New Delhi, Apr 7 (PTI) The Supreme Court has upheld the Delhi High Court's verdict of partially striking down a provision of the Income Tax law which did not permit extension of a stay on tax assessment beyond 365 days even if assessee is not responsible for delay in hearing of appeals before a tribunal by terming it as “arbitrary and discriminatory”.
A provision of Section 254(2A) of the Income Tax Act, 1961 provided that a stay order of an Income Tax Appellate Tribunal (ITAT) on the tax assessment done by the IT department of an assessee cannot be extended beyond 365 days even if assessee was not responsible for delay in hearing of the appeal.
The significant verdict would now ensure that the benefit of stay order of ITAT on tax assessment would not get vacated automatically after the expiry of 365 days if assessee was not responsible for the delay.
The Delhi High Court had struck down the part of the third proviso to Section 254(2A) of the Income Tax Act which did not permit extension of a stay order beyond 365 days even if the assessee was not responsible for delay.
“There can be no doubt that the third proviso …Income Tax Act, introduced by the Finance Act, 2008, would be both arbitrary and discriminatory and, therefore, liable to be struck down as offending Article 14 of the Constitution of India.
“First and foremost, as has correctly been held in the impugned judgement, unequals are treated equally in that no differentiation is made by the third proviso between the assessees who are responsible for delaying the proceedings and assessees who are not so responsible,” a bench headed by Justice R F Nariman said in its judgement on a batch of appeals.
Upholding the high court verdict, the bench, also comprising justices B R Gavai and Hrishkesh Roy, took note of the fact that the law does not consider the distinction between those responsible for delay and the persons who did not delay the appeal proceedings. “The object sought to be achieved by the third proviso to Section 254(2A) of the Income Tax Act is without doubt the speedy disposal of appeals before the Appellate Tribunal in cases in which a stay has been granted in favour of the assessee. But such an object cannot itself be discriminatory or arbitrary..,” Justice Nariman, who wrote the judgement for the bench, said.
It said since the object of the law is the “automatic vacation of a stay that has been granted on the completion of 365 days, whether or not the assessee is responsible for the delay caused in hearing the appeal, such object being itself discriminatory is liable to be struck down as violating Article 14 of the Constitution”.
The provision would result in the automatic vacation of a stay upon the expiry of 365 days even if the Appellate Tribunal could not take up the appeal in time for no fault of the assessee, it said.
“Since further, vacation of stay in favour of the revenue would ensue even if the revenue is itself responsible for the delay in hearing the appeal. In this sense, the said proviso is also manifestly arbitrary being a provision which is capricious, irrational and disproportionate so far as the assessee is concerned,” the 36-page judgement said. The judgement, which came on a batch of appeals, referred to the facts of a case of M/s Pepsi Foods Ltd, now Pepsico India Holdings Pvt Ltd.
The firm had got a stay from the tribunal on the final assessment order, passed on October 19, 2012, “which was adverse” to it.
Fearing automatic vacation of stay on expiry of 365 days, the firm moved the Delhi High Court challenging the validity of the provision saying the assessee had no fault in the delay. “The law laid down by the impugned judgment of the Delhi High Court in M/s Pepsi Foods Ltd.. is correct. Resultantly, the judgments of the various High Courts which follow the aforesaid declaration of law are also correct. Consequently, the third proviso to Section 254(2A) of the Income Tax Act will now be read without the word 'even' and the words 'is not' after the words 'delay in disposing of the appeal',” the apex court concluded. PTI SJK RKS RKS