was less than the prescribed limit. There is divergence of opinion in various High Courts.

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The Board vide Instruction No. 6 of 2003 dated 17-7-2003 (F. No. 279 / Misc. 18/2003) once

again clarified that for ascertaining the tax effect, interest and penalty also should be taken into

consideration. According to the Board, the tax effect means the revenue effect, which denotes the

amount of tax, interest, penalty, fine or any other sum involved. In some cases the Tribunal has

dismissed the appeal of the Department only on the ground that the tax effect is less than the

prescribed limit. See ITO vs. Smt. Tara Devipushpal (2003) 127 Taxman 155 (Jabalpur) (Mag.),

ITO vs. Roopchand Jain (2003) 79 TTJ 406 (Nag.) while Section 253(2) of Income Tax act

1961has the appeal provision for the department. Section 253(3) of Income Tax act 1961has the

provision of time limit under which one should file the appeal as an appeal has to be filed within

60 days of receipt of an order by the assessee. In the case of the Department the appeal can be

filed within 60 days of the receipt of the order by the respective Commissioner. The memo of

appeal shall be presented by the appellant in person or by agent or sent by registered post

as to reach before the due date. The receiving authority has to endorse the date on which it is

received and sign. and Section 253(4) of Income Tax act 1961 talk about the filing of the

memorandum of cross-objection by either of the party within thirty days. Section 253(6) of

Income Tax act 1961 has the provision of fee for filing of appeal as2

(a)  Where the total income of the assessee as computed by the Assessing Officer, in the case to

which the appeal relates, is one hundred thousand rupees or less, five hundred rupees

(b)  where the total income of the assessee, computed as aforesaid, in the case to which the

appeal relates is more than one hundred thousand rupees but not more than two hundred

thousand rupees, one thousand five hundred rupees,

(c)  Where the total income of the assessee, computed as aforesaid, in the case to which the

appeal relates is more than two hundred thousand rupees, one per cent of the assessed income,

subject to a maximum of ten thousand rupees,

(d)  Where the subject matter of an appeal relates to any matter, other than those specified in

clauses (a), (b) and (c), five hundred rupees and

no such fee shall be payable in the case of an appeal referred to in section253 (2) or a

memorandum of cross-objections referred to in section 253(4).

2 http://www.incometaxindia.gov.in/acts/income%20tax%20act/253.asp (january 03, 2011)

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And in Section 253(7) of Income Tax act 1961 there is a provision for fees for application of stay

demand.

Under Section 254(1) of Income Tax act 1961 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 and as

per Section 254(2) of Income Tax act 1961 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 section 254(1), and shall make such amendment  if the

mistake is brought to its notice by the assessee or the [Assessing] Officer but 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. Section 254(2A) have the provision as in every appeal,

the Appellate Tribunal, where it is possible, may hear and decide such appeal within a period of

four years from the end of the financial year in which such appeal is filed under sub-section

(1) [or sub-section (2)] of section 253.

Section 255 of Income Tax act 1961 has the provisions related to procedure to appellate tribunal

as per section 255(1) the powers and functions of the Appellate Tribunal may be exercised and

discharged by Benches constituted by the President of the Appellate Tribunal from among the

members thereof and as per section 255(2) every Bench shall consist of one judicial member and

one accountant member while as per section 255(3) the President or any other member of the

Appellate Tribunal authorised in this behalf by the Central Government may, sitting singly,

dispose of any case which has been allotted to the Bench of which he is a member and which

pertains to an assessee whose total income as computed by the [Assessing] Officer in the case

does not exceed [five hundred thousand rupees], and the President may, for the disposal of any

particular case, constitute a Special Bench consisting of three or more members, one of whom

shall necessarily be a judicial member and one an accountant member. Section 255(4) of Income

Tax act 1961has provision regarding the differing of opinion of the members of the bench as If

the members of a Bench differ in opinion on any point, the point shall be decided according to

the opinion of the majority, if there is a majority, but if the members are equally divided, they

shall state the point or points on which they differ, and the case shall be referred by the President

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of the Appellate Tribunal for hearing on such point or points by one or more of the other

members of the Appellate Tribunal, and such point or points shall be decided according to the

opinion of the majority of the members of the Appellate Tribunal who have heard the case,

including those who first heard it and according to the section 255(5) the Appellate Tribunal

shall have power to regulate its own procedure and the procedure of Benches thereof in all

matters arising out of the exercise of its powers or of the discharge of its functions, including the

places at which the Benches shall hold their sittings. As per section 255(6) of the income tax act

1961 The Appellate Tribunal shall, for the purpose of discharging its functions, have all the

powers which are vested in the income-tax authorities referred to in section 131 i. e. powers of

(a)  discovery and inspection; (b)  enforcing the attendance of any person, including any officer

of a banking company and examining him on oath; (c)  compelling the production of books of

account and other documents; and (d)  issuing commissions, and any proceeding before the

Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of section

193 and  228 and for the purpose of section 196 of the Indian Penal Code (45 of 1860), and the

Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and

Chapter XXXV of the Code of Criminal Procedure, 1898 (5 of 1898).

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CHAPTER-2

HISTORICAL BACKGROUND OF INCOME TAX APPELLATE

TRIBUNAL

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Independence in redress of grievance to the assesse was the cry of mid forties and that has been

the root cause for the emergence of the Income Tax Appellate Tribunal. From the insurgence of

the Tax Legislature in 1868 until 1921 there was only one appeal and that was to the appellate

authority designated and named from time to time as District Collector, or the Collector of

Division, or the Chief Revenue Authority of the Division or the Commissioner of Income Tax.

Second Appeal was not known in tax matters at that time. In 1922 Act, the concept of Second

Appeal came into being – First Appeal was provided to the Assistant Commissioner of Income

Tax and the Second Appeal against his order to the Commissioner of Income Tax. Both these

authorities under the hierarchical system being under the control of Board of Inland Revenue,

imbibed no independence in deciding appeals, and thus, there was a total absence of an

independent forum to redress the grievance of the assessees.

So on the historic day of 25th of January, the Income-tax Appellate Tribunal was constituted in

1941.

RETROSPECT 

In India tax was introduced initially by the Act of 1860. It was then assessed by a panchayat and

an assessee feeling aggrieved by the assessment could appeal to the Collector of the district,

whose order was final. The Act of 1868 (which replaced the Act of 1860) made an improvement

in the position by providing, in the first Instance, for a petition of objections to the Collector, and

then, for an appeal from the order of the Collector of the district to the Commissioner of

Revenue of the division. The order of the Commissioner of Revenue was final. No reference was

available to the High Court under these Acts. The same basic position continued under the

successor Acts of 1869.1870, 1872, 1886, 1916 and 1917.3

 "Income-tax Act" as such was, for the first time, instituted by the Act No. VII of 1918". it was

more elaborate than its predecessors both as regards procedural and substantive law, It brought

the High Courts into the picture in an advisory capacity. Under this Act, an appeal lay to the

Commissioner against an assessment and, from the order of the Commissioner, a revision

petition lay to the Chief Revenue Authority. A provision was, however, inserted providing for a

reference to the High Court by the Chief Revenue Authority on points of law. The subsequent

31 http://www.itatonline.in:8080/itat/site/AboutITAT.htm (January 04, 2011)

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two Acts of 1920 made no change in the position. On revision of the designations of the officers

of the Revenue department in 1921 creating a hierarchy starting with the Board of Inland

Revenue at the top, then the Commissioner of Income-tax, then the Assistant Commissioner of

Income-tax and then the Income-tax Officer, the Act Xl of 1922, provided for an appeal from the

order of the Assistant Commissioner of Income-tax to the Commissioner but only in cases

involving penalty and enhancement of assessment. The Commissioner was also given a power of

revision which he could exercise in favour of the assessee. The subsequent enactments amending

the 1922 Act introduced no basic change.

 There was thus no independent forum for redress of the aggrieved assesees under the Income

Tax Act. Civil Courts of the land were prohibited by Section 67 of the Indian Income-tax Act to

entertain litigation in tax matters and the broad interpretation of this prohibition by the Privy

Council in the Raleigh Investment Co.'s case (15 I.T.R 332 (RC.)] held the field until the

Supreme Court, much later, restrict tin the State of Tripura [19 I.T.R. 132] Sharat Kala Bhandar

(59 Tn. 73] and other cases. Further section 226 of the Government of India Act, 1935

specifically forbade interference in revenue matters by High Courts in exercise of their original

jurisdiction. The scope of judicial review in tax matters was thus very limited. This perhaps gave

birth to the wide-spread desire of the assessees for an appeal to an independent body on

important questions of fact.

A committee for investigation of the Indian Income-tax system consisting of MIs. C. W. Ayres

and S. R Chambers of the Board of Inland Revenue of the United Kingdom and Khan Bahadur

J.B. Vachha. Commissioner of Income-tax, Bombay was constituted. Their report gave birth to

the idea of setting up the income-tax Appellate Tribunal and it was first mooted in the Income-

lax Enquiry Report, 1936. Finding the desire of assesses to appeal to an independent forum not

unreasonable they recommended that one All India Tribunal be set up consisting of six persons

chosen by the Governor-General-in-Council to hear appeals on questions either of fact or at law

against decisions of the then Appellate Assistant Commissioners. They also considered that,

subject to the condition that at least two members should be persons who have acted as High

Court Judges for say, at least three years to secure adequate consideration of cases on points of

law, the choice of the Governor -General- in- Council in this matter should be unfettered by

statute. They, however, opined that it would be desirable to include two persons who have had

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wide experience in the Income-tax Department and two with accountancy or business

experience. It was contemplated that there would be one Tribunal only for the whole of India and

that appropriate centers would be visited by Members of the Tribunal on circuit. The

arrangements were to be sufficiently elastic to allow the hearing of most cases in which only

questions of tact were involved by single members of the Tribunal, while cases of greater

importance were to be dealt with by a bench of two or more members. The Tribunal decisions on

questions of fact were to be final but its decisions on questions of law were to be subject to an

appeal only to the Privy Council. This gives an impression that the original idea to set up the

Tribunal was more or less synonymous to that of a Tribunal of the nature referred to presently in

Article 3238 of the Constitution of India.

The Select Committee appointed to consider the Bill to amend the Indian Income-tax Act, 1922,

reviewed the proposal in a somewhat modified form and recommended the constitution of the

Tribunal on 10th November, 1938, in the following terms

                   " We are of the opinion, that the Bill should contain provisions for the introduction

of a further appellate authority of an independent nature for the hearing of appeals from the

decisions of the Appellate Assistant Commissioner”

The new appellate body should consist of a Tribunal composed of not less than two Members

chosen from each of two categories of a pane! of some 8 or 10 members comprising legal

members with qualifications such as are normally required for appointment as a district judge

and technical members recruited from among persons with professional experience of

accountancy. We think that when the panel is being appointed, persons discharging the functions

of the Appellate Assistant Commissioners under the existing system should be eligible for

appointment. We think that the Selection of Members of the panel should be made after

consultation with the Public Service Commission and that members should not during their

tenure of office have any other connection with the public administration. The powers to regulate

procedure of the Tribunal should be vested in them or in the panels of which they are constituted

and the chairman or President of the panel should have the necessary parve's to select the

Members of the Tribunal.”

It was recommended that after the Tribunal came into operation, the revisionary powers

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exercised by the Commissioner of Income-tax should disappear but that he should have a power

to direct the filing of appeals to the Tribunal, against decisions of the Appellate Assistant

Commissioner. The Commissioner's power of stating a case to the High Court was substituted by

a like power conferred on the appellate Tribunal which could be moved for the making of such a

reference either by the assesssee or the Department within a prescribed period of limitation. It

will be noticed here that, in this last respect, the Select Committee made a departure from the

suggestion made by the Enquiry Report, whereunder the appellate Tribunal was to have the last

word, save only for an appeal to the Privy Council, on questions of law. It is this United advisory

jurisdiction that the High Courts continued to exercise with respect to orders passed by the

Tribunal before 1-10-1998 under the Direct Taxes Acts1 subject however to a right, for either

party, to appeal to the Supreme Court, from the Nigh Courts judgments in reference, where the

questions involved are of great private or public importance. With the introduction of section

260A an appeal lie to the Nigh Court instead of a reference as earlier though only if a substantial

question of law arises from the order of the Tribunal passed after 1-10-1998.

EMERGENCE OF TRIBUNAL

 In pursuance of the recommendations made by the Select Committee, the Legislature introduced

Chapter II-A (Section 5A) in the Indian Income-tax Act in 1941 and 25.1.1941 was notified as

the appointed date from which the Tribunal came into being. Subject to minor variations

consequent on the expansion of the Tribunal and extension of its jurisdiction the section

remained unchanged in its essentials till the repeal of the Income-tax Act, 1922 with effect from

1.4.1962. In the income-tax Act of 1961, the constitution and functions of the Tribunal have

been set out in sections 252 to 255. There is no fundamental change either in the constitution or

in the functions of the Tribunal due to enactment of the new Income-tax Act.

