PRINCIPAL COMMISSIONER OF IN vs. MICHELIN INDIA PVT LTD

TCA.No. 20 of 2022 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 21.01.2022 CORAM THE HONOURABLE MR. JUSTICE R. MAHADEVAN AND THE HONOURABLE MR. JUSTICE MOHAMMED SHAFFIQ T.C.A.No. 20 of 2022 Principal Commissioner of Income Tax Corporate Circle -2(2) Nungambakkam Chennai – 600 034 .. Appellant Versus M/s. Michelin India Pvt Ltd (formerly known as Michelin India Tyres Pvt.Ltd) 3rd Floor, Orchid Business Park Sector 48, Sohna Road Gurgaon – 122 002 PAN: AADCM8454G

.. Respondent

Tax Case Appeal filed under Section 260 (A) of the the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal “I-2” Delhi Bench, New Delhi, dated 15.09.2017 passed in I.T.A No. 5774/Del/2014. For Appellant : Mr.Karthik Ranganathan

1/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 JUDGMENT (Judgement of the court was delivered by R.MAHADEVAN, J.) This tax case appeal has been filed by the appellant / Revenue, against the order of the Income Tax Appellate Tribunal “I-2” Delhi Bench, New Delhi, dated 15.09.2017 passed in I.T.A No. 5774/Del/2014 relating to the assessment year 2009-10, raising the following substantial question of law:- “Whether the Tribunal is correct in law in allowing stay beyond a period of 365 days in contravention to the provision of IT Act stipulated in Sec.254(2A) read with the provision thereto?” 2. Mr.Karthik Ranganathan, learned counsel for the appellant fairly submitted that the Hon'ble Supreme Court in Deputy Commissioner of Income- tax v. Pepsi Foods Ltd., [(2021) 126 taxmann.com 69 (SC)] has ruled that “any order of stay shall stand vacated after the expiry of the period mentioned in the section 254(2A), only if the delay in disposing of the appeal is attributable to the assessee” and the same is applicable to the facts of the present case, in favour of the assessee. 3. For better appreciation, the relevant passage of the foregoing decision 2/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 is extracted below: “17. Judged by both these parameters, there can be no doubt that the third proviso to Section 254(2A) of the Income-tax Act, introduced by the Finance Act, 2008, would be both arbitrary and discriminatory and, therefore, liable to be struck down as offending Article 14 of the Constitution of India. First and foremost, as has correctly been held in the impugned judgment, unequals are treated equally in that no differentiation is made by the third proviso between the assessees who are responsible for delaying the proceedings and assessees who are not so responsible. This is a little peculiar in that the legislature itself has made the aforesaid differentiation in the second proviso to Section 254(2A) of the Income-tax Act, making it clear that a stay order may be extended upto a period of 365 days upon satisfaction that the delay in disposing of the appeal is not attributable to the assessee. We have already seen as to how, as correctly held by Narang Overseas (supra), the second proviso was introduced by the Finance Act, 2007 to mitigate the rigour of the first proviso to Section 254(2A) of the Income-tax Act in its previous avatar. Ordinarily, the Appellate Tribunal, where possible, is to hear and decide appeals within a period of four years from the end of the financial year in which such appeal is filed. It is only when a stay of the impugned order before the Appellate Tribunal is granted, that the appeal is required to be disposed of within 365 days. So far as the disposal of an appeal by the Appellate Tribunal is concerned, this is a directory provision. However, so far as vacation of stay on expiry of the said period is concerned, this condition becomes mandatory so far as the assessee is concerned. The object sought to be achieved by the third proviso to Section 254(2A) of the Income-tax Act is without doubt the speedy disposal of appeals before the Appellate Tribunal in cases in which a stay has been granted in favour of the assessee. But such object cannot itself be discriminatory or arbitrary, as has been felicitously held in Nagpur Improvement Trust v. Vithal Rao [1973] 3 SCR 39 as follows: "It is now well-settled that the State can make a reasonable classification for the purpose of legislation. It is equally well-settled that the classification in order to be reasonable 3/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 must satisfy two tests: (i) the classification must be founded on intelligible differentia and (ii) the differentia must have a rational relation with the object sought to be achieved by the legislation in question. In this connection it must be borne in mind that the object itself should be lawful. The object itself cannot be discriminatory, for otherwise, for instance, if the object is to discriminate against one section of the minority the discrimination