In the Indian subcontinent income tax was introduced in 1860. It was then assessed by the panchayat and an assessee feeling aggrieved by the assessment could appeal to the Collector of the district, whose order was final.
The Act of 1868 (which replaced the Act of 1860) made an improvement in the position by providing, in the first instance, for a petition of objections to the Collector, and then, for an appeal from the order of the Collector of the district to the Commissioner of Revenue of the division.
The order of the Commissioner of Revenue was final and no further judicial remedy was available to the taxpayer even if the order of the Commissioner of Revenue was arbitrary and totally illegal. The same basic position continued under the successor acts of 1869, 1870, 1872, 1886, 1916 and 1917.
Income Tax Act as such was, for the first time, instituted by the Act No VII of 1918. It was more elaborate than its predecessors, both as regards procedural as well as substantive law; it brought the High Court into the picture in an advisory capacity. Under this Act, an appeal lay to the Commissioner against an assessment and, from the order of the Commissioner, a revision petition lay to the Chief Revenue Authority.
A provision was, however, inserted vide section 51 of the Income Tax Act 1918, providing for a reference to the High Court by the Chief Revenue Authority on its own motion or on an application by the assessee on points of law.
For facility section 51 of the Income Tax Act 1918 is reproduced below:
"51.(1) If, in the course of any assessment under this Act or any proceeding in connection therewith, other than a proceeding under Chapter VII, a question has arisen with reference to the interpretation of any of the provisions of this Act or any rule thereunder, the Chief Revenue-authority may, either on its own motion or on reference from any Revenue-officer subordinate to it, with its own opinion thereon, to the High Court, and shall so refer any question on the application of the assessee, unless it is satisfied that the application is frivolous or that a reference is unnecessary.
(2) If the High Court is not satisfied that the statement contained in the case are sufficient to enable it to determine the question raised thereby, the Court may refer the case back to the Revenue-authority by which it was stated, to make such additions thereto or alterations therein, as the Court may direct in that behalf.
(3) The High Court upon the hearing of any such case decide the questions raised thereby, and shall deliver its judgement thereon containing the grounds on which decision is founded, and shall send to the Revenue-authority by which the case was stated, a copy of such judgement under the seal of the Court and the signature of the Registrar; and the Revenue -authority shall dispose of the case accordingly, or if the case arose on reference from any Revenue-officer subordinate to it, shall forward a copy of such judgement to such officer who shall dispose of the case conformably to such judgement.
(4) Where a reference is made to the High Court on the application of any assessee, cost shall be in the discretion of the Court. The subsequent two Acts of 1920 made no change in the position.
On revision of the designations of the officers of the Revenue department in 1921 creating a hierarchy starting with the Board of Inland Revenue at the top, then the Commissioner of Income-tax, then the Assistant Commissioner of Income-tax and then the Income-tax Officer, the Act Xl of 1922, provided for an appeal from the order of the Assistant Commissioner of Income-tax to the Commissioner, but only in cases involving penalty and enhancement of assessment.
The Commissioner was also given a power of revision, which he could exercise in favour of the assessee. The subsequent enactments amending the 1922 Act introduced no basic change. There was thus no independent forum for redress of the aggrieved assessees under the Indian Income Tax Act 1922 and Civil Courts of the land were prohibited by Section 67 of the Indian Income-tax Act to entertain litigation in tax matters. Thus the scope of judicial review in tax matters was very limited.
This perhaps gave birth to the widespread desire of the assessees for an appeal to an independent body on important questions of fact. To overcome this situation, a committee was formed to investigate the Indian Income-tax system whose members were C. W. Ayres and S. R Chambers of the Board of Inland Revenue of the United Kingdom and Khan Bahadur J. B. Vachha.
Commissioner of Income Tax, Bombay. Their report gave birth to the idea of setting up the Income-Tax Appellate Tribunal and it was first mooted in the Income-Tax Enquiry Report, 1936. The Select Committee appointed to consider the Bill to amend the Indian Income-tax Act, 1922, who after deliberating all aspects of the Income Tax Inquiry Report 1938 recommended the constitution of the Tribunal on 10th November, 1938, in the following terms:-
"We are of the opinion, that the Bill should contain provisions for the introduction of a further appellate authority of an independent nature for the hearing of appeals from the decisions of the Appellate Assistant Commissioner.
The new appellate body should consist of a tribunal, composed of not less than two members chosen from each of two categories of a panel of some 8 or 10 members comprising legal members with qualifications such as are normally required for appointment as a district judge and technical members recruited from among persons with professional experience of accountancy.
We think that when the panel is being appointed, persons discharging the functions of the Appellate Assistant Commissioners under the existing system should be eligible for appointment. We think that the Selection of Members of the panel should be made after consultation with the Public Service Commission and that members should not during their tenure of office have any other connection with the public administration.
