DEPUTY COMMISSIONER OF INCOME TAX & ANR. versus M/S. PEPSI FOODS LTD. (NOW PEPSICO INDIA HOLDINGS PVT. LTD.) on 6 April 2021

[2021] 4 S.C.R. 1

DEPUTY COMMISSIONER OF INCOME TAX & ANR.

v.

M/S. PEPSI FOODS LTD.

(NOW PEPSICO INDIA HOLDINGS PVT. LTD.)

(Civil Appeal No. 1106 of 2021)

APRIL 06, 2021

[ROHINTON FALI NARIMAN, B. R. GAVAI ANDHRISHIKESH ROY, JJ. ]

Income Tax Act, 1961: s. 254(2A) third proviso – Provisionas regards appellate tribunal granting stay – Third proviso providingfor automatic vacation of a stay that has been granted on thecompletion of 365 days, whether or not the assessee is responsiblefor the delay caused in hearing the appeal – Constitutional validityof – Held: Third proviso to s. 254(2A), is both arbitrary anddiscriminatory and, thus, liable to be struck down as offending Art.14 – Unequals are treated equally – No differentiation is made bythe third proviso between the assessees who are responsible fordelaying the proceedings and assessees who are not so responsible– Also, the said proviso would result in the automatic vacation of astay upon the expiry of 365 days even if the Appellate Tribunalcould not take up the appeal in time for no fault of the assessee –Further, vacation of stay in favour of the revenue would ensue evenif 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 theword “even” and the words “is not” after the words “delay indisposing of the appeal” – Any order of stay shall stand vacatedafter the expiry of the period or periods mentioned in the Sectiononlyif the delay in disposing of the appeal is attributable to theassessee – Constitution of India – Art.14.

Tax/Taxation:

Tax statutes – Challenge to tax statutes u/Art. 14 – Groundsfor challenge – Held: Can be on grounds relatable to discriminationas well as grounds relatable to manifest arbitrariness, which maybe procedural or substantive in nature – Constitution of India –Art.14.

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ATax statutes – Interpretation of – Golden rule of interpretation– Significance of – Held: Golden rule of interpretation cannot beignored while interpreting tax statutes.

Dismissing the appeals, the Court

HELD: 1.1 The third proviso to Section 254(2A) of theBIncome Tax Act, introduced by the Finance Act, 2008, would beboth arbitrary and discriminatory and, therefore, liable to be struckdown as offending Article 14 of the Constitution of India. Firstand foremost, it is correctly held in the impugned judgment, thatunequals are treated equally in that no differentiation is made byCthe third proviso between the assessees who are responsible fordelaying the proceedings and assessees who are not soresponsible. This is a little peculiar in that the legislature itselfhas made the said differentiation in the second proviso to Section254(2A) of the Income Tax Act, making it clear that a stay ordermay be extended upto a period of 365 days upon satisfaction thatDthe delay in disposing of the appeal is not attributable to theassessee. [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, theEAppellate Tribunal, where possible, is to hear and decide appealswithin a period of four years from the end of the financial year inwhich such appeal is filed. It is only when a stay of the impugnedorder before the Appellate Tribunal is granted, that the appeal isrequired to be disposed of within 365 days. So far as the disposalFof an appeal by the Appellate Tribunal is concerned, this is adirectory provision. However, so far as vacation of stay on expiryof the said period is concerned, this condition becomes mandatoryso far as the assessee is concerned. The object sought to beachieved by the third proviso to Section 254(2A) of the IncomeTax Act is without doubt the speedy disposal of appeals beforeGthe Appellate Tribunal in cases in which a stay has been grantedin favour of the assessee. But such object cannot itself bediscriminatory or arbitrary. [Para 17][21-D-G]

Nagpur Improvement Trust v. Vithal Rao [1973] 3 SCR39 – 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 hasbeen granted on the completion of 365 days, whether or not theassessee 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 theConstitution of India. Also, the said proviso would result in theautomatic vacation of a stay upon the expiry of 365 days even ifthe Appellate Tribunal could not take up the appeal in time for nofault of the assessee. Further, vacation of stay in favour of therevenue would ensue even if the revenue is itself responsiblefor the delay in hearing the appeal. In this sense, the said provisois also manifestly arbitrary being a provision which is capricious,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 assesseeswho are responsible for delaying appellate proceedings and thosewho are not so responsible, resulting in a violation of Article 14of the Constitution of India. Also, the expression “permissible”policy of taxation would refer to a policy that is constitutionallypermissible. 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 theHigh Court is correct. Resultantly, the judgments of the variousHigh Courts which follow the said declaration of law are alsocorrect. Consequently, the third proviso to Section 254(2A) ofthe Income Tax Act will now be read without the word “even”and the words “is not” after the words “delay in disposing of theappeal”. Any order of stay shall stand vacated after the expiry ofthe period or periods mentioned in the Section onlyif the delayin disposing of the appeal is attributable to the assessee.[Para 25][30-A-B]

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A2. It is settled law that challenges to tax statutes made underArticle 14 of the Constitution of India can be on grounds relatableto discrimination as well as grounds relatable to manifestarbitrariness. These grounds may be procedural or substantivein nature. Also, it is important to remember that the golden ruleof interpretation is not given a go-by when it comes toBinterpretation of tax statutes. [Para 14, 24][19-A-B; 28-H; 29-A]

M/s M. Ramnarain (P) Ltd. v. State Trading Corpn. ofIndia Ltd.(1983) 3 SCC 75: [1983] 3 SCR 25; M.Janardhana Rao v. CIT (2005) 2 SCC 324:[2005]1 SCR 874 – distinguished.

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Income Tax Officer v. M.K. Mohammed Kunhi [1969] 2SCR 65; Commissioner of Customs & Central Excise v.Kumar Cotton Mills (2005) 13 SCC 296; Commissionerof 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 IndustriesLtd. v. CCE (2013) SCC OnLine P&H 4440; SurajMall Mohta and Co. v. A.V. Visvanatha Sastri [1955] 1ESCR 448; Kunnathat Thatehunni Moopil Nair v. Stateof Kerala [1961] 3 SCR 77; Union of India v. A. SanyasiRao (1996) 3 SCC 465 : [ 1996] 2 SCR 57; ShayaraBano v. Union of India (2017) 9 SCC 1 : [2017]9 SCR 797; Essar Steel India Ltd. Committee ofCreditors v. Satish Kumar Gupta (2020) 8 SCC 531 :F[2019] 16 SCR 275; State of M.P. v. Bhopal SugarIndustries Ltd. [1964] 6 SCR 846; N. Venugopala RaviVarma 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.GJ.H. Gotla (1985) 4 SCC 343 : [1985] 2 Suppl. SCR 711 – referred to.