cannot be justified on the ground that there is a reasonable classification because it has rational relation to the object sought to be achieved." [at page 47] Since the object of the third proviso to Section 254(2A) of the Income-tax Act is the automatic vacation of a stay that has been granted on the completion of 365 days, whether or not the assessee is responsible for the delay caused in hearing the appeal, such object being itself discriminatory, in the sense pointed out above, is liable to be struck down as violating Article 14 of the Constitution of India. Also, the said proviso would result in the automatic vacation of a stay upon the expiry of 365 days even if the Appellate Tribunal could not take up the appeal in time for no fault of the assessee. Further, vacation of stay in favour of the revenue would ensue even if the revenue is itself responsible for the delay in hearing the appeal. In this sense, the said proviso is also manifestly arbitrary being a provision which is capricious, irrational and disproportionate so far as the assessee is concerned. 18. In fact, in a recent judgment of this Court in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [2019] 111 taxmann.com 234, the word "mandatorily" in the 2nd proviso inserted through an amendment made to Section 12(3) of the Insolvency and Bankruptcy Code, 2016 was struck down. This Court held: "124. Given the fact that timely resolution of stressed assets is a key factor in the successful working of the Code, the only real argument against the amendment is that the time taken in legal proceedings cannot ever be put against the parties before NCLT and NCLAT based upon a Latin maxim which subserves the cause of justice, namely, actus curiae 4/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 neminem gravabit. 125. In Atma Ram Mittal v. Ishwar Singh Punia [Atma Ram Mittal v. Ishwar Singh Punia, (1988) 4 SCC 284] , this Court applied the maxim to time taken in legal proceedings under the Haryana Urban (Control of Rent and Eviction) Act, 1973, holding: (SCC pp. 288-89, para 8) "8. It is well settled that no man should suffer because of the fault of the court or delay in the procedure. Broom has stated the maxim actus curiae neminem gravabit — an act of court shall prejudice no man. Therefore, having regard to the time normally consumed for adjudication, the ten years' exemption or holiday from the application of the Rent Act would become illusory, if the suit has to be filed within that time and be disposed of finally. It is common knowledge that unless a suit is instituted soon after the date of letting it would never be disposed of within ten years and even then within that time it may not be disposed of. That will make the ten years holiday from the Rent Act illusory and provide no incentive to the landlords to build new houses to solve problem of shortages of houses. The purpose of legislation would thus be defeated. Purposive interpretation in a social amelioration legislation is an imperative irrespective of anything else." 126. Likewise, in Sarah Mathew v. Institute of CardioVascular Diseases [Sarah Mathew v. Institute of CardioVascular Diseases, (2014) 2 SCC 62 : (2014) 1 SCC (Cri) 721] , this Court held that for the purpose of computing limitation under section 468 of the Code of Criminal Procedure, 1973 the relevant date is the date of filing of the complaint and not the date on which the Magistrate takes cognizance, applying the aforesaid maxim as follows: (SCC pp. 96-97, para 39) "39. As we have already noted in reaching this conclusion, light can be drawn from legal maxims. Legal maxims are referred to in Bharat Kale [Bharat Damodar Kale v. State of A.P., (2003) 8 SCC 559 : 2004 SCC (Cri) 39] , Japani Sahoo [Japani Sahoo v. Chandra Sekhar Mohanty, (2007) 7 SCC 394 : (2007) 3 SCC (Cri) 388] and Vanka Radhamanohari 5/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 [Vanka Radhamanohari v. Vanka Venkata Reddy, (1993) 3 SCC 4 : 1993 SCC (Cri) 571] . The object of the criminal law is to punish perpetrators of crime. This is in tune with the well-known legal maxim nullum tempus aut locus occurrit regi, which means that a crime never dies. At the same time, it is also the policy of law to assist the vigilant and not the sleepy. This is expressed in the Latin maxim vigilantibus et non dormientibus, jura subveniunt. Chapter XXXVI CrPC which provides limitation period for certain types of offences for which lesser sentence is provided draws support from this maxim. But, even certain offences such as Section 384 or 465 IPC, which have lesser punishment may have serious social consequences. The provision is, therefore, made for condonation of delay. Treating date of filing of complaint or date of initiation of proceedings as the relevant date for computing limitation under section 468 of the Code is supported by the legal maxim actus curiae neminem gravabit which means that the act of court shall prejudice no man. It bears repetition to state that the court's inaction in taking cognizance i.e. court's inaction in applying mind to the suspected offence should not be allowed to cause prejudice to a diligent complainant. Chapter XXXVI thus presents the interplay of these three legal maxims. The provisions of this Chapter, however, are not interpreted solely on the basis of these maxims. They only serve as guiding principles." 