S.260A – ‘substantial question of law’, framed by High Court is essential, otherwise order or judgment is liable to be set aside rules the Supreme Court.

[DEV KUMAR KOTHARI]

Scope of this article in about Substantial Question of Law (SQL) only.

Provisions considered about substantial question of law framed by High Court:

Section 260A of the Income-tax Act, 1961 and

Section 100 of the Code of Civil Procedure

Judgments:

2020 (7) TMI 544 - SUPREME COURT  SHIV RAJ GUPTA VERSUS  COMMISSIONER OF INCOME-TAX, DELHI-IV CIVIL APPEAL NO. 12044 OF 2016

Dated: - 22 July 2020

2014 (12) TMI 857 - DELHI HIGH COURT THE COMMISSIONER OF INCOME TAX, DELHI –IV VERSUS SHIV RAJ GUPTA

ITA No. 41/2002 Dated: - 22 December 2014

Substantial question of law:

On interpretation of section 260A  and section 100 supra, the Supreme court reiterated that it is essential that the High Court must first formulate substantial  questions of law (SQL) and only such SQL  can be and need to be answered. High Court, after recording reason can also formulate a SQL which is not found in appeal memo. Without formulation of SQL , if an order or judgment is passed then it is liable to be set aside.

Honorable supreme Court has referred to several judgments on this issue. The following judgments are also on the same issue which have not been found mention in the judgment referred above:

2019 (5) TMI 201 - SUPREME COURT RYATAR SAHAKARI SAKKARRE KARKHANE NIYAMIT VERSUS ASST. COMMISSIONER OF INCOME TAX-C-1 & ORS. 

2019 (4) TMI 957 - SUPREME COURT  PR. COMMISSIONER OF INCOME TAX, CENTRAL 2 VERSUS M/S A.A. ESTATE PVT. LTD. 

In the case of Shiv Raj Gupta (supra.) the High Court has held on an issue that was not in appeal of appellant and that was not formulated as SQL by the High Court. Without formulating a SQL, if an answer or opinion in rendered, that is not as per provisions of S.260A of IT Act and S. 100 of Civil Procedure Code.

 On the mandatory aspect of SQL, an analysis is made as follows:

S.260A of Income Tax Act, 1961 and S.100 of Civil Procedure Code are similar on the aspect of formulation of SQL by High Court and that High Court need to and can answer only such SQL which are formulated by the High Court as SQL. 

For formulation of a SQL which is not in appeal memo, the High Court is required to record reasons.

Without recording any reasons and without framing any substantial question of law on an issue which is not in appeal of appellant, answer cannot be given.

The  High Court famed the following substantial question of law:

“Whether, on the facts and in the circumstances of the case, the amount of ₹ 6.6 crores received by the assessee from SWC is on account of handing over management and control of CDBL (which were earlier under the management and control of the assessee) to SWC as terminal benefit and is taxable u/s 28(ii) of the Income-tax Act or same is exempt as capital receipt being non-competition fee by executing deed of covenant”

Therefore, there was no SQL formulated by the High Court on issue whether the said amount can be considered as part of consideration for transfer of shares.

The High Court went ahead and held that the amount of INR 6.6 crores received by the assesse was received as part of the full value of sale consideration paid for transfer of shares. This finding is  clearly be in the teeth of Section 260-A (4), requiring the judgment to be set aside on this score. 

In conclusion, this answer is without a SQL formulated by High Court, and therefore this was to be set aside, held the Supreme Court.

Other article on S.260A by the same author can be referred by readers:

SLP DISMISSAL IN CASE OF SUMAN PODDAR , AND HIGH COURTS DISMISSING APPEAL WITHOUT  FRAMING AND ANSWERING SUBSTANTIAL  QUESTION OF LAW NEED RECONSIDERATION.

Views expressed by the author in this article find full support in judgment in case of Shiv Raj Gupta (supra.)