Case Law Reference

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DEPUTY COMMISSIONER OF INCOME TAX & ANR. v. M/S.PEPSI FOODS LTD.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1106of 2021.

From the Judgment and Order dated 19.05.2015 of the High Courtof Delhi at New Delhi in W.P. (C) No. 3650 of 2014.

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, 1138,1139 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.

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AAjay Vohra, Sr. Adv., Ms. Kavita Jha, Ms. Devika Jain, UditNaresh, Deepak Chopra, Harpreet Singh Ajmani, Anmol Anand, Ms.Priya Tandon, Prakash Kumar, Rahul Gupta, D. Nageswar Rao, AmbhojKumar 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,BMs. 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 CR. F. NARIMAN, J.

1. Delay condoned. Leave granted.

2. The appeals before us raise an important question as to theconstitutional validity of the third proviso to Section 254(2A) of the IncomeTax 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 beforeus. The Respondent-assessee is an Indian company incorporated onE24.02.1989 and is engaged in the business of manufacture and sale ofconcentrates, fruit juices, processing of rice and trading of goods forexports. The assessee is a group company of the multi-national PepsicoInc., a company incorporated and registered in the United States ofAmerica. The assessee-company merged with Pepsico India HoldingsFPvt. Ltd. w.e.f. 01.04.2010, in terms of a scheme of arrangement dulyapproved 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 declaringa total income of INR 92,54,89,822. A final assessment order was passedon 19.10.2012 which was adverse to the assessee. Aggrieved by theaforesaid order, the assessee filed an appeal before the Income TaxGAppellate Tribunal (hereinafter referred to as “Tribunal”) on 29.04.2013.On 31.05.2013, a stay of the operation of the order of the assessingofficer was granted by the Tribunal for a period of six months. This staywas extended till 08.01.2014 and continued being extended until28.05.2014. 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 noH

further extension could be granted, the assessee, apprehending coerciveaction from the Revenue, filed a writ petition before the Delhi HighCourt on 21.05.2014 challenging the constitutional validity of the thirdproviso to Section 254(2A) of the Income Tax Act. By a judgment dated19.05.2015, the Delhi High Court struck down that part of the third provisoto Section 254(2A) of the Income Tax Act which did not permit theextension of a stay order beyond 365 days even if the assessee was notresponsible for delay in hearing the appeal. It is this judgment and severalother judgments from various High Courts that have been challenged bythe revenue in these appeals.

4. Shri Vikramjit Banerjee, learned ASG, assailed the impugnedjudgment of the Delhi High Court and other judgments following it, arguingthat there is no right to stay of a judgment in an appellate proceeding assuch stay is dependent upon the discretion of the Appellate Court. Thediscretion having been exercised once would not mean that automaticextensions of the same could be granted despite a reasonable periodhaving gone-by. He also argued that the discretionary remedy of a stayis 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 14of the Constitution of India is not to be applied mechanically as a fargreater freedom in the joints is given qua tax legislation and so long asthe State has laid down a valid policy which it has followed withoutsingling out anybody, no discrimination can possibly ensue. He also arguedthat equitable considerations and arguments based on hardship are outof place when it comes to tax statutes, which must be read literally. Forall these propositions, he cited case law which will be dealt with later inthis judgment.

5. Shri Ajay Vohra, learned Senior Advocate, Shri Himanshu S.Sinha, Shri Deepak Chopra and Shri Sachit Jolly, learned Advocates,appearing for the assessees, countered each of the submissions of ShriBanerjee, learned ASG. They relied strongly upon the reasoning of theimpugned judgment of the Delhi High Court and argued that oncediscretionary relief has been granted based upon a strong prima faciecase, balance of convenience, etc. it would be wholly arbitrary anddiscriminatory that such relief be vacated automatically without referenceto 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 staywhich, once obtained, cannot be vacated without dilatory tactics on the AB

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Apart of the Appellant being found against the Appellant. They citedjudgments of this Court to show that discriminatory taxation has beenstruck down under Article 14 of the Constitution of India. They alsoargued that the State cannot take shelter under a “policy”, if the policyor object laid down in the statutory provision is itself arbitrary ordiscriminatory. They also cited judgments to show that even in interpretingBa tax statute, though equitable considerations are not to be given effect,yet they are not wholly irrelevant when the constitutional validity of theprovision is itself challenged.

6. The genesis of the stay provision contained in Section 254 ofthe Income Tax Act is in the celebrated judgment of this Court in IncomeCTax Officer v. M.K. Mohammed Kunhi (1969) 2 SCR 65. In thisjudgment, Section 254 of the Income Tax Act, as originally enacted,came up for consideration before this Court. After setting out Section254(1), this Court referred to Sutherland, Statutory Construction (3[rd]Edn., Arts. 5401 and 5402), and then held that the power which hasDbeen conferred by the said Section on the Appellate Tribunal with thewidest possible amplitude must carry with it, by necessary implication,all powers incidental and necessary to make the exercise of such powerfully effective. The Court held:

“Section 255(5) of the Act does empower the Appellate TribunalEto regulate its own procedure, but it is very doubtful if the powerof stay can be spelt out from that provision. In our opinion theAppellate Tribunal must be held to have the power to grant stayas incidental or ancillary to its appellate jurisdiction. This isparticularly so when Section 220(6) deals expressly with a situationwhen an appeal is pending before the Appellate AssistantFCommissioner, but the Act is silent in that behalf when an appealis pending before the Appellate Tribunal. It could well be said thatwhen Section 254 confers appellate jurisdiction, it impliedly grantsthe power of doing all such acts, or employing such means, as areessentially necessary to its execution and that the statutory powerGcarries with it the duty in proper cases to make such orders forstaying proceedings as will prevent the appeal if successful frombeing rendered nugatory.

A certain apprehension may legitimately arise in the minds of theauthorities administering the Act that if the Appellate TribunalsHproceed to stay recovery of taxes or penalties payable by or

imposed on the assessees as a matter of course the revenue willbe put to great loss because of the inordinate delay in the disposalof appeals by the Appellate Tribunals. It is needless to point outthat the power of stay by the Tribunal is not likely to be exercisedin a routine way or as a matter of course in view of the specialnature of taxation and revenue laws. It wilt only be when a strongprima facie case is made out that the Tribunal will consider whetherto stay the recovery proceedings and on what conditions and thestay will be granted in most deserving and appropriate cases wherethe Tribunal is satisfied that the entire purpose of the appeal willbe frustrated or rendered nugatory by allowing the recoveryproceedings to continue during the pendency of the appeal.”

