S. 254(2A) Stay by ITAT: Since the object of the 3rd proviso to s. 254(2A) 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 of India. Also, the said proviso 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. 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. Consequently, the third proviso to s. 254(2A) will now be read without the word “even” and the words “is not” after the words “delay in disposing of the appeal”. Any order of stay shall stand vacated after the expiry of the period or periods mentioned in the Section only if the delay in disposing of the appeal is attributable to the assessee.

1. Delay condoned. Leave granted.
2. The appeals before us raise an important question as to the
constitutional validity of the third proviso to Section 254(2A) of the
Income Tax Act, 1961 (hereinafter referred to as “Income Tax Act”).
3. The facts in Deputy Commissioner of Income Tax & Anr. v. M/s
Pepsi Foods Ltd. [now Pepsico India Holdings Pvt. Ltd] (Civil
Appeal arising out of Special Leave Petition (C) No.30284 of 2015)
may be set out as being illustrative of the facts in all the appeals
before us. The Respondent-assessee is an Indian company
incorporated on 24.02.1989 and is engaged in the business of
manufacture and sale of concentrates, fruit juices, processing of rice
and trading of goods for exports. The assessee is a group company of
the multi-national Pepsico Inc., a company incorporated and registered
in the United States of America. The assessee-company merged with
Pepsico India Holdings Pvt. Ltd. w.e.f. 01.04.2010, in terms of a
scheme of arrangement duly approved by the Hon’ble Punjab and
Haryana High Court. On 30.09.2008, a return of income was filed for
the assessment year 2008-2009 declaring a total income of INR
92,54,89,822. A final assessment order was passed on 19.10.2012
4
which was adverse to the assessee. Aggrieved by the aforesaid order,
the assessee filed an appeal before the Income Tax Appellate Tribunal
(hereinafter referred to as “Tribunal”) on 29.04.2013. On 31.05.2013,
a stay of the operation of the order of the assessing officer was
granted by the Tribunal for a period of six months. This stay was
extended till 08.01.2014 and continued being extended until
28.05.2014. Since the period of 365 days as provided in Section
254(2A) of the Income Tax Act was to end on 30.05.2014 beyond
which no further extension could be granted, the assessee,
apprehending coercive action from the Revenue, filed a writ petition
before the Delhi High Court on 21.05.2014 challenging the
constitutional validity of the third proviso to Section 254(2A) of the
Income Tax Act. By a judgment dated 19.05.2015, the Delhi High Court
struck down that part of the third proviso to Section 254(2A) of the
Income Tax Act which did not permit the extension of a stay order
beyond 365 days even if the assessee was not responsible for delay in
hearing the appeal. It is this judgment and several other judgments
from various High Courts that have been challenged by the revenue in
these appeals.
4. Shri Vikramjit Banerjee, learned ASG, assailed the impugned judgment
of the Delhi High Court and other judgments following it, arguing that
5
there is no right to stay of a judgment in an appellate proceeding as
such stay is dependent upon the discretion of the Appellate Court. The
discretion having been exercised once would not mean that automatic
extensions of the same could be granted despite a reasonable period
having gone-by. He also argued that the discretionary remedy of a stay
is part and parcel of the right to appeal which itself is a statutory right,
and can be taken away by the legislature. He then argued that Article
14 of the Constitution of India is not to be applied mechanically as a far
greater freedom in the joints is given qua tax legislation and so long as
the State has laid down a valid policy which it has followed without
singling out anybody, no discrimination can possibly ensue. He also
argued that equitable considerations and arguments based on
hardship are out of place when it comes to tax statutes, which must be
read literally. For all these propositions, he cited case law which will be
dealt with later in this judgment.
5. Shri Ajay Vohra, learned Senior Advocate, Shri Himanshu S. Sinha,
Shri Deepak Chopra and Shri Sachit Jolly, learned Advocates,
appearing for the assessees, countered each of the submissions of
Shri Banerjee, learned ASG. They relied strongly upon the reasoning
of the impugned judgment of the Delhi High Court and argued that
once discretionary relief has been granted based upon a strong prima
6

facie case, balance of convenience, etc. it would be wholly arbitrary
and discriminatory that such relief be vacated automatically without
reference to whether it is the assessee who is prolonging the appellate
proceedings. Once there is a vested right of appeal, there is a right to
obtain a stay which, once obtained, cannot be vacated without dilatory
tactics on the part of the Appellant being found against the Appellant.
They cited judgments of this Court to show that discriminatory taxation
has been struck down under Article 14 of the Constitution of India.
They also argued that the State cannot take shelter under a “policy”, if
the policy or object laid down in the statutory provision is itself arbitrary
or discriminatory. They also cited judgments to show that even in
interpreting a tax statute, though equitable considerations are not to be
given effect, yet they are not wholly irrelevant when the constitutional
validity of the provision is itself challenged.
