STAY ORDER BY INCOME TAX APPELLATE TRIBUNAL NOT EXTENDEDABLE BEYOND 365 DAYS

[Mr. M. GOVINDARAJAN]

The Income Tax Appellate Tribunal (‘Tribunal’ for short) is an appellate forum and the final fact finding authority under the provisions of the Income Tax Act, 1961.  The power to grant interim stay by the Tribunal was recognized by the Supreme Court in ‘Income Tax Officer V. M.K. Mohammed Kunhi’ – 1968 (9) TMI 5 - SUPREME Court  in which the Supreme Court held that the express grant of statutory appellate power carries by it with by necessary implication, the authority to use all reasonable means to make such grant effective.   The power to the Tribunal under Section 254 of the Act is of widest amplitude and therefore, carried with it by necessary implication of all powers and duties incidental and necessary to make the exercise of power fully effective. 

The above said incidental powers are subject to and can be circumscribed by the statute.   Tribunals have statutory power under Rule 35A of the Appellate Tribunal Rules 1963 to grant stay of demand.  Section 254(2A) was inserted by Finance Act, 1999 with effect from 01.06.1999 during which it was as under-

“(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 Section 253(1):.

The provisos were inserted to the said section with effect from 01.06.2001 by Finance Act, 2001 which read as under-

“Provided that where an order of stay is made in any proceedings relating to an appeal filed under Section 253(1), the Appellate Tribunal shall dispose of the appeal within a period of 180 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.”

Vide Finance Act, 2007 the above said provisos were substituted by new three provisos.   According to the first proviso the 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 for a period not exceeding 180 days from the date of such order and the Tribunal shall dispose of the appeal within the said period of stay specified in that order.

The second proviso provides that where such appeal is not so disposed of within the period of stay the Tribunal may on an application by the assessee and if the Tribunal is 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 not exceeding 365 days in total. 

The third proviso provides that if such appeal is not disposed of within the extended period allowed the stay order shall stand vacated after the expiry of such period. 

The Bombay High Court considered the above provisos in ‘Narang Overseas Private Limited V. Income Tax Appellate Tribunal and others’ – 2007 (7) TMI 5 - HIGH COURT, BOMBAY   The High Court held that the amendment brought to Section 254(2A) had extended the period of interim relief to 365 days with the intent that the tribunal should take note of the delay and it was not with the objective to defeat the rights of the assessee when the appeal could not be disposed of even when there was no omission or failure on the assessee’s part but either for failure of the Tribunal or acts of the Revenue.

The third proviso to Section 254(2A) was further substituted vide Finance Act, 2008. The revised proviso provides that if such appeals 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 365 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.

In ‘Jethmal Faujimal Soni V. Income Tax Appellate Tribunal’ – 2010 (4) TMI 747 - Bombay High Court  the constitutional validity of Section 254 (2A) as amended by Finance Act, 2008 was challenged. The High Court observed that the proviso enacted a stringent provision as a result of which even if the delay in disposing of the appeal was/is not attributable to the assessee, the stay stands vacated after 365 days. Thus the tribunal is under binding duty and obligation to dispose of the appeal within the said time, particularly when the fault was not on the part of the assessee.  The High Court directed the Tribunal for the expeditious disposal of the appeal and the Revenue not to take coercive steps for enforcing demand subject matter of the appeal.

In ‘Commissioner of Income Tax – II V. Maruti Suzuki (India) Limited and others’ – 2014 (2) TMI 1037 - DELHI HIGH COURT  the Revenue filed the writ petition against the order passed by the Tribunal staying the recovery of demand in favor of the assessee beyond 365 days.  The Revenue contended the following before the High Court:

• The Tribunal does not have power to grant stay of demand pending consideration of the appeal but the said right is circumscribed and has to be exercised within the four corners of Section 254(2A) of the Income Tax Act, 1961;
• The language of Section 254 (2A) mandates that no stay order can exceed total period of 365 days and Tribunal is foreclosed and barred from passing an order extending stay of demand beyond 365 days;
• The Statute is clear;
• The Tribunal being a creation of the statute is bound by the said provision and cannot violate and negate the express letter of the law;
• In ‘Maruti Suzuki Limited’ case the Tribunal had stayed the demand for a period of 6 months or till disposal of the appeal whichever is earlier on 03.02.2012.  The said stay was extended for further 5 months and further extended for another period of 4 months;
• In ‘Bose Corporation India Private Limited’ stay was granted for the first time on 09.12.2011 for a period of 6 months, second time on 15.06.2012 for a period of 6 months and third time on 04.01.2013 for a period of 6 months. In spite of objections of the Revenue for the fourth time stay was granted on 12.07.2013 for another period of 180 days.
• The violation has to be checked and the legislation respected.

The assessees contended the following before the High Court:

• Section 254(2A) is not clear and stay orders can be extended if the delay is not attributable to the assessee and the assessee is not to be blamed;
• The proviso after amendment is unduly harsh, if not draconian as the assessee suffers for no fault or even when faults or delay are directly attributable to the Revenue;

The High Court observed that there can be numerous reasons and causes why appeals, after grant of stay, may not finally decided within 365 days. When the assessee is at fault and delay is attributable to him, invariably a stay granted is vacated or should be vacated by the Tribunal.  Stay is granted only when prima facie case is made out and the assessee does not delay the proceedings.

The High Court examined the third proviso, by applying principles of equity, justice and fair play and also the principle that the court should interpret a provision in a manner that it does not lead to arbitrary results or make it violative of Article 14 or would render it unconstitutional. However, it is clear that the legislative mandate has to be respected and the Courts do not legislate but interpret the statute as a legislative edict. The third proviso after amendment undoubtedly bars and prohibits the Tribunal from extending interim stay beyond 365 days. It stipulates deemed vocation and imposes no fault consequences in strict terms. The language is clear and therefore has to be respected.  The provision does not bar or prohibit an assessee from approaching the High Court by way of writ petition for continuation, extension or grant of stay. The High Court in appropriate matters can grant or extend stay even when the Tribunal has not been able to dispose of an appeal within 365 days from the date of grant of initial stay. 

The High Court held as below:

• In view of the third proviso to Section 254(2A) of the Act substituted by Finance Act, 2008 with effect from 01.10.2008, Tribunal cannot extend stay beyond the period of 365 days from the date of first order of stay;
• 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;
• Third proviso to Section 254(2A) does not bar or prohibits the Revenue 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;
• 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 the High Court from issuing appropriate directions, including granting of stay of recovery.