127. Both these judgments in Atma Ram Mittal [Atma Ram Mittal v. Ishwar Singh Punia, [1988] 4 SCC 284] and Sarah Mathew [Sarah Mathew v. Institute of Cardio Vascular Diseases, [2014] 2 SCC 62 : (2014) 1 SCC (Cri) 721] have been followed in Neeraj Kumar Sainy v. State of U.P. [Neeraj Kumar Sainy v. State of U.P., [2017] 14 SCC 136 : 8 SCEC 454] , SCC paras 29 and 32. Given the fact that the time taken in legal proceedings cannot possibly harm a litigant if the Tribunal itself cannot take up the litigant's case within the requisite period for no fault of the litigant, a provision which mandatorily requires the CIRP to end by a certain date — without any exception thereto — may well be an excessive interference with a litigant's fundamental right to non-arbitrary treatment under Article 14 and an excessive, arbitrary and therefore unreasonable restriction on a litigant's fundamental right 6/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 to carry on business under Article 19(1)(g) of the Constitution of India. This being the case, we would ordinarily have struck down the provision in its entirety. However, that would then throw the baby out with the bath water, inasmuch as the time taken in legal proceedings is certainly an important factor which causes delay, and which has made previous statutory experiments fail as we have seen from Madras Petrochem [Madras Petrochem Ltd. v. BIFR, (2016) 4 SCC 1 : (2016) 2 SCC (Civ) 478] . Thus, while leaving the provision otherwise intact, we strike down the word "mandatorily" as being manifestly arbitrary under Article 14 of the Constitution of India and as being an excessive and unreasonable restriction on the litigant's right to carry on business under Article 19(1)(g) of the Constitution. The effect of this declaration is that ordinarily the time taken in relation to the corporate resolution process of the corporate debtor must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. However, on the facts of a given case, if it can be shown to the Adjudicating Authority and/or Appellate Tribunal under the Code that only a short period is left for completion of the insolvency resolution process beyond 330 days, and that it would be in the interest of all stakeholders that the corporate debtor be put back on its feet instead of being sent into liquidation and that the time taken in legal proceedings is largely due to factors owing to which the fault cannot be ascribed to the litigants before the Adjudicating Authority and/or Appellate Tribunal, the delay or a large part thereof being attributable to the tardy process of the Adjudicating Authority and/or the Appellate Tribunal itself, it may be open in such cases for the Adjudicating Authority and/or Appellate Tribunal to extend time beyond 330 days. Likewise, even under the newly added proviso to Section 12, if by reason of all the aforesaid factors the grace period of 90 days from the date of commencement of the Amending Act of 2019 is exceeded, there again a discretion can be exercised by the Adjudicating Authority and/or Appellate Tribunal to further extend time keeping the aforesaid parameters in mind. It is only in such exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the corporate debtor must take place beyond which the corporate debtor is to be driven into liquidation." 7/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 19. Coming to the arguments of the learned ASG, his reliance upon passages contained in M. Ramnarain (P) Ltd. v. State Trading Corpn. of India Ltd. [1983] 3 SCC 75 (paragraph 16) and M. Janardhana Rao v. Jt. CIT [2005] 142 Taxman 722/273 ITR 50 (paragraph 14) do not carry the matter any further. In M. Ramnarain (supra) what was held in paragraph 16 was that the statutory right of appeal conferred on a party may be lost by application of the provisions of some law or by the conduct of the party. This was held in the context of the provisions of Order XX Rule 11 of the Code of Civil Procedure, 1908, which was held by the High Court in that case to deprive the Appellant of his right to prefer an appeal against the main decree. The High Court judgment was set aside, this Court holding: "21. Though by virtue of the provisions of the Original Side Rules of the Bombay High Court the earlier appeal could be permitted to be filed