# DEPUTY COMMISSIONER OF INCOME TAX & ANR v. M/S. PEPSI FOODS LTD

- **Citation:** [2021] 4 S.C.R. 1
- **Court:** Supreme Court of India
- **Decided:** 2021-04-06
- **Case number:** Civil Appeal No. 1106 of 2021
- **Bench:** Rohinton Fali Nariman, B. R. Gavai, Hrishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/deputy-commissioner-of-income-tax-anr-v-m-s-pepsi-foods-ltd-35077
- **Pages:** 30

## Headnote

Income Tax Act, 1961: s. 254(2A) third proviso - Provision
as regards appellate tribunal granting stay - Third proviso providing
for 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 - Constitutional validity
of - Held: Third proviso to s. 254(2A), is both arbitrary and
discriminatory and, thus, liable to be struck down as offending Art.
14 - Unequals are treated equally - No differentiation is made by
the third proviso between the assessees who are responsible for
delaying the proceedings and assessees who are not so responsible
- Also, the said proviso would result in the automatic vacation of a
stay upon the expiry of 365 days even if the Appellate Tribunal
could not take up the appeal in time for no fault of the assessee -
Further, vacation of stay in favour of the revenue would ensue even
if the revenue is itself responsible for the delay in hearing the appeal
- Thus, the Third proviso to s. 254(2A) 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 - Constitution of India - Art.14.
Tax/Taxation:
Tax statutes - Challenge to tax statutes u/Art. 14 - Grounds
for challenge - Held: Can be on grounds relatable to discrimination
as well as grounds relatable to manifest arbitrariness, which may
be procedural or substantive in nature - Constitution of India -
Art.14.
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SUPREME COURT REPORTS
[2021] 4 S.C.R.
Tax statutes - Interpretation of - Golden rule of interpretation
- Significance of - Held: Golden rule of interpretation cannot be
ignored while interpreting tax statutes.
Dismissing the appeals, the Court
HELD: 1.1 The third proviso to Section 254(2A) of the
Income Tax Act, introduced by the Finance Act, 2008, would be
both arbitrary and discriminatory and, therefore, liable to be struck
down as offending Article 14 of the Constitution of India. First
and foremost, it is correctly held in the impugned judgment, that
unequals are treated equally in that no differentiation is made by
the third proviso between the assessees who are responsible for
delaying the proceedings and assessees who are not so
responsible. This is a little peculiar in that the legislature itself
has made the said differentiation in the second proviso to Section
254(2A) of the Income Tax Act, making it clear that a stay order
may be extended upto a period of 365 days upon satisfaction that
the delay in disposing of the appeal is not attributable to the
assessee. [Para 17][21-B-D]
1.2 The second proviso was introduced by the Finance Act,
2007 to mitigate the rigour of the first proviso to Section 254(2A)
of the Income Tax Act in its previous avatar. Ordinarily, the
Appellate Tribunal, where possible, is to hear and decide appeals
within a period of four years from the end of the financial year in
which such appeal is filed. It is only when a stay of the impugned
order before the Appellate Tribunal is granted, that the appeal is
required to be disposed of within 365 days. So far as the disposal
of an appeal by the Appellate Tribunal is concerned, this is a
directory provision. However, so far as vacation of stay on expiry
of the said period is concerned, this condition becomes mandatory
so far as the assessee is concerned. The object sought to be
achieved by the third proviso to Section 254(2A) of the Income
Tax Act is without doubt the speedy disposal of appeals before
the Appellate Tribunal in cases in which a stay has been granted
in favour of the assessee. But such object cannot itself be
discriminatory or arbitrary. [Para 17][21-D-G]
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Nagpur Improvement Trust v. Vithal Rao [1973] 3 SCR
39 - relied on.
Narang Overseas Pvt. Ltd. v. ITAT (2007) 295 ITR 22
- approve

## Text

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 [2021] 4 S.C.R. 1
1
DEPUTY COMMISSIONER OF INCOME TAX & ANR.
v.
M/S. PEPSI FOODS LTD.
(NOW PEPSICO INDIA HOLDINGS PVT. LTD.)
