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Section 254 (2) of the Income-tax Act, 1961 – The issue of Limitation …

In Srinivas Sashidhar Chaganty, the Tribunal has held that the pronouncement of the order, followed by its uploading on the website, constitutes the “passing of the order” for the purposes of determining the limitation period for filing a rectification application. CA Anant N Pai has conducted thorough research into several judgements of the Supreme Court and High Courts and opined that the verdict of the Tribunal requires reconsideration

1. The provisions of section 254 (2) should present interesting challenges to tax practitioners. The earlier provisions, prior to its amendment by Finance Act, 2016 w.e.f. 1-6-2016, read as under –

Section 254 (2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Assessing Officer.

By Finance Act, 2016, the words “four years from the date of the order” were substituted w.e.f. 1-6-2016 by the words “six months from end in which the order was passed”.

The issue for consideration in this article is whether limitation for filing of rectification should be reckoned from the date on which the order was passed or from the date on which when the order is communicated to the party. This issue assumed importance because if the order passed on a date is communicated belatedly to the party in appeal, the delay would cut short the effective period available to him for filing the application for no fault of his.

There is no dearth of decisions, where such or similar issue, has cropped before Courts or Tribunals – both under income tax as well as under other laws. Yet, as regards limitation issue raised above in context of the income tax provisions of section 254 (2), the same still appears vexed in face of conflicting decisions. This article appraises these decisions and seeks to suggest a credible resolution to the controversial issue.

2. An early authority can be found in the decision of the Supreme Court in the case of Raja Harish Chandra Raj Singh vs. Dy. Land Acquisition Officer (1961 AIR 1500). The decision concerned the provisions of section 18 of the Land Acquisition Act, 1894 under which a person aggrieved by the acquisition award was required to file his application objecting to the award within six months from the date of the award. The Appellant here had filed his application not within six months from the date of the order, but within six months from the date he came to know of the order, which application was held barred by limitation.

When the issue came before the Supreme Court, it held as under –

“If the award is treated as an administrative decision taken by the Collector in the matter of the valuation of the property sought to be acquired, it is clear that the said decision ultimately affects the’ rights of the owner of the property and in that sense, like all decisions which affect persons, it is essentially fair and just that the said decision should be communicated to the said party.

• The knowledge of the party affected by such a decision, either actual or constructive, ‘is an essential element which must be satisfied before the decision can be brought into force.

• Thus considered, the making of the award cannot consist merely in the physical act of writing the award or signing it or even filing it in the office of the Collector; it must involve the communication of the said award to the party concerned either actually or constructively.

• If the award is pronounced in the presence of the party whose rights are affected by it can be said to be made when pronounced. If the date for the pronouncement of the award is communicated to the party and it is accordingly pronounced on the date previously announced, the award is said to be communicated to the said party even if the said party is not actually present on the date of its pronouncement. Similarly if, without notice of the date of its pronouncement, an award is pronounced and a party is not present, the award can be said to be made- when it is communicated to the party later.

• The knowledge of the party affected by the award, either actual or constructive, being an essential requirement of fair-play and natural justice the expression "the date of the award" used in the proviso must mean the date when the award is either communicated to the party or is known by him either actually or constructively.
• In our opinion, therefore, it would be unreasonable to construe the words "from the date of the Collector’s award" used in the proviso to s. 18 in a literal or mechanical way. In this connection, it is material to recall the fact that under s. 12(2) it is obligatory on the Collector to give immediate notice of the award to the persons interested as are not present personally or by their representatives when the award is made. This requirement itself postulates the necessity of the communication of the award to the party concerned.

• It is because communication of the order is regarded by the Legislature as necessary that s. 12(2) has imposed an obligation on the Collector and if the relevant clause in the proviso is read in the light of this statutory requirement it tends to show that the literal and mechanical construction of the said clause would be wholly inappropriate.

• It would indeed be a very curious result that the failure of the Collector to discharge his obligation under s. 12(2) should directly tend to make ineffective the right of the party to make an application under s. 18, and this result could not possibly have been intended by the legislature.”

Based on the above observations, the Apex Court held that the order of the Collector should be deemed to be made on the date on which it was communicated to the affected party and that the objections to the award (i.e. the findings in the order) may be filed within six months from the date of communication of the order.

