Constitutional Court must tread with high level of caution while entertaining challenges against orders passed by specialized Tribunals

While hearing a matter involving eligibility for immunity from filing Income Tax returns, the High Court of Meghalaya held that the Constitutional Court must tread with a high level of caution when entertaining challenges against orders passed by specialized Tribunals.

The High Court reasoned that an agency which dealt with a particular type of matters on a daily basis, would be expected to have much greater command over the law applicable in that field.

Therefore, a Constitutional Court must desist from interfering with an order passed by such a body, unless said order is ‘grossly inappropriate and almost outlandish’, added the Court. (Para 10)

While deciding on the issue pertaining to the interpretation of taxing statutes and in particular, the strict interpretation of a clause granting any exemptions, a Division Bench consisting of the Chief Justice of the High Court of Meghalaya, Justice Sanjib Banerjee and Justice W. Diengdoh, considered as whether the judgment in Commissioner of Income-Tax v. Mahari & Sons which pertains to the aforementioned issue, still holds good despite several contradictory orders being passed by the Supreme Court of India with regard to the interpretation of tax statutes.

The Bench therefore, went on to remand the matter to the Income Tax Appellate Tribunal, with directions to the President of the Tribunal to compose a Larger Bench to hear the matter.

The Appellants in these matters were represented by Mr. S Sen, Advocate, whereas the Respondents were represented by Mr. SC Keyal, Advocate.

Briefly, the Appellants, who ran partnership firm engaged in running hotel business, belonged to the Khasi tribe, which is a notified Scheduled Tribe in Meghalaya. The Appellants were residents of the Khasi Hills Autonomous District under Schedule VI to the Constitution of India, and by virtue of the same, the Appellants enjoyed exemption under sub-section 26 of Section 10 of the Income Tax Act 1961. Having said exemption, the Appellants did not file Income Tax Returns. However, on assessment, they came to be treated as non-filers and so proceedings under Section 266 of the Act were commenced against them, as per CBDT Instructions dated 07.07.2015.

The Appellants submitted written responses to the Assessing Officer (AO), who rejected the same and held that the provisions of Section 10(26) of the Act did not include a partnership firm amongst those eligible to obtain exemption therein. The AO proceeded to frame additions to the Appellants’ income.  On appeal, the Commissioner of Income Tax (Appeals) as well as the ITAT sustained the findings of the AO. 

On hearing the arguments of both parties, the Bench noted that the partnership firms set up by the Appellants had spouses as partners in one firm, and uterine brothers as partners in the other firm.

Considering this fact as well as the judgment in the case of Commissioner of Income-Tax v. Mahari & Sons the Bench observed – “…In the present appeals, in one of the matters the registered partnership firm has a husband and wife as partners. In the other matters, uterine brothers constitute the partnership frim in each case. Going by the dictum in Mahari & Sons and, particularly, the interpretation of the concept of family made therein, it would appear that an association, even if it be a partnership, between a husband and wife or between a brother and another, would be entitled to the same exemption as any of the partners would in their individual capacity…”. (Para 6)

The Bench further observed that while the ITAT noticed inadequacies in the judgment in Commissioner of Income-Tax v. Mahari & Sons the Tribunal did not cover the entire discussion on the issue before concluding that the judgment did not hold good any more.

The Bench noted – “…the Tribunal makes no distinction in the order impugned between a partnership firm with close relatives as partners and any other partnership firm where the partners are unrelated. Despite the recognition of the wide ambit of what can be called family business in Mahari & Sons, the order impugned places reliance only on the fact that close relatives had formed a partnership firm while missing out the applicability of the dictum in Mahari & Sons by virtue of the partners being close relatives…”.

Thus, considering that the judgment in Commissioner of Income-Tax v. Mahari & Sons had held the field for three decades, the High Court remanded the matter for hearing by a Larger Bench of the Tribunal.

Cause Title: M/s Hotel Centre Point & Anr. Vs Principal Commissioner of Income Tax, Shillong & Anr [ITA No. 1/2019 / 2023-Entersclice-2-HC-Meghalaya-IT]

Click here to read/download the Order

Hotel-Centre-Point-Anr.-Vs-Principal-Commissioner-of-Income-Tax-Shillong-Anr