6. The genesis of the stay provision contained in Section 254 of the
Income Tax Act is in the celebrated judgment of this Court in Income
Tax Officer v. M.K. Mohammed Kunhi (1969) 2 SCR 65. In this
judgment, Section 254 of the Income Tax Act, as originally enacted,
came up for consideration before this Court. After setting out Section
254(1), this Court referred to Sutherland, Statutory Construction (3rd
Edn., Arts. 5401 and 5402), and then held that the power which has
7
been conferred by the said Section on the Appellate Tribunal with the
widest possible amplitude must carry with it, by necessary implication,
all powers incidental and necessary to make the exercise of such
power fully effective. The Court held:
“Section 255(5) of the Act does empower the Appellate
Tribunal to regulate its own procedure, but it is very
doubtful if the power of stay can be spelt out from that
provision. In our opinion the Appellate Tribunal must be
held to have the power to grant stay as incidental or
ancillary to its appellate jurisdiction. This is particularly
so when Section 220(6) deals expressly with a
situation when an appeal is pending before the
Appellate Assistant Commissioner, but the Act is silent
in that behalf when an appeal is pending before the
Appellate Tribunal. It could well be said that when
Section 254 confers appellate jurisdiction, it impliedly
grants the power of doing all such acts, or employing
such means, as are essentially necessary to its
execution and that the statutory power carries with it
the duty in proper cases to make such orders for
staying proceedings as will prevent the appeal if
successful from being rendered nugatory.
A certain apprehension may legitimately arise in the
minds of the authorities administering the Act that if the
Appellate Tribunals proceed to stay recovery of taxes
or penalties payable by or imposed on the assessees
as a matter of course the revenue will be put to great
loss because of the inordinate delay in the disposal of
appeals by the Appellate Tribunals. It is needless to
point out that the power of stay by the Tribunal is not
likely to be exercised in a routine way or as a matter of
course in view of the special nature of taxation and
revenue laws. It wilt only be when a strong prima facie
case is made out that the Tribunal will consider
whether to stay the recovery proceedings and on what
conditions and the stay will be granted in most
deserving and appropriate cases where the Tribunal is
8
satisfied that the entire purpose of the appeal will be
frustrated or rendered nugatory by allowing the
recovery proceedings to continue during the pendency
of the appeal.”
[at page 72]
Importantly, this Court recognised that orders of stay prevent the
appeal, if ultimately successful, from being rendered nugatory or futile,
and are granted only in deserving and appropriate cases.
7. The judgment of this Court was followed for many decades, the
Appellate Tribunal granting stay without being constrained by any time
limit. However, by Finance Act, 2001 (w.e.f. 01/06/2001), two provisos
were introduced to Section 254(2A) as follows:
“254. Orders of Appellate Tribunal.
xxx xxx xxx
(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 where an order of stay is made in any
proceedings relating to an appeal filed under subsection
(1) of section 253, the Appellant Tribunal shall
dispose of the appeal within a period of one hundred
and eighty days from the date of such order:
Provided further that if such appeal is not so disposed
of within the period specified in the first proviso, the
stay order shall stand vacated after the expiry of the
said period.”
8. Realising that a hard and fast provision which is directory so far as the
disposal of appeal is concerned, but mandatory so far as vacation of
9
the stay order is concerned, would lead to great hardship, the
legislature stepped in again and amended Section 254(2A) vide
Finance Act, 2007 (w.e.f. 01/06/2007) as follows:
“254. Orders of Appellate Tribunal.
xxx xxx xxx
(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-five 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.”
10
9. The aforementioned provision (as amended by Finance Act, 2007)
became the subject matter of challenge before the Bombay High Court
in Narang Overseas Pvt. Ltd. v. ITAT (2007) 295 ITR 22. The
Bombay High Court, after referring to the judgment in Mohammed
Kunhi (supra), then held:
“ 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. 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. 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. 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. 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.
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 nondisposal
of the appeal during the period the interim
relief was in operation. By extending the period
Parliament took note of laws delay. The object was not
11
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.
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.
Could Parliament have intended to confer the remedy
of an Appeal by denying the incidental power of the
Tribunal to do justice. In our opinion for reasons
already discussed it would not be possible to so read it.
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. 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.”
[at page 30-31]
The High Court then referred to the judgment of this Court in
Commissioner of Customs & Central Excise v. Kumar Cotton Mills
(2005) 13 SCC 296, which dealt with a similar provision contained in
the Central Excise Act, 1944, namely, Section 35C(2A), and then held:
“ We are of the respectful view that the law as
enunciated in Kumar Cotton Mills Pvt. Ltd. (supra)
should also apply to the construction of the third
proviso as introduced in section 254(2A) by the
12
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. (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.”
[at page 32]
10.Close on the heels of this judgment, Section 254(2A) of the Income
Tax Act was again amended, this time by the Finance Act, 2008 (w.e.f.
01/10/2008). This amendment reads as follows:
“254. Orders of Appellate Tribunal.
xxx xxx xxx
(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
13
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-five 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, 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.”
11.The amended provision came to be considered by a Division Bench of
the Delhi High Court in Commissioner of Income Tax v. M/s Maruti
Suzuki (India) Ltd. (2014) 362 ITR 215.The constitutional validity of
the said provision had not been challenged, as a result of which the
Delhi High Court interpreted the third proviso to Section 254(2A) as
follows:
“In view of the aforesaid discussion, we have reached
the following conclusion:-
(i) In view of the third proviso to Section 254(2A) of
the Act substituted by Finance Act, 2008 with effect
14
from 1st October, 2008, tribunal cannot extend stay
beyond the period of 365 days from the date of first
order of stay.
(ii) In case default and delay is due to lapse on the
part of the Revenue, the tribunal is at liberty to
conclude hearing and decide the appeal, if there is
likelihood that the third proviso to Section 254(2A)
would come into operation.
