Evolution of ITAT — Historical Perspective and Vision

Shri. R. P. Garg

Evolution of ITAT — Historical Perspective and Vision*

Hon’ble Shri R. P. Garg, Vice President, ITAT, Ahmedabad

The Hon’ble Vice President gives a fascinating perspective of the history of the Tribunal and also traces out his vision for the growth of this venerable institution.

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.

No litigation in tax matters could be instituted in Civil Courts because the Income tax Act, 1922, provided a prohibition by section 67 that section 226 of the Govt. of India Act, 1935, specifically forbade interference in revenue matters by the High Courts in exercise of their original jurisdiction. This left a limited scope of judicial review in tax matters. The courts were taking conflicting views and there was an ongoing dispute as to the scope of exclusion of Civil Courts by section 67 of the Act as to whether it excluded even assessments on an invalid and ultra vires provisions. This perhaps was the another reason that brewed a desire of the assessee for an appeal to an independent body on important issues of taxation.

Committee on Investigation for the Income Tax system in India was constitured at that time, consisting of two members of the Board of Inland Revenue U.K. and the Commissioner of Income Tax, Bombay, Khan Bahadur J.B. Vacha and their report gave birth to the idea of setting up of the Income Tax Appellate Tribunal. Looking to the wide spread desire of the assesses for an independent forum of an appeal as not unreasonable, the Income Tax Inquiry Report, 1936 recommended the constituting of a Tribunal in India. The set-up of Indian Tribunal was to consist of six persons with at least two members 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, two persons who have had wide experience in the Income-tax Department and two with accountancy or business experience. The arrangements were to be sufficiently elastic to allow the hearing of most cases in which only questions of fact 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’s 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 as in Article 323B of the Constitution of India, like National Tax Tribunal set up under NTT Act, 2006, pending notification to take effect from.

To ensure a full independence, fearless and impartial disposition and to give the complete autonomy in deference to public opinion, the Appellate Tribunal within one year of its existence; i.e., from 30th May,1942, was put in the administrative control of the legislative Department

Opinion of the Select Committee appointed to consider the proposal was in a somewhat modified form. In its recommendations dated 10th November, 1938, it stated:—
“The new appellate body should consist of a Tribunal composed of not less than two Members chosen from each of two categories of a panel of some 8 or 10 members comprising legal members with such qualifications 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 powers to select the Members of the Tribunal.”

Many departures were thus made from the suggestion made by the Enquiry Committee, where under the Appellate Tribunal was to have had the last word, save only for an appeal to the Privy Council, on questions of law. Instead, a limited advisory jurisdiction was given to the High Courts. It continued with respect to orders passed by the Tribunal before 1-10-1998 under the Direct Taxes Acts, subject however to a right, of either party, to appeal to the Supreme Court, from the High Courts’ judgments in reference, where the questions involved were of great private or public importance. With the introduction of section 260A, now an appeal lies to the High Court instead of a reference as earlier, though only if a substantial question of law arises from the order. Even, to give a comprehensive and meaningful independence, the Tribunal was given power to regulate its own procedure. The designated members framed rules and the 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. A thread of dependence still existed in administering the Tribunal by making the Finance Department of the Government of India (the Central Board of Revenue) in charge of the Appellate Tribunal. It did not inspire confidence in the minds of the taxpayers about the Tribunal’s impartiality and objectivity, for they would have always apprehended that its decisions would be influenced owing to its allegiance to the controlling Department of Finance. To ensure a full independence, fearless and impartial disposition and to give the complete autonomy in deference to public opinion, the Appellate Tribunal within one year of its existence; i.e., from 30th May,1942, was put in the administrative control of the legislative Department, the predecessor of the present Ministry of Law, the Government of India. Shri R.S. Gae, the then Law Secretary, Ministry of Law, stated that 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 ITAT vs. V.K. Aggarwal, 237 ITR 175 (SC) and reaffirmed by the Shri R.L. Meena, the later Law Secretary, in the Diamond Jubilee conference when he stated “So far as the Law Ministry is concerned, this Tribunal has been enjoying full independence and the Ministry has extended full co-operation to the Tribunal to enable it to function efficiently and independently.”

