S CHENNIAPPA MUDALIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference to a Special Bench has been necessitated by reason of certain doubts felt as to the correctness of the decision in Ravula Subba Rao v. Commissioner of Income-tax. The question that falls for determination on this reference can be formulated thus "Whether rule 24 of the Appellate Tribunal Rules, 1946, in so far as it enables the Tribunal to dismiss an appeal for default of appearance, is ultra vires ?" *The facts giving rise to this reference are theseThe assessee owned 1, 674 shares in Asher Textiles Limited and nine out of twenty shares in Textile Corporation (Private) Limited, both at Tiruppur. The Textile Corporation (Private) Limited was the managing agent of the other company, its managing directors being the assessee and one Mr. Asher. Differences appear to have arisen between these two some time during the year 1954, and the assessee agreed to sell and by a document dated December 21, 1954, sold his entire holding in the two companies to Mr. Asher and certain relations of his nominated by him.

(2.) THESE sales resulted in a profit of Rs. 72, 515 and Rs. 3, 14, 100 respectively. The Income-tax Officer brought them to tax for the assessment year 1956-57 under section 10(5A) of the Income-tax Act, 1922, as compensation earned for parting with the effective power of management, which the assessee till then had over the two companies. This assessment was upheld by the Appellate Assistant Commissioner on appeal. The assessee then filed a further appeal to the Appellate Tribunal. After some adjournments, the appeal was finally posted for hearing on August 26, 1958. Neither the counsel engaged by the assessee nor any authorised representative of his appeared before the Tribunal on that day there was not even an application on behalf of the assessee for an adjournment. Two days later, on August 28, 1958, the Tribunal dismissed the appeal for default of appearance, purporting to do so under rule 24 of the Appellate Tribunal Rules, 1946, as amended by the notification dated January 26, 1948. That states: "Where on the day fixed for hearing or any other day to which the hearing may be adjourned, the appellant does not appear when the appeal is called on for hearing, the Tribunal may dismiss the appeal for default." *The order passed by the Tribunal cannot be said to be in strict accordance with the rule cited, for there was no dismissal of appeal on the day to which it stood posted for hearing the day on which the final order was passed was not one to which the hearing of the appeal was adjourned. But we prefer not to pursue this line of approach as the question referred to us is of much wider importAbout five weeks after the disposal of the appeal the assessee filed a petition before the Tribunal praying for its restoration on the ground that, owing to a misapprehension on the part of the auditors at Coimbatore, the date of hearing of the appeal, of which they had been apprised, was not reported to their counsel at Madras, who had then been convalescing after a major surgical operation.

(3.) THIS, however, is not in accord with the principle laid down in two later decisions of this court in Periannan Chettiar v. Commissioner of Income-tax and V. Ramaswamy Iyengar v. Commissioner of Income-tax. In the former case it was held that where an appeal before the Appellate Tribunal related to a distinct matter in controversy, it would be open to the Tribunal to take up and decide the appeal in favour of the appellant on the basis of a ground not in controversy. A distinction was made in that decision between a case where, in regard to the actual subject-matter of the appeal a ground was not taken in the memorandum of appeal but was allowed to be taken by the Tribunal at the hearing, and a case where the subject-matter of the appeal was different from the one in respect of which relief was prayed for and given. It was held that the word "thereon" in section 33(4) would restrict the power of the Tribunal to the subject-matter of appeal. In the latter case, which accepted the same interpretation, the following statement of the principle laid down in New India Life Assurance Co. v. Commissioner of Income-tax was adopted as correct "The expression 'thereon ' has come in for considerable judicial comment and observation, and the authorities lay down that the power of the Tribunal is confined to dealing with the subject-matter of the appeal and the subject-matter of the appeal is constituted by the grounds of appeal preferred by the appellant. THIS subject-matter cannot be expanded even by the appellant unless leave is granted to him to do so by the Appellate Tribunal. The subject-matter can certainly not be expanded by the respondent, as already pointed out, if he has not either appealed or cross-objected." *The above decisions establish the proposition that the order of the Appellate Tribunal should be correlated to the actual subject-matter in controversy. We have earlier pointed out that a dismissal for default of appearance has nothing to do with the matter in controversy. It merely puts an end to the appeal. Such a method of disposal cannot therefore be said to be in accordance with section 33(4). Again the terms of the section 33(4) itself appear to suggest that the Tribunal is intended to dispose of the appeal on its merits.