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Section 99 Of Finance Act, 2020, Judicial Act And Its Constitutional Validity

Gunjan Kakkad
21 May 2020 1:45 PM GMT
Section 99 Of Finance Act, 2020, Judicial Act And Its Constitutional Validity
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  1. Introduction

Section 99 of Finance Act, 2020 (hereinafter for sake of brevity referred to as "the Finance Act") has sought to amend the first proviso to section 254(2A) of the Act in respect of granting stay in any proceedings relating to an appeal filed before the Hon'ble Income-tax Appellate Tribunal ("the ITAT"). This amendment has the potential to be interpreted in a manner that can cause immense hardship to the taxpayers and thereby increase litigation.

  1. Summary of the Article

One of the possible views in respect of the amendment is that the ITAT may, after hearing an application of stay by the Assessee, grant stay in respect of proceeding filed before it. However, the effect of the amendment is that the ITAT may grant such stay subject to payment of not less than 20% of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act (hereinafter referred to as "the disputed amount") or equivalent amount of deposit. In other words, the ITAT, pursuant to the amendment would not have the power to grant stay below 20% of the disputed amount.

Another view would be that discretionary power to grant stay is unaffected even after the amendment on the principle that the power to grant interim relief is co-extensive with the power to grant final relief to protect the right to obtain an effective final relief. A view which seeks to take away the discretion of the ITAT would be in violation of (i) independence of judiciary and the theory of separation of powers and (ii) attracting the vice of arbitrariness and thus, unconstitutional.

  1. Interpretation in favour of discretionary power of the ITAT to grant relief

Under the scheme of the Act, orders appealable before the ITAT have been provided under section 253 of the Act. Section 254(1) of the Act confers jurisdiction on the ITAT to pass such orders thereon as it thinks fit after giving both the parties to the appeal an opportunity of being heard.

Prior to insertion of sub-section (2A) to section 254 of the Act, sub-section (1) to section 254 at the time when introduced under the Act did not have a specific provision for stay. In case of ITO vs. M. K. Mohammad Kunhi [1969] 71 ITR 815 (SC), an issue arose as to whether the ITAT has the power to stay the recovery of the realization of the penalty imposed during the pendency of an appeal. An application for stay was rejected by the ITAT which was reversed by the High Court holding that ITAT can grant stay under its inherent powers. On appeal before the Supreme Court, the High Court decision was affirmed. The reasons which were in favour of Assessee are summarised hereunder:

  • Comparing the power of the Assessing Officer under section 220 of the Act, it was argued by the Department that there is no express power conferred to the ITAT to grant a stay of recovery. This argument was rejected and it has been held that the ITAT has been conferred wide powers under section 254(1) of the Act to pass such orders as it thinks fit after giving full hearing to both the parties to the appeal. There is a substantive right to prefer an appeal to ITAT where the orders of the lower authorities can be challenged on questions of law as well as question of fact;

  • If it is held that there is no power to grant stay on recovery, then the entire purpose of appeal can be defeated if the orders of lower authority are ultimately set aside. Such a situation on part of Legislature was considered to be unintended. Where jurisdiction has been conferred, it is implied that it also grants power of doing all such acts or employing such means as are essentially necessary for its execution;

  • The principle laid down by the Court of Appeal in the case of Polini v. Gray [1879] 12 Ch. D. 438. to grant a stay to the authority who has been conferred the jurisdiction to decide the appeal was considered to be applicable in this case and the same is reproduced hereunder:

"It appears to me on principle that the court ought to possess that jurisdiction, because the principle which underlies all orders for the preservation of property pending litigation is this, that the successful party in the litigation, that is, the ultimately successful party, is to reap the fruits of that litigation, and not obtain merely a barren success. That principle, as it appears to me, applies as much to the court of first instance before the first trial, and to the Court of Appeal before the second trial, as to the court of last instance before the hearing of the final appeal". (Emphasis supplied)

  • At the same time, it is not open to the ITAT to grant a stay as a matter of course. It is only when facts and circumstances of the case so warrant on terms as it deems fit;

To overcome this aspect, it may be argued that the decision in case of Kunhi (supra) was rendered at a time when the provisions of the Act were silent. After having introduced the amendment to section 254(2A) of the Act, the decision would no longer hold the field and stay shall be governed by such amended provisions.

