2014 (2) TMI 1122 - HC - Income Tax

Court grants stay on tax demand challenge, directs deposit, emphasizes legal compliance

The court allowed the petition challenging the rejection of a stay application for a tax demand of Rs.9.00 crores pending appeal. The petitioner, a stock ... Waiver of pre-deposit - stay - Partial hearing of appeal before CIT(A) – Application for unconditional stay of balance demand of tax rejected – Held that:- There was considerable substance in the submissions made by the Petitioner that both the Assistant Commissioner of Income Tax and the Commissioner of Income Tax have ignored the parameters laid down in KEC International Limited Vs. B.R.Balkrishnan and others [2001 (3) TMI 32 - BOMBAY High Court] - It is apparent that neither the Assistant Commissioner of Income Tax nor the Commissioner of Income Tax has referred to the Petitioner's case nor has given some short prima facie reasons for requiring the Petitioner to deposit 50% of the tax liability - Prima facie, there appears to be substance in the Petitioner's contention that in view of specific provision for deduction of tax on account of brokerage being provided in Section 194H of the Act, the occasion to apply Section 194J of the Act would not arise. The Petitioner's alternative submission that if subbrokerage paid by the Petitioner to its holding company is considered excessive or unreasonable, then in that event, as in the earlier years the sub-brokerage paid @ 50% be allowed as an admissible expenditure - On that basis, the Petitioner would not be liable to pay anything more than about Rs.60.00 lakhs based on the detailed calculations given by the Petitioner – thus, interim stay on recovery is granted during the pendency of appeal before the CIT(A) – Decided in favour of Assessee. Issues:Challenge to rejection of stay application for tax demand, applicability of tax provisions, disallowances under Section 40A(2)(b) of the Income Tax Act.Analysis:The petitioner challenged the rejection of its stay application for a tax demand of Rs.9.00 crores pending appeal before the Commissioner of Income Tax (Appeals). The petitioner, a stock brokerage firm, had filed its return of income for the assessment year 2010-11, claiming expenditure of Rs.26.20 crores paid to its holding company. The Assessing Officer disallowed this amount under Section 40A(2)(b) of the Income Tax Act for being excessive and for failure to deduct tax at source under Section 194J. The petitioner contended that the provisions of Section 194H, which exclude tax deduction on payments for securities transactions, should apply instead of Section 194J. Additionally, the petitioner argued that the holding company had already paid tax on the amount, justifying no disallowance. The petitioner also disputed the disallowance of sub-brokerage paid, stating it was in line with market trends and should have been allowed as in previous years.The court noted that the authorities had not considered the petitioner's case adequately and failed to provide reasons for requiring the petitioner to deposit 50% of the tax liability. Referring to the parameters set by the court in a previous case, the court found merit in the petitioner's contentions regarding the tax provisions and the reasonableness of sub-brokerage payments. The court accepted the petitioner's offer to deposit Rs.60,67,131 within four weeks, setting aside the impugned orders and granting interim stay on recovery during the appeal process. The court clarified that the deposit should not delay the appeal process and granted a further stay for four weeks after the CIT (Appeals) decision is communicated.In conclusion, the court allowed the petition, directing the petitioner to deposit the specified amount and granting a stay on recovery pending the appeal outcome. The court emphasized adherence to legal provisions and principles in considering stay applications and tax liabilities, ensuring a fair and reasoned decision-making process.