[at page 72]

Importantly, this Court recognised that orders of stay prevent theappeal, if ultimately successful, from being rendered nugatory or futile,and are granted only in deserving and appropriate cases.

7. The judgment of this Court was followed for many decades,the Appellate Tribunal granting stay without being constrained by anytime limit. However, by Finance Act, 2001 (w.e.f. 01/06/2001), twoprovisos were introduced to Section 254(2A) as follows:

“254. Orders of Appellate Tribunal.

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(2A) In every appeal, the Appellate Tribunal, where it is possible,may hear and decide such appeal within a period of four yearsfrom the end of the financial year in which such appeal is filedunder sub-section (1) or sub-section (2) of section 253:

Provided that where an order of stay is made in any proceedingsrelating to an appeal filed under sub-section (1) of section 253,the Appellant Tribunal shall dispose of the appeal within a periodof one hundred and eighty days from the date of such order:

Provided further that if such appeal is not so disposed of withinthe period specified in the first proviso, the stay order shall standvacated after the expiry of the said period.”

8. Realising that a hard and fast provision which is directory sofar as the disposal of appeal is concerned, but mandatory so far as A

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Avacation of the stay order is concerned, would lead to great hardship,the legislature stepped in again and amended Section 254(2A) videFinance Act, 2007 (w.e.f. 01/06/2007) as follows:

“254. Orders of Appellate Tribunal.

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(2A) In every appeal, the Appellate Tribunal, where it is possible,may hear and decide such appeal within a period of four yearsfrom the end of the financial year in which such appeal is filedunder sub-section (1) or sub-section (2) of section 253:

CProvided that the Appellate Tribunal may, after considering themerits of the application made by the assessee, pass an order ofstay in any proceedings relating to an appeal filed under sub-section(1) of section 253, for a period not exceeding one hundred andeighty days from the date of such order and the Appellate Tribunalshall dispose of the appeal within the said period of stay specifiedDin that order:

Provided further that where such appeal is not so disposed ofwithin the said period of stay as specified in the order of stay, theAppellate Tribunal may, on an application made in this behalf bythe assessee and on being satisfied that the delay in disposing ofEthe appeal is not attributable to the assessee, extend the period ofstay, or pass an order of stay for a further period or periods as itthinks fit; so, however, that the aggregate of the period originallyallowed and the period or periods so extended or allowed shallnot, in any case, exceed three hundred and sixty-five days andFthe Appellate Tribunal shall dispose of the appeal within the periodor periods of stay so extended or allowed:

Provided also that if such appeal is not so disposed of within theperiod allowed under the first proviso or the period or periodsextended or allowed under the second proviso, the order of stayshall 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 HighCourt in Narang Overseas Pvt. Ltd. v. ITAT (2007) 295 ITR 22. TheBombay High Court, after referring to the judgment in MohammedKunhi (supra), then held:H

“Did the section as it stood before the Finance Act of 2007, andafter the Finance Act of 2007, exclude the power of the Tribunalto grant interim relief after the period provided in the proviso.Was it the intendement of Parliament that the Tribunal even in acase where the assessee was not at fault should be denuded of itsincidental power to continue the interim relief granted and if sowhat mischief was it seeking to avoid. The mischief if and at allwas the long delay in disposing of proceedings where interim reliefhad been obtained by the Assessee. The second proviso as itearlier stood, in a case when in an appeal interim relief wasgranted, if the appeal was not disposed off within 180 days providedthat the stay shall stand vacated. The proviso as it stood couldreally have not have stood the test of non-arbitrariness as it wouldresult in an appeal being defeated even if the assessee was not atfault, as in the meantime the revenue could proceed against theassets of the assessee. The proviso as introduced by the FinanceAct, 2007 was to an extent to avoid the mischief of it being renderedunconstitutional. Once an appeal is provided, it cannot be renderednugatory in cases were the assessee was not at fault.

The amendment of 2007 conferred the power to extend the periodof interim relief to 360 days. Parliament clearly intended that suchappeals should be disposed of at the earliest. If that be the objectthe mischief which was sought to be avoided was the non-disposalof the appeal during the period the interim relief was in operation.By extending the period Parliament took note of laws delay. Theobject was not to defeat the vested right of Appeal in an assessee,whose appeal could not be disposed off not on account of anyomission or failure on his part, but either the failure of the Tribunalor acts of revenue resulting in non-disposal of the appeal withinthe extended period as provided.

Can it then be said that the intention of Parliament by restrictingthe period of stay or interim relief upto 360 days had the effect ofexcluding by necessary intendment the power of the Tribunal tocontinue the interim relief. Would not reading the power not tocontinue the power to continue interim relief in cases not attributableto the acts of the assessee result in holding that such a provisionwould be unreasonable. Could Parliament have intended to conferthe remedy of an Appeal by denying the incidental power of the ABC

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Tribunal to do justice. In our opinion for reasons already discussedit would not be possible to so read it.

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The High Court then referred to the judgment of this Court inCommissioner of Customs & Central Excise v. Kumar CottonMills (2005) 13 SCC 296, which dealt with a similar provision containedDin the Central Excise Act, 1944, namely, Section 35C(2A), and thenheld:

“ We are of the respectful view that the law as enunciatedin Kumar Cotton Mills Pvt. Ltd. (supra) should also apply to theconstruction of the third proviso as introduced in section 254(2A)Eby the Finance Act, 2007. The power to grant stay or interimrelief being inherent or incidental is not defeated by the provisosto the sub-section. The third proviso has to be read as a limitationon the power of the Tribunal to continue interim relief in casewhere the hearing of the Appeal has been delayed for actsattributable to the assessee. It cannot mean that a construction beFgiven that the power to grant interim relief is denuded even if theacts attributable are not of the assessee but of the revenue or ofthe Tribunal itself. The power of the Tribunal, therefore, to continueinterim relief is not overridden by the language of the third provisoto section 254(2A). This would be in consonance with the viewGtaken in Kumar Cotton Mills Pvt. Ltd. (supra). There would bepower in the Tribunal to extend the period of stay on good causebeing shown and on the Tribunal being satisfied that the mattercould not be heard and disposed of for reasons not attributable tothe assessee.”