The above argument would be contrary to (i) the presumption that the Legislature being the representatives of the people enacts laws which the society considers as honest, fair and equitable (ii) the decisions of various High Courts which have held that the Appellate Authority has the inherent discretionary power to grant stay despite a specific provision governing stay and (iii) the principle that power to grant interim relief is co-extensive with power to grant final relief.

Proposition (i): Legislature is presumed to enact laws which are considered as honest, fair and equitable

The condition of deposit of 20% of disputed demand or equivalent amount of security deposit dislodges this presumption. The same is elaborated in this part. In respect of granting stay, three factors which would have to be applied are (i) prima facie case (ii) balance of convenience in favour of Assessee and (iii) irreparable loss to Assessee if recovery is allowed.

In case of UTI Mutual Fund [2013] 31 taxmann.com 222 (Bombay), it was held that in cases where Assessee satisfies the prima facie test, then asking him to pay itself causes hardship. Further, in situation where demand raised is likely to be deleted, there does not seem to be any particular reason why stay should not be granted. It is submitted that a view which denies the right to obtain stay would not accord with reason. In case of K. P. Varghese vs. ITO [1981] 131 ITR 597 (SC), it was held that the Court should, as far as possible, avoid that construction which attributes irrationality to the Legislature. In case of CIT vs. Bansi Dhar & Sons [1986] 157 ITR 665 (SC), it is held that an appellate authority must have the incidental/ inherent power for the disposal of an appeal to grant/ reject a stay. Thus, pending disposal of appeals before the ITAT, and in view of above principles, it is submitted that ITAT has the discretion to grant stay below 20%.

It is submitted that no straitjacket formula could be applied in respect of matters concerning stay and it is essential that judicial discretion is conferred so as to do complete justice in the matter. Judicial discretion, in my opinion, would mean to discern between right and wrong; and therefore, whoever has power to act at discretion, is bound by the rule of reason and law. Absent this judicial discretion, it is submitted that it would cause grave injustice in the course of administration of the appeals under the Act.

Reliance is placed in case of Bhudan Singh and Another vs. Nabi Bux and Another (1969) 2 SCC 481. It was held that the Legislature is presumed to be acting in a manner which advances the cause of justice. The relevant part is reproduced hereunder:

"9. Before considering the meaning of the word "held" in Section 9, it is necessary to mention that it is proper to assume that the lawmakers who are the representatives of the people enact laws which the society considers as honest, fair and equitable. The object of every legislation is to advance public welfare. In other words as observed by Crawford in his book on Statutory Constructions the entire legislative process is influenced by considerations of justice and reason. Justice and reason constitute the great general legislative intent in every piece of legislation. Consequently where the suggested construction operates harshly, ridiculously or in any other manner contrary to prevailing conceptions of justice and reason, in most instances, it would seem that the apparent or suggested meaning of the statute, was not the one intended by the law-makers. In the absence of some other indication that the harsh or ridiculous effect was actually intended by the legislature, there is little reason to believe that it represents the legislative intent".

In view of above, it is submitted that the amendment cannot be interpreted in a way to cause hardship and thus, power to grant stay upon an appellate authority in appropriate cases is a necessary discretionary function of an appellate authority and the same does exist for an effective adjudication of the appeal.

Proposition (ii): ITAT has discretion under section 254(1) despite first proviso to section 254(2A) of the Act

It is submitted that section 254(1) of the Act has been widely interpreted in Kunhi's case. The language of section 254(1) has not been amended nor the provisions of section 254(2A) overrides section 254(1). The discretion to grant stay below 20% in appropriate cases still exists. In support of the same, reliance is placed on the following decisions:

  • ITC Ltd vs. Union of India ILR (1983) 1 Del 352 (Delhi HC)
  • Poly Fill Sacks vs. Union of India (2005) 183 ELT 344 (Gujarat HC)

In the case of ITC Ltd (supra), the issue arose in respect of difference of opinion between the Excise Authorities and the Assessee to classify the goods. A writ petition was filed challenging the adjudication order. However, in view of alternative remedy, the petition was dismissed. For the purpose of maintaining the writ petition, it was argued that (i) Collector (Appeals) would be influenced by the Department and (ii) that the condition of appeal is mandated with the pre-deposit which makes the right ineffective. This argument was rejected on account of two reasons viz. (i) proviso to section 35F of Central Excises and Salt Act, 1944 is an exception and grants waiver of the condition of pre-deposit and (ii) apart from section 35F and the exception provided therein, the appellate authority has inherent power of granting interim relief in exercise of its appellate jurisdiction. This was the ratio of the Court on the basis of Kunhi (supra). The proviso to section 35F was regarded as guidelines and held that a case for hardship must be made out to grant stay.

