The Supreme Court has observed that, a High Court, while considering an appeal filed under Section 260-A of Income Tax Act, can only answer the substantial question of law framed by it.
In this case, the High Court had allowed the appeal filed by revenue. In its appeal memorandum, the revenue did frame a few substantial questions of law. However, the High Court in its judgment framed a different substantial question of law and answered in favour of revenue.
Before the Apex court, the assessee raise a preliminary submission that the substantial question of law framed did not contain within it the question as to whether the assessee can be taxed outside the provisions of Section 28(ii)(a) of the Income Tax Act and therefore the entire judgment is vitiated and must be set aside on this ground alone.
Referring to the Section 260A, the bench comprising of Justices RF Nariman, Navin Sinha and BR Gavai noted that the provision is modelled on a similar provision that is contained in Section 100 of the Code of Civil Procedure. It said:
"It makes it clear that the High Court's jurisdiction depends upon a substantial question of law being involved in the appeal before it. First and foremost, it shall formulate that question and on the question so formulated, the High Court may then pronounce judgement, either by answering the question in the affirmative or negative or by stating that the case at hand does not involve any such question. If the High Court wishes to hear the appeal on any other substantial question of law not formulated by it, it may, for reasons to be recorded, formulate and hear such questions if it is satisfied that the case involves such question – See section 260-A (4). Under sub-section (6), the High Court may also determine any issue which, though raised, has not been determined by the Appellate Tribunal or has been wrongly determined by the Appellate Tribunal by reason of a decision on a substantial question of law raised.
The Court further said that the High Court did not give opportunity to the parties followed by reasons for framing any other substantial question of law and instead answered it in the judgment. The bench said:
"Clearly, without any recorded reasons and without framing any substantial question of law on whether the said amount could be taxed under any other provision of the Income Tax Act, the High Court went ahead and held that the amount of INR 6.6 crores received by the assessee was received as part of the full value of sale consideration 16 paid for transfer of shares – and not for handing over management and control of CDBL and is consequently not taxable under Section 28(ii)(a) of the Income Tax Act. Nor is it exempt as a capital receipt being noncompete fee, as it is taxable as a capital gain in the hands of the respondent-assessee as part of the full value of sale consideration paid for transfer of shares. This finding would clearly be in the teeth of Section 260-A (4), requiring the judgment to be set aside on this score."
The bench, also considered the matter on merits, and allowed the appeal by setting aside the High Court judgment.
Case no.: CIVIL APPEAL NO. 12044 OF 2016
Case name: SHIV RAJ GUPTA vs. COMMISSIONER OF INCOME-TAX, DELHI-IV
Coram: Justices RF Nariman, Navin Sinha and BR Gavai
Counsel: Senior Advocates Arvind Datar and Ajay Vohra