# INCOME TAX OFFICER v. M. K. MOHAMMED KUNHI

- **Citation:** [1969] 2 S.C.R. 65
- **Court:** Supreme Court of India
- **Decided:** 1968-09-11
- **Case number:** Civil Appeal No. 1164 of 1966
- **Bench:** J. C. Shah, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/income-tax-officer-v-m-k-mohammed-kunhi-4578
- **Pages:** 8

## Headnote

Income-tax Act ( 43 of 1961), ss. 254 and 255-Amount imposed as
penalty on assessee-Appeal to Appellate Tribunal-Tribunal's power to
grant stay of recovery of penalty pending appeal.
Certain amounts were imposed as penalty upon the assessee (respon·
dent) under ss. 27l(l)(c) and 274(2) of the Income-tax Act, 1961, for
concealment of particulars of income and for furnishing inaccurate parti ..
culars.
The assessee preferred appeals before the Appellate Tribunal and
prayed for stay of recoV<ry of the penalties pending disposal of the appeals, but the Tribunal declined to stay on the ground that it had no
power to do so. The assessee. moved the High Court under Art. 226
and the High Court held that the Tribunal had the power to stay and
directed the Tribunal to dispose of the stay application in accordance
with law.
In appeal to this Court,
HELD : The Tribunal has the power to order the stay of recovery
of the penalty as an incidental and ancillary power to its appellate jurisdi1tion. [72 CJ
Under s. 220(6) the Income-tax Officer has a power not to treat an
assessee as being in default, when an appeal under
s.
246 before the
Appellate Assistant Commissioner is pending.
But neither the Incometax Officer nor any other departmental officer has the power to stay the
recovery of penalty when an appeal is pending before the Tribunal. The
Act is silent in that behalf, and there is no provision in the Act or the
Income-tax Appellate Tribunal Rules, 1963, granting expressly such a
power to the Tribunal. That is because, the Tribunal, though not
a
court, exercises in its appellate jurisdiction under s. 254 judicial powers
of an appellate court of the widest ]l<Jssible amplitude and such a statutory
power impliedly grants the power of doing all such acts, or employing
such means as are essentially necessary to the execution of such jurisdiction
and carries witb it . the power to stay proceedings in proper cases.
In
view of the special nature of taxation and re.venue laws, such power can
be exercised after imposing conditions for safeguarding the revenue only
in des'erving and appropriate cases where th·e appeal will be otherwi50
frustrated or rendered nugatory.
The general principle that in a taxing
statute there is no room for what could be called equitable construction
applies only to the taxing part of the statute and not to its procedural
part. [68 C-E; 69 E; 70 D-E; 72 F-G]
Burhanpur Tapti Mills Ltd. v. Board of Revenue, Madhya Pradesh,
(1955) 6 S.T.C. 670, referred to.
Observations
in
Vatcha Sree1v11na1nurthy
v.
l.T.0., Vizianagcran1,
H
(1956) 30 I.T.R. 252 at p. 271, disapproved.

## Text

'
;
A
B
c
D
E
F
G
INCOME TAX OFFICER
v.
M. K. MOHAMMED KUNHI
September 11, 1968
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.]
Income-tax Act ( 43 of 1961), ss. 254 and 255-Amount imposed as
penalty on assessee-Appeal to Appellate Tribunal-Tribunal's power to
grant stay of recovery of penalty pending appeal.
Certain amounts were imposed as penalty upon the assessee (respon·
dent) under ss. 27l(l)(c) and 274(2) of the Income-tax Act, 1961, for
concealment of particulars of income and for furnishing inaccurate parti ..
culars.
The assessee preferred appeals before the Appellate Tribunal and
prayed for stay of recoV<ry of the penalties pending disposal of the appeals, but the Tribunal declined to stay on the ground that it had no
power to do so. The assessee. moved the High Court under Art. 226
and the High Court held that the Tribunal had the power to stay and
directed the Tribunal to dispose of the stay application in accordance
with law.
In appeal to this Court,
HELD : The Tribunal has the power to order the stay of recovery
of the penalty as an incidental and ancillary power to its appellate jurisdi1tion. [72 CJ
Under s. 220(6) the Income-tax Officer has a power not to treat an
assessee as being in default, when an appeal under
s.
246 before the
Appellate Assistant Commissioner is pending.
