Finance Act, 2020 has inter alia amended the provisions of section 254 of the Income-tax Act, 1961 (‘the Act’) to dilute, the hitherto absolute, stay granting powers of the the Income Tax Appellate Tribunal (‘the Tribunal’). The first proviso to sub-section (2A) of section 254 has been amended to provide that the Tribunal may grant a stay of demand subject to the condition that at least twenty percent of the tax, interest, fee, penalty, or any other sum payable under the Act is deposited or a security of an equal amount is furnished. Similarly, the second proviso of the same sub-section has been amended to provide that an extension of stay shall not be granted unless the condition referred to in the first proviso has been met with.
This sub-section of section 254 has the rare
distinction of being read down by the High Courts on two earlier occasions . Considering this notorious history, it
may not be far-fetched to think that a constitutional challenge to this
amendment is very likely. Be that as it may, it would be naïve to presume
unconstitutionality of a provision at the get go. If the provision does pass
the constitutional challenge, if and when there is one, an important question
which would arise is as to when does this provision take effect and which stay
applications are saved from its rigour. The Finance Act, as also the Memorandum
explaining the provisions of the Finance Bill, state that this amendment is
effective from 1st April, 2020. Therefore, the amendment is certainly
prospective in its operation. However, the question remains as to what does
prospective mean in the context of an amendment which affects the jurisdiction
of an appellate authority. Which event occurring after 1st April, 2020 will attract
the amended provisions is what is sought to be examined in this write-up.
It is trite that charging and computation provisions, as they
stand on the first day of a the financial year are relevant for that year,
irrespective of what the law is when the assessment is completed or an appeal
comes to be heard .However, the provisions dealing with
jurisdiction of authorities follow a different principle. Such provisions are
generally procedural in nature, and in the absence of anything to the
contrary, apply retrospectively in the sense that they apply to all actions
after the date they come into force even though the action may have begun
earlier or the claim on which the action may be based may be of an anterior date . However, this retrospectivity is subject
to an exception that a ‘vested right’ of a litigant should not be impaired as a
result thereof.
An amendment cannot impair a vested right-
The Courts have time and again reiterated the
principle that the right to appeal and the incidental rights thereto are
substantive rights which are vested in every litigant. These vested rights
cannot be impaired or made more onerous by a subsequent legislation unless the
subsequent legislation says so either expressly or by necessary intendment.
This principle of law follows from the legal maxim ‘Nova constitution futuris
formam imponere debet, non praeteritis’, which literally translates
to mean that a new law ought to be construed to interfere as little as possible
with vested rights (5) . Neither
the Finance Act, 2020, nor the Memorandum explaining the provisions give any
indication of its intention to affect the rights already vested in the
appellants under section 254. Therefore, the exception, as noted in the above
principle does not apply to these amendments. It would follow that all such
appellants having already acquired a ‘vested right’ to obtain a complete stay
of demand as of 1st April, 2020 should not stand to suffer due to the amendment.
The only question that remains is as to which appellants can be said to have
such a vested right as of this date.
Relevance of commencement of dispute-
An issue, fairly similar to the one being dealt with herein,
arose before the Supreme Court (6) in
the context of Sales Tax Act. Section 22 of the Central Provinces and Berar
Sales Tax Act, 1947 dealt with the appeals filed before the Sales Tax
Commissioner. The provision was amended in 1949 to provide that no appeal could
be filed unless the amount of tax, in respect of which the appeal was being
filed, was paid. The question arose that whether this condition of predeposit
of tax would apply to all the appeals which were to be filed after the section
had been amended. In the case of the Petitioner therein, the assessment order
had been passed in 1950 and the appeal against such an order was also filed in
the same year, i.e., both the events had occurred after the amendment came into
force in 1949. However, the first notice, that initiated the dispute and which
eventually culminated into the assessment order was issued by the Sales Tax
Officer in 1947. The case of the Petitioner was that the law pertaining to an
appeal has to be seen on the date of the ‘commencement of lis’, i.e., on the
date of initiation of the dispute in the original proceeding, as it is on such
date, that the right to appeal ‘vests’ in an appellant. It was argued that any
subsequent amendment cannot impair this right of appeal which has vested on the
date the dispute was initiated. Affirming the Petitioner’s stance, the Supreme
Court first explained the nature of the amendment in the following words-
“There can be no doubt that the new requirement
"touches" the substantive right of appeal vested in the appellant.