3. A similar issue again before the Supreme Court in the case of Madan Lal vs. State of U.P. ( 1975 AIR 2085) in terms of appeal provisions in section 17 of the Indian Forest Act, 1927. Here, the prescription in the section was that the appeal was required to be filed with period of three months from the date of the order. Here also, the issue cropped that what should be the fate of the appellant, who had filed the appeal – not within the period of three months from the date of the order, but rather – when he came to know of the order passed against him.

The Supreme Court held as under –

• The Act, we are concerned with, does not state what would happen if the Forest Settlement Officer made an order under sec. 11 without notice to the parties and in their absence. In such a case, if the aggrieved party came to know of the order after the expiry of the time prescribed for presenting an appeal from the order, would the remedy be lost for no fault of his ? It would be absurd to think so.

• It is a fundamental principle of justice that a party whose rights are affected by an order must have notice of it. This principle is embodied in Order 20, Rule 1 of the Code of Civil Procedure; though the Forest Settlement Officer adjudicating on the claims under the Act is not a court, yet the principle which is really a principle of fair play and is applicable to all tribunals performing judicial or quasi- judicial functions must also apply to him.

After referring to its earlier decision in the case of Raja Harish Chandra Raj Singh (supra) and following its reasoning, the Apex Court held that the order ought to be deemed to be passed on the date on which the Appellant came to know of the same and the period of limitation for filing the appeal should be accordingly determined.

4. The view taken in Raja Harish Chandra Raj Singh’s case (supra) by two-Judges Bench of the Supreme Court was affirmed by a three- Judges Bench of this Court in State of Punjab Vs. Mst. Qaisar Jehan Begum & Anr., (1964) 1 SCR 971. The Apex Court, bettered its earlier decisions by taking one step further by adding that- “the knowledge of the award does not mean a mere knowledge of the fact that an award has been made; the knowledge must relate to the essential contents of the award.”

5. In a subsequent elaborate judgment, the Hon’ble Supreme Court in the case of D. Saibaba vs. Bar Council of India (2003) 6 SCC 186- while interpreting the expression "sixty days from the date of the order" used in appellate provisions of section 48AA of the Advocates Act, 1961, observed as under:-

• “So far as the commencement of period of limitation for filing the review petition is concerned, we are clearly of the opinion that the expression ‘the date of that order’ as occurring in Section 48AA has to be construed as meaning the date of communication or knowledge of the order to the review-petitioner. Where the law provides a remedy to a person, the provision has to be so construed in case of ambiguity as to make the availing of the remedy practical and the exercise of power conferred on the authority meaningful and effective. A construction which would render the provision nugatory ought to be avoided.

• In Raj Kumar Dey & Ors. Vs. Tarapada Dey & Ors., (1987) 4 SCC 398, this Court pressed into service two legal maxims guiding and assisting the Court while resolving an issue as to calculation of the period of limitation prescribed, namely, (i) the law does not compel a man to do that which he could not possibly perform, and (ii) an act of the court shall prejudice no man. These principles support the view taken by us hereinabove. Any view to the contrary would lead to an absurdity and anomaly. An order may be passed without the knowledge of anyone except its author, may be kept in the file and consigned to record room or the file may lie unattended, unwittingly or by carelessness. In either case, the remedy against the order would be lost by limitation though the person aggrieved or affected does not even know what order has been passed. Such an interpretation cannot be countenanced.

• How can a person concerned or a person aggrieved be expected to exercise the right of review conferred by the provision unless the order is communicated to or is known to him either actually or constructively? The words ‘the date of that order’, therefore, mean and must be construed as meaning the date of communication or knowledge, actual or constructive, of the order sought to be reviewed.

• Placing such a construction, as we propose to, on the provision of Section 48AA is permitted by well settled principles of interpretation. Justice G.P. Singh states in Principles of Statutory Interpretation (Eighth Edition, 2001), "It may look somewhat paradoxical that plain meaning rule is not plain and requires some explanation. The rule, that plain words require no construction, starts with the premise that the words are plain, which is itself a conclusion reached after construing the words. It is not possible to decide whether certain words are plain or ambiguous unless they are studied in their context and construed." (p.45) The rule of literal interpretation is also not to be read literally. Such flexibility to the rule has to be attributed as is attributable to the English language itself.