Two streams of the noble professions of law and Accountancy were the source to select Members to constitute the Tribunal who were the persons of independent calibre. To give a wide coverage, the persons with administrative experience were also added. As rule, a Bench of the Tribunal consists of two Members: a Judicial Member and an Accountant Member; exceptions being of Single Member Bench or a Special Bench. The main purpose of having the Division Bench is to combine the skill of two experts supplementing each other to deal with the complicated issues of law and accounts arising in tax matters. It is not to keep check and balance on each other, but to arrive at just and fair conclusion after utilizing the expertise of both and to cover the possibilities of a Single Member having fixed notions, of being short-tempered, of having closed and a single track mind, not open to development of the law and so on and so forth. Thus, plurality of minds is the other reason that Members coming from different streams constitute a Division Bench. Both Members put in and apply their minds together without either thinking that it is beyond the reach of the other or that he alone is capable of dealing with it. It is a team work, to add strength and not to divide the strength. A five year tenure of appointment was originally devised. To allay the fear of indirect control and for having the judicial independence and impartiality the appointments were made on permanent basis with effect from 25-2-1950. This tenure post is being challenged in newly enacted legislation of NTT though PIL and the matter is pending before the Supreme Court. Judicial independence does not mean that the Members can do whatever they wish. In fact, there are many restraints upon the exercise of judicial power. Probably, the greatest limitation is the absolute requirement that the cases be decided according to law and the evidence.

Administrative powers of the Tribunal vest in the President, who was to be a Judicial Member, as originally provided in sub-section (4) of section 5A of 1922 Act. To make it more independent and to provide equal opportunity to all the members of the Tribunal, the previous restriction was removed by an amendment in the year 1953 by providing, instead, that “ordinarily, a Judicial Member” should be appointed as President, thus making it possible for an Accountant Member also to be appointed President. Shri P.C. Malhotra, became the first President out of the Accountant Members. Since then, no distinction is made between a Judicial Member and an Accountant Member. Almost an equal number of the Accountant Members and Judicial Members have been appointed as Presidents of the Tribunal; Mr. V. Dongzatang, has been last President of the Tribunal from amongst the Accountant Members. By amendment in section 253(3) by the Finance Act, 2002, w.e.f. 1-4-2002, the Senior Vice President or one of the Vice Presidents has to be appointed as the President. Appreciating the administrative workload on the President and also to take care of stagnation in service, the legislature created the 4 posts of Vice Presidents in 1972, to be elevated from the existing members in the Tribunal. These four Vice-Presidents were placed in charge of four regions, North, East, West and South and the administration was decentralized to some extent by delegation of certain powers by the President to the Vice Presidents. In 1984, to further decentralise 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 zones and four more posts of Vice Presidents were created – one each at Ahmedabad, Hyderabad, Chandigarh and Bangalore. Due to the low pendency and administrative work, the last mentioned zone was abolished in 2000 and was shifted to Mumbai. The post of Vice President was reinforced later for Bangalore.

The decisions of the Tribunal on various issues are eagerly awaited – analysed, adopted and acclaimed by various world judicial forums and professional importance of the Tribunal will get impetus, not only in India, but, world wide. When most of the important judicial forums of the world have become fully operational on electronic media, it is right time that ITAT has joined the league of such organizations, whose work and basic information is available to the world at large, with the click of a button.

Xenium growth was witnessed in the Tribunal. Initially the Tribunal was set up to dispose of appeals arising from assessments under the Income-tax Act. Looking to its successful working, the orders of the first Appellate Authority under all other new Acts of direct taxes were also made appealable to the Tribunal viz. Excess Profits Tax, Business Profits Tax, Wealth-tax Act, Gift Tax Act, Expenditure Tax Act, Super-Profits Tax Act, Companies (Profits) Sur-Tax Act, Interest Tax Act etc.. Orders passed by the Appellate Controller of Estate Duty were also appealable to the Tribunal. Orders prejudicial to assessees passed by the Tax Commissioner in exercise of his revision jurisdiction, are also appealable to the Tribunal. The orders of acquisition of properties under the Income-tax Act, 1961, were also made subject to appeal before the Tribunal. The Tribunal that is now functioning at present is the Tribunal for all direct taxes.