The Constitution of India promulgated the mandate of Article 265 that "No tax shall be levied or

collected except by authority of law". This further rendered the provisions of taxing enactments

liable to be tested on the touchstone of fundamental rights and laid open executive,

administrative and quasi-judicial action under taxing statutes also amenable to judicial review

under Articles 32, 136, 226 and 227 of the Constitution.

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FORMATION OF BENCHES Bench as a rule is to consist two-members--one Judicial and one Accountant Member. Wealth

tax Act and the Gift Tax Act introduced in sixties however did not specifically require the Bench

of one members each of a class and it may a bench of any two members, Judicial or Accountant.

A provision was also made for the constitution of special three-member Benches (consisting of

two members of one class and one of the other) and enabling a single member (judicial or

accountant) authorised in that behalf, to dispose of small appeals. Appeals against assessments,

which concerned a total income of less than Rs, 15000/- fell in this category previously but, in

the 1961 Act, the above figure was raised to Rs.25,000/-. From 1.4.1971 to Rs.40000, from 1-4-

1989 to Rs. 100,000 and from 1-10-1998 to Rs. 5,00,000. To start with six Members constituted

only three benches, one at Delhi having jurisdiction over Northern India, UP and Delhi; another

at Kolkata (Calcutta). Which had jurisdiction over Bihar, Bengal, Orissa, Assam and Madras;

and the third at Mumbai (Bombay)? The first sitting of the Benches was on 2~ April, 1941. The

fourth Bench was created at Allahabad in 1942. The number of benches has since progressively

gone up. The Tribunal has at present 53 Benches at 25 different stations covering almost every

city having a seat of the High court.

QUALIFICATIONS FOR APPOINTMENT OF MEMBERS

The newly added Chapter constituting the Tribunal provided under sub-section (3) of section 5A,

as to what would be the qualifying requirements for the classes of members. A Judicial Member

was required to be a person who has exercised the powers of a District Judge or who possessed

such qualifications as are normally required for appointment to the post of a District Judge; and

an Accountant Member, a person who has, for a period of not less than six years, practiced

professionally as a Registered Accountant registered under the Auditors Certificate Rules, 1932.

Central Govt. was given the power to appoint any other person, an Accountant Member, on its

satisfaction that the person had the qualification and experience of a character rendering him

suitable for appointment to the Tribunal. Appellate Assistant Commissioners were to be

considered under this category.

In 1953, the originally required qualifications were recast. A Judicial Member would be a person

who has for at least ten years either held a civil judicial post or been in practice as an advocate of

a High Court; and an Accountant Member to be a person who has for at least ten years been in

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the practice of accountancy as a Chartered Accountant under the Chartered Accountants Act,

1949 or as a registered accountant under any law formerly in force or partly as a registered

accountant and partly as a Chartered Accountant. Power of the Central Government to appoint as

an Accountant Member of the Tribunal any person not possessing the prescribed qualifications

was retained. Thus a Judicial Member had to fulfill the qualifications necessary for appointment

as a High Court judge [See Article 217(2) of the Constitution of India] and an Accountant

Member from the profession had to have ten years' practice.

The 1961 Act introduced a third category of persons as a source for recruitment of Judicial

Members and, in the place of the far-reaching proviso to section 5A(3), defined the category of

officers of the Income-tax Department who could be taken in as Accountant Members. Section

252(2) reads:

           "A judicial member shall be a person who has for at/east ten years held a civil judicial

post or who has been a member of the Central Legal Service (not below Grade Ill) for at least

three years or who has been in practice as an advocate for at least ten years; and an accountant

member shall be a person who has for at least ten years been in the practice of accountancy as a

Chartered Accountant under the Chartered Accountants Act, 1949 or as a registered accountant

under any law formerly in force or partly as a registered accountant and partly as a Chartered

Accountant; or who has sewed as an Assistant Commissioner of Income-tax Act for at least three

years"

It will be noticed that, as a result of the changes referred to above, an officer of Grade Ill of the

Central Legal Service with three years' service became eligible to be appointed a Judicial

Member. Again. though initially attempts were made to appoint Accountant Members from the

accountancy profession, the response was apparently not encouraging and so the proviso to

section 5A(3) was availed of till 196210 appoint Assistant Commissioners and some

Commissioners as Accountant Members and the 1961 Act directly enabled Assistant

Commissioners with three years' standing to be considered for the appointment.

The qualifications for recruitment of members were again revised by the Finance Act, 1981.

Section 252, as substituted by this Act, reads as follows:

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(2). A judicial member shall be a person who has for at least ten years held a judicial office in

the territory of India or who has been a member of the Central Legal Service and has held a post

in Grade I of that Service or any equivalent or higher post for at least three years or who has

been an advocate for at least ten years.

Explanation: For the purposes of this sub-section,

(i) in computing the period during which a person has held judicial office in the territory of

India, there shall be included any period, after he has held any judicial office, during which the

person has been an advocate or has held the office of a member of a Tribunal or any post, under

the Union or a Stale, requiring special knowledge of law;

(ii) in computing the period during which a person has been an advocate, there shall be included

any period during which the person has held judicial office or the office of a member of a

Tribunal or any post, under the Union or a State, requiring special knowledge of law after he

became an advocate

This is substantially the same if compared with Article 217(2) of the Constitution of India, as it

stands after the 44h Amendment of 1978 providing for the qualification for appointment of a

judge of the High Court)

(2A) An accountant member shall be a person who has for at least ten years been in the practice

of accountancy as a chartered accountant under the Chartered Accountants Act, 1949 (38 of

1949], or as a registered accountant under any law formerly in force or partly as a registered

accountant and partly as a Chartered Accountant, or who has been a member of the Indian

Income-tax Service, Group A and has held the post of Commissioner of Income-tax or any

equivalent or higher post for at least three years."

In 1998 the qualifying conditions were revised entitling even an Additional Commissioner of

Income tax with 3 years standing and also a Grade II officer in Indian Judicial services to be

appointed as member of the Tribunal. Mixed reactions are there for this lowering down of the

eligible criteria for appointment of the members of the Tribunal. One section says it gives a

wider scope for selection and to find the talent suitable for the Tribunal. The other section

however maintains that it lower down the status of the Tribunal more particularly when an

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appeal is provided against its orders to the High Court as against the reference for opinion on a

question of law and its decision on facts continue to be final.

TENURE OF APPOINTMENT & SELECTION PROCEDURE

Originally, the Members of the Tribunal were appointed on tenure basis, the contract being for a

period of five years. The selection of the Members of the Bench was at that by requesting the

Chief Justice of the various High Courts and also Commissioners of the provinces asking them

to nominate a person who is qualified to be a High Court Judge and who's not immediately

required to be on the Bench of the High Court at least for a period of one year. The Chief

Justices of the various High Courts sent the names of the Members of the Bar whom they

considered eligible. Similarly the Commissioners of the Provinces also sent the names of such

persons who were, in the opinion of the Commissioners concerned, eligible for appointment

from their status in the Bar and from their income point of view and erudition. The request was

also for nomination of Accountant Members and this was addressed to only Commissioners as

they were the more likely persons who were to know about the Chartered Accountants. The

names were to be finally selected by the Law Member and the Finance Member on the

recommendation of their respective Secretaries who were to put up a note after perusal of the

various recommendations. Sir John Sheedhy was the Chairman of the Central Board of Revenue

whose voice finally counted in the selection of the Accountant Members and as far as the

Judicial Members were concerned the Law Member was the person to have the final say. Chief

Justices of the various High Courts made the recommendations.' The selection of Members for

the Tribunal took a considerable time and it could not be constituted earlier than the 15th of

January, 1941. The announcement of the Members selected was made sometimes in September

on the All India Radio. This manner of announcement was due probably to the important role

which the Tribunal was to play in the field of taxation laws.

Since 25.2.1950 appointment is made on a permanent basis in a regular cadre. The President, and

its member now hold office till the date of their superannuation namely. On attaining the age of

62 years. The other staff retires on attaining the age of 60. The recruitment was by a High

Powered Selection Committee constituted for the purpose which included sometimes a member

of the Union Public Service Commission and sometimes the Minister or Minister of State for

16

Law. Finance Member Sir Jeremy Raisman in reply to a question asked by one of the Hon'ble

Members of the Central Legislative Assembly-'On what basis the selection of the Judicial

Members was made' stated 'it depend upon the warmth with which the Chief Justices of the

various High Courts made the recommendations.

PRESENT RULES FOR SELECTION

In 1963, the rules were revised and the recruitment is now made by a Selection Board presided

over by a sitting judge of the Supreme Court nominated by the Chief Justice of India, and

having, as its other members, the Secretary to the Ministry of Law and the President of the

Tribunal. Law Minister has been given an option to nominate two more members on the

Selection Board. After the constitution of such a high powered Selection Board, no one could

have any valid criticism of selections and appointments. It may also be mentioned that many of

these members have distinguished themselves in various ways. A number of Accountant

Members also studied and acquired the Master's degree and Doctorate in Law. Some of the

members and other staff have received other assignments and deputations.

For smooth and better running the Tribunal is divided in various zones. The headquarter being at

originally at New Delhi but since 1952 at Mumbai. At the top there isa President, followed by a

Senior Vice President Vice Presidents and members in the judicial functioning and thereafter the

supporting staff. These are:

a)PRESIDENT: 

The Tribunal is headed by a President who administer its functioning, constitute various Benches

and decide their places of sitting. Originally as provided in sub-section (4) of section SA only a

Judicial Member could become the President of the TribunaL An amendment of the year 1953

also removed the previous restriction that only a Judicial Member could become the President

and provided, nstead, that ordinarily' a Judicial Member should be appointed President, thus

making it possible, in certain circumstances, for an Accountant Member also to be appointed

President. Shri P C Malhotra became the first president out of the Accountant Member. Since

then there has been no distinction is made between a Judicial Member and an Accountant

Member. The present President of the Tribunal Mr. V Dongzathang is also an Accountant

17

Member. The names of the Members of the Tribunal and their period of tenure are given in

annexure.

b) SENIOR VICE PRESIDENTS & VICE PRESIDENTS 

In 1972, the section was amended to create the posts of Vice-Presidents. Four such posts were

created and the four Vice- Presidents were placed in charge of four zones, namely, North, East,

West and South. The administration decentralized to some extent by delegation of certain

powers by the President to the Vice Presidents. In 1984 to further decentralize the administration

the post of a Senior Vice President with equivalent pay and status to that of a President of the

Tribunal was created. In 1997 four more zone and four more post of vice presidents were

created- one each at Ahmedabacj, Hyderabad, Chadigarh and Banglore. Due to the low

pendency and administration of work the last mentioned zone was abolished in 2000 and was

shifted to Mumbal .

c) MEMBERS OF THE TRIBUNAL: 

Originally the constitution and appointment of the members of the Appellate Tribunal as

provided in section 5A is that the Tribunal was to consist of not more than ten persons, made up

of an equal number of judicial and Accountant Members. In exercise of this power, the Central

Government appointed four persons including Shri Mohammad Munir, as President and three

others as Members of the Income-tax Appellate Tribunal, with effect from 25?' January, 1941.

Two more Members were appointed with effect from 24th February, 1941. One of them died

before he could sit on the Bench and a third person was appointed in his place with effect from

18?' April, 1941. In 1949 an amendment was made removing the ceiling on the number of

members. There have been so far a total number of members with a present sanctioned strength

of 106 members actual strength being 83 as on day.

d)OTHER SUPPORTING STAFF

Apart from the President, Senior vice president, Vice- Presidents and Members, the work of the

Tribunal is carried on by a loyal and sincere staff consisting of about 900 persons, headed by a

18

Registrar. The Registrar is assisted, in the regional offices by the Deputy Registrars and, in each

station, by one or more Assistant Registrars depending upon the number of Benches. The total

sanctioned personnel strength of the Tribunal at present is 1010 including the President and the

members.

INDEPENDENT FUNCTIONING OF TRIBUNAL

To begin with, the Finance Department of the Government of India (the Central Board ot

Revenue) was initially in charge of the Appellate Tribunal. However, from 30th May, 1942 in

respect to public opinion, the Appellate Tribunal was put in the charge of the Legislative

Department, the predecessor of the present Ministry of Law, Justice & Company Affairs of the

Government of India. As slated by Shri R. S. Gae, Law the then Secretary Ministry of Law, the

Appellate Tribunal is functioning as an independent authority without any interference by any

Ministry or Department of the Government of India in the discharge of the functions entrusted to

it by law or otherwise. This is now affirmed by the Supreme Court of India in the case of TAT

vs. V K Aggarwal 235 ITR 175 (SC) wherein the proposition that the Tribunal's functioning was

under the administrative control of the executive wing of the Govt. i.e.. Ministry of Law, Justice

& Company Affairs was not accepted and it was held that the Union Law Secretary has no

control over the judicial functioning of the Tribunal. It was conceded before the Supreme Court

in this case that Tribunal did perform judicial function and 'I was court subordinate to the High

Court. Rajasthan High Court has equated the Tribunal members to the members of judicial

services i.e., District Judges.

