Recent amendments in Section 254 (2A) of the Income tax Act, 1961 (‘the Act’) by the Finance Act, 2020 seeking to dilute the powers of the ITAT to grant stay of demand by mandating payment of 20% of tax demand, have been subject matter of substantial debate and anxiety amongst the taxpayers, more particularly taxpayers in whose cases ITAT had granted stay prior to the amendment.
In a recent landmark decision, Delhi ITAT vide order
dated 15th February, 2021 in the case of Maruti Suzuki India Limited
(‘MSIL’) held that amendments shall only apply to cases where stay is sought and granted for the first time on or after
01.04.2020; in other words, the amendments do not apply qua extension
of stay sought after
01.04.2020, where stay was
originally granted prior to
that date.
Background:
Section 254(2A) of Act statutorily recognizes inherent
powers of the ITAT to grant stay against the
recovery of outstanding demand arising for a period not exceeding one
hundred and eighty days (180 days).
In the event that the appeal is not disposed within the period of stay granted,
the Tribunal may, on application made
by assessee and on being satisfied that the delay in disposal of the appeal is
not attributable to the assessee,
extend the stay for a further period
or periods as it may deem fit, so, however,
that the aggregate
period of stay originally allowed and the period or periods so extended or allowed do not in any case exceed three hundred
and sixty five days (365 days).
Third proviso to section 254(2A)
of the Act further provides
that if the appeal is not disposed
within 365 days, the ITAT is not empowered to grant
any further stay even if the delay in disposal of the appeal is not attributable to the assessee. The
said third proviso has, however, been read down by the Courts in various cases to hold that ITAT may extend
stay granted beyond 365 days, if delay in disposal of the appeal is not attributable to the
assessee. (The issue is sub judice before the Supreme Court and likely to be
heard soon).
The Finance Act, 2020 with effect from 01.04.2020
amended the first proviso and substituted the
existing second proviso to section 254(2A) of the Act to dilute the
powers of the ITAT to grant stay. First proviso
as amended provides
that the ITAT may grant
stay subject 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
or furnishes security of equal amount in respect thereof. The amended second
proviso further provides that the ITAT shall not extend stay unless the assessee makes an
application and has complied with the conditions referred to in the
first proviso and the ITAT is satisfied that delay in disposal of the appeal
is not attributable to the assessee.
In the aforesaid background, the issue that has been bothering
the taxpayers is whether the amendments shall also cover cases of extension of
stay without requiring such payment, where stay was originally granted
prior to 1.04.2020?
Facts of MSIL
In case of MSIL, stay had been granted in appeals for assessment years
2010-11 to 2015-16,
which was also extended from
time to time on being satisfied that delay in disposal was not attributable to
MSIL. Application was filed for
extension of stay, wherein the Revenue, relying upon the above amendments contended that MSIL should be directed to
pay 20% of the demand, notwithstanding that the stay originally granted
for each of the years did
not mandate such a condition.
MSIL’s arguments:
On behalf of MSIL, it was argued that amendments made to
Section 254(2A) of the Act are applicable only to stay(s) granted
for the first time on or after 01.04.2020 and not to mere extension
for stay granted
before the said date. It was alternatively argued that substantial amount of outstanding demand pertained to issues which stood covered in its
favour by orders passed for earlier year(s) and therefore, the same could not,
in any case, be recovered2
even as per the amended law.
Department’s arguments:
The Department, inter
alia, contended that the amendments in the first and second proviso to
section 254(2A) of the Act are
independent of each other and are applicable even to extension of stay being granted
on or after 01.04.2020. It was argued
that the law providing for payment
of 20% of the demand
or furnishing adequate security comes into force at the time of passing
order for extension of stay and cannot, therefore, be said to be not applicable, only for the reason that stay was originally granted
under the unamended law.
ITAT Decision:
The ITAT held that since majority of the demand was
arising on account of issues covered in favour of the assessee, it
would be unfair to direct payment thereagainst.
In respect of fresh issues, the ITAT held that the
amended provisions are applicable only to stay sought and granted for the first time on or after 01.04.2020 and
cannot be applied qua mere extension
of stay granted post that date in respect of stay originally
granted before 01.04.2020. In coming to the said conclusion, the ITAT agreed with MSIL’s contention that the
second proviso requiring compliance of condition
for payment of 20% of demand mandated in the first proviso, only applies where
stay had originally been sought and granted under the first proviso.
Comments:
The aforesaid decision
of Delhi ITAT now brings
clarity on the prospective applicability of the amended
provisions to stay sought and granted for the first time and not to
extension(s) of stay granted before 01.04.2020.
Lot of clarity is, however, still
awaited from the judiciary on applicability of amended provisions to fresh stays sought on or after 01.04.2020,
viz., whether the amended provisions are mandatory or directory; what kind
of security is contemplated by the amended
provisions and so on.
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