In appeals before the Court was an important question as to the constitutional validity of the third proviso to section 254(2A) of the Income-tax Act, 1961 The Court held that the second proviso was introduced by the Finance Act, 2007 to mitigate the rigour of the first proviso to section 254(2A) of the Act in its previous avatar. Ordinarily, the Appellate Tribunal, where possible, is to hear and decide appeals within a period of four years from the end of the financial year in which such appeal is filed. It is only when a stay of the order under challenge before the Appellate Tribunal is granted, that the appeal is required to be disposed of within 365 days. So far as the disposal of an appeal by the Appellate Tribunal is concerned, this is a directory provision. However, so far as vacation of stay on expiry of the period is concerned, this condition becomes mandatory so far as the assessee is concerned.

Consequently, the third proviso to section 254(2A) of the Act has to be read without the word “even” and the words “is not” after the words “delay in disposing of the appeal”. Any order of stay shall stand vacated after the expiry of the period or periods mentioned in the section only if the delay in disposing of the appeal is attributable to the assessee. The issue in appeal before the Court was as to the constitutional validity of the third proviso to section 254(2A) of the Income-tax Act, 1961.  Court also observed that, the Challenges to tax statutes made under article 14 of the Constitution of India can be on grounds relatable to discrimination as well as grounds relatable to manifest arbitrariness. These grounds may be procedural or substantive in nature. The expression “permissible” policy of taxation would refer to a policy that is constitutionally permissible. If the policy is itself arbitrary and discriminatory, such policy will have to be struck down. Referred State of M.P. v. Bhopal Sugar Industries Ltd (1964) 52 ITR 443 (SC)  (AY.2008-09)