Stay of tax demand under section 220(6) must be reconsidered when rejection rests on an incorrect view of the governing instruction.

A stay rejection under section 220(6) of the Income-tax Act, 1961 cannot stand where it is based on the erroneous view that the assessee falls outside the applicable stay instruction. The Madras HC set aside the order refusing to keep the demand in abeyance and remitted the stay petition to the Assessing Officer for fresh consideration on its own merits and in accordance with law, including Instruction No. 1914 as modified by the Office Memoranda dated 29.02.2016 and 31.07.2017. The merits of the assessment and additions were not adjudicated.

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Issues: Whether the order rejecting the petitioner's request to keep the tax demand in abeyance under section 220(6) of the Income-tax Act, 1961, on the ground that the petitioner was not covered by Instruction No. 1914 dated 02.12.1993 as modified by the Office Memoranda dated 29.02.2016 and 31.07.2017, was liable to be set aside and the request reconsidered afresh.

Analysis: The impugned order proceeded only on the view that the petitioner's case was outside the scope of the stay instruction. The correctness of that basis was not in dispute. The writ petition concerned only the rejection of interim relief pending the statutory appeal, and the challenge was confined to the legality of the refusal to apply the governing instruction under section 220(6). No adjudication was undertaken on the merits of the assessment or the additions made in the assessment order.

Conclusion: The rejection order was set aside and the stay petition was remitted to the Assessing Officer for fresh consideration on its own merits and in accordance with law, including application of the said instruction.

Ratio Decidendi: An order under section 220(6) of the Income-tax Act, 1961, rejecting stay of demand on a demonstrably erroneous view that the assessee is outside the applicable stay instruction cannot be sustained and must be reconsidered afresh in accordance with the governing instruction and law.

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