In this article I will light up a recent watershed judgement delivered by the Honble apex court in CIT VS PEPSI FOODS LTD income tax case. The issue before the apex court whether third proviso of section 254(2-A) is constitutional or not in the touch stone Article 14 of constitution? Now it is better to first let know what that section is. This section was introduced vide an amendment in the Finance Act 1999 whereby laid down the power of Honble ITAT power to grant stay on ongoing appeal proceeding and initially the tribunal power of granting stay on recovery proceeding was four years but by subsequent amendment in recent it has been reduced to one years or 365 days and it will be deemed automatically be vacated thereafter irrespective of fact that quantum appeal is not disposed by the tribunal. Now the said petitioner has challenged the said third proviso of said section before Honble Delhi High Court on the ground of expiry of said stay period before non disposal of quantum appeal by the ITAT not owning to the fault of appellant and Honble court struck down the third proviso as illegal and unconstitutional for violating the Article 14 of constitution. Article 14 deals with equality before law. Now being aggrieved with said order department challenged it before the apex court. In its order after discussing vividly about the scope of Article 14 and states power to make reasonable classification in light of its previous judgement in N. Venugopala Ravi Varma Rajah v. Union of India (1969) 1 SCC 681 : (1969) 74 ITR 49. which noted as follows– “A taxing statute is not, therefore, exposed to attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects.”, apex court in the present case has made major shift of its view by upholding the order of Delhi HC and dismissing the departmental appeal by applying the met wand of golden rule.
Now it is pertinent to discuss what the golden rule of interpretation? It is long settled judicial rule by Lord Wensleydale, in Grey v. Pearson, noted that in many circumstances grammatical or literal interpretation of statute leads to absurdity, repugnance or inconsistency in regard to the object of the statute (1857) 6 HL Cas 61, 106: 26 LJ Ch 473, 481. Thus, the Court in such cases where the rule of literal interpretation fails may modify the law only with view to remove the said absurdity. In this case by applying the said rule as well as Article 14, apex court reached to the unconstitutionality of third proviso on the premise that any law enacted by the legislature that treats the unequal as equal is illegal. In present case the expiry of stipulated one year of stay granted by the ITAT was not on default of the assessee but of the department. Therefore if the assessee is punished with withdrawal of stay on recovery proceeding as the literal interpretation of third proviso clearly states so will hit both the Article 14 by treating the unequal with equal means the department with assessee as well as leading to the absurdity by endorsing illegal which the golden rule does not permit. It was plea of petitioner department that by literal interpretation of said third proviso, the period of stay granted by tribunal can not be extended irrespective of reason for inordinate delay on disposal of quantum appeal. But Honble apex court very rightly held that although under Article 14 state can make classification in taxing statutes but within the periphery of reasonableness but Article 14 never permits to treat the equal with unequal. So any upholding of third proviso will be violative of constitution.
Quidos to apex court for strict application of golden rule in perfect manner which was unfortunately violated by another Bench of apex court in a recent judgement in CHEMVEST CEMENT which is very disturbing in judicial discipline. Now this judgement will reset golden rule of interpretation in its own place of glory.