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2015 (5) TMI 655 - DELHI HIGH COURT

2015 (5) TMI 655 - DELHI HIGH COURT - [2015] 376 ITR 87 (Del), 2015 (324) E.L.T. 525 (Del.) - Constitutional validity of the third proviso to Section 254(2A) challenged - discrimination, based on an impermissible or invalid classification - grant extension of stay beyond 365 days - Held that:- Assessees who, after having obtained stay orders and by their conduct delay the appeal proceedings, have been treated in the same manner in which assessees, who have not, in any way, delayed the proceeding .....

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t appeals should be heard expeditiously and that assesses should not misuse the stay orders granted in their favour by adopting delaying tactics is not at all achieved by the provision as it stands. - On the contrary, 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 and has no nexus or connection with the object sought to be achieved. The said expression introduced by the Finance Act, 2 .....

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d as above. - Decided in favour of assessee. - W.P. (C) Nos. 1334 of 2015 and 1934,1935,2326,2465,3650 & 4280 of 2014, CM Nos. 2337 of 2015 and 4053,4054,4885,5130,7417 & 8604 of 2014 - Dated:- 19-5-2015 - MR. BADAR DURREZ AHMED AND MR. SANJEEV SACHDEVA, JJ. For The Petitioner : Mr Deepak Chopra with Mr Piyush Singh, Mr Amit Shrivastava, Mr Harpreet Ajmani, Ms Rashi Khanna and Ms Ananya Kapoor, Mr M.S. Syali, Sr. Adv.with Mr Mayank Nagi, Harkunal Singh and Mr Tarun Singh, Ms Rashmi Chopra For Th .....

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n 254 (2A) of the said Act to mean that the power of the Income Tax Appellate Tribunal to grant interim relief is co-terminus with the main power of disposal of the appeal, as stipulated in Section 254(1) of the said Act. In each of these petitions, initially stay was granted by the Income Tax Appellate Tribunal. But, the period of 365 days from the grant of initial stay has elapsed and in view of the provisions of Section 254(2A), as it stands now, the Tribunal cannot grant any further extensio .....

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see - is in question before us. The case of the petitioners is that prior to the said amendment, in a decision of the Bombay High Court in the case of Narang Overseas Private Limited v. Income Tax Appellate Tribunal: 295 ITR 22 (Bombay), the third proviso to Section 254(2A) had been read down in such a manner that even if the period of 365 days from the initial grant of stay had expired, the Tribunal could extend the stay granted, provided the delay was not attributable to the assessee. The amen .....

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penalty was integral and cardinal to an effective right of appeal. It was also contended that the introduction of the above mentioned words by virtue of the amendment of 2008 has made the right of appeal illusory and the amendment is, therefore, clearly arbitrary and contrary to the provisions of the Article 14 of the Constitution of India. It was also contended that the said amendment introduces a classification which has no nexus with the object sought to be achieved. In the first place, it cl .....

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espective appeals. This, in itself, was violative of Article 14 of the Constitution of India and, therefore, the amendment introduced by virtue of the Finance Act, 2008 was liable to be struck down, as being invalid. 3. The learned counsel for the petitioners referred to several decisions in support of their contentions. They were:- (i) ITO v. M. K. Mohammed Kunhi: 71 ITR 815 (SC); (ii) Wire Netting Store, Delhi & Another v. Regional Provident Fund Commissioner & Others: (1984) 1 ILR 76 .....

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nsel for the revenue submitted that there was nothing wrong with the amendment brought about in 2008 inasmuch as all it did was to clarify the legislative intent and make it explicit. What was already provided under the said Act in the third proviso to Section 254(2A) has merely been clarified. It was contended that there has been no class treatment given by the legislature and that the said provision is not discriminatory. The intention behind the amendment was to clarify that the period of sta .....

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ncluding its provisos, which reads as under:- 254. Orders of Appellate Tribunal. (1) xxxx xxxx xxxx xxxx (1A) xxxx xxxx xxxx xxxx (2) xxxx xxxx xxxx xxxx (2A) In every appeal, the Appellate Tribunal, where it is possible, may hear and decide such appeal within a period of four years from the end of the financial year in which such appeal is filed under sub-section (1) or sub-section (2) or sub-section (2A) of section 253: Provided that the Appellate Tribunal may, after considering the merits of .....

