2014 (12) TMI 15 - HC - Income Tax

Court rules in favor of petitioner, granting stay on default status pending appeal

The court ruled in favor of the petitioner, directing that pending the appeal by the CIT(A) for Assessment Year 2011-12, the petitioner would not be ... Order of DIT(E) issued u/s 220(6) under challenge – Application of unconditional stay of demand of ₹ 961.92 Crores – Assessee statutory authority established under the Mumbai Metropolitan Region Development Authority Act, 1974 - Held that:- The order of the AO disposing of the application for stay has in fact been passed in total defiance of the law - in UTI Mutual Fund v/s. ITO [2013 (3) TMI 350 - BOMBAY HIGH COURT] it has been held that where a strong prima facie case is made out, a direction to deposit would itself cause financial hardship - before the financial situation of an applicant can be considered, the authority has to first consider the prima facie case pleaded by the applicant and if the same is covered against the revenue in view of a decision of a superior forum, then the question of considering the issue of financial hardship is irrelevant. In Mumbai Metropolitian Region Development Authority Versus The Deputy Director of Income Tax (Exemption1( 1) & Others [2013 (11) TMI 1378 - BOMBAY HIGH COURT] the court ordered 25% of deposit out of the total tax demand - the assessee has raised the issue of it being an agent of the Government of the Maharashtra and its income not being taxable in view of Article 289 of the Constitution before the AO - an unconditional stay would be warranted, pending the disposal of the Appeal by the CIT(A) – the assessee will not be treated as an assessee in default – Stay granted. Issues Involved:1. Challenge to the orders rejecting the unconditional stay of tax demand.2. Assessment of the petitioner's claim for exemption under Section 11 of the Income Tax Act.3. Consideration of the petitioner's status as an agent of the State Government.4. Examination of whether the authorities properly exercised their jurisdiction in rejecting the stay application.Detailed Analysis:1. Challenge to the Orders Rejecting the Unconditional Stay of Tax Demand:The petitioner challenged the orders dated 2nd June 2014 by the Assessing Officer and 18th August 2014 by the Director of Income Tax (Exemption), which rejected their application for an unconditional stay of a tax demand of Rs. 961.92 Crores pending the disposal of their appeal by the Commissioner of Income Tax (Appeals) (CIT(A)). The petitioner argued that the issue was covered by the decision of the Tribunal in CIDCO v/s. Assistant CIT 138 ITR 381, which had been previously upheld in their favor for earlier assessment years.2. Assessment of the Petitioner's Claim for Exemption under Section 11 of the Income Tax Act:The petitioner, a statutory authority established under the Mumbai Metropolitan Region Development Authority Act, 1974, claimed exemption from income tax under Section 11 of the Income Tax Act since Assessment Year 2003-04. The Assessing Officer consistently denied this exemption, but the CIT(A) allowed it for Assessment Years 2003-04 to 2009-10. The Tribunal upheld the exemption for Assessment Year 2006-07, while appeals for other years were pending. Despite the amendment to Section 2(15) of the Act by the Finance (No.2) Act, 2009, the CIT(A) granted the exemption for Assessment Year 2009-10, but it was disallowed for Assessment Year 2010-11.3. Consideration of the Petitioner's Status as an Agent of the State Government:The petitioner argued that they were an agent of the State Government under the MRTP Act, similar to CIDCO, and thus not liable to pay tax. The Tribunal's decision in CIDCO (supra) supported this claim. However, the Director rejected this argument, stating that CIDCO had not sought exemption under Section 11 of the Act, unlike the petitioner. The court noted that the exemption under Section 11 and the claim of being an agent of the State Government were distinct grounds, and the Director's reasoning was flawed.4. Examination of Whether the Authorities Properly Exercised Their Jurisdiction in Rejecting the Stay Application:The court examined whether the authorities followed the guidelines for deciding stay applications as laid down in previous judgments, including KEC International Limited v/s. B. R. Balakrishnan 251 ITR 158 and UTI Mutual Funds v/s. ITO 345 ITR 71. The court found that the Assessing Officer's order dated 2nd June 2014 was in defiance of the law, as it did not consider the petitioner's prima facie case and relied solely on the lack of financial hardship. The Director's order dated 18th August 2014 also failed to consider the binding decision in CIDCO (supra) appropriately and mixed the issues of exemption under Section 11 and being an agent of the State Government.Conclusion:The court directed that pending the disposal of the appeal by the CIT(A) for Assessment Year 2011-12, the petitioner would not be treated as an assessee in default. The court emphasized that the observations in this decision were confined to the stay application and should not prejudice the pending appellate proceedings. The petition was disposed of with no order as to costs.