RAMACHANDRA IYER C.J. - This reference to a Special Bench has been necessitated by reason of certain doubts felt as to the correctness of the decision in Ravula Subba Rao v. Commissioner Of Income-tax. The question that falls for determination on this reference can be formulated thus :
'Whenever 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 facts giving rise to this reference are these :
The assessee owned 1,674 shares in Asher Textiles Limited and nine out of twenty shares in Textile Corporation (Private) Limited, both at Tiruppur. The Textile Corporation (Private) Limited was the managing agent of the other company, its managing directors being the assessee and one Mr. Asher. Difference appear to have arisen between these two some time during the year 1954, and the assessee agreed to sell and by a document dated December 21, 1954, sold his entire holding in the two companies to Mr. Asher and certain relations of his nominated by him. These sales resulted in a profit of Rs. 72,515 and Rs. 3,14,100 respectively. The Income-tax Officer brought them to tax for the assessment year 1956-57 under section 1O(5A) of the Income-tax Act, 1922, as compensation earned for parting with the effective power of management, which the assessee till then had over the two companies. This assessment was upheld by the Appellate Assistant Commissioner on appeal. The assessee then filed a further appeal to the Appellate Tribunal. After some adjournments, the appeal was finally posted for hearing on August 26, 1958. Neither the counsel engaged by the assessee nor any authorised representative of his appeared before the Tribunal on that day; there was not even an application on behalf of the assessee for an adjournment. Two days later, on August 28, 1958, the Tribunal dismissed the appeal for default of appearance, purporting to do so under rule 24 of the Appellate Tribunal Rules, 1946, as amended by the notification dated January 26, 1948. That states : '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 dismiss the appeal for default'.
The order passed by the Tribunal cannot be said to be in strict accordance with the rule cited, for there was no dismissal of appeal on the day to which it stood posted for hearing, the day on which the final order was passed was not one to which the hearing of the appeal was adjourned. But we prefer not to pursue this line of approach as the question referred to us is of much wider import.
About five weeks after the disposal of the appeal the assessee filed a petition before the Tribunal praying for its restoration on the ground that, owing to a misapprehension on the part of the auditors at Coimbatore, the date of hearing of the appeal, of which they had been apprised, was not reported to their counsel at Madras, who had then been convalescing after a major surgical operation. The Tribunal did not accept the excuse as sufficient and declined to restore the appeal to file, on a direction given by this court under section 66(2) of the Act, the following question were referred to us for opinion :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in dismissing the appellants appeal for default and in refusing to restore the appeal for a fresh hearing ?
2. Whether, on the facts and in 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 ?'
The latter of the two questions depends on the merits of the case, which, as result of the procedure adopted by the Tribunal, was not investigated. If, therefore, the first question were to be answered in favour of the assessee, it will be but appropriate to leave the second question for adjudication by the Tribunal, as the appeal would stand restored on the file of the Tribunal by reason of such an answer to the earlier question.
When the reference came up before two of us, in the first instance, learned counsel for the assessee challenged the power of the Tribunal to dismiss an appeal for default, even in cases where there was no appearance on behalf of the assessee before it. In support of that contention he submitted that rule 24, which enabled that procedure to be adopted, should be regarded as invalid, being contrary to the provisions of the Income-tax Act, 1922. To reflect that contention and with the concurrence of the parties, the first of the two question referred to us under section 66(2) was reframed in the manner set out at the beginning of this judgment.
That question has been answered in the affirmative by a Bench of this court in Ravula Subba Rao v. Commissioner of Income-tax. But it has been contended that decision is inconsistent with the provisions contained in section 33(4) as well as the scheme underlying section 66 of the Act. The reference was, therefore, placed before a Special Bench.
To reiterate, the substantial ground on which the validity of rule 24, in so far as it empowers the Appellate Tribunal to dismiss an appeal for default on the non-appearance of an appellant, is challenged is that it is contrary to the provisions of section 33(4), the contention on behalf of the assessee being that under the latter provision the Tribunal will have to dispose of the appeal on the merits regardless of the fact whether the party appeared before it or not.
The Income-tax Tribunal is a creature of the statute brought into existence by section 5A, which was introduced into the Act in the year 1939, as a result of certain recommendations made to the Government. The Tribunal is an independent quasi-judicial authority with power to finally decide question of fact. It consists of judicial and accountant members, the qualifications for whom have been prescribed by sub-section (3) to section 5A. The Appellate Tribunal is also given powers to frame rules regulating its own procedure and sub-section (8) to section 5A states :
'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.'