(iii) Third proviso to Section 254(2A) does not bar or
prohibit the Revenue or departmental representative
from making a statement that they would not take
coercive steps to recover the impugned demand and
on such statement being made, it will be open to the
tribunal to adjourn the matter at the request of the
Revenue.
(iv) An assessee can file a writ petition in the High
Court pleading and asking for stay and the High
Court has power and jurisdiction to grant stay and
issue directions to the tribunal as may be required.
Section 254(2A) does not prohibit/bar the High Court
from issuing appropriate directions, including
granting stay of recovery.
We have not examined the constitutional validity of
the provisos to Section 254(2A) of the Act and the
issue is left open.”
[at page 231]
12.Close upon the heels of the judgment in Maruti Suzuki (supra), the
Gujarat High Court in DCIT v. Vodafone Essar Gujarat Ltd. (2015)
376 ITR 23, while disagreeing with the view taken in Maruti Suzuki
(supra), interpreted the third proviso to Section 254(2A) of the Income
Tax Act as follows:
“ Applying the decision of the Division Bench of this
court in the case of Small Industries Development
Bank of India (supra) to the facts of the case on hand,
more particularly while considering the powers of the
15
Tribunal under section 254(2A) of the Act, it is
observed and held that by section 254(2A) of the Act, it
cannot be inferred a legislative intent to
curtail/withdraw the powers of the Appellate Tribunal to
extend stay of demand beyond the period of 365 days.
However, the aforesaid extension of stay beyond the
period of total 365 days from the date of grant of initial
stay would always be subject to the subjective
satisfaction by the learned Appellate Tribunal and on
an application made by the assessee-appellant to
extend stay and on being satisfied that the delay in
disposing of the appeal within a period of 365 days
from the date of grant of initial stay is not attributable to
the appellant-assessee. For that purpose, on expiry of
every 180 days, the appellant-assessee is required to
make an application to extend stay granted earlier and
satisfy the learned Appellate Tribunal that the delay in
not disposing of the appeal is not attributable to him/it
and the learned Appellate Tribunal is required to review
the matter after every 180 days and while disposing of
such application of extension of stay, the learned
Appellate Tribunal is required to pass a speaking order
after having satisfied that the assessee-appellant has
not indulged into any delay tactics and that the delay in
disposing of the appeal within stipulated time is not
attributable to the assessee-appellant. However, at the
same time, it may not be construed that widest powers
are given to the Appellate Tribunal to extend the stay
indefinitely and that the Appellate Tribunal is not
required to dispose of the appeals at the earliest. The
object and purpose of section 35C(2A) of the Act
particularly one of the object and purpose is to see that
in a case where stay has been granted by the learned
Appellate Tribunal, the learned Appellate Tribunal is
required to dispose of the appeal within total period of
365 days, as ultimately revenue has not to suffer and
all efforts should be made by the learned Appellate
Tribunal to dispose of such appeals in which stay has
been granted as far as possible within total period of
365 days from the date of grant of initial stay and the
Appellate Tribunal shall grant priority to such appeals
over appeals in which no stay is granted. For that even
the Appellate Tribunal and/or registrar of the Appellate
16
Tribunal is required to maintain separate register of the
appeals in which stay has been granted fully and/or
partially and the appeals in which no stay has been
granted.
[at page 42-43]
xxx xxx xxx
With greatest respect to the Delhi High Court, if the
aforesaid procedure is adopted, either it would lead to
multiplicity of proceedings before the High Court and/or
even granting the stay of demand by the Department
itself. We are of the opinion that instead if the aforesaid
procedure is followed, it would meet the ends of justice
and it may not increase the litigation either before the
High Court and/or appropriate forum and the purpose
and object of section 254(2A) of the Act is achieved.”
[at page 45-46]
13.The impugned judgment in M/s Pepsi Foods Ltd. v. ACIT (2015) 376
ITR 87 dealt with the challenge to the constitutional validity of the third
proviso to Section 254(2A) of the Income Tax Act, as amended by the
Finance Act, 2008. A Division Bench of the Delhi High Court, after
setting out the Bombay High Court judgment in Narang Overseas
(supra), then referred to the previous judgment of the Delhi High Court
in Maruti Suzuki (supra) and held:
“12. From the above extract, it is evident that the
Division Bench was not called upon and did not
examine the constitutional validity of the provisos to
Section 254(2A) of the said Act and left the issue open.
It is only on a plain reading of the provisos, as they
existed, that the Division Bench came to the conclusion
that the Tribunal had no power to extend stay beyond a
period of 365 days from the date of the first order of
stay but that an assessee could file a writ petition in the
High Court asking for stay even beyond the said period
of 365 days and the High Court had the power and
jurisdiction to grant stay and issue directions to the
17
Tribunal and that Section 254(2A) did not prohibit/bar
the High Court from issuing appropriate directions,
including grant of stay of recovery. A similar view was
taken by the Bombay High Court in Jethmal Faujimal
Soni (supra). But that decision was also rendered on a
plain meaning of the provisos, as they stood. There
was no challenge to the constitutional validity of the
third proviso to Section 254(2A) of the said Act after
the amendment introduced by the Finance Act, 2008.
No decision of any High Court has been brought to our
notice by the learned counsel for the parties, wherein
the constitutional validity of the third proviso to Section
254(2A) of the said Act has been examined.”
