THE question: “Does the third proviso to Section 254 (2A) of Income Tax Act, have the effect of denuding the Tribunal of its incidental power to grant interim reliefs? Finance Act 2007 substituted sub-section (2A) to Section 254 of the Income Tax Act, 1961 with effect from 1st June, 2007. The said sub-section as amended reads 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 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 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.”
This question is settled on the Central Excise side, but the matter is in the High Court from the Income Tax side.
The High Court observed,
How to interpret the statute?
1. Most Judges, in dealing with tax legislation, have refused to engage in what Megarry J. calls ” a bount of speculative judicial legislation” to cut down the wide words of the statute.
2. The ordinary approach to the question of verbal interpretation is to give words used by Parliament their ordinary meaning in the language used and if, consistent with ordinary meaning, there is a choice between two alternative interpretations, then prefer the construction that maintains a reasonable and consistent scheme of taxation without distorting the language.
3. While construing the statute it is legitimate to look at the state of law prevailing leading to the legislation so as to see what was the mischief at which the Act was directed.
4. If a strict and literal construction of the statue leads to an absurd result i.e. a result not intended to be subserved by the object of the legislation ascertained from the scheme of the legislation, then, if another construction is possible apart from the strict literal construction, then, that construction should be preferred to the strict literal construction.
5. So also where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might fine tune the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction.
6. “Though equity and taxation are often strangers attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction.”
Can the Tribunal extend the stay?
1. This sub-section if properly construed is directory and not mandatory as its language suggests. The first proviso sets out that the Tribunal can pass an order of stay in any proceedings for a period not exceeding 180 days and the Appellate Tribunal shall dispose of the Appeal within the said period of stay specified in that year.
2. On a consideration of sub-section (2) of Section 254 along with the provisos as they then stood, a literal construction would mean that if the Appeal is not disposed of within a period of 180 days then the stay granted would stand vacated.
3. The Section was amended by Finance Act, 2007 w.e.f. 1st June, 2007. A literal reading of the proviso as introduced by the amendment provides that even after 180 days as provided by the first proviso the stay can be continued beyond the period of 180 days but not to exceed 360 days as provided by the second proviso provided the Tribunal is satisfied that the delay in disposing of the Appeal is not attributable to the assessee.
4. The third proviso which was the second provisio in the unamended Section has been recast to take into consideration the second proviso as introduced. The purported object behind the provisos is that the assessee should not be permitted to drag on the Appeal whilst at the same time having the benefit of an interim order and correspondingly a duty on the Tribunal to dispose of the Appeal in terms of the time limit set out in the two provisos.
5. Two facets emerge. Firstly the grant and continuance of the interim relief would depend on a strong prima facie case and the delay in disposal of the Appeal not being attributable to any act of the assessee and secondly a duty imposed on the Tribunal to dispose of the Appeal as far as possible within the period of the stay as granted.
6. If these twin objects are seen, it would be clear that the intention of the Parliament was that, wherever a stay is granted there is a corresponding duty on the Tribunal to dispose of the Appeals at any rate not later than 360 days and if disposal is delayed on account of the act of the assessee then to vacate th
e stay by operation of law.
7. Parliament obvious of the rigour of the period of stay as earlier provided, extended the period whilst casting a duty on the Tribunal as far as possible to dispose of the Appeal when stay was granted, within the time frame as provided in the second proviso.
8. A literal reading of the third proviso would mean that if the Tribunal does not dispose of the appeal within the period and the assessee is not at fault the stay stands vacated by operation of law.
9. Would that mean that after the period provided by the proviso exhausts itself the power to continue the interim relief stands exhausted.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
18. Could Parliament have intended to confer the remedy of an Appeal by denying the incidental power of the Tribunal to do justice.
19. 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.
20. 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.
The High Court referred to two Central Excise cases, IPCL – 2004-TIOL-556-CESTAT-MUM-LB and kumar Cotton Mills – 2005-TIOL-42-SC-CESTAT and observed,
++ Occasionally by reason of other administrative exigencies for which the assessee cannot be held liable, the stay applications are not disposed within the time specified. The reasoning of the Tribunal expressed in the impugned order and as expressed in the Larger Bench matter, namely, IPCL v. Commissioner of Central Excise, Vadodara cannot be faulted. However, we should not be understood as holding that any latitude is given to the Tribunal to extend the period of stay except on good cause and only if the Tribunal is satisfied that the matter could not be heard and disposed of by reason of the fault of the Tribunal for reasons not attributable to the assessee.
++ We are of the respectful view that the law as enunciated in Kumar Cotton Mills Pvt. Ltd 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.. 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.
As the High Court has held that the Tribunal still retains the power to continue the interim relief, the Court did not find it necessary to decide whether the amendment is with prospective or retrospective effect.