Supreme Court of India
DEPUTY COMMISSIONER OF INCOME TAX & ANR.versusM/S. PEPSI FOODS LTD. (NOW PEPSICO INDIA HOLDINGS PVT. LTD.)
- Citation
- 2021 INSC 227
- Decided
- 6 April 2021
- Disposal
- Dismissed
- Bench
- R F NARIMAN
Holding
The third proviso to Section 254(2A) of the Income Tax Act, which mandates automatic vacation of a stay after 365 days even when the delay is not attributable to the assessee, is arbitrary and discriminatory and therefore unconstitutional under Article 14.
Summary
The Supreme Court examined the third proviso to Section 254(2A) of the Income Tax Act, 1961, which mandates automatic vacation of a stay after 365 days irrespective of who caused the delay. The Court held that the provision treats assessees who delay the appeal the same as those who do not, thereby violating the equality principle of Article 14. It found the provision both arbitrary and discriminatory because it can vacate a stay even when the revenue or the Tribunal is responsible for the delay. Consequently, the Court struck down the offending words “even” and “is not” from the proviso and read it so that a stay is vacated only when the delay is attributable to the assessee. All revenue appeals were dismissed. The judgment also reiterated that tax statutes can be challenged under Article 14 on grounds of discrimination and manifest arbitrariness and that the golden rule of interpretation must be applied to tax legislation.
Issues considered
- The constitutional validity of the third proviso to Section 254(2A) of the Income Tax Act, 1961, which provides for automatic vacation of a stay after 365 days irrespective of the cause of delay.
- Whether the proviso violates Article 14 of the Constitution of India on the grounds of discrimination and arbitrariness.
Legislation cited
- Income Tax Act, 1961s. 254(2A)
Subjects
Article 14constitutional validitytax statutesstay of orderIncome Tax ActSection 254(2A)arbitrarinessdiscriminationgolden rule of interpretationappellate tribunaltaxation law
Judgment
[2021] 4 S.C.R. 1 1
DEPUTY COMMISSIONER OF INCOME TAX & ANR. A
v.
M/S. PEPSI FOODS LTD.
(NOW PEPSICO INDIA HOLDINGS PVT. LTD.)
(Civil Appeal No. 1106 of 2021) B
APRIL 06, 2021
[ROHINTON FALI NARIMAN, B. R. GAVAI AND
HRISHIKESH ROY, JJ. ]
Income Tax Act, 1961: s. 254(2A) third proviso – Provision
C
as regards appellate tribunal granting stay – Third proviso providing
for 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 – Constitutional validity
of – Held: Third proviso to s. 254(2A), is both arbitrary and
discriminatory and, thus, liable to be struck down as offending Art. D
14 – Unequals are treated equally – 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
– Also, the said proviso would result in the automatic vacation of a
stay upon the expiry of 365 days even if the Appellate Tribunal
E
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
– Thus, 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 F
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 – Constitution of India – Art.14.
Tax/Taxation:
Tax statutes – Challenge to tax statutes u/Art. 14 – Grounds G
for challenge – Held: Can be on grounds relatable to discrimination
as well as grounds relatable to manifest arbitrariness, which may
be procedural or substantive in nature – Constitution of India –
Art.14.
H
1
2 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Tax statutes – Interpretation of – Golden rule of interpretation
– Significance of – Held: Golden rule of interpretation cannot be
ignored while interpreting tax statutes.
Dismissing the appeals, the Court
HELD: 1.1 The third proviso to Section 254(2A) of the
B 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, it is correctly held in the impugned judgment, that
unequals are treated equally in that no differentiation is made by
C the third proviso between the assessees who 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 said 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
D the delay in disposing of the appeal is not attributable to the
assessee. [Para 17][21-B-D]
1.2 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
E 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
F 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
G the Appellate Tribunal in cases in which a stay has been granted
in favour of the assessee. But such object cannot itself be
discriminatory or arbitrary. [Para 17][21-D-G]
H
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 3
PEPSI FOODS LTD.
Nagpur Improvement Trust v. Vithal Rao [1973] 3 SCR A
39 – relied on.
Narang Overseas Pvt. Ltd. v. ITAT (2007) 295 ITR 22
– approved.
1.3 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 B
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,
is liable to be struck down as violating Article 14 of the
Constitution of India. Also, the said proviso would result in the C
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, D
irrational and disproportionate so far as the assessee is concerned.
[Para 17][22-C-E]
1.4 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 E
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. [Para 22][28-C-D]
1.5 The law laid down by the impugned judgment of the F
High Court is correct. Resultantly, the judgments of the various
High Courts which follow the said 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 G
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.
[Para 25][30-A-B]
H
4 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 2. 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. Also, it is important to remember that the golden rule
of interpretation is not given a go-by when it comes to
B
interpretation of tax statutes. [Para 14, 24][19-A-B; 28-H; 29-A]
M/s M. Ramnarain (P) Ltd. v. State Trading Corpn. of
Indi a Ltd.(1983) 3 SCC 75: [1983] 3 SCR 25; M.