On the Tribunal's Silver Jubilee inaugural address, the Hon'ble Shri Amal Kumar Sarkar the then

Chief Justice of India also stated “There may be people who feel that the Tribunal is not in the

full sense a judicial body / venture to think that none of them is an assessee. I also venture to

think that such a notion is superficial and stems from the want of knowledge of the actual

working of the TribunaL The judges who preside over the Tribunal are capable men, men of

character and integrity. Anything that is unjudicial is quite foreign to them. The presiding

Officers of the Tribunal are selected by a body of experienced men presided over for some years

now by a Judge of the Supreme Court. This should be a guarantee that the r~ht type of men are

selected. The Ministry of Finance which is in charge of the collection of taxes has no control

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over that body or the Tribunal. The Tribunal is under the Ministry of Law for the purposes of

administrative control only. That Ministry is not interested in the collection of taxes and does not

exercise any control over the judicial work of the Tribunal. The members of the Tribunal are

divided into two classes, called Judicial and Accountant. The Judicial Members are selected

from members of the legal profession wh?have specialised in tax matters, and also from the State

Civil Judiciary. The present President of the Tribunal, Mr. T P., Mukerjee, before he joined the

Tribunal, was an illustrious member of the State Jud?iary of Bihar, having last held the office of

a District and Sessions Judge in that State. I suppose people so selected can be expected to be as

independent as anybody else. The Accountant Members of the Tribunal are selected from among

the higher officers of the Income Tax Department, usually Commissioner and senior Appellate

Assistant Commissioners and from the practising Chartered Accountants. So far as the later are

concerned, there can be no reason to think that they cannot be independent. The independence of

the members recruited to the Tribunal from the officers of the Income Tax Department is secured

by so arranging things that they cannot look forward to anything from the Income Tax

Department or the Ministry of Finance they cannot go back to higher posts in that Department.

Their promotion and tenure of office are not control/ed by the Ministry of Finance. These are in

the hands of the Ministry of Law".

Presenlly even the selection and promotions both are by the same high powered committee

headed by a senior judge of the Supreme Court nominated by the Chief Justice of India. Tenure

of the office of the Members as aforesaid is a fixed tenure, namely, the age of superannuation

(62 Years). Therefore neither the selection nor the tenure nor the promotions are in exclusively

under the control the control of Ministry of Law, Justice & Company Affairs.

PAY SCALE AND SERVICE CONDITION IN THE TRIBUNAL

If the process of strengthening the Tribunal by increasing the number of its Benches was slow in

catching up with the increase in the magnitude of work before it, the process of improvement of

the salary and conditions of service of the members and staff also did not keep pace with the

needs of the situation. The Government, no doubt, had sanctioned increase of pay of the

members from lime to lime but, at one stage, there was a feeling among the members that their

salary was not commensurate with their increasing responsibilities under several enactments and

20

the fact that, consequent on the amendments to the Income-tax Act, they had become

empowered to hear and dispose of appeals against the orders of the Commissioners of Income-

tax in appeals and revisions. However, a revision effected in 1973 and another sanctioned

thereafter in 1981,1986 and in 1996 seem to have set right any imbalances that may have

prevailed earlier. The chronology of the revisions is briefly referred to below for the sake of

completeness.

PAY STRUCTURE OF THE MEMBERS OF THE TRIBUNAL

YEAR MEMBER VICE PRESIDENTSR.VICE

PRESIDENTPRESIDENT

1941 2,500 - (consolidated) N/A N/A 3,000

1948 1800-100-2000 N/A N/A 2,250

1-9-

19601800-100-2000 -125-2250 N/A N/A 2,750

1-1-

19662000-100-2500 N/A N/A 3,000

1-1-

19722000-100-2500 N/A N/A 3,000

1-4-

19813000 3,250 NA 3,500

1984 3,000 3,250 3,500 3,500

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1-1-

19867300-100-7600 7,600 8,000 8,000

1-1-

199622,400-600-26,000 24,050-650-26,000 26,000 26,000

1-1-

2006

75,000-80,000

(Grade Pay 0)

75,000-80,000

(Grade Pay 0)80,000 (Fixed)

80,000

(Fixed)

BENCH-WISE JURISDICTION

To start with, the Tribunal had jurisdiction over the provinces of British India. After the

Partition, the provinces or parts of provinces which were transferred to Pakistan were excluded

from its jurisdiction. Thereafter as a result of the integration of the Princ&y Slates with and the

merger of the funnier French and Portuguese Possessions in the Indian Union, the jurisdiction of

the Tribunal extends to the whole of the territory of India. For facility of work different Benches

are assigned specified territories. The original three benches were at Delhi, Calcutta (Kolkata)

and Bombay (Mumbai). Messrs. Mohd. Munir and Sahgal sat over Delhi Bench which had

jurisdiction over Northern India, UP. and Delhi. Messrs. Ram Prasad Varma and P.N.S.Aiyar

were members of the Calcutta Bench which had jurisdiction over Bihar, Bengal, Orissa, Assam

and Madras. Messrs. Malhotra and Gundil had their sittings at Bombay. The headquarters of the

Tribunal was at Delhi [it was later shifted to Bombay and is still located there. Each bench had to

do extensive travelling to do the work at several places. The territorial jurisdiction of the

Tribunal underwent changes from time to time.

RULES & REGULATIONS

The announced designated members met initially in New Delhi under the designation of Special

Officers for a period of one month, during which the rules of the Tribunal were framed and the

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places of sitting decided upon. The rules were notified in the gazette of India dated 1St February,

1941 These were amended from time to time and the same are now find reported in all leading

law books. Broadly these deal with sitting of Benches, powers of bench and registrar, procedure

of filing appeals, stay applications, misc, applications etc., of filing paper book, evidences in

support of facts relied upon including additional evidence, additional grounds, hearing of appeals

and misc, petitions, authorised representatives, their dress code etc. etc.

REPRESENTATION PROCEDURE

The Tribunal would mould its own rules of procedure and dispose of appeals and reference

applications with the assistance of the "authorized representatives” of the parties. Section 61 of

the Act permitted an assessee to be represented before the Tribunal by (a) a relative of the

assessee, (b) a person regularly employed by the assessee , (c) a lawyer, (d) an accountant or (e)

an income-tax practitioner. This last category gave continued recognition to persons who had

been attending before Income-tax authorities prior to 1-4-1938 on behalf of assessees otherwise

than as an employee or relative. It also gave recognition to persons who pass a recognized

accountancy examination or acquire certain prescribed educational qualifications, The Tribunal

provided by its rules that the Income-tax authority , which was a party before ii, could be

represented by a person (usually an Income-tax officer) [in recent years, an Additional / Deputy

Commissioner assisted by an Income-tax Officer duly appointed for the purpose by the Central

Government by a Gazette notification or any other person acting on his behalf. Thus came into

being a quasi-judicial institution whose members provided the accountancy as well as legal

expertise needed for an effective scrutiny of accounts and financial documents and the

application of the relevant law to the facts of the case. The easy accessibility of the Tribunal not

only to lawyers but also to accountants and other less qualified laymen combined with the

simplicity and directness of the few rules framed by the Tribunal was calculated to provide an

informal atmosphere and facilitate the smooth functioning of the Tribunal.

OFFICAL PUBLICATION or TRIBUNAL DECISIONS I.e., "ITD"

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consultation with the Tribunal, for the reporting of the decisions of the various benches. This

suggestion, made in 1944 posed several practical hurdles. Only in 1982 the then president of the

Tribunal Sb. T O Sugla was successful and gave shape to the idea of putting of Tribunal’s orders

with the help Mr. Shargava of the Taxman. It is with a view to avoiding/ minimizing conflicting

decisions at different benches, to bring uniformity in its decisions and reducing the unnecessary

wastage of time in repetitive arguments. It is continuing since then very successfully and

affording a very valuable guide to the appearing counsel and the litigating public. An editorial

board is constituted at Delhi for editing various orders received from various centers and marked

by the bench concerned or the vice president, senior vice president or the president as the case

may be. Every year tour volumes are published and volume 76 is in current these days. Each

volume contain about 60-70 decisions of the benches including the Special Benches and Third

Members. Besides Taxman and CTR publications, the ITR publication has started publishing the

Special Bench and Third Member decisions in their reports along with decisions of High Courts

and Supreme Court

ELEVATION FROM TRIBUNAL

Mr. Mohammad Munir who was the first President of the Income-tax Appellate Tribunal was

within two years elevated to the Lahore High Court; later he became the Chief Justice of the

Lahore High Court and ultimately rose to the position of the Chief Justice of the Pakistan

Supreme Court which chair he adorned for many years. The next President Khan Bahadur Yahya

Au was also elevated to the Madras High Court in March, 1945. His successor Mr. A. N. Shah,

CS. was twice offered a place at the Nagpur High Court, as it then was, but he declined the offer.

Mr. S. C. Manchanda was the President of the Tribunal until the 4th August, 1961, on which

date he became Judge of the Allahabad Nigh Court. There has been elevation of 30 judges to

various High courts so far, the last being Mr. S A Anand Reddy in High Court of Andhra

Pradesh. (APPENDIX ii). It is significant to note that the qualifications to become a member in

the Income Tax Appellate Tribunal are almost the same which are prescribed for appointing a

High Court judge and the tribunal members posses the required qualifications to be considered

for the appointment as Judge of High Courts within the meaning at Article 217 of the

Constitution of India. Explanations (a) & (aa) thereto provide that in computing the period

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during which a person has been an Advocate or held any Judicial Office, the period during which

he has held the office of a Member of a Tribunal after he has become an advocate is to be added.

Many at the members of the Tribunal besides holding the Bachelor of Law and Master of Law

Degrees have also been qualified as Chartered Accountants and joined as Members after they

became advocates and have thus in-depth understanding of both the law and accountancy in

dealing with tax litigation.

AREA OF OPERATION

Primarily, the Tribunal was set up to dispose of appeals arising from assessments under the

Income-tax Act. When other direct taxes, viz. Excess Profits Tax, Business Profits Tax, Wealth?

tax Act, Gill Tax Act, Expenditure Tax Act, Super Profits Tax Act were introduced from time to

time, orders of the Appellate Assistant Commissioner under all these Acts were made appealable

to the Tribunal. Orders passed by the Appellate Controller of Estate Duty are also appealable to

the Tribunal. Orders prejudicial to assessees passed by the Commissioner in exercise of his

Revisional Jurisdiction also come up in appeal to the Tribunal. The Tribunal is thus functioning

at present as the appellate Tribunal for all direct taxes including Estate Duty.

AWARDING COST

The Investigation Commission under the chaimanship of Sir Srinivasa Vardhachariar was in

favour of the Tribunal having the power to award costs in the appeals before it and also to grant

refunds of the whole or pail of the lest paid by an appellant or applicant for reference, depending

upon the degree of success obtained by him. The first part of the suggestion has been

implemented in 1998 by the Finance (No.2) Act but the other recommendation has not been

accepted so far4.

 

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26

CHAPTER-3

ROLE OF THE INCOME TAX APPELLATE TRIBUNAL

WHY TRIBUNAL ?

Income-tax is a major source of revenue. It is also a direct token of the citizen’s contribution to

the development of the country. Over the years, tax laws are grown in complexity and with it has

grown the need for fair and dispassionate interpretation of the laws. The Income-tax Appellate

Tribunal has made a useful contribution in this field the Income Tax Appellate Tribunal with its

branches spread all over the country has an important role. It has to preserve the interests of

revenues to the State, to prevent harassment to the tax-payers and to render better service and

quicker justice to the citizen and the State alike.

The Tribunal has been in existence for over 68 years and during this period it has acquired high

prestige and reputation not only amongst the lawyers practicing before it but also amongst the

assesses as well as the department. It has been able to inspire confidence in the public mind in

regard to its caliber, integrity and independence. It has been doing justice boldly and fearlessly

and many decisions given by it has involved large monetary stakes and yet it has not hesitated to

decide in favour of the assesses. The greatest tribute was paid to it some years also when the

assesses and the leading income-tax practitioners strongly opposed a suggestion put forward by a

retired Chief justice of India that appeals on questions of law should be directly to the High

Court from the decisions of the Appellate Assistant Commissioner without the intervention of

the Income-tax Appellate Tribunal. The reason why the Income-tax Appellate Tribunal has been

able to acquire such large credibility with the people is that the appointments of the Members of

the Tribunal are made by a high powered selection authority presided over by a sitting Judge of

the Supreme court nominated by the Chief Justice of India in view of this mode of selection,

there is no scope for nepotism, corruption or political patronage and selections are made purely

on the basis of merit and competence.