[at page 32]

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10. Close on the heels of this judgment, Section 254(2A) of theIncome 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.

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(2A) In every appeal, the Appellate Tribunal, where it is possible,may hear and decide such appeal within a period of four yearsfrom the end of the financial year in which such appeal is filedunder sub-section (1) or sub-section (2) of section 253:

Provided that the Appellate Tribunal may, after considering themerits of the application made by the assessee, pass an order ofstay in any proceedings relating to an appeal filed under sub-section(1) of section 253, for a period not exceeding one hundred andeighty days from the date of such order and the Appellate Tribunalshall dispose of the appeal within the said period of stay specifiedin that order:

Provided further that where such appeal is not so disposed ofwithin the said period of stay as specified in the order of stay, theAppellate Tribunal may, on an application made in this behalf bythe assessee and on being satisfied that the delay in disposing ofthe appeal is not attributable to the assessee, extend the period ofstay, or pass an order of stay for a further period or periods as itthinks fit; so, however, that the aggregate of the period originallyallowed and the period or periods so extended or allowed shallnot, in any case, exceed three hundred and sixty-five days andthe Appellate Tribunal shall dispose of the appeal within the periodor periods of stay so extended or allowed:

Provided also that if such appeal is not so disposed of within theperiod allowed under the first proviso or the period or periodsextended or allowed under the second proviso, which shall not, inany case, exceed three hundred and sixty-five days, the order ofstay shall stand vacated after the expiry of such period or periods,even if the delay in disposing of the appeal is not attributable tothe assessee.”

11. The amended provision came to be considered by a DivisionBench of the Delhi High Court in Commissioner of Income Tax v.

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AM/s Maruti Suzuki (India) Ltd. (2014) 362 ITR 215.The constitutionalvalidity of the said provision had not been challenged, as a result ofwhich the Delhi High Court interpreted the third proviso to Section254(2A) as follows:

“In view of the aforesaid discussion, we have reached the followingBconclusion:-

(i) In view of the third proviso to Section 254(2A) of the Actsubstituted by Finance Act, 2008 with effect from 1[st] October,2008, tribunal cannot extend stay beyond the period of 365 daysfrom the date of first order of stay.

C(ii) In case default and delay is due to lapse on the part of theRevenue, the tribunal is at liberty to conclude hearing and decidethe appeal, if there is likelihood that the third proviso to Section254(2A) would come into operation.

(iii) Third proviso to Section 254(2A) does not bar or prohibit theDRevenue or departmental representative from making a statementthat they would not take coercive steps to recover the impugneddemand and on such statement being made, it will be open to thetribunal to adjourn the matter at the request of the Revenue.

(iv) An assessee can file a writ petition in the High Court pleadingEand asking for stay and the High Court has power and jurisdictionto grant stay and issue directions to the tribunal as may be required.Section 254(2A) does not prohibit/bar the High Court from issuingappropriate directions, including granting stay of recovery.

We have not examined the constitutional validity of the provisosFto 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 MarutiGSuzuki (supra), interpreted the third proviso to Section 254(2A) of theIncome Tax Act as follows:

“Applying the decision of the Division Bench of this court in thecase of Small Industries Development Bank of India (supra)to the facts of the case on hand, more particularly while consideringHthe powers of the Tribunal under section 254(2A) of the Act, it is

observed and held that by section 254(2A) of the Act, it cannot beinferred a legislative intent to curtail/withdraw the powers of theAppellate Tribunal to extend stay of demand beyond the period of365 days. However, the aforesaid extension of stay beyond theperiod of total 365 days from the date of grant of initial stay wouldalways be subject to the subjective satisfaction by the learnedAppellate Tribunal and on an application made by the assessee-appellant to extend stay and on being satisfied that the delay indisposing of the appeal within a period of 365 days from the dateof 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 grantedearlier and satisfy the learned Appellate Tribunal that the delay innot disposing of the appeal is not attributable to him/it and thelearned Appellate Tribunal is required to review the matter afterevery 180 days and while disposing of such application of extensionof stay, the learned Appellate Tribunal is required to pass a speakingorder after having satisfied that the assessee-appellant has notindulged into any delay tactics and that the delay in disposing ofthe appeal within stipulated time is not attributable to the assessee-appellant. However, at the same time, it may not be construedthat widest powers are given to the Appellate Tribunal to extendthe stay indefinitely and that the Appellate Tribunal is not requiredto dispose of the appeals at the earliest. The object and purposeof section 35C(2A) of the Act particularly one of the object andpurpose is to see that in a case where stay has been granted bythe learned Appellate Tribunal, the learned Appellate Tribunal isrequired to dispose of the appeal within total period of 365 days,as ultimately revenue has not to suffer and all efforts should bemade by the learned Appellate Tribunal to dispose of such appealsin which stay has been granted as far as possible within totalperiod of 365 days from the date of grant of initial stay and theAppellate Tribunal shall grant priority to such appeals over appealsin which no stay is granted. For that even the Appellate Tribunaland/or registrar of the Appellate Tribunal is required to maintainseparate register of the appeals in which stay has been grantedfully and/or partially and the appeals in which no stay has beengranted.

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SUPREME COURT REPORTS

AWith greatest respect to the Delhi High Court, if the aforesaidprocedure is adopted, either it would lead to multiplicity ofproceedings before the High Court and/or even granting the stayof demand by the Department itself. We are of the opinion thatinstead if the aforesaid procedure is followed, it would meet theends of justice and it may not increase the litigation either beforeBthe High Court and/or appropriate forum and the purpose andobject of section 254(2A) of the Act is achieved.”

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[at page 45-46]

13. The impugned judgment in M/s Pepsi Foods Ltd. v. ACITC(2015) 376 ITR 87dealt with the challenge to the constitutional validityof the third proviso to Section 254(2A) of the Income Tax Act, asamended by the Finance Act, 2008. A Division Bench of the Delhi HighCourt, after setting out the Bombay High Court judgment in NarangOverseas (supra), then referred to the previous judgment of the DelhiHigh Court in Maruti Suzuki (supra) and held:D

“12. From the above extract, it is evident that the Division Benchwas not called upon and did not examine the constitutional validityof the provisos to Section 254(2A) of the said Act and left theissue open. It is only on a plain reading of the provisos, as theyexisted, that the Division Bench came to the conclusion that theETribunal had no power to extend stay beyond a period of 365 daysfrom the date of the first order of stay but that an assessee couldfile a writ petition in the High Court asking for stay even beyondthe said period of 365 days and the High Court had the power andjurisdiction to grant stay and issue directions to the Tribunal andFthat Section 254(2A) did not prohibit/bar the High Court fromissuing appropriate directions, including grant of stay of recovery.A similar view was taken by the Bombay High Court in JethmalFaujimal Soni (supra). But that decision was also rendered on aplain meaning of the provisos, as they stood. There was no challengeto the constitutional validity of the third proviso to Section 254(2A)Gof the said Act after the amendment introduced by the FinanceAct, 2008. No decision of any High Court has been brought to ournotice by the learned counsel for the parties, wherein theconstitutional validity of the third proviso to Section 254(2A) ofthe said Act has been examined.”

