ITAT wants Larger Bench to Review Centre’s Decision on Granting Stay in Tax Disputes

In a move that could have significant implications for the corporate sector, the Income Tax Appellate Tribunal (ITAT) has mooted the constitution of a larger bench to review a decision by the Centre that imposed conditions on the powers of the Tribunal to grant a stay in cases related to tax disputes.

At the centre of this move is an amendment brought in by the Finance Ministry in February to the Income-tax Act, 1961, that, in effect, made it mandatory for assessees to pay at least 20 per cent of the disputed tax amount if they want a stay on proceedings. Prior to this amendment, the ITAT had the liberty to allow the assessee to pay lower than 20 per cent if it found that the tax payer was credible and fit for such a relaxation.

The Centre also stipulated that the ITAT should grant a stay for only 180 days even if the assessee agrees to pay 20 per cent of the disputed amount upfront. Earlier, the ITAT could extend the stay up to 365 days and even beyond on a case-by-case basis.

Powers undermined

According to tax experts, these amendments made to Section 254 of Income-tax Act undermined the powers of the ITAT. “The ITAT, while granting a stay, looks into the merits of the case as well guidelines laid down by CBDT for granting a stay of demand, and decides accordingly, so as to not be unfair with the taxpayers. The amendment seems to interfere with the exercise of judicial discretion vested in the Tribunal,” said a member of the Bombay Chartered Accountants’ Society.

While the government has set aggressive targets for tax officials to shore up revenue, cases of frivolous income-tax demands continue to rise. In several cases, where stay of demand is sought by taxpayers from ITAT, the demand raised by the tax department is subject to rectification issues (like non-grant of credit for tax) . Or the taxpayer is due to large refunds from the tax department, which have not been released for some reason or the other.

“These amendments proposed in the Bill seem to stem out of the need of the government to meet fiscal targets. This gives the impression that the government seems to be endeavouring to interfere with the judicial discretion vested in the Tribunal while imposing a threshold of 20 per cent payment towards outstanding tax demand in the application seeking a stay,” the chartered accountant said.

Tata Trusts tax dispute

The issue came up before the ITAT in a tax dispute related to Tata Trusts. While issuing the order, the Tribunal said that a larger bench should look into whether the amendment infringes on the powers of the Tribunal. The larger bench should examine whether the amendment is directional or mandatory in nature; and whether the said amendment affects the cases in which appeals were filed prior to the date on which the amendment came into force.

“We are of the considered view that these issues are of vital importance to all the stakeholders all over the country, and in our considered understanding, on such important pan India issues of far-reaching consequence, it is desirable to have the benefit of arguments from stakeholders in different parts of the country,” the ITAT said in its order.