The powers to regulate procedure of the Tribunal should be vested in them or in the panels of which they are constituted and the chairman or President of the panel should have the necessary powers to select the Members of the Tribunal" Consequently the Income Tax Appellate Tribunal was appointed vide section 5A through "Indian Income Tax (Amendment) Act 1939, Act No VII of 1939, assented on 17-02-1939 mentioned in Part II of the Schedule to the said Act of 1939. Section 5A is reproduced below:
5A. - (1) The Central Government shall appoint an Appellate Tribunal of not more than ten persons to exercise the functions conferred on the Appellate Tribunal by this Act.
(2) The Appellate Tribunal shall consist of an equal number of the judicial members and accountant members as herein after defined.
(3) A judicial member shall be a person who has exercised the powers of a District Judge or who possesses such qualifications as are normally required for appointment to the post of District judge; an accountant member shall be a person who has, for a period of not less than six years, practised professionally as a Registered Accountant enrolled on the Register of Accountants maintained by the Central Government under the Auditors Certificate, 1932:
Provided that the Central Government may appoint as an accountant member of the Tribunal any person not possessing the qualifications required by this sub-section, if it is satisfied that he has qualifications and has had adequate experience of a character which render him suitable for appointment to the Tribunal.
(4) The Central Government shall appoint a judicial member of the Tribunal to be the president thereof.
(5) The powers and functions of the Appellate Tribunal may be exercised and discharged by the Benches constituted from members of the Tribunal by the president of the Tribunal.
(6) A Bench shall consist of not less than two members of the Tribunal, and shall be constituted so as to contain an equal numbers of judicial members and accountant members, or so that the numbers of members of one class does not exceed the number of members of the other class by more than one.
(7) If the member of a Bench differ in opinion on any point the point shall be decided according to the opinion of the majority, if there is a majority; but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be refer to the president of the Tribunal for hearing on such point or points by one or more of the other members of the Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Tribunal who heard the case, including those who first heard it.
(8) Subject to the provisions of this Act, the Appellate Tribunal shall have the power to regulate its own procedure, and the procedure of Benches of the Tribunal in all matters arising out of the discharge of its function, including the place at which the Benches shall hold their sittings.
Section 66 of the Indian Income Tax Act 1922 was also amended through the same Act VII of 1939 to provide for reference to the High Court by the assessee, as well as by the Commissioner. Section 66 is reproduced below:
66. - (1) Within sixty days of the date upon which he is served with notice of an order under sub-section (4) of section 33 the assessee or the Commissioner may, by application in the prescribed form, accompanied where application is made by the assessee by a fee of one hundred rupees, require the Appellate Tribunal to refer to the High Court any question of law arising out of such order, and the Appellate Tribunal shall within ninety days of the receipt of application draw up a statement of the case and refer it to the High Court:
Provided that, if in the exercise of its powers under sub-section (2), the Appellate Tribunal refuses to state a case which it has been required by the assessee to state, the assessee may, within thirty days from the date on which he receives notice of the refusal to state the case, withdraw his application and, if he does so, the amount paid shall be refunded.
(2) If on any application being made under sub-section (1) the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as he may, within six months from the date on which he is served with notice of the refusal apply to the High Court, and the High Court may, if it is not satisfied of the correctness of the decision of the Appellate Tribunal to state the case and to refer it, and on receipt of any requisition the Appellate Tribunal shall state the case and refer it accordingly.
(3) If on any application being made under sub-section (1) the Appellate Tribunal rejects it on the grounds that it is time-barred the assessee or the Commissioner, as the case may be, may, within two months from the date on which he is served with notice of the rejection, apply to the High Court, and the High Court, if it is not satisfied of the correctness of the Appellate Tribunal's decision, may require the Appellate Tribunal to treat the application as made within the time allowed under sub-section (1).
(4) If the High Court is not satisfied that the statements in a case referred under this section are sufficient to enable it to determine the question raised thereby, the Court may refer the case back to the Appellate Tribunal to make such additions thereto or alterations as the Court may direct in that behalf.
(5) The High Court upon hearing of any such case shall decide the questions of law raised thereby and shall deliver its judgement thereon containing the grounds on which such decision is founded and shall send a copy of such judgement under the seal of the Court and the signature of the Registrar to the Appellate Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgement.
