2014 (3) TMI 730 - HC - Income Tax

Court Upholds Tribunal's Tax Stay Order; Emphasizes Importance of Full Consideration in Tax Stay Cases

The Court declined to interfere with the Tribunal's order granting stay of an outstanding tax demand under Section 254(2A) of the Income Tax Act. It found ... Stay application - Stay on outstanding demand u/s 254(2A) of the Act – Held that:- In KEC International Limited vs. B.R. Balkrishana [2001 (3) TMI 32 - BOMBAY High Court] court has laid down guidelines for disposal of stay application under the Act - the order of stay must record/set out briefly the case of the assessee and also look at the questions involved in the appeal and the amount required to be deposited considering the issue in appeal - The Tribunal has after considering Section 10 of the Act has prima face accepted the assessee's contention that income of Rs.442 Crores attributable to dividend, mutual fund and long terms capital gain would not be assessed to tax as it is not includable in income chargeable to tax - Section 10 and 11 of the Act are not mutually exclusive - It is the character/ nature of income that is to be excluded from total income u/s 10 of the Act - at this stage a complete stay on the tax attributable to income excluded u/s 10 of the Act is unexceptionable. The Tribunal has not followed the parameter laid down KEC International Limited vs. B.R. Balkrishana [2001 (3) TMI 32 - BOMBAY High Court] - A prima facie case does not mean mere disputing the liability to pay the tax - It would necessarily mean a strong arguable case - This could only be established by respondent assessee if it is pointed out why and how no tax would be payable on Rs.44 Crores – there was no mention of the reason even prima facie in the order of the Tribunal - there has been no application of mind even prima facie in respect of the dispute as regards payment of Rs.44 lacs as tax by the respondent-assessee – the order proceeds to grant a stay of recovery of Rs.290 crores on the ground that for a major part of outstanding demand, the assessee has a good prima facie case – the appeal is scheduled for hearing, thus, no need for interference – but if it is adjourned, then the assessee is required to submit 50% of the amount – Decided partly in favour of Revenue. Issues Involved:Challenge to order granting stay of outstanding tax demand under Section 254(2A) of the Income Tax Act, 1961; Interpretation of Sections 10 and 11 of the Act; Guidelines for disposal of stay applications under the Act.Analysis:Issue 1: Challenge to order granting stay of outstanding tax demand under Section 254(2A) of the Income Tax Act, 1961The Revenue challenged the Tribunal's order granting stay of an outstanding tax demand of Rs. 290 crores under Section 254(2A) of the Act. The Tribunal had granted a stay for 6 months or until the disposal of the appeal. The respondent-assessee, a charitable trust, had filed for stay due to an outstanding demand of Rs. 290 crores after the Assessing Officer determined its income at Rs. 714 crores. The Tribunal granted the stay based on a prima facie case presented by the respondent-assessee.Issue 2: Interpretation of Sections 10 and 11 of the ActThe Revenue contended that once a trust is found ineligible for exemption under Section 11 of the Act, it cannot claim exemption under Section 10. However, the respondent-assessee argued that the provisions of Section 10 and 11 are not mutually exclusive. The Tribunal accepted the respondent's contention that income of Rs. 442 crores from dividends, mutual funds, and long-term capital gains would be exempt under Section 10 of the Act. The Tribunal found that Section 10 excludes income based on its nature, while Section 11 grants exemption based on the status of the recipient.Issue 3: Guidelines for disposal of stay applications under the ActThe Court referred to guidelines from a previous case for the disposal of stay applications under the Act. It emphasized that the order granting stay should outline the case of the party, questions involved in the appeal, and the amount required to be deposited. The Court found that while the Tribunal correctly granted a stay on the tax attributed to income excluded under Section 10, it failed to consider the respondent's dispute regarding the tax payable on disputable income of Rs. 270 crores. The Court noted that a prima facie case requires a strong arguable case, which was not demonstrated by the respondent in this instance.In conclusion, the Court declined to interfere at that stage but directed the respondent to deposit further funds if the appeal was adjourned. The judgment provides clarity on the interpretation of Sections 10 and 11 of the Act and highlights the importance of considering all aspects when granting stays in tax matters.