Conditional stay of tax recovery granted where the assessee raised an arguable case and balance of convenience favored interim protection.

Conditional protection against tax recovery may be granted pending appeal where the assessee shows an arguable case and the balance of convenience supports interim relief. Here, the disputed demand concerned attribution of profits from hardware and software supply, research and development income, vendor financing income, and interest under section 234B. The Tribunal noted that the Special Bench view on attribution at 20 per cent for supply revenues had not been stayed, the vendor financing addition had earlier been upheld, the R&D component had been excluded in revision, and the interest issue remained debatable. Recovery was stayed conditionally on part payment, security for the balance, and the stay operating until disposal of the appeals or expiry of 180 days.

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Issues: Whether recovery of the outstanding tax demand should be stayed pending disposal of the appeals and, if so, on what conditions.

Analysis: The demand arose from disputed attribution of profits from supply of hardware and software, alleged profits from research and development activities, vendor financing income, and interest under section 234B. The Tribunal noted that the Special Bench's view on attribution at 20 per cent for supply revenues had not been stayed, that the vendor financing addition had earlier been upheld, that the department had itself excluded the R&D component while revising the demand, and that liability to interest under section 234B was also debatable. In these circumstances, the assessee was found to have an arguable case and the balance of convenience warranted conditional protection against recovery.

Conclusion: Conditional stay of recovery was granted. The assessee was directed to pay Rs. 12 crores by the stipulated date, furnish security for the balance, and the remaining demand was stayed for the earlier of disposal of the appeals or expiry of 180 days.

Ratio Decidendi: A stay of tax recovery may be granted on a conditional basis where the assessee shows an arguable case and the balance of convenience, viewed with the interests of both sides, calls for interim protection pending appeal.

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