The learned author states again, "In selecting out of different interpretations ‘the court will adopt that which is just, reasonable and sensible rather than that which is none of those things’ as it may be presumed ‘that the Legislature should have used the word in that interpretation which least offends our sense of justice’. (p.113, ibid) "The courts strongly lean against a construction which reduces the statute to a futility. A statute or any enacting provision therein must be so construed as to make it effective and operative ‘on the principle expressed in the maxim: ut res magis valeat quam pereat’." (p.36, ibid) "If the language used is capable of bearing more than one construction, in selecting the true meaning regard must be had to the consequences resulting from adopting the alternative constructions. A construction that results in hardship, serious inconvenience, injustice, absurdity or anomaly or which leads to inconsistency or uncertainty and friction in the system which the statute purports to regulate has to be rejected and preference should be given to that construction which avoids such results."(pp.112-113, ibid).

• Reading word for word and assigning a literal meaning to Section 48AA would lead to absurdity, futility and to such consequences as the Parliament could have never intended. The provision has an ambiguity and is capable of being read in more ways than one. We must, therefore, assign the provision a meaning __ and so read it __ as would give life to an otherwise lifeless letter and enable the power of review conferred thereby being meaningfully availed and effectively exercised.”

Based on the above observations, the Apex Court ruled that “the date of the order” must mean “the date of its communication” to the aggrieved party.

6. Coming to income tax decisions, a very reliable authority can be found to the decision of the Bombay High Court in the case of Petlad Bulakihidas Mills Co. Ltd vs. Raj Singh (1959) 37 ITR 284 (Bom), where the High Court was concerned with the revision proceedings u\s 33A (2) of the Income Tax Act, 1922 (analogous to the present section 264 of the Income Tax Act, 1961). The requirement of the section 33A (2), was that an application for revision to the Commissioner must be preferred by the assessee within one year from date of the order of the AAC (Appellate Assistant Commissioner). The question before the High Court was whether “the date of communication of the order” by the AAC to the assessee should be taken as “the date of the order” of the AAC for the purposes of section 33A (2) – more particularly from the point of view that if the order of the AAC is belatedly communicated to the assesse, then the period of limitation available to him to file the revision application would be unfairly curtailed?

The Bombay High Court ruled as under –

• “If the word ‘order’ used in the expression ‘from the date of the order’ means a unilateral arriving at a decision by the AAC – without the person affected having any knowledge of that decision, then undoubtedly limitation would begin to run from the date when the AAC chosen to pass the order. In this view of the case, the AAC may make the order, put it in a drawer, forget about it, and if a year has passed after it the right of the assessee to go in revision would be barred. Now that seems to be an entirely untenable contention.

• If the Legislature gave the right of revision to the assesse under section 33A of the 1922 Act, it was an effective right and if the Legislature provided a period of limitation that period must equally be an effective period. “Effective" means that the whole period must be permitted to the person affected by the order within which he can prefer the application for revision. The assessee should know that he has a year’s time within which he has to make up his mind whether he should apply for revision or not.

• If the revenues contention were to be accepted, one would be driven to this extraordinary conclusion that the period of limitation provided by the Legislature could be cut down by the action of the AAC. The AAC could at his sweet will determine what the period of limitation was. He need not promulgate the order for a month, two months, or six months, and the period of limitation would depend upon when he chose to intimate to the party affected the nature of his order. Surely that could not have been the intention of the Legislature.

• Therefore, the expression "order" means an order of which a party affected has actual or constructive notice. The right of appeal is given to an assessee against the order, and that right of appeal can only be effectively exercised if the party affected has knowledge of that order.

• It is not to suggest that the knowledge must be, in every case, actual knowledge. It may be constructive knowledge. The AAC may announce that he is going to pass this order on a particular date. The assessee may not choose to turn up on that date. In such a case the assessee cannot contend that he had no knowledge of that order, because he could have had knowledge if he was present on the date announced for publication of the order. But if the assessee has neither actual nor constructive knowledge, it cannot possibly be suggested that there is an order within the meaning of section 33A(2) of the 1922 Act against which the assessee could possibly have appealed.”

The High Court found that if the limitation of one year for filing the revision application was reckoned from the date on which assessee had knowledge of the order of the AAC and not from the date on which the order was passed. It accordingly held that the Commissioner was in error in coming to the conclusion that the application for revision of the petitioner was barred by limitation and it was therefore the statutory duty of the Commissioner to hear his application. The appeal was thus allowed in the assessee’s favour.