But neither the Incometax Officer nor any other departmental officer has the power to stay the
recovery of penalty when an appeal is pending before the Tribunal. The
Act is silent in that behalf, and there is no provision in the Act or the
Income-tax Appellate Tribunal Rules, 1963, granting expressly such a
power to the Tribunal. That is because, the Tribunal, though not
a
court, exercises in its appellate jurisdiction under s. 254 judicial powers
of an appellate court of the widest ]l<Jssible amplitude and such a statutory
power impliedly grants the power of doing all such acts, or employing
such means as are essentially necessary to the execution of such jurisdiction
and carries witb it . the power to stay proceedings in proper cases.
In
view of the special nature of taxation and re.venue laws, such power can
be exercised after imposing conditions for safeguarding the revenue only
in des'erving and appropriate cases where th·e appeal will be otherwi50
frustrated or rendered nugatory.
The general principle that in a taxing
statute there is no room for what could be called equitable construction
applies only to the taxing part of the statute and not to its procedural
part. [68 C-E; 69 E; 70 D-E; 72 F-G]
Burhanpur Tapti Mills Ltd. v. Board of Revenue, Madhya Pradesh,
(1955) 6 S.T.C. 670, referred to.
Observations
in
Vatcha Sree1v11na1nurthy
v.
l.T.0., Vizianagcran1,
H
(1956) 30 I.T.R. 252 at p. 271, disapproved.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1164 of
1966.
•
<66
SUPREME COURT REPORTS
(1969] 2 S.C.R.
Appeal by special leave from the judgment a.rid order dated
A
September 27, 196.5 of the Kerala High Court in O.P. No. 688
of 1965.
D. Narsaraju, S. A. L. Narayana Rao, R. N. Sachthey and
B. D. Sharma, for the appellant.
The respondent did not appear.
The Judgment of the Court was delivered by
Grover, J. The short but important question which is involved in this appeal by special leave from a judgment of the Kerala
High Court is whether the Appellate Income-tax Tribunal has
the power, under the relevant provisions of the Income tax Act,
1961, (hereinafter called the 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.
The assessee, who is the respondent, was imposed penalties
in the sum of Rs. 18,000/-, 1,700/- and 14,000/- respectively in
respect of the assessment years 1954-55, 1960-61 and 1961-62.
These penalties were imposed under s. 27l{l)(c) read withs.
274(2) of the Act for concealment of particular income and furnishing inaccurate particulars.
The assessee preferred appeals
to the Income tax Appellate Tribunal and made an interim prayer
for stay of collection of the penalties imposed. The Tribunal declined to order any stay holding that it had no power to grant such
a prayer.
The assessee then moved the High Court under Art.
226 of the Constitution.
The High Court held that the Tribunal
had the power to stay the proceedings as also the collection of
the penalties pending the appeal since that power was incidental
and ancillary to its appellate jurisdiction.
The Tribunal was
consequently directed to dispose of the stay application in accordance with law.
The relevant provisions of the Act may be first noticed. Section 156 provides that when any tax, interest, penalty, fine or any
other sum is payable in consequence of any order passed under
B
c
D
E
F
the Act, the .Income tax Officer shall serve upon the assessee a
notice of demand in the prescribed form specifying the sum so
payable.
Under s. 220( 1) any amount specified in the notice of
G
demand under s. 156 has to be paid within 35 days of the service
of the notice or within such lesser period as may be specified under
the proviso to sub-s. ( l). If the amount is not paid within the
period limited or extended (the assessee can ask for an extension)
the assessee shall be deemed to be in default.
Sub-section ( 6)
of s. 220 provides that where an assessee has presented an appeal
u
under s. 246 the Income-tax Officer may, in his discretion and
subject to such conditions as he may think fit, treat the assessee as
not being in default so long as the appeal remains pending .
•
..
'
A
c
D
E
F
'
G
H
J.T.O. v. M. K. M. KUNHI (Grover, J.)
67
Section 221 provides for the imposition of penalty when the
asseesee·is in default.
Sections 222 to 224 relate to the issuance
of a certificate to the Tax Recovery Officer.
Under s. 225 the
Income tax Officer can order stay of proceedings, even after the
certificate has been issued to the Tax Recovery Officer.
