Income Tax Officer Vs. M.K. Mohammed
Kunhi  INSC 212 (11 September 1968)
11/09/1968 GROVER, A.N.
CITATION: 1969 AIR 430 1969 SCR (1) 65
E 1986 SC 421 (27) R 1992 SC2279 (37)
Income-tax Act (43 of 1961), ss. 254 and
255-Amount imposed as penalty on assessee-Appeal to Appellate Tribunal-
Tribunal's power to grant stay of recovery of penalty pending appeal.
Certain amounts were imposed as penalty upon
the assessee (respondent) under ss. 271(1)(c) and 274(2) of the Income- tax
Act, 1961, for concealment of particulars of income and for furnishing
inaccurate particulars. The assessee preferred appeals before the Appellate
Tribunal and prayed for stay of recovery of the penalties pending disposal of
the appeals, but the Tribunal declined to stay on the ground that it had no
power to do so. The assessee moved the High.
Court under Art. 226 and the High Court held
that the Tribunal had the power to stay and directed the Tribunal to dispose of
the stay application in accordance with law.
In appeal to this Court,
HELD: The Tribunal has the power to order the
stay of recovery of the penalty as an incidental and ancillary power to its
appellate jurisdiction. [72 C] Under s. 220(6) the Income-tax Officer has a
power not to treat an assessee as being in default, when an appeal under s. 246
before the Appellate Assistant Commissioner is pending. But neither the
Income-tax Officer nor any other departmental officer has the power to stay the
recovery of penalty when an appeal is pending before the Tribunal. The Act is
silent in that behalf, and there is no provision in the Act or the Income-tax
Appellate Tribunal Rules, 1963, granting expressly such a power to the
Tribunal. That is because, the Tribunal, though not a court, exercises in its
appellate jurisdiction under s. 254 judicial powers of an appellate court of
the widest possible amplitude 'and such a statutory power impliedly grants the
power of doing all such acts, or employing such means as are essentially
necessary to the execution of such jurisdiction and carries with. it the power
to stay proceedings in proper cases. In view of the special nature of taxation
'and revenue laws. such power can be exercised after imposing conditions for
safeguarding the revenue only in deserving and appropriate cases where the
appeal will be otherwise frustrated or rendered nugatory. The general principle
that in a taxing statute there is no room for what could be called equitable
construction applies only to the taxing part of the statute and not to its
procedural part. [68 C-E;
69 E; 70 D-E; 72 F-G] Burhanpur Tapti Mills
Ltd. v. Board of Revenue, Madhya Pradesh, (1955) 6 S.T.C. 670, referred to.
Observations in Vatcha Sreeramamurthy v.
Vizianagaram, (1956) 30 I.T.R. 252 at p. 271,
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1164 of 1966.
66 Appeal by special leave from the judgment
and order dated September 27, 1965 of the Kerala High Court' in O.P.
No. 688 of 1965.
D. Narsaraju, S.A.L. Narayana Rao, R.N.
Sachthey and B.D. Sharma, for the appellant.
The respondent did not appear.
The Judgment of the Court was delivered by
Grover, J. The short but important question which is involved in this appeal
'by special leave from a judgment of the Kerala High Court is whether the
Appellate Income-tax Tribunal has the power, under the relevant provisions of
the Income tax Act, 1961, (hereinafter called the Act) to stay the recovery of
the realization of the penalty imposed by the departmental authorities on an
assessee during the pendency of an appeal before it.
The assessee, who is the respondent, was
imposed penalties in the sum of Rs. 18,000/-, 1,700/- and 14,000/- respectively
in respect of the assessment years 1954-55, 1960-61 and 1961-62. These
penalties were imposed .under s.
271(1)(c) read with s. 274(2) of the Act for
concealment of particular income and furnishing inaccurate particulars.
The assessee preferred appeals to the Income
tax Appellate Tribunal and made an interim prayer for stay of collection of the
penalties imposed. The Tribunal declined to order any stay holding that it had
no power to grant such a prayer. The assessee then moved the High Court under
226 of the Constitution. The High Court held
that the Tribunal had the power to stay the proceedings as also the collection
of the penalties pending the appeal since that power was incidental and
ancillary to its appellate jurisdiction. The Tribunal was consequently directed
to dispose of the stay application in accordance with law.