7. The next tax decision is that of the Allahabad High Court in the case of Vijay Kumar Ruia vs. CIT (2011) 334 ITR 38 (Allahabad). The decision concerned an appeal preferred by the assessee under Rule 86 of recovery proceedings in Schedule II of the Income Tax Act, 1961. The rule prescribed that the appeal must be preferred by the assessee within 30 days of the order passed by the Tax Recovery Officer. The question before the High Court was whether words “date of the order” in Rule 86 should be construed as “date of service or communication of the order” to the assessee ?

The Allahabad High Court held as under –

• “The second point of determination is as to whether the limitation for filing the appeal would run from the actual date of the order or from the date of service of the order and, consequently as to whether the appeal is barred by limitation. There is no dispute to the fact that the order confirming the sale was passed on 25-4-1988 and the sale certificate was also issued on the same day. The appeal was presented under rule 86 on 19-9-1988. The limitation for filing the appeal under rule 86(2) is 30 days ‘from the date of the order’. Thus, the appeal apparently appears to be beyond time by 117 days. However, the argument is that the limitation for filing the appeal would start running from the date when the order was served and the date of service of the order would be recognised as the date of the order.

• Generally speaking, judicial and quasi-judicial orders are required to be passed in the presence of the parties or their representatives and where parties or their representatives are not present, normally the orders are communicated, especially where the order is appealable or revisable so as to enable the party to avail of the remedy so provided. Therefore, communication and knowledge of the order passed is necessary and in consonance with the principles of fair play. If the party aggrieved is not made aware of the order it cannot be expected to take recourse to the remedy available against it. Therefore, the fundamental principle is that the party whose rights are affected by any order must have the knowledge of the order.

• Thus, it can be said that for the purposes of calculating limitation the expression ‘from the date of the order’, is to be construed to mean ‘the date of communication or knowledge of the order’. In the instant case, the date of knowledge of the order, according to the petitioner is 18-8-1988 and the date of actual service and communication undisputedly happens to be 29-8-1988. The appeal was preferred on 19-9-1988. On 18-9-1988 there was a holiday. Thus, the appeal was within limitation both from the date of knowledge of the order and its service. In this view of the matter, the appellate authority manifestly erred in law in dismissing the appeal as barred by time.”

8. In context of the provisions of section 254 (2) of the Income Tax Act, 1961 (as prior to its amendment by Finance Act, 2016 w.e.f. 1-6-2016) the Mumbai Tribunal has in Pawan Kumar Jain vs. Dy. CIT (2013) 155 TTJ 14 (Mum- Tribunal), after elaborately considering all the decisions discussed above, held that for purposes of filing application under section 254 (2), the period of limitation would start from the point of time when order u/s 254 (1) is “communicated to the assesse” and not from the “date of the passing of the order”.

In coming to this decision, the Mumbai Tribunal has noted as –

From the principles and maxims laid down by the Hon’ble Supreme Court in catena of cases as referred to above, it is amply clear that the "date of order" should be construed and reckoned with the date of knowledge of the order i.e., when the order has been communicated to the party. The legal maxim behind this is, how a person concerned or a person aggrieved is expected to exercise the right of remedy conferred by the Statute, unless the order is communicated or known to him either actual or constructively. The underlying principles is of fair play and recognition of legal rights of remedy in a constructive manner and not to give any
construction or interpretation so as to defeat the purpose for which the legal remedy has been enacted in the provisions relating to limitations. It is a fundamental principle of justice and fair play that parties, whose rights are affected by an order must have a knowledge or notice of it, otherwise, the legal rights to remedy is lost to the party, even when he is not at fault.

9. However, in a recent decision, the Hyderabad Tribunal in miscellaneous application proceedings u/s 254 (2) in the case of Srinivas Sashidhar Chaganty vs. ITO { Hyd. ITAT – “A” Bench – M.A. no. 05/Hyd/2017 arising in ITA no. 1420/Mum/2015 dated 12-7-2017 for Assessment Year 2007-08 – reported in www.itatonline.org ) in context of the subsequently amended provisions of section 254 (2) by Finance Act, 2016 w.e.f. 1-6-2016 has held diametrically the opposite of what the Mumbai Tribunal held in the case of Pawan Kumar Jain (supra).

In the case before it, order u/s 254 (1) was passed / pronounced on 21-06-2016 and from the end of this month (June 2016), the period of six months ended on 31-12-2016. The case of the assesse was that order u/s 254 (1) was served on him on 05-07-2016 and if this date is considered, the miscellaneous application filed on 20-01-2017 was within time and maintainable.