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After referring to this Court’s judgment in Mardia ChemicalsLtd. v. Union of India (2004) 4 SCC 311 and the judgment of a DivisionBench of the Punjab and Haryana High Court in PML Industries Ltd.v. CCE (2013) SCC OnLine P&H 4440, which dealt with a similarprovision contained in Section 35C (2A) of the Central Excise Act,1944,the Court held:

“23. Keeping in mind the principles set out by the Supreme Courtin Dr Subramanian Swamy (supra), we need to examine whetherthe present challenge to the validity of the third proviso to Section254(2A) can be sustained. This is not a case of excessivedelegation of powers and, therefore, we need not bother aboutthe second dimension of Article 14 in its application to legislation.We are here concerned with the question of discrimination, basedon an impermissible or invalid classification. It is abundantly clearthat the power granted to the Tribunal to hear and entertain anappeal and to pass orders would include the ancillary power ofthe Tribunal to grant a stay. Of course, the exercise of that powercan be subjected to certain conditions. In the present case, wefind that there are several conditions which have been stipulated.First of all, as per the first proviso to Section 254(2A), a stayorder could be passed for a period not exceeding 180 days andthe Tribunal should dispose of the appeal within that period. Thesecond proviso stipulates that in case the appeal is not disposed ofwithin the period of 180 days, if the delay in disposing of the appealis not attributable to the assessee, the Tribunal has the power toextend the stay for a period not exceeding 365 days in aggregate.Once again, the Tribunal is directed to dispose of the appeal withinthe said period of stay. The third proviso, as it stands today, stipulatesthat 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 indisposing of the appeal is not attributable to the assessee. While itcould be argued that the condition that the stay order could beextended beyond a period of 180 days only if the delay in disposingof the appeal was not attributable to the assessee was a reasonablecondition on the power of the Tribunal to the grant an order ofstay, it can, by no stretch of imagination, be argued that where theassessee is not responsible for the delay in the disposal of theappeal, yet the Tribunal has no power to extend the stay beyondthe period of 365 days. The intention of the legislature, which has E

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been made explicit by insertion of the words - ‘even if the delay indisposing of the appeal is not attributable to the assessee’- rendersthe right of appeal granted to the assessee by the statute to beillusory for no fault on the part of the assessee. The stay, whichwas available to him prior to the 365 days having passed, issnatched away simply because the Tribunal has, for whateverreason, not attributable to the assessee, been unable to dispose ofthe appeal. Take the case of delay being caused in the disposal ofthe appeal on the part of the revenue. Even in that case, the staywould stand vacated on the expiry of 365 days. This is despite thefact that the stay was granted by the Tribunal, in the first instance,upon considering the prima facie merits of the case through areasoned order.

24. Furthermore, the petitioners are correct in their submissionthat unequals have been treated equally. Assessees who, afterhaving obtained stay orders and by their conduct delay the appealproceedings, have been treated in the same manner in whichassessees, who have not, in any way, delayed the proceedings inthe appeal. The two classes of assessees are distinct and cannotbe clubbed together. This clubbing together has led to hostilediscrimination against the assessees to whom the delay is notattributable. It is for this reason that we find that the insertion of

the expression - ‘even if the delay in disposing of the appeal is notattributable to the assessee’- by virtue of the Finance Act, 2008,violates the non-discrimination clause of Article 14 of theConstitution of India. The object that appeals should be heardexpeditiously and that assesses should not misuse the stay ordersgranted in their favour by adopting delaying tactics is not at allachieved by the provision as it stands. On the contrary, the clubbingtogether of ‘well behaved’ assesses and those who cause delayin the appeal proceedings is itself violative of Article 14 of theConstitution and has no nexus or connection with the object soughtto be achieved. The said expression introduced by the FinanceAct, 2008 is, therefore, struck down as being violative of Article14 of the Constitution of India. This would revert us to the positionof law as interpreted by the Bombay High Court in NarangOverseas (supra), with which we are in full agreement.Consequently, we hold that, where the delay in disposing of theappeal is not attributable to the assessee, the Tribunal has the power to grant extension of stay beyond 365 days in deservingcases. The writ petitions are allowed as above.”

14. It is settled law that challenges to tax statutes made underArticle 14 of the Constitution of India can be on grounds relatable todiscrimination as well as grounds relatable to manifest arbitrariness. Thesegrounds may be procedural or substantive in nature. Thus, in Suraj MallMohta and Co. v. A.V. Visvanatha Sastri (1955) 1 SCR 448, thisCourt struck down Section 5(4) of the Taxation on Income (InvestigationCommission) Act, 1947 on the ground that the procedure prescribedwas substantially more prejudicial and more drastic to the assessee thanthe procedure contained in the Indian Income Tax Act, 1922. Section5(4) of the aforesaid Act was thus struck down as a piece ofdiscriminatory legislation offending against the provisions of Article 14of the Constitution of India.

15. Instances of taxation statutes being struck down on substantivegrounds which had alleged discrimination can be found in the 5-Judgedecision of this Court in Kunnathat Thatehunni Moopil Nair v. Stateof 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. TheCourt held:

“Ordinarily, a tax on land or land revenue is assessed on the actualor the potential productivity of the land sought to be taxed. Inother 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. Underthe Act in question we shall take a hypothetical case of a numberof persons owning and possessing the same area of land. Onemakes nothing out of the land, because it is arid desert. The secondone does not make any income, but could raise some crop after adisproportionately large investment of labour and capital. A thirdone, in due course of husbandry, is making the land yield justenough to pay for the incidental expenses and labour chargesbesides 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 A

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Aillustration, would easily be able to bear the burden of the tax. Thethird one may be able to bear the tax. The first and the secondone will have to pay from their own pockets, if they could affordthe tax. If they cannot afford the tax, the property is liable to besold, in due process of law, for realisation of the public demand. Itis clear, therefore, that inequality is writ large on the Act and isBinherent in the very provisions of the taxing section. It is alsoclear that there is no attempt at classification in the provisions ofthe Act. Hence, no more need be said as to what could have beenthe basis for a valid classification. It is one of those cases wherethe lack of classification creates inequality. It is, therefore, clearlyChit by the prohibition to deny equality before the law contained inArticle 14 of the Constitution.”