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application made in this behalf by the assessee and on being satisfied that the delay in disposing of the appeal is not attributable to the assessee, extend the period of stay, or pass an order of stay for a further period or periods as it thinks fit; so, however, that the aggregate of the period originally allowed and the period or periods so extended or allowed shall not, in any case, exceed three hundred and sixty-five days and the Appellate Tribunal shall dispose of the appeal within the pe .....

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xxxx xxxx (4) xxxx xxxx xxxx xxxx (underlining added) 6. Section 254 (2A) stipulates that the Appellate Tribunal, where it is possible, may hear and decide the appeal within a period of four years from the end of the financial year in which such appeal is filed under Section 253(1), (2) or (2A). Initially, there was no proviso to Section 254(2A). The provisos were added, for the first time, by virtue of the Finance Act, 2001. At that point of time, the provisos inserted by the Finance Act, 2001 .....

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from 01.06.2001, it was stipulated that where an order of stay had been granted, the Appellate Tribunal was required to dispose of the appeal within a period of 180 days from the date of said order. It was further provided that if appeal was not disposed of within the specified period of 180 days, the stay order would stand vacated after the expiry of the said period. As pointed out by the learned counsel for the revenue, the Courts, while interpreting the said provisos, as they stood with effe .....

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fter, by virtue of the Finance Act, 2008, the third proviso was substituted by the existing proviso with effect from 01.10.2008, the difference being that the expression - even if the delay in disposing of the appeal is not attributable to the assessee - was now added by virtue of the amendment of 2008. 8. Prior to the amendment of 2008, the provisos clearly stipulated that, in the first instance, a stay order could be passed for a period, not exceeding 180 days from the date of said order, and .....

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d the period or periods so extended, would not, in any case, exceed 365 days. The Tribunal was also required to dispose of the appeal within the period or periods of stay so extended or allowed. The third proviso stipulated that if the appeal had not been disposed of within the period of 365 days, the order of stay would stand vacated after the expiry of such period. This provision came up for consideration before the Bombay High Court in Narang Overseas (supra). The exact question which was con .....

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of the assessee by divesting the incidental power of the Tribunal to continue the interim relief. Such a reading would result in such an exercise being rendered unreasonable and vilative of Article 14 of the Constitution. Courts must, therefore, construe and / or give a construction consistent with the constitutional mandate and principle to avoid a provision being rendered unconstitutional. xxxx xxxx xxxx xxxx 23. We are of the respectful view that the law as enunciated in Kumar Cotton Mills (P .....

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en that the power to grant interim relief is denuded even if the acts attributable are not of the assessee but of the revenue or of the Tribunal itself. The power of the Tribunal, therefore, to continue interim relief is not overridden by the language of the third proviso to Section 254(2A). This would be in consonance with the view taken in Kumar Cotton Mills (P) Ltd. (supra). There would be power in the Tribunal to extend the period of stay on good cause being shown and on the Tribunal being s .....

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High Court took the view that the Tribunal had the power to extend the stay beyond the period of 365 days, provided the delay in disposal of the appeal was not attributable to the assessee. The Bombay High Court also took the view that if the third proviso to Section 254(2A) were not interpreted in such manner and it was to be held that the Tribunal had no power to extend the period of stay beyond a period of 365 days even though the delay was not attributable to the assessee then, the provision .....

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of the Tribunal to extend the period of stay beyond 365 days, provided, of course, that the delay in disposing of the appeal was not attributable to the assessee. 10. The Notes on Clauses pertaining to the Finance Bill, 2008, to the extent relevant, read as under:- Clause 46 seeks to amend section 254 of the Income-tax Act, relating to orders of the Appellate Tribunal. Sub-section (2A) of the said section provides that the Income-tax Appellate Tribunal, where it is possible, may hear and decide .....

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e second proviso to this sub-section provides that where the appeal has not been disposed of within the said specified period and the delay in disposing of the appeal is not attributable to the assessee, the Appellate Tribunal can further extend the period of stay originally allowed. However, the aggregate of period originally allowed and the period so extended should not exceed 365 days. The Appellate Tribunal is required to dispose of the appeal within the extended period. The third proviso to .....