Assessees as well as the Department, from the very beginning, were very much satisfied with the functioning of the Tribunal, their independence, judicial approach and fairness to both the parties. The number of appeals instituted before the Tribunal rose from 1607 in 1941-42 to 22,380 in 1963-64, to 60,716 in 1975-76 and 83,765 in 1991-92. By resolution of various issues of taxation amicably and judiciously, it had shown a downward trend and at present the institution is 43,192 in 2006-07. There were many reasons for this progress, some of which may be attempted to be enumerated here.

i) The first was the territorial expansion after independence. The jurisdiction over some and part of the provinces were transferred to Pakistan but as a result of the integration of the former princely or native states and the merger of the former French and Portuguese possessions in the Indian Union, the jurisdiction of the Tribunal now extends to the whole of the territory of India.

ii) The second reason was the happy notion of combining two categories of technical expertise in the selection of members instead of recruiting only judicial officers to the posts. The judicial members were recruited from among senior destrict judges or lawyers with lucrative tax practice, who distinguished themselves later, by being elevated as judges of High Courts and Supreme Court. Mr. Mohd. Munir, the first President of this Tribunal adorned the seat of the Chief Justice of the Pakistan Supreme Court. Mr S. Ranganathan and Ms. Fatima Bibi also have been elevated as judges of the Supreme Court. Mr. O.P. Verma, and Mr. K.A. Thanikachalam, retired as Chief Justice of the High Court. Mr. Y.R. Meena, is now the present Chief Justice of the Gujarat High Court. There have been 30 elevations as judges of different High Courts from our Tribunal. The Accountant Members were drawn from persons with experience in the profession or in the department. Many of the Accountant Members also were appointed as Pressident to head the Institution.

iii) The Third important reason for the Tribunal’s popularity was its informality and easy accessibility. To quote an eminent tax lawyer, Shri N.A. Palkhivala, who had intimate knowledge of the Tribunal and its functioning:—

“An informal atmosphere prevails in the Tribunal and cases are allowed to be argued, not only by lawyers but by accountants, Income-tax practitioners, relatives, officers of companies and other representatives. Secondly, the Tribunal, unlike a Civil Court, is not bound by the rules of evidence. It is permitted, in fact expected, to do substantial justice, bearing in mind [ if one may adapt the historic dictum of Justice Holmes] that there is a limit to the nicety of inquiry which is possible in a tax appeal. Relevant and even material facts, which the Tribunal readily takes into account, would be exiled from the records in the Civil Court on the ground that they do not pass the tests of the Evidence Act. The Tribunal’s work often involves investigation of facts embedded in accounts kept in a variety of languages and in documents which are not formally proved. In a sizeable number of cases, the Tribunal is constrained to make merely rough guesses at truth. The decisions rendered by the Tribunal have, by and large, been distinguished by study independence and a desire to do justice.”

iv) The fourth reason for its vast expansion was attributable to the gigantic economic development of the country, particularly after the Second World War, and 1992 liberalization policy of trade and industry, which gave scope for enormous private profits. This prosperity brought in its wake various new enactments and an appellate forum was naturally needed to dispose of the appeals arising out of assessments made under these various Acts as well. The imposition of Excess Profits Tax and the Business Profits Tax during the War gave rise to a very large number of appeals. In 1957-58, the Legislature enacted a triple tax legislation, bringing to charge the net wealth of, as well as the gifts made and the expenditure incurred by, an assessee. The Wealth-tax, Gift Tax and the Expenditure Tax Acts took advantage of the appellate machinery already functioning under the Income-tax Act. Earlier, the Estate Duty Act had come on the Statute Book in 1953. In 1960, the appellate work under this Act was also entrusted to the I.T.A.T. In 1963 and 1964, the Super Profit Tax and the Companies (Profits) Sur-tax Act adopted the machinery available under the other Ditrect Tax Acts. The Income-tax Act, 1974, the Compulsory Deposit Scheme (Income-Tax Payers) Act, 1974 and the Hotel Receipts Tax Act, 1981, The Interest Tax Act, 1984 have also been framed on the same lines and orders passed on First Appeal by the appropriate authorities under these varius enactments have been made appealable to the Tribunal. Thus, the ITAT is, today, a Direct Taxes Appellate Tribunal.

v) The fifth reason has been the computerization and launching our own Web-site which has been designed with years of hard work and research with continuous thrust on making the same user friendly and informative. This is a paradigm shift from the manual informative system to electronic informative system. While the former was available to hand-full of persons, who approach the Tribunal, in contrast, the latter offers gate-way of the information to the world at large. This transition from manual informative system to world web electronic system is a path breaking achievement in the history of the Tribunal. The Law Minister, Finance Minister and our President have been, time and again, striving to define the emerging important role of the ITAT on world panorama, due to opening of economy and globalization. The decisions of the Tribunal on various issues are eagerly awaited – analysed, adopted and acclaimed by various world judicial forums and professional importance of the Tribunal will get impetus, not only in India, but, world wide. When most of the important judicial forums of the world have become fully operational on electronic media, it is right time that ITAT has joined the league of such organizations, whose work and basic information is available to the world at large, with the click of a button. The web-site has definitely made the Tribunal more informative, transparent and easy to communicate to all concerned. We would be introducing the programme to all the stations and to take up the cause of going on line and regular updating of the relevant data on top priority so as to make the Tribunal web-site a front runner in easy and expeditious disposal of the cases.

