Karnataka High Court Ruling: The Tribunal is not authorized to extend stay of demand beyond maximum period of 365 days. The decision of Tribunal to extend stay of demand beyond 365 days amounted to contravention of provisions of the law.( Ecom Gill Coffee Trading Private Limited and B. Fouress Private Limited v. CIT (ITA. No. 160&161/2012)]
The Bangalore Bench of Income tax Appellate Tribunal (Tribunal) granted stay of demand beyond 365 days to Ecom Gill Coffee Trading Private Limited and B. Fouress Private Limited (the assessees). The revenue authorities appealed the aforesaid stay order in Hon’ble Karnataka High Court contending that, the stay orders passed by the Bangalore Tribunal were in contravention of third proviso to Section 254(2A) of Income Tax Act, 1961 (the Act) as introduced by Finance Act, 2008 w.e.f. 1.10.2008.
Question before Hon’ble High Court (HC):
Whether the Tribunal was correct in holding that, it is entitled to extend the stay beyond a period of 365 days which is contrary to Section 254 of the Act?
Contention of the Revenue:
• The amendment by the way of third proviso to Section 254(2A) provides that the stay of demand stands vacated on the expiration of maximum period of stay i.e. 365 days.
• The amendment to Section 254 by the Finance Act, 2008 was to nullify the effect of decision of Bombay HC in the case of Narang Overseas Pvt. Ltd. v. ITAT & Ors (295 ITR 22) wherein the Hon’ble HC held that the Tribunal has power to extend the stay of demand beyond the maximum period of 365 days.
• The decision of Narang Overseas was followed in another decision of the Bombay HC in the case of CIT v. Ronuk Industries Ltd (333 ITR 99). The Bombay HC in the case of Ronuk Industries did not consider the amendment the newly inserted third proviso to Section 254 by the Finance Act, 2008. Thus, it was contended that the decision of Bombay HC was in clear contravention to provisions of the Act.
• In the present case, the Bangalore Tribunal granted stay of demand to the assessees following the ruling of special bench of Mumbai Tribunal in the case of Tata Communications v. ACIT (2011-TIOL-203-ITAT-MUM-SB). The special bench held that, the Tribunal has power to grant stay of demand beyond stipulated period of 365 days, if the delay in disposing off the appeal is not attributable to the assessee. However, such ruling, which is contravention of law, cannot be relied upon.
Contention of the Assessees:
• The assessees relied on the decision of Supreme Court (SC) in the case of CEC v. Kumar Cotton Mills Private Ltd. (180 ELT 484), wherein the Hon’ble SC held that, the provisions of Central Excise Act, 1944 should not be construed so as to restrict the powers of the Tribunals to pass the orders of stay of demand beyond the stipulated period.
• The assessees contended that the amendment to Section 254 should be understood as one to instill a sense of urgency over Tribunal to disposing off the appeals.
Observation and Judgment of Hon’ble HC:
• The Appellate Tribunal being a creature of statute which powers jurisdiction and manner of functioning are all as enabled under the Statutory provisions and is fully regulated and should function within the bounds of the statutory provisions by the statute. The Tribunal is not an Authority akin to a Court but is a Special Tribunal with limited jurisdiction as indicated in the statutory provisions and for a precise purpose.
• If the statute regulates the manner of availing the appellate remedy and also imposes restrictions and limitations in the manner of consideration of the appeal and disposal of the appeal, the Tribunal is bound by that. The Tribunal cannot go beyond the limits stipulated by its creator, the legislature.
• We respectfully disagree with the view expressed by the learned Judges of the Bombay HC in two decisions referred to above with regard to the powers of the Tribunal for granting stay order beyond the outer period stipulated by the statute.
• The third proviso not merely indicates that the extension of stay order cannot be beyond total number of 365 days put together, but also indicates that even assuming an order of this nature had been passed, such an order of stay shall stand vacated after the expiry of outer limit of 365 days. In our considered opinion, the Tribunal, which is the creature of statute, should abide by these statutory provisions in letter and spirit. Further, the introduction of the third proviso to the Finance Act, 2008 makes it abundantly clear that the purpose of putting the outer limits is only for curtailing the period an order of stay can operate and to ensure that it has no effect after the period of 365 days from the date of initial order.
• The judgment of the Hon’ble SC in Kumar Cotton Mills Pvt. Ltd., (supra) cannot constitute law declared for the purpose of understanding or interpreting the provisions of Section 254(2A) of the Act. The provisions of Section 254(2A) has its own legislative history and amendments have been brought about against these provisions and therefore, we are afraid that we cannot just accept any interpretation which has been placed on a statutory provision occurring in a different legislation i.e. Excise law, wherein the circumstances could have been quite different.
• We cannot ignore the language of Section and intended amendment brought about; and the language of the legislature being quite clear about the outer time limit stipulated for the duration of the operation of stay. In our considered opinion, the interpretation of Section 254 so as to enable or confer power on the Tribunal to extend a stay order beyond 365 days would be contrary to the statutory provision.
• The Tribunal is not enabled to pass orders granting stay beyond the period of 365 days. Any other understanding or interpretation is nothing short of doing violence to the language of the statutory provision in the name of interpretation of the provision and permitting an action which is clearly in contravention of the statutory provisions.
The Karnataka High Court has strictly interpreted the provisions of law, as restricting the power of the Tribunal to grant stay beyond 365 days, even if there is no fault of the assessee. This decision would be applicable in the State of Karnataka, as the Bombay High Court has taken a contrary view. We believe that a literal construction, which has been adopted by the Karnataka High Court, would give rise to absurd results and that should be avoided, as it would occasion tremendous hardship to an assessee for no fault of such assessee.
Further, the Supreme Court in ITO v. M.K. Mohammed Kunhi (71 ITR 815) held that the power to give final relief in the appeal, included the power to grant interim relief to stay the demand. It is difficult to conceive that the Legislature should have left the entire matter to the administrative authorities to make such high pitched orders as they choose to pass in exercise of unfettered discretion.
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