It may
be mentioned that the last four sections in terms relate to recovery
of tax, but by virtue of s. 229 any penalty imposed is also recoverable in the same manner. Section 246 to which referertce has
been made in s. 220 ( 6) gives the appealable orders against which
an assessee may appeal to the Appellate Assistant Commissioner.
Appeals to the Tribunal are dealt with by ss. 252 to 255. Section
252 provides merely for constitution oi the Tribunal. Section 253
says that any assessee aggrieved by the orders set out in els. (a),
(b) and ( c) of sub-s. ( 1) may appeal to the Tribunal.
The
Commissioner is also entitled to direct the Income-tax Officer to
file an appeal against the order of an Appellate Assistant Commissioner made under s. 250.
Section 254 specifies the orders
which the Tribunal can make.
Sub-section ( 1) which is material
may be reproduced below :-
"254. Orders of Appellate Tribunal.-(!) The
Appellate Tribunal may, after giving both the parties
to the appeal an opportunity of being heard, pass such
orders thereon as it thinks fit."
Section 255 gives the procedure of the Appellate Tribunal.
Subsections (5) and (6) of this section need alone be noticed.
"255 <)) ........................... .
(2) ........................... .
(3) ........................... .
(4) ........................... .
( 5) Subject to the provisions of this Act, the
Appellate Tribunal shall have power to
regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers or of
the discharge of its functions,
including
the places at which the Benches shall hold
their sittings.
(6) The Appellate Tribunal shall, for the purpose of discharging its functions, have all
the powers which are vested in the Incometax authorities referred to in s. 131, and
any proceedinJ?; before the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of ss. 193 and
68
SUPREME COURT Rl!PORTS
[1969] 2 S.C.R.
228 and for the purpose of s. 196 of the
Indian Penal Code (XLV of 1860) and the
Appellate Tribunal shall be deemed to be a
civil court for all the purposes of s. 195
and Chapter XXXV of the Code of Criminal Procedure, 1898 (V of 1898)."
Section 131 may at this stage be referred to.
It gives to the
Income tax Officer, the Appellate Assistant Commissioner and the
Commissioner the same powers as are vested in the court under
the Code of ·Civil Procedure when trying a suit in respect of the
matters specified in the section.
But these powers relate to discovery and inspection; enforcing the attendance of witnesses;
compelling production of books of account etc.; issuing commissions and allied matters.
There can be no manner of doubt that by the provisions of
the Act or the Income-tax Appellate Tribunal Rules, 1963 powers
have not been eXpressly conferred upon the Appellate Tribunal
to stay proceedings relating to the recovery of penalty or tax due
from an assessee.
At the same time it is significant that under
s. 220 ( 6) the power of stay by treating the assessee as not being
in default during the pendency of an appeal has been given to the
Income-tax Officer only when an appeal has been presented under
s. 246 which will be ·to the Appellate Assistant Commissioner and
not to the Appellate Tribunal.
There is no provision in s. 220
under which the Income-tax Officer or any of his superior departmental officers can be moved for granting stay in the recovery of
penalty or tax.
It may be that under s. 225
notwithstanding
that a certificate has been issued to the Tax Recovery Officer for
the recovery of any tax (the position will be the same with regard
to penalty) the Income tax Officer may grant time for the payment of the tax.
In this manner he can probably keep on granting
extensions until the disposal of the appeal by the Tribunal. It may
also be that as a matter of practice prevailing in the department
the Commissioner or the Inspecting Assistant Commissioner in
exercise of administrative powers can give the necessary relief of
staying recovery to the assessee but that can hardly be put at par
with a statutory power as is contained in s. 220(6)
which is
confined only to the stage of pendency of an appeal before the
Appellate Assistant Commissioner .
•
The argument advanced on behalf of the appellant before us
that in the absence of any express provisions in ss. 254 and 255
of the Act relating to stay of recovery during the pendency of an
appeal it must be held that no such power can be exercised by the
Tribunal, suffers from a fundamental infinnity inasmuch as it
assumes and proceeds on the premise that the statute confers such
~ power on the Income-tax Officer who can give the necessary
A
B
c
D
..
E
F
•
G
H
A
B
c
D
E
F
G
H
I.T.O. v. M. K. M. KUNH! (Grover, J.)
69
relief to an assessee.