[at page 96-97]
After referring to this Court’s judgment in Mardia Chemicals Ltd. v.
Union of India (2004) 4 SCC 311 and the judgment of a Division
Bench of the Punjab and Haryana High Court in PML Industries Ltd.
v. CCE (2013) SCC OnLine P&H 4440, which dealt with a similar
provision contained in Section 35C (2A) of the Central Excise
Act,1944, the Court held:
“23. Keeping in mind the principles set out by the
Supreme Court in Dr Subramanian Swamy (supra), we
need to examine whether the present challenge to the
validity of the third proviso to Section 254(2A) can be
sustained. This is not a case of excessive delegation of
powers and, therefore, we need not bother about the
second dimension of Article 14 in its application to
legislation. We are here concerned with the question of
discrimination, based on an impermissible or invalid
classification. It is abundantly clear that the power
granted to the Tribunal to hear and entertain an appeal
and to pass orders would include the ancillary power of
the Tribunal to grant a stay. Of course, the exercise of
that power can be subjected to certain conditions. In
18

the present case, we find that there are several
conditions which have been stipulated. First of all, as
per the first proviso to Section 254(2A), a stay order
could be passed for a period not exceeding 180 days
and the Tribunal should dispose of the appeal within
that period. The second proviso stipulates that in case
the appeal is not disposed of within the period of 180
days, if the delay in disposing of the appeal is not
attributable to the assessee, the Tribunal has the
power to extend the stay for a period not exceeding
365 days in aggregate. Once again, the Tribunal is
directed to dispose of the appeal within the said period
of stay. The third proviso, as it stands today, stipulates
that if the appeal is not disposed of within the period of
365 days, then the order of stay shall stand vacated,
even if the delay in disposing of the appeal is not
attributable to the assessee. While it could be argued
that the condition that the stay order could be extended
beyond a period of 180 days only if the delay in
disposing of the appeal was not attributable to the
assessee was a reasonable condition on the power of
the Tribunal to the grant an order of stay, it can, by no
stretch of imagination, be argued that where the
assessee is not responsible for the delay in the
disposal of the appeal, yet the Tribunal has no power
to extend the stay beyond the period of 365 days. The
intention of the legislature, which has been made
explicit by insertion of the words – ‘even if the delay in
disposing of the appeal is not attributable to the
assessee’- renders the right of appeal granted to the
assessee by the statute to be illusory for no fault on the
part of the assessee. The stay, which was available to
him prior to the 365 days having passed, is snatched
away simply because the Tribunal has, for whatever
reason, not attributable to the assessee, been unable
to dispose of the appeal. Take the case of delay being
caused in the disposal of the appeal on the part of the
revenue. Even in that case, the stay would stand
vacated on the expiry of 365 days. This is despite the
fact that the stay was granted by the Tribunal, in the
first instance, upon considering the prima facie merits
of the case through a reasoned order.
19
24. Furthermore, the petitioners are correct in their
submission that unequals have been treated equally.
Assessees who, after having obtained stay orders and
by their conduct delay the appeal proceedings, have
been treated in the same manner in which assessees,
who have not, in any way, delayed the proceedings in
the appeal. The two classes of assessees are distinct
and cannot be clubbed together. This clubbing together
has led to hostile discrimination against the assessees
to whom the delay is not attributable. It is for this
reason that we find that the insertion of the expression
– ‘even if the delay in disposing of the appeal is not
attributable to the assessee’- by virtue of the Finance
Act, 2008, violates the non-discrimination clause of
Article 14 of the Constitution of India. The object that
appeals should be heard expeditiously and that
assesses should not misuse the stay orders granted in
their favour by adopting delaying tactics is not at all
achieved by the provision as it stands. On the contrary,
the clubbing together of ‘well behaved’ assesses and
those who cause delay in the appeal proceedings is
itself violative of Article 14 of the Constitution and has
no nexus or connection with the object sought to be
achieved. The said expression introduced by the
Finance Act, 2008 is, therefore, struck down as being
violative of Article 14 of the Constitution of India. This
would revert us to the position of law as interpreted by
the Bombay High Court in Narang Overseas (supra),
with which we are in full agreement. Consequently, we
hold that, where the delay in disposing of the appeal is
not attributable to the assessee, the Tribunal has the
power to grant extension of stay beyond 365 days in
deserving cases. The writ petitions are allowed as
above.”
[at page 107-109]
14. It is settled law that challenges to tax statutes made under Article 14 of
the Constitution of India can be on grounds relatable to discrimination
as well as grounds relatable to manifest arbitrariness. These grounds
may be procedural or substantive in nature. Thus, in Suraj Mall Mohta
20
and Co. v. A.V. Visvanatha Sastri (1955) 1 SCR 448, this Court
struck down Section 5(4) of the Taxation on Income (Investigation
Commission) Act, 1947 on the ground that the procedure prescribed
was substantially more prejudicial and more drastic to the assessee
than the procedure contained in the Indian Income Tax Act, 1922.
Section 5(4) of the aforesaid Act was thus struck down as a piece of
discriminatory legislation offending against the provisions of Article 14
of the Constitution of India.
