Income Tax Act, 1961: s. 254(2A) third proviso – Provision as regards appellate tribunal granting stay – Third proviso providing for automatic vacation of a stay that has been granted on the completion of 365 days, whether or not the assessee is responsible for the delay caused in hearing the appeal – Constitutional validity of – Held: Third proviso to s. 254(2A), is both arbitrary and discriminatory and, thus, liable to be struck down as offending Art.
14 – Unequals are treated equally – No differentiation is made by the third proviso between the assessees who are responsible for delaying the proceedings and assessees who are not so responsible – Also, the said proviso would result in the automatic vacation of a stay upon the expiry of 365 days even if the Appellate Tribunal could not take up the appeal in time for no fault of the assessee – Further, vacation of stay in favour of the revenue would ensue even if the revenue is itself responsible for the delay in hearing the appeal – Thus, the Third proviso to s. 254(2A) will now be read without the word “even” and the words “is not” after the words “delay in disposing of the appeal” – Any order of stay shall stand vacated after the expiry of the period or periods mentioned in the Section only if the delay in disposing of the appeal is attributable to the assessee – Constitution of India – Art.14.
Tax/Taxation:
Tax statutes – Challenge to tax statutes u/Art. 14 – Grounds for challenge – Held: Can be on grounds relatable to discrimination as well as grounds relatable to manifest arbitrariness, which may be procedural or substantive in nature – Constitution of India – Art.14.
Tax statutes – Interpretation of – Golden rule of interpretation – Significance of – Held: Golden rule of interpretation cannot be ignored while interpreting tax statutes.
Dismissing the appeals, the Court
HELD: 1.1 The third proviso to Section 254(2A) of the Income Tax Act, introduced by the Finance Act, 2008, would be both arbitrary and discriminatory and, therefore, liable to be struck down as offending Article 14 of the Constitution of India. First and foremost, it is correctly held in the impugned judgment, that unequals are treated equally in that no differentiation is made by the third proviso between the assessees who are responsible for delaying the proceedings and assessees who are not so responsible. This is a little peculiar in that the legislature itself has made the said differentiation in the second proviso to Section 254(2A) of the Income Tax Act, making it clear that a stay order may be extended upto a period of 365 days upon satisfaction that the delay in disposing of the appeal is not attributable to the assessee. [Para 17][21-B-D]
1.2 The second proviso was introduced by the Finance Act, 2007 to mitigate the rigour of the first proviso to Section 254(2A) of the Income Tax Act in its previous avatar. Ordinarily, the Appellate Tribunal, where possible, is to hear and decide appeals within a period of four years from the end of the financial year in which such appeal is filed. It is only when a stay of the impugned order before the Appellate Tribunal is granted, that the appeal is required to be disposed of within 365 days. So far as the disposal of an appeal by the Appellate Tribunal is concerned, this is a directory provision. However, so far as vacation of stay on expiry of the said period is concerned, this condition becomes mandatory so far as the assessee is concerned. The object sought to be achieved by the third proviso to Section 254(2A) of the Income Tax Act is without doubt the speedy disposal of appeals before the Appellate Tribunal in cases in which a stay has been granted in favour of the assessee. But such object cannot itself be discriminatory or arbitrary. [Para 17][21-D-G] Nagpur Improvement Trust v. Vithal Rao [1973] 3 SCR
39 – relied on.
Narang Overseas Pvt. Ltd. v. ITAT (2007) 295 ITR 22 – approved.
1.3 Since the object of the third proviso to Section 254(2A) of the Income Tax Act is the automatic vacation of a stay that has been granted on the completion of 365 days, whether or not the assessee is responsible for the delay caused in hearing the appeal, such object being itself discriminatory, in the sense pointed out, is liable to be struck down as violating Article 14 of the Constitution of India. Also, the said proviso would result in the automatic vacation of a stay upon the expiry of 365 days even if the Appellate Tribunal could not take up the appeal in time for no fault of the assessee. Further, vacation of stay in favour of the revenue would ensue even if the revenue is itself responsible for the delay in hearing the appeal. In this sense, the said proviso is also manifestly arbitrary being a provision which is capricious, irrational and disproportionate so far as the assessee is concerned. [Para 17][22-C-E]
1.4 Unequals have been treated equally so far as assessees who are responsible for delaying appellate proceedings and those who are not so responsible, resulting in a violation of Article 14 of the Constitution of India. Also, the expression “permissible” policy of taxation would refer to a policy that is constitutionally permissible. If the policy is itself arbitrary and discriminatory, such policy will have to be struck down. [Para 22][28-C-D]
1.5 The law laid down by the impugned judgment of the High Court is correct. Resultantly, the judgments of the various High Courts which follow the said declaration of law are also correct. Consequently, the third proviso to Section 254(2A) of the Income Tax Act will now be read without the word “even” and the words “is not” after the words “delay in disposing of the appeal”. Any order of stay shall stand vacated after the expiry of the period or periods mentioned in the Section only if the delay in disposing of the appeal is attributable to the assessee. [Para 25][30-A-B]
2. It is settled law that challenges to tax statutes made under Article 14 of the Constitution of India can be on grounds relatable to discrimination as well as grounds relatable to manifest arbitrariness. These grounds may be procedural or substantive in nature. Also, it is important to remember that the golden rule of interpretation is not given a go-by when it comes to interpretation of tax statutes. [Para 14, 24][19-A-B; 28-H; 29-A] M/s M. Ramnarain (P) Ltd. v. State Trading Corpn. of Indi a Ltd.(1983) 3 SCC 75: [1983] 3 SCR 25; M. Janardhana Rao v. CIT (2005) 2 SCC 324:[2005]
1 SCR 874 – distinguished.
Income Tax Officer v. M.K. Mohammed Kunhi [1969] 2 SCR 65; Commissioner of Customs & Central Excise v. Kumar Cotton Mills (2005) 13 SCC 296; Commissioner of Income Tax v. M/s Maruti Suzuki (India) Ltd.(2014)
362 ITR 215; DCIT v. Vodafone Essar Gujarat Ltd. (2015) 376 ITR 23; M/s Pepsi Foods Ltd. v. ACIT (2015)
376 ITR 87; Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 311 : [2004] 3 SCR 982; PML Industries Ltd. v. CCE (2013) SCC OnLine P&H 4440; Suraj
Mall Mohta and Co. v. A.V. Visvanatha Sastri [1955] 1 SCR 448; Kunnathat Thatehunni Moopil Nair v. State of Kerala [1961] 3 SCR 77; Union of India v. A. Sanyasi Rao (1996) 3 SCC 465 : [ 1996] 2 SCR 57; Shayara Bano v. Union of India (2017) 9 SCC 1 : [2017]
9 SCR 797; Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta (2020) 8 SCC 531 : [2019] 16 SCR 275; State of M.P. v. Bhopal Sugar Industries Ltd. [1964] 6 SCR 846; N. Venugopala Ravi Varma Rajah v. Union of India (1969) 1 SCC 681 : [1969] 3 SCR 827; Commr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1 : [2018] 7 SCR 1191; CIT v. J.H. Gotla (1985) 4 SCC 343 : [1985] 2 Suppl. SCR
711 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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