(Civil Appeal No. 1106 of 2021)
APRIL 06, 2021
[ROHINTON FALI NARIMAN, B. R. GAVAI AND
HRISHIKESH ROY, JJ. ]
Income Tax Act, 1961: s. 254(2A) third proviso - Provision
as regards appellate tribunal granting stay - Third proviso providing
for 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 - Constitutional validity
of - Held: Third proviso to s. 254(2A), is both arbitrary and
discriminatory and, thus, liable to be struck down as offending Art.
14 - Unequals are treated equally - No differentiation is made by
the third proviso between the assessees who are responsible for
delaying the proceedings and assessees who are not so responsible
- Also, the said proviso would result in the automatic vacation of a
stay upon the expiry of 365 days even if the Appellate Tribunal
could not take up the appeal in time for no fault of the assessee -
Further, vacation of stay in favour of the revenue would ensue even
if the revenue is itself responsible for the delay in hearing the appeal
- Thus, the Third proviso to s. 254(2A) 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 - Constitution of India - Art.14.
Tax/Taxation:
Tax statutes - Challenge to tax statutes u/Art. 14 - Grounds
for challenge - Held: Can be on grounds relatable to discrimination
as well as grounds relatable to manifest arbitrariness, which may
be procedural or substantive in nature - Constitution of India -
Art.14.
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SUPREME COURT REPORTS
[2021] 4 S.C.R.
Tax statutes - Interpretation of - Golden rule of interpretation
- Significance of - Held: Golden rule of interpretation cannot be
ignored while interpreting tax statutes.
Dismissing the appeals, the Court
HELD: 1.1 The third proviso to Section 254(2A) of the
Income Tax Act, introduced by the Finance Act, 2008, would be
both arbitrary and discriminatory and, therefore, liable to be struck
down as offending Article 14 of the Constitution of India. First
and foremost, it is correctly held in the impugned judgment, that
unequals are treated equally in that no differentiation is made by
the third proviso between the assessees who are responsible for
delaying the proceedings and assessees who are not so
responsible. This is a little peculiar in that the legislature itself
has made the said differentiation in the second proviso to Section
254(2A) of the Income Tax Act, making it clear that a stay order
may be extended upto a period of 365 days upon satisfaction that
the delay in disposing of the appeal is not attributable to the
assessee. [Para 17][21-B-D]
1.2 The second proviso was introduced by the Finance Act,
2007 to mitigate the rigour of the first proviso to Section 254(2A)
of the Income Tax Act in its previous avatar. Ordinarily, the
Appellate Tribunal, where possible, is to hear and decide appeals
within a period of four years from the end of the financial year in
which such appeal is filed. It is only when a stay of the impugned
order before the Appellate Tribunal is granted, that the appeal is
required to be disposed of within 365 days. So far as the disposal
of an appeal by the Appellate Tribunal is concerned, this is a
directory provision. However, so far as vacation of stay on expiry
of the said period is concerned, this condition becomes mandatory
so far as the assessee is concerned. The object sought to be
achieved by the third proviso to Section 254(2A) of the Income
Tax Act is without doubt the speedy disposal of appeals before
the Appellate Tribunal in cases in which a stay has been granted
in favour of the assessee. But such object cannot itself be
discriminatory or arbitrary. [Para 17][21-D-G]
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Nagpur Improvement Trust v. Vithal Rao [1973] 3 SCR
39 - relied on.
Narang Overseas Pvt. Ltd. v. ITAT (2007) 295 ITR 22
- approved.
1.3 Since the object of the third proviso to Section 254(2A)
of the Income Tax 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, in the sense pointed out,
is liable to be struck down as violating Article 14 of the
Constitution of India. Also, the said proviso would result in the
automatic vacation of a stay upon the expiry of 365 days even if
the Appellate Tribunal could not take up the appeal in time for no
fault of the assessee. Further, vacation of stay in favour of the
revenue would ensue even if the revenue is itself responsible
for the delay in hearing the appeal. In this sense, the said proviso
is also manifestly arbitrary being a provision which is capricious,
irrational and disproportionate so far as the assessee is concerned.