15. Instances of taxation statutes being struck down on substantive
grounds which had alleged discrimination can be found in the 5-Judge
decision of this Court in Kunnathat Thatehunni Moopil Nair v. State
of Kerala (1961) 3 SCR 77, in which a uniform tax called “basic tax”
levied under the provisions of the Travancore Cochin Land Tax Act,
1955 was held to be discriminatory as it treated unequals equally. The
Court held:
“Ordinarily, a tax on land or land revenue is assessed
on the actual or the potential productivity of the land
sought to be taxed. In other words, the tax has
reference to the income actually made, or which could
have been made, with due diligence, and, therefore, is
levied with due regard to the incidence of the taxation.
Under the Act in question we shall take a hypothetical
case of a number of persons owning and possessing
the same area of land. One makes nothing out of the
land, because it is arid desert. The second one does
not make any income, but could raise some crop after
a disproportionately large investment of labour and
21
capital. A third one, in due course of husbandry, is
making the land yield just enough to pay for the
incidental expenses and labour charges besides land
tax or revenue. The fourth is making large profits,
because the land is very fertile and capable of yielding
good crops. Under the Act, it is manifest that the fourth
category, in our illustration, would easily be able to
bear the burden of the tax. The third one may be able
to bear the tax. The first and the second one will have
to pay from their own pockets, if they could afford the
tax. If they cannot afford the tax, the property is liable
to be sold, in due process of law, for realisation of the
public demand. It is clear, therefore, that inequality is
writ large on the Act and is inherent in the very
provisions of the taxing section. It is also clear that
there is no attempt at classification in the provisions of
the Act. Hence, no more need be said as to what could
have been the basis for a valid classification. It is one
of those cases where the lack of classification creates
inequality. It is, therefore, clearly hit by the prohibition
to deny equality before the law contained in Article 14
of the Constitution.”
[at page 91-92]
Likewise, in Union of India v. A. Sanyasi Rao (1996) 3 SCC 465, this
Court struck down Section 44-AC of the Income Tax Act as being
discriminatory when only particular trades were singled out for
discriminatory treatment, reliefs under Sections 28 to 43-C of the
Income Tax Act being denied only to such trades. This was done as
the denial of such relief had no nexus to the object sought to be
achieved by the legislation and resulted in unfairness, arbitrariness
and denial of equality of treatment (see paragraph 22).
22
16.The other facet of Article 14 has been recently resurrected by a 5-
Judge Bench judgment in Shayara Bano v. Union of India (2017) 9
SCC 1 as follows:
“101. It will be noticed that a Constitution Bench of this
Court in Indian Express Newspapers (Bombay) (P)
Ltd. v. Union of India [Indian Express Newspapers
(Bombay) (P) Ltd. v. Union of India, (1985) 1 SCC
641 : 1985 SCC (Tax) 121] stated that it was settled
law that subordinate legislation can be challenged on
any of the grounds available for challenge against
plenary legislation. This being the case, there is no
rational distinction between the two types of legislation
when it comes to this ground of challenge under Article
14. The test of manifest arbitrariness, therefore, as laid
down in the aforesaid judgments would apply to
invalidate legislation as well as subordinate legislation
under Article 14. Manifest arbitrariness, therefore, must
be something done by the legislature capriciously,
irrationally and/or without adequate determining
principle. Also, when something is done which is
excessive and disproportionate, such legislation would
be manifestly arbitrary. We are, therefore, of the view
that arbitrariness in the sense of manifest arbitrariness
as pointed out by us above would apply to negate
legislation as well under Article 14.”
17. Judged by both these parameters, there can be no doubt that the third
proviso to Section 254(2A) of the 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 judgment, unequals are treated equally in that no
differentiation is made by the third proviso between the assessees who
23
are responsible for delaying the proceedings and assessees who are
not so responsible. This is a little peculiar in that the legislature itself
has made the aforesaid differentiation in the second proviso to Section
254(2A) of the Income Tax Act, making it clear that a stay order may
be extended upto a period of 365 days upon satisfaction that the delay
in disposing of the appeal is not attributable to the assessee. We have
already seen as to how, as correctly held by Narang Overseas
(supra), the second proviso was introduced by the Finance Act, 2007
to mitigate the rigour of the first proviso to Section 254(2A) of the
Income Tax Act in its previous avatar. Ordinarily, the Appellate
Tribunal, where possible, is to hear and decide appeals within a period
of four years from the end of the financial year in which such appeal is
filed. It is only when a stay of the impugned order before the Appellate
Tribunal is granted, that the appeal is required to be disposed of within
365 days. So far as the disposal of an appeal by the Appellate Tribunal
is concerned, this is a directory provision. However, so far as vacation
of stay on expiry of the said period is concerned, this condition
becomes mandatory so far as the assessee is concerned. 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 object cannot itself be discriminatory
24
or arbitrary, as has been felicitously held in Nagpur Improvement
Trust v. Vithal Rao (1973) 3 SCR 39 as follows:
“It is now well-settled that the State can make a
reasonable classification for the purpose of legislation.
It is equally well-settled that the classification in order
to be reasonable must satisfy two tests: (i) the
classification must be founded on intelligible differentia
and (ii) the differentia must have a rational relation with
the object sought to be achieved by the legislation in
question. In this connection it must be borne in mind
that the object itself should be lawful. The object itself
cannot be discriminatory, for otherwise, for instance, if
the object is to discriminate against one section of the
minority the discrimination cannot be justified on the
ground that there is a reasonable classification
because it has rational relation to the object sought to
be achieved.”
