The Supreme Court, while setting aside the judgment of the Delhi High Court held that the High Court must formulate the substantial question of law and only thereafter hear an appeal on merits.
The revenue preferred an appeal under Section 260-A of the Income Tax Act, 1961 to the High Court. In its grounds of appeal, the revenue framed the substantial questions of law that arose in the matter. By the impugned judgment of the Division Bench of the Delhi High Court, the Division Bench framed another substantial question of law.
The appellant contended that under Section 260-A of the Income Tax Act, 1961 it is only the substantial question of law that is framed can be answered and no other. If some other question is to be answered, the court must give notice of the same to both the parties, hear them, pronounce the reasoned order, and thereafter frame another substantial question of law, which it may then answer.
The three-judge bench of Justice R. F. Nariman, Justice Navin Sinha and Justice B.R. Gavai held that the High Court’s jurisdiction depends upon a substantial question of law being involved in the appeal before it.
“First and foremost, it shall formulate that question and on the question so formulated, the High Court may then pronounce judgment, either by answering the question in the affirmative or negative or by stating that the case at hand does not involve any such question. If the High Court wishes to hear the appeal on any other substantial question of law not formulated by it, it may, for reasons to be recorded, formulate and hear such questions if it is satisfied that the case involves such question under section 260-A,” the bench said.
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