The genesis of the stay provision contained in Section 254 of the Income Tax Act is in the celebrated judgment of this Court in Income Tax Officer v. M.K. Mohammed Kunhi (1969) 2 SCR 65. In this judgment, Section 254 of the Income Tax Act, as originally enacted, came up for consideration before Supreme Court.
For AYs 1954-55, 1960-61 and 1961-62, penalty under section 271(1)(c), read with section 274(2) were imposed on the assessee. On appeal before the Tribunal, the assessee made an interim prayer for stay of collection of the penalties imposed. The Tribunal declined to grant any stay holding that it had no power to grant such a prayer. The assessee filed writ petition before the High Court under article 226 of the Constitution. The HC 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 Revenue filed appeal before SC.
Before the SC, the Revenue argued that in the absence of any express provisions in sections 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.
The SC observed that the Tribunal has been given very wide powers under section 254(1), for it may pass such orders as it thinks fit after giving hearing to both the parties to the appeal. The SC observed that if the AO has made assessments or imposed penalties raising very large demands and if the Tribunal is entirely helpless in the matter of stay of recovery, the entire purpose of the appeal can be defeated if ultimately the orders of the departmental authorities are set aside.
The SC referred to Sutherland, Statutory Construction (3rd Edn., Arts. 5401 and 5402), and then held that “the power which has been conferred by the said Section on the Appellate Tribunal with the widest possible amplitude must carry with it, by necessary implication, all powers incidental and necessary to make the exercise of such power fully effective.”
The SC further referred to page 350 of Maxwell on Interpretation of Statutes, eleventh edition, wherein it is observed 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 jurisdictio data est, ea quoque concessa esse videntur, sine quibus jurisdictio explicari non potuit”. An instance is given based on Ex parte Martin [1879] 4 QBD 212 ; on appeal [1879] 4 QBD 491 (CA)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”.
The Supreme Court held that
“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 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 Section 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 will 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 appeal.”