Whether High Court can adjudicate u/s 260A(2)(c) without following section 260A(3)?

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Question: While deciding an appeal, is it mandatory for the High Court to frame a substantial question of law or can it decide the case on the basis of the question of law urged by the appellant under section 260A(2)(c)?

Case: CIT v. A. A. Estate Pvt. Ltd. [2019]

Facts of the case: The High  Court, without itself framing the substantial question of law at the  time of admission of appeal, issued notices, heard both the parties and decided the  appeal affirming the order of the Tribunal based on the questions raised by the appellant.

Relevant provision of the Income-tax Act, 1961: Section 260A provides  that an  appeal lies to  the High Court from every order passed by the Tribunal, if the High Court is satisfied that the case involves a substantial question of law. In this regard, section 260A(2)(c) requires the appellant to  file an appeal before the High Court in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. If the High Court is satisfied  that  the  case involves a substantial question of law, section 260A(3) requires the High Court to formulate such question. Thereafter, section 260A(4) provides that the appeal shall be heard only on the question so formulated; and section 260A(5) provides that the High Court shall decide the question  of law   so formulated.

Issue: The issue under consideration is whether the High  Court was  justified in not  formulating  the substantial question of law as required u/s 260A(3) and adjudicating merely on the questions  put forth by the appellant under section 260A(2)(c).

Supreme Court’s Observations: The Apex Court noted that there lies a distinction between the questions proposed by the appellant for admission of the appeal to the High Court and the  questions framed by the High Court. The questions, which are proposed by  the  appellant, fall  under section 260A(2)(c) whereas the questions framed by the High Court fall under section 260A(3). Section 260A(4) provides that the appeal is to be heard on merits only on the questions formulated by the  High  Court under section 260A(3). In other words, the appeal is heard only on the questions formulated by the High Court and not on the questions proposed by the appellant.

In case if the High Court is of the view that the appeal did not involve any substantial question of  law, it should have recorded a categorical finding to that effect that the questions proposed by the appellant either do not arise in the case or/and are not substantial questions of law so as to attract the rigour of section 260A for its admission and accordingly, should have dismissed the appeal in limine. However, this was not done in this case. Instead, the appeal was heard only on  the questions urged by the appellant u/s 260A(2)(c). The High Court, therefore, did not decide the appeal in conformity with the mandatory procedure prescribed in section 260A.

Supreme Court’s Decision: The Supreme Court held it to be just and proper to  remand the case  to the High Court for deciding the appeal afresh, on merits of the case in accordance  with  procedure prescribed in section 260A.

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