Appeal to High Court – Substantial Questions of Law framed for consideration by court – The High Court’s power to frame substantial question(s) of law at the time of hearing of the appeal other than the questions on which appeal has been admitted remains u/s. 260A(4) but this power is subject, however, to two conditions, (one) the court must be satisfied that appeal involves such questions, and (two) the court has to record reasons therefor

The appeal filed by the Revenue u/s. 260A of the Income-tax Act, 1961 (the “Act”) had been admitted by the High Court and following two substantial questions of law were framed for consideration of the appeal;

“(A) Whether the Appellate Tribunal has substantially erred in law and on facts in reversing the order passed by the Assessing Officer and thereby deleting the adjustment while computation of the arm’s length price of the international transactions of software services distributed by MUK (Associated Enterprise) by making an upward adjustment of Rs. 18,62,45,100?

(B) Whether the Appellate Tribunal has substantially erred in law and on facts in reversing the order passed by the Assessing Officer and thereby deleting the adjustment by way of human resource management services of Rs. 2,92,22,683 treating the same as an international transaction?”

The grievance of the Revenue before the Supreme Court was that by necessary implication, the other questions raised in the memo of appeal before the High Court stood rejected.

The Supreme Court observed that the Revenue was under some misconception. The Supreme Court noted that proviso following the main provision of section 260A(4) of the Act states that nothing stated in s/s. (4), i.e., “The appeal shall be heard only on the question so formulated” shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

According to the Supreme Court, the High Court’s power to frame substantial question(s) of law at the time of hearing of the appeal other than the questions on which appeal has been admitted remained u/s. 260A(4). This power was subject, however, to two conditions, (one) the court must be satisfied that appeal involves such questions, and (two) the court has to record reasons therefor.

In view of the above legal position, according to the Supreme Court, there was no justifiable reason to entertain the special leave petition.