Janardhana Rao v. CIT (2005) 2 SCC 324:[2005]
1 SCR 874 – distinguished.
C
Income Tax Officer v. M.K. Mohammed Kunhi [1969] 2
SCR 65; Commissioner of Customs & Central Excise v.
Kumar Cotton Mills (2005) 13 SCC 296; Commissioner
of Income Tax v. M/s Maruti Suzuki (India) Ltd.(2014)
362 ITR 215; DCIT v. Vodafone Essar Gujarat Ltd.
D (2015) 376 ITR 23; M/s Pepsi Foods Ltd. v. ACIT (2015)
376 ITR 87; Mardia Chemicals Ltd. v. Union of India
(2004) 4 SCC 311 : [2004] 3 SCR 982; PML Industries
Ltd. v. CCE (2013) SCC OnLine P&H 4440; Suraj
Mall Mohta and Co. v. A.V. Visvanatha Sastri [1955] 1
E SCR 448; Kunnathat Thatehunni Moopil Nair v. State
of Kerala [1961] 3 SCR 77; Union of India v. A. Sanyasi
Rao (1996) 3 SCC 465 : [ 1996] 2 SCR 57; Shayara
Bano v. Union of India (2017) 9 SCC 1 : [2017]
9 SCR 797; Essar Steel India Ltd. Committee of
Creditors v. Satish Kumar Gupta (2020) 8 SCC 531 :
F [2019] 16 SCR 275; State of M.P. v. Bhopal Sugar
Industries Ltd. [1964] 6 SCR 846; N. Venugopala Ravi
Varma Rajah v. Union of India (1969) 1 SCC 681 :
[1969] 3 SCR 827; Commr. of Customs v. Dilip Kumar
& Co. (2018) 9 SCC 1 : [2018] 7 SCR 1191; CIT v.
G J.H. Gotla (1985) 4 SCC 343 : [1985] 2 Suppl. SCR
711 – referred to.
Case Law Reference
[1969] 2 SCR 65 referred to Para 6
(2007) 295 ITR 22 approved Para 17
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DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 5
PEPSI FOODS LTD.
(2005) 13 SCC 296 referred to Para 9 A
(2014) 362 ITR 215 referred to Para 11
(2015) 376 ITR 23 referred to Para 12
(2015) 376 ITR 87 referred to Para 13
[2004] 3 SCR 982 referred to Para 13, 20 B
[1955] 1 SCR 448 referred to Para 14
[1961] 3 SCR 77 referred to Para 15
[1996] 2 SCR 57 referred to Para 15
C
[2017] 9 SCR 797 referred to Para 16
[1973] 3 SCR 39 relied on Para 17
[2019] 16 SCR 275 referred to Para 18
[1983] 3 SCR 25 distinguished Para 19
D
[2005] 1 SCR 874 distinguished Para 20
[1964] 6 SCR 846 referred to Para 21
[1969] 3 SCR 827 referred to Para 23
[2018] 7 SCR 1191 referred to Para 24
E
[1985] 2 Suppl. SCR 711 referred to Para 24
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1106
of 2021.
From the Judgment and Order dated 19.05.2015 of the High Court
of Delhi at New Delhi in W.P. (C) No. 3650 of 2014. F
With
Civil Appeal Nos. 1125, 1107, 1108, 1109, 1110, 1111, 1112, 1113,
1114, 1115, 1116, 1117, 1118, 1119, 1120, 1121, 1122, 1123, 1124, 1126,
1127, 1128, 1129, 1130, 1131, 1132, 1133, 1134, 1135, 1136, 1137, 1138,
G
1139 of 2021.
Vikramjit Banerjee, ASG., Arijit Prasad, Sr. Adv., Zoheb Hossain,
N.K. Karheil, Amit Verma, H.R. Rao, D.L. Chidananda, Sanjay Kr.
Visen, Mrs. Anil Katiyar, Advs. for the Appellants.
H
6 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Ajay Vohra, Sr. Adv., Ms. Kavita Jha, Ms. Devika Jain, Udit
Naresh, Deepak Chopra, Harpreet Singh Ajmani, Anmol Anand, Ms.
Priya Tandon, Prakash Kumar, Rahul Gupta, D. Nageswar Rao, Ambhoj
Kumar Sinha, Ms. Sherry Goyal, R. Chandrachud, Ms. Anuradha Dutt,
Sachit Jolly, Tushar Jarwal, Ms. Disha Jham, Ms. B. Vijayalakshmi Menon,
Shekhar Prit Jha, Dr. Ashutosh Garg, Salil Kapoor, Sumit Lal Chandani,
B
Ms. Ananya Kapoor, Sanat Kapoor, Ms. Souma Singh, K.P. Singh,
Praveen Swarup, Himanshu S. Sinha, Bhuwan Dhoopar, Yash Varmani,
Syed Jafar Alam, Advs. for the Respondent.
