Deputy Commissioner of Income Tax (DCIT) v. M/S Pepsi Foods Ltd.: An Analysis

Deputy Commissioner of Income Tax (DCIT) v. M/S Pepsi Foods Ltd.: An Analysis

AUTHOR- VARSHITA KUSHWAHA (A STUDENT AT UNIVERSITY OF PETROLEUM AND ENERGY STUDIES) 

 

The right to appeal is one of the most important and pronounced right that has been given to the people of a country and especially if the country in question is world’s biggest democracies. The taxpayers of the country also have right to appeal regarding the tax grievances. He right of appeal against the Orders by the Income Tax authorities under the Income Tax Act, 1961 (‘Act’) has been expressly conferred on the taxpayers. In disposing of these appeals, the appellate authorities have inherent power to grant stay against the tax demands raised by Income Tax officers.

The inherent power to grant stay by the Income Tax authorities has undergone numerous amounts of amendments and still contain contingencies for change. The power of ITAT to grant stay order has been subject to numerous litigations in the past. This power was not granted to the ITAT in the Act as introduced in 1961. According to the judgement passed in Income Tax Officer v Mohammed Kunhi where under the light of section 220(6) of act the power to grant stays. 

Following this judgment, amendments were made in the Act by various Finance Acts namely in the years 1998, 2001 and 2007. But the amendment of 2001 added two controversial provisions in the section 254(2A) of the act, the two provisions were- 

• After considering the merits of the application ITAT may pass an order of stay for a period of not more than 180 days from the date of grant of stay. In other words, they made it compulsory for ITAT to dispose of an appeal within 180 days. 

• Where such appeal is not so disposed of within the initial period of stay specified then ITAT may extend such stay however, that the aggregate of the period of stay originally allowed and the period of stay so extended shall not exceed 365 days.

The 3rd provision and the most controversial provision which was introduced by the Finance Bill, 2007 in which was questioned in the case of Deputy Commissioner of Income Tax v. M/S Pepsi Foods Ltd stated that “If such appeal is not disposed of even after such extension, then the order of stay shall stand vacated after the expiry of such aggregate, even if the delay in disposing of the appeal is not attributable to the tax payers”. 

The facts of the abovementioned case was pertaining the filing of income tax return in 2008 and receiving an order adverse to the assesses in 2012. The company filed the appeal in the same year and obtained the stay order. However, no further proceedings were made till 2014. Time limit of 365 days mentioned u/s 254(2A) made them file the writ petition before the Delhi High Court challenging the constitutional validity of the section as it infringes the right laid under Article 14 of the constitution. The third proviso of section 254(2A) allowed automatic vacation order which was opposed to the principals of equality.  In the past, Section 44-AC of the Act was struck down as arbitrary when only particular trades enjoyed advantages of exemptions. The clubbing together of two classes is itself violative of law as unequal’s cannot be treated as equals under any circumstance. It has been duly acknowledged by the courts that 'no man should suffer because of the fault of the court or dela in procedure and even the taxing statute should fulfil the reasonableness.