Stay of Demand by Tribunal Beyond 365 Days

 

The legislatures first time recognize the power of the Tribunal to stay demand legislature by insertion of Section 253 (7) which provided for levy of fees on application for stay of demand. Prior to this insertion, the power of the Appellate Tribunal to grant stay was held to be incidental or ancillary to its appellate jurisdiction. Stay was granted in most deserving and appropriate cases where the tribunal was satisfied that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the recovery proceedings to continue during the pendency of the appeal.

Thereafter, two provisos were inserted in sub section 254(2A) by Finance Act, 2001, which provided that where stay is granted in any proceedings, the Appellate Tribunal shall dispose of the appeal within a period of 180 days from the date of such order. Further, if such appeal is not so disposed of within the period of 180 days the stay order shall stand vacated after the expiry of the said period.

These two provisos were substituted with three provisos by Finance Act, 2007, which gave the Tribunal the power to extend the stay up to 365 days provided the delay in disposal of appeal was not attributable to assessee and the appeal is disposed of within the extended period. Third proviso provided that if such appeal is not so disposed of within the extended period of 365 days the stay order shall stand vacated after the expiry of the said period.

At this stage, the question arose whether the third proviso has curtailed the powers of the Tribunal to grant the stay beyond 365 days, even if the delay in disposal of appeal was not attributable to the assessee.

Hon'ble Bombay High Court in Narang Overseas (P.) Ltd. v. Income-tax Appellate Tribunal 165 Taxmann 557 read down the third proviso of Section 254(2A) of the Act as amended by the 2007 Act which purported to curtail the power of the Tribunal to grant or continue an order of stay beyond the prescribed period where the appeal was not disposed of within such period, in cases where the delay in disposal of the appeal was in no way attributable to the assessee. Thus, there would be power in the Tribunal to extend the period of stay on good cause being shown and on the Tribunal being satisfied that the matter could not be heard and disposed of for reasons not attributable to the assessee.

To overrule the judgment in Narang Overseas (P.) Ltd.'s case (supra), third proviso was substituted by Finance Act, 2008 and the substituted provision provided that the stay cannot be granted beyond 365 days even if the delay in disposal of the appeal is not attributable to the assessee.

The substituted provision came up for consideration before Hon'ble Delhi High Court in CIT v. Maruti Suzuki (India) Ltd. 44 Taxmann 166  and court, without examining the constitutional validity of third proviso, held that Tribunal does not have power to grant stay beyond 365 days, but assessee can file writ petition in the High Court for stay and the High Court has the power and jurisdiction to grant stay and issue directions to the tribunal as may be required including granting stay of recovery.

The constitutional validity of the third proviso was examined by Hon'ble Delhi High Court in the case of Pepsi Foods (P.) Ltd. v. Asstt. CIT 57 Taxmann 337  where the phrase, "even if the delay in disposing of the appeal is not attributable to the assessee" was struck down by court on the ground being violative of the non- discrimination clause of Article 14 of the Constitution of India.

The first proviso was again amended by Finance Act, 2020 with effect from 1-4-2020 to provide that Tribunal can grant stay subject to the condition that the assessee deposits not less than 20% 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. Thus, the tribunal can no longer grant stay for entire disputed amount. Assessees will have to approach High Court under Article 226 of the Constitution of India if they wish to have stay for entire disputed amount.

The second proviso was also amended by Finance Act, 2020 with effect from 1-4-2020. The proviso has now been negatively worded and, also substituting the word 'may' with 'shall'. By this substitution, the power of the tribunal has been curtailed and inherent power of granting the stay beyond 365 days even in deserving cases has been taken away. This amendment has been done to overrule various rulings which provided that extension beyond 365 days can be granted if the delay is not attributable to the assessee.

Striking down of the third proviso by Hon'ble Delhi High Court in the case of Pepsi Foods (P.) Ltd.(supra) was subject matter of challenge before Hon'ble Supreme Court in Dy. CIT v. Pepsi Foods Ltd. 126 Taxmann 169   and the court decided on 6-4-2021 that 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. Thus, the

ratio decidendi of the Hon'ble Delhi High Court has now been affirmed by the Hon'ble Supreme Court.

 

Striking down of third proviso by Hon'ble Delhi High Court had limited applicability due to its decision being binding only on the lower authorities falling under its jurisdiction. However, the judgement of Hon'ble Supreme Court has brought a great relief to the sincere taxpayers in whose case the extension beyond 365 days can now be granted by tribunals itself and they need not approach high courts.

Conclusion:

 

By restricting the stay period to 365 days for all assessee, un-equals 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 treated equally.

Filing writ petition with High Court for grant of stay would have not only led to multiplicity of proceedings before the High Court but also had increased the litigation cost for assessees.

Restriction on the stay period so that appeals are heard expeditiously and that assesses do not misuse the stay orders granted in their favour by adopting delaying tactics was not at all achieved by these provisos. By these provisos' assessee were being punished for matters which may be completely beyond their control. Indeed, there can be numerous reasons and causes where appeals may not get finally decided within 365 days and extension beyond prescribed period was imperative.