Section 365 of the Income-tax Act, 2025 — Appeal to the High Court (Substantial Question of Law)

In plain language

What Section 365 says in plain English

Section 365 of the Income-tax Act, 2025 is the provision that lets a taxpayer or the Income-tax Department carry a tax dispute one level higher — from the Income Tax Appellate Tribunal (ITAT) to the jurisdictional High Court. It is the direct successor to the well-known Section 260A of the Income-tax Act, 1961, and the wording has been modernised but the core scheme is unchanged.

The single most important thing to understand is this: a High Court appeal under Section 365 is NOT a fresh re-hearing of your case. The High Court will only entertain the appeal if it is satisfied that the matter involves a "substantial question of law". Questions of fact — how much your income really was, whether a particular expense was genuine, how to value a property — are generally treated as finally settled by the Tribunal. The High Court steps in only where the dispute turns on interpreting the law, applying the wrong legal test, or a finding that no reasonable person could reach on the evidence (perversity).

Who can use Section 365

• The assessee (taxpayer) who is aggrieved by an order of the Appellate Tribunal.
• The Revenue — the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner or Commissioner — where the Department loses before the ITAT.

Either side that loses at the Tribunal can approach the High Court, provided a substantial question of law genuinely arises.

Key conditions and the time limit

• Only against ITAT orders: An appeal lies from "every order passed in appeal by the Appellate Tribunal". You cannot jump directly from an Assessing Officer or the Commissioner (Appeals)/JCIT(A) to the High Court under this section.
• Time limit — 120 days: The appeal must be filed within 120 days from the date the Tribunal's order is received by the appellant (whether the assessee or the tax authority).
• Condonation of delay: The High Court may admit an appeal even after 120 days if it is satisfied there was sufficient cause for the delay. Condonation is discretionary, not automatic — you must explain the delay convincingly.
• Form: The appeal is filed as a memorandum of appeal that precisely states the substantial question of law said to be involved.

How the High Court handles the appeal

• Admission stage: If the High Court is satisfied a substantial question of law arises, it formulates that question and the appeal is heard only on the formulated question(s).
• Respondent's right: At the hearing the respondent is allowed to argue that the case does not in fact involve such a question.
• Power to reframe: The Court has the power to hear the appeal on any other substantial question of law not originally formulated, if it is satisfied such a question is involved, after recording reasons.
• Findings of fact: The Court may decide any issue that the Tribunal has not determined, or has wrongly determined, because of the legal question decided.
• Procedure: The provisions of the Code of Civil Procedure, 1908 relating to appeals to the High Court apply, so far as they can, to these tax appeals (including provisions on costs).

How it interacts with related sections

Section 365 sits inside Chapter XVIII (Appeals, Revisions and Alternate Dispute Resolution) of the 2025 Act. It links closely with:

• Section 366 — every High Court tax appeal must be heard by a bench of not less than two Judges (the 1961 equivalent was Section 260B), and is decided by majority.
• Section 367 — where the High Court's judgment involves a further substantial question fit for the apex court, the matter can travel to the Supreme Court (successor to Section 261).
• Section 363 — the ITAT order being challenged is passed under this section.

Practical implications for taxpayers

• Because only law questions succeed, drafting the "substantial question of law" sharply is decisive — most appeals fail at the admission stage on framing.
• Filing the ITAT order does not automatically stay recovery; you may need a separate stay application, and any tax/interest determined can be recovered meanwhile.
• The 120-day clock and heavy court fees mean High Court litigation is worthwhile mainly for larger disputes or issues affecting multiple years. The Department itself is bound by CBDT monetary-limit circulars before it appeals.