In the case of Poly Fill Sacks (supra) before the Gujarat High Court, the excise authorities had encashed the bank guarantee on interpreting proviso to section 35C(2A) of the Central Excise Act, 1944 with the effect that the power of CESTAT is limited to pass stay order beyond period of 180 days and consequently, stay stands vacated. The Court rejected the argument of the Department and held that stay can be extended beyond 180 days. The proviso which was interpreted to vacate the stay was interpreted to be directory in nature keeping in mind the principles to interpret a proviso and the provisions of the law. Language of section 35C(1) of Central Excise Act, 1944 is similar to section 254(1) of the Act. The High Court has interpreted this language of section 35C(1) in the same manner in which Supreme Court interpreted section 254(1) of the Act in Kunhi's case (supra). It was held that if the wide powers of CESTAT under section 35C(1) were to be curtailed, then it would have specifically provided.

Further, the principle adopted to interpret the proviso which was argued to limit the power of CESTAT is crucial for the issue under consideration. it was held that width of the section cannot be curtailed by the proviso when the section is clear and unambiguous. The proviso to section 35C(2A) was interpreted to be directory keeping in mind that when section 35C(2A) confers discretion upon CESTAT to dispose an appeal within a period of 3 years where it is possible to do so, the proviso cannot be interpreted in a manner which curtails the discretion of the CESTAT.

It was the provisions of section 35C(2A) and the proviso in the very same sub-section that were being interpreted. Similarly, if the scheme of the Act in respect of granting stay is kept in mind, it is submitted that it is at the judicial discretion of an appellate authority to grant or reject stay. This discretion is unrestricted. Keeping in mind this principle of unrestricted power to accept or reject stay and the principle adopted to interpret a proviso, it is submitted that the condition of 20% inserted in the proviso by section 99 of the Finance Act would also have to be regarded as discretionary in nature. In other words, when the power to grant stay is completely discretionary, then it is not possible to interpret the proviso in a manner that the condition it imposes is absolutely mandatory. It must therefore be held to directory.

Further, if the above decisions are read with the decision of UTI Mutual Fund (supra), it is submitted that in cases where Assessee satisfies the three conditions before the appellate authority, then asking the Assessee to make payment would cause hardship. In such cases, an appellate authority has power to grant stay. Though these decisions have been rendered in the context of Excise and Customs, it is submitted that the provisions are pari materia and thus, the same can be used to interpret that the wide powers of ITAT under section 254(1) of the Act has not been curtailed.

Proposition (iii): Power to grant interim relief is co-extensive with power to grant final relief

Controversies arose when proviso to section 254(2A) of the Act were amended to limit the period upto which ITAT could grant stay. Keeping in mind the principles laid down in case of Kunhi, it has been held in atleast following two decisions that these amendments can only operate against Assessee if he is responsible in any manner so as to come under the mischief sought to be plugged. The principles of these decisions may be applicable in issue under consideration.

In case of Narang Overseas vs. ITAT [2007] 295 ITR 22 (Bombay), the ITAT interpreted the third proviso to section 254(2A) of the Act as amended by Finance Act, 2007 and held that order granting stay has vacated despite there being no fault on part of Assessee in the delay in disposing the appeal. The said order was challenged in writ petition before the High Court. Applying the principles in case of Kunhi (supra), it was held that power to grant interim relief is co-extensive with the power to grant final relief on the principle that in absence of power to grant interim relief, the final relief itself may be defeated. The Court held that the proviso must be interpreted to be directory in nature hold that stay would stand vacated only when the delay is attributable to Assessee it would be arbitrary and unreasonable to vacate stay when delay in disposal is not on account of the Assessee.