[at page 47]
Since the object of the third proviso to Section 254(2A) of the Income
Tax Act 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, in the sense pointed out above, is liable to
be struck down as violating Article 14 of the Constitution of India. Also,
the said proviso 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. 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
25
proviso is also manifestly arbitrary being a provision which is
capricious, irrational and disproportionate so far as the assessee is
concerned.
18. In fact, in a recent judgment of this Court in Essar Steel India Ltd.
Committee of Creditors v. Satish Kumar Gupta (2020) 8 SCC 531,
the word “mandatorily” in the 2nd proviso inserted through an
amendment made to Section 12(3) of the Insolvency and Bankruptcy
Code, 2016 was struck down. This Court held:
“124. Given the fact that timely resolution of stressed
assets is a key factor in the successful working of the
Code, the only real argument against the amendment
is that the time taken in legal proceedings cannot ever
be put against the parties before NCLT
and NCLAT based upon a Latin maxim which subserves
the cause of justice, namely, actus curiae neminem
gravabit.
125. In Atma Ram Mittal v. Ishwar Singh Punia [Atma
Ram Mittal v. Ishwar Singh Punia, (1988) 4 SCC 284] ,
this Court applied the maxim to time taken in legal
proceedings under the Haryana Urban (Control of Rent
and Eviction) Act, 1973, holding: (SCC pp. 288-89,
para 8)
“8. It is well settled that no man should suffer
because of the fault of the court or delay in the
procedure. Broom has stated the maxim actus
curiae neminem gravabit — an act of court shall
prejudice no man. Therefore, having regard to the
time normally consumed for adjudication, the ten
years’ exemption or holiday from the application of
the Rent Act would become illusory, if the suit has to
be filed within that time and be disposed of finally. It
is common knowledge that unless a suit is instituted
soon after the date of letting it would never be
disposed of within ten years and even then within
26
that time it may not be disposed of. That will make
the ten years holiday from the Rent Act illusory and
provide no incentive to the landlords to build new
houses to solve problem of shortages of houses.
The purpose of legislation would thus be defeated.
Purposive interpretation in a social amelioration
legislation is an imperative irrespective of anything
else.”
126. Likewise, in Sarah Mathew v. Institute of Cardio
Vascular Diseases [Sarah Mathew v. Institute of Cardio
Vascular Diseases, (2014) 2 SCC 62 : (2014) 1 SCC
(Cri) 721] , this Court held that for the purpose of
computing limitation under Section 468 of the Code of
Criminal Procedure, 1973 the relevant date is the date
of filing of the complaint and not the date on which the
Magistrate takes cognizance, applying the aforesaid
maxim as follows: (SCC pp. 96-97, para 39)
“39. As we have already noted in reaching this
conclusion, light can be drawn from legal maxims.
Legal maxims are referred to in Bharat Kale [Bharat
Damodar Kale v. State of A.P., (2003) 8 SCC 559 :
2004 SCC (Cri) 39] , Japani Sahoo [Japani
Sahoo v. Chandra Sekhar Mohanty, (2007) 7 SCC
394 : (2007) 3 SCC (Cri) 388] and Vanka
Radhamanohari [Vanka Radhamanohari v. Vanka
Venkata Reddy, (1993) 3 SCC 4 : 1993 SCC (Cri)
571] . The object of the criminal law is to punish
perpetrators of crime. This is in tune with the wellknown
legal maxim nullum tempus aut locus occurrit
regi, which means that a crime never dies. At the
same time, it is also the policy of law to assist the
vigilant and not the sleepy. This is expressed in the
Latin maxim vigilantibus et non dormientibus, jura
subveniunt. Chapter XXXVI CrPC which provides
limitation period for certain types of offences for
which lesser sentence is provided draws support
from this maxim. But, even certain offences such as
Section 384 or 465 IPC, which have lesser
punishment may have serious social consequences.
The provision is, therefore, made for condonation of
delay. Treating date of filing of complaint or date of
initiation of proceedings as the relevant date for
computing limitation under Section 468 of the Code
27
is supported by the legal maxim actus curiae
neminem gravabit which means that the act of court
shall prejudice no man. It bears repetition to state
that the court’s inaction in taking cognizance i.e.
court’s inaction in applying mind to the suspected
offence should not be allowed to cause prejudice to
a diligent complainant. Chapter XXXVI thus presents
the interplay of these three legal maxims. The
provisions of this Chapter, however, are not
interpreted solely on the basis of these maxims.
They only serve as guiding principles.”
127. Both these judgments in Atma Ram Mittal [Atma
Ram Mittal v. Ishwar Singh Punia, (1988) 4 SCC 284]
and Sarah Mathew [Sarah Mathew v. Institute of
Cardio Vascular Diseases, (2014) 2 SCC 62 : (2014) 1
SCC (Cri) 721] have been followed in Neeraj Kumar
Sainy v. State of U.P. [Neeraj Kumar Sainy v. State of
U.P., (2017) 14 SCC 136 : 8 SCEC 454] , SCC paras
29 and 32. Given the fact that the time taken in legal
proceedings cannot possibly harm a litigant if the
Tribunal itself cannot take up the litigant’s case within
the requisite period for no fault of the litigant, a
provision which mandatorily requires the CIRP to end
by a certain date — without any exception thereto —
may well be an excessive interference with a litigant’s
fundamental right to non-arbitrary treatment under
Article 14 and an excessive, arbitrary and therefore
unreasonable restriction on a litigant’s fundamental
right to carry on business under Article 19(1)(g) of the
Constitution of India. This being the case, we would
ordinarily have struck down the provision in its entirety.