[Para 17][22-C-E]
1.4 Unequals have been treated equally so far as assessees
who are responsible for delaying appellate proceedings and those
who are not so responsible, resulting in a violation of Article 14
of the Constitution of India. Also, the expression "permissible"
policy of taxation would refer to a policy that is constitutionally
permissible. If the policy is itself arbitrary and discriminatory,
such policy will have to be struck down. [Para 22][28-C-D]
1.5 The law laid down by the impugned judgment of the
High Court is correct. Resultantly, the judgments of the various
High Courts which follow the said declaration of law are also
correct. Consequently, 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.
[Para 25][30-A-B]
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S.
PEPSI FOODS LTD.
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SUPREME COURT REPORTS
[2021] 4 S.C.R.
2. It is settled law that challenges to tax statutes made under
Article 14 of the Constitution of India can be on grounds relatable
to discrimination as well as grounds relatable to manifest
arbitrariness. These grounds may be procedural or substantive
in nature. Also, it is important to remember that the golden rule
of interpretation is not given a go-by when it comes to
interpretation of tax statutes. [Para 14, 24][19-A-B; 28-H; 29-A]
M/s M. Ramnarain (P) Ltd. v. State Trading Corpn. of
India Ltd.(1983) 3 SCC 75: [1983] 3 SCR 25; M.
Janardhana Rao v. CIT (2005) 2 SCC 324:[2005]
1 SCR 874 - distinguished.
Income Tax Officer v. M.K. Mohammed Kunhi [1969] 2
SCR 65; Commissioner of Customs & Central Excise v.
Kumar Cotton Mills (2005) 13 SCC 296; Commissioner
of Income Tax v. M/s Maruti Suzuki (India) Ltd.(2014)
362 ITR 215; DCIT v. Vodafone Essar Gujarat Ltd.
(2015) 376 ITR 23; M/s Pepsi Foods Ltd. v. ACIT (2015)
376 ITR 87; Mardia Chemicals Ltd. v. Union of India
(2004) 4 SCC 311 : [2004] 3 SCR 982; PML Industries
Ltd. v. CCE (2013) SCC OnLine P&H 4440; Suraj
Mall Mohta and Co. v. A.V. Visvanatha Sastri [1955] 1
SCR 448; Kunnathat Thatehunni Moopil Nair v. State
of Kerala [1961] 3 SCR 77; Union of India v. A. Sanyasi
Rao (1996) 3 SCC 465 : [ 1996] 2 SCR 57; Shayara
Bano v. Union of India (2017) 9 SCC 1 : [2017]
9 SCR 797; Essar Steel India Ltd. Committee of
Creditors v. Satish Kumar Gupta (2020) 8 SCC 531 :
[2019] 16 SCR 275; State of M.P. v. Bhopal Sugar
Industries Ltd. [1964] 6 SCR 846; N. Venugopala Ravi
Varma Rajah v. Union of India (1969) 1 SCC 681 :
[1969] 3 SCR 827; Commr. of Customs v. Dilip Kumar
& Co. (2018) 9 SCC 1 : [2018] 7 SCR 1191; CIT v.
J.H. Gotla (1985) 4 SCC 343 : [1985] 2 Suppl. SCR
711 - referred to.
Case Law Reference
[1969] 2 SCR 65
referred to
Para 6
(2007) 295 ITR 22
approved
Para 17
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(2005) 13 SCC 296
referred to
Para 9
(2014) 362 ITR 215
referred to
Para 11
(2015) 376 ITR 23
referred to
Para 12
(2015) 376 ITR 87
referred to
Para 13
[2004] 3 SCR 982
referred to
Para 13, 20
[1955] 1 SCR 448
referred to
Para 14
[1961] 3 SCR 77
referred to
Para 15
[1996] 2 SCR 57
referred to
Para 15
[2017] 9 SCR 797
referred to
Para 16
[1973] 3 SCR 39
relied on
Para 17
[2019] 16 SCR 275
referred to
Para 18
[1983] 3 SCR 25
distinguished
Para 19
[2005] 1 SCR 874
distinguished
Para 20
[1964] 6 SCR 846
referred to
Para 21
[1969] 3 SCR 827
referred to
Para 23
[2018] 7 SCR 1191
referred to
Para 24
[1985] 2 Suppl. SCR 711
referred to
Para 24
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1106
of 2021.
From the Judgment and Order dated 19.05.2015 of the High Court
of Delhi at New Delhi in W.P. (C) No. 3650 of 2014.
