High Court within whose jurisdiction the Assessing Officer is situated will hear appeals against ITAT: Supreme Court

High Court within whose jurisdiction the Assessing Officer is situated will hear appeals against ITAT: Supreme Court

A Bench comprising Justices U.U. Lalit, S. Ravindra Bhat and P.S. Narasimha reiterated for clarity that the jurisdiction of a High Court is not dependent on the location of the ITAT, as sometimes a Bench of the ITAT exercises jurisdiction over plurality of states

Appeals against orders of Income Tax Appellate Tribunal (ITAT) will lie only before the High Court within whose jurisdiction the assessing officer is situated, as held by Supreme Court in its recent judgement. The Apex Court clarified that even though the case is transferred in exercise of power under Section 127 if the Income Tax Act, the High Court within whose jurisdiction the Assessing Officer has passed the order, shall continue to exercise the jurisdiction of appeal. The same principle would be applicable even if the transfer under Section 127 is for the same assessment year.

Section 127 of the Income Tax Act enables the higher authority to transfer a case from one Assessing officer to another Assessing Officer.

The broad issue before the Apex Court was that when some Benches of the Income Tax Appellate Tribunals (ITATs) are having jurisdiction over more than one state, each state having their own High Courts, which High Court would have appellate jurisdiction under Section 260A of the Income Tax Act, 1961. The Court noted that as Section 260A does not spell out the High Court that would have jurisdiction to entertain appeal, it is creating a great deal of confusion and the issue needs to be settled.

Addressing the issue, "when Benches of ITATs, having jurisdiction over more than one state, each state having their own High Courts, which High Court would have appellate jurisdiction under Section 260A of the Income Tax Act" the Court noted that Section 260A does not spell out the High Court that would have jurisdiction to entertain appeal, therefore in order to cease the confusion, the issue needs to be settled.

Section 260A reads as under -

"260A. Appeal to High Court. (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal, if the High Court is satisfied that the case involves a substantial question of law."

In the facts of the present case, both Punjab and Haryana High Court and the Delhi High Court had refused to entertain appeal on the ground of lack of territorial jurisdiction. The Court noted that while doing so, both the High Courts have relied on prior decisions of their own Courts which take diametrically contradictory views. Thus the Apex Court determined the contour of the issue as under -

"We are thus tasked to resolve the issue as to which High Court would have the jurisdiction to entertain an appeal against a decision of a Bench of the ITAT exercising jurisdiction over more than one state, particularly when case(s) of same assessment year are transferred under Section 127 of the Act."

The Court noted that ITAT is a unified forum functioning in the form of Benches at the administrative discretion of the President. Jurisdiction exercised by the Benches of the ITAT do not follow the structure contemplated in Article 1 of the Constitution, which divides the Union into States and Union Territories. Often the jurisdiction of one Bench encompasses territories of more than one state.

It was of the opinion that the legal structure under the Income Tax Act starting from the Assessing Officer, the Commissioner of Appeals, ITAT to the High Court under Section 260A must be seen as a linear progression of judicial remedies. It also refused to accept the contention that Section 127 of the Income Tax Act, which enables a higher authority to transfer a 'case' from one Assessing Officer to another Assessing Officer, determines the jurisdiction of the High Court where appeal would lie. The jurisdiction of a High Court would also change following an order of transfer under Section 127. The Court opined that the appellate jurisdiction of the High Court cannot be dependent upon the executive power exercised under Section 127. It noted that the power of transfer exercisable under Section 127 is relatable only to the jurisdiction of the Income Tax Authorities; it has no bearing on the ITAT, much less on a High Court. It further observed -

"While interpreting a judicial remedy, a Constitutional Court should not adopt an approach where the identity of the appellate forum would be contingent upon or vacillates subject to the exercise of some other power. Such an interpretation will clearly be against the interest of justice."

Overruling the judgments of the Delhi High Court in CIT v. Sahara India Financial Corporation Ltd and CIT v. Aar Bee Industries Ltd which held that the administrative order under Section 127 transferring a case will also transfer the jurisdiction of the High Court, the Court observed:

"The power of transfer exercisable under Section 127 is relatable only to the jurisdiction of the Income Tax Authorities. It has no bearing on the ITAT, much less on a High Court. If we accept the submission, it will have the effect of the executive having the power to determine the jurisdiction of a High Court. This can never be the intention of the Parliament. The jurisdiction of a High Court stands on its own footing by virtue of Section 260A read with Section 269 of the Act. While interpreting a judicial remedy, a Constitutional Court should not adopt an approach where the identity of the appellate forum would be contingent upon or vacillates subject to the exercise of some other power. Such an interpretation will clearly be against the interest of justice. Under Section 127, the authorities have the power to transfer a case either upon the request of an assessee or for their own reasons. Though the decision under Section 127 is subject to judicial review or even an appellate scrutiny, this Court for larger reasons would avoid an interpretation that would render the appellate jurisdiction of a High Court dependent upon the executive power. As a matter of principle, transfer of a case from one judicial forum to another judicial forum, without the intervention of a Court of law is against the independence of judiciary. This is true, particularly, when such a transfer can occur in exercise of pure executive power. This is a yet another reason for rejecting the interpretation adopted in the case of Sahara.

For the reasons stated above, we hold that the decision of the High Court of Delhi in Sahara and Aar Bee do not lay down the correct law and therefore, we overrule these judgments".

In conclusion, it was held:

"In conclusion, we hold that appeals against every decision of the ITAT shall lie only before the High Court within whose jurisdiction the Assessing Officer who passed the assessment order is situated. Even if the case or cases of an assessee are transferred in exercise of power under Section 127 of the Act, the High Court within whose jurisdiction the Assessing Officer has passed the order, shall continue to exercise the jurisdiction of appeal. This principle is applicable even if the transfer is under Section 127 for the same assessment year(s)"