without a certified copy of the decree or order, the appeal would not be valid and competent unless the further requirement of filing the certified copy had been complied with. At the time when the earlier Appeal No. 36 of 1981 had been withdrawn, the certified copy of the decree had not been filed. The said appeal without the certified copy of the decree remained an incompetent appeal. The withdrawal of an incompetent appeal which will indeed be no appeal in the eye of law cannot in any way prejudice the right of any appellant to file a proper appeal, if the right of appeal is not otherwise lost by lapse of time or for any other valid reason. We are, therefore, of the opinion that the provisions contained in Order 20 Rule 11 of the Code do not in the facts and circumstances of the present case deprive the appellant of his right to file an appeal against the decree." This judgment is distinguishable as it does not deal with the constitutional validity of an appeal provision. 20. Likewise, the judgment in Janardhana Rao (supra), which held that a right of appeal is neither a natural nor inherent right but has to be regulated in accordance with the law in force at the relevant time, the conditions of the appellate provision having to be strictly fulfilled, is also a judgment which has no reference to 8/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 the constitutional validity of an appeal provision being assailed. In point of fact, this Court's judgment in Mardia Chemicals (supra) comes nearer home when the constitutional validity of a condition for the exercise of the right of appeal is assailed. This was felicitously put by this Court as follows: "60. The requirement of pre-deposit of any amount at the first instance of proceedings is not to be found in any of the decisions cited on behalf of the respondent. All these cases relate to appeals. The amount of deposit of 75% of the demand, at the initial proceeding itself sounds unreasonable and oppressive, more particularly when the secured assets/the management thereof along with the right to transfer such interest has been taken over by the secured creditor or in some cases property is also sold. Requirement of deposit of such a heavy amount on the basis of a one-sided claim alone, cannot be said to be a reasonable condition at the first instance itself before start of adjudication of the dispute. Merely giving power to the Tribunal to waive or reduce the amount, does not cure the inherent infirmity leaning one-sidedly in favour of the party, who, so far has alone been the party to decide the amount and the fact of default and classifying the dues as NPAs without participation/association of the borrower in the process. Such an onerous and oppressive condition should not be left operative in expectation of reasonable exercise of discretion by the authority concerned. Placed in a situation as indicated above, where it may not be possible for the borrower to raise any amount to make the deposit, his secured assets having already been taken possession of or sold, such a rider to approach the Tribunal at the first instance of proceedings, captioned as appeal, renders the remedy illusory and nugatory. 61. In the case of Seth Nand Lal [1980 Supp SCC 574] while considering the question of validity of pre-deposit before availing the right of appeal the Court held: (SCC p. 590, para 22) [R]ight of appeal is a creature of the statute and while granting the right the legislature can impose conditions for the exercise of such right so long as 9/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 the conditions are not so onerous as to amount to u nreasonable restrictions rendering the right almost illusory." [emphasis supplied] This Court ultimately struck down Section 17(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI Act") holding that in the circumstances mentioned, the deposit of 75% of the amount claimed as a pre-condition to the hearing of an "appeal" before the Debt Recovery Tribunal under section 17 of the SARFAESI Act was onerous, oppressive, unreasonable, arbitrary and hence violative of Article 14 of the Constitution of India. 21. The learned ASG then relied upon judgments which indicate that when Article 14 of the Constitution of India is applied to tax legislation, greater freedom in the joints must be allowed by the Court in adjudging the constitutional validity of the same. For this purpose, he relied upon State of M.P. v. Bhopal Sugar Industries Ltd. [1964] 6 SCR 846. In this case, the judgment of this Court held that if the statute discloses a permissible policy of taxation, the Courts will uphold it. If, however, the tax was imposed deliberately with the object of differentiating between persons similarly circumstanced, such tax would be liable to be struck down. 22. We have already seen how unequals have been treated equally so far as assessees who are responsible for delaying appellate proceedings and those who are not so responsible, resulting in a violation of Article 14 of the Constitution of India. Also, the expression "permissible" policy of taxation would refer to a policy that is constitutionally permissible. If the policy is itself arbitrary and discriminatory, such policy will have to be struck down, as has been found in paragraph 17 above. 