Has the power of the Income Tax Appellate Tribunal to extend stay beyond 365 days been restored? The anomaly in the law was created when an amendment was brought to the third proviso of Section 254(2A) of the Income Tax Act, 1961 vide Finance Act, 2008 which expressly took away the power of the Tribunal to extend stay of demand beyond 365 days “even if the delay in disposing of the appeal is not attributable to the assessee.”
The said amendment was not only in the teeth of the decision of Bombay High Court in the case of Narang Overseas Pvt. Ltd. versus ITAT which held that the power to grant stay is inherent or incidental and cannot be defeated by the provisos to the sub-section. While reading down the third proviso to Section 254(2A), the High Court further held that on good cause being shown and for reasons not attributable to the assessee, the power lies in the Tribunal to extend stay of demand.
Instead of redressing the injustice in view of the decision of Bombay High Court, by virtue of the said amendment the revenue authorities ended up taking an incongruous step by classifying a bona fide assessee with the ones in default. It not only treated the equals with the unequals but also overstepped the constitutional mandate particularly violating the principles enunciated under Article 14 of the Constitution.
As a consequence of the ambiguity and inequality created by the said amendment, there emerged divergent views from different High Courts. In CIT versus Maruti Suzuki (India) Ltd., the Division Bench of Delhi High Court while respecting the Legislative edict did not examine the constitutionality of the said provision thereby clearly stating that the remedy to invoke writ jurisdiction of a High Court is available to a tax payer in bona fide cases for seeking stay of recovery. A similar view was taken by Karnataka High Court in the case of CIT vs. ECom Gill Coffee Trading Pvt. Ltd. wherein the Court held that if the Legislature has stipulated an outer limit of 365 days for extending stay then the Tribunal is not authorised to grant stay beyond period of 365 days.
However, in the case of Pepsi Foods Pvt Ltd versus ACIT, Delhi High Court rectified the anomaly in law by regarding the said provision to be invalid as the same not only leads to clubbing together of ‘well behaved’ assessees with those who cause delay in the appeal proceedings but is also violative of the non- discrimination clause of Article 14 of the Constitution. Hence, the same was struck down by this Court. Ruling out such glaring discrimination of treating the unequals equally, the Tax Authorities found nothing unjustifiable in the fact that the said amendment denuded the Tribunal of the power to extend stay beyond 365 days. On the contrary, Delhi High Court further observed that stipulating such a condition is not only onerous but also renders the right to appeal as illusory.
Is the decision rendered by Delhi High Court on constitutionality thereby, striking down the said provision ought to be followed by the Tribunals and not questioned by other High Courts? The answer to this can be found in the decision of the Apex Court of the country in the case of Kusum Ingots & Alloys Ltd versus Union of India. The issue for consideration before the Apex Court was whether the seat of the Parliament or a state legislature would be a relevant factor for determining the territorial jurisdictional of the High Court for entertaining a writ petition under Article 226 of the Constitution.
The Supreme Court held that a writ petition questioning the constitutionality of a Central Act can be filed in any High Court of the country. The Court further held that an order whether interim or final passed in a writ petition questioning the constitutionality of a Parliamentary Act will have an effect throughout the territory of India subject to the applicability of the Act. In view of the aforesaid decision, it is inferred that when one High Court has adjudicated on the constitutionality of certain provisions of an Act thereby declaring the same to be non- est then the same cannot be questioned by any other High Court.
This view of the Hon’ble Supreme Court was followed by the High Court of Karnataka in the case of Shiv Kumar versus UOI while interpreting the provisions of Indian Divorce Act and by the High Court of Madras in the case of UOI versus Textile Technical Tradesmen Association while deciding the validity of section 17A(2) of Industrial Disputes Act.
Recently, Bangalore ITAT was faced with such situation wherein while deciding the issue on the extension of stay beyond 365 days, the revenue authorities took aid of territorial jurisdiction thereby contending that Karnataka High Court is the jurisdictional High Court for Bangalore ITAT. Therefore, the position taken by Karnataka High Court ought to be followed by the Tribunal thus denuding the Tribunal of the power to extend stay beyond 365 days. Rebutting the contentions of the revenue authorities, the assessee placed reliance on the decision of Delhi High Court in the case of Pepsi Foods and the decision of the Apex Court in the case of Kusum Ingots. Based on the said decisions, Bangalore ITAT while following Kusum Ingots held that once Delhi High Court has decided on constitutionality of Section 254(2A) of the Act, same is applicable throughout the territory of India. Once it is struck down, same becomes non est and cannot be resorted by revenue to restrict the Tribunal from granting stay post 365 day. The Order of Bangalore ITAT attempts to settle the anomaly thereby ruling out any ambiguity that is created by dissenting decisions of different judicial authorities.
(With inputs from Ravi Sharma)
The author is Partner, (Tax Litigation), PwC.