2023 (4) TMI 1439 - HC - Income Tax

Tax authority asked to reconsider deposit percentage for stay pending appeal; may set under 20% after hardship review

Harekrushna Patra Versus Principal Commissioner of Income Tax, Sambalpur & Others.

The HC remanded the matter to the tax authority to reconsider the quantum of deposit required as a condition precedent to grant a stay of demand pending ... Stay of demand - minimum 20% of deposit as condition-precedent for staying the demand - HELD THAT:- We are not certain that whether the Principal Commissioner of Income Tax, Sambalpur was aware that he can exercise the discretion without following the CBDT circular which postulates the minimum 20% of deposit as condition-precedent for staying the demand till an appeal against the order of assessment is decided on merit or otherwise. In the fitness of things, we remand the matter for reconsideration of the quantum of the deposit, as condition-precedent for granting stay against the demand for fling the appeal by the Principal Commissioner of Income Tax, Sambalpur. During reconsideration, the Principal Commissioner of Income Tax, Sambalpur shall consider the aspect that he can ask for a deposit, lesser than 20% as prescribed by the CBDT circular after considering the hardship of the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the Principal Commissioner of Income Tax's direction requiring payment of 20% of the demand as a condition-precedent for stay of recovery, despite the assessee's plea of financial hardship, was a proper exercise of quasi-judicial discretion. 2. Whether a departmental/CBDT circular prescribing a minimum deposit of 20% for grant of stay operates as a fetter on the discretion of the Principal Commissioner of Income Tax, and whether he may, on the facts of an individual case, direct a deposit of less than 20%. 3. Whether the writ court should interfere with the impugned order under Article 226 and/or remit the matter for reconsideration of the quantum of deposit in light of the assessee's financial hardship and relevant jurisprudence. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Proper exercise of discretion in fixing 20% deposit as condition for stay Legal framework: The Principal Commissioner of Income Tax, as a quasi-judicial authority, may grant stay of recovery of tax demand pending appeal, generally subject to conditions including deposit of a portion of the demand. Administrative circulars may set departmental guidelines on the percentage to be deposited. Precedent treatment: The judgment refers to authoritative appellate guidance indicating that administrative circulars must not operate as an absolute fetter on the quasi-judicial discretion of tax authorities and that, on individual facts, a lesser deposit may be directed. Interpretation and reasoning: The Court examined the record and the fact that the assessee had placed materials alleging inability to pay. The Court was not satisfied that the Principal Commissioner appreciated those materials sufficiently or that he was clearly exercising independent discretion unbound by an administrative minimum. The Court noted submissions from the departmental representative that no express reference to the circular was made and that the order represented an exercise of discretion; but the Court remained uncertain whether the minimum 20% requirement had been applied mechanically. Ratio vs. Obiter: The finding that the decision as made may reflect mechanical adherence to a 20% benchmark without proper appreciation of hardship is central (ratio) to the remedial step ordered; ancillary observations about the duty to consider financial records and to permit lesser deposits where hardship established are explanatory (ratio/necessary reasoning). Conclusion: The Court concluded that the quantum of deposit required (20%) required reconsideration by the Principal Commissioner in light of the assessee's financial constraints and the authority of higher courts that departmental circulars do not absolutely fetter discretion. Issue 2 - Effect of departmental (CBDT) circular prescribing 20% minimum deposit on the quasi-judicial discretion of the Principal Commissioner Legal framework: Administrative circulars provide departmental guidance but cannot legally oust or unduly fetter the statutory/quasi-judicial discretion of officers empowered to decide on stays and conditions. Precedent treatment: The Court recalled higher court observations that administrative circulars will not operate as a fetter on the quasi-judicial authority and that lesser deposits may be directed on facts of individual cases. Interpretation and reasoning: The Court acknowledged the departmental contention that the impugned order was exercisable discretion and made without reference to the circular. Nevertheless, because the record did not clearly demonstrate that the Principal Commissioner consciously declined to follow the circular and instead applied independent judgment, the Court could not be satisfied that the circular had not rigidly influenced the outcome. Given the established principle that the circular cannot operate as an absolute fetter, the Court determined reconsideration was necessary to ensure the authority considered the option of directing a deposit lesser than 20% after evaluating hardship. Ratio vs. Obiter: The pronouncement that administrative circulars cannot operate as an absolute fetter and that the officer must consider a case-by-case reduction is treated as binding guidance drawn from higher authority and applied to the facts (ratio). Conclusion: The Court directed that, upon reconsideration, the Principal Commissioner must explicitly consider whether a deposit less than 20% should be ordered having regard to the assessee's financial hardship and the principle that departmental guidelines are not an absolute constraint. Issue 3 - Writ court's remedial power under Article 226: interference vs. remand Legal framework: High courts exercising writ jurisdiction may quash administrative action that is unreasonable or where discretion has been exercised without due consideration; courts may also remit matters for fresh consideration rather than substitute their own view. Precedent treatment: The Court referenced the controlling principle that departmental circulars do not bind the quasi-judicial authority and that superior courts may require exercise of discretion consistent with that principle. Interpretation and reasoning: Rather than directly substituting its view on the appropriate deposit quantum, the Court chose to remand for reconsideration because the record did not unequivocally show independent, case-specific application of discretion by the Principal Commissioner. The Court provided direction on process: the assessee should apply within a fixed short period, and the Principal Commissioner should decide with expedition. As interim relief, the Court restrained coercive action for the period allowed to file the reconsideration application. Ratio vs. Obiter: The remedial choice to remit for fresh consideration and to stay coercive action for a limited period is dispositive (ratio) of the relief granted in the proceeding; remarks encouraging expedited decision-making are procedural guidance (ratio/operative). Conclusion: The writ petition was disposed by remitting the matter for reconsideration of the deposit quantum. The petitioner was directed to apply within ten days and was granted interim protection from coercive action during that period; the Principal Commissioner was directed to decide expeditiously, considering the authority to require less than 20% where hardship warrants. Cross-references and Practical Directives 1. Cross-reference to Issues 1 and 2: The Court's remand stems from the combined concern that (a) the assessee's financial materials may not have been adequately appreciated and (b) an administrative 20% benchmark cannot be applied so rigidly as to preclude case-by-case reduction. 2. Administrative/Procedural directions: The petitioner must file an application for reconsideration within ten days; no coercive action shall be taken during that tenure; the Principal Commissioner is expected to decide the application with expedition and to consider expressly whether a deposit less than 20% is appropriate given the assessee's hardship.