Withering Of Tribunal’s Stay Granting Powers – When Does The Hammer Drop?

Advocate Sukhsagar Syal has formulated the proposition that every assessee has a vested right to file an appeal and to obtain a stay of demand and that this right cannot be taken away by an amendment to the Act. He has argued that consequently the amendment to section 254 of the Income-tax Act (which takes away the Tribunal’s absolute power to grant stay) will apply only to those cases where the assessment order is passed on or after 1st April, 2020. In all other cases, the Tribunal will continue to hold the power of granting stay of demand without any restriction. He has supported his proposition with an extensive reference to several case laws

1. Finance Act, 2020 has inter alia amended the provisions of section 254 of the Income-tax Act, 1961 (‘the Act’) to dilute, the hitherto absolute, stay granting powers of the the Income Tax Appellate Tribunal (‘the Tribunal’). The first proviso to sub-section (2A) of section 254 has been amended to provide that the Tribunal may grant a stay of demand subject to the condition that at least twenty percent of the tax, interest, fee, penalty, or any other sum payable under the Act is deposited or a security of an equal amount is furnished. Similarly, the second proviso of the same sub-section has been amended to provide that an extension of stay shall not be granted unless the condition referred to in the first proviso has been met with. 

2. This sub-section of section 254 has the rare distinction of being read down by the High Courts on two earlier occasions (1) . Considering this notorious history, it may not be far-fetched to think that a constitutional challenge to this amendment is very likely. Be that as it may, it would be naïve to presume unconstitutionality of a provision at the get go. If the provision does pass the constitutional challenge, if and when there is one, an important question which would arise is as to when does this provision take effect and which stay applications are saved from its rigour. The Finance Act, as also the Memorandum explaining the provisions of the Finance Bill, state that this amendment is effective from 1st April, 2020. Therefore, the amendment is certainly prospective in its operation. However, the question remains as to what does prospective mean in the context of an amendment which affects the jurisdiction of an appellate authority. Which event occurring after 1st April, 2020 will attract the amended provisions is what is sought to be examined in this write-up.

3. It is trite that charging and computation provisions, as they stand on the first day of a the financial year are relevant for that year, irrespective of what the law is when the assessment is completed or an appeal comes to be heard (2) .However, the provisions dealing with jurisdiction of authorities follow a different principle. Such provisions are generally procedural in nature, and in the absence of anything to the contrary, apply retrospectively in the sense that they apply to all actions after the date they come into force even though the action may have begun earlier or the claim on which the action may be based may be of an anterior date (3) . However, this retrospectivity is subject to an exception that a ‘vested right’ of a litigant should not be impaired as a result thereof. 

An amendment cannot impair a vested right-

4. The Courts (4) have time and again reiterated the principle that the right to appeal and the incidental rights thereto are substantive rights which are vested in every litigant. These vested rights cannot be impaired or made more onerous by a subsequent legislation unless the subsequent legislation says so either expressly or by necessary intendment. This principle of law follows from the legal maxim ‘Nova constitution futuris formam imponere debet, non praeteritis’, which literally translates to mean that a new law ought to be construed to interfere as little as possible with vested rights (5) . Neither the Finance Act, 2020, nor the Memorandum explaining the provisions give any indication of its intention to affect the rights already vested in the appellants under section 254. Therefore, the exception, as noted in the above principle does not apply to these amendments. It would follow that all such appellants having already acquired a ‘vested right’ to obtain a complete stay of demand as of 1st April, 2020 should not stand to suffer due to the amendment. The only question that remains is as to which appellants can be said to have such a vested right as of this date.