27

AS AN EXPERT IN THE FIELD

The ability and expertise of the Income-tax Appellate Tribunal have enabled it to pronounce

numerous decisions which have really given a new direction to taxation laws and opened up

new vistas of thought. The law relating to Income-tax and other direct taxes has grown and

developed as a result of the vision and insight of the Tribunal. The Tribunal functions as a

judicial body under the Ministry of law and is entirely beyond the control of the Income-tax

Department. Happily, it is fully insulated from the pressures and influences of both bureaucrats

and politicians. The Tribunal has shown great independence and courage in deciding cases

according to law and in consonance with justice, regardless of the stakes involved. In short, it has

fulfilled the purpose for which it was brought into existence and fully justified the high

expectations with which it was concerned.

Administrative justice demands compromise. There is no pre-determined solution to the

problem of tempering power with justice. The Tribunal has rightly earned the reputation of

tempering judicial power with justice. It has evolved an economical, quick and informal

procedure for doing justice as between the State and the citizen to great public satisfaction. In

other words, it has acted as a Court of law in everything but name, while avoiding the regular

process of civil law which is too cumbersome, technical and expensive.

FINAL FACT FINDING AUTHORITY

The Tribunal is the final fact finding authority and if it goes wrong the party is virtually left with

no remedy. A reference to the High Court presupposes a pure point of law or a point of law of

substantial importance but if on an appreciation of evidence much is to be decided then there

arises a dead lock. In all judicial proceedings it is a well settled principle of law that the quality

of the order that is passed must demonstrate a total application of mind by the authority who has

passed the order. Where a sufficiently high authority such as the Tribunal is concerned a high

sense of responsibility must pervade the order at all times. There has to be proper consideration

28

of the facts and an appreciation in the manner prescribed by law which is not to be careless and

more importantly, the application of all the well defined principles that govern the case.

Tribunal to consider case carefully and to give a well reasoned order. Order must indicate

that mind has been applied to factual aspects of the case. Recording of reasoning or findings is

basic in a judicial order. The Tribunal as the ultimate fact finding authority, has a very high

degree of responsibility cast on it because correction of errors thereafter in many cases is not

possible. When there is a legal duty enjoined on a forum that duty is liable to be discharged and

cannot be bypassed. Since an issue of fact is also intertwined with a legal aspect it is incumbent

on the Tribunal to consider the case on the merits and pass a well reasoned order. Even in cases

where the appellate authority reaches a finding that interference is not necessary, the order need

not be long but the quality of the order must indicate that the authority has applied its mind to all

aspects of the case factually and legally and that there is justification for its decision irrespective

of whether it concurs or differs5.

The Tribunal being the final fact finding authority is expected to apply its mind to the

contentions and issues and give a separate finding on each issue. The fact that the order of the

Tribunal from independently examining the issues and then discussing the same.

The Tribunal while passing orders cannot gloss over important matters in a one sentence

statement that these judgments are distinguishable. Even assuming that the judgments are either

not applicable or distinguishable, it is a well defined procedure that applies to all judicial forums

that it is essential to record what the judgments in question are, or a brief summary of the

contentions raised and to record the findings thereon. It is not permissible to merely brush aside

important legal issues or to disregard them as it will become impossible for the next higher

authority to be able to decipher as to what is the ground on which the Tribunal rejected a

particular contention. When the Tribunal was to dislodge the order passed by the appellate

authority it was obligatory on the part of the Tribunal to demonstrate as to how the findings

recorded by the appellate authority were not consistent with the facts and the provisions of law.

It was obligatory on the part of every appellate authority to point out by good 123and acceptable

reasoning as to how the facts and circumstances of one case happened to be different from other

cases. It was improper to close the doors to a litigant by a casual treatment of some statements

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moving towards a conclusion that the precedents on which such litigant relied were different

from his case. The Appellate Tribunal is a judicial body exercising judicial powers under the

statute. It is not empowered to employ its jurisdiction arbitrarily. Whatever it does must be done

in consonance with sound judicial principles and in accordance with well accepted doctrines

applicable to judicial bodies. The power conferred on the Tribunal by section 254 to pass

“such orders thereon as it thinks fit” in respect of an appeal before it must be exercised

within the limits which can be discovered by reference to the jurisdiction of the authority whose

order has given rise to the appeal. If a provision is in the statute book when the question come up

for decision before the Tribunal, even though the assessee may not specifically refer to such

provision, the Tribunal ought to have considered and referred to such provision. It is the duty of

the Tribunal to consider the law as it existed then even though the assessee failed to bring it to

its notice6. [Kerala Chemicals & Protein Ltd. vs. CIT (1999) 235 ITR 467 (Kerala); CIT vs.

Mahalakshmi Sugar Mills Co. Ltd. (1986) 160 ITR 920 (S.C.)].

REPLACEMENT OF THE COURT

Strictly speaking the Appellate Tribunal is not a Court but has all the trappings of the Court of

law. The Appellate Tribunal performs judicial act in judicious manner. The Tribunal is the final

fact finding authority. Its finding on facts is final and no appeal lies to the Hon’ble High

Court.The powers of the Appellate Tribunal are very wide but there is no power of enhancement.

All questions, whether of law or of fact which relate to the assessment of an assessee may be

raised before the Tribunal. In disposing of the appeal, the Tribunal has the power to give

appropriate directions and to pass such orders as it thinks fit, after giving an opportunity

of being heard to both parties to an appeal. The powers include the power to annul an

assessment order or set it aside. The powers have been expressed in the widest possible terms

similar to the powers of the Civil Appellate Court u/s. 96 and order 41 of the Code of Civil

procedure. Duty is to avoid multiplicity of proceedings and to make a detailed well discussed

order after incorporating facts emerging from records, considering the 111arguments raised by

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both the parties and the judicial precedents cited at the time of hearing. The Tribunal being a

final fact finding authority has to consider and decide all issues that are brought before it. It

cannot decide only one issue arising out of many issues and decline to go into the other issues

raised before it on the ground that further issues will not arise in view of the finding on the issue

decided by it. If the Tribunal declines to consider and decide the other issues it will only protract

and delay the proceedings for the assessee has to get the decision of the Tribunal on the initial

point set aside by approaching the High Court and thereafter, again go back to the

Tribunal for a decision on other issues left undecided by it earlier. This will amount to

multiplicity of proceedings. It is desirable that the Tribunal should avoid disposing of matters on

preliminary issues alone, without deciding all the issues raised before it and it should, as far as

possible express its view on all points raised before it, so that the higher Courts have the benefit

of its decision on other points also, if necessary. Some relevant case laws on the subject are: The

Tribunal must consider all the material and not only a part of it. Udhavdas Kewalram vs. CIT

(1967) 66 ITR 462 (SC)It is not only the duty of the Tribunal to examine the material facts but

also to come to a legal conclusion that the facts do not justify the allowance or disallowance of

an expenditure7. CIT vs. Turner Morrison & Co. (P) Ltd. (1974) 93 ITR 385 (Cal).

The Tribunal should not rest its conclusion merely on legal views without recording findings on

matters of facts. Simhadri Narasingh Prusty & Ors. vs. CIT (1971) 79 ITR 219 (Orissa) The

Tribunal being the final authority on facts, it is necessary and it is the requisite of the law that in

disposing the appeal, it clearly sets out the facts, the contentions of the assessee as well as the

revenue and deals with each of such contentions with reference to the facts, circumstances and

relative evidence and records its findings with reasons therefor on each contention. E. A.

Venkataramier & Sons vs. CIT (1967) 65 ITR 316 (Mad)8

The Tribunal is under a duty to decide all questions of fact and law raised in the appeal before it.

For the purpose it must consider whether on the materials relied upon by the assessee his plea is

made out. The Tribunal cannot make arbitrary decisions; it cannot base its judgements on

conjectures, surmises or speculation. Between the claims of the public revenue and of the tax-

payers, Tribunal must maintain a judicial balance.

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Esthuri Aswathiah vs. CIT (1967) 66 ITR 478 (SC)

The Tribunal must decide cases in a judicial spirit and record reasons in support of its decision.

CIT vs. Walchand & Co. (1967) 65 ITR 381 (SC)

The orders of the Tribunal must be self contained and set out in full the facts and the reasons for

arriving at a decision. Reference to earlier orders are unhelpful because at the time of hearing,

these orders are not placed before the Court and it will not therefore be possible to appreciate the

Tribunal’s views in these matters. 112

CIT vs. Guntur District Co-operative Marketing Society Ltd. (1985) 154 ITR 799 (AP)

On no account whatever should the Tribunal base its findings on suspicions, conjectures or

surmises or on no evidence at all or on improper rejection of material and relevant evidence or

partly on evidence and partly on suspicions, conjectures or surmises and if it does anything of the

sort, its findings even though on questions of fact will be liable to be set aside by the Court.

Omar Salay Mohamed Sait vs. CIT (1959) 37 ITR 151 (SC)

An order of a judicial authority like that of the Appellate Tribunal is a solemn one and the

Tribunal should devote great care in expressing it.

M.R.M. Periannan Chettiar vs. CIT (1960) 39 ITR 159 (Mad)

The order of the Tribunal should embody a complete picture of what happens at the hearing. If

a point is argued it should be dealt with and disposed of in express terms however weak

the argument or baseless the contention. The Tribunal being the final fact finding authority it is

desirable that its views on facts should be stated comprehensively to cover all points in

controversy. Omissions in the order can give rise to questions of law.

Senairam Dongarmal vs. CIT (1956) 29 ITR 122 (Assam)

The Tribunal in deciding a case should not be unduly influenced by trivial procedural

technicalities. The memo of appeal should be liberally seen and entertained. No specific formula

is necessary for seeking relief at the hands of a Court or Tribunal, if the necessary grounds have

been taken in the appeal memo.

32

In Manibyrabha vs. CIT (2004) 265 ITR 560 (Ker), the Court held that it is the duty of the

Tribunal to pass a reasoned order, in this case the Hon’ble Tribunal has not discussed the cases

cited before it. The Hon’ble High Court set aside the order of the Tribunal.

It is the duty of the Tribunal being the highest appellate Tribunal exercising the appellate

jurisdiction under the I.T. Act to examine the issue, both of law and fact in right perspective and

in detail. It must appear from the order passed by the Tribunal that sincere efforts were made to

decide the issue that fell for examination, keeping in view the law laid down by Apex Court in

its right earnest. Mere reference of a citation in the order for recording a finding is not enough.

It is never regarded as a case observing judicial discipline. Any finding whether on facts or in

law if recorded cursorily and without assigning reasons can never be regarded as judicial finding.

It is incapable of being sustained in higher courts in heirarchy.

During the last few years, it has been noticed that some Members of the Tribunal interrupt, do

not give patient hearing and want counsels to curtail their submissions/arguments though

appropriate on the issues involved in the wisdom of the arguing counsel. Some orders are brief,

do not set out the arguments made on both sides, their analysis and discussion on the citations.

Such attitude on the part of some of the Hon’ble Members spoil the image and reduce past glory

of the Tribunal.

A representation was made by the Federation and corrective measures are being taken by the

President. The speeches of Shri A. Kalyanasundharam, Senior Vice -President on “Conventions

in the Tribunal” and of Shri J. P. Bengra, Vice President 113on “A Time to Introspect” at the

Members meeting (87 ITD Special Issue page 13-19 and 29-34 respectively) lay down the

guidelines and are inspiring and call upon Members to perform their duty in a judicious manner

with smile and dispense justice.

ROLE OF TRIBUNAL IN REVENUE MOBILISATION

It is the fact that an effective tax judiciary has a key role to playing achieving both of these

objectives. A quick and fair resolution of disputes, between the taxpayers and tax collectors, by

itself, is perceived as a tax incentive by the taxpayer - as the agony of uncertainty is not allowed

33

to persist for long and as the taxpayer is assured of a just and fair determination of tax liability

scrutinized by an independent and unbiased forum. In developing economies, one of the biggest

problems is a relatively small tax base and the reluctance of ordinary people to even file tax

returns and thus submit themselves to scrutiny of their affairs by the tax administration. Once a

taxpayer has faith in the effectiveness of legal remedies against an unjust tax levy or unjust

action of the taxation authorities, he is more likely to be truthful and honest to the taxation

authorities, and to accept a reasonable levy of tax.The degree of taxpayer satisfaction does,

therefore, go up which, in turn, is a sine qua non for better voluntary compliance resulting in

greater resource mobilization. While on the surface a tax judiciary inherently deals with the

involuntary collections enforced by a tax administration, an efficient tax judiciary actually

creates a conducive atmosphere for better voluntary compliance by the taxpayer and, thus, for

greater resource mobilization by the State9. A tax administration which disposes of appeals

promptly and reaches a fair and final settlement speedily is itself entitled to be classified as a tax

incentive.

