Nek Ram Sharma and Co. vs Income Tax Appellate Tribunal and Others

B.P. Saraf, C.J.—This is an appeal u/s 260A of the Income Tax Act/1961 (the ""Act"") against the order of the Income Tax Appellate

Tribunal dated August 31, 1999, by which the Income Tax Appellate Tribunal (the ""Tribunal"") remanded the matter to the Commissioner of

Income Tax (Appeals) to decide the proper gross profit rate to be applied after giving an opportunity of hearing to both the assessee as well as the

Assessing Officer and to pass a fresh order.

We have heard learned counsel for the appellant, Ms. Sindhu Sharma, who submits that the Tribunal was not justified in remanding the matter to

the Commissioner of Income Tax (Appeals) because it was obligatory on its part to consider the relevant facts and decide the proper gross profit

rate itself. She submits that the question whether the Tribunal should have decided the matter instead of remanding the matter to the Commissioner

(Appeals) is itself a question of law which should be examined by this court in an appeal u/s 260A of the Act. In support of the contention reliance

is placed on the decision of the Supreme Court in Udhavdas Kewalram Vs. Commissioner of Income Tax, Bombay City I, .

We have given our careful consideration to the above submission of learned counsel for the appellant. We, however, find it extremely difficult to

accept the same. The real controversy before the Tribunal in the instant case is about certain additions totalling Rs. 19,20,915 made by the

Assessing Officer to the taxable income of the assessee on account of profits allegedly suppressed by him by under-billing. On appeal of the

assessee, the Commissioner of Income Tax (Appeals) deleted the additions. The Revenue appealed to the Tribunal. The Tribunal, on consideration

of the facts and circumstances of the case, for the reasons set out in its order, found that the Commissioner (Appeals) had not applied his mind

properly to the facts and circumstances of the case and the issues arising before him. The Tribunal, therefore, remanded the matter to the

Commissioner (Appeals) for a fresh determination of the controversy after giving proper opportunity of hearing to the assessee and the Revenue.

The parties before the Tribunal raised no legal issues. Nor did the Tribunal decide any legal issue, which might give rise even to a question of law

not to speak of substantial question of law to justify admission of appeal u/s 260A of the Act.

u/s 260A of the Act, appeal lies to the High Court from an order passed in appeal by the Tribunal only if the case involves ""a substantial

question of law"". Sub-section (2) of Section 260A mandates that the appeal should be filed in the form of a memorandum of appeal precisely

stating therein ""the substantial question of law involved"". Sub-section (3) requires the High Court to formulate the substantial question of law, if it is

satisfied that such a question is involved in the case. Even after an appeal is admitted and a substantial question of law formulated by the High

Court, it is still open to the respondent to contend at the time of hearing that the case does not involve any such question. Thus the very foundation

of an appeal u/s 260A of the Act is that the case involves a substantial question of law. The jurisdiction of the High Court under this section is

confined to entertaining only such appeals as involve a substantial question of law.

Though the expression ""substantial question of law"" has not been defined in the Act or in any of the statutes, where this expression appears, e.g.,

Section 100 of the Code of Civil Procedure, the true meaning and connotation of this expression is now well settled by various judicial

pronouncements. There is a difference between a question of law and a substantial question of law. It is not a mere question of law but a

substantial question of law that is required for the purpose of appeal u/s 260A of the Act. A question of law will be a substantial question of law if

it directly and substantially affects the rights of the parties. In order to be ""substantial"" it must be such that there may be some doubt or difference of

opinion or there is room for difference of opinion. If the law is well-settled by the Supreme Court, the mere application of it to particular facts

would not constitute a substantial question of law.

In Sir Chunilal V. Mehta and Sons, Ltd. Vs. The Century Spinning and Manufacturing Co., Ltd., , the Supreme Court, after considering a

number of decisions on the point, laid down the following test for determining whether a question of law raised in the case is a substantial question

of law or not (page 1318) :

The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public

importance or whether it directly and substantially affects the rights of the parties and if so, whether it is either an open question in the sense that it

is not finally settled by this court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative

views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a

mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.

Applying the above test to the facts of the case before it, the Supreme Court held that the construction of the managing agency agreement was

not only a question of law but was also not a question either simple or free from doubt and hence involved a substantial question of law. The

Supreme Court also expressed its agreement with the opinion expressed by the Full Bench of the Madras High Court in Rimmalapudi Subba Rao

v. Noony Veeraju AIR 1951 Mad 969, wherein it was held that when a question of law is fairly arguable, where there is room for difference of

opinion on it or where the court thought it necessary to deal with that question at some length and discuss alternative views, then the question

would be a substantial question of law.

In The State of Kerala and Another Vs. R.E. D'souzha, , the Supreme Court held that once the Supreme Court has settled a question of

principle, its application to the facts of a case is not a substantial question of law.

Substantial question of law does not necessarily mean that the question of law must be of general importance. It would be a substantial question

of law, if there is a substantial question of law between the parties.

In the instant case, as stated earlier, even a question of law does not arise, not to speak of a substantial question of law. Moreover, in the

present case, by the impugned order, the Tribunal even did not finally decide the factual dispute between the parties. It only remanded the matter

to the Commissioner (Appeals) for deciding the controversy afresh after giving proper hearing to the parties. No substantial question of law or

even a question of law can arise from such an order.

It is clear from the foregoing discussion that this appeal u/s 260A of the Act is wholly misconceived. No substantial question of law is involved

in this case. In fact, not to speak of a substantial question of law, even no question of law is involved, because the Tribunal has not decided any

legal issue but has merely remanded the matter to the Commissioner (Appeals) for deciding the factual controversy between the parties afresh after

giving them an opportunity of hearing.

This appeal is, accordingly, dismissed with no order as to costs.