Nor can it be overlooked that such a requirement is calculated to interfere
with or fetter, if not to impair or imperil, the substantive right. The right
that the amended section gives is certainly less than the right which was
available before. A provision which is calculated to deprive the appellant of
the unfettered right of appeal cannot be regarded as a mere alteration in
procedure. Indeed the new requirement cannot be said merely to regulate the
exercise of the appellant’s pre-existing right but in truth whittles down the
right itself and cannot be regarded as a mere rule of procedure.”
The Supreme Court then went on to hold that the date
on which the first notice was issued by the Sales Tax Officer would be the date
on which the ‘lis’ arises. The law pertaining to appeals has to be seen as of
this date. Any subsequent amendment thereto will not govern an appeal which
arises out of this assessment order. Following extract is noteworthy-
“It will appear from the dates given above that in this case
the ‘lis’ in the sense explained above arose before the date of amendment of
the section. Further, even if the ‘lis’ is to betaken as arising only on the
date of assessment, there was a possibility of such a ‘lis’ arising as soon as
proceedings started with the filing of the return or, at any rate, when the
authority called for evidence and started the hearing and the right of appeal
must be taken to have been in existence even at those dates. For the purposes
of the accrual of the right of appeal the critical and relevant date is the
date of initiation of the proceedings and not the decision itself.”
The Supreme Court quoted with approval the judgment of the
Calcutta High Court . Following passage is of relevance in
this regard-
“There can be no doubt that the right of appeal has been
affected by the new provision and in the absence of an express enactment this
amendment cannot apply to proceedings pending at the date when the new
amendment came into force. It is true that the appeal was filed after the Act came
into force, but that circumstance is immaterial for the date to be looked into
for this purpose is the date of the original proceeding which eventually
culminated in the appeal.”
The Supreme Court also rejected the Respondent’s
argument that after the amendment, the appellate authority had no jurisdiction
to hear an appeal without enforcing the pre-deposit of tax. It was held that
for those purposes the old law must be presumed to continue to exist. The law
which created a right must be presumed to exist in order to support the right
so created by it.
The Supreme Court dealing with an identical issue in the context
of Assam Sales Tax Act, 1947 accepted the above ratio with a slight variation.
It was held therein that the critical date to determine the rights of appeal
available to a litigant is the date of ‘completion of assessment’. In holding
so, the Court rejected the Petitioner’s argument that since the assessment year
had ended prior to the amendment, the old law would apply to it.
The same principle was also laid down by the Supreme Court in
another judgment , wherein the Court further clarified that
all successive appeals from court to court really constitute one proceeding.
Therefore, the law relating to appeals before every such forum has to be seen
on the date of commencement of dispute in the original proceeding.
To draw a parallel to the issue at hand, the law
governing appeals before every appellate forum, right from the Commissioner of
Income-tax (Appeals) to the Supreme Court has to be seen as on the date on
which the dispute arises, i.e. when a notice is issued by the Assessing
Officer, or at any rate, the date on which the assessment is completed.
