Nek Ram Sharma and Co. vs ITAT

Saraf, C.J.

This is an appeal u/s 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act) against the order of the Tribunal dated 31-8-1999, by

which the Tribunal remanded the matter to the Commissioner (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 the learned counsel for the appellant, Ms. Sindhu Sharma, who submits that the Tribunal was not justified in remanding the

matter to the Commissioner (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. 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 the 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 (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.

u/s 260A, 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

is that the case involves a substantial question of law. The jurisdiction of the High Court under this section is confined to entertain 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, 1908, the true meaning and connotation of the expression is now well-settled by various judicial

pronouncements. There is a difference between question of law and 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. 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 substantial question of

law or not :

. . . 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 R. Subba Rao v. N.

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 State of Kerala v. R.E.D. Souza (1971) 3 SCR 71, 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 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.