Supreme Court of India
In this case the Full bench of Supreme Court has struck down the National Tax Tribunals Act, 2005 as unconstitutional. Though tribunalization has been allowed at the original stage subject to certain safeguards, the boundaries have been crossed by the National Tax Tribunals Act and encroached the exclusive domain of the High Courts. The Supreme Court also had to consider whether Chartered Accountants Chartered Accountants could be appointed Members of the NTT and whether s. 13(1) of the Act which permitted Chartered Accountants to represent a party to an appeal before the NTT was valid in law. It also had to consider the application by the Company Secretaries that they are equal in all respects to the CAs and should also be permitted to appear and plead before the NTT.
Madras Bar Association – Petitioner – Versus – Union of India and another – Respondents
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL/APPELLATE JURISDICTION
TRANSFERRED CASE (C) NO. 150 OF 2006
Madras Bar Association
Union of India and another
CIVIL APPEAL NO. 3850 OF 2006
CIVIL APPEAL NO. 3862 OF 2006
CIVIL APPEAL NO. 3881 OF 2006
CIVIL APPEAL NO. 3882 OF 2006
CIVIL APPEAL NO. 4051 OF 2006
CIVIL APPEAL NO. 4052 OF 2006
WRIT PETITION (C) NO.621 OF 2007
TRANSFERRED CASE (C) NO.116 OF 2006
TRANSFERRED CASE (C) NO.117 OF 2006
TRANSFERRED CASE (C) NO.118 OF 2006
WRIT PETITION (C) NO.697 OF 2007
Jagdish Singh Khehar, J.
1. All the above cases are being disposed of by this common judgment. The issue which arises for consideration before us, in the present bunch of cases, pertains to the constitutional validity of the National Tax Tribunal Act, 2005(hereinafter referred to as, the NTT Act). Simultaneously, the constitutional validity of the Constitution (Forty-second Amendment) Act, 1976 has been assailed, by asserting, that the same violates the basic structure of the Constitution of India (hereinafter referred to as, the Constitution), by impinging on the power of “judicial review” vested in the High Court. In the event of this Court not acceding to the aforementioned prayers, a challenge in the alternative, hasbeen raised to various provisions of the NTT Act, which has led to the constitution of the National Tax Tribunal (hereinafter referred to as, the NTT).The NTT, according to the learned counsel for the petitioners, is styled as aquasi-judicial appellate tribunal. It has been vested with the power of adjudicating appeals arising from orders passed by Appellate Tribunals(constituted under the Income Tax Act, the Customs Act, 1962, and the Central Excise Act, 1944). Hitherto before, the instant jurisdiction was vested with High Courts. The pointed issue canvassed in this behalf is, that High Courts which discharge judicial functions, cannot be substituted by an extra-judicial body. Additionally, it is maintained that the NTT in the manner of its constitution undermines a process of independence and fairness, which are sine qua non of an adjudicatory authority.
The Historical Perspective:
The Income Tax Legislation, in India:
2(i). Law relating to income tax dates back to 1860, when legislation pertaining to levy of tax on income, was introduced in India for the first time. The original enactment was replaced by subsequent legislations, enacted in 1865, 1886, 1918 and 1922. The Indian Income Tax Act, 1922 (hereinafter referred to as, the1922 Act) was brought about, as a result of the recommendations of the All India Tax Committee. The 1922 Act can be described as a milestone in the evolution of direct tax laws in India. Detailed reference needs to be made to the provisions of the 1922 Act.
(ii) After the procedure provided for assessment of tax had run its course, and tax had been assessed, an executive-appellate remedy was provided for, before the Appellate Assistant Commissioner of Income Tax (under Section 30 of the1922 Act). A further quasi-judicial appellate remedy, from decisions rendered by the first appellate authority, lay before an appellate tribunal (hereinafter referred to as the Appellate Tribunal). Section 33A was inserted by the Indian Income Tax (Amendment) Act, 1941. It provided for a remedy by way of revision before a Commissioner of Income Tax.
(iii) The remedy before the Appellate Tribunal (provided under Section 5A of the 1922 Act, by Section 85 of the Indian Income Tax (Amendment) Act, 1939),was required to be exercised by a bench comprising of one Judicial Member and one Accountant Member. It was permissible for the President of the Appellate Tribunal or any other Member thereof, to dispose of appeals, sitting singly(subject to the condition, that the total income of the assessee, as computed by the assessing officer, did not exceed Rs.15,000/-). It was also open to the President of the Appellate Tribunal to constitute larger benches of three Members (subject to the condition, that the larger bench would comprise of atleast one Judicial Member and one Accountant Member).
