In an important development, the Delhi High Court has rectified an anomaly in the law by striking down an amendment to the Income-tax Act that took away the income-tax appellate tribunal’s (ITAT) power to extend stay on tax demands beyond 365 days.
In a batch of appeals led by Pepsi Foods Private Ltd vs ACIT, the High Court effectively restored the ITAT’s power by holding that “unequals have been treated equally. Assessees who, after having obtained stay orders and by their conduct delay the appeal proceedings, have been treated in the same manner in which assessees, who have not, in any way, delayed the proceedings in the appeal. The two classes of assessees are distinct and cannot be clubbed together. This clubbing together has led to hostile discrimination against the assessees to whom the delay is not attributable.”
The High Court said that the expression “even if the delay in disposing the appeal is not attributable to the assessee” (introduced by the Finance Act 2008 with effect from August 1, 2008) is hostile discrimination, a valid ground for the judiciary to intervene as it violates the non-discrimination clause of Article 14 of the Constitution of India.
On the contrary, the clubbing together of ‘well-behaved’ assesses and those who cause delay in the appeal proceedings is itself violative of Article 14 and has no nexus or connection with the object sought to be achieved. The said expression introduced by the Finance Act 2008 is, therefore, struck down as being violative of Article 14, the High Court said in its judgment.
“The object that appeals should be heard expeditiously and that assesses should not misuse the stay orders granted in their favour by adopting delaying tactics is not at all achieved by the provision as it stands,” it observed.
The court accepted Pepsi’s plea that the provision introduced a classification which had no nexus with the objective of the amendment. Clubbing two different categories of petitioners into one class and treating them on par is against the principles of natural justice, the assessees’ argued, adding that this per se is violative of Article 14 of the Constitution and thus liable to be struck down.
The companies argued that the right of appeal is not inherent, but once it has been granted, it has to be construed as one that effectively redresses the grievances. Besides, the right to obtain a stay of demand/penalty was integral and cardinal to an effective right of appeal, they submitted.
Ruling out such discrimination, the revenue authorities had stated that there was nothing wrong with the amendment as it clarified the legislative intent and made it explicit.
However, the court said that the condition of vacation of stay for the inability of the tribunal to decide the appeal is burdening the assessee for no fault of his. “Such a condition is onerous and renders the right of appeal as illusory. An order passed by a judicial forum is sought to be annulled for no fault of assessee. The intention of the legislature, which has been made explicit by insertion of the words—‘even if the delay in disposing of the appeal is not attributable to the assessee’—renders the right of appeal granted to the assessee by the statute to be illusory for no fault on the part of the assessee. The stay, which was available to him prior to the 365 days having passed, is snatched away simply because the Tribunal has, for whatever reason, not attributable to the assessee, been unable to dispose of the appeal. Take the case of delay being caused in the disposal of the appeal on the part of the revenue.
Even in that case, the stay would stand vacated on the expiry of 365 days. This is despite the fact that the stay was granted by the tribunal, in the first instance, upon considering the prima facie merits of the case through a reasoned order,” the judgment said.