High Court's Power to Stay Tax Collection Pending Reference under s. 256 of I.T. Act

The High Court had jurisdiction to grant a stay of tax collection pending reference under s. 256 of the I.T. Act. The court emphasized that this power should be exercised in exceptional cases with extraordinary circumstances. In this case, the court ordered the petitioner to pay half of the tax amount for the specific assessment year within a specified period and provide a bank guarantee for the remaining half, granting a stay of tax collection for that assessment year during the pendency of the tax reference case.

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Issues:
1. Jurisdiction of High Court to grant stay of tax collection pending reference under s. 256 of the I.T. Act.
2. Exercise of power by the High Court in granting stay of tax collection.
3. Determining the appropriate order to be passed in the case.

Analysis:
1. The judgment dealt with the issue of jurisdiction of the High Court to grant a stay of tax collection pending a reference under s. 256 of the I.T. Act. The petitioner sought a stay of collection of income tax pending a reference in a specific assessment year. The Department raised a preliminary objection, arguing that the court lacked jurisdiction to grant such a stay. The Department relied on an unreported judgment of the Calcutta High Court. However, the petitioner's counsel cited precedents from the Andhra Pradesh High Court and the Delhi High Court, along with a Supreme Court decision, to support the High Court's jurisdiction to grant a stay in such cases.

2. The judgment discussed the exercise of power by the High Court in granting a stay of tax collection pending reference. It was established that the High Court, in proper cases, had the power to issue an order staying the collection of tax pending a reference under the I.T. Act. The court emphasized that this power should be exercised in exceptional cases with extraordinary circumstances, rather than as a routine matter. In the present case, the court found that the peculiar circumstance of a change in the ITO's opinion regarding the treatment of credited amounts justified the exercise of this power.

3. The judgment then addressed the determination of the appropriate order to be passed in the case. After considering the arguments and circumstances presented, the court decided to order the petitioner to pay half of the tax amount for the specific assessment year within a specified period and provide a bank guarantee for the remaining half. Upon fulfillment of these conditions, a stay of tax collection for that assessment year was granted during the pendency of the tax reference case. This decision aimed to balance the interests of both the petitioner and the Department while ensuring compliance with tax obligations.

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