The Hyderabad Tribunal has rejected this argument of the assesse and has held that the limitation for filing the application for rectification u/s 254 (2) should be reckoned from date of passing of the order u/s 254 (1) and not the date of its communication to the assesse.

Following are the summary of its findings of the Tribunal on facts and in law in its order dismissing the miscellaneous application as time barred and therefore, unmaintainable –

• As per the present practice followed by the Tribunal, the order was pronounced on 21.06.2016 in the open court and the time limit, reckoned from the end of the month in which the order was passed, is six months for seeking recall i.e., parties are entitled to seek rectification of the said order within six months u/s 254(2) of the Income Tax Act, 1961, as amended w.e.f. 01.06.2016 which reads as under:-

‘254 (2) The Appellate Tribunal may, at any time within “six months from the end of the month in which the order was passed”, with a view to rectify any mistake apparent from the record, amend any order passed by it under sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or as the Assessing Officer./’

Section 254(2) of the Act refers to the period of limitation reckoning from the end of the month in which the order is passed’ and not from the ‘date of receipt of the order’. As rightly pointed out by the Ld DR, the expressions “passed” “initiated” and “served / received” are not interchangeable and the Legislature in its wisdom expressly used the phraseology depending on the intention. In the instant case, the expression “passed” cannot be stretched to mean that the period of limitation should be reckoned from the date of receipt of the order.

• Even if a liberal view has to be taken, it can be considered as the date of uploading of the order. Ordinarily anything which is uploaded in the public domain can be accessed by the public at large and even the assessee would have access to the order and such a date always be treated as the service of the order. In the instant case, the noting of the Sr. Private Secretary in the book indicate that the order was uploaded on 21.06.2016,

• The judgment of the Hon’ble Madras High Court in S. P. Balasubrahmanyam (2017) 152 DTR 25, though referred to the latest provisions, cannot be taken aid of inasmuch as the Hon’ble High Court was dealing with the application filed in 2015, which is a date anterior to the introduction of six months limitation period. Even otherwise, the observations made therein cannot be equated to a finding or order since the court was not concerned with the latest provisions of the Act. Further, the Hon’ble High Court mentioned that “even taking for granted that the judgments of the Apex Court are applicable to the case on hand the date of service of the order was not even mentioned and the assessee has not applied due diligence and caution”; In other words, the Court concluded that the assessee has not followed due diligence. It was also referred that even the date of order is not placed on record. In such an event, we are afraid that we have no authority to interpret the expression “passed” as being akin to the ‘receipt of the order’.

• Since, the MA is filed beyond the period of limitation even reckoned from the date of uploading in website, we have no other alternative except to dismiss the application as being barred by limitation.”

10. According to me, the starting point of limitation u/s 254 (2) cannot be the date of passing the order u/s 254 (1) by the Tribunal. For the simple reason that if the order u/s 254 (1) is served belatedly on the aggrieved party, the effective period of remedy will be cut short to him for no fault of his. If, per chance, the order is not served on the aggrieved party within the period of six months of its passing, the aggrieved party will be left with a remedy.

The decisions of the Supreme Court in the case of Madan Lal vs. State of U.P. (1975 AIR 2085) and the Bombay High Court in the case of Petlad Bulakhidas Mills Co. Ltd vs. Raj Singh (1959) 37 ITR 284 (Bom) directly support the proposition that if the law provides to an aggrieved party a remedy to be exercised with a prescribed period, the remedy should be construed in such manner that it is “effective” to the aggrieved party and that in order that the remedy is “effective”, the period available for exercising the remedy should also be “effective”. If, the period is cut short for any reason, it cannot be said to be effective. Any interpretation of a limitation provision in the statute must be such that the limitation is practically available to the aggrieved party.

Therefore, in instant case of the provisions of section 254 (2) also, the date of passing of the order u/s 254 (1) cannot be the starting point of limitation for pursuing the application for rectification.