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ion 254 of the Income-tax Act and further provide that the aggregate of the period originally allowed and the period or periods so extended or allowed shall not, in any case, exceed three hundred and sixty five days, even if the delay in disposing of the appeal is not attributable to the assessee. This amendment will take effect from 1st October, 2008. From the above, it is evident that the object behind the introduction of the words - even if the delay in disposing of the appeal is not attribut .....

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the Finance Act, 2008, came up for consideration before this Court in Maruti Suzuki (India) Limited (supra). The following observations made by a Division Bench of this Court in that case are relevant:- 26. In view of the aforesaid discussion, we have reached the following conclusion:- (i) In view of the third proviso to Section 254(2A) of the Act substituted by Finance Act, 2008 with effect from 1st October, 2008, tribunal cannot extend stay beyond the period of 365 days from the date of first .....

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open to the tribunal to adjourn the matter at the request of the Revenue. (iv) An assessee can file a writ petition in the High Court pleading and asking for stay and the High Court has power and jurisdiction to grant stay and issue directions to the tribunal as may be required. Section 254(2A) does not prohibit/bar the High Court from issuing appropriate directions, including granting stay of recovery. 27. We have not examined the constitutional validity of the provisos to Section 254 (2A) of .....

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an assessee could file a writ petition in the High Court asking for stay even beyond the said period of 365 days and the High Court had the power and jurisdiction to grant stay and issue directions to the Tribunal and that Section 254(2A) did not prohibit / bar the High Court from issuing appropriate directions, including grant of stay of recovery. A similar view was taken by the Bombay High Court in Jethmal Faujimal Soni (supra). But that decision was also rendered on a plain meaning of the pr .....

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Suzuki (India) Limited (supra). The Court had examined various data with regard to the filing of appeals, pendency of appeals and stay orders granted by the Tribunal etc.. Paragraphs 21, 22 and 23 are of material importance and they are reproduced herein below:- 21. Information/data in this regard was received vide letter dated 30th January, 2014 written by Assistant Registrar, Tribunal. The relevant portion of the said letter reads as under:- a) Number of appeals filed before the Tribunal by t .....

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as Annexure-1, 2 & 3. d) The year-wise details of the cases/appeals which remained pending beyond 365 days of the stay order are as under:- Year Number of appeals disposed-off after 365 days or pending for more than 365 days 2011 90 Appeals 2012 131 Appeals 2013 36 Appeals e) The year-wise details of the number of appeals disposed of within 365 days from the date of grant of stay are as under:- Year Number of appeals disposed-off within 365 days or pending within 365 days 2011 83 Appeals 201 .....

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cording prima facie view on merits. In case there is an error or the tribunal has erred in granting stay, Revenue is not without remedy and can approach the High Court in accordance with law. 23. We do not have figures or data on whether the demands raised, which was subject matter of stay, was sustained/upheld or were deleted by the tribunal. Merits and justification of additions is examined by the appellate forums and demands raised have relevance when they are sustained by the tribunal/High C .....

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ed of within 365 days. The Division Bench also observed that the grant of stay by the Tribunal was not a matter of right but was decided by a speaking order, recording the prima facie view on merits. Furthermore, in case there was an error, the revenue was not without remedy and could approach the High Court in accordance with law. From the above figures, it is evident that there is a very small percentage of appeals before the Tribunal which remain pending beyond the period of 365 days in which .....

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would render it unconstitutional. However, it is clear to us that the legislative mandate has to be respected and the courts do not legislate but interpret the statute as a legislative edict. The third proviso after amendment, undoubtedly bars and prohibits the tribunal from extending interim stay order beyond 365 days. It stipulates deemed vacation and imposes no fault consequences in strict terms. The language is clear and therefore has to be respected. However, the provision does not bar or .....

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re of the Constitution and cannot be over written and nullified as held by the Constitutional Bench in L. Chandra Kumar versus Union of India, (1997) 3 SCC 261. Thus, the High Court in appropriate matters can grant or extend stay even when the tribunal has not been able to dispose of an appeal within 365 days from the date of grant of initial stay. This perhaps appears to be and apparently is the intention of the Parliament. High Court while granting or rejecting the writ petition will examine t .....