Relevance of commencement of dispute-

5. An issue, fairly similar to the one being dealt with herein, arose before the Supreme Court (6) in the context of Sales Tax Act. Section 22 of the Central Provinces and Berar Sales Tax Act, 1947 dealt with the appeals filed before the Sales Tax Commissioner. The provision was amended in 1949 to provide that no appeal could be filed unless the amount of tax, in respect of which the appeal was being filed, was paid. The question arose that whether this condition of predeposit of tax would apply to all the appeals which were to be filed after the section had been amended. In the case of the Petitioner therein, the assessment order had been passed in 1950 and the appeal against such an order was also filed in the same year, i.e., both the events had occurred after the amendment came into force in 1949. However, the first notice, that initiated the dispute and which eventually culminated into the assessment order was issued by the Sales Tax Officer in 1947. The case of the Petitioner was that the law pertaining to an appeal has to be seen on the date of the ‘commencement of lis’, i.e., on the date of initiation of the dispute in the original proceeding, as it is on such date, that the right to appeal ‘vests’ in an appellant. It was argued that any subsequent amendment cannot impair this right of appeal which has vested on the date the dispute was initiated. Affirming the Petitioner’s stance, the Supreme Court first explained the nature of the amendment in the following words-

“There can be no doubt that the new requirement "touches" the substantive right of appeal vested in the appellant. Nor can it be overlooked that such a requirement is calculated to interfere with or fetter, if not to impair or imperil, the substantive right. The right that the amended section gives is certainly less than the right which was available before. A provision which is calculated to deprive the appellant of the unfettered right of appeal cannot be regarded as a mere alteration in procedure. Indeed the new requirement cannot be said merely to regulate the exercise of the appellant’s pre-existing right but in truth whittles down the right itself and cannot be regarded as a mere rule of procedure.”

The Supreme Court then went on to hold that the date on which the first notice was issued by the Sales Tax Officer would be the date on which the ‘lis’ arises. The law pertaining to appeals has to be seen as of this date. Any subsequent amendment thereto will not govern an appeal which arises out of this assessment order. Following extract is noteworthy-

“It will appear from the dates given above that in this case the ‘lis’ in the sense explained above arose before the date of amendment of the section. Further, even if the ‘lis’ is to betaken as arising only on the date of assessment, there was a possibility of such a ‘lis’ arising as soon as proceedings started with the filing of the return or, at any rate, when the authority called for evidence and started the hearing and the right of appeal must be taken to have been in existence even at those dates. For the purposes of the accrual of the right of appeal the critical and relevant date is the date of initiation of the proceedings and not the decision itself.”

The Supreme Court quoted with approval the judgment of the Calcutta High Court (7) . Following passage is of relevance in this regard-

“There can be no doubt that the right of appeal has been affected by the new provision and in the absence of an express enactment this amendment cannot apply to proceedings pending at the date when the new amendment came into force. It is true that the appeal was filed after the Act came into force, but that circumstance is immaterial for the date to be looked into for this purpose is the date of the original proceeding which eventually culminated in the appeal.”

The Supreme Court also rejected the Respondent’s argument that after the amendment, the appellate authority had no jurisdiction to hear an appeal without enforcing the pre-deposit of tax. It was held that for those purposes the old law must be presumed to continue to exist. The law which created a right must be presumed to exist in order to support the right so created by it.

6. The Supreme Court (8) dealing with an identical issue in the context of Assam Sales Tax Act, 1947 accepted the above ratio with a slight variation. It was held therein that the critical date to determine the rights of appeal available to a litigant is the date of ‘completion of assessment’. In holding so, the Court rejected the Petitioner’s argument that since the assessment year had ended prior to the amendment, the old law would apply to it.

7. The same principle was also laid down by the Supreme Court in another judgment (9) , wherein the Court further clarified that all successive appeals from court to court really constitute one proceeding. Therefore, the law relating to appeals before every such forum has to be seen on the date of commencement of dispute in the original proceeding.

8. To draw a parallel to the issue at hand, the law governing appeals before every appellate forum, right from the Commissioner of Income-tax (Appeals) to the Supreme Court has to be seen as on the date on which the dispute arises, i.e. when a notice is issued by the Assessing Officer, or at any rate, the date on which the assessment is completed.