vi) The sixth, though not the last, is the adoption of very healthy conventions in our working throughout in the Tribunal like “unison and not partition”; “communion and not commotion”; “difference on issues and not with persons”; “consistency in approach”; “confer and not confront”, etc.

Phenomenal increase in the work before the Tribunal, because of its independent and judicious disposition, naturally called for its expansion and a stepping up of the number of benches constituting it from 3 in 1941 to 63 in 2002 and covering 27 stations. The expansion was so planned as to have, as far as possible, a bench of the Tribunal in every one of the States of India. For facility of working, different Benches of the Tribunal were assigned cases from different territories as determined by the orders of its President, issued from time to time. The creation of these Benches resulted in making redress possible to the assessees at their door steps and avoiding the necessity of their travelling long distance, once to file appeals or applications, and again for their hearing. With the increase in the number of Benches thus sanctioned, with an organized planning of tours of members and by a determined effort to speed up its work, the Tribunal has been able to contain the “docket-explosion” in this important field of law.

Pendency was mounting enormously. “SULABH NYAY SATWAR NYAY” has been the motto of the Tribunal. Easy access has always been there but due to heavy inflow, the pendency reached a figure of 3,00,597 in the year 1998-99. With utmost efforts, it was coming down but with a slow pace. On taking over as the President, Shri Vimal Gandhi, took it as a challenge. By his planned ways, he first reduced the Single Member cases by over 25,000 to a minimal figures of 2,563 on 31-10-2007. Thereafter, a scrutiny of case at all stations was directed to identify the case in seven categories – covered appeals, small appeals, single point appeals, penalty appeals, group cases and other remaining cases. Cases which were covered and small, were disposed of immediately. He constituted specific Benches to deal with cases of similar nature together, say, like appeals involving international taxation. Further, to enhance quick disposal, tours at small cities within zones and stations were arranged which gave disposal almost double the normal. It is heartening to note that, the figures of disposal by the Tribunal have exceeded the figures of institution. The total pendency, as on 31-10-2007, is now reduced to only 75,650 which is just about one year’s figure of effective annual disposal by the 63 Benches of the Tribunal, at an average of about 120 cases per Bench per month, making allowances for regular leave vacancies. The time lag between the institution and the disposal has been reduced to about 2-3 years in heavy stations and even less than a year in various other benches of the Tribunal. Single member cases generally come up for hearing within 60 days of their institution. New appeals are fixed on the 60th day to monitor, bunching and disposal if it were a small one or a covered appeal. This is no mean achievement.

Existence of Tribunal, from its inception, enjoyed immense popularity and received unstinted praise. However, in the case of an institution discharging such important functions in a complicated branch of law, some difficulties and drawbacks were likely to develop with the passage of time. Often, it is criticism rather than praise that provides an occasion for corrective action to cure deficiencies and shortcomings and set the institution on the right path.

Looked at the report by the Income-tax Investigation Commission in December, 1948, under the Chairmanship of Sir Srinivas Vardachariar, it seems the Commission was not in favour of appointing members from the professions on a tenure basis and pointed out that good talent from the professions may not be willing to join as members on the salary and terms offered. The Commission was, however, fully satisfied with the working of the Tribunal. It recommended:—

i) To devise some adequate machinery for the reporting of the decisions of the various benches. This suggestion, made at that time, posed several practical hurdles and it was ultimately implemented in 1984 to report its decisions in official journal called ITD. Now its decisions are found reported in various journals including ITR.

ii) The conflicts, if any in the decisions to be resolved by a Full Bench of the Tribunal.

iii) To ensure uniformity, The income-references should be heard by the Supreme Court when there was a conflict of decision between the High Courts on any issue. This suggestion which had been made originally at one time (but abandoned) finds place as the direct reference to the Supreme Court u/s 257 of the 1961 Act.

iv) To enable the Tribunal having the power to award costs in the appeals before it and also to grant refunds of the whole or part of the fee paid by an appellant or applicant for reference, depending upon the degree of success obtained by him. To award cost suggestion has been implemented by Finance Act, 1999, by inserting sub-section 2B in section 254 of the Act.