With
Civil Appeal Nos. 1125, 1107, 1108, 1109, 1110, 1111, 1112, 1113,
1114, 1115, 1116, 1117, 1118, 1119, 1120, 1121, 1122, 1123, 1124, 1126,
1127, 1128, 1129, 1130, 1131, 1132, 1133, 1134, 1135, 1136, 1137, 1138,
1139 of 2021.
Vikramjit Banerjee, ASG., Arijit Prasad, Sr. Adv., Zoheb Hossain,
N.K. Karheil, Amit Verma, H.R. Rao, D.L. Chidananda, Sanjay Kr.
Visen, Mrs. Anil Katiyar, Advs. for the Appellants.
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S.
PEPSI FOODS LTD.
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SUPREME COURT REPORTS
[2021] 4 S.C.R.
Ajay Vohra, Sr. Adv., Ms. Kavita Jha, Ms. Devika Jain, Udit
Naresh, Deepak Chopra, Harpreet Singh Ajmani, Anmol Anand, Ms.
Priya Tandon, Prakash Kumar, Rahul Gupta, D. Nageswar Rao, Ambhoj
Kumar Sinha, Ms. Sherry Goyal, R. Chandrachud, Ms. Anuradha Dutt,
Sachit Jolly, Tushar Jarwal, Ms. Disha Jham, Ms. B. Vijayalakshmi Menon,
Shekhar Prit Jha, Dr. Ashutosh Garg, Salil Kapoor, Sumit Lal Chandani,
Ms. Ananya Kapoor, Sanat Kapoor, Ms. Souma Singh, K.P. Singh,
Praveen Swarup, Himanshu S. Sinha, Bhuwan Dhoopar, Yash Varmani,
Syed Jafar Alam, Advs. for the Respondent.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. Delay condoned. Leave granted.
2. The appeals before us raise an important question as to the
constitutional validity of the third proviso to Section 254(2A) of the Income
Tax Act, 1961 (hereinafter referred to as "Income Tax Act").
3. The facts in Deputy Commissioner of Income Tax & Anr.
v. M/s Pepsi Foods Ltd. [now Pepsico India Holdings Pvt. Ltd]
(Civil Appeal arising out of Special Leave Petition (C) No.30284 of 2015)
may be set out as being illustrative of the facts in all the appeals before
us. The Respondent-assessee is an Indian company incorporated on
24.02.1989 and is engaged in the business of manufacture and sale of
concentrates, fruit juices, processing of rice and trading of goods for
exports. The assessee is a group company of the multi-national Pepsico
Inc., a company incorporated and registered in the United States of
America. The assessee-company merged with Pepsico India Holdings
Pvt. Ltd. w.e.f. 01.04.2010, in terms of a scheme of arrangement duly
approved by the Hon'ble Punjab and Haryana High Court. On 30.09.2008,
a return of income was filed for the assessment year 2008-2009 declaring
a total income of INR 92,54,89,822. A final assessment order was passed
on 19.10.2012 which was adverse to the assessee. Aggrieved by the
aforesaid order, the assessee filed an appeal before the Income Tax
Appellate Tribunal (hereinafter referred to as "Tribunal") on 29.04.2013.
On 31.05.2013, a stay of the operation of the order of the assessing
officer was granted by the Tribunal for a period of six months. This stay
was extended till 08.01.2014 and continued being extended until
28.05.2014. Since the period of 365 days as provided in Section 254(2A)
of the Income Tax Act was to end on 30.05.2014 beyond which no
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further extension could be granted, the assessee, apprehending coercive
action from the Revenue, filed a writ petition before the Delhi High
Court on 21.05.2014 challenging the constitutional validity of the third
proviso to Section 254(2A) of the Income Tax Act. By a judgment dated
19.05.2015, the Delhi High Court struck down that part of the third proviso
to Section 254(2A) of the Income Tax 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. It is this judgment and several
other judgments from various High Courts that have been challenged by
the revenue in these appeals.