It is seen from the provision cited above, that the Rules framed for regulating the procedure of the Tribunal should conform to the provisions contained in the main Act.
Purporting to act under the provisions of that sub-section, the Appellate Tribunal first made certain rules which were published by means of a notification dated February 1, 1941. Rules 36 provides that the Tribunal shall determine the appeal on the merits, notwithstanding the fact that the appellant did not choose to appear. There was also a power vested in the Tribunal to restore an appeal which had been disposed of without hearing the appellant. Those rules were substituted by the Appellate Tribunal Rules, 1946. Rule 24 of the new rules enabled the Tribunal to dismiss an appeal for default for non-appearance of the appellant. That rule has been slightly amended in the year 1948 before it took its present form. Under the rule now in force there exists no power in the Tribunal to restore an appeal dismissed for default. At the same time, it will also be noticed that there is no prohibition against the filing of a fresh appeal by the appellants whose appeal has been dismissed for default, so long as the rules as to limitation do not bar such an appeal.
We may, in passing also notice that section 255 of the Income-tax Act, 1961, empowers the Appellate Tribunal to frame rules to regulate its procedure. Rule 24 of the Rules framed under that provision enables the Tribunal at its discretion, either to dismiss the appeal for default or to hear it ex parte in case of non-appearance of the parties. There is however, a proviso to that rule which enables the Tribunal to set aside the dismissal if the appellant appears afterwards and satisfies the Tribunal that there was sufficient cause for his non-appearance.
There can be little doubt that these rules are but part of the law of procedure and as such they will be covered by the authority conferred on the rule-making authority under section 5A(8) of the old Act, which corresponds to section 255(5) of the Income-tax Act, 1961.
Section 5A(8) speaks of rules to regulate the procedure of the Tribunal. Procedure under the law denotes the mode of proceeding by which a legal right is to be enforced. There is a distinction between a law which gives and defines a right, and the practice that has to be followed to enforce that right. In Poyser v. Minors Lush L.J. observed that the word 'practice' like the word 'procedure' 'denotes the mode of proceeding by which a legal right is enforced, as distinguished from the law which gives or defines the right, and which by means of the proceeding the court is to administer the machinery as distinguished from its product.' In that case a question arose as to whether a power given by the Country Courts Act, 1856, to five judges of that court to frame rules and orders for regulating the practice of the courts, and forms of proceedings therein would cover the framing of a rule which provided that a dismissal of a case for non-appearance would have the same effect as a judgment upon the merits for the defendant. It was held that the rule was one of procedure and could be validly promulgated by the authority specified in the Act.
Rule 24, in the present case, in so far as it enables the dismissal of an appeal for default of appearance of the appellant, must, therefore, be regarded as a rule of procedure, coming within the provisions of section 5A(8).
But the contention on behalf of the assessee is not that the rule is not one of procedure, but that it is contrary to the provision of section 33(4) the Act which, according to the learned counsel for the assessee, would require the disposal of every on its merits, whether the party appears before the Tribunal or not.
We may now point out that there is real distinction between the case of dismissal of legal proceeding for default of appearance and one given on merits. In the former case it is termination of the proceeding for non-prosecution. Such termination decides nothing as regards the matters in controversy. It merely gets rid of the pending proceeding. Unless there be a statutory bar, the dismissal of a case for default cannot prevent the party from commencing the same proceedings afresh, but the institution of such fresh proceedings might become impossible on account of rules of limitation as to the filing of appeals by reason of any specific provision in that regard under the rules themselves. It will thus be apparent that the dismissal of a case default can in no sense amount to an adjudication on its merits. This is quite unlike a case of an ex parte decision where there is an adjudication on the merits. A judgment given for default of appearance by the appellant cannot (unlike the case of an ex parte one) operate as rest judicata. Rule 24 of the Appellate Tribunal Rules, which we have extracted above, enables the Tribunal at its discretion to dismiss a case for default or to decide it ex parte. The power to decide a case ex parte is undoubtedly covered by the authority conferred on the Tribunal by section 5A and is further consistent with the construction now sought to be placed on section 33(4) as it is a disposal on merits of the appeal. We have now to consider the question whether a rule enabling the Tribunal to dismiss an appeal for non-appearance of the appellant is consistent with section 33(4). That provision states :
'The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner.'