Likewise, in Union of India v. A. Sanyasi Rao (1996) 3 SCC465, this Court struck down Section 44-AC of the Income Tax Act asDbeing discriminatory when only particular trades were singled out fordiscriminatory treatment, reliefs under Sections 28 to 43-C of the IncomeTax Act being denied only to such trades. This was done as the denial ofsuch relief had no nexus to the object sought to be achieved by thelegislation and resulted in unfairness, arbitrariness and denial of equalityEof treatment (see paragraph 22).

16. The other facet of Article 14 has been recently resurrectedby 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 CourtFin Indian Express Newspapers (Bombay) (P) Ltd. v. Union ofIndia [Indian Express Newspapers (Bombay) (P) Ltd. v. Unionof India, (1985) 1 SCC 641 : 1985 SCC (Tax) 121] stated that itwas settled law that subordinate legislation can be challenged onany of the grounds available for challenge against plenaryGlegislation. This being the case, there is no rational distinctionbetween the two types of legislation when it comes to this groundof challenge under Article 14. The test of manifest arbitrariness,therefore, as laid down in the aforesaid judgments would apply toinvalidate legislation as well as subordinate legislation under Article14. Manifest arbitrariness, therefore, must be something done byHthe legislature capriciously, irrationally and/or without adequate determining principle. Also, when something is done which isexcessive and disproportionate, such legislation would be manifestlyarbitrary. We are, therefore, of the view that arbitrariness in thesense of manifest arbitrariness as pointed out by us above wouldapply to negate legislation as well under Article 14.”

17. Judged by both these parameters, there can be no doubt thatthe third proviso to Section 254(2A) of the Income Tax Act, introducedby the Finance Act, 2008, would be both arbitrary and discriminatoryand, therefore, liable to be struck down as offending Article 14 of theConstitution of India. First and foremost, as has correctly been held inthe impugned judgment, unequals are treated equally in that nodifferentiation is made by the third proviso between the assessees whoare responsible for delaying the proceedings and assessees who are notso responsible. This is a little peculiar in that the legislature itself hasmade the aforesaid differentiation in the second proviso to Section254(2A) of the Income Tax Act, making it clear that a stay order may beextended upto a period of 365 days upon satisfaction that the delay indisposing of the appeal is not attributable to the assessee. We have alreadyseen as to how, as correctly held by Narang Overseas (supra), thesecond proviso was introduced by the Finance Act, 2007 to mitigate therigour of the first proviso to Section 254(2A) of the Income Tax Act inits previous avatar. Ordinarily, the Appellate Tribunal, where possible, isto hear and decide appeals within a period of four years from the end ofthe financial year in which such appeal is filed. It is only when a stay ofthe impugned order before the Appellate Tribunal is granted, that theappeal is required to be disposed of within 365 days. So far as the disposalof an appeal by the Appellate Tribunal is concerned, this is a directoryprovision. However, so far as vacation of stay on expiry of the saidperiod is concerned, this condition becomes mandatory so far as theassessee is concerned. The object sought to be achieved by the thirdproviso to Section 254(2A) of the Income Tax Act is without doubt thespeedy disposal of appeals before the Appellate Tribunal in cases inwhich a stay has been granted in favour of the assessee. But such objectcannot itself be discriminatory or arbitrary, as has been felicitously heldin Nagpur Improvement Trust v. Vithal Rao (1973) 3 SCR 39 asfollows:

“It is now well-settled that the State can make a reasonableclassification for the purpose of legislation. It is equally well-settled A

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Since the object of the third proviso to Section 254(2A) of theIncome Tax Act is the automatic vacation of a stay that has been grantedon the completion of 365 days, whether or not the assessee is responsiblefor the delay caused in hearing the appeal, such object being itselfdiscriminatory, in the sense pointed out above, is liable to be struck downDas violating Article 14 of the Constitution of India. Also, the said provisowould result in the automatic vacation of a stay upon the expiry of 365days even if the Appellate Tribunal could not take up the appeal in timefor no fault of the assessee. Further, vacation of stay in favour of therevenue would ensue even if the revenue is itself responsible for theEdelay in hearing the appeal. In this sense, the said proviso is also manifestlyarbitrary being a provision which is capricious, irrational anddisproportionate so far as the assessee is concerned.

18. In fact, in a recent judgment of this Court in Essar SteelIndia Ltd. Committee of Creditors v. Satish Kumar Gupta (2020)F8 SCC 531, the word “mandatorily” in the 2[nd] proviso inserted throughan amendment made to Section 12(3) of the Insolvency and BankruptcyCode, 2016 was struck down. This Court held:

“124. Given the fact that timely resolution of stressed assets is akey factor in the successful working of the Code, the only realGargument against the amendment is that the time taken in legalproceedings cannot ever be put against the parties before NCLTand Nclat based upon a Latin maxim which subserves the causeof justice, namely, actus curiae neminem gravabit.

125. In Atma Ram Mittal v. Ishwar Singh Punia [Atma RamMittal v. Ishwar Singh Punia, (1988) 4 SCC 284] , this Court H

applied the maxim to time taken in legal proceedings under theHaryana 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 thefault of the court or delay in the procedure. Broom has statedthe maxim actus curiae neminem gravabit — an act of courtshall prejudice no man. Therefore, having regard to the timenormally consumed for adjudication, the ten years’ exemptionor holiday from the application of the Rent Act would becomeillusory, if the suit has to be filed within that time and be disposedof finally. It is common knowledge that unless a suit is institutedsoon after the date of letting it would never be disposed ofwithin ten years and even then within that time it may not bedisposed of. That will make the ten years holiday from theRent Act illusory and provide no incentive to the landlords tobuild new houses to solve problem of shortages of houses.The purpose of legislation would thus be defeated. Purposiveinterpretation in a social amelioration legislation is an imperativeirrespective of anything else.”