Law Commission 12th Report, however did not favour the Tribunal on the next occasion in 1958 and it cast severe criticism of the Tribunal’s functioning. It opined that the existing system of appeals to the Tribunal and thereafter a reference to the High Court on a question of law was very cumbersome and caused unnecessary delay in the disposal of the appeals so as to finalise the assessments; that men of requisite calibre and independence were not being recruited for discharging the heavy responsibilities of a final fact finding authority under the new pattern of taxation; that members were lax in their attendance, that in a two-member Bench the contribution of one of the members was not often appreciable; that the Tribunals “spared very little time for the appellate work” resulting in delay in the disposal of appeals; that there were many complaints that the Tribunal was not displaying the judicial and independent approach which was necessary in such an authority; that it did not deal with the factual or legal contentions raised before it; that it did not clearly record its findings of fact or its reasons for arriving at its decisions; that quotations from several High Court judgments emphasized the unsatisfactory nature of the orders passed as well as the statements of case drawn up by the Tribunal; and that scrappy statements often obliged High Courts to call for supplementary statements of case. The Commission, therefore, strongly recommended the abolition of the Appellate Tribunal and recommended a direct appeal to the High Court, both on questions of fact as well as questions of law, from the orders of the Appellate Assistant Commissioner. The Commission felt that this would give the assessee the satisfaction that the facts of the case and the law applicable to it had been examined by a competent authority and would also save the time of the High Court. The Commission also presented a draft Income-tax Bill deleting the existing provisions relating to the Income-tax Appellate Tribunal.
Administration Enquiry Committee, on Direct Taxes, popularly known as the Tyagi Committee, soon after the report of the Law Commission and before the Bill drafted by it was considered by Parliament, was set up to enquire comprehensively into all aspects of administration of all the direct tax laws. The Committee, in its report dated 30-11-1959, also dealt with the Income-tax Appellate Tribunal. The Committee, however, did not agree with the suggestion of the Law Commission that the Tribunal should be abolished. It was of opinion that, while there was definite scope for improvement in the methods and procedure of the Tribunal as well as in its composition, there was no case made out for its total abolition; that the need for such an organisation was quite clear and the Appellate Tribunal, consisting of equal number of Judicial and Accountant members, was best suited to deal with the problems arising from the administration of the taxing statutes; that such an independent appellate agency to deal with important questions of fact existed in other countries; that taxing statutes were complicated and technical and required a high degree of specialised knowledge of both accountancy and law which could be gained only by continued and exclusive concern with them and that the facts and figures showed that the High Courts, which were already over-burdened with cases, would not be in a position to cope with the volume of tax work if direct appeals were provided in tax matters. After taking into account the considered views of the then Attorney-General, and the Chief Justice of Bombay and Calcutta High Courts, about the importance of the Tribunal, the Committee was convinced that the Appellate Tribunal cannot be dispensed with and should continue.

To enhance the prestige of the Tribunal in the eyes of the public as well as the judiciary, the Committee made certain recommendations. It recommended – (a) that a serving High Court judge should be deputed to act as President of the Tribunal for a fixed tenure; (b) that the emoluments and other conditions attached to the post should be suitably enhanced and a convention established for considering the President for higher offices; (c) that the President should be given various additional powers such as referring cases directly to the Supreme Court, passing orders on findings given by the disciplinary committee of the Institute of Chartered Accountants and the Bar Council on complaints against members of the accountancy and legal professions practising before tax authorities; (d) that, though public opinion was divided about the usefulness of appointing officials of the department as accountant members, since professional persons were not forthcoming to fill up vacancies of judicial and accountant members, competent members of the judicial and revenue services should be recruited; that, as far as possible, officers of the department recruited to the Tribunal should be of the status of Commissioners of Income-tax or Assistant Commissioners senior enough to be appointed as Commissioners and recruitment from judicial service should, as far as possible, be of serving District & Session Judges. With regard to improvement in the methods of work, the Committee suggested that the Tribunal should pass reasoned and detailed orders giving full facts and findings so that a clear picture of the issues involved, the argument advanced and the conclusion arrived at would emerge; that the feasibility of having important appeals heard by Benches constituted of senior members and the President should be examined; and that both the Department and the assessee should have a right of filing memoranda of cross-objections before the Tribunal.