The argument on behalf of the assessee is that under the terms of the section referred to above, the Appellate Tribunal should pass an order on the appeal, implying thereby that it should be on the merits of the appeal. In Ravula Subba Rao v. Commissioner of Income-tax, Satyanarayana Rao J. was not prepared to accept this construction. The learned judge has held that the section confers very wide powers on the Tribunal and the language employed in it - 'it may pass such orders thereon as it thinks fit' - would include such orders, according to the circumstances of the case, whether the opportunity was availed of by the party concerned or was not availed of, and that there was no need for the Appellate Tribunal to dispose of the appeal on the merits in a case where the appellant does not appear. Acceptance of this view would mean that the word 'thereon' used in section 33(4) could be interpreted as meaning only 'on the appeal' or to be more precise on the memorandum of appeal whether it relates to the grounds contained in it or not. This, however, is not in accord with the principle laid down in two later decisions of this court in Periannan Chettiar v. Commissioner of Income-tax and V. Ramaswamy Iyengar v. Commissioner of Income-tax. In the former case it was held that where an appeal before the Appellate Tribunal related to a distinct matter in controversy, it would be open to the Tribunal to take up and decide the appeal in favour of the appellant on the basis of a ground not in controversy. A distinction was made in that decision between a case where, in regard to the actual subject-matter of the appeal a ground was not taken in the memorandum of appeal but was allowed to be taken by the Tribunal at the hearing, and a case where the subject-matter of the appeal a ground was not taken in the memorandum of appeal but was allowed to be taken by the Tribunal at the hearing, and a case where the subject-matter of the appeal was different from the one in respect of which relief was prayed for and given. It was held that the word 'thereon' in section 33(4) would restrict the power of the Tribunal to the subject-matter of appeal. In the latter case, which accepted the same interpretation, the following statement of the principle laid down in New India Life Assurance Co. v. Commissioner of Income-tax was adopted as correct :
'The expression thereon has come in for considerable judicial comment and observation, and the authorities lay down that the power of the Tribunal is confined to dealing with the subject-matter of the appeal and the subject-matter of the appeal is constituted by the grounds of appeal preferred by the appellant. This subject-matter cannot be expanded even by the appellant unless leave is granted to him to do so by the Appellate Tribunal. The subject-matter can certainly not be expanded by the respondent, as already pointed out, if he has not either appealed or cross-objected.'
The above decisions establish the proposition that the order of the Appellate Tribunal should be correlated to the actual subject-matter in controversy. We have earlier pointed out that a dismissal for default of appearance has nothing to do with the matter in controversy. It merely puts an end to the appeal. Such a method of disposal cannot therefore be said to be in accordance with section 33(4). Again the terms of the section 33(4) itself appear to suggest that the Tribunal is intended to dispose of the appeal on its merits. That it had the special competence to do so is plain from the very constitution of the Tribunal, comprising as it does of an experienced member of the Bar and also one from the profession of accountancy. Sub-section (4), to which we have made reference, directs the Appellate Tribunal to dispose of the appeal after giving the parties to the appeal an opportunity of being heard. The fact that the opportunity had not been availed of by the appellant cannot obviously discharge the obligation cast on the Tribunal of passing orders on the appeal, that is, on the merits of the appeal.
This view, namely, that the legislature intended that all appeals should be disposed of by the Income-tax Appellate Tribunal on their merits, is supported by the other provisions contained in the Act. It is an accepted rule of interpretation of statutes that, in ascertaining the meaning of a word used by a statute, one has to look at the context and connection and also ascertain the object with which that word has been employed by the legislature and interpret it in accordance therewith.
In Colquhoun v. Brooks, Lord Herschell observed :
'It is beyond dispute, too that we are entitled and indeed bound, when construing the terms of any provision found in a statute, to consider any other parts of the Act which throw light upon the intention of the legislature, and which may serve to shew that the particular provision ought not to be construed as it would be if considered alone and apart from the rest of the Act.'
Under the Indian Income-tax Act, 1922, an appellant who is aggrieved by an order of the Appellate Tribunal has further remedies; if there be questions of law arising in the case, he can obtain the opinion of the High Court under section 66 of the Act on such questions of law. In case he is dissatisfied with the expression of opinion by the High Court, the statute gives him a valuable right of appeal to the Supreme Court under section 66A, provided his case is certified to be a fit one for appeal to that court.