In 1940 Appellate Tribunal was assigned with the heading "Chapter IIA". The Income Tax Appellate Tribunal was constituted vide Notification No 2, dated 25th January 1941 which is reproduced hereunder:
"In exercise of powers conferred by section 5A of the Income Tax Act 1922 (XI of 1922), the Central Government is pleased to appoint the following persons as President and Members of the Income Tax Appellate with effect from 25th January 1941:
Muhammad Munir, M.A., LL.B. -President
Rai Bahadur Ram Prasad Verma -Judicial Member
P.C. Malhotra
-Accountant Member
A.L. Sahgal
-Accountant Member"
Appointment of the President of the Income Tax Appellate Tribunal was hailed throughout India and the Editors of the Law Reports commented on the event in the following words:
"The new year opens with an important event in the history of the administration of the Income Tax Law in India, namely the constitution of Income Tax Appellate Tribunal consisting of a body of persons independent of the executive, to whom appeals may be preferred from the decision of the officers of the department and is sure to be welcomed by the Public."
The Income Tax Appellate Tribunal, in exercise of the powers conferred on it by sub-section (8) of section 5A of the Income Tax Act 1922 (XI of 1922), made Income Tax Appellate Tribunal Rules, regulating its procedure and the procedure of the benches of the Tribunal which were published in the Gazette of India, dated the 1st February, 1941.
After independence in 1947, Pakistan adopted the Indian Income Tax Act 1922 by omitting the word "Indian" vide The Adaptation of Central Acts and Ordinances Order, 1949. The first President of the Income Tax Appellate Tribunal, Pakistan was Khan Bahadur Syed Ali Khan, who before independence was appointed as Judicial Member in 1942, and continued to adorn the office of President till his retirement on 27th September 1963.
It happened to be the longest tenure of office in the history of Income Tax Appellate Tribunal, Pakistan till today. Now coming to section 66 of the Income Tax Act 1922, it would be found that reference to High Court was through Income Tax Appellate Tribunal which was the authority either to refuse reference to High Court or file a reference direct to High Court. However Hon'ble Supreme Court of Pakistan in CIT versus Majestic Cinema reported as (1965)12 Tax 15(SC Pak) observed as under:
"The procedure of reference is cumbersome and experience shows increasingly that it lends itself to possibilities of distortion, not only in the presentation of facts relevant to the question of law referred but even to distortion of the question of law itself.
We think it is a matter for serious consideration by the authorities concerned whether the present procedure should not be replaced by a direct appeal limited as to the facts, to a superior court. A further clear advantage from a direct appeal would be a considerable saving of time in the finalisation of taxation matters."
As a consequence of the above observation, the legislature amended section 66 of the Income Tax Act 1922 vide Finance Ordinance 1971 and the amended section is reproduced hereunder:
66. - (1) Within sixty days of the date upon which he is served with the notice of an order under sub-section (4) of section 33, the assessee or the Commissioner may, by application in the prescribed form, accompanied where application is made by the assessee by a fee of one hundred rupees, refer to the High Court any question of law arising out of such an order.
However, vide Finance Act 1974, the original provisions of section 66 of the Income Tax Act 1922 was again brought on statute book. In 1979, a new Income Tax Ordinance 1979 was promulgated repealing the Income Tax Act 1922 and in this ordinance identical provision for reference to High Court was provided in section 136(1) and 136(2).
Through the Finance Act 1997, section 136 was substituted with "Appeal to High Court," but it was again withdrawn vide the Finance Act 2000, repeating the earlier provision of the reference to High Court through the Income Tax Appellate Tribunal.
The Income Tax Ordinance 1979 was repealed by Income Tax Ordinance 2001 with effect from 01-07-2002 and in this Ordinance too identical provisions continued for reference to High Court through Income Tax Appellate Tribunal vide section 133,but vide Finance Act 2005 section 133 was amended providing for direct reference to High Court.
Although the essence of pursuit of justice in tax matters was that executive should not interfere in income tax matters but Finance Act 2009 amended section 130 of the Income Tax Ordinance 2001 by inserting following sections through, which it is evident that executive has taken control of running the affairs of Income Tax Appellate Tribunal which now has been designated as "Appellate Tribunal Inland Revenue" vide Finance (Amendment) Ordinance 2009. Section 130.
(8A) Notwithstanding anything contained in sub-sections (7) and (8), the Chairman may constitute as many benches consisting of a single member as he may deem necessary to hear such cases or class of cases as the Federal Government may by order in writing, specify.
(8AA) The Chairman or any other member of the Appellate Tribunal authorised, in this behalf by the Chairman may, sitting singly, dispose of any case where the amount of tax or penalty involved does not exceed five million rupees.
The manner in which the amendment have been made in section 129 and 132 of the Income Tax Ordinance 2001 are a clear indication that executive is trying gradually to discourage pursuit of justice in tax matters by withdrawing the powers of setting aside the assessment order, which in many cases, would lead in destroying the taxpayer, which in turn, would prove to be beneficial to the tax gatherer, now it's the time those who are concerned with tax matters should try to help in the pursuit of justice in tax matters instead of putting hurdles in that pursuit.
(The writer is Advocate Supreme Court)
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