CA Hiral Raja
Section 254(2A) of the Income Tax Act states that the Appellate Tribunal, where it is possible, may hear and decide the appeal within a period of four years from the end of the financial year in which such appeal is filed.
First proviso to Section 254(2A) empowers the Appellate Tribunal to pass an order of stay, after considering the merits of the case, for a period not exceeding one hundred and eighty days from the date of such order and the Tribunal has to dispose of the appeal within the said period.
Second proviso to Section 254(2A) provides that where such appeal is not disposed of within the above said period of stay, the Tribunal on an application by the assessee and on being satisfied that the delay in disposing of the appeal is not attributable to the assessee may extend the period of stay for a further period or periods, however, that the aggregate of the period originally allowed and the extended period shall not, exceed three hundred and sixty five days, within which the appeal is to be disposed of.
Finance Act 2007 introduced third proviso to Section 254(2A) w.e.f 01st June 2007 as follows:
“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.”
There are various situations wherein the appeal on merit is not disposed by the Appellate Tribunal on account of high pendency of appeals in the Tribunal or on account of Income tax department seeking adjournments, without any fault of the assessee. The above amendment led to a situation wherein even if the appeal is pending with the Appellate Tribunal for disposal, once the extended period allowed under the second proviso lapses, the stay is automatically vacated by the operation of the law without taking into consideration whether the delay in disposal of appeal is attributable to the acts of the assessee or not.
This issue came up for consideration in the case of Narang Overseas (P) Ltd. vs. Income Tax Appellate Tribunal and Others [2007 295 ITR 22 BOM] wherein the Hon’ble High Court held as under:
“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 s. 254(2A). This would be in consonance with the view taken in Kumar Cotton Mills (P) Ltd. (supra). 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.”
The Hon’ble High Court held that the purported objective of this proviso was not to protect an assessee who dragged on an appeal whilst enjoying the benefit of an interim order but correspondingly to impose a duty on the Tribunal to dispose of an appeal within the prescribed time limit. It further held that Appellate Tribunal has the powers to grant stay in excess of the period set out by second proviso to Section 254(2A), in case the delay in disposal of appeal is not attributable to the assessee.
Finance Act 2008 sought to negate the above mentioned judgment and substituted the third proviso w.e.f. 01.10.2008 as follows:
“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, which shall not, in any case, exceed three hundred and sixty-five 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”.
As a result of this stringent provision, even if the delay in disposal of the appeal is not attributable to acts of the assessee, the stay automatically stands vacated by operation of law upon lapse of a period of three hundred and sixty five days.
The effect of this provision is that in the cases of stay, the Tribunal is duty bound to dispose off the appeal within three hundred and sixty five days. [View expressed by Hon’ble Mumbai High Court in the case of Shri. Jethmal Faujimal Soni vs. Income Tax, Appellate Tribunal, Pune and Others and also in of Sulzer India Limited vs. The Income Tax Appellate Tribunal, Mumbai].
The moot issue that arises for consideration inspite of such a stringent provision, can the tribunal grant further stay (on expiry of three hundred and sixty five days), when delay in disposal of appeal is not attributable to the assessee?
Hon’ble Bombay High Court in the case of CIT vs. Ronuk Industries [2011 333 ITR 99] had on relying on the Bombay High Court Judgement in the case of Narang Overseas (P) Ltd(supra) held that Tribunal had the powers to grant stay beyond 365 days. However in this judgement, there was no explicit discussion on the amendment carried out by the Finance Act 2008 and hence departmental authorities took a view that this decision cannot be taken as laying down any ratio decendi.
Special Bench of ITAT Mumbai in the case of Tata Communications Ltd. vs. Commissioner of Income Tax [138 TTJ (Mum) 257] held that it is difficult to accept the contention that in absence of any specific discussion on 2008 amendment, the decision of the jurisdictional high court in the case of Ronuk Industries (supra) cannot be considered as ratio decendi and need not be accepted as binding precedent. ITAT further held that as a result of dismissal of appeal filed by the revenue and upholding of the order of the Tribunal, the Hon’ble Mumbai High Court has answered this issue in affirmative and has held that the Tribunal has the power to grant stay beyond the period of 365 days even after insertion of third proviso to Section 254(2A) w.e.f. 01.10.2008 in cases where the delay is not attributable to the assessee. This judgement was further followed by Hon’ble Mumbai ITAT in the case of M/s. Everest Kanto Cylinder Limited vs. DCIT (LTU).
