2012 (4) TMI 285 - HC - Income Tax

High Court overturns Commissioner's 30% payment order in stay application dispute, emphasizes fairness

The High Court set aside the Commissioner's order directing the assessee to pay 30 percent of the total demand in a stay application dispute. The Court ... Petition for stay of total demand – Dispute about TDS u/s 194C or 194I - assessee contended that direction for depositing 30% of total demand is unjustified when CIT(A) opined it to be fit case for stay of the total demand – Held that:- Apex court in case of M/s Pennar Industries Ltd. vs. State of Andhra Pradesh held that it is true that on merely establishing a prima facie case, interim order of protection should not be passed. However, if it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand. Therefore, in view of aforesaid order of CIT(A) is set aside and appellate authority is directed to decide the appeal finally on merits. Demand is kept in abeyance during pendency of appeal. However, the petitioner shall furnish security to tune of 30% of the total demand within ten days. Issues:1. Quashing of the order dated 19 March, 2012 passed by the Commissioner of Income Tax (Appeals) regarding a stay application.2. Interpretation of Sections 194-I and 194-C of the Income Tax Act.3. Discretion of the Commissioner to grant partial interim relief.4. Application of legal principles for granting stay of demand.Analysis:1. The writ petition sought to quash the order of the Commissioner of Income Tax (Appeals) dated 19 March, 2012, which partially allowed the stay application directing the assessee to pay 30 percent of the total demand. The petitioner argued that since the Commissioner himself acknowledged the strength of the plea for a stay of demand, there was no justification for directing the payment of 30 percent. The petitioner relied on a judgment of the Gujarat High Court to support this contention.2. The Commissioner analyzed the nature of the transactions involved, distinguishing between Sections 194-I and 194-C of the Income Tax Act. It was observed that the assessee had given sub-contracts for the transportation of goods, falling under Section 194-C, rather than renting out machinery or equipment as per Section 194-I. The Commissioner referred to relevant legal provisions and circulars to support the decision to direct the deposit of 30 percent of the total demand.3. The department's advocate argued that the Commissioner has the discretion to grant partial interim relief even in prima facie cases, citing a judgment of the Apex Court. The judgment highlighted that while interim orders should not be passed solely on establishing a prima facie case, if the demand appears weak, it would be unfair to require the assessee to pay the full amount. This argument was countered by the petitioner's reliance on legal principles supporting a stay of the total demand.4. The High Court, after considering the submissions and records, set aside the Commissioner's order and directed the appellate authority to decide the appeal on merits. The Court emphasized that the demand against the petitioner should be kept in abeyance during the appeal process, provided that the petitioner furnishes adequate security within ten days. The judgment clarified that the observations made were specific to the stay application and should not influence the final appeal decision.In conclusion, the High Court's judgment focused on the proper application of legal principles in granting stays of demand, emphasizing the need for fairness and consideration of factual scenarios. The decision highlighted the distinction between Sections 194-I and 194-C of the Income Tax Act and underscored the importance of providing adequate security during the appeal process.