To a tax collector, an efficient tax judiciary ensures that demands arising out of legitimate tax

assessments, which can stand scrutiny of law, are not unnecessarily locked up in litigation. As

long as there is a pending litigation in relation to a particular tax levy, there is a natural, and quite

understandable, desire on the part of the taxpayer not to pay the amount which is disputed while

the dispute thereon is pending. An efficient tax judiciary resolves the disputes quickly, quashes

the demands which are not legally sustainable, and thus segregates serious tax demands from

frivolous tax demands, as also giving finality to legitimate tax demands. This in turn ensures that

the taxpayer cannot resort to dilatory tactics for paying these genuine and legitimate tax demands

which have received judicial approval. An efficient tax judiciary thus helps removing

impediments from collection of tax demands by the State, which, once again,results in greater

resource mobilization.

An effective tax judiciary does not only settle the tax dispute between a taxpayer and the State,

but it also lays down the principles on the basis of such disputes are resolved which provide

guidance for future. These decisions, which have precedence value in the sense that same

decision has to be taken on materially identical facts, also have normative effect and these

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decisions thus help in judicial course correction10. This way, an effective tax judiciary also

contributes to smooth functioning of the tax machinery.

CHAPTER-4

CHALLENGES FACES BY THE ITAT AND THE ROAD AHEAD

The Income-tax Appellate Tribunal is an outstanding example in this country of what an

Appellate Tribunal should be. It has developed traditions over the years which have

uniformlyinspired public confidence, not only by the high quality of adjudication but also by the

expeditious manner in disposing of its work. Income tax tribunal has been in existence for over

69 years and during this period it has acquired high prestige and reputation not only amongst the 10 www.deloitte.com/.../ tax /4fa1666b1d2cc210VgnVCM2000001b56f00aRCRD.htm ( january12,2011)

35

lawyers/CA practicing before it but also amongst the assessees as well as the department. It has

been able to inspire confidence in the public mind in regard to its caliber, integrity and

independence. It has been doing justice boldly and fearlessly and many decisions given by it has

involved large monetary stakes and yet it has not hesitated to decide in favour of the assesses.

Now a days tribunal is functioning in very good manner but there are some challenges faces by

the tribunal. As we know that the role of the tribunal will be increased in the coming days with

the economic growth of the country as proportionately tax collection will also increase so tax

litigations. So it is necessary to identify these challenges for smooth working of the tribunal.

Some of the challenges are as :

PENDENCY BEFORE THE TRIBUNAL

Pendency is a normal feature of any system but is assuming great proportions in the tribunal and

it is apparent from the growth of the economy that pendency will be increased with the time if

the system will remain. Speedy justice is the right of every litigating taxpayer. There is no

denying the fact that delay frustrates justice. In the present set-up it often takes 2-3 or even more

years before a matter is finally decided. In the recent past, litigation has increased immensely.

The population growth, improved financial conditions, lack of tolerance and materialistic way of

life may be some of the causes. But the delay in dispensation of justice has to be eliminated by

taking effective steps otherwise the day is not far when the whole system will collapse. The

Comptroller & Auditor General of India (CAG), in its recent report has revealed that a whopping

sum of Rs 2.2 lakh crores has got locked up in appeals at various levels. The report stated that

"absence of centralized database on appeals, non production of records during audit was a major

constraint and concern11". Even the Federation in spite of making a sincere attempt could not

succeed to get the number of tax appeals, references and Writ petitions pending before the

various High courts. Recently, one Hon’ble Judge of Delhi High Court calculated that 464 years

will be required to clear the arrears with the present strength of the judges in that High Courts

though it is for high courts but it is equally true for the tribunal. The position may not be that

gloomy but is still alarming.

This will necessitate tribunal to prescribe time-limits for all cases. To deal with this, there can’t

be one prescribed limit, but the kinds of cases need to be identified and prioritized. So setting

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time standards is essential and it will vary for different cases, and also for different benches

depending on their disposal-capacity. This will be necessary to assess the performance of the

courts and judicial accountability.

If we take a look on the data related to the pendency in the ITAT then definitely it will tell the

success story as well as challenges facing by the tribunal.

1941, only 229 appeals were filed.

In less than 10 years, the institution of appeals increased to more than 10,000.

The constant flow of appeals by the tax payers and the tax administration resulted in

accumulating pending appeals. By the year 1997-1998, the number of pending appeals

swelled to 299978

The number of cases pending with the Income-Tax Appellate Tribunal 300597 was in

1998-99

The number of cases pending with the Income-Tax Appellate Tribunal 262652 was in

1999-2000.

The number of cases pending with the Income-Tax Appellate Tribunal as on March 1,

2001 was 2,44,320

As on 31-8-2004 the number of appeals pending before the Tribunal was 1,45,000, out of

which 20,000 appeals could be decided by Single Member Bench. The pendency in

Mumbai (35,000), Delhi (20,000), Ahmedabad (17,000), Chennai (13,000)12.

INCOME-TAX APPELLATE TRIBUNAL

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37

PENDENCY

The Position as on 01.02.2008.

Bench No.of

Benches

No. Of

Members

Institution Disposal Pendency SMC

Pendency

Mumbai 12 21 803 1047 23191 107

Pune 2 04 229 201 3213 32

Nagpur 1 01 60 0 706 55

Panji 1 - 19 14 271 18

Delhi 9 15 386 550 9203 88

Agra 1 02 52 0 1042 129

Bilaspur 1 - - - - -

Luncknow 2 04 97 143 604 9

Allahabad 1 01 33 120 343 28

Jabalour 1 01 56 0 621 106

Kolkatta 5 07 169 325 988 42

Patna 1 02 32 154 525 48

38

Ranchi(Jharkhand)

circuit bench

1 - 8 0 342 12

Cuttack 1 01 42 82 411 38

Guwahati 1 01 27 0 284 81

Chennai 4 07 245 416 4913 201

Bengalore 3 06 98 176 912 32

Cohin 1 02 310 330 2302 146

Ahemdabad 4 08 412 373 10591 133

Indore 1 02 60 191 2054 11

Rajkot 1 01 85 662 627 60

Hyderabad 2 04 150 145 2854 230

Vishakhapatnam 1 02 103 117 2209 101

Chandigarh 2 04 79 159 1134 21

Amritsar 1 02 63 107 562 117

Jaipur 2 02 239 114 1497 78

Jodhpur 1 02 100 85 984 31

Orientation &

Training

- - - - - -

39

Members

TOTAL

 No. of Benches: - 63

No. of Members: - 126

Members as on date :-

102

Vacancy of members:-

24

63 102 3957 5511 72383 1847

As on 1-1-2010 the pendency before the Income Tax Appellate Tribunal is only 45,730 Appeals;

sanctioned strength of Members is 102; hence, per member there are only 444 matters. In

Mumbai, the pendency is only 14021 appeals and the sanctioned strength of 24 members which

gives only 584 appeals per member. The reduction in pendency is due to innovative procedure of

the Income Tax Tribunal and the active support of the Tax Bar13.

Though it is appear from the data that there is reduction in the total no. of pendency’s but it is

perusal from the table given below that the rate of disposal is decreasing as well as no. of

pendency disposal is also decreasing after the year 2004.

PENDENCY DATA14 :-

Year Institutio

n of

appeals

Disposal of

appeals

Net

pendency

of appeals

1998-99 50832 50213 300597

1999-00 36995 74940 262652

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2000-01 33951 54450 242153

2001-02 30858 66968 206043

2002-03 48585 73959 180666

2003-04 46916 68848 158734

2004-05 57331 78901 137164

2005-06 45283 73445 108468

2006-07 43192 65524 86136

2007-08 44350 59654 70832

So it is clear from the data that after the year 2004-05 the disposal of the appeals has been

reduced and same time complexity of the issues involved is also increase and this warranted

special measures to be taken to reduce the figures of pending appeals. One of the biggest

challenges to any judicial institution is to control the mounting arrears of cases pending

adjudication and reduce the time gap between filing of a case and its disposal.

The time gap between filing of an appeal and hearing of an appeal, on an average, is 6 months,as

against 5 years a decade back. In some of the stations, when a taxpayer files an appeal, on

acknowledgment itself, the date of hearing is indicated which is usually within one month from

the date of filing of an appeal. In the cases of non resident taxpayers, as also in any other cases

justifying an early hearing, an out-of-turn hearing is granted within one month. One of the steps

taken to reduce the pendency was bunching of appeals on identical issues. This required each

case docket to be taken out to identify the issues involved, and this job could not be done by the

support staff due to lack of expert legal knowledge. The help had to be taken from the Members

who volunteered to identify the appeals on common legal issues and all these appeals could be

disposed of together. This bunching of appeals was in terms of issues involved in appeal. The

appeals so bunched together could be taken up for hearing together. As each single issue, on

which appeals were bunched together, involved large number of appeals, all these appeals could

be disposed of together. The bunching of appeals was also done taxpayer wise, so as to ensure

41

that all the connected appeals by a taxpayer came up together for hearing. This was needed for

several reasons. First, it ensured that cross appeals, i.e. appeals filed by the taxpayer as well as by

the Assessing Officer against the same order passed by Commissioner (Appeals), were taken up

together. Similarly, the disposal of appeals was not to be blocked because connected issues in

other years of the same taxpayer were pending. This consolidation of appeals helped speeding up

the disposal of cases, as the parties had fewer excuses for adjournments.

The appeals involving small issues and relatively less tax effect were also segregated, as these

appeals could be disposed of without much effort or time. A larger number of such small cases

could be fixed each day as the effort involved in disposing of such cases was relatively less. The

physical examination of appeal dockets further revealed that several pending appeals related to

legal issues which stood concluded by earlier decisions of the ITAT in between the time when

appeal was filed and the case dockets were examined physically. These appeals did not require

much effort for disposal. Similarly, frivolous appeals filed by the tax administration, against the

relief granted by the Commissioner (Appeals), were rejected and disposal of such appeals was

not held up for want of appearance by the tax payers and their representatives. Such frivolous

appeals are filed primarily to avoid revenue audit objections questioning acceptance of an

unfavourable verdict by the revenue administration. All these small cases were fixed before an

additional bench and, by rotation, all the Members, in addition to their normal workload, were

required to take up this additional bench. The Members, even in the absence of any expert

assistance from the taxpayers, made efforts to study their appeals and related papers

sympathetically and meticulously so as to give them relief wherever due. A liberal and helpful

attitude towards taxpayers in such cases was adopted, which resulted in greater cooperation from

the taxpayers in expeditious disposal of the appeals.

The ITAT also adopted the practice, at several stations, of ensuring that all the appeals filed each

month were physically examined by the Members so as to segregate small and covered matters

which could be disposed of without much effort. The appeals so segregated were taken up for

hearing on an out-of-turn basis and disposed of quickly. These small cases were thus not allowed

to choke the system and add to the figures of appeals pending adjudication. The bar associations

were also involved in the process of identifying the appeals which were covered by a binding

judicial precedent. They were requested to point out such cases so as that, if these cases were

42

indeed found to be covered by the binding judicial precedents, these cases would be taken out of

the queue and disposed of immediately.

On several important legal issues, special benches were constituted so that the regular benches

have the benefit of a binding precedent, which was arrived at with the help of collective exercise

by larger number of Members on the bench. The appeals on the issues covered by the Special

Bench decisions could also be disposed of quickly by the regular benches. With the help of these

measures, the number of pending appeals could be brought down from over 300,000 in 1998 to

just under 50,000 at present.

INTERNATIONAL TAXATION AND TRANSFER PRICING CASES

The next challenge before that tribunal is to handling the cases of international taxation and

transfer pricing. The Transfer Pricing Regime was introduced in India in the assessment year

2002-03 and it was quite a challenge for tribunal to deal with the nuances of transfer pricing. The

very first appeal on transfer pricing was heard by a five Member bench, which was headed by the

President and included Members from important stations such as Bangalore, Mumbai, Pune and

New Delhi where such cases are likely to come up more often, so as to give the benefit of

exposure and deliberations on a new subject. What was most important in this exercise was an

endeavour to develop transfer pricing jurisprudence on one hand, and to synchronies tribunal’s

approach to the subject with approaches of the leading multilateral forums like the OECD, on the

other. With the globalization many of the points are interaction of interplay of money from one

country to another. Income earned in a foreign country being taxed in another country. How it

should be taxed, there are treaties, tax treaties been entered into. Cost accountancy is question.

