Your Tribunal stay lapsed at 365 days through no fault of yours. Is that constitutional?
No. The third proviso to s.254(2A), which vacated a stay after 365 days even where the delay was not attributable to the assessee, violates Article 14. A stay now vacates only where the delay is attributable to you.
Decided by the Supreme Court (Rohinton Fali Nariman J, B.R. Gavai J and Hrishikesh Roy J) on 2021-04-06, reported as [2021] 433 ITR 295 (SC); [2021] 282 Taxman 10 (SC); [2021] 126 taxmann.com 69 (SC); Civil Appeal Nos. 1106 to 1139 of 2021. It bears on section 254, section 254(2A), section Constitution Art. 14 of the Income Tax Act 1961, in Demand, Recovery & Stay and Appeals matters.
Tribunal appeals routinely run past a year through no fault of the appellant. Before this decision the stay simply evaporated and recovery restarted. Now it survives unless the delay is yours.
Binding on every court and authority in India.
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Pepsi Foods, later merged into Pepsico India Holdings, filed its return for assessment year 2008-09 and received an adverse assessment order on 19 October 2012. It appealed to the Tribunal on 29 April 2013. The Tribunal stayed the assessing officer's order on 31 May 2013 for six months and extended the stay repeatedly until 28 May 2014. Because the 365-day outer limit in s.254(2A) was to expire on 30 May 2014, and apprehending recovery action, the assessee filed a writ petition in the Delhi High Court on 21 May 2014 challenging the constitutional validity of the third proviso. By judgment of 19 May 2015 the Delhi High Court struck down so much of the third proviso as barred extension of stay beyond 365 days where the assessee was not responsible for the delay. The Revenue appealed against that judgment and against several other High Court judgments following it; those appeals were heard together.
The third proviso to s.254(2A), as substituted by the Finance Act 2008, is both discriminatory and manifestly arbitrary and offends Article 14, in that a stay stands automatically vacated on the expiry of 365 days even where the delay in disposing of the appeal is not attributable to the assessee. The Court held the Delhi High Court had been right, dismissed the Revenue's thirty-four appeals, and held that the judgments of the other High Courts following that declaration are also correct. The proviso is now to be read without the word 'even' and the words 'is not' after 'delay in disposing of the appeal', so that an order of stay stands vacated on expiry of the permitted period only if the delay in disposing of the appeal is attributable to the assessee.
A tax statute may be challenged under Article 14 both for discrimination and for manifest arbitrariness, and on procedural or substantive grounds. On discrimination, the third proviso treats unequals equally: it draws no line between assessees who delay the proceedings and those who do not, although the legislature itself drew exactly that line in the second proviso, which allows extension up to 365 days on satisfaction that the delay is not attributable to the assessee. The Court noted the asymmetry within the provision: disposal of the appeal within the period is directory, but vacation of the stay on its expiry is mandatory against the assessee. Speedy disposal of stayed appeals is a legitimate object, but on Nagpur Improvement Trust the object itself must be lawful and cannot be discriminatory; here the object is the automatic vacation of stay whether or not the assessee caused the delay, and that object is itself discriminatory. On arbitrariness, the Court applied the manifest-arbitrariness test restated in Shayara Bano, and pointed to its own decision in Committee of Creditors of Essar Steel striking down the word 'mandatorily' in the second proviso to s.12(3) of the Insolvency and Bankruptcy Code, where time lost in legal proceedings could not be held against a litigant. Stay would lapse here even where the Tribunal could not reach the appeal, and even where the Revenue itself caused the delay. The Revenue's authorities were dealt with individually: M. Ramnarain and M. Janardhana Rao do not concern the constitutional validity of an appeal provision; Mardia Chemicals, which struck down the seventy-five per cent pre-deposit condition in s.17(2) of the SARFAESI Act, is the closer analogy; and Dilip Kumar, that hardship and equity have no role in determining eligibility to tax, does not reach a frontal challenge to the validity of an appeal provision, these appeals having nothing to do with eligibility to tax.
the said proviso is also manifestly arbitrary being a provision which is capricious, irrational and disproportionate so far as the assessee is concerned
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Handle my notice → Ask a CA on WhatsAppNo. The third proviso to s.254(2A), which vacated a stay after 365 days even where the delay was not attributable to the assessee, violates Article 14. A stay now vacates only where the delay is attributable to you. This was decided by the Supreme Court (Rohinton Fali Nariman J, B.R. Gavai J and Hrishikesh Roy J) and bears on section 254, section 254(2A), section Constitution Art. 14 of the Income Tax Act 1961. It is reported as [2021] 433 ITR 295 (SC); [2021] 282 Taxman 10 (SC); [2021] 126 taxmann.com 69 (SC); Civil Appeal Nos. 1106 to 1139 of 2021. Tribunal appeals routinely run past a year through no fault of the appellant. Before this decision the stay simply evaporated and recovery restarted. Now it survives unless the delay is yours. If it applies to you, the first step is this: Keep a record of every adjournment and who sought it; attribution of delay is now the whole test.