The relevant provisions. of the Act may be
first noticed. Section 156 provides that when any tax, interest, penalty, fine
or any other sum is payable in consequence of any order passed under the Act,
the Income tax Officer shall serve upon the assessee a notice of demand in the
prescribed form specifying the sum so payable. Under s. 220( 1 ) any amount
specified in the notice of demand under s. 156 has to be paid within 35 days of
the service of the notice or within such lesser period as may be specified
under the proviso to sub-s. (1 ). If the amount is not paid within the period
limited or extended (the assessee can ask for an extension) the assessee shall
be deemed to be in default.
Sub-section (6) of s. 220 provides that where
an assessee has presented an appeal under s. 246 the Income-tax Officer may, in
his discretion and subject to such conditions as he may think fit, treat the
assessee as not being in default so long as the appeal .remains pending.
67 Section 221 provides for the imposition of
penalty when the assessee is in default. Sections 222 to 224 relate to the
issuance of a certificate to the Tax Recovery Officer.
Under s. 225 the Income tax Officer can order
stay of proceedings, even after the certificate has been issued to the Tax
Recovery Officer. It may be mentioned that the last four sections in terms
relate to recovery of tax, but by virtue of s. 229 any penalty imposed is also
recoverable in the same manner. Section 246 to which reference has been made in
s. 220(6) gives the appealable orders against which an assessee may appeal to
the Appellate Assistant Commissioner. Appeals to the Tribunal are dealt with by
252 to 255. Section 252 provides merely for
constitution of the Tribunal. Section 253 says that any assessee aggrieved by
the orders set out in cls. (a), (b) and (c) of sub-s. (1) may appeal to the
Tribunal. The Commissioner is also entitled to direct the Income-tax Officer to
file an appeal against the order of an Appellate Assistant Commissioner made under
s. 250. Section 254 specifies the orders which the Tribunal can make.
Sub-section (1 ) which is material may be reproduced below :-- "254.
Orders of Appellate Tribunal.--( 1 ) The Appellate Tribunal may, after giving
both the parties to the appeal an opportunity of being heard, pass such orders
thereon as it thinks fit." Section 255 gives the procedure of the
Appellate Tribunal. Subsections (5) and (6) of this section need alone be
"255 (1) ............................
(2) (3) (4) (5) Subject to the provisions of
this Act, the Appellate Tribunal shall have power to regulate its own procedure
and the procedure of Benches thereof in all matters arising out of the exercise
of its powers or of the discharge of its functions, including the places at
which the Benches shall hold their sittings.
(6) The Appellate Tribunal shah, for the
purpose of discharging its functions, have all the powers which are vested in
the Income-tax authorities referred to in s. 131, and any proceeding before the
Appellate Tribunal shall be deemed to be a judicial proceeding within the
meaning of ss. 193 and 68 228 and for the purpose of s. 196 of the Indian Penal
Code (XLV of 1860) and the Appellate Tribunal shall be deemed to be a civil
court for all the purposes of s. 195 and Chapter XXXV of the Code of Criminal
Procedure, 1898 (V of 1898)." Section 131 may at this stage be referred
to. It gives to the Income tax Officer, the Appellate Assistant Commissioner
and the Commissioner the same powers as are vested in the court under the Code
of Civil Procedure when trying a suit in respect of the matters specified in
the section. But these powers relate to discovery and inspection; enforcing the
attendance of witnesses; compelling production of books of account etc.;
issuing commissions and allied matters.
There can be no manner of doubt that by the
provisions of the Act or the Income-tax Appellate Tribunal Rules, 1963 powers
have not been expressly conferred upon the Appellate Tribunal to stay
proceedings relating to the recovery of penalty or tax due from an assessee. At
the same time it is significant that under s. 220 (6) the power of stay by
treating the assessee as not being in default during the pendency of an appeal
has been given to the Income-tax Officer only when an appeal has been presented
246 .which will be to the Appellate Assistant
Commissioner and not to the Appellate Tribunal. There is no provision in s. 220
under which the Income-tax Officer or any of his superior departmental officers
can be moved for granting stay in the recovery of penalty or tax. It may be
that under s. 225 notwithstanding that a certificate has been issued to the Tax
Recovery Officer for the recovery of any tax (the position will be the same
with regard to penalty) the Income tax Officer may grant time for the payment
of the tax. In this manner he can probably keep on granting extensions until
the disposal of the appeal by the Tribunal.
It may also be that as a matter of practice
prevailing in the department the Commissioner or the Inspecting Assistant
Commissioner in exercise of administrative powers can give the necessary relief
of staying recovery to the assessee but that can hardly be put at par with a
statutory power as is contained in s. 220(6) which is confined only to the stage
of pendency of an appeal before the Appellate Assistant Commissioner.