Mr. R. Venkataraman, learned counsel appearing for the assessee, has contended that if a power to dismiss an appeal for default of appearance of a party were to be conceded to the Appellate Tribunal, the further remedies open to an aggrieved party under section 66 would really be illusory; and inasmuch as the legislature clearly intended that an aggrieved party (if there be questions of law involved in the case) should have a right of approaching the High Court for its opinion, section 33(4) should be construed as compelling the Appellate Tribunal to dispose of the appeal, in all cases, on its merits. We are of opinion that this contention is well-founded. Taking section 66 first, sub-clause (1) thereto confers on the assessee as well as the Commissioner of Income-tax a right to apply to the Tribunal in the prescribed form to refer any question of law arising out of its order for the opinion of the High Court. If the Tribunal considers that a question of law arises on the facts either admitted before it or found by it, then it will have to draw up a statement of the case and refer the same for the opinion of the High Court. But if the Tribunal is not so satisfied, it can dismiss the application under section 66(1). The assessee then has a right to move the High Court under sub-clause (2) to that section and if the High Court is satisfied that a question of law arises in the case, it can direct the Tribunal to state a case on the lines indicated earlier. Sub-clause (4) empowers the High Court to call for an additional statement of the case from the Tribunal. The power of the High Court to decide questions of law raised on the reference is conferred by sub-clause (5).
In Commissioner of Income-tax v. Arunachalam Chettiar, the Supreme Court held that the jurisdiction conferred under the Act on the Tribunal and the High Court would be conditional on there being an order by the Appellate Tribunal, which could be said to be one under section 33(4) of the Act and on a question of law arising out of such order. In New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax, Bhagwati J., while discussing the limits of a reference to the High Court under section 66(I), has observed :
'. . . the only question of law which the assessee or the Commissioner can require the Tribunal to refer to the High Court is any question of law arising out of the order of the Tribunal so that if the question of law which the assessee or the Commissioner requires the Tribunal to so refer to the High Court does not arise out of its order the Tribunal is not bound to refer the same. What has, therefore, to be looked at in the first instance is whether the question of law thus required to be referred arises out of the order of the Tribunal. The Tribunal no doubt has got before it the facts which are admitted and/or found by the Tribunal and which are necessary for drawing up a statement of the case and it is the facts admitted and/or found by it that would form the basis on which the statement of case would be drawn and references of the question of law made by the Tribunal to the High Court. If such facts were not there, whether in the order of the Tribunal or in the record before it, there would certainly not be any foundation for the raising of any question of law either in the abstract or otherwise and it is only a question of law which would arise out of such facts which are admitted and/or found by the Tribunal that would be the substratum of the reference to the High Court. The facts admitted and/or found by the Tribunal would really be the foundation or the basis on which such questions of law could be raised and neither party would be entitled to require the Tribunal to refer to the High Court any question of law which could not thus arise out of the order of the Tribunal. Section 66(2), which gives the power to the High Court to require the Tribunal to state the case and refer the question of law to it, also proceeds on the same basis and even where the High Court exercises the power under section 66(2) it can only require the Tribunal to state the case on any question of law arising out of such order.'
The scope of the jurisdiction of the High Court under section 66 was elaborately considered in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., where it was laid down that essentially speaking the jurisdiction of the High Court was neither appellate nor revisional but purely advisory. The High Court, therefore, can decide only questions which are referred to it and not any other questions. It will have no jurisdiction itself to give a finding on facts. Where, therefore, there is neither an admission of a fact before the Tribunal nor a finding by it in regard to that matter, the High Court, exercising its jurisdiction under section 66, will really have not the benefit of a final finding of fact on which its opinion can be rested. Section 66, no doubt, contemplates a statement of the case being prepared by the Tribunal and sent to the High Court for the purpose of obtaining its opinion; but a statement of the case is in the nature of a pleading setting out the facts admitted and facts found. At the stage of the preparation of the statement of the case, there is no occasion for the Appellate Tribunal to decide any disputed question of fact. This aspect of the matter can well be illustrated by the present case itself. The appeal before the Tribunal was dismissed for default. There was no occasion for it to consider the merits of the assessees case. When this court directed the Tribunal to submit a statement of the case on the second of the questions referred to above, the Tribunal could not really state a case on that point, although under section 66 it was bound to do so. This was because the manner in which the appeal was disposed of precluded it from investigating the matter. it cannot, of course, be said that in cases where there was a dismissal of an appeal by the Tribunal for default, the aggrieved party would have no right to approach the High Court for its opinion under section 66, except when a question of law arises, on the propriety of the dismissal alone.
In Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., Venkataraman Ayyar J. summed up the position in regard to cases where the High Court can entertain a reference under section 66(2) and observed :
'(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.
(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.
(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.
