If one of the most brilliant scientific minds of the 20th century found income tax complex, the average Indian taxpayer ought to be forgiven for having difficulties in coming to terms with the Indian Income-tax Act, 1961, which is perceived to be more complex than the tax laws of many other countries.
For instance, if the Act provides for a mechanism to stay the recovery of tax up to 365 days pending disposal of taxpayers appeal by Income-tax Appellate Tribunal, then any delay in disposal of the appeal not attributable to the taxpayer leading to the breach of the 365 days threshold would not, by itself, make the tax demand recoverable. However, the Act provides that where the appeal is not disposed off by the Tribunal within the aforesaid period of 365 days, then the stay on recovery of the tax demand is automatically vacated even if the delay in disposal of the appeal is not attributable to the taxpayer.
An obvious question here is, whether this provision is constitutionally valid for it effectively enables the tax department to recover the tax demand even if the appeal is pending before the Tribunal and the taxpayer is not responsible for delaying the disposal of appeal This question becomes more critical when juxtaposed against the following ground realities:
n Success rate of the tax department in appeals before the Tribunal is merely around 25% as per past statistics, which effectively means that under the present scheme of provisions of the Act, the tax department has an opportunity to recover tax demand without even having reasonable chance of success in the appeal before the Tribunal.
n There are situations where the delay in disposal of the appeal would not be on account of the taxpayer. For instance, the appeals are not heard by the Tribunal on account of adjournment motions being moved by the tax department. Further, sometimes the Tribunal does not take up a particular issue for hearing on account of the same being pending for adjudication before the special bench of Tribunal.
Though, unfortunately, equity is not a virtue extolled in the Act and the Supreme Court on various occasions has held equitable considerations to be irrelevant in interpreting the provisions of a taxing statute, it would nevertheless be interesting to see if the taxpayers concerns on this point would be appreciated by the appellate courts. The Bombay High Court and the Delhi High Court in separate cases have had an opportunity to examine this issue.
The Bombay High Court in the case of Ronuk Industries held that the Tribunal has the power to stay the recovery of the tax demand beyond a period of 365 days if the delay in disposal of appeal before the Tribunal was not attributable to the taxpayer.
However, recently the Delhi High Court in the cases of Maruti Suzuki (India) Limited and Bose Corporation India Private Limited adopted a contrary view and held that Tribunal has no power to grant stay beyond a period of 365 days even where the delay in disposing the appeal is not attributable to the taxpayer. The Delhi High Court observed that the legislative intent behind restricting the power of the Tribunal was to curtail the delay in disposal of the appeal where interim relief was obtained by the taxpayer.
The Delhi High Court did offer some solace to the taxpayers by observing that they can approach the high court through the writ route and thereby seek interim stay on recovery of tax demand as the high court has inherent powers to issue necessary directions and grant stay for a period beyond 365 days.
The legislative intent behind limiting the power of the Tribunal to stay the recovery of the tax demand up to 365 days was reducing the delay in disposal of appeals where the recovery of tax demand had been stayed. While the legislative intent has been achieved to a large extent, the taxpayers have been burdened where the delay in disposal of the appeal is not attributable to them. Although the taxpayer has an option to approach the high court for staying the recovery of tax demand, it will result into additional litigation costs for the taxpayer besides adding to the burgeoning litigation before the high courts. Therefore,, it may be prudent for the legislature to have a relook at the provisions in the interest of the taxpayer as well as the judiciary.
Shailesh Monani is executive director and Gaurish Zaoba is manager, tax & regulatory services, PwC India. Views are personal