India has a high incidence of disputes pending before various tax forums. As the Income-tax Act, 1961, allows tax officers to recover tax demands while appeals are pending, the powers of administrative and judicial authorities to stay recovery proceedings are crucial from the assessee’s perspective. Yet, the powers of the Income Tax Appellate Tribunal (ITAT) to stay demands have been the subject of controversy. This article deals with one such controversy.
Initially, the ITAT had no statutory power to stay demands. The Supreme Court in Income Tax Officer v MK Mohammed Kunhi (1968) held that the ITAT possessed this power inherently on the basis that: (1) the power to decide appeals must carry with it the ability and duty to make the exercise of that power fully effective; and (2) the winning party must be able to reap the fruit of its success.
Statutory developments
The power of the ITAT to grant a stay was statutorily provided in section 253(7) and by way of the insertion of a proviso to section 254(2A) of the act. In 2007, it was stipulated that the ITAT could not extend the stay period beyond 365 days. Contrary to this legislative intent, but given the overload and functioning of the ITAT, stay orders routinely had effect beyond 365 days. An amendment in 2008 further stipulated that the outer limit of 365 days cannot be breached, even where the delay in the disposal of the appeal is not attributable to the assessee.
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Ranjeet Mahtani is an associate partner and Stella Joseph is an associate manager at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.
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