4. Shri Vikramjit Banerjee, learned ASG, assailed the impugned
judgment of the Delhi High Court and other judgments following it, arguing
that there is no right to stay of a judgment in an appellate proceeding as
such stay is dependent upon the discretion of the Appellate Court. The
discretion having been exercised once would not mean that automatic
extensions of the same could be granted despite a reasonable period
having gone-by. He also argued that the discretionary remedy of a stay
is part and parcel of the right to appeal which itself is a statutory right,
and can be taken away by the legislature. He then argued that Article 14
of the Constitution of India is not to be applied mechanically as a far
greater freedom in the joints is given qua tax legislation and so long as
the State has laid down a valid policy which it has followed without
singling out anybody, no discrimination can possibly ensue. He also argued
that equitable considerations and arguments based on hardship are out
of place when it comes to tax statutes, which must be read literally. For
all these propositions, he cited case law which will be dealt with later in
this judgment.
5. Shri Ajay Vohra, learned Senior Advocate, Shri Himanshu S.
Sinha, Shri Deepak Chopra and Shri Sachit Jolly, learned Advocates,
appearing for the assessees, countered each of the submissions of Shri
Banerjee, learned ASG. They relied strongly upon the reasoning of the
impugned judgment of the Delhi High Court and argued that once
discretionary relief has been granted based upon a strong prima facie
case, balance of convenience, etc. it would be wholly arbitrary and
discriminatory that such relief be vacated automatically without reference
to whether it is the assessee who is prolonging the appellate proceedings.
Once there is a vested right of appeal, there is a right to obtain a stay
which, once obtained, cannot be vacated without dilatory tactics on the
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S.
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
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part of the Appellant being found against the Appellant. They cited
judgments of this Court to show that discriminatory taxation has been
struck down under Article 14 of the Constitution of India. They also
argued that the State cannot take shelter under a "policy", if the policy
or object laid down in the statutory provision is itself arbitrary or
discriminatory. They also cited judgments to show that even in interpreting
a tax statute, though equitable considerations are not to be given effect,
yet they are not wholly irrelevant when the constitutional validity of the
provision is itself challenged.
6. The genesis of the stay provision contained in Section 254 of
the Income Tax Act is in the celebrated judgment of this Court in Income
Tax Officer v. M.K. Mohammed Kunhi (1969) 2 SCR 65. In this
judgment, Section 254 of the Income Tax Act, as originally enacted,
came up for consideration before this Court. After setting out Section
254(1), this Court referred to Sutherland, Statutory Construction (3rd
Edn., Arts. 5401 and 5402), and then held that the power which has
been conferred by the said Section on the Appellate Tribunal with the
widest possible amplitude must carry with it, by necessary implication,
all powers incidental and necessary to make the exercise of such power
fully effective. The Court held:
"Section 255(5) of the Act does empower the Appellate Tribunal
to regulate its own procedure, but it is very doubtful if the power
of stay can be spelt out from that provision. In our opinion the
Appellate Tribunal must be held to have the power to grant stay
as incidental or ancillary to its appellate jurisdiction. This is
particularly so when Section 220(6) deals expressly with a situation
when an appeal is pending before the Appellate Assistant
Commissioner, but the Act is silent in that behalf when an appeal
is pending before the Appellate Tribunal. It could well be said that
when Section 254 confers appellate jurisdiction, it impliedly grants
the power of doing all such acts, or employing such means, as are
essentially necessary to its execution and that the statutory power
carries with it the duty in proper cases to make such orders for
staying proceedings as will prevent the appeal if successful from
being rendered nugatory.
A certain apprehension may legitimately arise in the minds of the
authorities administering the Act that if the Appellate Tribunals
proceed to stay recovery of taxes or penalties payable by or
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imposed on the assessees as a matter of course the revenue will
be put to great loss because of the inordinate delay in the disposal
of appeals by the Appellate Tribunals. It is needless to point out
that the power of stay 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. It wilt only be when a strong
prima facie case is made out that the Tribunal will consider whether
to stay the recovery proceedings and on what conditions and the
stay will be granted in most deserving and appropriate cases where
the Tribunal is 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."
[at page 72]
Importantly, this Court recognised that orders of stay prevent the
appeal, if ultimately successful, from being rendered nugatory or futile,
and are granted only in deserving and appropriate cases.