126. Likewise, in Sarah Mathew v. Institute of Cardio VascularDiseases [Sarah Mathew v. Institute of Cardio VascularDiseases, (2014) 2 SCC 62 : (2014) 1 SCC (Cri) 721] , this Courtheld that for the purpose of computing limitation under Section468 of the Code of Criminal Procedure, 1973 the relevant date isthe date of filing of the complaint and not the date on which theMagistrate takes cognizance, applying the aforesaid maxim asfollows: (SCC pp. 96-97, para 39)

“39. As we have already noted in reaching this conclusion,light can be drawn from legal maxims. Legal maxims arereferred to in Bharat Kale [Bharat Damodar Kale v. Stateof A.P., (2003) 8 SCC 559 : 2004 SCC (Cri) 39] , JapaniSahoo [Japani Sahoo v. Chandra Sekhar Mohanty, (2007)7 SCC 394 : (2007) 3 SCC (Cri) 388] and VankaRadhamanohari [Vanka Radhamanohari v. Vanka VenkataReddy, (1993) 3 SCC 4 : 1993 SCC (Cri) 571] . The object ofthe criminal law is to punish perpetrators of crime. This is intune with the well-known legal maxim nullum tempus aut locusoccurrit regi, which means that a crime never dies. At the AB

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same time, it is also the policy of law to assist the vigilant andnot the sleepy. This is expressed in the Latin maxim vigilantibuset non dormientibus, jura subveniunt. Chapter XXXVICrPC which provides limitation period for certain types ofoffences for which lesser sentence is provided draws supportfrom this maxim. But, even certain offences such as Section384 or 465 IPC, which have lesser punishment may have serioussocial consequences. The provision is, therefore, made forcondonation of delay. Treating date of filing of complaint ordate of initiation of proceedings as the relevant date forcomputing limitation under Section 468 of the Code is supportedby the legal maxim actus curiae neminem gravabit whichmeans that the act of court shall prejudice no man. It bearsrepetition to state that the court’s inaction in taking cognizancei.e. court’s inaction in applying mind to the suspected offenceshould not be allowed to cause prejudice to a diligentcomplainant. Chapter XXXVI thus presents the interplay ofthese 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 RamMittal v. Ishwar Singh Punia, (1988) 4 SCC 284] and SarahMathew [Sarah Mathew v. Institute of Cardio VascularDiseases, (2014) 2 SCC 62 : (2014) 1 SCC (Cri) 721] have beenfollowed in Neeraj Kumar Sainy v. State of U.P. [Neeraj KumarSainy v. State of U.P., (2017) 14 SCC 136 : 8 SCEC 454] , SCCparas 29 and 32. Given the fact that the time taken in legalproceedings cannot possibly harm a litigant if the Tribunal itselfcannot take up the litigant’s case within the requisite period for nofault of the litigant, a provision which mandatorily requires theCIRP to end by a certain date — without any exception thereto— may well be an excessive interference with a litigant’sfundamental right to non-arbitrary treatment under Article 14 andan excessive, arbitrary and therefore unreasonable restriction ona litigant’s fundamental right to carry on business under Article19(1)(g) of the Constitution of India. This being the case, we wouldordinarily have struck down the provision in its entirety. However,that would then throw the baby out with the bath water, inasmuchas the time taken in legal proceedings is certainly an important

Facts

factor which causes delay, and which has made previous statutoryexperiments fail as we have seen from Madras Petrochem[Madras Petrochem Ltd. v. BIFR, (2016) 4 SCC 1 : (2016) 2SCC (Civ) 478] . Thus, while leaving the provision otherwise intact,we strike down the word “mandatorily” as being manifestlyarbitrary under Article 14 of the Constitution of India and as beingan excessive and unreasonable restriction on the litigant’s right tocarry on business under Article 19(1)(g) of the Constitution. Theeffect of this declaration is that ordinarily the time taken in relationto the corporate resolution process of the corporate debtor mustbe completed within the outer limit of 330 days from the insolvencycommencement date, including extensions and the time taken inlegal proceedings. However, on the facts of a given case, if it canbe shown to the Adjudicating Authority and/or Appellate Tribunalunder the Code that only a short period is left for completion ofthe insolvency resolution process beyond 330 days, and that itwould be in the interest of all stakeholders that the corporate debtorbe put back on its feet instead of being sent into liquidation andthat the time taken in legal proceedings is largely due to factorsowing to which the fault cannot be ascribed to the litigants beforethe Adjudicating Authority and/or Appellate Tribunal, the delay ora large part thereof being attributable to the tardy process of theAdjudicating Authority and/or the Appellate Tribunal itself, it maybe open in such cases for the Adjudicating Authority and/orAppellate Tribunal to extend time beyond 330 days. Likewise,even under the newly added proviso to Section 12, if by reason ofall the aforesaid factors the grace period of 90 days from the dateof commencement of the Amending Act of 2019 is exceeded,there again a discretion can be exercised by the AdjudicatingAuthority and/or Appellate Tribunal to further extend time keepingthe aforesaid parameters in mind. It is only in such exceptionalcases that time can be extended, the general rule being that 330days is the outer limit within which resolution of the stressed assetsof the corporate debtor must take place beyond which the corporatedebtor is to be driven into liquidation.”

19. Coming to the arguments of the learned ASG, his relianceupon passages contained in M/s M. Ramnarain (P) Ltd. v. StateTrading Corpn. of India Ltd. (1983) 3 SCC 75 (paragraph 16) andM. Janardhana Rao v. CIT (2005) 2 SCC 324 (paragraph 14) do not A

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Acarry the matter any further. In M/s M. Ramnarain (supra) what washeld in paragraph 16 was that the statutory right of appeal conferred ona party may be lost by application of the provisions of some law or bythe conduct of the party. This was held in the context of the provisionsof Order XX Rule 11 of the Code of Civil Procedure, 1908, which washeld by the High Court in that case to deprive the Appellant of his rightBto prefer an appeal against the main decree. The High Court judgmentwas set aside, this Court holding:

“21. Though by virtue of the provisions of the Original Side Rulesof the Bombay High Court the earlier appeal could be permittedto be filed without a certified copy of the decree or order, theCappeal would not be valid and competent unless the furtherrequirement of filing the certified copy had been complied with.At the time when the earlier Appeal No. 36 of 1981 had beenwithdrawn, the certified copy of the decree had not been filed.The said appeal without the certified copy of the decree remainedDan incompetent appeal. The withdrawal of an incompetent appealwhich will indeed be no appeal in the eye of law cannot in anyway prejudice the right of any appellant to file a proper appeal, ifthe right of appeal is not otherwise lost by lapse of time or for anyother valid reason. We are, therefore, of the opinion that theprovisions contained in Order 20 Rule 11 of the Code do not in theEfacts and circumstances of the present case deprive the appellantof his right to file an appeal against the decree.”

