The Hindu Business Line : Can arbitrary taxes be collected without stay?

The end of the financial year can create problems for taxpayers with large tax demands raised against them and appeals kept pending. The pendency of appeals may not be due to any default on the part of the taxpayer. Yet, to meet the Budget targets, the income-tax department resorts to coercive action for collecting the disputed demand.

The exigencies of Budget collections before the end of the financial year necessitated amendment to the law laying down that the time limit for completion of pending assessments shall henceforth be December 31 and not March 31. The idea was that demands raised before December 31 will fall due for collection before March 31.

Subject to appeal

Disputed demands are subject to appeal. The appellate authorities are empowered to grant interim stay of recovery. Several High Courts have ruled that the first appellate authority himself can in suitable cases stay recovery till the disposal of the appeal. Normally, the department waits for the disposal of the first appeal before resorting to recovery.

In the case of the Income-Tax Appellate Tribunal (ITAT), the law was amended with effect from June 1, 2007. Section 254(2A), as now amended, lays down that the appeal should be decided by the Tribunal within four years. The Tribunal is also empowered to grant stay of disputed demands on merits for 180 days. The appeal should be disposed of within this period.

If the appeal is not disposed of within 180 days, the Tribunal can, on a suitable application, and after considering the merits, extend the period of stay up to 365 days. The appeal should then be disposed of within this period. The proviso to Section 254 (2A) declares that if the appeal is not so disposed of within 365 days, the order of stay shall stand vacated.

Pending beyond a year

The question arises: What happens if the appeal is kept pending after the expiry of 365 days and there are merits in the request for stay? Section 254 (2A) lays down that the stay can be extended up to 365 days if the pendency of the appeal can be due to reasons not attributable to the taxpayer. If the appeals are pending after 365 days and such pendency is not attributable to non-cooperation from the taxpayer, will it be fair to insist on recovery even when the appeal is pending? This issue was considered by the Bombay High Court in Narang Overseas (P) Ltd vs ITAT (295 ITR 22). In a significant ruling, the court pointed out that stay pending appeal is a sort of interim relief. The intention of Parliament was when stay is in operation, the Tribunal is duty bound to dispose of the appeal on priority. If the disposal of the appeal is delayed because of adjournments from the side of the taxpayer, such stay can be vacated by operation of law.

A literal reading of the proviso, as it stands today, could mean that if the Tribunal does not dispose of the appeal within 365 days and the taxpayer is not at fault, the stay stands vacated by operation of law. Would that mean that the power to continue interim relief stands exhausted?

The High Court explained that appeal is a vested right. Laws delayed should not defeat this vested right by vacating stay when the pendency of the appeal is not due to omission or failure on the part of the taxpayer. Delay in the disposal of the appeal can be due to the failure of the Tribunal or acts of the Revenue.

Parliament could not have intended to confer the remedy of appeal by denying the incidental power of the Tribunal to do justice by grant of stay. Denial of stay for no fault of the taxpayer would result in violation of Article 14 of the Constitution.

Limitation of power

The power to grant stay or interim relief being inherent or incidental, is not defeated by the provisos to sub-section 254 (2A) inserted by the Finance Act, 2007. The proviso has to be read as a limitation on the power of the Tribunal to continue interim relief in a case where the hearing of the appeal is delayed for acts attributable to the taxpayer.

The amendment does not mean that the power to grant interim relief is denuded even if the acts attributable are not of the taxpayer but of the Revenue or of the Tribunal itself. The power to continue interim stay is not overridden by the language of the amended Section 254(2A). The Tribunal has the power to extend the period of 365 days on good cause being shown and on it being satisfied that the matter could not be heard and disposed of for reasons not attributable to the taxpayer.

The Bombay ruling will come as manna for harassed taxpayers awaiting disposal of high demand appeals.

(The author is a former Chief Commissioner of Income-Tax.)