Political Economy

Centre's New Rules for Appointing Income Tax Tribunal Members Are Still Problematic

The changes made to the ITAT under the  new rules seem to blatantly ignore the principles iterated by the Supreme Court in a number of cases.

The politics of how members are appointed to India’s legal tribunals has always been a contentious issue.

Independence of the judiciary and separation of powers have been held to form part of the basic structure of the Indian Constitution. Considering tribunals perform the functions earlier performed by courts, the Supreme Court has held that such tribunals must also possess a dominant judicial character like courts and adhere to the principles of separation of powers.

Thus, tribunals in India are mandated to be similar to courts in terms of appointment and removal procedures, qualification of members, etc.

Last year, the Supreme Court struck down rules on the qualifications, appointments, removal, and remuneration of members to various tribunals formulated under Section 184 of the Finance Act, 2017, as being violative of the principle of separation of powers, and ordered the government to formulate new rules in strict adherence with the principles laid down by it.

Accordingly, on February 12, new rules were notified. However, the changes made to the Income Tax Appellate Tribunal (ITAT) under the new rules seem to blatantly ignore the principles iterated by the Supreme Court in a number of cases ranging from L. Chandra Kumar v. Union of India in 1997, to Rojer Mathew v. South Indian Bank in 2019.

In the erstwhile rules struck down by the Supreme Court last year, the search-cum-selection committee constituted for the purposes of appointing members of the ITAT – other than for the post of president and vice president of the tribunal – consisted of a minimum of two, and a maximum of four representatives from the government as opposed to just one judicial member.

This arrangement was held to be a direct contravention of the doctrine of separation of powers and an encroachment on the judicial domain. The Supreme Court went on to categorically hold that a committee constituted for the purposes of appointing tribunal members must be dominated by judicial members and not representatives from the government. Despite this, the new rules envisage an equal representation with two judicial members and two representatives from the government, without codifying a method of resolution in case of a tie between the members with judicial members voting alike.

Supreme Court. Photo: PTI

In order to ensure compliance with the Supreme Court’s directives, the judicial members must have the power to outvote government representatives in such situations, to ensure judicial dominance in the appointment process. However, equal representation is unlikely to be viewed by the courts as a means to achieve the desired outcome. While the new rules empower the search-cum-selection committee to formulate its own procedures, and this anomaly could be rectified therein by providing the judicial member with a casting vote in case of a tie. However, it remains to be seen how the search-cum-selection committee acts in this regard.

The composition of the ITAT has been retained from earlier with a president, a vice president, judicial members and accountant members. While the Supreme Court has held that judicial members should be given preference for appointment to the posts of president and vice president, the new rules mandate only the president to be a judicial member and the search-sum-selection committee has discretion over appointing either a judicial member or an accountant member as the vice-president. Thus, the search-cum-selection committee must be mindful while filling up the vacancy for the post of the vice-president, and only resort to appointing an accountant member as the vice president in cases where a suitable judicial member cannot be appointed.

Further, the new rules identify the eligible pool of candidates fit for appointment as judicial members of the ITAT. These include district judges with 10 years of service, members of the Indian Legal Services, and advocates with 25 years of standing. The Supreme Court has time and again held that the members of the Indian Legal Services are not fit for appointment as judicial members of any tribunal. However, the government seems to have failed to comply with this direction of the Supreme Court.

Furthermore, the apex court has categorically held that advocates having 10 years of standing, and district judges with five years of experience are perfectly eligible to be appointed as judicial members of tribunals. Despite that, the eligibility for appointment of advocates as judicial member of the ITAT has been increased, and for district judges, the threshold is above the minimum standard set by the Supreme Court.

While previously, advocates having 10 years of experience were eligible for appointment as members of the ITAT, this limit has now been changed to 25 years of standing experience, thereby narrowing the pool of candidates eligible for appointment as judicial members. This seems odd, given that on several occasions, the government has expressed its concern over its inability to find enough qualified members from the judiciary to be appointed as judicial members of a tribunal.

While the new rules suffer from lesser anomalies than the version struck down by the courts last year, some irregularities as identified persist nonetheless. Considering it is an age-old issue which has seen multiple litigations, the government needs to step up and fix these anomalies before it is dragged to courts again.

Nikhil Kapoor is a research fellow with the Tax Law Vertical of the Vidhi Centre for Legal Policy. The views expressed in this article are personal.