However, that would then throw the baby out with the
bath water, inasmuch as the time taken in legal
proceedings is certainly an important factor which
causes delay, and which has made previous statutory
experiments fail as we have seen from Madras
Petrochem [Madras Petrochem Ltd. v. BIFR, (2016) 4
SCC 1 : (2016) 2 SCC (Civ) 478] . Thus, while leaving
the provision otherwise intact, we strike down the word
“mandatorily” as being manifestly arbitrary under Article
14 of the Constitution of India and as being an
excessive and unreasonable restriction on the litigant’s
28
right to carry on business under Article 19(1)(g) of the
Constitution. The effect of this declaration is
that ordinarily the time taken in relation to the corporate
resolution process of the corporate debtor must be
completed within the outer limit of 330 days from the
insolvency commencement date, including extensions
and the time taken in legal proceedings. However, on
the facts of a given case, if it can be shown to the
Adjudicating Authority and/or Appellate Tribunal under
the Code that only a short period is left for completion
of the insolvency resolution process beyond 330 days,
and that it would be in the interest of all stakeholders
that the corporate debtor be put back on its feet
instead of being sent into liquidation and that the time
taken in legal proceedings is largely due to factors
owing to which the fault cannot be ascribed to the
litigants before the Adjudicating Authority and/or
Appellate Tribunal, the delay or a large part thereof
being attributable to the tardy process of the
Adjudicating Authority and/or the Appellate Tribunal
itself, it may be open in such cases for the Adjudicating
Authority and/or Appellate Tribunal to extend time
beyond 330 days. Likewise, even under the newly
added proviso to Section 12, if by reason of all the
aforesaid factors the grace period of 90 days from the
date of commencement of the Amending Act of 2019 is
exceeded, there again a discretion can be exercised by
the Adjudicating Authority and/or Appellate Tribunal to
further extend time keeping the aforesaid parameters
in mind. It is only in such exceptional cases that time
can be extended, the general rule being that 330 days
is the outer limit within which resolution of the stressed
assets of the corporate debtor must take place beyond
which the corporate debtor is to be driven into
liquidation.”
19.Coming to the arguments of the learned ASG, his reliance upon
passages contained in M/s M. Ramnarain (P) Ltd. v. State Trading
Corpn. of India Ltd. (1983) 3 SCC 75 (paragraph 16) and M.
29
Janardhana Rao v. CIT (2005) 2 SCC 324 (paragraph 14) do not
carry the matter any further. In M/s M. Ramnarain (supra) what was
held in paragraph 16 was that the statutory right of appeal conferred
on a party may be lost by application of the provisions of some law or
by the conduct of the party. This was held in the context of the
provisions of Order XX Rule 11 of the Code of Civil Procedure, 1908,
which was held by the High Court in that case to deprive the Appellant
of his right to prefer an appeal against the main decree. The High
Court judgment was set aside, this Court holding:
“21. Though by virtue of the provisions of the Original
Side Rules of the Bombay High Court the earlier
appeal could be permitted to be filed without a certified
copy of the decree or order, the appeal would not be
valid and competent unless the further requirement of
filing the certified copy had been complied with. At the
time when the earlier Appeal No. 36 of 1981 had been
withdrawn, the certified copy of the decree had not
been filed. The said appeal without the certified copy of
the decree remained an incompetent appeal. The
withdrawal of an incompetent appeal which will indeed
be no appeal in the eye of law cannot in any way
prejudice the right of any appellant to file a proper
appeal, if the right of appeal is not otherwise lost by
lapse of time or for any other valid reason. We are,
therefore, of the opinion that the provisions contained
in Order 20 Rule 11 of the Code do not in the facts and
circumstances of the present case deprive the
appellant of his right to file an appeal against the
decree.”
This judgment is distinguishable as it does not deal with the
constitutional validity of an appeal provision.
30
20. Likewise, the judgment in Janardhana Rao (supra), which held that a
right of appeal is neither a natural nor inherent right but has to be
regulated in accordance with the law in force at the relevant time, the
conditions of the appellate provision having to be strictly fulfilled, is
also a judgment which has no reference to the constitutional validity of
an appeal provision being assailed. In point of fact, this Court’s
judgment in Mardia Chemicals (supra) comes nearer home when the
constitutional validity of a condition for the exercise of the right of
appeal is assailed. This was felicitously put by this Court as follows:
“60. The requirement of pre-deposit of any amount at
the first instance of proceedings is not to be found in
any of the decisions cited on behalf of the respondent.
All these cases relate to appeals. The amount of
deposit of 75% of the demand, at the initial proceeding
itself sounds unreasonable and oppressive, more
particularly when the secured assets/the management
thereof along with the right to transfer such interest has
been taken over by the secured creditor or in some
cases property is also sold. Requirement of deposit of
such a heavy amount on the basis of a one-sided claim
alone, cannot be said to be a reasonable condition at
the first instance itself before start of adjudication of the
dispute. Merely giving power to the Tribunal to waive or
reduce the amount, does not cure the inherent infirmity
leaning one-sidedly in favour of the party, who, so far
has alone been the party to decide the amount and the
fact of default and classifying the dues as NPAs
without participation/association of the borrower in the
process. Such an onerous and oppressive condition
should not be left operative in expectation of
reasonable exercise of discretion by the authority
concerned. Placed in a situation as indicated above,
where it may not be possible for the borrower to raise
31
any amount to make the deposit, his secured assets
having already been taken possession of or sold, such
a rider to approach the Tribunal at the first instance of
proceedings, captioned as appeal, renders the remedy
illusory and nugatory.
