THE issue before the Bench is - Whether insertion of the expression "even if the delay in disposing of the appeal is not attributable to the assessee" by virtue of the Finance Act, 2008, is violative of the non-discrimination clause of Article 14 of the Constitution of India. YES is the answer.
Facts of the case
The assessees in the present appeal had challenged the constitutional validity of third proviso to Section 254(2A), which was amended, to mean that the Tribunal could not grant any further extension of the stay after expiry of 365 days, even though the appeals filed by the assessee before the Tribunal were pending and the delay in the disposal of the appeals was not on account of any conduct attributable to the assessee.
The counsel for assessees submitted that prior to the said amendment, in a decision of the Bombay High Court in case of Narang Overseas Private Limited v. Income Tax Appellate Tribunal, the third proviso to Section 254(2A) had been read down in such a manner that even if the period of 365 days from the initial grant of stay had expired, the Tribunal could extend the stay granted, provided the delay was not attributable to the assessee. The amendment brought about by the Finance Act, 2008 sought to nullify this reading of the third proviso to Section 254(2A) of the said Act by introducing the words - 'even if the delay in disposing of the appeal is not attributable to the assessee'. It was urged that the right of appeal was not inherent, but once it had been granted, it had to be construed as one which effectively redresses the grievances. It was further contended that the right to obtain a stay of demand/penalty was integral and cardinal to an effective right of appeal. It was also contended that the introduction of the above mentioned words by virtue of the amendment of 2008 has made the right of appeal illusory and the amendment was, therefore, clearly arbitrary and contrary to the provisions of the Article 14 of the Constitution of India. It was also contended that the said amendment introduced a classification which had no nexus with the object sought to be achieved. It was contended that the assessees, who were not responsible for any delay in the hearing of the appeal, had been clubbed together with those assessees to whom the delay was attributable.
However, the counsel for revenue contended that there was nothing wrong with the amendment brought about in 2008 inasmuch as all it did was to clarify the legislative intent and make it explicit. It was contended that there had been no class treatment given by the legislature and that the said provision was not discriminatory. The intention behind the amendment was to clarify that the period of stay could not be extended beyond 365 days under any circumstances.
Having heard the parties, the High Court held that,
++ section 254(2A) stipulates that the Appellate Tribunal, where it is possible, may hear and decide the appeal within a period of four years from the end of the financial year in which such appeal is filed u/s 253(1), (2) or (2A). Initially, there was no proviso to Section 254(2A). The provisos were added, for the first time, by virtue of the Finance Act, 2001. W.e.f 01.06.2001, it was stipulated that where an order of stay had been granted, the Appellate Tribunal was required to dispose of the appeal within a period of 180 days from the date of said order. It was further provided that if appeal was not disposed of within the specified period of 180 days, the stay order would stand vacated after the expiry of the said period. As pointed out by the counsel for revenue, the Courts, while interpreting the said provisos, as they stood with effect from 01.06.2001, did not limit the powers of the Tribunal to pass fresh orders of stay on expiration of the period of 180 days. Consequently, by virtue of the Finance Act of 2007, w.e.f 01.06.2007, the three provisos, as they stand today, except the last portion of the third proviso, which reads as - 'even if the delay in disposing of the appeal is not attributable to the assessee'-, were substituted for the provisos which had earlier been inserted by the Finance Act of 2001. Thereafter, by virtue of the Finance Act, 2008, the third proviso was substituted by the existing proviso with effect from 01.10.2008, the difference being that the expression - 'even if the delay in disposing of the appeal is not attributable to the assessee'- was now added by virtue of the amendment of 2008. Prior to the amendment of 2008, the provisos clearly stipulated that, in the first instance, a stay order could be passed for a period, not exceeding 180 days from the date of said order, and that the Tribunal was required to dispose of the appeal within that period. The second proviso stipulated that in case the appeal was not so disposed of within the period initially stipulated by the Tribunal, the Tribunal could, on an application made on this behalf by the assessee and on being satisfied that the delay in disposing of the appeal was not attributable to the assessee, extend the period of stay for a period or periods, provided that the aggregate of the period originally allowed and the period or periods so extended, would not, in any case, exceed 365 days. This provision came up for consideration before the Bombay High Court in Narang Overseas case, wherein the question was raised whether the third proviso to Section 254(2A) had the effect of denuding the Tribunal of its incidental power to grant interim relief. A Division Bench of the Bombay High Court, after considering various provisions and decisions, was of the view that if it were to be held that the Tribunal, while it had the power to pass an order in an appeal, did not have the power to continue the grant of interim relief for no fault of the assessee, the result would be rendered unreasonable or violative of Article 14 of the Constitution. While observing this, the Bombay High Court was mindful that the Courts are required to construe and/ or to give a construction to a provision which was consistent with the constitutional mandate so as to avoid a provision being rendered unconstitutional;
