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Delhi High Court has struck down the third proviso of section 254(2A) which bars and puts a restriction on the power of the Income Tax Appellate Tribunal (ITAT) to grant an order of stay beyond 365 days.

The Court ruled that the expression “even if the delay in disposing of the appeal is not attributable to the assessee” is violative of the non-discrimination clause of Article 14 of the Constitution of India.

Synopsis:
Section 254 of the Income tax Act, 1961deals with the Orders of the Appellate Tribunal. As per sub section 2A, a period of four years has been prescribed for hearing and decision of an appeal by the Tribunal. The first proviso to sub section 2A provides that the Tribunal may pass an order of stay in any proceedings for a period not exceeding 180 days. The second proviso provides for the conditions for extending the period of stay to 365 days. However, the third proviso (under question) provided that if appeal is not disposed off within the prescribed period of 180/365 days, the stay shall come to an end. However, the Finance Act, 2008 had added to the said third proviso the “culprit” expression which restricted ITATs from extending stay period beyond 365 days.

Case Details:
The Delhi High Court clubbed a number of similar appeals which were on the same issue and struck down the culprit expression added by the finance Act,2008 wef 01-10-2008.

The various appeal clubbed were as under:
W.P.(C) 1334/2015& CM 2337/2015; W.P.(C) 1934/2014 and CM 4053/2014; W.P.(C) 1935/2014 and CM 4054/2014; W.P.(C) 2326/2014 and CM 4885/2014; W.P.(C) 2465/2014 and CM 5130/2014; W.P.(C) 3650/2014 and CM 7417/2014; W.P.(C) 4280/2014 and CM 8604/2014. The petitioners were various Pepsi group Companies, Ericsson AB and Aspect Software INC

Date of Judgment: 19-05-2015
Coram: Hon'ble Mr Justice Badar Durrez Ahmed and Hon'ble Mr Justice Sanjeev Sachdeva

The Delhi High Court, relied on the Constitution Bench Judgment of the Supreme Court in Dr Subramanian Swamy v. Director, CBI: (2014) 8 SCC 682(SC) which considered the parameters which needed to be kept in mind in determining whether a particular provision of a statute was violative of Article 14 or not.

Excerpts from the Judgment:

“Keeping in mind the principles set out by the Supreme Court in Dr Subramanian Swamy (supra), we need to examine whether the present challenge to the validity of the third proviso to Section 254(2A) can be sustained. This is not a case of excessive delegation of powers and, therefore, we need not bother about the second dimension of Article 14 in its application to legislation. We are here concerned with the question of discrimination, based on an impermissible or invalid classification. It is abundantly clear that the power granted to the Tribunal to hear and entertain an appeal and to pass orders would include the ancillary power of the Tribunal to grant a stay. Of course, the exercise of that power can be subjected to certain conditions. In the present case, we find that there are several conditions which have been stipulated. First of all, as per the first proviso to Section 254(2A), a stay order could be passed for a period not exceeding 180 days and the Tribunal should dispose of the appeal within that period. The second proviso stipulates that in case the appeal is not disposed of within the period of 180 days, if the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to extend the stay for  a period not exceeding 365 days in aggregate. Once again, the Tribunal is directed to dispose of the appeal within the said period of stay. The third proviso, as it stands today, stipulates that if the appeal is not disposed of within the period of 365 days, then the order of stay shall stand vacated, even if the delay in disposing of the appeal is not attributable to the assessee. While it could be argued that the condition that the stay order could be extended beyond a period of 180 days only if the delay in disposing of the appeal was not attributable to the assessee was a reasonable condition on the power of the Tribunal to the grant an order of stay, it can, by no stretch of imagination, be argued that where the assessee is not responsible for the delay in the disposal of the appeal, yet the Tribunal has no power to extend the stay beyond the period of 365 days. 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.”

“Furthermore, the petitioners are correct in their submission 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. It is for this reason that we find that the insertion of the expression – ‘even if the delay in disposing of the appeal is not attributable to the assessee’– by virtue of the Finance Act, 2008, violates the non-discrimination clause of Article 14 of the Constitution of India. 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. 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 of the Constitution 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 of the Constitution of India. This would revert us to the position of law as interpreted by the Bombay High Court in Narang Overseas (supra), with which we are in full agreement. Consequently, we hold that, where the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to grant extension of stay beyond 365 days in deserving cases. The writ petitions are allowed as above.“

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Delhi High Court-ITAT Can Grant Stay beyond 365 Days. Third Proviso Section 254(2A) Struck Down being Un-Constitutional and Violative of Article 14 | 19-05-2015|

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