How to account the income is becoming very important point. All such tax matters are new

matters, with which Indian tax system is not familiar so tribunal. There may not be many cases in

the country which have been decided by the Tribunal. These matters have started cropping up in

last 10-15 years. Now, matter is that how to deal with such case.

To ensure maximum normative effect of these decisions, broad principles were neatly identified,

discussed at length and guidance was thus provided to the regular benches functioning across the

country. The result is that today decisions by the ITAT are seen as guidance material even for the

field officers in the transfer pricing administration.

43

In the area of interpretation of tax treaties also, ITAT has done considerable work. Tribunal’s

decisions on international taxation issues have been noticed and discussed all over the globe.

Whichever journal or website reporting international tax decisions you look at, you will find a

large number of cases from the Indian Income Tax Appellate Tribunal. The cases reported in the

International Tax Law Report, published from London, included large number of cases from the

ITAT. One of the popular US tax websites www.taxanalysts.com has a large number of decisions

from the ITAT. The database of International Bureau of Fiscal Documentation has so many

decisions from the ITAT. When the first transfer pricing appeal came up for hearing before the

ITAT at the Bangalore bench, a large bench of five senior Members from four different stations,

as against the usual two Member bench, was constituted. It had two distinct advantages – first,

the presence of five15

Members on the bench ensured the benefit of collective wisdom; and – second, the judgment

passed by this bench had a binding effect on the normal benches which consist of two Members.

This step thus ensured that various benches of the ITAT take consistent and uniform approaches.

The next few cases of transfer pricing were heard by different benches headed by the President

himself, and in each of these benches a senior Accountant Member was included. In all these

cases, elaborate judgments were delivered analyzing various aspects of transfer pricing

legislation in India and laying down the broad principles on which the cases were decided. Much

more than resolution of the particular dispute, these judgments provided norms and a conceptual

basis on which the transfer pricing disputes are to be resolved. The ITAT judgments on transfer

pricing issues are seen as training material even for the transfer pricing officers. These initial

judgments also sought to assimilate the global thinking on the subject in the Indian transfer

pricing regulation. At a time when even OECD Member countries are debating on whether or not

to abide to the OECD Commentary and Guidelines, the benches of the Tribunal have emphasized

the rationale of following OECD guidelines on transfer pricing in India unless, of course, there

was anything to the contrary in Indian transfer pricing regulations. Similarly, US transfer pricing

regulations and US court decisions have been quoted in these decisions. This approach has

brought some element of globalization of judicial thinking process. Let it be quickly added that

these foreign regulations and guidelines were used to give relief to the taxpayers and not to add

to their burden. One more very important factor in all these decisions was a conscious effort to

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build a transfer pricing jurisprudence, by developing a just and fair set of principles on which

transfer pricing matters must be examined. On one hand, these principles help lower authorities

in deciding the cases and thus ensuring that transfer pricing assessments reach finality at lower

levels, and, on the other hand, these principles also help development of more equitable and

international transfer pricing norms. A very significant offshoot of this approach is that transfer

pricing, which was reduced to a mechanical exercise by bureaucratic tax administration, is now

treated as an intellectual pursuit and meaningful analysis of facts. The theories of transfer pricing

have been considerably demystified. In the induction programmes for Members as also in

refresher courses for Members, lectures on transfer pricing were delivered by the subject experts,

drawn from diverse fields. The Members are also encouraged to attend congresses, conferences

and seminars arranged by the International Fiscal Association, OECD bodies and other reputed

organisations. These interactions help us understand contemporary thinking on the technical

issues involved and provide us valuable inputs for course correction, wherever needed.In the area

of international taxation also, ITAT has done considerable work. Conscious efforts have been

made to educate the Members on the conceptual and legal framework of international taxation

and tax treaty matters in induction as well as refresher programmes. These lectures are delivered

by former and present senior Members of the ITAT, international tax academicians, and experts

in organisations dealing with international taxation. Members are alsoencouraged to attend

Seminars and conferences in India and abroad on the issues relating to international taxation.

In recent years there seems to have been an upsurge in reporting of court decisions around the

world on tax treaties, especially in India – or perhaps in the electronic age news of such decisions

travels further and faster than previously. This has resulted in more and more international tax

decisions being commented upon by way of articles, editorial comments and other modes. These

comments provide ITAT feedback on its work. The feedback is then analyzed and used for

bringing about improvement in the quality of decisions. An international taxation dispute is

essentially a dispute between taxing rights of two or more tax jurisdictions, and the tax

administrators and judges, being nationals of one of these tax jurisdictions, at times tend to have

a natural inclination towards a somewhat parochial approach to deciding these issues. The need

to eliminate such bias, even if there be any, can hardly be overemphasized. One of the successful

methods of eliminating this bias is that inputs by way of academic work of impartial

international tax scholars is given due importance; the legal propositions embedded in such work

45

are analyzed, tested and, where found suitable, adopted. The administrative guidelines in other

countries, as also underlying conceptual foundation of these guidelines, are studied.

The decisions of tax courts in other jurisdictions as well as the stand taken even by the revenue

authorities, as far as available to us, are also taken into account and examined. It is not

uncommon to find quotations from work by Professors Klaus Vogel, Michael McIntyre, Arvid

Skaar and Kees van Raad as well as from courts and tax administrative guidelines in Canada,

US, UK, Australia and other countries. An effort is made that in each of the judgments, the

detailed reasoning for coming to a particular conclusion is set out in as elaborate a manner as

possible. These decisions thus work as guidance material for other benches and the process of

reasoning being more transparent bring these decisions to greater public scrutiny and discussion

in the academic forums16. While the feedback about work of a Member is not, and cannot always

be, accepted at face value, it is one of the important inputs in deciding the types of cases a

Member is to hear and the kind of place where he is to be posted. Obviously, international tax

matters are assigned to, as far as possible, the Members who are most competent to deal with the

same. In important centres like Mumbai and New Delhi, separate benches are being constituted

to hear and dispose of appeals involving international taxation issues. This step will also lead to,

in time to come, minimisation of the time gap between filing of appeals and hearing of appeals

by the non residents. The resolution of tax disputes in the cases of non residents will thus now be

unaffected by quantum of domestic tax litigation.

The resolution of tax disputes is not permitted to be at the mercy of the wisdom of the parties

appearing before the ITAT, and independent inputs by the Members are quite common. The

ITAT Members study the matter, do their independent research exercise and, after confronting

legal propositions so developed or discerned from the research and study, decide the issues

before them. A comprehensive library of books and periodicals on international taxation, as also

access to online databases, is available for this purpose. This has resulted in value addition of the

Members to the extent that while in many countries, office bearers of organization like the

International Fiscal Association are summoned to the court as expert witnesses and the basic

concepts of international taxation are explained to the courts, it is quite common that our

Members are invited as faculty in the international tax programmes of various professional and

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educational bodies , apart from invitations to speak in international tax conferences in India and

abroad. The Members who have obtained this exposure and reach a level of expertise in these

areas are used as resource persons for training the younger Members. The cases involving neatly

identified legal issues, even in international taxation, are in fact disposed of ex parte i.e. even

without hearing the taxpayers, where they can be so decided in favour of the taxpayers, on the

basis of material on record. This generally happens in the cases in which issues involved are in a

narrow compass of facts, the issue is purely legal, and such legal issue has already received

consideration by the ITAT or by the higher courts. Just as it is important to be free from any

pressure or interference from the Government and theTax Administration, it is equally important

to not to let lobby groups affect ITAT decisions or inject a bias in the ITAT decisions. With this

objective in sight, the papers published by, and theories propagated by, the professional bodies

and interest groups are extended due respect and courtesy but these are also examined with due

care and circumspection. These inputs act in the decision making process as a starting point for

analysis of legal propositions embedded therein, rather than by accepting correctness of such

legal propositions.

JUDICIAL ACCOUNTABILITY

It is ironic that a tribunal can order for a taxpayer to pay a huge amount of the tax and a few

years later some higher court can set aside the order of the tribunal, without any system of

punishing the tribunal for a bad order. Every other pillar of democratic governance is subject to

some system of ensuring accountability and checks and balances. As far as concern about the

tribunal it has neither a system of rewards nor a system of punishments. It is necessary to discuss

whether attempts to improve the quality of tribunal system should include some mechanism of

rewards and punishments for members monitored and operated either by an internal institution or

by an external body.

GOVERNANCE

47

The next big challenge facing by the tribunal is to ensuring the good governance in the tribunal.

Recently there are some incidents happened that shakes the confident of the honest appellant as

well as of the common man in the tribunal. The term ‘governance’ is derived from a Latin term

that literally means steering. It refers to the processes and systems by which an organization or

society operates; the processes by which decisions are made that define expectations, grant

power, or verify performance. The ideal concept of public officer, expressed by the words ‘a

public office is a public trust’, signifies that the officer has been entrusted with public power by

the people; that the officer holds this power in trust to be used only for their benefit and never for

the benefit of himself or of a few; and that the officer must never conduct his own affairs so as to

infringe the public trust. Citizens have a legitimate expectation that the public servants will serve

the public interest with fairness and manage public resources properly on a daily basis. The

increased democratization and globalization has resulted in increased visibility of the public

officials. Critical questions are nowadays asked about the way in which cases have been dealt

with, the justice of the decisions, the exercise of discretions, and the morals of public servants.

Leaders are increasingly being called upon to account for their actions by the communities

affected by those actions.

Corruption in reference to public office has been defined as the abuse of power for purposes of

private gain. In public affairs, there often arises a conflict between private wealth and public

power. This is often the result of selfishness and greed. Mahatma Gandhi said that the earth

provides enough to satisfy every man’s needs, but not enough to satisfy every man’s greed. The

conflict needs to be mediated upon. Institutions that fail to mediate between private wealth and

public power run the risk of becoming dysfunctional and trapped by wealthy interests.

Corruption is one symptom of such failure whereby personal interests overcome public goals.

Fighting corruption is one of the facets of promoting good governance. But governance issues

are far much broader than anticorruption alone. For example, a public officer may be honest and

yet inefficient or incompetent. Efforts to promote good governance must therefore be broader

than anti-corruption campaigns. Continuing professional development is necessary for all legal

practitioners, members of the tribunal and revenue officers to improve and sustain their

proficiency. There should be put in place mechanism for refresher courses and attendance at

them as a pre-condition for renewal of practicing certificates for advocates/CAs.

48

THREE PLAYERS IN THE TRIBUNAL

The next challenge before the tribunal is to fix the role of the three players so that they can work

in a professional environment and fulfill the hopes of the appellant taxpayers. The first player is

the Government, the Government is mostly at fault by not filling up vacancies at each and every

level which they know well in advance and due to this there is unnecessary delay in the justice.

The Government fails in appointing sufficient and quality members and providing proper

infrastructure, including the basic things like a good library, typists, etc.

The second player is the lawyers/CAs. We should realize that adjournments, even if they are in

favour of clients, are not in favour of the system. In a number of regulatory cases, there is no real

need for appeals or adjournments. Given the huge backlog of cases, practical ways and means

need to be thought of, to solve such problems. Ethics of lawyers/CAs has also become

questionable. There is an ICAI/bar council that has to look after ethics of CAs/lawyers, but it has

rarely taken action against tainted CAs/lawyers. Everything becomes customary and loses

meaning.

The third player, of course, is the members of the tribunal. Unless they display work-ethics, no

recommendations can be of use to them. Fairness, speed and quality should be key values for the

tribunal members, as for all other sectors.

The tribunal is under great pressure. The no. of pendency and the complexity is increasing day

by day so it is necessary for each of three players to play a fair role that is decided for him if they

want smooth running of this tribunal system.

Other challenges being those of normal courts in India like shabby infrastructure, vacant posts of

members of ITAT, traditional ways of work, lack of technological adaptation, etc. But all above

points are considerable in nature and have to addressed first.

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CHAPTER-5

SUGGESTIONS TO IMPROVE THE FUNCTIONING OF THE TRIBUNAL

A. ADMINISTRATION

1. NOTICES

(a) Notice of hearing may be sent at least 30 days in advance.

(b) In the High Court, there is a procedure of putting the list of matters on the warned list. The

same procedure may be followed and matters, likely to come on board in the next month may be

put up on the notice Board as warned list.

(c) If it is possible then notices can be sent via internet using mail ID of the taxpayer (litigant).

Very recently the Apex Court passed an order in CERC vs. National Hydroelectric Power

Corp. dt. 26-7-2007, source: www.itatonline.org stating that in all commercial matters the notice

may be sent by e-mail. It may be desirable for the High Courts and Tribunal to follow the

procedure adopted by the Apex Court. This will save substantial time of the Court. Even the

orders can be sent via e-mail. In Direct tax matters the tax department is always either petitioner

or respondent hence it will be easy to monitor and implement17.

