Grover, J. - (1.) This is an appeal by certificate from a judgment of the Special Bench of the Madras High Court in which the sole question that has to be determined is whether Rule 24 of the Appellate Tribunal Rules, 1946, insofar as it enables the Tribunal to dismiss an appeal for default of appearance was ultra vires the provisions of Section 33 of the Income Tax Act, 1922, hereinafter called the "Act".
(2.) The facts which gave rise to the reference which was made to the High Court by the Appellate Tribunal lie within a narrow compass. The assessee owned 1674 shares in Asher Textiles Ltd. and 9 out of 20 shares in Textile Corporation (Private) Ltd., at Tiruppur. The latter company was the managing agent of the Asher Textiles Ltd. The assessee was a Joint Managing Director of the Textile Corporation (Private) Ltd. along with one P. D. Asher. The assessee sold on December 21, 1954 his entire holding in two companies to Asher and some of his relations. These sales resulted in a profit of Rs. 72,515/- and Rs. 3,14,100/- respectively. The Income-tax Officer assessed these amounts, to tax for the assessment year 1956-57 under Section 10 (5A) of the Act as compensation earned for parting with the effective power of management. The assessment was upheld by the Appellate Assistant Commissioner. The assessee appealed to the Appellate Tribunal. After some adjournments the appeal was finally fixed for hearing on August 26, 1958. On that date no one was present on behalf of the assessee nor was there any application for an adjournment. On August 28, 1958 the Tribunal dismissed the appeal for default of appearance. This the Tribunal purported to do under R. 24 of the Appellate Tribunal Rules 1946 as amended by notification dated January 26, 1948. Five weeks after the disposal of the appeal the assessee filed a petition before the Appellate Tribunal praying for its restoration. It was state, inter alia, in that petition that it was owing to some misapprehension on the part of the assessee's auditors at Coimbatore that the date of the hearing of the appeal was not intimated to the counsel at Madras who was convalescing there after a surgical operation. The Tribunal did not consider that there was sufficient cause for restoration and rejected the petition. The assessee applied for a reference under Section 66 (1) of the Act on two questions of law but that application was rejected by the Tribunal. The assessee approached the High Court under Section 66 (2) of the Act and on April 5, 1960 the High Court directed the Tribunal to state the case on two questions. The matter was first heard by a Division Bench but owing to the validity of Rule 24 having been canvassed a Special Bench consisting of the Chief Justice and two Judges was constituted. The Special Bench reframed the first question thus: "Whether Rule 24 of the Appellate Tribunal Rules, 1946, in so far as it enables the tribunal to dismiss an appeal for default of appearance, is ultra vires." The second question was: "Whether on the facts and in the circumstances of the case the two sums of Rs. 72,515 and Rs. 3,14,100 were assessable to tax under Section 10 (5A) of the Income Tax Act - Rule 24 was framed under sub-section (8) of Section 5A of the Act. This provision confers powers on the Appellate Tribunal to frame Rules regulating its own procedure. Section 5A (8) reads: "Subject to the provisions of this Act, the appellate tribunal shall have power to regulate its own procedure, and the procedure of Benches of the Tribunal in all matters arising out of the discharge of its functions, including the places at which the Benches shall hold their sittings." The Appellate Tribunal first made certain Rules which were published by means of a notification dated February 1, 1941. Rule 36 provided that the Tribunal shall determine the appeal on merits notwithstanding the fact that the appellant did not choose to appear. The Tribunal was also empowered to restore an appeal which had been disposed of without hearing the appellant. The Rules made in 1941 were substituted by the Appellate Tribunal Rules 1946 which were promulgated by means of Income-tax Appellate Tribunal Notification, dated October 31, 1946. Rule 24 was in the following terms: "Where on the day fixed for hearing or any other day to which the hearing may be adjourned, the appellant does not appear when the appeal is called on for hearing, the Tribunal may, in its discretion, either dismiss the appeal for default or may hear it ex parte." This Rule was amended by means of a notification dated January 26, 1948 and it took the following shape: "Where on the day fixed for bearing or any other day to which the hearing may be adjourned, the appellant does not appear when the appeal is called on for hearing, the tribunal may dismiss the appeal for default." The Rule contained no provision for restoring an appeal dismissed for default.
(3.) The Special Bench of the High Court noticed the previous history of Rule 24 as also the terms in which it came to be framed after the passing of the Income Tax Act, 1961 which enables the Tribunal, on its discretion, either to dismiss the appeal for default or to hear it ex parte in case of non-appearance of the parties and further enables the Tribunal to set aside the dismissal on sufficient cause being shown for non-appearance. After referring to various decided cases and examining the relevant provisions of the Act, the Special Bench summed up the position thus: "To sum up the position, the Appellate Tribunal is the appointed machinery under the Act for finally deciding questions of fact in relation to assessment of income-tax. Its composition, consisting as it does of qualified persons in law and accountancy, makes it peculiarly qualified to deal with all questions raised in a case, whether there be assistance from the party or his counsel or not. Section 33 (4) obliges it to decide an appeal, after giving an opportunity to the parties to put forward their case. The giving of the opportunity only emphasises the character of the quasi-judicial function performed by the Appellate Tribunal. The fact that that opportunity is not availed of in a particular case, will not entitle the Tribunal not to decide the case. There can be no decision of the case on its merits if the matter is to be disposed of for default of appearance of the parties. Further an adjudication on the merits of the case is essential to enable the High Court to perform its statutory duty and for the Supreme Court to hear an appeal filed under Section 66-A. Section 33 (4) itself indicates by the use of the word "thereon" that the decision should relate to the subject-matter of the appeal. Rule 24, therefore, to be consistent with Section 33 (4) could only empower the Tribunal to dispose of the appeal on its merits, whether there be an appearance of the party before it or not.This was indeed the rule when it was first promulgated in the year 1941. The rule in its present form as amended in the year 1948, in so far as it enables the dismissal of an appeal before the Income-tax Appellate Tribunal for default of appearance of the appellant will, therefore, be ultra vires, as being in conflict with the provisions of Section 33 (4) of the Act." ;