Pendency of income tax appeal does not automatically stay recovery; discretion to treat assessee as not in default is limited.

Filing an appeal against an assessment order did not, by itself, stop the assessee from being treated as in default under section 45 of the Income-tax Act or create an automatic stay of recovery; the power to treat the assessee as not in default during appeal was discretionary. On the facts, the refusal to grant stay was not arbitrary because the demand remained unpaid for a substantial period, only part payment was made, instalment terms were declined, and recovery steps were taken against a third party alleged to owe the assessee money. The recovery action was therefore sustained.

---

---

Issues: (i) Whether filing an appeal against an assessment order prevents the assessee from being treated as in default under section 45 of the Income-tax Act and bars coercive recovery during the pendency of the appeal. (ii) Whether, on the facts, the Income-tax Officer exercised the discretion under section 45 arbitrarily in refusing to stay recovery.

Issue (i): Whether filing an appeal against an assessment order prevents the assessee from being treated as in default under section 45 of the Income-tax Act and bars coercive recovery during the pendency of the appeal.

Analysis: Section 45 was held to make payment within the time specified in the demand notice obligatory, and failure to pay rendered the assessee a defaulter. The proviso empowering the Income-tax Officer to treat the assessee as not in default during the pendency of an appeal was treated as discretionary, not mandatory. The filing of an appeal, by itself, did not operate as an automatic stay of recovery, and the words conferring discretion could not be read as creating an absolute right to suspension of demand.

Conclusion: The filing of an appeal did not prevent the assessee from being treated as in default, and no automatic stay of recovery followed.

Issue (ii): Whether, on the facts, the Income-tax Officer exercised the discretion under section 45 arbitrarily in refusing to stay recovery.

Analysis: The demand had remained unpaid for a substantial period, only a small portion of the tax had been deposited, and the assessee declined the offer of payment by instalments. The authorities also took steps to recover the amount from a third party alleged to owe money to the assessee. On these facts, the refusal to grant further stay could not be characterised as arbitrary or unreasonable.

Conclusion: The discretion was not exercised arbitrarily.

Final Conclusion: The petition failed on both grounds, and the impugned recovery action was sustained.

Ratio Decidendi: Under section 45 of the Income-tax Act, the pendency of an appeal does not automatically stay recovery or eliminate default; the Income-tax Officer's power to treat the assessee as not in default is discretionary and will not be interfered with absent arbitrariness.

---