Court invalidates Income Tax Act amendment, upholds Tribunal's power to extend stay beyond 365 days if delay not assessee's fault.

The court declared the amendment to Section 254(2A) of the Income Tax Act, 1961, introduced by the Finance Act, 2008, as unconstitutional under Article 14 of the Constitution of India. This decision reverted the interpretation back to allowing the Income Tax Appellate Tribunal to extend stay beyond 365 days if the delay is not the fault of the assessee. The petitioners were directed to seek extension of stay from the Tribunal, and interim orders were to remain in effect until the Tribunal's decision.

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Issues Involved:
1. Constitutional validity of the third proviso to Section 254(2A) of the Income Tax Act, 1961.
2. Interpretation and implications of the amendment introduced by the Finance Act, 2008.
3. Whether the amendment violates Article 14 of the Constitution of India.
4. The power of the Income Tax Appellate Tribunal to grant interim relief beyond 365 days.

Detailed Analysis:

1. Constitutional Validity of the Third Proviso to Section 254(2A)
The primary issue in these writ petitions is the challenge to the constitutional validity of the third proviso to Section 254(2A) of the Income Tax Act, 1961, particularly the amendment introduced by the Finance Act, 2008. The petitioners argue that the amendment, which added the words "even if the delay in disposing of the appeal is not attributable to the assessee," is arbitrary and violates Article 14 of the Constitution of India. They contend that the right to obtain a stay of demand/penalty is integral to an effective right of appeal, and the amendment makes this right illusory.

2. Interpretation and Implications of the Amendment Introduced by the Finance Act, 2008
The amendment in question nullified the interpretation by the Bombay High Court in Narang Overseas Private Limited v. Income Tax Appellate Tribunal, which allowed the Tribunal to extend the stay beyond 365 days if the delay was not attributable to the assessee. The petitioners argue that this amendment introduces a classification that clubs assessees who are responsible for delays with those who are not, causing hostile discrimination.

3. Violation of Article 14 of the Constitution of India
The petitioners argue that the amendment violates Article 14 by treating unequals equally. Assessees who delay the proceedings and those who do not are treated the same, leading to discrimination against law-abiding assessees. The court agrees, stating that this classification has no rational nexus with the object sought to be achieved and is therefore violative of Article 14.

4. Power of the Income Tax Appellate Tribunal to Grant Interim Relief Beyond 365 Days
The court examined whether the Tribunal's power to grant interim relief is limited by the third proviso. The Supreme Court in ITO v. M. K. Mohammed Kunhi held that the power to grant a stay is incidental to the Tribunal's appellate jurisdiction. The court noted that the Tribunal's power to grant stay should not be rendered nugatory by the proviso, especially when the delay is not attributable to the assessee.

Conclusion:
The court struck down the expression "even if the delay in disposing of the appeal is not attributable to the assessee" as violative of Article 14 of the Constitution. This reverts the legal position to the interpretation by the Bombay High Court in Narang Overseas, allowing the Tribunal to extend the stay beyond 365 days if the delay is not attributable to the assessee. The writ petitions were allowed, and the petitioners were directed to approach the Tribunal for extension of stay. The interim orders granted by the court were to continue until the Tribunal passed its orders.

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