2. ORDERS

(a) Notice may be put up for the matters which are pending for dictation. Normally, the orders

should be passed within one month of the hearing but in no case more than 2 months.

(b) On transfer of any Member hearing of part heard matters should be Completed and

heard matters should be disposed off.

3. STAY ORDERS

Stay orders may be passed in the open Court and handed over to the assessee at least the next day

after the hearing.

17 www. itatonline . org /blog/index.../fret-not-mr-fm-about-appeal-filing-mania (january, 29 , 2011)

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4. EX PARTE MATTERS

It is suggested that ex-parte orders may be passed after the regular hearings of matters which are

represented has been completed.

5. THIRD MEMBER

It may be desirable that, the person who may be nominated as Third Member, as far as possible

may be senior to Members, who have decided the matter.

6. MATTERS REFFERED TO SPECIAL BENCH

(a) When a particular issue is pending before the Special Bench, all matters where the same

issue is involved may be blocked till the Special Bench decided, instead of adjourning such

matters for two months so that inconvenience to the assesses may be avoided and

administrative paper work of the Tribunal reduced.

(b) Matters disposed off by the Special Bench may be notified on the Notice Board and copies of

the order may be sent to all ITAT Bar Associations.

(c) It may be desirable that, the Members, who have not taken the view may be requested to sit

on the Special Bench. It is already desirable that, the 171 Members who have taken the view

either in favour or against may be avoided to decide the Special Bench matters.

7. MORE FOCUS ON THE USE OF INFORMATION TECHNOLOGY FOR FASTER

DISPOSAL OF CASES AND IMPROVEMENTS

Indian courts do not allow electronic media presence during court proceedings, while in many

other countries trials are extensively covered by media leading to active interest of the common

man in the judicial proceedings. It is necessary to discuss whether the judiciary and justice will

gain by more transparency. bottlenecks causing delays in civil and criminal process to be

monitored through a computerized system and special attention to be provided through a special

cell at the High Court and District level to resolve issues in coordination with Executive

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Agencies : (a) Service of process; (b) Adjournments; (c) Interlocutory Orders; and (d)

Appearance of witnesses and accused. Computerisation may be used for preparation of the Board

and all records of Tribunal may be stored on Compact Disc which may help to overcome space

constraint.

8. COVERED MATTERS

Every month, matters filed before the Tribunal may be segregated as covered matters and other

matters. Covered matters may be posted for hearing on an out-of –turn basis.

9. GROUPING OF MATTERS

Where common issues are involved, matters may be grouped and disposed of, which may help

assesses as well as the Department

10. FIXING OF APPEALS & STAY PETITIONS

The Board may be given 15 days in advance to the Bar and stay petitions may be kept for

hearing on all the days instead of only on Friday as is the practice at present.

11. FIXING OF CONSTITUTION

The Hon’ble Supreme Court in the matter relating to transfer of Members, accepted the

suggestion of the Bar to have a Collegium of President, Sr. Vice President & Vice Presidents. It

may be desirable that, where multiple Benches are functioning such as at Mumbai, Delhi,

Calcutta, Ahmedabad. It may be desirable to have a Collegium of Vice President & Sr. Members

to finalise the Constitution, which will bring more transparency in the administration of Justice.

It is also for consideration that, when there are 10 Judicial Members & 10 Accountant Members,

a Member may be selected to the Bench by way of Lottery system, which will help immensely to

build the image of the Tribunal.

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12. DISCHARGING THE BOARD

In the High Court if a matter which is being heard is likely to take considerable time, practice is

to discharge the rest of the Board. It is suggested that a similar practice be adopted in the

Tribunal.

13. COPIES OF THE TRIBUNAL ORDER

Copies of orders of the Tribunal which are being sent to the assesses are the last copies typed on

both sides of thin sheets of paper and hence are not legible. It is also not possible to obtain

legible Xerox copies. It is therefore suggested that legible copies typed on one side only may be

sent to assesses.

14. ADJOURNMENT APPLICATION

If an adjournment application is made well in advance and the Tribunal Member agrees with

the reasonableness of the cause, the adjournment should be conveyed to the representative after

informing the D. R., so that the time of the Court in granting adjournments on the day of hearing

and also the time of the Counsel can be saved. In the good old days, this procedure was followed.

Adjournment applications should be taken up on the top of the Board and not as per the Cause-

list. This saves the precious time of all concerned and enables the Bench to hear other matters

peacefully. In some benches this practice is being followed.

15. CONSOLIDATION OF APPEALS

The consolidation of appeals filed by the same assessee before different Benches takes a lot of

time. A simple procedure can be adopted to avoid adjournments due to non-consolidation of the

appeal in time.

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16. FILING OF PAPER BOOK BY THE DEPARTMENT

The requirement to file paper book 7-10 days before the hearing should be applied to

Departmental appeals also by requiring the D. R. to file the paper book in advance, a practice

which is normally not followed.

17. LEGAL ASSISTANCE TO MEMBERS

The Tribunal should have competent staff entrusted with the work of preparing brief for the

Members in complicated cases. This brief can be prepared as soon as paper book is received

from the parties and should state the facts in brief and the latest case law involving the legal

issues. The Members hearing the case can study this brief before the hearing starts and this will

enable them to apply their mind to the issues involved in a better manner. This brief will ensure

that the Members do not miss out any issue while giving their judgment. It may take some time

to implement this suggestion. Even Law students can be considered as trainees for helping

Members of ITAT.

18. SUBMISSIONS IN WRITING

A practice of accepting brief submissions in writing from the parties can be started in

complicated cases. These submissions can be filed with the Paper Book or at or before the

hearing. In these submissions the facts can be stated, in brief, and case law relied upon can be

pointed out in brief. This will assist the Members in quicker disposal of the case. However, oral

hearing should be permitted even when written submissions have been filed.

19. HEARING OF APPEALS WITHIN TWO YEARS.

We have to find ways and means by which hearing of appeals is expedited so that cases can

be decided within a period of two years from the date of filing.

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20. SERVICE OF ORDERS

The orders should be dispatched for service within 3 days of being signed. Service should be

affected by registered post at the address given in the memo of appeal.

21. OFFICE

Office decorum should be maintained. The assessee or his Authorized representatives should not

be permitted to have access to the staff and other officers except the Registrar / Asst. Registrar

etc. Though there are instructions to that effect; they are not administered strictly.

22. CODE OF ETHICS FOR MEMBERS

Though Members are governed by the Service Rules of the Central Government, in order to

improve the image and to add value to the life of the Hon’ble Members, the Code of Ethics

suggested by the Federation be adopted and adhered to. The said rules are on the lines of Rules

adopted by the Hon’ble Judges of the Supreme Court and the High Courts. A Member should not

discuss any matter with the DR or AR in the chamber. If any clarification is needed it should be

listed on the cause list – “To be mentioned” as in the High Court.

23. RELATION BETWEEN BAR AND THE BENCH

Members of the Bar are Senior Officers / Officers of the Court and deserve respect and regard

relations should be cordial. The Members should have a sense of humour in the Court Room. Be

Cheerful. Value the time of others. Be Humble. Be Courteous and sweet tongued. Be fair to self

and to humanity. Do the Divine act of dispensation of Justice with fairness, goodness, without

malice, personal prejudices and personal interest. Image should be clean, character superb and

movement cautious. Justice should not only be done but look to have been done should

give patience hearing should try to follow and not to interrupt, such relevant clarification? Did

the speaking will regard and balanced orders.

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24. MUMBAI SHOULD HAVE TWO TAX BENCHES ONLY FOR DIRECT TAXES18.

In Mumbai old references are pending, tax appeals of 2002 are pending for final disposal. In

additions there are writ petitions which are pending for final disposal. There are also large

number of appeals which are pending for admission. At present only in Mumbai almost more

than 17000 appeals are pending.

It may be desirable to have one tax Bench for deciding old reference and writ petitions and one

tax Bench for admission of appeal and final hearing. Though the Court is making an sincere

attempt to dispose off matters, by grouping the matters, it may not be able to reduce the

pendency as the important issues are involved and it takes number of days to decide very

important question of law.

25. FILING OF APPEALS BEFORE THE HIGH COURT CAN BE OUT SOURCED.

At present, in Mumbai, the appeals are filed by different lawyers. It may be desirable to appoint

one lawyer or a legal firm to file all the appeals before a particular Court, and representation can

be given to panel of different lawyers. This will aid in a better Co-ordination and better

representation. It is very unfortunate that most of the matters are adjourned for at least four to

five times to find out what is the position in earlier years, connected matters, getting instructions,

etc. Each adjournment costs substantial money to the tax payers. In earlier days there used to be

a special officer who was allotted a duty at High Court for guiding counsel and to report to the

commissioner judicial, such procedure now has been discontinued. There has to be at least one

senior officer to take note of the issues argued before the High Court, administrative difficulties

and make suggestion for improvement.

26. UNIFORM PROCEDURE FOR FILING APPEALS IN TAX MATTERS BEFORE

THE VARIOUS HIGH COURTS.

There can be a uniform procedure and guidance note for filing an appeal before various High

Courts. Federation has prepared a detailed fact sheet which can be filed along with the appeal

18 www. itatonline . org /blog/index.../fret-not-mr-fm-about-appeal-filing-mania ( february 01, 2011)

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itself. If the same is adopted by all the High Courts, it will save substantial time which will help

the court for clubbing the matters together.

27. ACCOUNTABILITY, FEAR OF AUDIT AND VIGILANCE.

Main reasons for unwanted litigation with the tax payers are lack of accountability, fear of audit

and vigilance. The Commissioner who has to take the decision as to whether an appeal is to be

filed or not does not desire to take the responsibility. Many a times he is fully aware that there is

no question of law involved and still he recommends filing of appeal due to the high stake

involved. He always has the fear of audit and vigilance, that he may be questioned as to why an

appeal was not preferred. He always try to play safe. Even though the stake involved is very

small, he recommends preferring an appeal. If CBDT is made to address these issues, there will

not be unwanted litigation with the tax payers.

28. EXPERT COMMITTEE.

As per the paper reports it is stated that the Government is proposing to form the committee

consisting of members from the Ministry of Finance and Ministry of Law. We are of the opinion

that if the Government really desires to achieve the object of reduction in unintended litigation,

they have to nominate few professionals who have rich experience in the legal profession and

who are more conversant with the law and procedure. The Committee should also have technical

person who can advice on the use of technology for better implementation of the suggestion

given by the expert committee19.

B. LEGAL ISSUES20

1. MATTER REFERRED TO THIRD MEMBER

when a matter is referred to the Third Member, no information is sent to the assessee. The

Income-tax Appellate Tribunal Rules may be amended so that as soon as a matter is

referred to the Third Member intimation along with the orders may be sent to the

19 www. itatonline . org /blog/index.../fret-not-mr-fm-about-appeal-filing-mania (january, 29 , 2011)

20 http://www.aiftponline.org/journal/Aug%202010/From%20the%20Editor-in-Chief.htm ( February 03, 2011)

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assessee. Further, the matter referred to Third Member may be disposed of within six months of

the reference to the Third Member.

2. SINGLE MEMBER CASES

(a) Matters where the income assessed is Rs.5lacs and less are referred to a Single Member.

Sometimes even cases where the loss assessed is more than Rs.5 lacs are referred to a Single

Member Bench. The Law may be amended so that when the loss assessed is also more than Rs.5

lacs, the matter may be referred to a Division Bench.

(b) Assessed income may be say above Rs.5 lacs however, penalty may be levied of only

Rs.10,000/-. The matter cannot be decided by a Single Member. It is suggested that penalty

involved of upto Rs.2 lacs may be decided by a Single Member, irrespective of the assessed

income or loss. Similarly assessed income or loss. Correspondigly if assessed income is less than

Rs.5 lacs, but penalty levied is more than 2 lacs, the matter may be referred to a Division

Bench.

3. APPEAL FEES

(c) Levy of appeal fees on the basis of assessed income is very harsh. Hence

appeal fees is required to be reduced with maximum slab of Rs.2,500/-.

4. APPEAL TO TRIBUNAL.

At present, the assessee can file an appeal against the order under section 263 and refusal to

registration under section 12A, of the Income Tax Act. There are number of other orders passed

by the commissioner of Income Tax, for which no appeal is provided. The only remedy available

with the assessee is to approach High Court in its writ jurisdiction. A simple amendment in the

Income Tax Act may be made by stating that all orders of Commissioner of Income Tax are

made appealable to Tribunal for e.g. Order under section 264, 273A, waiver of interests,

recovery, issue of notice under section 148, order under section 179, etc.