11. If the date of passing of the order u/s 254 (1) cannot be the starting point of limitation in section 254 (2), then can the date of the knowledge of the order by the aggrieved party be considered as the starting point ? We have seen above that the Mumbai Tribunal in the case of Pawan Kumar Jain vs. Dy. CIT (2013) 155 TTJ 14 (Mum-Trib) has held so i.e. the date of knowledge of the order should be considered as the starting point. Here, the Mumbai Tribunal has come to its decision after considering all the decisions of the Supreme Court and High Courts delivered both income tax and other laws. These decisions have been discussed above in the article and therefore, not referred again for sake of brevity.

In the case of the Hyderabad Tribunal’s decision in the case of Sriniwas Sashidhar Chaganty vs. ITO (www.itatonline.org) , which has held to the contrary, it appears that the benefit of the Supreme Court and High Court decisions were not available before it and that had it been available, it decision may have been different

. According to me, the fact that the Mumbai Tribunal decision was rendered in context of the earlier provisions of section 254 (2) (i.e. before amendment w.e.f. 1-6-2016) and that the Hyderabad Tribunal decision was rendered in context of the amended provisions is immaterial as what has been amended is only the period of limitation. The right of remedy to pursue an application for rectification is the same and intact – i.e. both before and after the amendment.

Assuming that the date on which the order u/s 254 (1) came to the knowledge of the aggrieved party is the starting point of limitation u/s 254 (2) and not the date of passing of the order u/s 254 (1), the next issue for consideration is whether the date of pronouncement of the order by the Tribunal or the date on which the order was uploaded on the Tribunal website can be taken as the date on which the aggrieved party came to ‘know’ of the order –even though the order was not yet formally served on him ?

As held in the Court decisions above, the knowledge of the order can be either actual or constructive. Actual knowledge is experiencing the fact of passing of the order with one’s own eyes or hearing of it. In contrast, constructive knowledge is the legal fiction that signifies that a person or entity should have known, as a reasonable person would have, of a legal action taken or to be taken, even if they have no actual knowledge of it. The doctrine is generally construed with regards to legal notices published, either by posting them at a designated place in a courthouse, or publishing them in a newspaper designated for legal notices. Because both methods of publication are available to the general public (courthouses being open to all members of the general public and newspapers readily available in public places such as libraries), the person to whom the notice is being issued.

In the case before the Hyderabad Tribunal, there is admittedly no finding in the order that the assessee had actual knowledge of passing of the Tribunal order. It is true that the Tribunal had pronounced the order in open court after it was passed. But, on these facts, it cannot be assumed that the assessee should be deemed to have ‘constructive knowledge’ of the passing order. There is undoubtedly a practice followed by the Income Tax Appellate Tribunal to pronounce orders in the courtrooms by mentioning the matter for pronouncement in the cause list. But, there is no practice for issuing notice to the parties to the order to be present in the courtroom on the date and time of pronouncement mentioned in the cause list. If the party is not present in the courtroom at the time of pronouncement, the pronouncement is undoubtedly ex-parte and the aggrieved party cannot be treated as having ‘constructive knowledge. Mentioning of the matter on the cause list for pronouncement is not the same thing as giving a notice of hearing. There is nothing in the Income Tax Act, 1962 or in the Income Tax (Appellate Tribunal) Tribunal Rules, 1963 providing that mention of a matter on the cause list is to be treated as notice of hearing to the party.

This view should confirm with that taken by the Supreme Court in the case of Madan Lal vs. State of U.P. (1975 AIR 2085) cited above, where the Apex Court held as under –

If the award is pronounced in the presence of the party whose rights are affected by it can be said to be made when pronounced. If the date for the pronouncement of the award is communicated to the party and it is accordingly pronounced on the date previously announced, the award is said to be communicated to the said party even if the said party is not actually present on the date of its pronouncement. Similarly if, without notice of the date of its pronouncement, an award is pronounced and a party is not present, the award can be said to be made- when it is communicated to the party later.” (emphasis supplied in underline).

Apart from the above, it is pertinent that in practice followed by the Income Tax Appellate Tribunal for pronouncement of their orders in courtrooms is only to state whether the appeals have been allowed or dismissed or partly allowed. The entire order is not read out in the court room. Therefore, even if the affected party was present in the courtroom at the time of pronouncement, it cannot be said that he is in position to take an informed decision that there is an error apparent from record in the order pronounced or whether or not he should be file an application for rectification. One way of looking at this scenario is that one can say that the affected party does not derive ‘knowledge’ of the order as the contents of the order and its reasoning is not known to it. After all what constitutes ‘knowledge’ of the order is not the fact of passing of the order, but the essence of the order has held by the Supreme Court in State of Punjab Vs. Mst. Qaisar Jehan Begum & Anr., (1964) 1 SCR 971.The Apex Court here has held that “the knowledge of the award does not mean a mere knowledge of the fact that an award has been made; the knowledge must relate to the essential contents of the award.