7. The judgment of this Court was followed for many decades,
the Appellate Tribunal granting stay without being constrained by any
time limit. However, by Finance Act, 2001 (w.e.f. 01/06/2001), two
provisos were introduced to Section 254(2A) as follows:
"254. Orders of Appellate Tribunal.
xxx xxx xxx
(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 where an order of stay is made in any proceedings
relating to an appeal filed under sub-section (1) of section 253,
the Appellant Tribunal shall dispose of the appeal within a period
of one hundred and eighty days from the date of such order:
Provided further that if such appeal is not so disposed of within
the period specified in the first proviso, the stay order shall stand
vacated after the expiry of the said period."
8. Realising that a hard and fast provision which is directory so
far as the disposal of appeal is concerned, but mandatory so far as
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S.
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
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vacation of the stay order is concerned, would lead to great hardship,
the legislature stepped in again and amended Section 254(2A) vide
Finance Act, 2007 (w.e.f. 01/06/2007) as follows:
"254. Orders of Appellate Tribunal.
xxx xxx xxx
(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 order and the Appellate Tribunal
shall dispose of the appeal within the said period of stay specified
in that order:
Provided further that where such appeal is not so disposed of
within the said period of stay as specified in the order of stay, the
Appellate Tribunal may, on an application made in this behalf by
the assessee and on being satisfied that the delay in disposing of
the appeal is not attributable to the assessee, extend the period of
stay, or pass an order of stay for a further period or periods as it
thinks fit; so, however, that the aggregate of the period originally
allowed and the period or periods so extended or allowed shall
not, in any case, 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, the order of stay
shall stand vacated after the expiry of such period or periods."
9. The aforementioned provision (as amended by Finance Act,
2007) became the subject matter of challenge before the Bombay High
Court in Narang Overseas Pvt. Ltd. v. ITAT (2007) 295 ITR 22. The
Bombay High Court, after referring to the judgment in Mohammed
Kunhi (supra), then held:
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"Did the section as it stood before the Finance Act of 2007, and
after the Finance Act of 2007, exclude the power of the Tribunal
to grant interim relief after the period provided in the proviso.
Was it the intendement of Parliament that the Tribunal even in a
case where the assessee was not at fault should be denuded of its
incidental power to continue the interim relief granted and if so
what mischief was it seeking to avoid. The mischief if and at all
was the long delay in disposing of proceedings where interim relief
had been obtained by the Assessee. The second proviso as it
earlier stood, in a case when in an appeal interim relief was
granted, if the appeal was not disposed off within 180 days provided
that the stay shall stand vacated. The proviso as it stood could
really have not have stood the test of non-arbitrariness as it would
result in an appeal being defeated even if the assessee was not at
fault, as in the meantime the revenue could proceed against the
assets of the assessee. The proviso as introduced by the Finance
Act, 2007 was to an extent to avoid the mischief of it being rendered
unconstitutional. Once an appeal is provided, it cannot be rendered
nugatory in cases were the assessee was not at fault.
The amendment of 2007 conferred the power to extend the period
of interim relief to 360 days. Parliament clearly intended that such
appeals should be disposed of at the earliest. If that be the object
the mischief which was sought to be avoided was the non-disposal
of the appeal during the period the interim relief was in operation.
By extending the period Parliament took note of laws delay. The
object was not to defeat the vested right of Appeal in an assessee,
whose appeal could not be disposed off not on account of any
omission or failure on his part, but either the failure of the Tribunal
or acts of revenue resulting in non-disposal of the appeal within
the extended period as provided.
Can it then be said that the intention of Parliament by restricting
the period of stay or interim relief upto 360 days had the effect of
excluding by necessary intendment the power of the Tribunal to
continue the interim relief. Would not reading the power not to
continue the power to continue interim relief in cases not attributable
to the acts of the assessee result in holding that such a provision
would be unreasonable. Could Parliament have intended to confer
the remedy of an Appeal by denying the incidental power of the
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S.
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Tribunal to do justice. In our opinion for reasons already discussed
it would not be possible to so read it.
It would not be possible on the one hand to hold that there is a
vested right of an appeal and on the other hand to hold that there
is no power to continue the grant of interim relief for no fault of
the assessee by divesting the incidental power of the Tribunal to
continue the interim relief. Such a reading would result in such an
exercise being rendered unreasonable and violative of Article 14
of the Constitution. Courts must, therefore, construe and/or give
a construction consistent with the constitutional mandate and
principle to avoid a provision being rendered unconstitutional."
