Charitable institution granted stay from income tax demand under Section 220(6) after prolonged pendency

The Telangana HC allowed a stay application under Section 220(6) for a charitable institution facing income tax demand. The petitioner had consistently availed tax exemptions as a charitable organization and filed rectification applications under Section 154 immediately after demand was raised. Despite the appeal and rectification application being filed in 2021 and pending for over two years, the Assessing Officer had ordered payment of 20% of outstanding demand. The HC held that given the petitioner's charitable status and prolonged pendency of proceedings without prejudice, the stay application should have been granted by the Assessing Authority.

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Issues involved:
The judgment involves assessing the legality of an order passed by the Commissioner of Income Tax (Exemption) regarding a stay application during an appeal challenging an assessment order for the assessment year 2018-19.

Details:
The petitioner, an educational and charitable society registered under Section 12A of the Income Tax Act, had its return scrutinized, resulting in a tax liability of Rs.2,50,00,000. The petitioner moved an application under Section 220(6) seeking stay of the demand notice pending appeal, which was partially allowed, requiring a deposit of Rs.35,00,000. The petitioner had also filed applications for rectification, which remained pending for over 2 ½ years.

The High Court considered the petitioner's charitable status and the fact that it had been availing tax exemptions due to its charitable activities. The Court referred to a circular clarifying charitable purposes under the Act and noted that the petitioner's works were executed with a charitable intent. The Court emphasized the delay in deciding the rectification application and the appeal, both pending for more than 2 ½ years.

The Court highlighted the importance of considering whether a strong prima facie case for stay of demand had been made, as well as the undue hardship that a deposit requirement might cause. It expressed disapproval of the Revenue's dismissal of a binding decision on a stay for the previous year. Ultimately, the Court set aside the impugned order and ordered a stay of the entire demand until the appeal was disposed of, considering the petitioner's charitable nature and the prolonged pendency of the rectification application and appeal.

In conclusion, the Court allowed the Writ Petition, quashed the impugned order, and ordered a stay of the recovery of the demand until the appeal was resolved, with no costs imposed. Any pending miscellaneous petitions were to be closed as a result of the judgment.

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