The Judgment of the Court was delivered by
C R. F. NARIMAN, J.
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”).
D
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
E 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
F 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 which was adverse to the assessee. Aggrieved by the
aforesaid order, the assessee filed an appeal before the Income Tax
G 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
H
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 7
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
further extension could be granted, the assessee, apprehending coercive A
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
B
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 C
that 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 D
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 E
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. F
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 facie G
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
H
8 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
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
C 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
D 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
E 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
F 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
G 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
H proceed to stay recovery of taxes or penalties payable by or
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 9
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
imposed on the assessees as a matter of course the revenue will A
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
B
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 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.” C
[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.
D
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. E
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: F
Provided that where an order of stay is made in any proceedings
relating to an appeal filed under sub-section (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 G
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
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10 SUPREME COURT REPORTS [2021] 4 S.C.R.
A vacation of 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
B
(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:
C 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
D 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
E 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
F 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.”
G
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:
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DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 11
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
“Did the section as it stood before the Finance Act of 2007, and A
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
B
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 C
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
D
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 non-disposal E
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 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 F
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 G
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
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12 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B 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.”
C
[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
D 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)
E by the 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
F 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
G 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]
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DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 13
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
10. Close on the heels of this judgment, Section 254(2A) of the A
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
B
(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 C
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: D
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 E
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 F
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
G
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.
H
14 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B conclusion:-
(i) In view of the third proviso to Section 254(2A) of the Act
substituted by Finance Act, 2008 with effect from 1st October,
2008, tribunal cannot extend stay beyond the period of 365 days
from the date of first order of stay.
C (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
D 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
E 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
F 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
G 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
H the powers of the Tribunal under section 254(2A) of the Act, it is
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 15
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
observed and held that by section 254(2A) of the Act, it cannot be A
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- B
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 C
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 D
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 E
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
F
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 Tribunal is required to maintain G
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 H
16 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
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
C (2015) 376 ITR 87dealt 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:
D
“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
E 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 Tribunal and
F 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)
G 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.”
H [at page 96-97]
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 17
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
After referring to this Court’s judgment in Mardia Chemicals A
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:
B
“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. C
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 D
can be subjected to certain conditions. In 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 E
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 F
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 G
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 H
18 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
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,
C upon considering the prima facie merits of the case through a
reasoned order.
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
D 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
E 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
F 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
G 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
H appeal is not attributable to the assessee, the Tribunal has the
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 19
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
power to grant extension of stay beyond 365 days in deserving A
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 B
grounds may be procedural or substantive in nature. Thus, in Suraj Mall
Mohta 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 C
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 D
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: E
“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 F
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 capital. A third G
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
H
20 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
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
C 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
D 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
E of treatment (see paragraph 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
F 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
G 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
H the legislature capriciously, irrationally and/or without adequate
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 21
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
determining principle. Also, when something is done which is A
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 B
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 C
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 D
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 E
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 F
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 or arbitrary, as has been felicitously held G
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
H
22 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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,
B
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]
C
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
D 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
E 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.
18. In fact, in a recent judgment of this Court in Essar Steel
India Ltd. Committee of Creditors v. Satish Kumar Gupta (2020)
F 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
G 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
H
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 23
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
applied the maxim to time taken in legal proceedings under the A
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 B
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 C
within ten years and even then within 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 D
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 E
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)
F
“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 G
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 well-known legal maxim nullum tempus aut locus
occurrit regi, which means that a crime never dies. At the H
24 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
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 is supported
C 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
D
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
E 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
F 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
G 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
H as the time taken in legal proceedings is certainly an important
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 25
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
factor which causes delay, and which has made previous statutory A
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
B
an excessive and unreasonable restriction on the litigant’s 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 C
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
D
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 E
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,
F
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 G
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. Janardhana Rao v. CIT (2005) 2 SCC 324 (paragraph 14) do not H
26 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
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
C 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
D 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
E 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.
F 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
G 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
H
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 27
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
cited on behalf of the respondent. All these cases relate to appeals. A
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.
B
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 C
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,
D
where it may not be possible for the borrower to raise 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 E
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 F
amount to unreasonable restrictions rendering the right almost
illusory.”
[emphasis supplied]
This Court ultimately struck down Section 17(2) of the G
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
H
28 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B the constitutional validity of the same. For this purpose, he relied upon
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
C 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”
D 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
E (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,
F persons, etc., something which leads to obvious inequality. It 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
G 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
H
DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S. 29
PEPSI FOODS LTD. [R. F. NARIMAN, J.]
when it comes to interpretation of tax statutes. This Court in CIT v. A
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 B
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 C
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 D
has to be read in conjunction with Section 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 E
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 F
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 G
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.” H
30 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B
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. The appeals of the revenue
are, therefore, dismissed.
C Nidhi Jain Appeals dismissed.
D
E
F
G
H
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