(iv) Section 5A of the 1922 Act, laid down the conditions of eligibility for appointment as a Judicial Member - a person who had served on a civil judicial post for 10 years was eligible, additionally an Advocate who had been practicing before a High Court for a period of 10 years, was also eligible. Under the 1922Act, a person who had practiced in accountancy as a Chartered Accountant(under the Chartered Accountants Act, 1949) for a period of 10 years, or was a Registered Accountant (or partly a Registered Accountant, and partly a Chartered Accountant) for a period of 10 years (under any law formerly enforced), was eligible for appointment as an Accountant Member. Only a Judicial Member could be appointed as the President of the Appellate Tribunal.
(v) Section 67 of the 1922 Act, barred suits in civil courts pertaining to income tax related issues. Additionally, any prosecution suit or other proceedings could not be filed, against an officer of the Government, for an act or omission, in furtherance of anything done in good faith or intended to be done under the 1922Act.
(vi) The 1922 Act, did not provide for an appellate remedy, before the jurisdictional High Court. The only involvement of the jurisdictional High Court, was under Section 66 of the 1922 Act. Under Section 66, either the assessee or the Commissioner of Income Tax, could move an application to the Appellate Tribunal, requiring it to refer a question of law (arising out of an assessment order) to the jurisdictional High Court. In case of refusal to make such a reference, the aggrieved assessee or the Commissioner of Income Tax, could assail the refusal by the Appellate Tribunal, before the jurisdictional High Court. A case referred to the High Court under Section 66, was to be heard by a bench of not less than two judges of the High Court (Section 66A of the 1922 Act –inserted by the Indian Income Tax (Amendment) Act, 1926). Section 66 of the1922 Act, was amended by the Indian Income Tax (Amendment) Act, 1939,whereby the power to make a reference became determinable by the Commissioner of Income Tax (in place of the Appellate Tribunal).
(vii) In exercise of the reference jurisdiction, a question of law, which had arisen in an appeal pending before the Appellate Tribunal, had to be determined by the High Court. After the jurisdictional High Court had answered the reference, the Appellate Tribunal would dispose of the pending appeal inconsonance with the legal position declared by the High Court.
3(i) The 1922 Act was repealed by the Income Tax Act, 1961 (hereinafter referred to as, the Income Tax Act). As in the repealed enactment, so also under the Income Tax Act, an order passed by an assessing officer, was assailable through an executive-appellate remedy. The instant appellate remedy, was vested with the Deputy Commissioner (Appeals)/Commissioner (Appeals). The orders appealable before the Deputy Commissioner (Appeals) were distinctly mentioned (in Section 246 of the Income Tax Act). Likewise, the orders appealable before the Commissioner (Appeals) were expressly enumerated (in Section 246A of the Income Tax Act).
(ii) As against the order passed by the executive-appellate authority, a further appellate remedy was provided before a quasi-judicial appellate tribunal(hereinafter referred to as, the Appellate Tribunal, under Section 252 of theIncome Tax Act). Section 255(6) of the Income Tax Act provides as under:-
“6. 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, and any proceeding before the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of sections 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).”By a deeming fiction of law, therefore, the Appellate Tribunal was considered as a civil court , dealing with “judicial proceedings”.
(iii) To be eligible for appointment as the President of the ITAT, the incumbent had to be a sitting or retired judge of a High Court, with not less than 7 years of service as a judge. Alternatively, the Central Government could appoint a SeniorVice President or a Vice President of the Appellate Tribunal, as its President. It is, therefore apparent, that the Appellate Tribunal was to be comprised of a President, Senior Vice President(s), Vice President(s) and Members.
(iv) The benches of the Appellate Tribunal, under the Income Tax Act (was similar to the one under the 1922 Act), were to be comprised of at least one Judicial Member and one Accountant Member. The authority to constitute benches of the Appellate Tribunal was vested with the President. The composition of the benches under the Income Tax Act, was similar to that postulated under the 1922 Act. When authorized by the Central Government, it was open to the Appellate Tribunal, to dispose of appeals sitting singly (subject to the condition, that the appeal pertained to a dispute, wherein the concerned assessee’s total income was assessed as not exceeding Rs.5 lakhs). The President of the Appellate Tribunal, had the authority to constitute special benches, comprising of three or more Members (one of whom had to be a Judicial Member, and one, an Accountant Member). In case of difference of opinion, the matter was deemed to have been decided in terms of the opinion expressed by the majority.