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the writ petition. In the said case constitutional validity of the third proviso inserted in Section 254(2A) of the Act by Finance Act, 2008, w.e.f. 1st October, 2008 was challenged It was observed that the proviso enacted a stringent provision as a result of which even if the delay in disposing of the appeal was/is not attributable to the assessee, the stay stands vacated after 365 days. Thus, the tribunal was/is under binding duty and obligation to dispose of the appeal within the said time, .....

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The constitutional validity of the same had not been examined. It only spelt out the legislative intent and that was more than clear that no stay could be granted by the Tribunal beyond the period of 365 days under any circumstances. The question that we have to examine is whether this intention of the legislature is not hit by Article 14 of the Constitution of India. We may also point out that the fact that judicial review was available to an assessee under Article 226 of the Constitution, woul .....

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peal before it. In that case, the Tribunal had declined to order any stay holding that it had no power to grant such a prayer. We must be mindful of the fact that at that point of time Section 254(2A) was not there in the said Act. The said provision was introduced with effect from 01.06.1999 by the Finance Act, 1999. In the absence of any specific provision, permitting the Tribunal to grant stay, the question arose as to whether the Tribunal had the power to stay the proceedings as also the col .....

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he Supreme Court concluded by holding:- 13. Section 255(5) of the Act does empower the Appellate Tribunal to regulate its own procedure, but it is very doubtful if the power of stay can be spelt out from that provision. In our opinion the Appellate Tribunal must be held to have the power to grant stay as incidental or ancillary to its appellate jurisdiction. This is particularly so when Section 220(6) deals expressly with a situation when an appeal is pending before the Appellate Assistant Commi .....

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in apprehension may legitimately arise in the minds of the authorities administering the Act that if the Appellate Tribunals proceed to stay recovery of taxes or penalties payable by or imposed on the Assessees as a matter of course the revenue will be put to great loss because of the inordinate delay in the disposal of appeals by the Appellate Tribunals. It is needless to point out that the power of stay by the Tribunal is not likely to be exercised in a routine way or as a matter of course in .....

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From this decision, it is evident that the power to grant a stay is incidental or ancillary to the appellate jurisdiction of the Tribunal. It is also clear that the power of stay exercised by the Tribunal is not likely to be exercised in a routine way or as a matter of course in view of the special nature of taxation and revenue laws and it is only when a strong prima facie case is made out that the Tribunal would consider whether to stay the recovery proceedings and on what conditions. The stay .....

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sessees, the Tribunal has granted stay orders and in a very few of such cases, the appeals are pending beyond the period of 365 days stipulated under the provisions, as they now stand. 19. A reference has been made to Mardia Chemicals Limited (supra). The passages referred to were paragraphs 55, 61 and 80, which read as under: 55. We may then turn to the arguments raised on behalf of the petitioners that the remedy before the Debts Recovery Tribunal under Section 17 of the Act is illusory, burde .....

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o which the Tribunal has power to waive or reduce the amount. While waiving the condition of depositing the amount or reducing it, the Tribunal is required to record reasons for the same. It is submitted for the respondents that in an appropriate case, DRT which is presided over by a Member of a Higher Judicial Service, would exercise its discretion and may waive or reduce the amount required to be deposited in deserving cases. It is, therefore, not an absolute condition which must in all cases .....

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ring the right almost illusory. (emphasis supplied). While making said observation this Court referred to the decision in the case of Anant Mills Co. Ltd. (supra). In both the above noted decisions this Court had negated the plea raised against pre-deposit but in the case of Seth Nandlal (supra) it was found that the condition was not so onerous since the amount sought to be deposited was meager and that too was confined to the landholding tax payable in respect of the disputed area i.e. the are .....

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nd that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debts Recovery Tribunal. The above noted provisions are for the purpose of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows :- 1. Under sub-section (2) of Section .....

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with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debts Recovery Tribunal under Section 17 of the Act, at that stage. 2. As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower t .....

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y condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down. 5. As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the court. 20. The learned counsel for the petitioners had also referred to a decision of the Division Be .....

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Section 2A of Section 35C was directory and that the Tribunal, in appropriate circumstances, could extend the period of stay beyond 180 days. While considering the said question, the Punjab and Haryana High Court held as under:- 51. Though the right of appeal is a creation of Statute and it can be exercised only subject to the conditions specified therein, but the conditions specified have to be in relation to the assessee as something which is required to be complied with by the assessee. But .....