Enabling the Tribunal to retain its place in the administration of taxes, the Income-tax Act, 1961, on recommendations of the Tyagi Committee, virtually re-enacted the relevant provisions of the earlier Act after incorporating some of the suggested improvements. It has provided a right to both parties to file cross-objections before the Tribunal. It has made a provision, through its President, to make a direct reference to the Supreme Court, instead of to the High Court, on points of law involving a difference of opinion between the High Courts.

Tribunal Members’ conference was held in Bombay in March 1964 and the Chief Guest was the then Chief Justice of India vs. Shri Gajendra Gadkar. He expressed his agreement with the views of the Law Commission, because he believed that, in principle, judicial work should be done by courts, a far cry from the present day philosophy. In his inaugural address, he announced his clear view that bodies like ITAT should not be encouraged and some other method should be devised for shifting the tax litigation to the normal courts of the country. The Finance Minister, T.T. Krishnamachari, was in full agreement with his views rather with greater force. Luckily, the then Law Minister Mr. Ashok Sen was also there. He had direct experience of the Tribunal and its functioning and he spoke his mind very clearly and forcefully to the contrary. He said that this is a very important institution, this is a very necessary institution, this is a very wonderful institution; it must be continued. So, the ITAT was saved from some sort of a premature end in 1964.

Role of the Appellate Tribunal continued uninterrupted, not only under the Income-tax Act, but also under the four Direct Tax enactments that were on the statute book and new allied enactments also proceeded to confer appellate functions thereunder on the Appellate Tribunal, as has been referred to earlier. It seems that, chastened by the admonitions and criticism of the Law Commission, the I.T.A.T. had geared up its working and by degrees, reinstated itself in public esteem and popularity. When the Tribunal celebrated its Silver Jubilee in April, 1966, all sections of the public were unanimous in praising the Tribunal for their judicial temperament, objectivity, and detailed and erudite orders. Among the speakers on the occasion were Mr. Justice Amal Kumar Sarkar , the then Chief Justice of India, Sarva Shri G.S. Pathak, C.R. Pattabhiraman and Sachin Chaudhary (then Ministers of Law & Finance), Shri C.K. Daphtary (the then Attorney-General of India), Sarva Shri A.K. Sen, N.A. Palkhivala and G.P. Kapadia. A large number of other eminent persons who had occasion to watch the Tribunal at close quarters, contributed articles to a Souvenir published on the occasion, voicing handsome and unqualified tributes to the Tribunal. On several subsequent occasions, Chief Justices of various High Courts, who had occasion to review the orders of the Tribunal in income-tax references, spoke highly of the part played by the Tribunal in rendering impartial justice to the Department and assessees alike, and of the important and useful role played by it in the field of direct tax litigation. At a conference of the members of the Tribunal held in 1977, eminent speakers including Shri M.H. Beg, Chief Justice of India, Chandrachud J. (as his Lordship then was), Gover J. and Law Minster Shri Shanti Bhushan, had words of praise for the Tribunal.

Its working during nineties was again clouded and there was a proposal to lower down the status of the Tribunal from second Appellate Authority to first Appellate Authority and due to its working acclaimed by everybody connected with tax jurisprudence, the proposal was dropped due to timely action and efforts of our present Law Minister Shri H.R. Bharadwaj when he was Minister in charge of the Tribunal.
Beginning of the 21st Centenary saw a change. In Diamond Jubilee Conference, the Law Minister Shri Arun Jaitley said “It is one of the few Tribunals whose judgments are not only reported, but which are cited with a certain element of authority. It is a Tribunal, whose member comprise of a mixed of judicial and accounts backgrounds, therefore, to give it a broader experience, of those who are contributing to the development of law.” The Law Secretary Shri R.L. Meena said “It is a matter of pride that this Tribunal has been rendering justice in taxation matters with great dedication, devotion and with a sense of sincerity to the cause of fair justice.” The Chief Justice Dr. A.S. Anand, accolade “The Income Tax Appellate Tribunal is considered to be one of the most successful administrative Tribunals functioning in the country. The Tribunal has been exhibiting independence in its working free from any type of pressure.” Supreme Court Justice Shri B.N. Kirpal said “You have become not only the bench mark but you have also become the leaders, if I may say so of the Alternative Dispute forum. It is an ADR, in a way, not the arbitration but it is certainly a quasi-judicial Tribunal discharging judicial work and you have become the leaders in that field. The Tribunal, as I know, is the Tribunal of excellence and I do hope and I am quite sure, it will succeed and it will continue to be so”. Attorney General of India Shri Soli S. Sorabji acclaimed “It was a unique and original experiment in tribunalisation of justice long before our Constitution and the constitutional provisions which provided for Tribunals. Now there is no doubt that the Income Tax Appellate Tribunal has been a success. Let us reflect on the reasons. The primary reason I think has been the composition of the Tribunal”. The Solicitor General of India, Shri Harish Salve, told : “Tribunals are the crucial bridge between these two extremes, wherever possible and particularly in the 21st century in areas of commerce. Today we are going to have greater and greater control passing into the hands of industry. We will need to create Tribunals where a lay person, an average person can get justice, where he is pitched one to one against a multinational. An individual has no chance in a suit in a conventional Court against an economically powerful adversary, whereas, in the Tribunal of 5 Members, 3 Members who are experts, it matters little whether he appears in person because they know the subject, they know what they have to ask him, they are not bound by the rules of evidence, they have to do substantial justice and as long as what they do is broad justice, no court interferes. This is the role which I envisage for the Tribunals in the 21st century”. Justice Arijit Pasayat, Chief Justice, Delhi High Court, and the Chairman CBDT, Shri A. Balasubramanian, and other eminent dignitaries present also spoke very high of the Tribunal and its functioning.