For the purpose of applying the principle of the above case to issue under consideration, let us consider an illustration. Take a case where the Assessee, despite going through the assessment proceedings and thereafter either before the CIT(A) or the Dispute Resolution Panel (DRP) is in a position to establish a prima facie case or he is able to demonstrate that the additions or the disallowances made are contrary to law. In such circumstances, it would imply that orders of the lower authorities are not free from doubts and the Department be restrained to proceed with recovery. Otherwise, it would allow Department premium over their own wrong and the Assessee would have to part with his money either in the form of payment under protest or in the form of security deposit of equivalent amount which he would otherwise be entitled to use according to his liberty.

Finance Act, 2008 amended the third proviso to section 254(2A) of the Act having the effect that stay would be vacated "even if the delay in disposing of the appeal is not attributable to the assessee". Constitutional validity of such an amendment in case of Pepsi Foods (P) Ltd [2015] 376 ITR 87 (Delhi) was challenged. It was held that the said provision which allows the Revenue to recover the dues on which stay has been granted pending disposal of the appeal beyond 365 days even when the delay is not attributable to the Assessee is unconstitutional on the ground that it discriminates between Assessees whose stay should stand vacated on account delay attributable to them vis-à-vis those Assessees whose conduct cannot be questioned during the period of stay in appeal before them.

In view of above, it is submitted that when there exists a right to obtain final relief, it cannot be disputed that in an appropriate case, the Assessee does have a right to seek an interim relief and recovery of any amount in just cases should not be allowed.

  1. Part 3: Constitutional validity of section 99 of Finance Act, 2020 amending proviso to section 254(2A) of the Act

It is submitted that if a view is taken that ITAT has the judicial discretion as discussed above, then the provision would be saved from being rendered unconstitutional and the constitutional validity thereafter may not be tested. If a contrary view is taken then the amendment brought in by the Finance Act would suffer from the vice of (i) arbitrariness, unreasonable and excessive and (ii) impinge upon the independence of the judiciary and separation of powers thereby violating Article 14 of the Constitution. The violation of these aspects is separate and mutually exclusive.

  1. Independence of the Judiciary and separation of powers

In order to appreciate this ground of attack, it must be appreciated that the Tribunals in India have become an inherent part of our judiciary who has the task of discharging judicial functions[1].

Impingement upon the independence of the ITAT

The argument herein is based on both the grounds viz. (i) Parliament does not have the Legislative competence to legislate in respect of area in which the judiciary operates on account of theory of separation of powers and (ii) Finance Act impinges the independence of judiciary thereby violating Article 14 of the Constitution.

(i) Legislative Competence

It may be argued that when the decision of Kunhi (supra) was decided, it was not considered necessary to enact a provision granting or prohibiting the power of ITAT to grant stay. The constitutional power under article 245 and 246 to legislate is plenary. This principle has been reiterated by the Supreme Court in case of Union of India vs. Exide Industries Ltd [2020] 116 taxmann.com 378 (SC).

In Exide Industries Ltd's case (supra), the challenge to section 43B(f) of the Act, interalia, was on the ground that the clause (f) to section 43B was brought only to overrule decision of the Supreme Court in case of Bharat Earth Movers [2006] 6 SCC 645. The argument was repelled by holding that vires of a statute cannot be considered from the point of view of its motive if there exists the power to legislate. It was also held that the legislature cannot sit over a judgment of the Court or so to speak overrule it (paragraph 37). There cannot be any declaration of invalidating a judgment of the Court without altering the legal basis of the judgment. A judgment is delivered with strict regard to the enactment as applicable at the relevant time. However, once the enactment itself stands corrected, the basic cause of adjudication stands altered and necessary effect follows the same.

In case of Indian Aluminium Co. and Ors. vs. State of Kerala & Ors. [1996] 7 SCC 637, it is held that the legislature cannot by a bare declaration without anything more, directly overrule, reverse or override a judicial decision at any time in exercise of the plenary power conferred on the legislature by Articles 245 and 246 of the Constitution.

In order to stand the test of constitutional validity of section 99 of Finance Act, it would be necessary to alter the legal basis upon which the decision in case of Kunhi (supra) was rendered.

