Disputed Tax Demand, Pre-Condition To Deposit 20 % Of The Disputed Tax For Stay Of Recovery Proceedings, Can Be Relaxed In Appropriate Cases: Delhi High Court

The Bench, consisting of Justices Manmohan and Dinesh Kumar Sharma, held that the order of the income tax authority disposing of assessee's application for stay against recovery of disputed tax demand without considering the issues of prima facie case, balance of convenience and irreparable injury to the assessee was a non-reasoned order.

The Assessee Tata Teleservices Limited was held to be an assessee in default for failure to deduct tax at source while making interest payments to China Development Bank. A demand of over Rs. 42.40 Crores was raised against Tata Teleservices under Section 201(1)/ 201(1A) of Income Tax Act, 1961 which was disputed by it. The Assessee's application for stay against recovery of disputed tax demand pending the disposal of first appeal was granted by the Commissioner of Income Tax (CIT) subject to payment of twenty per cent of the total demand raised against it. The Assessee filed a writ petition before the Delhi High Court against the order of the CIT.

The Counsel for the Petitioner/Assessee Tata Teleservices contended before the High Court that the order of the CIT disposing of Assessee's stay application did not deal with the issues of prima facie case, balance of convenience and irreparable harm or injury. The revenue department submitted that the direction to deposit twenty per cent of demand was in accordance with the Office Memorandums dated 29^th February, 2016 and 31^st July, 2017.

The High Court ruled that the requirement of payment of twenty per cent of disputed tax demand is not a pre-requisite in all cases for putting recovery of demand in abeyance during the pendency of the first appeal. The Court held that the pre-condition of deposit of twenty per cent of the demand can be relaxed in appropriate cases.

The High Court observed that the Supreme Court in the case of PCIT versus M/s LG Electronics India Pvt Ltd (2018) had held that tax authorities are eligible to grant stay on deposit of amounts lesser than twenty per cent of the disputed demand in the facts and circumstances of a case.

The High Court held that the order disposing of Assessee's application for stay was a non-reasoned order since neither the Assessing Officer nor the CIT had considered the three basic principles while deciding the stay application, i.e., whether there was a prima facie case, balance of convenience and irreparable injury to the Assessee.

The High Court therefore allowed the Assessee's writ petition and set aside the order of the CIT disposing of Assessee's stay application. The Court remanded the matter back to the CIT for fresh adjudication in the application for stay.

Case Title: Tata Teleservices Limited versus Commissioner of Income Tax, International Taxation

Dated: 23.03.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. Kamal Sawhney with Mr. Prashant Meharchandani, Mr. Nikhil Agarwal, Mr. Arun Bhadauria and Mr. Nishank Vashistha, Advocates

Counsel for the Respondent: Mr. Sunil Agarwal, Senior Standing Counsel with Mr. Tushar Gupta and Mr. Samarth Chaudhari, Advocates

Citation: 2022 LiveLaw (Del) 259

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