[at page 30-31]
The High Court then referred to the judgment of this Court in
Commissioner of Customs & Central Excise v. Kumar Cotton
Mills (2005) 13 SCC 296, which dealt with a similar provision contained
in the Central Excise Act, 1944, namely, Section 35C(2A), and then
held:
" We are of the respectful view that the law as enunciated
in Kumar Cotton Mills Pvt. Ltd. (supra) should also apply to the
construction of the third proviso as introduced in section 254(2A)
by the Finance Act, 2007. The power to grant stay or interim
relief being inherent or incidental is not defeated by the provisos
to the sub-section. The third proviso has to be read as a limitation
on the power of the Tribunal to continue interim relief in case
where the hearing of the Appeal has been delayed for acts
attributable to the assessee. It cannot mean that a construction be
given that the power to grant interim relief is denuded even if the
acts attributable are not of the assessee but of the revenue or of
the Tribunal itself. The power of the Tribunal, therefore, to continue
interim relief is not overridden by the language of the third proviso
to section 254(2A). This would be in consonance with the view
taken in Kumar Cotton Mills Pvt. Ltd. (supra). 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."
[at page 32]
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10. Close on the heels of this judgment, Section 254(2A) of the
Income Tax Act was again amended, this time by the Finance Act, 2008
(w.e.f. 01/10/2008). This amendment reads as follows:
"254. Orders of Appellate Tribunal.
xxx xxx xxx
(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 order and the Appellate Tribunal
shall dispose of the appeal within the said period of stay specified
in that order:
Provided further that where such appeal is not so disposed of
within the said period of stay as specified in the order of stay, the
Appellate Tribunal may, on an application made in this behalf by
the assessee and on being satisfied that the delay in disposing of
the appeal is not attributable to the assessee, extend the period of
stay, or pass an order of stay for a further period or periods as it
thinks fit; so, however, that the aggregate of the period originally
allowed and the period or periods so extended or allowed shall
not, in any case, 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."
11. The amended provision came to be considered by a Division
Bench of the Delhi High Court in Commissioner of Income Tax v.
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S.
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M/s Maruti Suzuki (India) Ltd. (2014) 362 ITR 215.The constitutional
validity of the said provision had not been challenged, as a result of
which the Delhi High Court interpreted the third proviso to Section
254(2A) as follows:
"In view of the aforesaid discussion, we have reached the following
conclusion:-
(i) In view of the third proviso to Section 254(2A) of the Act
substituted by Finance Act, 2008 with effect from 1st October,
2008, tribunal cannot extend stay beyond the period of 365 days
from the date of first order of stay.
(ii) In case default and delay is due to lapse on the part of the
Revenue, the tribunal is at liberty to conclude hearing and decide
the appeal, if there is likelihood that the third proviso to Section
254(2A) would come into operation.
(iii) Third proviso to Section 254(2A) does not bar or prohibit the
Revenue or departmental representative from making a statement
that they would not take coercive steps to recover the impugned
demand and on such statement being made, it will be open to the
tribunal to adjourn the matter at the request of the Revenue.
(iv) An assessee can file a writ petition in the High Court pleading
and asking for stay and the High Court has power and jurisdiction
to grant stay and issue directions to the tribunal as may be required.
Section 254(2A) does not prohibit/bar the High Court from issuing
appropriate directions, including granting stay of recovery.
We have not examined the constitutional validity of the provisos
to Section 254(2A) of the Act and the issue is left open."
[at page 231]
12. Close upon the heels of the judgment in Maruti Suzuki (supra),
the Gujarat High Court in DCIT v. Vodafone Essar Gujarat Ltd.
(2015) 376 ITR 23, while disagreeing with the view taken in Maruti
Suzuki (supra), interpreted the third proviso to Section 254(2A) of the
Income Tax Act as follows:
"Applying the decision of the Division Bench of this court in the
case of Small Industries Development Bank of India (supra)
to the facts of the case on hand, more particularly while considering
the powers of the Tribunal under section 254(2A) of the Act, it is
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observed and held that by section 254(2A) of the Act, it cannot be
inferred a legislative intent to curtail/withdraw the powers of the
Appellate Tribunal to extend stay of demand beyond the period of
365 days. However, the aforesaid extension of stay beyond the
period of total 365 days from the date of grant of initial stay would
always be subject to the subjective satisfaction by the learned
Appellate Tribunal and on an application made by the assesseeappellant to extend stay and on being satisfied that the delay in
disposing of the appeal within a period of 365 days from the date
of grant of initial stay is not attributable to the appellant-assessee.