++ from the perusal of the Notes on Clauses pertaining to the Finance Bill, 2008, to the extent relevant, it is evident that the object behind the introduction of the words - 'even if the delay in disposing of the appeal is not attributable to the assessee'- was to make it clear that the aggregate of the period originally allowed and the period or periods so extended or allowed was not to, in any case, exceed 365 days, even if the delay in disposing of the appeal was not attributable to the assessee. It is observed that the amendment introduced by virtue of the Finance Act, 2008 had nullified the effect of the decision of the Bombay High court in Narang Overseas. The said provision, after its amendment by virtue of the Finance Act, 2008, came up for consideration before this Court in Maruti Suzuki (India) Limited, wherein the Division Bench of this Court was not called upon to examine the constitutional validity of provisos to Section 254(2A). It is only on a plain reading of the provisos, as they existed, that the Division Bench came to the conclusion that the Tribunal had no power to extend stay beyond a period of 365 days from the date of the first order of stay but that an assessee could file a writ petition in the High Court asking for stay even beyond the said period of 365 days and the High Court had the power and jurisdiction to grant stay and issue directions to the Tribunal and that Section 254(2A) did not prohibit the High Court from issuing appropriate directions, including grant of stay of recovery. But that decision was also rendered on a plain meaning of the provisos, as they stood. There was no challenge to the constitutional validity of the third proviso to Section 254(2A) after the amendment introduced by the Finance Act, 2008. No decision of any High Court has been brought to notice by the counsel for the parties, wherein the constitutional validity of the third proviso to Section 254(2A) of the said Act has been examined;
++ it is seen that the decision of the Division Bench in Maruti Suzuki (India) Limited was based on an interpretation of the third proviso to Section 254(2A) as it stands. The constitutional validity of the same had not been examined. It only spelt out the legislative intent and that was more than clear that no stay could be granted by the Tribunal beyond the period of 365 days under any circumstances. The question that requires examination is whether this intention of the legislature is not hit by Article 14 of the Constitution of India. Further, the fact that judicial review was available to an assessee under Article 226 of the Constitution, would not, in any way, add to or subtract from the issue of constitutional validity of the third proviso to Section 254(2A). It would now be relevant to examine the decision of the Supreme Court in Mohammed Kunhi. The question before the Supreme Court was whether the Income Tax Appellate Tribunal had power under the relevant provisions of the said Act to stay the recovery of the realization of the penalty imposed by the departmental authorities on an assessee during the pendency of an appeal before it. In that case, the Tribunal had declined to order any stay holding that it had no power to grant such a prayer. It is also to be noted that at that point of time Section 254(2A) was not there in the said Act. The said provision was introduced with effect from 01.06.1999 by the Finance Act, 1999. In the absence of any specific provision, permitting the Tribunal to grant stay, the question arose as to whether the Tribunal had the power to stay the proceedings as also the collection of penalties pending the appeal. The High Court of Kerala held that the Tribunal had such power and that the power was incidental and ancillary to its appellate jurisdiction. The Supreme Court observed that the powers, which had been conferred by Section 254 on the Appellate Tribunal, were of the widest possible amplitude and, therefore, must carry with them, by necessary implication, all powers and duties incidental and necessary to make the exercise of those fully effective. Finally, the Supreme Court concluded by holding that the power to grant a stay is incidental or ancillary to the appellate jurisdiction of the Tribunal. It is also clear that the power of stay exercised by the Tribunal is not likely to be exercised in a routine way or as a matter of course in view of the special nature of taxation and revenue laws and it is only when a strong prima facie case is made out that the Tribunal would consider whether to stay the recovery proceedings and on what conditions. The stay is also granted in deserving and appropriate cases where the Tribunal is satisfied that the entire purpose of the appeal would be frustrated or rendered nugatory by allowing the recovery proceedings to continue during the pendency of the appeal;