On this issue, recently Karnataka High Court in the case of Commissioner of Income Tax vs. M/s Ecom Gill Coffee Trading Pvt Ltd. has held as under:
- Clause 46 of the notes on clauses of the Finance Act, 2008 relating to modification brought out to the third proviso to section 254(2A) of the Income Tax Act reads as under:
“… The intention behind these provisions have been very clear that the Appellate Tribunal cannot grant stay either under the original order or under any subsequent order, beyond the period of 365 days in aggregate.
To make this intention clear, it is proposed to amend section 254 of the Income Tax Act and further provide that the aggregate of the period originally allowed and the period or periods extended or allowed shall not, in any case, exceed three hundred and sixty five days, even if the delay in disposing the appeal is not attributable to the assessee.”
- Income Tax Appellate Tribunal is a creature of statute and its powers, jurisdiction and manner of functioning are enabled as well as regulated under the statutory provisions and hence it should function within the boundary of the statutory provisions provided by the statute.
- Income Tax Appellate Authority is not an authority akin to the Court but is a special tribunal with limited jurisdictions and powers as indicated in the statutory provisions.
- Since the appeal is a statutory right both to the assessee as well as the Revenue and can be availed only in the manner provided under the statutory provisions, there is no question of availing this right, independent or de hors the statutory provisions.
- Once the statute regulates the manner of availing appellate remedy and also imposes restrictions and limitations in the manner of consideration of the appeal, the Appellate Tribunal is bound by that. The Appellate Tribunal cannot go beyond the limits stipulated by its creator, the legislator. Hence it is necessary to look into the statutory provisions to find out the scope of the power and jurisdiction of the Appellate Tribunal to pass orders particularly in the matter of granting/extending an order of stay and the duration upto which the order of stay can be prolonged.
- The decisions of the Bombay High Court does not have any significance or impact on the amendment brought by the third proviso to the section 254(2A) by way of Finance Act 2008.
- The Third proviso indicates that even if an order of stay is passed, such an order shall stand vacated after expiry of the outer limit of 365 days and the Tribunal (created by the stature) should abide by these statutory provisions in letter and spirit. Introduction of 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.
- If the legislature has stipulated the outer limit of 365 days within which the stay order granted by the Tribunal can operate, it leaves only option to hold that Tribunal is not enabled to pass orders granting stay beyond 365 days. Interpretation of provision of this nature in a manner so as to enable or confer power on the Tribunal to extend the stay beyond 365 days would be contrary to the statutory provisions.
The delivery of the above judgment has led to a situation wherein two high courts have expressed divergent views on this issue. The judgment of the Hon’ble Karnataka High Court (supra) seem to be in line with the intention of the amendment as well as the legal view expressed in the judgment seems to be appropriate. Hon’ble Bombay High Court in the case of Ronuk Industries (supra) did not deal with the intention of this specific amendment in greater detail. The assesssees in Maharashtra will get the benefit of the judgement of jurisdictional high court whereas on the same issue, the assesssees in Karnataka might have to face recovery and coercive action from the department.
Recently Delhi ITAT in the case of Qualcomm Incorporated vs. Asst. Director of Income Tax after relying on the decision of the Special Bench judgement in the case of Narang Overseas (P) Ltd. Vs ACIT 114 TTJ 433 (SB) held that if there is a cleavage of opinion among different high courts and there is no decision of the jurisdictional high court on this issue, then the view favourable to the assessee needs to be followed and based on that, it held that Tribunal has the powers to grant stay of demand even after the expiry of three hundred and sixty five days, if the delay in disposal of the appeal is not exclusively attributable to the assessee.
On account of divergence of views by two High courts on this issue, wherever the view is taken that Tribunal does not have the powers to grant stay in excess of three hundred and sixty five days, then there is a possibility of assessee being affected on account of recovery of the demand and coercive action by the department, even if the delay in disposal of the appeal is not attributable to the assessee. Till the time this issue is settled by the Hon’ble Supreme Court, it appears to me, that in such cases, the assessees will have no option but to file writ petition with the respective High court requesting the High court to grant stay and instruct the authorities not to take any coercive action until the appeal is disposed of by the Hon’ble Tribunal.
When Parliament has passed an amendment to the effect that even if the delay caused beyond 365 days is not attributable to the assesse, the Tribunal has no power to extend the stay beyo0nd 365 days. It is an axiom that Parliament lays down the4 laws and the judiciary has to interpret it. In so interpreting it, the judiciary cannot say that itas interpretation will be the law despite the3 faqct5 that law as laid down by Parliament is to the contrary. There, in my humble opinion, the3 judiciary with due respects cannot rule that the Tribunal has power to stay demand beyond 365 days even if the assess is not in default. However, if Parliament in its wisdom modifies this provision, it is a diffe3wrent matter.