Stay of income-tax collection pending reference may issue in exceptional cases, subject to conditions protecting revenue security.

In a proper and exceptional case, the High Court may use its inherent powers under Section 151 CPC and supervisory jurisdiction under Article 227 to stay collection of income-tax pending a reference under Section 256 of the Income-tax Act, where otherwise the reference could be rendered ineffective. The text also notes that stay relief may be justified on special facts, such as a consistent accounting method accepted in earlier years and a later change in departmental view, but the relief can be conditioned to protect revenue by requiring partial payment and a bank guarantee for the balance.

---

---

Issues: (i) Whether the High Court had jurisdiction to stay collection of income-tax pending a reference under Section 256 of the Income-tax Act, 1961. (ii) Whether the facts of the case justified grant of stay, and on what terms.

Issue (i): Whether the High Court had jurisdiction to stay collection of income-tax pending a reference under Section 256 of the Income-tax Act, 1961.

Analysis: The Court accepted the view that in a proper case the High Court can exercise power under Section 151 of the Code of Civil Procedure, 1908 and Article 227 of the Constitution of India to grant stay of tax collection pending reference. It relied on prior High Court authority and on the Supreme Court's approval of the principle that such protective powers exist to prevent the reference from being rendered nugatory.

Conclusion: The High Court held that it had jurisdiction to grant stay in proper cases.

Issue (ii): Whether the facts of the case justified grant of stay, and on what terms.

Analysis: The Court found special circumstances in that the assessee had followed a consistent method accepted by the Department for earlier years, and the change of view arose only with a new assessing officer for the relevant year. It held that such a case warranted exercise of the stay power, but only on terms that would balance protection of the assessee with the revenue's interests.

Conclusion: Stay of collection was granted on condition that half the tax be paid within three months and a bank guarantee be furnished for the balance.

Final Conclusion: The Court protected the assessee from immediate coercive collection while preserving revenue security by imposing partial payment and guarantee conditions pending disposal of the reference.

Ratio Decidendi: The High Court may, in a proper and exceptional case, invoke its inherent and supervisory powers to stay collection of income-tax pending reference, where necessary to prevent the reference from becoming ineffective, and may condition such relief to safeguard revenue.

---