There is also no prescription in the Income Tax Act, 1962 or the Income Tax (Appellate Tribunal) Rules, 1963 that uploading of decision by the Tribunal on the website is to be treated as service of the order on the party to the appeal. The uploading of the order on the website cannot be treated as a public notice of the order even to the general public at large, unless the website is designated in the Act or the Rules to be a place where the order is to be treated officially promulgated. The hosting of the order on the website by the Tribunal is only for information and not by way of legal notice. A constructive knowledge that an order has been passed on a party cannot be imputed to him on this account – unless and until it is proved that he has not only opened the website, but also seen the order on it.

Therefore, according to me, neither a mere pronouncement of an order by the Tribunal without giving notice of date of hearing of the pronouncement to the party or the uploading of the order by Tribunal on website is sufficient to assume that the party to the order had constructive knowledge of the order. This is where the Hyderabad Tribunal has missed the point.

12. We have seen above the decisions of the Mumbai Tribunal in Pawan Kumar Jain and the Hyderabad Tribunal decision in Sriniwas Sashidhar Chaganty and discussed the same above. Whereas the Hyderabad Tribunal has held that the date of passing of the order u/s 254 (1) is to be considered as the starting point of limitation u/s 254 (2), the Mumbai Tribunal had held that the starting point ought to be the date of knowledge (whether actual or constructive) of the order by the party.

From the above, it should appear that compared to the Hyderabad Tribunal decision, the Mumbai Tribunal decision is better reasoned and should be chosen as a better authority. Yes, the issue of limitation does not end with these two decisions. A further issue of consideration is that even if the party to the order u/s 254 (1) has been presumed to have knowledge of the order, but has not been supplied the original copy of the order by the Tribunal, does the starting point of limitation u/s 254 (2) run from the date of knowledge of the order or he subsequent date supply of the original order by the Tribunal to the party?

I specifically raise this issue considering the scheme of filing of miscellaneous application u/s 254 (2) envisaged in the Income Tax (Appellate Tribunal) Rules, 1963, which may be considered carefully by the readers.

To begin with, section 255 (5) of the Income Tax Act, 1961. (Procedure of Appellate Tribunal) empowers the Appellate Tribunal to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers or of the discharge of its functions, including the places at which the Benches shall hold their sittings. And in accordance with these powers, the Appellate Tribunal has made the Income Tax (Appellate Tribunal) Rules, 1963.

Rule 34A of these Appellate Tribunal Rules fixes the procedure for dealing with application u/s 254 (2) . Sub-Rule (1) states that an application under section 254 (2) of the Act shall clearly and concisely state the mistake apparent from the record of which the rectification is sought. Sub-Rule (2) is vital here. It prescribes that every application made under sub-rule (1) shall be in triplicate and the procedure for filing of appeals in these rules shall apply mutatis mutandis to such applications. In short, the procedure for filing appeals also applies to filing to miscellaneous application u/s 254 (2).

Rule 9 deals with filing of appeal i.e. what to accompany a memorandum of appeal. Sub-Rule (1) cites that every memorandum of appeal shall be in triplicate and shall be accompanied by two copies (at least one of which shall be a certified copy ) of the order appealed against …..

The Explanation to Rule 9 clarifies as to what constitutes ‘certified copy’. It states that “For the purpose of this rule, “certified copy” will include the copy which was originally supplied to the appellant as well as a photostat copy thereof duly authenticated by the appellant or his authorized representative as true copy.”.

A perusal of the above Rules, clearly show that one cannot file a miscellaneous application u/s 254 (2) unless it is accompanied by the original copy of the order u/s 254 (1) supplied by the Tribunal or a photostat copy of the original supplied. Therefore, unless and until the original copy of the order u/s 254 (1) is supplied to the party i.e. served- the application for rectification cannot be moved at all.

So, even in case where constructive knowledge of the order can be assumed against a party- an application for rectification cannot be moved – unless and until the original copy of the signed order is either served on the party or supplied to him on his making request for the same. If the supply of the order is delayed, the delay would cut short the period of remedy even if the date of constructive knowledge is taken as starting point of limitation u/s 254 (2). If, per chance, the order is not served on the aggrieved party within the period of six months of its passing, the aggrieved party will be left with a remedy.