The right of appeal is a substantive right
and the questions of fact and law are at large and are open to
review by the Appellate Tribunal. Indeed the Tribunal has been
given very wide powers under s. 254 ( 1) for it may pass such
orders as it thinks fit after giving full hearing to both the parties
to the appeal. If the Income-tax Officer and the Appellate Assistant Commissioner have made assessments or imposed penalties
raising very large demands and if the Appellate Tribunal is entirely
helpless in the matter of stay or recovery the entire purpose of the
appeal can be defeated if ultimately the orders of the departmental
authorities are set aside. It is difficult to conceive that the Legislature should have left the entire matter to the
administrative
authorities to make such orders as they choose to pass in exercise
of unfettered discretion.
The assessee, as has been pointed' out
before, has no right to even move an application when an appeal
is pending before the Appellate Tribunal under s. 220 ( 6) and it is
only at the earlier stage of appeal before the Appellate Assistant
Commissioner that the statute provides for such a matter being
dealt with by the Income-tax Officer. It is a firmly established
rule that an express grant of statutory power carries with it by
necessary implication the authority to use all reasonable means
to make such grant efl'ectivc (Sutherland Statutory Construction,
Third Edition, Arts. 5401 and 5402). The powers which have
been conferred by s. 254 on the Appellate Tribunal with widest
possible amplitude must carry with them by necessary implication
all powers and duties incidental and necessary to make the exercise of those powers fully effective. In Domat's Civil Law Cushing's Edition, Vol. 1 at page 88, it has been stated:
"It is the duty of the Judges to apply the laws, not
only to what appears to be regulated b~ their express
dispositions, but to all the cases where a just application of them may be made, and which appear to be
comprehended either within the consequences that may
be gathered from it."
Maxwell on Interpretation of Statutes, Eleventh Edition, contains
a statement at p. 350 that "where an Act confers a jurisdiction,
it impliedly also grants the power of doing all such acts, or employing such means, as are essentially necessary to its execution.
Cui jurisdictio data est, ea quoque concessa esse videntur, sine
quibus jurisdictio exp/icari non potuit." An instance is given
based on Ex. parte Martin(') that "where an inferior court is
empowered to grant an injunction, the power of pnnishing disobedience to it by commitment is impliedly conveyed by the enactment, for the power would be useless
if it could not be
enforced."
(I) [187914. Q.B.D. 212, 491.
70
SUPREME COURT REPORTS
( 1969] 2 S.C.R.
The High Court in the present case has referred to certain
decisions under the Motor Vehicles Act in which the question
arose whether an interim order of stay could be passed although
s. 64(2) of the Motor Vehicles Act as amended did not expressly
confer a power on the authority to pass such an order. It was
held in those cases that the power to stay was a necessary corollary to the power to entertain an appeal or revision : Swarnambikar Motor Service v. Wahite Motor Service('); Themmalpuram
Bus Transport Ltd. v. The Regional Transport Officer, Malabar('). The full bench decision in Dharmadas v. State Transport
Appellate Tribuna/( 3 ) related to !he question whether a remand
could be ordered in exercise of appellate jurisdiction under s. 64
of the Motor Vehicles Act in the absence of any express power
to that effect existing in the statute. It was held that the power to
remand was incidental to and implicit in the appellate jurisdiction
created by s. 64.
According to the decision in the Burhanpur
Tapti Mill Ltd. v. The Board of Revenue, Madhya Pradesh &
Ors. (4), since the Board of Revenue had the power to adjudge the
correctness of an order passed by the Commissioner under s. 22B
reopening an assessment the Board had also the power to stay the
fresh assessment proceedings started by the Assistant Commissioner in pursuance of that order. It was said that the general
principle was that in a taxing statute there was no room for what
could be called the equitable construction, but that principle
applied only to the taxing part of the statute and not to the procedural part. It has further been observed that "where the legislature invests an Appellate Tribunal with powers to prevent an
injustce, it impliedly empowers it to stay the proceedings which
may result in causing further mischief."
It is well known that an Income-tax Appellate Tribunal is
not a court but it exercises judicial
powers.
The Tribunal's
powers in dealing with appeals are of the widest amplitude and
have in some cases been held similar to and identical with the
powers of an appellate court under the Civil Procedure Code.