Pepsi Foods, later merged into Pepsico India Holdings, filed its return for assessment year 2008-09 and received an adverse assessment order on 19 October 2012. It appealed to the Tribunal on 29 April 2013. The Tribunal stayed the assessing officer's order on 31 May 2013 for six months and extended the stay repeatedly until 28 May 2014. Because the 365-day outer limit in s.254(2A) was to expire on 30 May 2014, and apprehending recovery action, the assessee filed a writ petition in the Delhi High Court on 21 May 2014 challenging the constitutional validity of the third proviso. By judgment of 19 May 2015 the Delhi High Court struck down so much of the third proviso as barred extension of stay beyond 365 days where the assessee was not responsible for the delay. The Revenue appealed against that judgment and against several other High Court judgments following it; those appeals were heard together. The matter was decided on 2021-04-06 by the Supreme Court (Rohinton Fali Nariman J, B.R. Gavai J and Hrishikesh Roy J). On those facts the Supreme Court held as follows. The third proviso to s.254(2A), as substituted by the Finance Act 2008, is both discriminatory and manifestly arbitrary and offends Article 14, in that a stay stands automatically vacated on the expiry of 365 days even where the delay in disposing of the appeal is not attributable to the assessee. The Court held the Delhi High Court had been right, dismissed the Revenue's thirty-four appeals, and held that the judgments of the other High Courts following that declaration are also correct. The proviso is now to be read without the word 'even' and the words 'is not' after 'delay in disposing of the appeal', so that an order of stay stands vacated on expiry of the permitted period only if the delay in disposing of the appeal is attributable to the assessee.
A tax statute may be challenged under Article 14 both for discrimination and for manifest arbitrariness, and on procedural or substantive grounds. On discrimination, the third proviso treats unequals equally: it draws no line between assessees who delay the proceedings and those who do not, although the legislature itself drew exactly that line in the second proviso, which allows extension up to 365 days on satisfaction that the delay is not attributable to the assessee. The Court noted the asymmetry within the provision: disposal of the appeal within the period is directory, but vacation of the stay on its expiry is mandatory against the assessee. Speedy disposal of stayed appeals is a legitimate object, but on Nagpur Improvement Trust the object itself must be lawful and cannot be discriminatory; here the object is the automatic vacation of stay whether or not the assessee caused the delay, and that object is itself discriminatory. On arbitrariness, the Court applied the manifest-arbitrariness test restated in Shayara Bano, and pointed to its own decision in Committee of Creditors of Essar Steel striking down the word 'mandatorily' in the second proviso to s.12(3) of the Insolvency and Bankruptcy Code, where time lost in legal proceedings could not be held against a litigant. Stay would lapse here even where the Tribunal could not reach the appeal, and even where the Revenue itself caused the delay. The Revenue's authorities were dealt with individually: M. Ramnarain and M. Janardhana Rao do not concern the constitutional validity of an appeal provision; Mardia Chemicals, which struck down the seventy-five per cent pre-deposit condition in s.17(2) of the SARFAESI Act, is the closer analogy; and Dilip Kumar, that hardship and equity have no role in determining eligibility to tax, does not reach a frontal challenge to the validity of an appeal provision, these appeals having nothing to do with eligibility to tax. In the words reproduced by the source cited on this page: "the said proviso is also manifestly arbitrary being a provision which is capricious, irrational and disproportionate so far as the assessee is concerned"
It was decided by the Supreme Court on 2021-04-06 and is reported as [2021] 433 ITR 295 (SC); [2021] 282 Taxman 10 (SC); [2021] 126 taxmann.com 69 (SC); Civil Appeal Nos. 1106 to 1139 of 2021. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 254, section 254(2A), section Constitution Art. 14, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The third proviso to s.254(2A), as substituted by the Finance Act 2008, is both discriminatory and manifestly arbitrary and offends Article 14, in that a stay stands automatically vacated on the expiry of 365 days even where the delay in disposing of the appeal is not attributable to the assessee. The Court held the Delhi High Court had been right, dismissed the Revenue's thirty-four appeals, and held that the judgments of the other High Courts following that declaration are also correct. The proviso is now to be read without the word 'even' and the words 'is not' after 'delay in disposing of the appeal', so that an order of stay stands vacated on expiry of the permitted period only if the delay in disposing of the appeal is attributable to the assessee. It arises in Demand, Recovery & Stay and Appeals matters, on section 254, section 254(2A), section Constitution Art. 14 of the Income Tax Act 1961, and was decided by Rohinton Fali Nariman J, B.R. Gavai J and Hrishikesh Roy J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Seek extension of the stay before it expires, showing the delay is not attributable to you. Note the separate Finance Act 2020 condition on deposits referred to in the validity note.
Still good law. The decision strikes down part of the third proviso and stands. A separate legislative development affects stay practice: the Finance Act 2020 amended the first proviso so that, per the Finance Bill memorandum, the Tribunal may grant stay subject to the condition that the assessee deposits not less than twenty per cent. The Mumbai ITAT in Tata Education and Development Trust referred to the President the question whether that condition is directory or mandatory. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The Court decided thirty-four appeals together, all brought by the Revenue against High Court judgments striking down or reading down the third proviso; the Delhi High Court judgment in Pepsi Foods Ltd. v. Asstt. CIT (2015) 376 ITR 87 was affirmed. The declaration is confined to the third proviso as it stood after the Finance Act 2008; the twenty per cent deposit condition introduced into the first proviso by the Finance Act 2020 was not before the Court. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The third proviso to s.254(2A), as substituted by the Finance Act 2008, is both discriminatory and manifestly arbitrary and offends Article 14, in that a stay stands automatically vacated on the expiry of 365 days even where the delay in disposing of the appeal is not attributable to the assessee. The Court held the Delhi High Court had been right, dismissed the Revenue's thirty-four appeals, and held that the judgments of the other High Courts following that declaration are also correct. The proviso is now to be read without the word 'even' and the words 'is not' after 'delay in disposing of the appeal', so that an order of stay stands vacated on expiry of the permitted period only if the delay in disposing of the appeal is attributable to the assessee.
TaxSphere, “DCIT v Pepsi Foods Ltd”, https://taxnotice.vittsphere.com/caselaw/case/dcit-v-pepsi-foods/ (validity last checked 2026-08-25)
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