As promised in the Taxpayers Charter, the IT department is committed to providing fair treatment and delivering professional assistance in all dealings with the taxpayer – Kritchanut
The goverment’s efforts to build a favourable tax regime for genuine taxpayers is commendable
The government’s efforts, so far, to build a favourable tax regime for genuine taxpayers is commendable. Vide Budget 2021, the government mandated the Income Tax Department to adopt the Taxpayers’ Charter to reassure the taxpayers that the ‘government remains committed to taking measures so that citizens are free from harassment of any kind’.
This objective of the government is now finding support from the Indian judicial system as well. Recently, the judiciary has delivered rulings that are suggestive of its sincerity to remove convolutions in law and its effort against the actions of the revenue department that impact the taxpayers unfairly.
ITAT’s grant of stay
The Supreme Court in a recent judgement in case of PepsiCo India, analysed the constitutional validity of Income Tax Appellate Tribunal’s (ITAT) power to ‘grant stay on demand and to further extend the period of stay which shall not exceed 365 days and the ITAT shall have to dispose the appeal within such period.’
The Apex court found that the provision stipulating the automatic vacation of stay beyond 365 days, even if the assessee was not responsible for delay in disposing the appeal, was both ‘arbitrary’ and ‘discriminatory’ and was therefore liable to be struck down as offending Article 14 of the Constitution of India.
The Indian company had filed an appeal before the ITAT against an order of assessment passed by the Income Tax Department. Subsequently, a stay of operation of the order of the Assessing Officer was granted by the ITAT for a period of six months. The stay continued to be extended until no further extension could be provided as per law. Apprehending coercive action from the Revenue, the company filed a writ petition before the Delhi High Court challenging the constitutional validity of relevant provisions.
The High Court held that the clubbing together of ‘well behaved’ assesses and those who cause delay in the appeal proceedings, is itself violative of Article 14 of the Constitution of India, that prescribes equality before the law. Such provisions of Income tax act automatically vacating stay of demand, without any fault on the part of taxpayer, has no nexus or connection with the object sought to be achieved, which is, expeditious hearing of appeals.
When the matter was pursued before the Supreme Court, an in-depth analysis of the legislative history was conducted, to finally deliver the well-reasoned judgement. The Supreme Court concurred with the decision of the High Court and declared that ‘unequals have been treated equally’ and that the said section makes no distinction between assesses who are responsible for delaying the proceedings and the assesses who are not so responsible. The Supreme Court commented that the object of the said provision (i.e., automatic vacation of stay on completion of 365 days, whether or not the taxpayer is liable for delay) itself was discriminatory and liable to be struck down.
Such provision of Income-tax Act was held to be manifestly arbitrary, capricious, irrational and disproportionate so far as the assessee is concerned, on the grounds that it would result in automatic vacation of stay upon the expiry of 365 days, even if the ITAT could not take up the appeal in time for no fault of the assessee.
Moreover, vacation of stay in favour of the Revenue would ensue even if the Revenue is itself responsible for delay in hearing the appeal. The Apex Court concurred with the view of the High Court that if literal interpretation of a statutory provision produces a manifestly unjust result, which could never have been intended by the Legislature, the court may modify the language so as to achieve the intention and produce a rational construction.
Accordingly, the said provision was held to be constitutionally invalid and was struck down by the Apex court. Further, it was directed that any order of stay shall stand vacated after the expiry of the period or periods mentioned in the said section, only if the delay in disposing of the appeal is attributable to the assessee.
As promised in the Taxpayers Charter, the income tax department is committed to provide fair, courteous, and reasonable treatment, and deliver prompt, courteous, and professional assistance in all dealings with the taxpayer. The Apex Court has kept the promise enshrined in the Taxpayer Charter by giving a fair judgement.
It has been made clear by the rulings of the Apex Court and the High Courts that the judiciary will not shy away from striking down disproportionate and arbitrary provisions of the law, which is also in line with the commitment of the government to hold its authorities responsible for their actions. The public expects the highest degree of efficiency and support from the judiciary that works in fiduciary capacity and judgements reinforces the faith.
(The authors are Chairman and Director respectively at Nangia Andersen, a law firm)