The argument advanced on behalf of the
appellant before us that in the absence of any express provisions in ss. 254
and 255 of the Act relating to stay of recovery during the pendency of an
appeal it must be held that no such power can be exercised by the Tribunal,
suffers from a fundamental infirmity inasmuch as it assumes and proceeds on the
premise that the statute confers such a power on the Income-tax Officer who can
give the necessary 69 relief to an assessee. The right of appeal is a
substantive right and the questions of fact and law are at large and are open
to review by the Appellate Tribunal. Indeed the Tribunal has been given very
wide powers under s. 254(1) for it may pass such orders as it thinks fit after
giving full hearing to both the parties to the appeal. If the Income-tax
Officer and the Appellate Assistant Commissioner have made assessments or
imposed penalties raising very large demands and if the Appellate Tribunal is
entirely helpless in the matter of stay or recovery the entire purpose of the
appeal can be defeated if ultimately the orders of the departmental authorities
are set aside. It is difficult to conceive that the Legislature should have
left the entire matter to the administrative authorities to make such orders as
they choose to pass in exercise of unfettered discretion. The assessee, as has
been pointed out before, has no right to even move an application when an
appeal is pending before the Appellate Tribunal under s. 220 (6 ) and it is
only at the earlier stage of appeal before the Appellate Assistant Commissioner
that the statute provides for such a matter being dealt with by the Income-tax
Officer. It is a firmly established rule that an express grant of statutory.
power carries with it by necessary implication the authority to use all
reasonable means to make such grant effective (Sutherland Statutory
Construction, Third Edition, Arts.
5401 and 5402). The powers which have been
conferred by s. 254 on the Appellate Tribunal with widest possible amplitude
must carry with them by necessary implication all powers and duties incidental
and necessary to make the exercise of those powers, fully effective. In Domat's
Civil Law Cushing's Edition, Vol. 1 at page 88, it has been stated:
"It is the duty of the Judges to apply
the laws, not only to what appears-to be regulated by their express
dispositions, but to all the cases where a just application of them may be
made, and which appear to be comprehended either within the consequences that
may be gathered from it." Maxwell on Interpretation of Statutes, Eleventh
Edition, contains a statement at p. 350 that "where an Act confers a
jurisdiction, it impliedly also grants the power of doing all such acts, or employing
such means, as are essentially necessary to its execution. Cui jurisdiction
data est, ea quoque concessa esse videntur, sine quibus jurisdiction explicari
non potuit." An instance is given based on Ex. parte Martin(x) that
"where an inferior court is empowered to grant an injunction, the power of
punishing disobedience to it by commitment is impliedly conveyed by the
enactment, for the power would be useless if it could not be enforced."
(1)  4. Q.B.D. 212, 491.
70 The High Court in the present case has
referred to certain decisions under the Motor Vehicles Act in which the
question arose whether an interim order of stay could be passed although s.
64(2) of the Motor Vehicles Act as amended did not expressly confer a power on
the authority to pass such an order. It was held in those cases that the power
to stay was a necessary corollary to the power to entertain an appeal or
revision: Swarnambikar Motor Service v. Wahite Motor Service(D; Themmalpuram
Bus Transport Ltd.
v. The Regional Transport Officer,
Malabar(2). The full bench decision in Dharmadas v. State Transport Appellate
Tribunal(3) related to the question whether a remand could be ordered in
exercise of appellate jurisdiction under s. 64 of the Motor Vehicles Act in the
absence of any express power to that effect existing in the statute. It was
held that the power to remand was incidental to and implicit in the appellate
jurisdiction created by s. 64. According to the decision in the Burhanpur Tapti
Mill Ltd. v. The Board of Revenue, Madhya Pradesh & Ors. (4), since the
Board of Revenue had the power to adjudge the correctness of an order passed by
the Commissioner under s. 22B reopening an assessment the Board had also the
power to stay the fresh assessment proceedings started by the Assistant
Commissioner in pursuance of that order. It was said that the general principle
was that in a taxing statute there was no room for what could be called the
equitable construction, but that principle applied only to the taxing part of
the statute and not to the procedural part. It has further been observed that
"where the legislature invests an Appellate Tribunal with powers to
prevent an injustice, it impliedly empowers it to stay the proceedings which
may result in causing further mischief." It is well known that an
Income-tax Appellate Tribunal is not a court but it exercises judicial powers.