Usage, an old one of Greek says “Judge the tree by its fruits”. The growth of the Tribunal tree is thus to be seen by its judgments and public repose in them. I may mention here that statistics collected show that only 7.5% of the matters decided by the Tribunal go in reference or appeal and the percentage of matters in which the Tribunal’s view is reversed should be much less. In other words, 92.5% of the dispute before the Tribunal reach finality there itself. Ultimately, 98% of the Tribunal orders are approved by the Supreme Court. These figures, it would seem, are eloquent about the efficacy of the Tribunal’s functioning during the recent years. Thus rehabilitated in public esteem, the Tribunal which completes sixty six years of its existence in the beginning of the next year, looks back, on the one hand, with pride and pleasure at its past record and looks forward, on the other, to a long future of dedicated service in the cause of justice. Prof. Klaus Vagel has appreciated the orders of the Tribunal. He is an international tax authority. He said the decisions of the Income Tax Appellate Tribunal are as appropriate for demonstrating and discussing problems of tax laws as are decisions by the courts of other countries and they are a voice worth to be heard in the international dialogue of courts and experts. This was widely debated and said in last Regional Conference of Members at Mumbai by every eminent personality that attended the conference.
Now, if we see the approach as reflected by the 42nd Amendment to the Constitution of India which contemplates under Article 323B, the creation, in special fields, of administrative Tribunals as the ultimate appellate authorities, amenable only to the special leave jurisdiction of the Supreme Court under Article 136. It appears that, in introducing this amendment, the Government was, at least in part, influenced by the precedent set up by the Income-tax Appellate Tribubal. In his speech in support of the amendment bill delivered in the Lok Sabha on 1-11-1976, the Law Minister, Shri H.R. Gokhale said:

“With regard to the composition of the Tribunal, I have already stated that while it is difficult to lay down in the Constitution the formulation, the composition will certainly be laid down in the statute when it will be brought before the House for consideration. It will depend on the nature of the Tribunal, the purpose for which the Tribunal is going to be set up as to how the constitution of that Tribunal should be. All that I can say is to repeat what I have said earlier that it will be the Government’s endeavour to see that the Tribunal is composed of the people who will inspire confidence. It will not necessarily be composed only of judicial persons although I personally think that it is necessary that at any rate some representatives of those who have judicial experience ought to be there on these Tribunals.

It is not absolutely necessary that every one of the Tribunal should have that experience. I have got the example of the income-tax Appellate Tribunal is functioning extremely well and even those people who have gone before the Income-tax Appellate Tribunal have told me and have spoken on the public platform that the Income-tax Appellate Tribunal as it is constituted today, is the best example to show how the Tribunals if properly constituted, can create confidence. I can say that the Income-tax Appellate Tribunal’s decisions are rarely interfered with by the High Courts and the Supreme Court because the quality of their work has been found to be sufficiently good as to inspire confidence.”