Therefore, even at cost of repetition, let us revisit the decisions of the Supreme Court in the case of Madan Lal vs. State of U.P. (1975 AIR 2085) and the Bombay High Court in the case of Petlad Bulakhidas Mills Co. Ltd vs. Raj Singh (1959) 37 ITR 284 (Bom) cited above. These decisions directly support the proposition that if the law provides to an aggrieved party a remedy to be exercised with a prescribed period, the remedy should be construed in such manner that it is “effective” to the aggrieved party and that in order that the remedy is “effective”, the period available for exercising the remedy should also be “effective”. If, the period is cut short for any reason, it cannot be said to be effective. Any interpretation of a limitation provision in the statute must be such that the limitation is practically available to the aggrieved party.

We have considered above two views on what is the starting point of limitation u/s 254 (2). The first view that it ought to be date of passing of the order u/s 254 (1) as per Hyderabad Tribunal and the second was that it ought to be the date of knowledge of the order to the affected party as per Mumbai Tribunal. The second view as laid down by the Mumbai Tribunal was preferable to the first view of the Hyderabad Tribunal . The third view here that the date of supply of the original copy of the order u/s 254 (1) by the Tribunal to the affected party should appear even stronger.

The end point of delivery of law should be justice on the best terms. Law sans justice is piece of dry wood without life. Likewise, justice without fair play would be mere tokenism. Of the three views above, the third view, according to me, is the best confluence where the triad streams of law, justice and fair play meet – i.e. where the affected party is given the best terms to pursue his remedy.

This article may accordingly be considered by the readers.

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8 comments on “Section 254 (2) of the Income-tax Act, 1961 – The issue of Limitation …
  1. KC AGGARWAL says:

    Actually the ITAT order on limitation for filing application under section 254(2) is more like that of a CIT. At ITAT level, such decisions only increase litigation with no effective service to the subject. In any case, it is a transient period and GOI should itself come out with clarification to avoid clogging already overburdened litigation set up.

  2. Ch.G.Murali Krishnamurtht says:

    A well reasoned article on the subject. It should now be seen whether the President of ITAT would refer the matter to Spl.Bench on account of conflicting views or go by Vegetable Products decision of the Apex Court rendered many decades ago but is still good law.

  3. J.P.Gupta says:

    Communication of the order and its cognizance by the assessee both are at the core of the right of the assessee. An interpretation that favours the assessee has to be adopted even in matters of limitation. Actually the provisions of the section itself ought to have included the term ‘service of the order’ in place of ‘passing of the order’.

  4. Annadurai Srinivasan says:

    Learned friend has pointed out legal presumption. Such legal presumption is subject to rebuttal on the facts of the case as the Explanation to Section 5 of the Limitation Act will have be helpful to the appellant.

  5. anant n pai says:

    From, the author ( CA Anant Pai). In para no, 11 after the words “A constructive knowledge that an order has been passed on a party cannot be imputed to him on this account – unless and until it is proved that he has not only opened the website, but also seen the order on it.” the words ” even actual knowledge cannot be inferred” ought to be added.

    I missed the words before sending to the publisher. No change in the theme of the article on account of this addition

  6. CA Goutam Chand Baid says:

    In case of ITAT order, orders are pronounced in the open court and legally it is presumed that order being communicated on the date of pronouncement of order.

  7. Annadurai Srinivasan says:

    Well said Sir, You may also add mention of Section 5 of Limitation Act wherein ‘Extension of prescribed period in certain cases’is mentioned. The Section 5 runs as follows:Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908 (5 of 1908), may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period.
    Explanation

    The fact that the appellant or the applicant was misled by any order, practice or judgment of the High Court in ascertaining or computing the prescribed period may be sufficient cause within the meaning of this section.

    This section which brings principle of natural justice in such cases, can also be applied

    • CA paresh ravasa says:

      the ITAT order was passed on 22/03/2013. At that time lt was 4 years. i.e. for filing MA, there is time till 22/03/17.

      new rule w.e.f. 1.4.2016 – replacing 4 years by 6 months to not touch present order.

      (it would have been better if MA was filed by 31.3.2016. ) – however, it depends upon situations.

      amendment cannot affect past/retrospective.

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