Is the appointment of the Hon’ble Members of the ITAT on tenure basis for four years, constitutionally valid? When the process of appointment of the Members of the ITAT is working satisfactorily for more than 79 years, why is a change desired?

The Constitution Bench of the Hon’ble Supreme Court in the case of Rojer Mathew v. South Indian Bank Ltd. & Ors. 2019 (369) ELT 3 (SC), declared that the Tribunal, Appellate Tribunal and other Authorities (Qualification, Experience and other Conditions of Service of Members) Rules, 2017 as unconstitutional for being violative of principles of independency of the judiciary and contrary to earlier decisions of the Hon’ble Supreme Court. A direction was also given to the Central Government to reformulate the rules in accordance with principles delineated by the Court in its earlier decisions. However, the reframed rules viz. The Tribunal, Appellate Tribunal and other Authorities (Qualifications, Experience and other Conditions of Service of Members) Rules, 2020 (‘Rules’), notified on 17th February 2020 by the Ministry of Finance was not of much help. The Rules 2020 ought to have been better than Income tax Appellate Tribunal (‘ITAT’) Rules 1963, however the said Rule are contrary to the law laid down by the Hon’ble Supreme Court. In the event, the Hon’ble members are appointed on tenure basis it will affect the independency of an institution which has been functioning for more than seven decades. The Tax professionals across the country has strongly opposed the Rules 2020.

The AIFTP has taken lead by filing petition before the Hon’ble Bombay High Court and the Revenue Bar Association Chennai has also filed similar petition. The main grounds of challenge are as follows s:

(a) In the case of S. P. Gupta v. UOI AIR 1982 SC 149, it has been held that, a fixed tenure unaffected by the discretion of the executive safeguards the principle of judicial independence and the independence of the judiciary depends to a great extent on the security of tenure of the Judges. If the Judge’s tenure is uncertain or precarious, it will be difficult for him to perform the duties of his office without fear or favour.

(b) In the case of Rojer Mathew v. South Indian Bank Ltd. and Ors. 2019 (369) ELT 3 (SC) the Court observed that tenures also discourage meritorious members of Bar to sacrifice their flourishing practice to join a Tribunal as a Member for a short tenure of merely three years. The tenure of Members of Tribunals as prescribed under the Schedule of the Rules is anti-merit and attempts to create equality between unequals. A tenure of three years may be suitable for a retired Judge of the Hon’ble High Court or the Hon’ble Supreme Court or even in case of a judicial officer on deputation. However, it will be illusory to expect a practising advocate to forego his well-established practice to serve as a Member of a Tribunal for a period of three years.

(c) Malimath Committee on Functioning of Tribunals observed that:

“8.63 Several tribunals are functioning in the country. Not all of them, however, have inspired confidence in the public mind. The reasons are not far to seek. The foremost is the lack of competence, objectivity and judicial approach. The next is their constitution, the power and method of appointment of personnel thereto, the inferior status and the casual method of working. The last is their actual composition; men of calibre are not willing to be appointed as presiding officers in view of the uncertainty of tenure, unsatisfactory conditions of service, executive subordination in matters of administration and political interference in judicial functioning. For these and other reasons, the quality of justice is stated to have suffered and the cause of expedition is not found to have been served by the establishment of such tribunals.”

(d) 74th Parliamentary Standing Committee Report

“21. Committee also dwelt upon at length on the need of making regular appointments in the Tribunals in place of tenure appointments. The Committee noted that system of regular appointment is in existence in Income Tax Appellate Tribunal, Customs Excise and Service Tax Appellate Tribunal. It was felt that such appointments may be needed to make Tribunals more vibrant and to facilitate induction of young and talented experts and judicial officers with a reasonable length of experience in the related field. The tenure posting appears to be less attractive to the Advocates and other professionals.”

(e) As per Article 217(2)(b) of the Constitution of India, a person who has been an advocate of a High Court or of two or more such Courts in succession for more than 10 years of practice, is eligible for being appointed as a judge of a High Court. However, a person is qualified for appointment as a Judicial Member of the ITAT if he has been an Advocate for 25 years and for Accountant Member for more than 25 years of practice. Such a provision is manifestly arbitrary and irrational and hence is violative of Article 14 of the Constitution of India.