In case of Kunhi (supra), the Court considered the principles laid down in respect of inherent power of an appellate authority and held that in order to execute the appellate power conferred, the authority is impliedly conferred all such powers as are necessary for the purpose of its execution. The reason behind conferring the incidental power is that absent such a power, the power to obtain final relief may be rendered nugatory. Second reason behind granting stay is that the successful party in appeal must enjoy the fruits of litigation and not a barren success. Narang Overseas case (supra) has held that power to grant interim relief is co-extensive with the power to grant final relief.

Section 99 of the Finance Act merely provides that stay may be granted subject to condition of payment not less than 20% or equivalent amount of security deposit. The legal basis of the above decisions has not been removed.

A question that may come to mind in such a situation is whether the amended provisions of the Act be interpreted to have taken away the right to obtain final relief? To my mind, an answer to above questions is in negative.

This would lead to an inescapable conclusion that the legal basis upon which the decisions have been rendered has not been taken away. The right to enjoy the relief granted by ITAT in appeal exists and thus, in appropriate cases, the necessary effect that must follow [as held in Exide Industries Ltd's case (supra)] that the right to obtain interim relief cannot be fettered by the Finance Act.

The decision in case of Indian Aluminium Co. and Ors. (supra) (also followed in case of Exide Industries Ltd's case) holds that distinction between legislative act and judicial act is well known. Adjudication of the rights of the parties is a judicial function. Powers under section 254(1) of the Act have been expressly held to judicial in nature in Kunhi's case.

In case of Indira Nehru Gandhi vs. Raj Narain (1975 Supp SCC 1), it was held that division of three main functions is recognized in our Constitution. Judicial power of the State is vested in the judiciary. Similarly, the Executive and the Legislature are vested with powers in their spheres. The Constitution has a basic structure comprising the three organs of the Republic viz. the Legislature, the Executive and the Judiciary. It is through each of these organs that the sovereign will of the people has to operate and manifest itself and not through only one of them. Neither of these organs of the republic can take over the function assigned to the other. No Constitution can survive without a conscious adherence to its fine checks and balances. Just as Courts ought not to enter into problems entwined in the 'political thicket', Parliament must also respect the preserve of the Courts. The principle of separation of powers is a principle of restraint.

In the case of Chandra Mohan vs. State of U.P. (AIR 1966 SC 1987), it has been held (page 1993 – paragraph 14 onwards) that the people of our country come in close contact with the subordinate judiciary in comparison to the Higher Judiciary and thus, it is even more important that their independence should be placed beyond question than in the case of Superior Judges.

In the case of S. P. Sampath Kumar (supra), it was held that judicial review is a basic and essential feature of the Constitution and Parliament cannot take it away otherwise, the Constitution would cease to be what it is. Every organ of the State must act within the limits of the authority and power derived from Constitution. A question may arise as to the executive has acted within the scope of its power. Firstly, determination of this question is domain of judiciary because it requires interpretation of the Constitution and the laws and this would pre-eminently be a matter fit to be decided by the judiciary. Secondly, the protection afforded to the citizen would become illusory, if it were left to the executive to determine the legality of its own action. The same principle applies for determination acts of Legislature as well.

Section 99 of Finance Act, if interpreted in a manner to say that ITAT does not have any discretion in granting stay below the limit of 20% of disputed demand, would be violative of the principles laid down in decisions mentioned above. It is not the function of the Legislature to enter the space in which the judiciary operates. Any attempt to curtail judicial discretion would lack legislative competence on the theory of separation of powers.

(ii) Independence of Judiciary and Article 14

In case of Exide Industries Ltd (supra), the principle that statutes are presumed to be constitutionally valid unless the alleged infirmity is found. The following submissions are an attempt to dislodge this presumption.