23. The other judgment relied upon by the learned ASG is the judgment in N. Venugopala Ravi Varma Rajah v. Union of India [1969] 1 SCC 681 (paragraph 14). This judgment speaks of a larger play in the joints to legislative discretion in the matter of classification being granted when such legislation is a tax 10/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 legislation. The caveat applied in this paragraph is that a taxing statute may contravene Article 14 of the Constitution of India if it seeks to impose upon the same class of property, persons, etc., something which leads to obvious inequality. It is this caveat that has been applied to the third proviso to Section 254(2A) of the Income-tax Act. 24. The learned ASG then relied upon Commr. of Customs (Import) v. Dilip Kumar & Co. [2018] 95 taxmann.com 327/69 GST 239 (paragraphs 32 to 34). This judgment only reiterates the well- settled principle that in the field of taxation hardship or equity has no role to play in determining eligibility to tax. The present appeals have nothing to do with determining eligibility to tax. They have only to do with a frontal challenge to the constitutional validity of an appeal provision in the Income-tax Act. Also, it is important to remember that the golden rule of interpretation is not given a go-by when it comes to interpretation of tax statutes. This Court in CIT v. J.H. Gotla [1985] 23 Taxman 14j/156 ITR 323, put it well when it said: "46. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meaning. 47. We have noted the object of Section 16(3) of the Act which has to be read in conjunction with Section 24(2) in this case for the present purpose. If the purpose of a particular provision is easily discernible from the whole scheme of the Act which in this case is, to counteract the 11/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 effect of the transfer of assets so far as computation of income of the assessee is concerned then bearing that purpose in mind, we should find out the intention from the language used by the Legislature and if strict literal construction leads to an absurd result i.e. result not intended to be subserved by the object of the legislation found in the manner indicated before, and if another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. Furthermore, in the instant case we are dealing with an artificial liability created for counteracting the effect only of attempts by the assessee to reduce tax liability by transfer. It has also been noted how for various purposes the business from which profit is included or loss is set off is treated in various situations as assessee's income. The scheme of the Act as worked out has been noted before." 25. The law laid down by the impugned judgment of the Delhi High Court in Pepsi Foods Ltd. (supra) is correct. Resultantly, the judgments of the various High Courts which follow the aforesaid declaration of law are also correct. Consequently, the third proviso to Section 254(2A) of the Income-tax Act will now be read without the word "even" and the words "is not" after the words "delay in disposing of the appeal". Any order of stay shall stand vacated after the expiry of the period or periods mentioned in the Section only if the delay in disposing of the appeal is attributable to the assessee. The appeals of the revenue are therefore, dismissed.” 4. In the light of the aforesaid decision, which holds good to the facts of the present case, wherein, the Tribunal was of the opinion that the application under consideration is liable to be succeeded, having regard to the fact that the 12/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 delay in disposing of the appeal is not attributed to the appellant in any manner whatsoever, we have no hesitation to decide the substantial question of law in favour of the assessee. Accordingly, we dismiss the tax case appeal against the revenue. No costs. [R.M.D., J.] [M.S.Q., J.] 21.01.2022 Index : Yes/No Speaking/Non-Speaking Order dhk To 1.The Income Tax Appellate Tribunal 'I-2' Delhi Bench New Delhi 2.Principal Commissioner of Income Tax Corporate Circle -2(2) Nungambakkam Chennai – 600 034 13/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 R. MAHADEVAN, J. and MOHAMMED SHAFFIQ, J. dhk TCA No. 20 of 2022

14/15 https://www.mhc.tn.gov.in/judis TCA.No. 20 of 2022 21.01.2022 15/15 https://www.mhc.tn.gov.in/judis