Similar disputes under the Income-tax Act-

9. Disputes, similar to the one being dealt with herein, have arisen under the Income-tax Act as well. Sub-section (2) of section 254 was amended by the Finance Act, 2016 with effect from 1st June, 2016, whereby the period available to the Tribunal to rectify a mistake apparent from record in its orders was reduced from 4 years to 6 months from the end of the month in which the order is passed. A literal reading of the provision meant that in the cases where the orders had been passed by the Tribunal under section 254(1) at least 6 months prior to the amendment, the right to file a rectification application against such orders stood automatically extinguished once the amendment came into force. In one such case, wherein the Tribunal had passed the order under section 254(1) in 2015 (i.e., prior to the amendment), a rectification application was filed in August, 2016. The Tribunal refused to entertain the application on the ground that the reduced limitation of six months had expired. The order of the Tribunal was assailed before the Madhya Pradesh High Court (10) . The Court negatived the Tribunal’s approach and held that if the amendment was applied to the orders passed under section 254(1) prior to the amendment, it would take away vested rights of the appellants to file a rectification application and the provision would become ‘virtually retrospective’. Accordingly, the Tribunal was directed to adjudicate upon the rectification application as per the old law.

10. An amendment was made to the court fee leviable on filing of an appeal before the High Court under section 260A of the Act. The Petitioners argued that all aspects of the appeal before the High Court had to be governed as per the law prevailing on the date of the assessment order and that the subsequent amendments would be wholly irrelevant. It was, therefore, argued that the court fee was leviable at the rates in force on the date when the assessment order was passed and not when the appeal came to be filed before the High Court. The Respondents opposed this contention by arguing that since the appeal before the High Court was filed after the amendment, the court fee would be leviable as per the new rates. The Supreme Court (11) concurred with the Petitioners and held that the date of passing of the assessment order would be decisive in determining all aspects of appeals including the levy of court fee. 

11. In the context of penalty proceedings, the Supreme Court (12) held that the jurisdiction to levy penalty has to be seen as on the date of the assessment order, because it is on such date, that the penalty proceedings are initiated.

12. Amendment to section 234D of the Act by the Finance Act, 2012 is an example of a situation where, although, a vested right was hampered, however, the same was done in view of the express language of the amendment. Section 234D, dealing with the levy of interest where excess refund is granted under section 143(1) visa vis the final determination under section 143(3) was introduced on 1st June, 2003. The Bombay High Court (13) held that in cases where refunds were granted prior to this date, there will be no levy of interest. The section was amended by way of insertion of an Explanation by the Finance Act, 2012, which clarified that the provision will also apply to the assessment years prior to the amendment, as long as the assessment proceedings were pending as of 1st June, 2003. Therefore, in this case, the legislature, by express language, sought to impose an additional liability to pending proceedings. When the very same issue came up before the Bombay High Court (14) again after the amendment, it was held that in view of the express language of the Explanation, the interest was leviable on refunds granted prior to the amendment. Since the language of the amendments to section 254 by the Finance Act, 2020 are in contrast to the language of the amendment to section 234D, in as much as, it does not expressly provide for its application to all the proceedings pending before the Tribunal, the hitherto unrestricted power of granting stay of demand arising from such proceedings will continue to hold the field.

13. The judgments referred to hereinabove overwhelmingly support the proposition that a vested right to appeal and the incidental rights thereto come to fruition as soon as the dispute arises in the original proceeding and the law prevailing on such date will continue to govern all aspects of the appeals, notwithstanding subsequent amendments. In the context of the appeals arising out of income tax proceedings, the above would translate into determining and freezing the appellant’s rights on the date of the assessment order.

14. The right to obtain a stay of demand is incidental to the right to appeal and is naturally governed by the same principles. However, even if it is looked at independently, the same consequences will follow since the dispute with respect to demand, for which a stay is sought, arises with the issuance of the notice of demand under section 156 of the Act, which also accompanies the assessment order. Therefore, looked from either perspective, the critical date would be the date of the assessment order.

15. In view of the above, it appears that the amended provisions of section 254 will apply only to those cases, where the assessment order is passed on or after 1st April, 2020. In all other cases, the Tribunal will continue to hold the power of granting stay of demand without any restriction. This conclusion will hold good for both, original applications for stay (under the first proviso) and applications for extension of stay (under the second proviso).