In case of Union of India vs. R. Gandhi (2010) 11 SCC 1, the Constitution Bench of the Supreme Court has held that independent Judicial Tribunal determining rights of citizens, and for adjudication of the disputes and complaints of the citizens, is regarded as a necessary concomitant of the Rule of Law. It was held that rule of law has several facets. One such facet is that disputes of citizens will be decided by Judges who are independent and impartial at the time of deciding the legality of the actions of the Government. Another facet of rule of law is equality before the law. Essence of equality is that the disputes must be capable of being enforced and adjudicated by an independent forum. Judicial independence and separation of judicial powers from the executive are a part of the common law traditions implicit in a Constitution like ours which is based on the Westminster Model. The fundamental right to equality before law and equal protection of laws guaranteed by Article 14 of the Constitution includes a right to have the person's rights, adjudicated by a forum which exercises judicial power in an impartial and independent manner, consistent with the recognized principles of adjudication.

It must be recalled that Kunhi's case has held that ITAT is performing judicial function sitting in appeal over the decision of the lower authorities. Thus, if the ITAT, in exercise of appellate jurisdiction is of the opinion that stay ought to be granted in an appropriate case in order to ensure that the entire purpose of appeal would not be defeated, then there exists an inherent and implied power to grant a stay. The power to grant stay is based on the recognized principle of adjudication viz. that the successful party must enjoy the fruits of litigation and not obtain merely a barren success.

At the same time, the Court held that ITAT must grant stay only in an appropriate case. This was to protect the interest of Revenue as party in appeal. Thus, it is submitted that another principle of adjudication that was applied was that pending disposal of appeal, interest of both the parties must be protected for it is necessary that the successful party must enjoy the benefits of the outcome effectively and not a barren success.

In case of Bansi Dhar & Sons (supra), Kunhi's principle was reiterated and held that an appellate authority must have the inherent power for the disposal of an appeal to grant a stay or not to grant a stay

It is submitted that the amendment brought in by section 99 of the Finance Act has disturbed the well-recognized principles of adjudication stated above. Further, by mandating the rigid condition of 20%, it is the interest of Assessee even in an appropriate case which it has failed to protect.

In view of above, the amendment is violative of the principle of independence of judiciary and against the recognized principles of adjudication and thereby, unconstitutional.

  1. Doctrine of Arbitrariness

Arbitrariness as a facet of Article 14 in itself is a ground to attack the constitutional validity. This proposition of law has been authoritatively laid down by the Constitution Bench decision in case of Shayara Bano vs. Union of India (2017) 9 SCC 1. Article 14 strikes at the arbitrariness in State action and ensures fairness and equality of treatment. The principle of reasonableness is an essential element of equality or non-arbitrariness pervading Article 14 like a brooding omnipresence and the procedure contemplated by Article 21 must answer the test of reasonableness in order to be in conformity with Article 14. Arbitrariness as a doctrine is distinct from discrimination under Article 14 because any action that is arbitrary must necessarily involve the negation of equality. The concept of reasonableness and non-arbitrariness pervades the entire constitutional scheme and is a golden thread which runs through the whole of the fabric of the Constitution. The Arbitrariness doctrine contained in Article 14 would apply to negate legislation, subordinate legislation and acts of the executive.

Arbitrariness under section 99 of the Finance Act

The concept of Arbitrariness as held in Shayara Bano's case (supra) means that when something is done by the legislature capriciously, irrationally and/ or without adequate determining principle, when something is excessive and disproportionate, which is not fair, not reasonable, which is discriminatory, not transparent, biased, with favouritisim or nepotism and not in pursuit of promotion of healthy competition and equitable treatment. Positively speaking, it should conform to norms which are rational, informed with reason and guided by public interest.

Attention is invited to the amended first proviso to section 254(2A) of the Act. It appears that ITAT may grant or reject an application for stay. The discretion as to whether stay ought to be granted or rejected is still undisturbed. However, this stay may be granted subject to the condition that not less than 20% of the disputed amount or equivalent amount of deposit would have to be placed and that ITAT shall dispose the appeal within a period of 180 days.

Prior to the amendment, ITAT exercised complete discretion in respect of the terms upon which stay could be granted. Kunhi's case (supra) decided on September 11, 1968 had applied one of the most well recognized principles of adjudication that the power to grant interim relief (in an appropriate case) is co-extensive with the power to grant final relief for if there is no power to grant interim relief as such, the right to obtain final relief may be rendered nugatory. This principle was found to be applicable in case of Narang Overseas to hold that despite a statutory provision restricting the power to extend stay beyond 365 days, it does possess the power of extension provided the delay was not attributable to the Assessee. The principles based on which the issue was decided in favour of Assessee is sound and unimpeachable.

