Automatic vacation of stay order after expiry of 365 days is not permissible

The Hon'ble Supreme Court in Deputy Commissioner of Income Tax v. Pepsi Foods Ltd. [Civil Appeal Nos. 1106 to 1139 of 2021 decided on April 6, 2021] has upheld the Hon'ble Delhi High Court's verdict of partially striking down third proviso to Section 254(2A)of the Income Tax Act, 1961 ('IT Act') which did not permit extension of a stay on tax assessment beyond 365 days even if the assessee is not responsible for delay in hearing of appeals by terming it as 'arbitrary and discriminatory'.

Facts

Pepsi Foods Ltd. ('the Respondent') is an Indian Company and engaged in the business of manufacture and sale of concentrates, fruit juices, processing of rice and trading of goods for exports.

On September 30, 2008, a return of income was filed for the Assessment Year 2008-2009 declaring a total income of Rs. 92,54,89,822/-. A final assessment order was passed on October 19, 2010 ('Impugned Order') which was adverse to the Respondent. Aggrieved by the Impugned order, the Respondent filed an appeal before the Income-Tax Appellate Tribunal ('ITAT') on April 29, 2013. On May 31, 2013, ITAT stayed the operation of the Impugned order for a period of six months. Further, the stay was extended till January 8, 2014 and continued being extended until May 28, 2014.

Since the period of 365 days as provided in Section 254(2A) of the IT Act was to end on May 30, 2014, beyond which no further extension could be granted, the Respondent, apprehending coercive action from the Revenue ('the Petitioner'), filed a writ petition before the Hon'ble Delhi High Court on May 21, 2014 challenging the constitutional validity of the third proviso to Section 254(2A) of the IT Act. By a judgment dated May 19, 2015, the Delhi High Court struck down a part of the third proviso to Section 254(2A) of the IT Act which did not permit the extension of a stay order beyond 365 days even if the assessee was not responsible for delay in hearing the appeal. 

The Revenue aggrieved by the above judgment of the Hon'ble Delhi High Court filled an appeal in the Supreme Court.

Issue

Whether automatic vacation of stay granted by ITAT after expiry of 365 days even if the assessee is not responsible for delay in hearing the appeal is unconstitutional in the eyes of law?

Held

The Hon'ble Supreme Court in Civil Appeal Nos. 1106 to 1139 of 2021 decided on April 6, 2021 has held as under:

• Observed that, the object sought to be achieved by the third proviso to Section 254(2A) of the IT Act is without doubt the speedy disposal of appeals before the ITAT of the cases in which a stay has been granted in favour of the assessee.
• Further observed that, since the object of the third proviso to Section 254(2A) of the IT 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, is liable to be struck down as violating Article 14 of the Constitution of India.  The said proviso would result in the automatic vacation of a stay upon the expiry of 365 days even if the ITAT could not take up the appeal in time for no fault of the assessee.
• Held that,the third proviso to Section 254(2A) of the IT Act will now be read without the word "even" and "is not" after the words "delay in disposing of the appeal":

'Provided also that if such appeal is not so disposed of within the period allowed under the first proviso or the period or periods extended or allowed under the second proviso, which shall not, in any case, exceed three hundred and sixty-five days, the order of stay shall stand vacated after the expiry of such period or periods, even if the delay in disposing of the appeal is not attributable to the assesse'

• Further held that, any order of stay shall stand vacated after the expiry of the period or periods mentioned in the Section 254(2A) of the IT Act only if the delay in disposing of the appeal is attributable to the assessee.
• Therefore, the appeal of the Revenue is dismissed.

Relevant Provision

Section 254(2A) of IT Act

'(2A) In every appeal, the Appellate Tribunal, where it is possible, may hear and decide such appeal within a period of four years from the end of the financial year in which such appeal is filed under sub-section (1) or sub-section (2)  of section 253:

Provided that the Appellate Tribunal may, after considering the merits of the application made by the assessee, pass an order of stay in any proceedings relating to an appeal filed under sub-section (1) of section 253, for a period not exceeding one hundred and eighty days from the date of such ordersubject to the condition that the assessee deposits not less than twenty per cent. of the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act, or furnishes security of equal amount in respect thereof and the Appellate Tribunal shall dispose of the appeal within the said period of stay specified in that order:

Provided further that no extension of stay shall be granted by the Appellate Tribunal, where such appeal is not so disposed of within the said period of stay as specified in the order of stay, unless the assessee makes an application and has complied with the condition referred to in the first proviso and the Appellate Tribunal is satisfied that the delay in disposing of the appeal is not attributable to the assessee, so however, that the aggregate of the period of stay originally allowed and the period of stay so extended shall not exceed three hundred and sixty-five days and the Appellate Tribunal shall dispose of the appeal within the period or periods of stay so extended or allowed.

Provided also that if such appeal is not so disposed of within the period allowed under the first proviso or the period or periods extended or allowed under the second proviso, which shall not, in any case, exceed three hundred and sixty-five days, the order of stay shall stand vacated after the expiry of such period or periods, even if the delay in disposing of the appeal is not attributable to the assessee'