1998 (2) TMI 115 - HC - Income Tax

High Court sets aside tax demand requirement, directs timely stay application filing & decision

The High Court set aside the assessing authority's order requiring payment of 50% of the tax demand before considering a stay application. The Court ... Power to grant stay of collection of tax - inherent power of the appellate authority - treat an assessee as not in default - order passed without application of mind - stay of recovery of tax pending disposal of stay applicationOrder passed without application of mind - Validity of the assessing authority's order dated January 28, 1998 directing payment of 50% of demand as a condition for considering the stay application - HELD THAT: - The assessing authority's order required the assessee to pay 50% of the demand before the stay request would be considered, thereby treating the plea as not considered on merits. The Court found that the impugned order was passed without application of mind and not in conformity with law, because it did not constitute a decision on the stay application but imposed a precondition of payment for consideration. Consequentially, the Court set aside the assessing authority's order dated January 28, 1998.The assessing authority's order is set aside as being passed without application of mind.Power to grant stay of collection of tax - inherent power of the appellate authority - treat an assessee as not in default - stay of recovery of tax pending disposal of stay application - Availability and exercise of the appellate authority's power to grant a stay of collection of tax in respect of the pending appeal - HELD THAT: - Relying on the principle that the power to grant a stay of collection of tax is an inherent and incidental power of the appellate authority for effective exercise of appellate powers, the Court held that the Commissioner (Appeals) has the power to grant stay of the demand impugned in the appeal. The petitioner was directed to invoke that remedy: if an application for stay is filed within one week, the appellate authority must consider it and pass appropriate orders in accordance with law after affording hearing, and dispose of the stay application within thirty days. Until such disposal, recovery of tax pursuant to the demand for assessment year 1995-96 shall be stayed. The Court declined to entertain the writ as a primary remedy and relegated the petitioner to the appellate forum while giving interim protection.The petitioner is relegated to seek stay before the appellate authority which shall consider the stay application on merits within thirty days; until disposal, recovery is stayed if the application is filed within one week.Final Conclusion: The assessing authority's order of January 28, 1998 is set aside for want of application of mind; the petitioner must apply to the Commissioner (Appeals) for stay within one week, the appellate authority shall decide the stay application on merits within thirty days after hearing, and until such decision recovery of tax for assessment year 1995-96 is stayed; failure to file within the specified time will vacate the interim stay. Issues:1. Stay of demand under section 220(6) of the Income-tax Act.2. Jurisdiction of appellate authority to grant stay of tax collection.3. Validity of assessing authority's order requiring payment before considering stay application.4. Disposal of writ petition and directions for stay application.Analysis:The petitioner, an assessee, appealed against a demand of Rs. 10,41,633 raised under section 143(3) of the Income-tax Act for the assessment year 1995-96. The assessing authority directed the petitioner to pay 50% of the demand pending appeal, failing which recovery measures would be initiated. The petitioner challenged this order through a writ petition, arguing that the assessing authority's order was passed without due consideration. The High Court noted that the appellate authority has inherent power to grant stay of tax collection, as established in various judgments, including those of the Supreme Court and High Courts. The Court emphasized that the appellate authority should be approached for stay before seeking relief through a writ petition under Article 226 of the Constitution of India.Regarding the assessing authority's order, the Court found it to be arbitrary and not in line with legal principles. The order mandated payment of 50% of the demand before considering the stay application, without evaluating the merits of the case. Consequently, the Court set aside the assessing authority's order and directed the petitioner to file a stay application before the appellate authority within one week. The appellate authority was instructed to decide on the stay application within thirty days, ensuring a stay on tax recovery until a decision is made. The Court clarified that failure to file the application within the specified period would result in the vacating of the stay order.In conclusion, the writ petition was disposed of with no costs imposed on any party. The Court provided directions for the disposal of the stay application, emphasizing cooperation from the petitioner and adherence to the specified timelines. All parties were instructed to act upon a signed copy of the order, with the usual undertaking.