For that purpose, on expiry of every 180 days, the appellantassessee is required to make an application to extend stay granted
earlier and satisfy the learned Appellate Tribunal that the delay in
not disposing of the appeal is not attributable to him/it and the
learned Appellate Tribunal is required to review the matter after
every 180 days and while disposing of such application of extension
of stay, the learned Appellate Tribunal is required to pass a speaking
order after having satisfied that the assessee-appellant has not
indulged into any delay tactics and that the delay in disposing of
the appeal within stipulated time is not attributable to the assesseeappellant. However, at the same time, it may not be construed
that widest powers are given to the Appellate Tribunal to extend
the stay indefinitely and that the Appellate Tribunal is not required
to dispose of the appeals at the earliest. The object and purpose
of section 35C(2A) of the Act particularly one of the object and
purpose is to see that in a case where stay has been granted by
the learned Appellate Tribunal, the learned Appellate Tribunal is
required to dispose of the appeal within total period of 365 days,
as ultimately revenue has not to suffer and all efforts should be
made by the learned Appellate Tribunal to dispose of such appeals
in which stay has been granted as far as possible within total
period of 365 days from the date of grant of initial stay and the
Appellate Tribunal shall grant priority to such appeals over appeals
in which no stay is granted. For that even the Appellate Tribunal
and/or registrar of the Appellate Tribunal is required to maintain
separate register of the appeals in which stay has been granted
fully and/or partially and the appeals in which no stay has been
granted.
[at page 42-43]
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With greatest respect to the Delhi High Court, if the aforesaid
procedure is adopted, either it would lead to multiplicity of
proceedings before the High Court and/or even granting the stay
of demand by the Department itself. We are of the opinion that
instead if the aforesaid procedure is followed, it would meet the
ends of justice and it may not increase the litigation either before
the High Court and/or appropriate forum and the purpose and
object of section 254(2A) of the Act is achieved."
[at page 45-46]
13. The impugned judgment in M/s Pepsi Foods Ltd. v. ACIT
(2015) 376 ITR 87dealt with the challenge to the constitutional validity
of the third proviso to Section 254(2A) of the Income Tax Act, as
amended by the Finance Act, 2008. A Division Bench of the Delhi High
Court, after setting out the Bombay High Court judgment in Narang
Overseas (supra), then referred to the previous judgment of the Delhi
High Court in Maruti Suzuki (supra) and held:
"12. From the above extract, it is evident that the Division Bench
was not called upon and did not examine the constitutional validity
of the provisos to Section 254(2A) of the said Act and left the
issue open. 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/bar the High Court from
issuing appropriate directions, including grant of stay of recovery.
A similar view was taken by the Bombay High Court in Jethmal
Faujimal Soni (supra). 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)
of the said Act after the amendment introduced by the Finance
Act, 2008. No decision of any High Court has been brought to our
notice by the learned counsel for the parties, wherein the
constitutional validity of the third proviso to Section 254(2A) of
the said Act has been examined."
[at page 96-97]
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After referring to this Court's judgment in Mardia Chemicals
Ltd. v. Union of India (2004) 4 SCC 311 and the judgment of a Division
Bench of the Punjab and Haryana High Court in PML Industries Ltd.
v. CCE (2013) SCC OnLine P&H 4440, which dealt with a similar
provision contained in Section 35C (2A) of the Central Excise Act,1944,
the Court held:
"23. Keeping in mind the principles set out by the Supreme Court
in Dr Subramanian Swamy (supra), we need to examine 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.
We are here concerned with the question of discrimination, based
on an impermissible or invalid classification. 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, we
find 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
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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. Take the case of delay being caused in the disposal of
the appeal on the part of the revenue. Even in that case, the stay
would stand vacated on the expiry of 365 days. This is despite the
fact that the stay was granted by the Tribunal, in the first instance,
upon considering the prima facie merits of the case through a
reasoned order.
24. Furthermore, the petitioners 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.