JAIPUR MINERAL DEVELOPMENT SYNDICATE, JAIPUR versus THE COMMISSIONER OF INCOME-TAX, NEW DELHI

JAIPUR MINERAL DEVELOPMENT SYNDICATE, JAIPUR

THE COMMISSIONER OF INCOME-TAX, NEW DELHI

December 16, 1976

(H. R. KHANNA AND V. R. KRISiiNA !YER, JJ.]

. Indian Income-tax Act, 192Z, S. 660)-Retuni of unanswued rrfumce by High Court on non-appearance of party, whether functus officio to recall order for disposal on merits.

At the. instance of the assessee-appellant, his matter WaS referred to the High Court under s .. 66(1) of the Indian Income-tax Act, 1922. He wa~ issued notice by the High Court to file his paper-books within th~ee months, but failed to do so, or to appear at the hearing, as the notice got misplaced by his clerk who received it. The High Court returned the reference unaswered. Later, the notice was found and the appellant moved the High Court t6 rehear the reference on merits pleading bona fide mistake but the High Court dis-missed his application observing that it had become functus officio to entertain the application because of its earlier order declining to answer the reference.

Allowing the appeal, the Court,

HELD : Where there is no express or implied prohibition of law, the High Court has inherent power io recall the order made in the absence of the party and to dispose of the reference on merits. It is not functus officio in entertaining an application for re-hearing the reference and should exercise wch power provided the party concerned approaches the Court with due diligence a·nd shows sufficient cause for its non-appearance on the date of hearing. [4620-F)

M. M. Ispahani Ltd., Calcutta v. Commissioner of Exass Profit'.TtJX, West Bengal 27 ITR 188 and Commissioner of Income-tax, Madras v. S. Chm11i11.ppa Mudaliar 74 ITR 41, referred to.

Roop Narain Ramchandra (P) Ltd v. Commissionu of lnc1J111e-tu. U.P .. 84 J.T.R. 181, overruled.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 74 of 1972.

(Appeal by Special Leave from the Judgment and Order dated the 26th August 1970 of the Rajasthan High Court in Income Tax Refer• ence No. 14 of 1970).

V. S. Desai and S. C. Agrawala, for the appellant.

S. C. Manchanda and R. N. Sachthey, for respondent.

The Judgment of the Court was delivered by

KHANNA, J. This appeal by special leave is against the order of Rajasthah High Court whereby the High Court held that it was functus officio to entertain an application for re-hearing the reference made under section 66(1) of the Indian Income-tax Acf, 1922 (her1~inafter referred to as the Act).

The assessec-appellant is carrying on business in soap stonc~s. At · the instance of the appellant, the following two questions were referred to the High Court by the Tribunal under section 66 ( 1) of th1: Act :

. "l. Whether on.the facts and in the circumstances of the case the Income-tax Appellate tribunal was justified in hold-. in.g . that . the property in the goods passed in the cust~mers in erstwhile part 'A' and 'C' States, because the r~1lway receipts in respect of the sale of goods of the vale (sic) of Rs. 94,037 /- were made out in the name of 'Self' and were sent to the purchasers in erstwhile part 'A' and 'C' States . after endorsing the same in their favour ?

i. Whether on the facts and ill the circumstances of the case, the entire profits and gains amounting to Rs. 93,019/-arisen to the assessee firm in part 'A' and part 'C' States should be taken into account for the purpose of applying the test laid down under section 4A(C) (h) (sic) or only that profit of the profits (sic) which can be determined after the application of section 42(3) of the Act as reasonably . be attributable to that part of the operations carried on in British India?"

It appears that notice was sent by the illgh Court to the appellant to file paper books within three months of the receipt of the notice. The notice was received by. clerk: of the appellant firm on May 9, 1970. According to the affidavit filed on behalf of th(". appellant, the aforesaid clerk misplaced that notice.. The necessary paper books were consequently not filed_ in the High Court. The reference came up for hearing on August 26, 1970. On that date, counsel for the department was present. .No one appeared on behalf of the appel-lant, apparently because the notice sent by the High Court had been misplaced .. The High Court' in btief order observed that the assessee at whose instance the reference had been made had not put in appear-ance and had also not filed the paper books in spite of the service of notice. The Higfi Court accordingly declined to answer the refer-ence. The affidavit filed on .behab' of the appellant shows that the clerk, who had misplaced the notice received from the High Court, while proceeding on leave and handing over the charge to another clerk, discovered on September 21, 1970 that the above mentioned notice had been received from the .High Court. Counsel was then engaged on behalf of the assessee-appellant. On enquiry it was found that the matter had been disposed of on August 26, 1970. On September 24, 1970 an application was filed on behalf of the appellant stating that the paper books had not been filed because of bona fide mistake. Pray-et was made for permitting the appellant to file the paper books and for re-hearing the reference. The High Court, as per _order dated Febniary. 22, 1971, dismissed the aforesaid application after observing that it had become filnctus officio to entertain the application because of its earlier order declining to answer the reference. It is this order which is the subject matter. of the appeal. . .

