The Finance Bill, 2008 amendment to Section 254 interferes with the inherent power of the ITAT to grant stay or interim relief.
Tax arrears locked up in appeal have always been a matter of concern for the Income-Tax (I-T) department. Natural justice requires that disputed taxes should not be collected till the dispute is settled finally in favour of the Revenue. Of course, it is open to the Revenue to insist on proper arrangements being made to secure its interests during the pendency of the appeal.
To insist on payment and collection of disputed taxes even when the appeal is pending will negate the ends of justice. And yet, Finance Bill, 2008, authorises such arbitrary action on the part of the Revenue.
Interim Relief by the ITAT
The Income-Tax Appellate Tribunal (ITAT) is clothed with powers to grant interim relief by way of stay of disputed demands during the pendency of an appeal. It is not a court, but it exercises judicial powers to deal with appeal, and these are of the widest amplitude.
The powers conferred by Section 254 of the Income-Tax Act, 1961 on the ITAT must carry with them, by necessary implication, all powers and duties incidental and necessary to make the exercise of those powers fully effective.
Both the Supreme Court and High Courts have made it clear that the power to grant stay has to be read as co-extensive with the power to grant final relief. In the absence of the power to grant interim relief, the final relief itself may be defeated.
Section 254 was amended by the Finance Act, 2007. The third proviso, while recognising the power of stay, also stipulated that if the appeal is not disposed of within one year, the order of stay shall stand vacated. The Bombay Bench of the ITAT understood the amendment as having the effect of denuding the Tribunal of its incidental powers to grant interim relief beyond 365 days.
This view was challenged before the Bombay High Court in Narang Overseas P Ltd vs ITAT (295 ITR 22). The court, in a detailed judgment given in July 2007, explained that the purpose behind the amendment was not to defeat the vested right of appeal in an assessee whose appeal could not be disposed of, not on account of any omission or failure on his part, but either because of the failure of the Tribunal or acts of the Revenue resulting in non-disposal of the appeal within the extended period of 365 days.
The idea was that the assessee should not be permitted to drag on the appeal even while having the benefit of an interim stay order. It did not mean that the stay can be vacated even when the delay in the disposal of the appeal is not attributable to the appellant taxpayer.
This was a sensible judgment and protected the taxpayer from harassment in the matter of collection of disputed demand.
The Latest Amendment
Clause 46 of the Finance Bill 2008 seeks to amend Section 254 of the I-T Act relating to the orders passed by the Appellate Tribunal. The Government explains that the intention behind the amendment of Section 254 is to lay down that the Tribunal cannot grant stay beyond 365 days in the aggregate.
To make the intention clear, the newly amended Section 254 lays down that the aggregate of the period of stay shall not in any case exceed 365 days, even if the delay in disposing of the appeal is not attributable to the assessee.
This is a shocking amendment. It interferes with the inherent power of the ITAT to grant stay or interim relief depending on the facts of the case. The delay in the disposal of the appeal may be attributable to the Revenue or the Tribunal itself.
The Bombay High Court in the Narang Overseas case has taken the view that the Tribunal will still have powers 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 court relied on the observations of the Supreme Court on similar provisions under the Customs and Central Exercise Act in the Kumar Cotton Mills P Ltd (2006 6 RC 82) case in interpreting the amended provision of Section 254.
The latest amendment would punish the taxpayer by way of collection of disputed taxes pending appeal in the Tribunal even when the delay in the disposal of the appeal is not attributable to the taxpayer. It deprives the Tribunal of its inherent power to grant stay till the disposal of the appeal.
The vires of the amendment is open to question. It seeks to drive harassed taxpayers to seek remedy by way of writ petitions before the High Court for stay of disputed demands.
T. C. A. Ramanujam (The author is a former Chief Commissioner of Income-Tax.)