(See Commissioner of Income tax, Bombay City v. Hazarimal
Nagji & Co.(') and New India Assurance Co. Ltd. v. Commissioner of Income tax, Excess Profits, Bombay City( 6 ). In Polini
v. Grey('), this is what Jessel M.R. said about the powers of the
Court of Appeal to grant stay at page 443 :
"It appears to me on principle that the Court ought
to possess that jurisdiction, because the principle which
underlies all orders for the preservation of property
pending litigation is this, that the successful party, is to
---
(I) Shormotes (1956) 2M.L.J. 12.
(3) [19621 Kerala L.J. 1133.
(5) 461.f.R. 1168.
(2) A.LR. 1957 Kerala. 142,
(4) (1955) 6 S.T.C. 670.
(6) 31 T.T.R. 844.
(7) [1879) 12 Ch. D. 438.
A
B:
c
E.
,
F
•.
G
H
)
I.T.O. v. M. K. M. KUNIU (Grover, l.)
7.1
A
reap the fruits of that litigation, and not o!:>tain merely
a barren success. That principle, as it appears to me,
applies as much to the Court of first instance before the
first trial, and to the Court of Appeal before the second
trial, as to the Court of last instance before the hearing
B
c
D
E
F
G
H
of the final appeal",
There are certain decisions, however, in which difficulty was felt
that the Appellate Tribunal did not possess the power to stay
recovery during the pendency of an appeal.
In Vetcha Sreeramamurthy v. The Income tax Officer Vizianagram & Another('),
the assessee had to file a writ petition because the realisation of
the tax assessed had not been stayed during the pendency of an
appeal before the Tribunal.
The controversy centred in that case·
mainly on the scope of the discretiona1y power conferred by s. 45
of the Indian Income-tax Act, 1922, on the Income-tax Officer ..
It was held that a writ petition to compel the Income-tax Officer
to exercise his discretion under s. 45 or to exercise it honestly and
objectively was not barred.
But on the merits the Court declined
to issue a writ.
Viswanatha Sastri J., in his separate judgment
made the following observations at page 271 :
"Lastly it has to be observed that s. 45
of
the
Income-tax Act is somewhat cryptic in its
terms and
merely gives the Income-tax Officer power to declare a
person to be not in default pending the appeal.
There
is no provision for stay similar to Order XLI, Rules 5
& 6, of the Civil Procedure Code. There is no conferment of an express power of granting a stay of realisation
of the tax, though the effect of an order in fa't'our of the
assessee under s. 45 of the Act is a stay.
Nor is there
a provision for allowing the tax to be paid in instalments or for taking security for deferred
payment.
Neither the Appellate Assistant Commissioner nor the
ApPellate Tribunal is given the power to stay the collection of tax.
Whether the law should not be made more
liberal so as to enable an assessee who has preferred an
appeal, to obtain from the appellate forum, a stay of
collection of the tax, either in whole or in part, on
furnishing suitable security, is a matter for the legislature to consider."
It is interesting that in another case Pollisetti Narayana Rao v.
Commissioner of Income-tax, Hyderabad('), the
same
High
Court held that stay could be granted by it pending reference of
a case by the Appellate Tribunal to the High Court.
This power
the High Court had under s. 151 of the Civil Procedure Code and
under Art. 227 of the Constitution.
(1) [19561 30 l.T.R. 252.
(2) [1956] 29 I.T.R. 222.
72'
SUPREME COURT REPORTS
[1969] 2 S.C.R.
The High Court, in the present case, referred to a
passage
from Halsbury's Laws of England, 3rd Edition, Vol. 20, p. 705
where it is stated that "no tax is payable while the assessment is
the subject-matter o.f an appeal except such part of the tax assessed as appears to the Commissioners seized of the appeal not to be
in dispute."
This statement is apparently based on the provisions
of the English Statutes and it is not possible to derive any assistance from it.
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 s. 220 ( 6) deals express] ywith a situation when an appeal is pending before the Appellate Assistant
Commissioner, but the Act is silent iin that behalf when an appeal
is pending before the Appellate Tribunal. It could well be said
that when s. 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 cetain 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
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 Jaws. It will 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.
A
B
c
D
E
F
G
For all the reasons given above, the appeal fails and it is
hereby dismissed.
But in view of the entire circumstances the
parties are left to bear their own costs.
H
V.P.S.
Appeal dismissed.
.,
•