(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.'
A case like the present (that is, where there is a dismissal of an appeal for default by the Tribunal) will certainly come under the second category of cases set out above. Thus there will be jurisdiction in the High Court to entertain a reference in such cases; but yet it would find itself in difficulty in not having the advantage of a finding of fact by the Appellate Tribunal and an appropriate statement of the case. As we pointed out, it will not be competent for the High Court even to direct the Tribunal to investigate the facts afresh and to submit a supplementary statement of the case.
In a recent decision of the Supreme Court, Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax it was observed :
'If necessary facts which will lay the foundation of raising a question of law are not there, then there is no basis for reference of that question to the High Court because only on the basis of facts found by the Tribunal or admitted before it can a question of law arise. Thus only on the basis of facts admitted or found on the record can a statement of case be submitted. When the case stated comes to the High Court and the High Court finds it necessary to have a supplemental statement of the case in order to answer the question of law which is raised, then it can direct such statement to be submitted with such additions and alterations as it may direct but the statement must necessarily be based on the facts which are already on the record and the High Court cannot ask for additional facts to be brought in because these would not be in regard to a question which arises from the order of the Tribunal but would be a statement based on something which was not before the Appellate Tribunal when it passed its appellate order.'
It would follow that for the exercise of the special jurisdiction conferred on the High Court, the Appellate Tribunal should dispose of the appeal before it on its merits, although it cannot be laid down that, in so doing, the consideration of the merits should be of a particular pattern or length. The observations of Venkatarama Ayyar J. in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., though put in the form of an interrogation, will clearly bring out the need of the Appellate Tribunal disposing of the appeal before it on its merits. The learned judge asks :
'How can it be said that the Tribunal should seek for advice on a question which it was not called upon to consider and in respect of which it had no opportunity of deciding whether the decision of the court should be sought ?'
The recognition in the Tribunal of a power to dismiss an appeal for default of appearance of parties is really a recognition of its right not to consider an appeal on its merits. Therefore, in all cases of dismissal for default, it would practically mean that neither the Tribunal could ask for advice of the High Court nor could the latter compel the former to refer a question of law, although such questions might properly arise under any one of the principles to which we have made reference earlier. But the statute has however clearly intended that the High Court should have jurisdiction to answer a reference when a question of law raised in the case had not been dealt with by the Appellate Tribunal, for example, in a case where the appeal is dismissed for default.
There are, however, two decisions which hold that rule 24, which enables the Tribunal to dismiss an appeal for default, is not in conflict with section 33(4) of the Act. In Shri Bhagwan Radha Kishen v. Commissioner of Income-tax the Allahabad High Court observed that in a case where notice of appeal had been served on the assessee but he did not choose to appear, the Tribunal could assume that he did not wish to proceed further with the appeal. We are, with great respect, unable to subscribe to that view. There may be cases where the party is prevented by sufficient cause from making an appearance before the Tribunal. It cannot be said, in such a case, that the party did not wish to proceed further with the appeal. The learned judges also laid down that in cases where the appellant was prevented by sufficient cause from making his appearance, the Tribunal would have an inherent jurisdiction to set aside the order of dismissal. This view has been accepted by the Punjab High Court in Mangat Ram Kuthiala v. Commissioner of Income-tax. It will be noticed that no power to restore an appeal, once it is disposed of, is at all recognized under the Act. In Neelaveni v. Narayana Reddy a Full Bench of this court has held that a court would have no power, apart from the provisions of any statute, to set aside an ex parte order passed by itself. That rule will apply to the case of dismissal for default as well. We have earlier referred to the decision in Ravula Subba Rao v. Commissioner of Income-tax, where Satyanarayana Rao J. rested his conclusion mainly on the fact that the word 'thereon' used in section 33(4) of the Act should receive a wide interpretation. In so holding, the learned judge did not advert to the several considerations to which we have made reference just now. We are unable to share the view taken in that case.
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 66A. Section 33(4) itself indicated 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.
We may also point out that if the Appellate Tribunal should have a power of dismissing an appeal for default of appearance of a party, such power can only be given by the legislature itself; it cannot be down by a mere rule promulgated under section 5A(8) as any rule made in that behalf will be contrary to the existing provision in section 33(4) of the Act. We, therefore, answer the question set out at the beginning in the affirmative.
The result is that the appeal before the Appellate Tribunal has not yet been legally disposed of. Inasmuch as it has not been disposed of, occasion has not yet arisen for this court to answer the second question referred to it. There will be no order as to costs.