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ter of availability of infrastructure; the members of the Tribunal and the workload. Therefore, for the reason that the Tribunal is not able to decide appeal within 180 days, the vacation of stay is a harsh and onerous and unreasonable condition. The condition of vacation of stay for the inability of the Tribunal to decide the appeal is burdening the assessee for no fault of his. Such a condition is onerous and renders the right of appeal as illusory. An order passed by a judicial forum is sough .....

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condition suffers from illegality rendering the right of appeal as redundant. xxxx xxxx xxxx xxxx 54. Consequently, the second proviso in sub-section (2A) of Section 35C is ordered to be read down to mean that after 180 days, the Revenue has a right to seek vacation of stay on proof of the fact that the assessee is the one, who is defaulted or taken steps to delay the ultimate decision. The said Court read down the provision in question in much the same manner as did the Bombay High Court in th .....

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provision which is challenged, as being violative of Article 14 of the Constitution, would have to be tested on its own without recourse to the availability of the remedy of judicial review under Article 226 of the Constitution. 22. In Dr Subramanian Swamy (supra), a Constitution Bench of the Supreme Court, while considering the parameters which needed to be kept in mind in determining whether a particular provision of a statute was violative of Article 14 or not, made the following observation .....

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ovisions will have to be struck down. With regard to due process clause in the American Constitution and Article 14 of our Constitution, this Court referred to State of West Bengal v. Anwar Ali Sarkar : (1952) SCR 284, and observed that the due process clause in the American Constitution could not apply to our Constitution. The Court also referred to A.S. Krishna v. State of Madras: 1957 S.C.R. 399 wherein Venkatarama Ayyar, J. observed: "13. ….The law would thus appear to be based o .....

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for the purpose of legislation which classification must satisfy the twin tests of classification being founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational nexus to the object sought to be achieved by the statute in question. xxxx xxxx xxxx xxxx Court's approach 49. Where there is challenge to the constitutional validity of a law enacted by the legislature, .....

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o the principles relating to the applicability of Article 14 in relation to invalidation of legislation. The two dimensions of Article 14 in its application to legislation and rendering legislation invalid are now well recognized and these are (i) discrimination, based on an impermissible or invalid classification and (ii) excessive delegation of powers; conferment of uncanalised and unguided powers on the executive, whether in the form of delegated legislation or by way of conferment of authori .....

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ear that where a legislation is sought to be challenged, as being unconstitutional or violative of Article 14 of the Constitution, the Court must keep in mind the principles relating to the applicability of Article 14 in relation to invalidation of a legislation. The two dimensions of Article 14 in its application to legislation and for rendering legislation invalid are well settled and these are - (i) discrimination, based on an impermissible or an invalid classification and (ii) excessive dele .....

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g in mind the principles set out by the Supreme Court in Dr Subramanian Swamy (supra), we need to examine whether the present challenge to the validity of the third proviso to Section 254(2A) can be sustained. This is not a case of excessive delegation of powers and, therefore, we need not bother about the second dimension of Article 14 in its application to legislation. We are here concerned with the question of discrimination, based on an impermissible or invalid classification. It is abundant .....

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peal within that period. The second proviso stipulates that in case the appeal is not disposed of within the period of 180 days, if the delay in disposing of the appeal is not attributable to the assessee, the Tribunal has the power to extend the stay for a period not exceeding 365 days in aggregate. Once again, the Tribunal is directed to dispose of the appeal within the said period of stay. The third proviso, as it stands today, stipulates that if the appeal is not disposed of within the perio .....

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esponsible for the delay in the disposal of the appeal, yet the Tribunal has no power to extend the stay beyond the period of 365 days. The intention of the legislature, which has been made explicit by insertion of the words - even if the delay in disposing of the appeal is not attributable to the assessee - renders the right of appeal granted to the assessee by the statute to be illusory for no fault on the part of the assessee. The stay, which was available to him prior to the 365 days having .....

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more, the petitioners are correct in their submission that unequals have been treated equally. Assessees who, after having obtained stay orders and by their conduct delay the appeal proceedings, have been treated in the same manner in which assessees, who have not, in any way, delayed the proceedings in the appeal. The two classes of assessees are distinct and cannot be clubbed together. This clubbing together has led to hostile discrimination against the assessees to whom the delay is not attri .....

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