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Under section 260A inserted by the Finance (No. 2) Act, 1998 an assessee can directly appeal to the High Court if the case involves a substantial question of law. For the first time after the insertion of new section the Rajastahn High Court in the case of DCIT v. Marudhar Hotels (P) Ltd. (107TAX452) held that in the past the courts have made no efforts to differentiate between the ‘question of law’ and ‘ substantial question of law’. It further reminded that a right of appeal is neither natural nor an inherent right attached to the litigation. To further ensure that the purpose of amendment in Act introducing section 260A is not frustrated the Court has laid down the following five judicial parameters: –

  1. an appeal under section 260A cannot be entertained simply because on a same question of law , a reference has been made and it has been admitted for hearing by the High court;
  2. the finding of fact, howsoever erroneous, cannot be disturbed by the High Court in exercise of the powers under section 260A;
  3. whether the substantial question of law raised, directly and substantially affects the rights of the parties and if so, whether it is either an open question in the sense that it is not finally settled by the Apex Court or by the concerned High Court or is not free from difficulty or calls for discussion of alternative views;
  4. if the question is settled by the highest court or the general principles to be applied in determining the question are well- settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law;
  5. it is not within the domain of the High Court to investigate the grounds on which the findings were arrived at , by the Tribunal or the first appellate authority.


In this case the assessing officer made disallowance of interest attributable to interest free advance to sister concern of the assessee company. Both the CIT (A) and the ITAT deleted the addition on the ground that no nexus was established between interest bearing funds raised and the interest free advance. The Court dismissed the appeal in limine as no substantial question of law was involved in the assessees case. Further the Court held that even if it is found that the question involved is identical, then also, simply because a question of law is involved in the appeal and on the same question, a reference has been made, it will not be a substantial question of law for the purpose of new section 260A.

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