Constitutional Court Can't Interfere With Interpretation Of Law By Specialized Body Like Tribunal Unless Grossly Inappropriate: Meghalaya High Court

The Meghalaya High Court on Friday observed that when Constitutional Courts take up challenges to orders passed by a specialised tribunal, such courts have to tread with extreme care and caution.

“A body that deals with a particular type of matters on an everyday basis would be expected to have greater command over the law applicable in the field and a Constitutional Court would not interfere with a view expressed on interpretation unless it appears to be grossly inappropriate and almost outlandish”, a bench comprising Chief Justice Sanjib Banerjee and Justice W. Diengdoh observed.

The remarks were made while directing constitution of a larger bench at ITAT to determine whether the dictum in Commissioner of Income-Tax v. Mahari & Sons (1992) 195 ITR 630 (Gau) still holds good despite apparently contrary judgments of the Supreme Court in matters pertaining to interpretation of exemption from income tax under Section 10(26) of the Income Tax Act.

Section 10(26) provides for an exemption from income tax for income derived by an individual who is a member of a scheduled tribe and whose income accrues in a notified area.

In Mahari & Sons (supra), members of a family, all of them tribals and individually entitled to the benefits under Section 10(26) of the IncomeTax Act, 1961, were engaged in a business and the question that arose was whether the exemption granted under Section 10(26) of the Act was restricted to an individual or whether the same could be extended to a group of individuals, particularly if they were family members. The Gauhati High Court ruled in Mahari & Sons that when certain individuals who belonged to the same family had set up a business jointly, they would be entitled to the benefit of the exemption under Section 10(26) of the Act.

This case involved four appeals filed by partnership firms that claimed exemption from income tax under Section 10(26) of the Act, while relying Mahari & Sons (supra).

The Income-Tax Appellate Tribunal, in its common order, had concluded that the law enunciated in Mahari & Sons was no longer valid and relied on recent Supreme Court pronouncements that discredited the notion of interpreting taxing statutes strictly in favor of taxpayers.

The Tribunal had also held that an exemption clause should not be liberally interpreted to extend benefits to individuals or entities not explicitly intended to be covered, stating that partnership firms, not being individuals, were not entitled to the exemption under Section 10(26).

Adjudicating upon the matter in controversy the bench observed that the Tribunal's assessment of the case appeared hasty and failed to fully explore the breadth of the discussion. The court, while emphasising that the Tribunal did not differentiate between partnerships consisting of close relatives and those formed by unrelated individuals, noted that none of the Supreme Court judgments referred to in the Tribunal's order explicitly addressed the specific situation covered by Mahari & Sons.

Recognizing the importance of specialized tribunals' expertise in their respective fields, the Meghalaya High Court exercised caution in interfering with the Tribunal's interpretation. However, due to the enduring influence of the Mahari & Sons judgment for over three decades and the need for a comprehensive examination of the matter, the bench decided to remand the case to a larger bench of the Appellate Tribunal. The bench, comprising at least three members, is required to reconsider the issue within three months of its first sitting.

“…It is deemed fit and proper to remand the matter before the Appellate Tribunal with a request to the President of the Tribunal to constitute a larger bench without including either member who was a party to the order impugned, for the consideration of the entire gamut of the matter. The President is requested to ensure that a larger bench of at least three members is constituted within a month of the receipt of an authenticated copy of this order with a request to the relevant bench to dispose of the legal issue which has arisen as expeditiously as possible”, the court directed.

Without expressing any final opinion on the primary legal issues, but setting aside the common order impugned the bench accordingly remanded the matter to be considered afresh.

Case Title: M/s Ri Kynjai Serenity vs. Principal Commissioner of Income Tax, Shillong & anr

Citation: 2023 LiveLaw (Meg) 25

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