Similar disputes under the Income-tax Act-
Disputes, similar to the one being dealt with
herein, have arisen under the Income-tax Act as well. Sub-section (2) of
section 254 was amended by the Finance Act, 2016 with effect from 1st June,
2016, whereby the period available to the Tribunal to rectify a mistake
apparent from record in its orders was reduced from 4 years to 6 months from
the end of the month in which the order is passed. A literal reading of the
provision meant that in the cases where the orders had been passed by the
Tribunal under section 254(1) at least 6 months prior to the amendment, the
right to file a rectification application against such orders stood
automatically extinguished once the amendment came into force. In one such
case, wherein the Tribunal had passed the order under section 254(1) in 2015
(i.e., prior to the amendment), a rectification application was filed in
August, 2016. The Tribunal refused to entertain the application on the ground
that the reduced limitation of six months had expired. The order of the
Tribunal was assailed before the Madhya Pradesh High Court . The Court negatived the Tribunal’s
approach and held that if the amendment was applied to the orders passed under
section 254(1) prior to the amendment, it would take away vested rights of the
appellants to file a rectification application and the provision would become
‘virtually retrospective’. Accordingly, the Tribunal was directed to adjudicate
upon the rectification application as per the old law.
An amendment was made to the court fee leviable on filing of an
appeal before the High Court under section 260A of the Act. The Petitioners
argued that all aspects of the appeal before the High Court had to be governed
as per the law prevailing on the date of the assessment order and that the
subsequent amendments would be wholly irrelevant. It was, therefore, argued
that the court fee was leviable at the rates in force on the date when the
assessment order was passed and not when the appeal came to be filed before the
High Court. The Respondents opposed this contention by arguing that since the
appeal before the High Court was filed after the amendment, the court fee would
be leviable as per the new rates. The Supreme Court concurred with the Petitioners and held
that the date of passing of the assessment order would be decisive in
determining all aspects of appeals including the levy of court fee.
In the context of penalty proceedings, the Supreme Court held that the jurisdiction to levy
penalty has to be seen as on the date of the assessment order, because it is on
such date, that the penalty proceedings are initiated.
Amendment to section 234D of the Act by the
Finance Act, 2012 is an example of a situation where, although, a vested right
was hampered, however, the same was done in view of the express language of the
amendment. Section 234D, dealing with the levy of interest where excess refund
is granted under section 143(1) visa vis the final determination under section
143(3) was introduced on 1st June, 2003. The Bombay High Court held that in cases where refunds were
granted prior to this date, there will be no levy of interest. The section was
amended by way of insertion of an Explanation by the
Finance Act, 2012, which clarified that the provision will also apply to the
assessment years prior to the amendment, as long as the assessment proceedings
were pending as of 1st June, 2003. Therefore, in this case, the legislature, by
express language, sought to impose an additional liability to pending
proceedings. When the very same issue came up before the Bombay High Court again after the amendment, it was held
that in view of the express language of the Explanation, the
interest was leviable on refunds granted prior to the amendment. Since the
language of the amendments to section 254 by the Finance Act, 2020 are in
contrast to the language of the amendment to section 234D, in as much as, it
does not expressly provide for its application to all the proceedings pending
before the Tribunal, the hitherto unrestricted power of granting stay of demand
arising from such proceedings will continue to hold the field.
The judgments referred to hereinabove
overwhelmingly support the proposition that a vested right to appeal and the
incidental rights thereto come to fruition as soon as the dispute arises in the
original proceeding and the law prevailing on such date will continue to govern
all aspects of the appeals, notwithstanding subsequent amendments. In the
context of the appeals arising out of income tax proceedings, the above would
translate into determining and freezing the appellant’s rights on the date of
the assessment order.
The right to obtain a stay of demand is incidental
to the right to appeal and is naturally governed by the same principles.
However, even if it is looked at independently, the same consequences will
follow since the dispute with respect to demand, for which a stay is sought,
arises with the issuance of the notice of demand under section 156 of the Act,
which also accompanies the assessment order. Therefore, looked from either
perspective, the critical date would be the date of the assessment order.
In view of the above, it appears that the amended
provisions of section 254 will apply only to those cases, where the assessment
order is passed on or after 1st April, 2020. In all other cases, the Tribunal
will continue to hold the power of granting stay of demand without any
restriction. This conclusion will hold good for both, original applications for
stay (under the first proviso) and applications for extension of stay (under
the second proviso).
No comments:
Post a Comment