· We have heard Mr. Desai ori ·behalf of the appellant and Mr. Manchanda on behalf of the revenue. Mr. Manchanda has brought to our notice decision of the· Calcutta High Court in M. M. ispahani

Ltd., Calcutta v. Commissioner of Excess Profits Tax, West Bengal(1) wherein the High Court held that when party at whose instance the reference had been made under section 66 ( 1) of the Indian Income-tax Act, 1922 does not appear at the hearing of the reference, the High Court is not bound to answer the question referred to it and should not do so. It is urged by Mr. Manchanda that the above decision ·has been followed by some of the other High Courts. As against that Mr. Desai on behalf of the appellant has urged that the correctness of those decisions is open to question in view of the decision of this Court in the case of Commissioner of Income-tax, Madras v. S. Chenni-appa Mudaliar('). It was held by this Court in that case that an appeal filed by the assessee before the Tribunal under section 33 of the Act should be disposed of on merits and should nor be dismissed in default because of non-appearance of the appellant. The Court in this context referred to section 3 3 ( 4) of the Act and particularly the word "therein" used in that sub-section. It is urged by Mr. Desai that as the Tribunal is bound to dispose of the appeal oti merits even though party is not present, likewise the High Court when question of law is referred to it, should dispose of the reference on merits and answer the question referred to if. In our opinion, it is not essential to express an opinion about this aspect of the matter, because we art of the opinion that the High Court was not functus officio in entertain-ing the application which had been filed on behalf of the appellant for re-hearing the reference and disposing of the matter Ol) merits.

party or its counsel may be prevented from appearing at the hear-ing of reference for variety of reasons. In case such party shows, subsequent to the order made by the High Court, declining to answer the reference. that there was sufficient reason for its non-appearance, the High Court, in our opinion, has the inherent power to recall its earlier order and dispose of the reference on merits. Wt find it difficult to subscribe to the view that whatever might be the · ground for non-appearance of party, the High Court having onct passed an order declining to answer the question referred to it be-cause of the non-appearance of that party, is functus officio or help-less and cannot pass an order for disposing of the reference on merits. The High Court in suitable cases has, as already mentioned, inherent power to recall the order made in the absence of the party and to dispose of the reference on merits. There is nothing in ariy of the provisions of the Act which, either expressly or by necessary implication, stands in the way of the High Court from passing .an order for disposal of the reference on merits. The courts have power, in the absence of any express or implied· prohibition, to pas11 an order as may be necessary for the ends of justice or to prevent the abuse of the process of the court. To hold otherwise would result in quite number of cases in gross miscarriage of justice. Suppose, for instance, party proceeds towards the High Court to be present at the time the reference is to be taken up for hearing and on the way meets with an accident. Suppose, further, in such an

(2) 74. I.T.R 41.

(I) 27 I.T.R. 188.

event the High Court passes an order declining to answer the question referred to it because of the absence of the person who meets with an accident. To hold that in such case the High Court cannot recall the said order and pass an order for the disposal ()f the reference on merits, even though full facts are brought to the notice of the High Court, would res11lt in obvious miscarnage of justice. It is to meet such situations that courts can exercise in appropriate cases inherent power. In exercising inherent power, the courts cannot override the express provisions of law. Where however, as in the present case, there is no express or implied prohibition to recalling an earlier order made because of the absence of the party and to directing the dis-posal of the reference on merits, the courts, in our opinion, should not be loath to exercise such power provided the party concerned approaches the court with due diligence and shows sufficient cause for its non-appearance on the date of hearing ..

Our attention has been invited to the decision of the Allahabad High Court in Roop Narain Ramchandra (-P) ·Ltd. v. Commissioner of Income-tax, U. P.(') wherein the High Court held that it has no power to recall an order returning reference unanswered. For the reasons stated above, we are unable to agree with the view taken by the Allahabad High Court in that decision. The facts brought out in the application filed on behalf of the appellant show, in our opinion, that there was sufficient cause for the non-appearance on behalf of the appellant on the date of hearing as well as for the non-filing of the paper books within time. It also cannot be said that there was lack of diligence on the part of the appellant in approaching of the High Court for recalling its earlier order and for disposing of the reference on merits. We accordingly accept the appeal, set aside the order of the High Court and remand the case to it for answering the questions referred to it on merits. Looking to all the circum-.stances, we make no order as to costs.

Appeal allowed.