A later development provides practical proof that the Tribunal has continued to live up to these words. Encouraged by the record of the Income-tax Appellate Tribunal, the Government has constituted a similar appellate Tribunal for indirect taxes, Central Administrative Tribunal to deal with employment matters, Company Law Tribunal to deal with corporate litigation, Debt Recovery Tribunal, Competition Appellate Tribunal etc etc. Possibly, it may do so in future in other fields as well. The Income-tax Appellate Tribunal can, therefore, justly rejoice over its exemplary past and be assured of good wishes from one and all for an equally bright and glorious future.
Lastly and to conclude, whatever the future may hold, there is unanimity of opinion that the Tribunal has been the one administrative tribunal which has established for itself the goodwill and confidence of the public. The Frank Committee set up in England in 1957 to examine the working of Administrative Tribunals in the country produced a historical report in which it enunciated the following as the criteria of a good Administrative Tribunal: (i) Cheapness; (ii) Easy Accessibility; (iii) Freedom from technicalities; (iv) Expedition and (v) An expert knowledge of the particular subject. The Income-tax Appellate Tribunal fulfils all these requirements and has set up an impressive record which earned the commendation of the President of India. Dr. Sarvepalli Radhakrishnan, the then President of India, said in his message on the occasion of the Silver Jubilee of the Tribunal: “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.” The Vice President of India, Shri Krishan Kant, in his message on sixtieth anniversary of the Tribunal conveyed that “The Tribunal is a vital link between the courts and the average citizen of the State and is playing a crucial role in dispensing inexpensive, easy and quick justice through its Benches all over India. Its role has been widely appreciated”. Similarly, the Prime Minister of India, Shri A.B. Vajpayee, on the occasion of Diamond Jubilee of the Tribunal, conveyed the message “As a quasi-judicial body, the Income Tax Appellate Tribunal has been fulfilling an important duty ever since it was set up in January, 1941. On this occasion, I urge everybody associated with the Income Tax Appellate Tribunal to rededicate themselves to their motto “Easy and Quick Justice”. The Tribunal has ironed out the creases of many complicated issues on important questions by giving all together the new turn in the tax jurisprudence. To cite a few —

(i) Rule-1BB of the Wealth Tax Rules, later Rule-3 of the Schedule in the Wealth Tax Act, 1956, was first held to be directory and to be applied retrospectively by the Special Bench of the Tribunal in the case of Biju Patnayak had the ultimate approval of the Supreme Court in the case of CWT vs. Sarvan Kumar Swarup & Sons, 210 ITR 886;

(ii) section 43B of the Income-tax Act, 1961, dealing with allowance of taxes, payments, etc. on cash basis but when paid in the subsequent year before the filing of the return was also held to be retrospective effect from the beginning of the introduction of section 43B by the Tribunal and which finds approval of the Supreme Court in the case of Allied Motors Pvt. Ltd. vs. CIT, 224 ITR 677;

(iii) subsidy received from the Govt. was held not to be reduced from the cost of asset is approved by the Supreme Court in the case CIT vs. P.J. Chemicals Ltd., 210 ITR 580;

(iv) interest earned by Co-operative Banks on its reserve, whether special or otherwise, was held to be income from banking by the Special Bench of the Tribunal and finds approval of the Supreme Court in the case of Mehsana District Central Co-operative Bank Ltd. vs ITO;

(v) the Special Bench of the Tribunal held that concealment penalty cannot be levied in the cases where returned and assessed amount is a loss and that also gets approval of the Supreme Court recently in the case of Virtual Soft Systems Ltd. vs. CIT, 289 ITR 83; and

(vi) again 43B requiring the allowance of employment benefits only if paid on the due dates under the relevant Act, was amended in 2003 to have same statute as that of taxes paid and to be allowed if they are paid before the due date of filing of the return. Here also, the view of the Special Bench of the Tribunal in Chennai, even though the Madras High Court opined contrary, was upheld, I am told recently, by the Supreme Court. These are the few examples which can be multiplied if one goes through the cases decided by the Tribunal, which had reached the Supreme Court for their finality.

Source : Speech delivered at programme for Orientation & Training of New Members, Income Tax Appellate Tribunal, Mumbai. held from 12th November, 2007 to 28th November, 2007.

Acknowledgement: We are thankful to Hon’ble Presidents, Vice Presidents of ITAT, Mumbai for granting us permission to print the article for the benefit of Tax Professionals.

*Reprodued with permission from the AIFTP Journal – March 2008 Edition.

One comment on “Evolution of ITAT — Historical Perspective and Vision
  1. RITA says:

    Please lets us know about the Judgements / matters regarding 80 IB (10) for construction or developers.


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