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Any Order of Stay Stands Vacated After Expiry of Period Stated: Supreme Court

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The present case raises an important question about the constitutional validity of the third proviso of Section 254(2A) in the Income Tax Act, 1961. The Revenue challenged various judgments of the High Court in this appeal.


Pepsico India Holdings Pvt. Ltd. is a group company of multinational Pepsico Inc company incorporated in the United States of America. The company had merged on terms of an arrangement approved by the Hon’ble Punjab and Haryana High Court. A return of income declaring a total amount of ₹92,54,89,822 was filed for the assessment year 2008-2009. Aggrieved by the assessment order, the company filed an appeal before the Income Tax Appellate Tribunal. The tribunal granted a stay of the operation of the order for six months. As per Section 254(2A) of the Income Tax Act, since 365 days period was about to end, no further extension could be given. The company filed a petition before the Delhi High Court against the coercive action from the Revenue and challenged the constitutional validity of the third proviso to Section 254(2A) of the Income Tax Act. The Delhi High Court, on the other hand, struck down that part of the proviso, which did not allow the extension of a stay order beyond 365 days even if the assessee was not responsible for the delay in hearing the appeal. The Revenue has challenged this judgement and various other judgements from High Courts in this appeal. 

Arguments before the Court

Arguments of the Petitioner

The learned counsel for the petitioners criticized that the judgment of the Delhi High court and various other judgements arguing that in an appellate proceeding, there is no right to stay as such a stay is upon the discretion of the Appellate Court. It was contended that the discretionary remedy of a stay that was available itself is a statutory right that can be taken by the legislature. The counsel further argued that as far as significant freedom in the joints is given qua tax legislation, no discrimination could ensue, and Article 14 of the Indian Constitution is not to be applied mechanically.

Arguments of the Respondent

The Learned counsel for the Respondents countered every submission made by the petitioner’s counsel. They firmly relied on the reasoning of the judgement of the High Court and contended that once the discretionary relief based on prima facie has been granted, it would be wholly arbitrary that the said relief would automatically be vacated without any reference. They further stated that once the right to stay is obtained, it cannot be vacated without delaying tactics on the appellant’s part. It was also contended by the respondents’ counsel that in case of the policy itself being discriminatory, the state could not take shelter under the same. 

Court’s Observation

Based on all the parameters, the court stated that the third proviso of Section 254(2A) in the Income Tax Act, introduced by the Finance Act, 2008, would be both discriminatory arbitrary and, thus, liable to be struck down as offending Article 14 of the Constitution of India. The court also stated that the appeal is needed to be disposed of within 365 days only when the stay of the order before the tribunal has been granted. This is a directory provision, and the condition becomes mandatory so far the assessee is concerned. The court further stated that since the proviso of the Income Tax Act is an automatic vacation of a stay on completion of 365 days, the fact that the assessee is responsible for the delay caused hearing the appeal whether or not itself is discriminatory. Moreover, the vacation of stay in favor of the Revenue would ensue even in case the Revenue itself accountable for the delay in hearing the appeal. The court also observed that the expression “permissible” policy of taxation would refer to a constitutionally permissible policy. If the policy is itself discriminatory, such policy will have to be struck down. 

Court’s Decision

Based on all the contentions, the court decided that the law laid down by the impugned judgment of the present case is correct. Similarly, the judgements given by various High Courts following the declaration of the law are also correct. Accordingly, the Supreme Court stated that the third proviso to Section 254(2A) of the Income Tax Act would hereupon be read without the word “even” and the words “is not” after the words “delay in disposing of the appeal.” Any order of stay would stand vacated after the expiry of the period or periods stated in the Section only in case the delay in disposing of the appeal is attributable to the assessee and dismissed the appeal of the Revenue. 

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