(f) Functioning of the ITAT cannot be compared with other Tribunals for e.g. The Electricity Tribunal. The Income tax Act, 1961 refers more than 98 Central Acts and various State legislations hence to decide the issues relating to taxation of law and facts it requires in depth knowledge of direct tax law, general law and accountancy. A Division Bench of ITAT consists of Judicial and Accountant member. One may have to consider the situation when all present members retire there will not be any experienced members, rather only members having less than four years of experience to decide the taxation issues wherein crores of tax payable is at stake, Further, given a tenure of only four years, can a member appointed under the Rules, 2020 be capable of deciding fairly without any fear.

(g) In the case of UOI v. Sankalchand Himatlal Sheth & Ors. (1977) 4 SCC 193 the Court held that even with regard to the Subordinate Judiciary the framers of the Constitution were anxious to secure that it should be insulated from executive interference and once appointment of a Judicial Officer is made, his subsequent career should be under the control of the High Court and he should not be exposed to the possibility of any improper executive pressure.

(h) In the case of UOI v. R. Gandhi & Ors. (2010) 11 SCC 1, it was held that impartiality, independence, fairness and reasonableness in decision making are the hallmarks of Judiciary. If ₹Impartiality’ is the soul of Judiciary, then ₹Independence’ is the life blood of Judiciary. Without independence, impartiality cannot thrive. Independence is not the freedom for Judges to do what they like. It is the independence of judicial thought. It is the freedom from interference and pressures which provides the judicial atmosphere where he can work with absolute commitment to the cause of justice and constitutional values.

(i) In the case of Supreme Court Advocates on Record Association & Ors. v. UOI (2016) 5 SCC 1, it was held that the most essential safeguards to ensure the independence of the judiciary-Certainty of tenure and a Judge would be absolutely independent and fearless in discharge of his duties.

(j) In the case of Bar Association v. Union of India (2014) 10 SCC 1 the Honourable Court dealing with the validity of Section 8 of the National Tax Tribunal Act, 2005 (‘NTT Act’) observed that a Chairperson/Member is appointed to the NTT, in the first instance, for a duration of 5 years. Such Chairperson/Member is eligible for reappointment, for a further period of 5 years which will have the effect of undermining the independence of the Chairperson/Members of the NTT. Every Chairperson/Member appointed to the NTT, would be constrained to decide matters, in a manner that would ensure his reappointment in terms of Section 8 of the NTT Act. His decisions may or may not be based on his independent understanding.

(k) The 272nd Law Commission Report titled “Assessment of Statutory Frameworks of Tribunals in India”. Referring to the provisions of section 6(2)(b) of the Central Administrative Tribunal Act, 1985, observed that as regards question of reappointment observed that if an advocate is appointed on tenure basis of five years and reappointed another five years and after 10 years it may be difficult to a lawyer to establish the practice once again hence it is desired that he may be allowed to continue till the age of superannuation.

(l) As per the present rules of the members of the ITAT, when a person is appointed as permanent member of the ITAT, though he resigns or retires on superannuation he is not allowed to practice before the ITAT anywhere in India. However, under the new Rules, when a person is appointed as an judicial member, say at the age of 55, he would be appointed for a tenure of four years, virtually bringing an end to his professional career at the age of 59. Further, during his tenure, he would be posted in place other than the place where he is practiced, it is very difficult to rebuild the practice, in a different subject as he cannot appear before the ITAT. Further, he may not be eligible for pensions or medical facilities, his chances of being elevated to High court is very remote, hence the professionals with reasonable practice may not apply for the post of judicial or accountant member.

There could be number of legal arguments which are against the proposed the 2020 Appointment Rules. All those who are concerned with independency of the Appellate Tribunal are requested to send their objective suggestions to preserve the independency of the Institution. Suggestions may be sent to [email protected]

Dr. K Shivaram
Chairman, Editorial Board

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