This judgment is distinguishable as it does not deal with theconstitutional validity of an appeal provision.

F20. Likewise, the judgment in Janardhana Rao (supra), whichheld that a right of appeal is neither a natural nor inherent right but has tobe regulated in accordance with the law in force at the relevant time, theconditions of the appellate provision having to be strictly fulfilled, is alsoa judgment which has no reference to the constitutional validity of anappeal provision being assailed. In point of fact, this Court’s judgment inGMardia Chemicals (supra) comes nearer home when the constitutionalvalidity 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 firstinstance of proceedings is not to be found in any of the decisions H

cited on behalf of the respondent. All these cases relate to appeals.The amount of deposit of 75% of the demand, at the initialproceeding itself sounds unreasonable and oppressive, moreparticularly when the secured assets/the management thereofalong with the right to transfer such interest has been taken overby the secured creditor or in some cases property is also sold.Requirement of deposit of such a heavy amount on the basis of aone-sided claim alone, cannot be said to be a reasonable conditionat 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 favourof the party, who, so far has alone been the party to decide theamount and the fact of default and classifying the dues as NPAswithout participation/association of the borrower in the process.Such an onerous and oppressive condition should not be leftoperative in expectation of reasonable exercise of discretion bythe authority concerned. Placed in a situation as indicated above,where it may not be possible for the borrower to raise any amountto make the deposit, his secured assets having already been takenpossession of or sold, such a rider to approach the Tribunal at thefirst instance of proceedings, captioned as appeal, renders theremedy illusory and nugatory.

61. In the case of Seth Nand Lal [1980 Supp SCC 574] whileconsidering the question of validity of pre-deposit before availingthe right of appeal the Court held: (SCC p. 590, para 22)

[R]ight of appeal is a creature of the statute and while grantingthe right the legislature can impose conditions for the exercise ofsuch right so long as the conditions are not so onerous as toamount to unreasonable restrictions rendering the right almost”illusory.

[emphasis supplied]

This Court ultimately struck down Section 17(2) of theSecuritisation and Reconstruction of Financial Assets and Enforcementof Security Interest Act, 2002 (hereinafter referred to as “SARFAESIAct”) 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

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AAct was onerous, oppressive, unreasonable, arbitrary and hence violativeof Article 14 of the Constitution of India.

21. The learned ASG then relied upon judgments which indicatethat 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 adjudgingBthe constitutional validity of the same. For this purpose, he relied uponState of M.P. v. Bhopal Sugar Industries Ltd. (1964) 6 SCR 846. Inthis case, the judgment of this Court held that if the statute discloses apermissible policy of taxation, the Courts will uphold it. If, however, thetax was imposed deliberately with the object of differentiating betweenpersons similarly circumstanced, such tax would be liable to be struckCdown.

22. We have already seen how unequals have been treated equallyso far as assessees who are responsible for delaying appellateproceedings and those who are not so responsible, resulting in a violationof Article 14 of the Constitution of India. Also, the expression “permissible”Dpolicy of taxation would refer to a policy that is constitutionallypermissible. If the policy is itself arbitrary and discriminatory, such policywill have to be struck down, as has been found in paragraph 17 above.

23. The other judgment relied upon by the learned ASG is thejudgment in N. Venugopala Ravi Varma Rajah v. Union of IndiaE(1969) 1 SCC 681 (paragraph 14). This judgment speaks of a larger playin the joints to legislative discretion in the matter of classification beinggranted when such legislation is a tax legislation. The caveat applied inthis paragraph is that a taxing statute may contravene Article 14 of theConstitution of India if it seeks to impose upon the same class of property,Fpersons, etc., something which leads to obvious inequality. It is this caveatthat has been applied to the third proviso to Section 254(2A) of theIncome 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 judgmentGonly reiterates the well-settled principle that in the field of taxationhardship or equity has no role to play in determining eligibility to tax. Thepresent appeals have nothing to do with determining eligibility to tax.They have only to do with a frontal challenge to the constitutional validityof an appeal provision in the Income Tax Act. Also, it is important toremember that the golden rule of interpretation is not given a go-byH

when it comes to interpretation of tax statutes. This Court in CIT v.J.H. Gotla(1985) 4 SCC 343, put it well when it said:

“46. Where the plain literal interpretation of a statutory provisionproduces a manifestly unjust result which could never have beenintended by the Legislature, the Court might modify the languageused by the Legislature so as to achieve the intention of theLegislature and produce a rational construction. The task ofinterpretation of a statutory provision is an attempt to discover theintention of the Legislature from the language used. It is necessaryto remember that language is at best an imperfect instrument forthe expression of human intention. It is well to remember thewarning administered by Judge Learned Hand that one shouldnot make a fortress out of dictionary but remember that statutesalways have some purpose or object to accomplish andsympathetic and imaginative discovery is the surest guide to theirmeaning.

47. We have noted the object of Section 16(3) of the Act whichhas to be read in conjunction with Section 24(2) in this case forthe present purpose. If the purpose of a particular provision iseasily discernible from the whole scheme of the Act which in thiscase is, to counteract the effect of the transfer of assets so far ascomputation of income of the assessee is concerned then bearingthat purpose in mind, we should find out the intention from thelanguage used by the Legislature and if strict literal constructionleads to an absurd result i.e. result not intended to be subservedby the object of the legislation found in the manner indicated before,and if another construction is possible apart from strict literalconstruction then that construction should be preferred to the strictliteral construction. Though equity and taxation are often strangers,attempts should be made that these do not remain always so andif a construction results in equity rather than in injustice, then suchconstruction should be preferred to the literal construction.Furthermore, in the instant case we are dealing with an artificialliability created for counteracting the effect only of attempts bythe assessee to reduce tax liability by transfer. It has also beennoted how for various purposes the business from which profit isincluded or loss is set off is treated in various situations as assessee’sincome. The scheme of the Act as worked out has been notedbefore.”

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A25. The law laid down by the impugned judgment of the DelhiHigh Court in M/s Pepsi Foods Ltd. (supra) is correct. Resultantly,the judgments of the various High Courts which follow the aforesaiddeclaration of law are also correct. Consequently, the third proviso toSection 254(2A) of the Income Tax Act will now be read without theword “even” and the words “is not” after the words “delay in disposingBof the appeal”. Any order of stay shall stand vacated after the expiry ofthe period or periods mentioned in the Section only if the delay in disposingof the appeal is attributable to the assessee. The appeals of the revenueare, therefore, dismissed.

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