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This will help to reduce the burden of Courts and precious time of Court can be utilized to decide

the important questions of law.

5. THE INCOME TAX APPELLATE TRIBUNAL SHOULD BE GIVEN THE POWER

TO RENDER ADVANCE RULING IN RESPECT OF DOMESTIC TAX ISSUES.

One of the very important provision in the Maharashtra VAT legislation is the provision for

Advance Rulings on the interpretation of the Act or Rules or Notification in respect of a

transaction proposed to be entered in to. The Advance Ruling is given by the Bench consisting of

the, members of Sales Tax Tribunal, senior practitioner nominated by the President of the

Tribunal, and a senior officer of the Sales Tax nominated by the Commissioner. If similar

provision is introduced in the Income Tax Act, Central Excise, Customs and Service Tax, for all

residents, tax litigation can be substantially reduced. For e.g. Issues relating to Tax deduction at

source is one of the major area of litigation in tax field. However, there is no mechanism to

approach the higher authority to know the tax liability in advance.

6. ARBITRATION IN TAX MATTERS.

The Government may consider the proposal of constituting a committee consisting of

representatives from Legal, Accountancy Profession and from the Tax Department of the rank of

Chief Commissioner of Income Tax for arbitration in tax matters. The assessee may refer the

matter to such committee within 30 days of receipt of the order from the Assessing Officer and

the committee may pass an order within six months from the receipt of application. The order

passed by the committee may be binding on both the parties. To begin with the matters like

technical defaults for delay in filing of TDS returns, non issue of TDS certificate, refund

calculation etc., may be referred. There are many issues which are of factual and such issues can

be settled by the process of arbitration. The Government may consider to take advantages of

services of retired members of ITAT. As the retired members are not allowed to practice their

knowledge and experience can be utilized for arbitration proceedings.

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7. RAISING OF MONETARY LIMIT FOR FILING OF APPEALS BEFORE THE INCOME TAX APPELLATE TRIBUNALS,HIGH COURTS AND APEX COURT.

As per the instruction No. F. No. 279/Misc/142/7 dt. 15th May 2008 (AIFTP Journal - July 2008

P. No. 37), the monetary limit fixed for filing an appeal before the various forums are as under:-

Tribunal Rs. 2,00,000/-

High Court Rs. 4,00,000/-

Supreme Court Rs. 10,00,000/-

Considering the inflation the limit may be raised as under:-

Appeal to Tribunal Rs. 4,00,000/-

Appeal to High Court Rs. 8,00,000/-

Appeal to Supreme Court Rs. 15,00,000/-It is also suggested that the above limit of tax may be

extended to all taxation matters such as Customs, Central Excise and Service Tax and Central

Sales Tax Act and VAT Act. In respect of various State legislations where taxation is involved

the State may be directed to issue similar circular or notification, this will reduce substantial

unintended litigation before various forums.

8. SEPARATE LEGAL CELL OF TAX DEPARTMENT.

Though the Income Tax department is one of the biggest litigant in High Courts and Apex Court,

they does not have their own legal cell. There can be constituted zone wise, a separate legal cell

in the Tax Department. The legal cells may be managed by a panel of lawyers and retired

members of the ITAT, in co-ordination with the Chief Commissioner judicial. Before filing an

appeal the legal cell may consider the tax involved, issues involved and chances of success. Once

the panel is satisfied, then only an appeal should be filed.

As soon as the appeal is filed the legal department may prepare the list of issues involved in the

appeal and tax effect. If it is very important issue affecting large number of matters, the legal

department may request the court to group all the matters together. If it involves important issue

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of national importance the tax department may engage a special counsel of eminence to represent

the matter.

At Board level there has to be Central legal cell to monitor the tax appeals, pending before

various High Courts and Apex Court. Each Zone legal Cell may send the list of cases filed before

the High Courts, the issues involved, the matters heard and disposed off to the Central legal cell.

At least, once in a year the Board may prepare the list of cases pending before the various High

Courts, Apex Court and publish the same in website, tax journals or magazines for the

information of tax payers.

It may be appreciated that the Income Tax Appellate Tribunal maintains the details of pendency

of cases every month and at any given point of time the Income Tax Appellate Tribunal is in a

position to inform the tax payers, Bench wise, how many appeals are pending, and how many are

of the department. The technology adopted by the Income Tax Appellate Tribunal may be

adopted by the High Courts, the Board and Chief Commissioners.

9. RESEARCH TEAM TO MONITOR THE TAX MATTERS BEFORE VARIOUS

COURTS.

The City like Mumbai, should have a well equipped library to assist the counsel who represent the matter before the Court. The department may take assistance of young Lawyers or Chartered Accountants to prepare a note on the brief to assist the counsel. This will help the tax department to make a better representation and also to build the team of panel of lawyers for the tax department. If it is possible to implement the above suggestions then it would be possible that income tax appellate tribunal will work smoothly and the motto “Sulabh Nyay & Satwar Nyay” with which it is established will be achieved.

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CHAPTER-6

CONCLUSION

ITAT is known as the mother of all tribunals in India. It is the most successful, celebrated and

the oldest tribunal in our country. After having a detailed look at the functioning of the ITAT we

can see that most of the objectives, for which it was established, are being achieved on a

continuous basis. However lot still remains to be done. ITAT has received a lot of support from

lobbies of CAs, Advocates, etc. It also means that the government had taken a right decision to

establish ITAT. The principles of governance can be applied to other areas as well. This is a

sound practice of delivering justice that is easy and quick. The motto of ITAT,

“सु�लभ न्या�या सुत्वर  ”न्या�या , has lived up to its expectations and is still continuing to deliver. The

model of ITAT Is being replicated not only by other agencies of the government but also abroad.

The decisions of ITAT on international taxation are quoted by international tax practitioners in

various court rooms of the world.

Though there are some problems regarding pendency of cases, governance of ITAT,

infrastructure, supporting staff etc still the ITAT has ruled beyond most of the expectations. It is

a model government agency. The problems are a offshoot of the expansive nature and the work

assignment of the ITAT. After all, delivering justice is not a joke. These problems are holding

the ITAT back from spreading its wings. But we can hope, with the best of our wishes that the

ITAT will overcome all its bottlenecks and continue to thrive at the cost of none.

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CHAPTER-7

TRIBUTE TO INCOME TAX APPELLATE TRIBUNAL

FORMER CHIEF JUSTICE OF INDIA (SHRI M.H. BEG)

INAUGURAL ADDRESS

“I also recall how very impressed I was, from the very beginning of my appearances

before it, by the dignity and decorum and orderliness and the unfailing courtesy of its Members

at the proceedings of the Tribunal which were not inferior to those in a High Court. I suppose

that for a reason similar to the one I have mentioned above, you have a Judicial Member and an

Accountant Member on each Bench Where each supplies the want of the other. The result is that,

in my experience, the judgments of the Income-tax Appellate Tribunals are not only generally

marked by sound legal reasoning but also exhibit considerable commonsense and realism.

Indeed, I confess that have been so much impressed by some of the judgments of the Income-tax

Appellate Tribunal that I wonder whether so much legal learning, which we sometimes see in the

judgments of superior courts, is really needed for many decisions. Indeed, sometimes it can

mislead and obstruct clear thinking.”

FORMER PRIME MINISTER (SMT INDIRA GANDHI)

“The Income Tax Appellate Tribunal with its branches spread all over the country has an

important role. It has to preserve the interests of revenues to the State, to prevent harassment to

the tax-payers and to render better service and quicker justice to the citizen and the State alike.”

FORMER CHIEF JUSTICE OF INDIA (SHRI Y.V.CHANDRACHUD)

(DATED JULY 15, 1981)

“The Income-tax Appellate Tribunal is a model administrative tribunal whose illustrious

example and commendable performance may well be emulated by similar other tribunals in

different disciplines. There is uniform praise of the manner in which the Tribunal functions and I

suppose it is one of the few quasi-legal institutions which is not plagued by the problem of

arrears…”

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FORMER PRIME MINISTER OF INDIA (SHRI RAJIV GANDHI)

DATED – MARCH 4, 1985

“…Income-tax is a major source of revenue. It is also a direct token of the citizen’s

contribution to the development of the country. Over the years, tax laws have grown in

complexity and with it has grown the need for fair and dispassionate interpretation of the laws.

The Income-tax Appellate Tribunal has made a useful contribution in this field.”

SHRI Y.V.ANJANEYULU, SENIOR ADVOCATE, HYDERABAD (LATER

BECAME JUDGE OF ANDHRA PRADESH HIGH COURT AND ALSO

MEMBER OF LAW COMMISSION OF INDIA)

“….Tax laws of this country constitute a bizarre piece of legislation which, even to a trained

mind, cause considerable difficulties in unraveling the intricacies. Expertise merely in this

complicated branch of tax law is not adequate unless and overall proficiency in other branches of

law is possessed. Hindu law, Transfer of Property Act, Partnership Act, Contract Act,

Mohammadan law and a hot of other mercantile laws are closely and intimately connected with

the administration of the tax laws in this country. Indeed, if one may say so, the Hindu law and

Partnership law have considerably developed on account of the tax laws. It is gratifying to note

that the Members of the Income-tax Appellate tribunal demonstrate a high degree of proficiency

in all these allied branches of laws which contributes to a high measure of success and

competency in considering matters of dispute by the Tribunal. It must be acknowledge that a

high sense of objectivity prevails in the Tribunal and a feeling of confidence is created in the tax

payers that their appeals are disposed of by the Tribunal without any fear or favour. It is this

confidence that is generated in the taxpaying public that has largely contributed to the success

and leadership of the Income-tax Appellate Tribunal among the Administrative Tribunals in this

country. The Tribunal as a whole and the President, Vice-President and Members of the

Tribunal in particular can look back to a creditable record of 40 years and legitimately be proud

of having earned recognition of a high order to service to the country acknowledge by the State,

which is the principal litigant, the taxpayers and the superior courts…”

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SHRI N.K.P.SALVE, M.P.AND CHARTERED ACCOUNTANT, NEWDELHI

(FORMER CABINET MINISTER IN UNION OF INDIA)

“If no tribute can be higher than this to a tax Tribunal, it is not a matter of good fortune, but the

result of an un-wavering independence, fearlessness, impartiality coupled with erudition and

scholarship of its expert members, preserved, and zealously nursed, in trying conditions over

years. Above all, a high standard of integrity coupled with technical expertise are qualities

which are a sine qua non for ideal judges.

In a tribute a famous Judge, one of the most eminent Jurists of our times has said:

“God give us men. A time like this demands strong minds, great hearts, true faith,

ready hands.

Men whom the best of office does not kill

Men who possess opinion and a will

Men who have known, men who will not be

Men who can stand before a demagogue and damn his treachery without winking.

Tall men sun-crowned who live above the fog, in public duty and private thinking!”

Most members of the Tribunal, I may say without fear of contradiction, are an answer to this

prayer”.

DR. SARVEPALLI RADHAKRISHNAN, FORMER PRESIDENT OF INDIA

“Born as the Tribunal was, out of the strong and natural desire of the people to be able to appeal

to an independent body on important questions of fact, it provides a popular and informal forum

for giving substantial justice, not bound by the rules of evidence, to persons aggrieved by

decisions, of the Appellate Assistant Commissioners. The Tribunal, in the 25 years of its

existence, has earned unstinted praise for the independence of its decisions; and in its fervent

desire to do justice it has won the well merited confidence of the public.”

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SHRI N.A. PALKHIVALA, SENIOR ADVOCATE, BOMBAY

‘…The ability and expertise of the Income-tax Appellate Tribunal have enabled it to pronounce

numerous decisions which have really given a new direction to taxation laws and opened up

new vistas of thought. The law relating to Income-tax and other direct taxes has grown and

developed as a result of the vision and insight of the Tribunal. This is the highest tribute, which

can be paid to any judicial body, and this is a tribute which the Tribunal richly deserves.

The Tribunal functions as a judicial body under the Ministry of law and is entirely beyond the

control of the Income-tax Department. Happily, it is fully insulated from the pressures and

influences of both bureaucrats and politicians. The Tribunal has shown great independence and

courage in deciding cases according to law and in consonance with justice, regardless of the

stakes involved. In short, it has fulfilled the purpose for which it was brought into existence and

fully justified the high expectations with which it was concerned. Administrative justice

demands compromise. There is no pre-determined solution to the problem of tempering power

with justice. The Tribunal has rightly earned the reputation of tempering judicial power with

justice. It has evolved an economical, quick and informal procedure for doing justice as between

the State and the citizen to great public satisfaction. In other words, it has acted as a Court of law

in everything but name, while avoiding the regular process of civil law which is too

cumbersome, technical and expensive”21.

21 www.itatonline.org/pdf/The_Tribunal_A_Fine_Balance.pdf (february 06, 2011)

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