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Automatic vacation of a stay, under third proviso to S.254(2A) of the Income Tax Act, applicable only when assessee is responsible for the delay in hearing the appeal: Supreme Court of India

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 appeal is attributable to the assessee. This was held in DEPUTY COMMISSIONER OF INCOME TAX & ANR. V. M/S. PEPSI FOODS LTD.[CIVIL APPEAL NO. 1106 OF 2021] in the Supreme Court of India by division bench consisting of JUSTICE R.F. NARIMAN, JUSTICE B.R. GAVAI, and  JUSTICE HRISHIKESH ROY.

Facts are that Delhi High Court struck down part of the third proviso to S.254(2A) of the 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 in a writ petition filed by the respondent. An appeal has been filed by the petitioner against the same.

The counsel for the petitioner contended that there is no right to stay in an appellate proceeding, as such stay is dependent upon the discretion of the Appellate Court. Discretionary remedy of a stay is part and parcel of the right to appeal 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, when it comes to tax statutes, they must be read literally.

The counsel for the respondent relied strongly on the reasoning of the impugned judgment of the High Court and argued that once discretionary relief has been granted based upon a strong prima case, it would be wholly arbitrary and discriminatory that such relief is vacated automatically. Stay cannot be vacated without dilatory tactics on the part of the Appellant being found against the Appellant. They cited judgments of the Apex Court to show that discriminatory taxation has been struck down under Article 14 of the Constitution of India.

The court made reference to the Apex court judgment in CIT v. J.H. Gotla., wherein the court had observed that, “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.”

The court also referred to the judgement of Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, wherein the Apex Court had made the following observations, “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.”

Considering the facts of the case and settled proposition of law the Court held, the impugned judgment of the Delhi High Court in M/s Pepsi Foods Ltd. was correct. Resultantly, the judgments of the various High Courts which follow the aforesaid declaration of the law were also correct. Thus dismissing the appeal.

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