On the other hand, the amendment fails to protect interest of the Assessee. It is also contrary to one of the principles of adjudication i.e. granting of interim relief in fit cases. The purpose behind granting of interim relief is to ensure that the right of obtaining final relief may not be rendered illusory. The intention behind such a mandatory condition does not seem to be clarified either by the Memorandum to the Finance Bill, 2020 nor does it come out clearly from the notes to clauses.

In other words, the reasons as to why the amendment seeks to undo the right of the Assessee to obtain relief from a judicial authority is not forthcoming. It is submitted that a taxpayer is entitled to reasons as to why such a right is being taken away which is vested upon him by the authority of the Supreme Court. It could be argued that instances were observed where stay had been granted by the ITAT in some cases which it did not deserve or the conditions imposed for a stay were liberal. While a possibility cannot be ruled out, it is submitted that it would be open for the Department to approach the High Court by way of a writ petition under Article 226 of the Constitution and correct the incorrect order of the ITAT. On the contrary, the exercise of power to mandate the condition of 20% in all cases appears to be disproportionate and excessive.

Apart from above, the excessiveness and unreasonableness of the amendment can be better understood with the following consequences that would flow:

  • The first proviso mandates that Assessees would have to pay 20% of the disputed demand or the equivalent amount of security deposit would have to be placed notwithstanding the fact that the Assessee is in a position to satisfy (i) prima facie case (ii) balance of convenience and (iii) irreparable loss would be caused if the Department is allowed to proceed with the recovery.

This goes contrary to the settled law in respect of stay matters which held that the above three factors must be considered and that the Appellate Authority must exercise the discretion judiciously. If it appears that the demand raised would be deleted, then the Assessee must not burdened with even a part payment. It also goes against the decision of the Bombay High Court in UTI Mutual Fund [2013] 31 taxmann.com 222 (Bombay) wherein it has been held that if an Assessee is in a position to demonstrate the strength of his case, then asking him to make a payment by itself would cause hardship.

  • The entire principle behind the concept of granting interim relief is that a successful party must enjoy the fruits of litigation. In a case where the Assessee demonstrates that he is likely to succeed, it is submitted that until the outcome of the appeal is not pronounced by ITAT, this condition of mandatory pre-deposit operates in a biased manner in favour of the Department. The condition of paying 20% of the disputed demand fails to protect the interest of the parties in the litigation and especially the party who is in fact likely to succeed in such scenario.

  • The Judicial Discipline that the wisdom of the Higher Authority must be followed has been destroyed by section 99 of the Finance Act. Indeed, it is embarrassing and an absurd situation that where the CBDT Instruction No. 1914 dated 21.03.1996 as modified from time to time allows the Assessing Officer (executive authority) under section 220(6) to relax the directory rate of 20% of the outstanding demand in certain scenarios but ITAT (judicial authority), who has the authority to either confirm, modify or annul the order of the very Assessing Officer, would not be in a position to grant the Assessee the relief which it deems fit.

To add insult to injury, it is submitted that the inherent powers of CIT(A) who happens to be an authority lower in rank than ITAT continues to hold unrestricted inherent power to grant a stay. It is interesting to note that restriction of limitation of 180 days and/ or 365 days as provided under section 254(2A) is completely absent in such case. It is submitted that the judicial hierarchy prevailing under the scheme of the Act upto the stage of ITAT has been turned on its own head by the amended first proviso to section 254(2A) of the Act insofar as the powers to grant stay to the Assessee is concerned.

  • The condition under the amended first proviso mandates the ITAT to commit breach of judicial discipline. For instance, consider a situation where a decision/ principle laid down by the Jurisdictional High Court is applicable which makes it likely for the Assessee to succeed. However, the ITAT may not be able to grant the Assessee any stay merely because of the condition of pre-deposit of 20% of the disputed demand.

Consider another situation where the ITAT has decided the issue in Assessee's own case in his favour for an earlier assessment year. Yet, he may not be able to obtain complete stay because of the mandatory condition of 20%. It is indeed a dangerous situation where the ITAT itself is not able to enforce its own order.