(v) An assessee or the Commissioner, could move an application before the Appellate Tribunal, under Section 256 of the Income Tax Act, requiring it to make a reference to the High Court on a question of law (arising in an appeal pending before the Appellate Tribunal). In case the prayer made in the application was declined by the Appellate Tribunal, the order (declining the prayer) was assailable before the High Court.
(vi) Section 257 of the Income Tax Act provided for a reference directly to the Supreme Court. The instant reference could be made by the Appellate Tribunal, if it was of the opinion, that the question of law which had arisen before it, had been interpreted differently, by two or more jurisdictional High Courts.
(vii) Section 260A was inserted in the Income Tax Act by the Finance (No. 2)Act, 1998, with effect from 1.10.1998. Under Section 260A, an appellate remedy was provided for, to raise a challenge to orders passed by the Appellate Tribunal. The instant appellate remedy, would lie before the jurisdictional High Court. In terms of the mandate contained in Section 260B of the Income Tax Act, an appeal before the High Court was to be heard by a bench of not less than two judges. The opinion of the majority, would constitute the decision of the High Court. Where there was no majority, on the point(s) of difference, the opinion of one or more judges of the High Court, was to be sought. Thereupon, the majority opinion of the judges (including the judges who had originally heard the case)would constitute the decision of the High Court.
(viii) A further appellate remedy was available as against a decision rendered by the jurisdictional High Court. The instant appellate remedy was vested with the Supreme Court under Section 261 of the Income Tax Act.
The Customs Legislation, in India:
4(i). The Customs Act, 1962 (hereinafter referred to as, the Customs Act) was enacted to consolidate and amend the law relating to customs. The Customs Act vested the power of assessment of customs duty, with the Deputy Collector of Customs or the Collector of Customs. An executive-appellate remedy was provided under Section 128 of the Customs Act, before a Collector of Customs(where the impugned order had been passed by an officer, lower in rank to the Collector of Customs), and before the Central Board of Excise and Customs(constituted under the Central Boards of Revenue Act, 1963), where the impugned order had been passed by a Collector of Customs. The Board had also been conferred with executive revisional powers (under Section 130 of the Customs Act), to suo moto, or on an application of an aggrieved person, examine the record of any proceeding, pertaining to a decision or order under the provisions of the Customs Act. Revisional powers, besides those expressly vested in the Board (under Section 130 of the Customs Act), were also vested with the Central Government (under Section 131 of the Customs Act).
(ii) By the Finance (No. 2) Act, 1980, Sections 128 to 131 of the original Act were substituted. The power to entertain the first executive-appellate remedy, was now vested with the Collector (Appeals), under Sections 128 and 128A of the Customs Act. On exhaustion of the above remedy, a further quasi-judicial appellate remedy was provided for, under Sections 129 and 129A before the Customs, Excise and Gold (Control) Appellate Tribunal (hereinafter referred to as, the CEGAT/Appellate Tribunal). CEGAT was also the appellate authority, against orders passed by the Board. With introduction of Service Tax, under Chapter V of the Finance Act, 1994, CEGAT was conferred the jurisdiction to hear appeals in cases pertaining to service tax disputes as well. The Appellate Tribunal is now known as the Customs, Excise and Service Tax Appellate Tribunal – the CESTAT. By Act 22 of 2003, the expression “Gold (Control)” was substituted with “Service Tax” in the definition of the “Appellate Tribunal” (w.e.f.14.5.2003).
(iii) Section 129 of the Customs Act delineated the constitution of the CEGAT. It was to comprise of as many Judicial and Technical Members, as the Central Government thought fit. The instant provision, also laid down the conditions of eligibility for appointment of Judicial/Technical Members. A Judicial Member could be chosen out of persons, who had held a civil judicial post for at least 10years, or out of persons who had been in practice as an Advocate for at least 10years, as also, from out of Members of the Central Legal Service (not below Grade-I), who had held such post for at least 3 years. A Technical Member could be appointed out of persons, who had been members of the Indian Customs and Central Excise Service (Group A), subject to the condition, that such persons had held the post of Collector of Customs or Central Excise (Level I), or equivalent or higher post, for at least 3 years. The Finance (No.2) Act, 1996 amended Section129(3) of the Customs Act, whereby it enabled the Central Government to appoint a person to be the President of the Appellate Tribunal. The Central Government could make such appointment, subject to the condition, that the person concerned had been a judge of the High Court, or was one of the Members of the Appellate Tribunal. Likewise, it was open to the Central Government to appoint one or more Members of the Appellate Tribunal to be its Vice President(s).
To read the full judgement, please find the attached file.