Section 254 of the Income-Tax Act, 1961 relates to appeals before the Income Tax Appellate Tribunal (ITAT) by assessees and the tax department. It also deals with the law relating to grant of stay of demand on assessees’ petitions.
This section was amended w.e.f. June 1, 2001, to provide that where in an appeal filed by the assessee, the Tribunal passes an order granting stay of demand, it shall hear and decide such appeal within 180 days from the date of passing of stay order, failing which, the stay granted shall stand vacated on the expiry of this period.
Finance Act, 2007 modified this provision from June 1, 2007, providing that if the appeal is not disposed of within 180 days, as prescribed earlier, the stay may be extended. However, the extended period/periods cannot be more than 365 days.
The extension can be given only if the delay is not attributable to the assessee and the appeal shall be disposed of by the Tribunal within the extended time.
If the appeal remains un-disposed even during the extended period, the stay shall stand vacated.
Judicial interpretationa) The limitation of 180 days as provided by the Finance Act, 2001 was considered by the Delhi Bench of the Tribunal in Centre for Women’s Development Studies vs DDI (Exemption) (2003 130 Taxman 174). The Bench has held that the Tribunal has the power to grant a further stay on the expiry of the 180-day period if the facts and circumstances so demand.
It was further held that there is no intention of the Legislature to curtail or withdraw the powers of the Tribunal for granting a stay exceeding a period of 180 days.
b) The Bombay High Court in Narang Overseas (P) Ltd vs ITAT & Ors. (2007 211 CTR Bombay 524) approved the Tribunal’s Delhi Bench view.
Mentioning about the third proviso to Section 254 (2A) of the I-T Act, as introduced by the Finance Act, 2007, the court said that the period of 180 days (provided by the 2001 amendment) but not exceeding 365 days, as stipulated by the 2007 amendment, is that the assessee should not be permitted to drag on the appeal whilst at the same time having the benefit of an interim order of stay and correspondingly a duty on the Tribunal to dispose of the appeal in terms of the time limit set out in the two provisos.
According to the High Court, the two amendments indicate that the grant and continuance of the interim relief would depend on a strong prima facie case and that the delay in disposal of appeal is not attributable to any act of the assessee. And a duty is imposed on the Tribunal to dispose of the appeal as far as possible within the period of stay as granted.
However, a literal reading of the third proviso could mean that if the Tribunal does not dispose of the appeal within the prescribed period and the assessee is not at fault, the stay stands vacated by the operation of law.
The effect of this interpretation would be that after the period provided by the proviso exhausts itself, the power to continue the interim relief stands exhausted. That cannot be the interpretation of the third proviso.
Quoting various rules of interpretation, as pronounced by courts from time-to-time, the High Court referred to the Supreme Court’s observations in CIT vs J. H. Gotla (1985 156 ITR 323 SC), where it said that though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such a construction should be preferred to the literal construction.
Regarding interpretation of the second and third provisos in Section 254(2A), the court said that once an appeal is provided, it cannot be rendered nugatory in cases where the assessee is not in default.
Issues posed by HCThe object of extension of time from 180 days to 365 days is not to defeat the vested right of appeal of an assessee.
The High Court posed the following issues:
Can it be said that the intention of Parliament by restricting the period of stay or interim relief up to 365 days has the effect of excluding, by necessary intendment, the power of the Tribunal to continue the interim relief?
Would it not, reading the power not to continue interim relief in cases where delay is not attributable to the assessee, result in the proviso becoming unreasonable?
Can Parliament be said to have intended to confer the remedy of an appeal by denying the incidental power of the Tribunal to do justice in cases where grant of stay is called for?
On the three issues, the High Court has said that it cannot be held that vested right of an appeal is without the power to grant stay or continue the stay given when the appeal is pending for no fault from the side of the assessee.
Such a view would be unreasonable and violative of Article 14 of the Constitution. The power to grant stay or interim relief, being inherent or incidental in cases of appeals, cannot be defeated by provisos to sub-section 254(2A) of the Act.
These provisos cannot be read as a limitation on the power of the Tribunal to continue interim relief, where the hearing has not been delayed because of the assessees’ defaults. The third proviso to Section 254(2A) has not divested the power of the ITAT to continue interim relief by way of stay beyond 365 days.
The two provisos are again instances where hurried legislation has been resorted to. This would only proliferate litigation, making the assessees and tax administration spend time, money and energies without serving any useful purpose.
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