Judicial discipline demands that a decision of the Co-ordinate bench decision ought to be followed [see Hatkesh Co-Op. Hsg. Society Ltd vs. ACIT [2016] 243 Taxman 213 (Bombay)]. Further, it is not unknown that the Department makes the addition to the income of the Assessee despite a favorable decision in Assessee's own case merely because an appeal is preferred before a higher forum [see Union of India vs. Kamlakshi Finance Corporation (1992) 1 SCC 648 and also see HDFC Bank Ltd vs. ACIT (2013) 354 ITR 77 (Bombay)]. In these cases, Courts have expressed strong displeasure for not following the principle of judicial discipline.

The only remedy available to the Assessee would be that of approaching the High Court under Article 226 of the Constitution. The situation brought about is indeed strange. Due to such situation, Assessee would have to approach High Court under Article 226 to obtain complete stay. Precious time of the Court would get applied unnecessarily when the ITAT discharges such function under its appellate jurisdiction. Indeed, the remedy of stay would not remain an effective and efficacious remedy anymore.

The decision of the Constitution Bench of the Supreme Court in case of Rojer Mathew (supra) in the opinion authored by the then Chief Justice has expressed its strong displeasure and noted a non-exhaustive list of atleast a dozen of statutes providing direct appeal from the orders of the Tribunals which has the effect of reducing the focus of the Court in matters which otherwise deserve more attention. For instance, it has noted that the judicial pronouncements by Constitution Bench of the Supreme Court in the early 1960's had decided hundreds of cases in comparison to cases not more than a dozen at the present time. The above observation of the Constitution Bench of the Supreme Court in case of Rojer Mathew (supra) has only been pointed out to highlight the need to decongest our higher judiciary. On the contrary, this amendment has the tendency to increase numerous writ petitions wherein Assessees would have to seek stay which otherwise could have been obtained from ITAT.

In view of above, it is submitted that the amendment to the first proviso to section 254(2A) attracts the vice of arbitrariness, excessiveness and unreasonableness, brought in without an adequate determining principle without any fairness, equitable treatment and capriciously. The amendment operates with a heavy bias in favour of Department. It is therefore submitted that the amendment mandating payment of 20% ought to be struck down as arbitrary.

  1. Conclusion

Whenever rights of parties are affected, the forum of last resort is a judicial forum. This forum must necessarily be independent and must be in a position to uphold the rights and condemn the wrong. The Supreme Court has expressed its displeasure in atleast five[2] of its Constitutional Bench decisions in the manner in which the minimum standards of judicial independence as are required to be maintained have been diluted. It is sincerely submitted that the amendment brought in by section 99 of the Finance Act if not held to be directory in nature would be another dilution to the judicial independence which is necessarily required to be maintained in order to enable the citizens to obtain justice. I would conclude with a passage from the decision in case of UOI vs. R. Gandhi (supra):

"115. The need for vigilance in jealously guarding the independence of Courts and Tribunals against dilution and encroachment, finds an echo in an advice given by Justice William O. Douglas to young lawyers (The Douglas Letters: Selections from the Private Papers of William Douglas, edited by Melvin L. Urofsky – 1987 Ed., p. 162, - Adler and Adler.):

"... The Constitution and the Bill of Rights were designed to get Government off the backs of people - all the people. Those great documents did not give us the welfare State. Instead, they guarantee to us all the rights to personal and spiritual self-fulfilment.

But that guarantee is not self-executing. As nightfall does not come all at once, neither does oppression. In both instances, there is a twilight when everything remains seemingly unchanged. And it is in such twilight that we all must be most aware of change in the air - however slight — lest we become unwitting victims of the darkness".

Views Are Personal Only.

1 Rojer Mathew vs. South Indian Bank Ltd (2019 SCC OnLine SC 1456)

[2] (i) L. Chandrakumar vs. Union of India (1997) 3 SCC 261 (ii) UOI vs. R. Gandhi (2010) 11 SCC 1 (iii) Madras Bar Association vs. UOI (2015) 8 SCC 583 (iv) Madras Bar Association vs. UOI (2014) 368 ITR 42 (SC) and (v) Rojer Mathew vs. South Indian Bank Ltd (2019 SCC OnLine SC 1456)

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