++ it is clear that where a legislation is sought to be challenged, as being unconstitutional or violative of Article 14 of the Constitution, the Court must keep in mind the principles relating to the applicability of Article 14 in relation to invalidation of a legislation. The two dimensions of Article 14 in its application to legislation and for rendering legislation invalid are well settled and these are - (i) discrimination, based on an impermissible or an invalid classification and (ii) excessive delegation of powers; conferment of uncanalised and unguided powers on the executive, whether in the form of delegated legislation or by way of conferment of authority to pass administrative orders. The Constitution Bench also cautioned that the Courts need to be mindful that a legislation does not become unconstitutional merely because there is another view or because another method may be considered to be as good or even more effective, like any issue of social, or even economic policy. Keeping in mind the principles set out by the Supreme Court in Dr Subramanian Swamy, it needs to be examined whether the present challenge to the validity of the third proviso to Section 254(2A) can be sustained. This is not a case of excessive delegation of powers and, therefore, we need not bother about the second dimension of Article 14 in its application to legislation. It is abundantly clear that the power granted to the Tribunal to hear and entertain an appeal and to pass orders would include the ancillary power of the Tribunal to grant a stay. Of course, the exercise of that power can be subjected to certain conditions. In the present case, it is found that there are several conditions which have been stipulated. First of all, as per the first proviso to Section 254(2A), a stay order could be passed for a period not exceeding 180 days and the Tribunal should dispose of the appeal within that period. The second proviso stipulates that in case the appeal is not disposed of within the period of 180 days, if the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to extend the stay for a period not exceeding 365 days in aggregate. Once again, the Tribunal is directed to dispose of the appeal within the said period of stay. The third proviso, as it stands today, stipulates that if the appeal is not disposed of within the period of 365 days, then the order of stay shall stand vacated, even if the delay in disposing of the appeal is not attributable to the assessee. While it could be argued that the condition that the stay order could be extended beyond a period of 180 days only if the delay in disposing of the appeal was not attributable to the assessee was a reasonable condition on the power of the Tribunal to the grant an order of stay, it can, by no stretch of imagination, be argued that where the assessee is not responsible for the delay in the disposal of the appeal, yet the Tribunal has no power to extend the stay beyond the period of 365 days. The intention of the legislature, which has been made explicit by insertion of the words - 'even if the delay in disposing of the appeal is not attributable to the assessee'- renders the right of appeal granted to the assessee by the statute to be illusory for no fault on the part of the assessee. The stay, which was available to him prior to the 365 days having passed, is snatched away simply because the Tribunal has, for whatever reason, not attributable to the assessee, been unable to dispose of the appeal;
++ furthermore, the assessees are correct in their submission that unequals 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 clubbed together. This clubbing together has led to hostile discrimination against the assessees to whom the delay is not attributable. It is for this reason that the insertion of the expression - 'even if the delay in disposing of the appeal is not attributable to the assessee'- by virtue of the Finance Act, 2008, violates the non-discrimination clause of Article 14 of the Constitution of India. The object that appeals should be heard expeditiously and that assesses should not misuse the stay orders granted in their favour by adopting delaying tactics is not at all achieved by the provision as it stands. On the contrary, the clubbing together of 'well behaved' assesses and those who cause delay in the appeal proceedings is itself violative of Article 14 of the Constitution and has no nexus or connection with the object sought to be achieved. The said expression introduced by the Finance Act, 2008 is, therefore, struck down as being violative of Article 14 of the Constitution of India. This would revert this court to the position of law as interpreted by the Bombay High Court in Narang Overseas, with which this court is in full agreement. Consequently, this court holds that, where the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to grant extension of stay beyond 365 days in deserving cases. Consequently, the assessees may approach the Tribunal for extension of stay in each of the cases and till the Tribunal passes such orders, the interim orders granted by this court in these matters shall continue.
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