Prima facie case and TDS disallowance under section 40(a)(ia) defeated a stay request on transmission-related charges.

Stay of tax demand was refused where the assessee failed to show a strong prima facie case against disallowance under section 40(a)(ia) of the Income-tax Act, 1961. The claimed reliance on an earlier Jaipur decision did not assist because the Bulk Power Transmission Agreement covered wider transmission-related services, including metering, reading, sealing, resealing and maintenance, making the deduction issue materially different. The assessee's later practice of deducting tax at source and the payee's lower deduction certificate further weakened the request for interim relief. Payment of tax by the payee did not remove the payer's disallowance exposure, and the demand was not stayed.

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Issues: Whether the assessee had made out a prima facie case for stay of demand arising from disallowance under section 40(a)(ia) of the Income-tax Act, 1961.

Analysis: The disputed claim for stay depended on whether the assessee could show that the earlier Jaipur decision applied on similar facts and that no tax was deductible at source on wheeling and transmission charges. On comparison, the services under the Bulk Power Transmission Agreement were found to be materially wider, including transmission-related services as well as metering, reading, sealing and resealing of meters, maintenance and connected functions. The assessee had also begun deducting tax at source from later years, and the payee had obtained a lower deduction certificate, which further weakened the claimed prima facie case. The statutory consequence under section 40(a)(ia) was held to follow where tax deductible under Chapter XVII-B was not deducted or paid, and payment of tax by the payee did not remove the disallowance exposure in the payer's hands. In the absence of a strong prima facie case, and having regard to the governing principles for grant of stay in revenue matters, the request for stay was not justified.

Conclusion: The stay was not warranted and the application was rejected.

Final Conclusion: The assessee failed to establish the threshold required for interim protection against recovery of the demand.

Ratio Decidendi: Stay of tax demand is not to be granted unless a strong prima facie case is shown, and disallowance under section 40(a)(ia) is attracted where tax deductible under Chapter XVII-B on the relevant payments has not been duly deducted or paid.

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