61. In the case of Seth Nand Lal [1980 Supp SCC 574]
while considering the question of validity of pre-deposit
before availing the right of appeal the Court held: (SCC
p. 590, para 22)
[R]ight of appeal is a creature of the statute and
while granting the right the legislature can impose
conditions for the exercise of such right so long as
the conditions are not so onerous as to amount to
unreasonable restrictions rendering the right almost
illusory.”
[emphasis supplied]
This Court ultimately struck down Section 17(2) of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (hereinafter referred to as “SARFAESI Act”) holding
that in the circumstances mentioned, the deposit of 75% of the amount
claimed as a pre-condition to the hearing of an “appeal” before the
Debt Recovery Tribunal under Section 17 of the SARFAESI Act was
onerous, oppressive, unreasonable, arbitrary and hence violative of
Article 14 of the Constitution of India.
21.The learned ASG then relied upon judgments which indicate that when
Article 14 of the Constitution of India is applied to tax legislation,
greater freedom in the joints must be allowed by the Court in adjudging
the constitutional validity of the same. For this purpose, he relied upon
32
State of M.P. v. Bhopal Sugar Industries Ltd. (1964) 6 SCR 846. In
this case, the judgment of this Court held that if the statute discloses a
permissible policy of taxation, the Courts will uphold it. If, however, the
tax was imposed deliberately with the object of differentiating between
persons similarly circumstanced, such tax would be liable to be struck
down.
22.We have already seen how unequals have been treated equally so far
as assessees who are responsible for delaying appellate proceedings
and those who are not so responsible, resulting in a violation of Article
14 of the Constitution of India. Also, the expression “permissible” policy
of taxation would refer to a policy that is constitutionally permissible. If
the policy is itself arbitrary and discriminatory, such policy will have to
be struck down, as has been found in paragraph 17 above.
23.The other judgment relied upon by the learned ASG is the judgment in
N. Venugopala Ravi Varma Rajah v. Union of India (1969) 1 SCC
681 (paragraph 14). This judgment speaks of a larger play in the joints
to legislative discretion in the matter of classification being granted
when such legislation is a tax legislation. The caveat applied in this
paragraph is that a taxing statute may contravene Article 14 of the
Constitution of India if it seeks to impose upon the same class of
property, persons, etc., something which leads to obvious inequality. It
33
is this caveat that has been applied to the third proviso to Section
254(2A) of the Income Tax Act.
24.The learned ASG then relied upon Commr. of Customs v. Dilip
Kumar & Co. (2018) 9 SCC 1 (paragraphs 32 to 34). This judgment
only reiterates the well-settled principle that in the field of taxation
hardship or equity has no role to play in determining eligibility to tax.
The present appeals have nothing to do with determining eligibility to
tax. They have only to do with a frontal challenge to the constitutional
validity of an appeal provision in the Income Tax Act. Also, it is
important to remember that the golden rule of interpretation is not
given a go-by when it comes to interpretation of tax statutes. This
Court in CIT v. J.H. Gotla (1985) 4 SCC 343, put it well when it said:
“46. 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 modify the language used by the
Legislature so as to achieve the intention of the
Legislature and produce a rational construction. The
task of interpretation of a statutory provision is an
attempt to discover the intention of the Legislature from
the language used. It is necessary to remember that
language is at best an imperfect instrument for the
expression of human intention. It is well to remember
the warning administered by Judge Learned Hand that
one should not make a fortress out of dictionary but
remember that statutes always have some purpose or
object to accomplish and sympathetic and imaginative
discovery is the surest guide to their meaning.
47. We have noted the object of Section 16(3) of the
Act which has to be read in conjunction with Section
34
24(2) in this case for the present purpose. If the
purpose of a particular provision is easily discernible
from the whole scheme of the Act which in this case is,
to counteract the effect of the transfer of assets so far
as computation of income of the assessee is
concerned then bearing that purpose in mind, we
should find out the intention from the language used by
the Legislature and if strict literal construction leads to
an absurd result i.e. result not intended to be
subserved by the object of the legislation found in the
manner indicated before, and if another construction is
possible apart from strict literal construction then that
construction should be preferred to the strict literal
construction. 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. Furthermore, in
the instant case we are dealing with an artificial liability
created for counteracting the effect only of attempts by
the assessee to reduce tax liability by transfer. It has
also been noted how for various purposes the business
from which profit is included or loss is set off is treated
in various situations as assessee’s income. The
scheme of the Act as worked out has been noted
before.”
25.The law laid down by the impugned judgment of the Delhi High Court
in M/s Pepsi Foods Ltd. (supra) 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”. Any
order of stay shall stand vacated after the expiry of the period or
periods mentioned in the Section only if the delay in disposing of the
35
appeal is attributable to the assessee. The appeals of the revenue are,
therefore, dismissed.