2015 (5) TMI 655 - HC - Income Tax

Constitutional validity of the third proviso to Section 254(2A) challenged - discrimination, based on an impermissible or invalid classification - grant extension of stay beyond 365 days - Held that - Assessees who, after having obtained stay orders and by their conduct delay the appeal proceedings, have been treated in the same manner in which assessees, who have not, in any way, delayed the proceedings in the appeal. The two classes of assessees are distinct and cannot be clubbed together. This clubbing together has led to hostile discrimination against the assessees to whom the delay is not attributable. It is for this reason that we find that the insertion of the expression even if the delay in disposing of the appeal is not attributable to the assessee by virtue of the Finance Act, 2008, violates the non-discrimination clause of Article 14 of the Constitution of India. The object that appeals should be heard expeditiously and that assesses should not misuse the stay orders granted in their favour by adopting delaying tactics is not at all achieved by the provision as it stands. On the contrary, the clubbing together of well behaved assesses and those who cause delay in the appeal proceedings is itself violative of Article 14 of the Constitution and has no nexus or connection with the object sought to be achieved. The said expression introduced by the Finance Act, 2008 is, therefore, struck down as being violative of Article 14 of the Constitution of India. This would revert us to the position of law as interpreted by the Bombay High Court in Narang Overseas (2007 (7) TMI 5 - BOMBAY HIGH COURT ), with which we are in full agreement. Consequently, we hold that, where the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to grant extension of stay beyond 365 days in deserving cases. The writ petitions are allowed as above. - Decided in favour of assessee.

Summary

Issues Involved:
1. Constitutional validity of the third proviso to Section 254(2A) of the Income Tax Act, 1961.
2. Interpretation and implications of the amendment introduced by the Finance Act, 2008.
3. Whether the amendment violates Article 14 of the Constitution of India.
4. The power of the Income Tax Appellate Tribunal to grant interim relief beyond 365 days.

Detailed Analysis:

1. Constitutional Validity of the Third Proviso to Section 254(2A)
The primary issue in these writ petitions is the challenge to the constitutional validity of the third proviso to Section 254(2A) of the Income Tax Act, 1961, particularly the amendment introduced by the Finance Act, 2008. The petitioners argue that the amendment, which added the words "even if the delay in disposing of the appeal is not attributable to the assessee," is arbitrary and violates Article 14 of the Constitution of India. They contend that the right to obtain a stay of demand/penalty is integral to an effective right of appeal, and the amendment makes this right illusory.

2. Interpretation and Implications of the Amendment Introduced by the Finance Act, 2008
The amendment in question nullified the interpretation by the Bombay High Court in Narang Overseas Private Limited v. Income Tax Appellate Tribunal, which allowed the Tribunal to extend the stay beyond 365 days if the delay was not attributable to the assessee. The petitioners argue that this amendment introduces a classification that clubs assessees who are responsible for delays with those who are not, causing hostile discrimination.

3. Violation of Article 14 of the Constitution of India
The petitioners argue that the amendment violates Article 14 by treating unequals equally. Assessees who delay the proceedings and those who do not are treated the same, leading to discrimination against law-abiding assessees. The court agrees, stating that this classification has no rational nexus with the object sought to be achieved and is therefore violative of Article 14.

4. Power of the Income Tax Appellate Tribunal to Grant Interim Relief Beyond 365 Days
The court examined whether the Tribunal's power to grant interim relief is limited by the third proviso. The Supreme Court in ITO v. M. K. Mohammed Kunhi held that the power to grant a stay is incidental to the Tribunal's appellate jurisdiction. The court noted that the Tribunal's power to grant stay should not be rendered nugatory by the proviso, especially when the delay is not attributable to the assessee.

Conclusion:
The court struck down the expression "even if the delay in disposing of the appeal is not attributable to the assessee" as violative of Article 14 of the Constitution. This reverts the legal position to the interpretation by the Bombay High Court in Narang Overseas, allowing the Tribunal to extend the stay beyond 365 days if the delay is not attributable to the assessee. The writ petitions were allowed, and the petitioners were directed to approach the Tribunal for extension of stay. The interim orders granted by the court were to continue until the Tribunal passed its orders.