The Tribunal's powers in dealing with appeals are of the widest amplitude and
have in some cases been held similar to and identical with the powers of an appellate
court under the Civil Procedure Code. (See Commissioner of Income tax, Bombay
City v. Hazarimal Nagji & Co.(5) and New India Assurance Co. Ltd. v.
Commissioner of Income tax, Excess Profits, Bombay City(6). In Polini v.
Grey(7), this is what Jessel M.R. said about the powers of the Court of Appeal
grant stay at page 443:
"It appears to me on principle that the
Court ought to possess that jurisdiction, because the principle which underlies
all orders for the preservation of property pending litigation is this, that
the successful party, is to Shortnotes (1956) 2M.L.J. 12. (2) A.I.R. 1957
(3)  Kerala L.J. 1133. (4) (1955) 6
(5)46 I.T.R. 1168. (6) 31 I.T.R.
(7)  12 Ch. D. 438.
71 reap the fruits of that litigation, and
not obtain merely a barren success. That principle, as it appears to me,
applies as much to the Court of first instance before the first trial, and to
the Court of Appeal before the second trial, as to. the Court of last instance
before the hearing of the final appeal".
There are certain decisions, however, in
which difficulty was felt that the Appellate Tribunal did not possess the power
to stay recovery during the pendency of an appeal.
In Vetcha Sreeramamurthy v. The Income tax
Officer Vizianagram & Another(1), the assessee had to file a writ petition
because the realisation of the tax assessed had not been stayed during the
pendency of an appeal before the Tribunal. The controversy centred in that case
mainly on the scope of the discretionary power conferred by s. 45 of the Indian
Income-tax Act, 1922, on the Income-tax Officer.
It was held that a writ petition to compel
the Income-tax Officer to exercise his discretion under s. 45 or to exercise it
honestly and, objectively was not barred. But on the merits the Court declined
issue a writ. Viswanatha Sastri J., in his separate judgment made the following
observations at page 271:
"Lastly it has to 'be observed that s. 45
of the Income-tax Act is somewhat cryptic in its terms and merely gives the
Income-tax Officer power to declare a person to be not in default pending the
appeal. There is no provision for stay similar to Order XLI, Rules 5 & 6,
of the Civil Procedure Code. There is no conferment of an express power of
granting a stay of realisation of the tax, though the effect of an order in
favour of the assessee under s. 45 of the Act is a stay. Nor is there a
provision for allowing the tax to be paid in instalments or for taking security
for deferred payment. Neither the Appellate Assistant Commissioner nor the
Appellate Tribunal is given the power to stay the collection of tax. Whether
the law should not be made more, liberal so as to enable an assessee who has
preferred an appeal, to obtain from the appellate forum, a stay of collection
of the tax, either in whole or in part, on furnishing suitable security, is a
matter for the legislature to consider." It is interesting that in another
case Pollisetti Narayana Rao v. Commissioner of Income-tax, Hyderabad(2), the
same High Court held that stay could be granted by it pending reference of a
case by the Appellate Tribunal to the High Court. This power the High Court had
under s. 151 of the Civil Procedure Code and under Art. 227 of the
(1)  30 I.T.R. 252. (2)  29
72 The High Court, in the present case,
referred to a passage from Halsbury's Laws of England, 3rd Edition, Vol.
20, p. 705 where it is stated that "no
tax is payable while the assessment is the subject-matter of an appeal except
such part of the tax assessed as appears to the Commissioners seized of the
appeal not to be in dispute." This statement is apparently based on the
provisions of the English Statutes and it is not possible to derive any
assistance from it.
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 s. 220(6)
deals expressly with a situation when an appeal is pending before the Appellate
Assistant Commissioner, but the Act is silent in that behalf when an .appeal is
pending before the Appellate Tribunal.
It could well be said that when s. 254
confers appellate jurisdiction, it impliedly grants the power of doing all such
acts, or employing such means, as are essentially necessary to its execution
and that the statutory power carries with it the duty in proper cases to make
such orders for staying proceedings as will prevent the appeal if successful
from being rendered nugatory.
A certain 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 view
of the special nature of taxation and revenue. laws. It wilt only be when' a
strong prima facie case is made out that the Tribunal will consider whether to
stay the recovery proceedings and on what conditions and the stay will be
granted in most deserving and appropriate cases where the Tribunal is satisfied
that the entire purpose of the appeal will be frustrated or rendered nugatory
by allowing the recovery proceedings to continue during the pendency of the
For all the reasons given above, the appeal
fails and it is hereby dismissed. But in view of the entire circumstances the
parties are left to bear their own costs.
V.P.S. Appeal dismissed.