Stay of recovery linked to cancellation of registration granted where prima facie case, hardship and balance of convenience were shown.

Where an assessment demand directly followed cancellation of registration under section 12AA(3), the Tribunal held that a stay application in the connected appeal was maintainable because the recovery sought to be stayed was closely linked to the impugned cancellation order. On the stay merits, the assessee established a prima facie case, balance of convenience and relative hardship; the reasons relied on for cancellation did not, for limited stay purposes, displace the institution's statutory character or show that its activities were outside its objects. Recovery of the outstanding demand was therefore stayed for a limited period or until disposal of the appeal, whichever was earlier.

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Issues: (i) Whether the stay application was maintainable when the outstanding demand arose from an assessment order but the appeal pending before the Tribunal was against cancellation of registration. (ii) Whether the assessee had made out a prima facie case, balance of convenience and hardship for stay of recovery of the demand.

Issue (i): Whether the stay application was maintainable when the outstanding demand arose from an assessment order but the appeal pending before the Tribunal was against cancellation of registration.

Analysis: The demand for the relevant assessment year flowed directly from the order cancelling registration under section 12AA(3) of the Income-tax Act, 1961. The recovery sought to be stayed was therefore closely connected with the appeal challenging the cancellation order. A stay power may extend to proceedings relating to the appeal when circumstances so justify.

Conclusion: The stay application was maintainable.

Issue (ii): Whether the assessee had made out a prima facie case, balance of convenience and hardship for stay of recovery of the demand.

Analysis: Cancellation of registration rested on the view that the assessee's activities involved trade, commerce or business and were therefore not genuine. For the limited purpose of the stay application, those reasons were held not to establish that the activities were not genuine or outside the objects of the institution. The assessee also showed serious hardship if recovery proceeded, while the Revenue's apprehension of prejudice was not accepted in view of the assessee's statutory character and the direct link between the demand and the impugned cancellation.

Conclusion: A prima facie case, balance of convenience and relative hardship were made out in favour of the assessee.

Final Conclusion: Recovery of the outstanding demand was stayed and the stay was granted for a limited period or until disposal of the appeal, whichever was earlier.

Ratio Decidendi: Where an assessment demand is a direct consequence of an order cancelling registration, the Tribunal may grant stay in the connected appeal if the assessee establishes a prima facie case, balance of convenience and hardship.

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