ITAT’s Power to Grant Stay: Is the Supreme Court Decision in Pepsi Foods the Last Word?

Abstract

In India, In the current hierarchy of tax litigation, the disputes are addressed at the first level by a tax officer, the appeal against which is determined by another tax officer, albeit a senior one. The second appeal lies before a quasi-judicial tribunal, against whose orders further appeals lie only on substantial question of law before the High Court and the Supreme Court. Viewed from this perspective the tribunal occupies an important space in the tax litigation sphere for multiple reasons. Foremost of these is the fact that the tribunal is the first intrinsically independent forum which examines the correctness of the views and positions taken by the tax officers. Second, the tribunal is the last fact-finding authority and its factual determinations are binding even on the High Court and Supreme Court unless they are perverse. Third, while the instructions of the tax administration are binding on the tax officers, their rigours are inapplicable to the tribunal, thereby the tribunal is free to take an independent view dehors the tax administration’s understanding of the law. For these reasons, the positioning and empowerment of the tax tribunal becomes extremely crucial. A case to the point is the vexed question relating to the power of the Income Tax Appellate Tribunal (‘ITAT’) to grant stay against recovery of demands confirmed by the tax officers. This article examines a recent decision of the Indian Supreme Court, in Pepsi Foods, which addresses the change in the legislative scheme diminishing the empowerment of the ITAT to grant stay. On a larger perspective, this decision favours an approach whereby the taxpayers have effective remedies against the enforcement powers of the tax officers and thereby underscores the need for ensuring an empowered tax tribunal which can effectively maintain supervisory jurisdiction over the functioning of the tax authorities.