2025 (4) TMI 292 - HC - Income Tax

Impugned order stayed pending appeal with Rs. 30 crore deposit required within three weeks

Tamil Nadu Power Finance and Infrastructure Development Corporation Ltd., (TNPFC) Rep. by Managing Director Versus The Commissioner of Income Tax (TDS), The Deputy Commissioner of Income Tax (TDS) TDS Circle 3 (1), Chennai, The Commissioner of Income Tax (Appeals), The Chief Commissioner of Income Tax Chennai -I

The HC stayed the impugned order passed by the second respondent until disposal of appeals before the third respondent, subject to petitioner depositing ... Demand of 20% of the disputed tax - Rejection of petitioner's stay petitions and rectification petitions by the respondents - HELD THAT:-Though the learned counsel for both sides fought tooth and nail regarding the demand of 20% of the disputed tax, which comes around to a sum of Rs. 126 crore, considering the submission of the learned counsel for the petitioner that the petitioner has voluntarily come forward to deposit Rs. 30 Crore, to which even the learned Senior Standing Counsel for the respondents is not agreable, this Court, considering the vital fact that the petitioner is a state Owned Corporation and it plays an anchor role to the development of Power Sector Projects in the State of Tamil Nadu, as it executes an array of welfare schemes of the Government of Tamil Nadu like i) Child Protection Scheme, Covid-19 Protection Scheme, Oru Kalla Pooja Schemes, etc., also, the Pension Funds of the State of Universities under Old Pension Scheme and Contributory Pension Scheme are deposited only with the petitioner. Order - i) The impugned order passed by the second respondent is stayed till the disposals of the Appeals filed by the petitioners before the third respondent, however, the same is subject to the condition that the petitioner deposits Rs. 30 crore of the disputed tax within a period of three weeks from the date of receipt of a copy of this order. iii) The petitioner is also at liberty to agitate all the issues, that were canvassed herein before the Appellate Authority. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the petitioner, a State-owned corporation, is liable to deduct Tax Deducted at Source (TDS) on interest payouts to entities allegedly exempt under the Income Tax Act.The validity of the rejection of the petitioner's stay petitions and rectification petitions by the respondents, and whether the imposition of a condition to deposit 20% of the disputed tax is justified.The appropriateness of the court's intervention to stay the demand order pending the appeal process.ISSUE-WISE DETAILED ANALYSIS1. Liability to Deduct TDSThe petitioner contended that as a State-owned corporation engaged in finance, it received funds from entities such as Universities, Temples, Government Companies, and Statutory Bodies, which are exempt from TDS under the Income Tax Act. The petitioner argued that the question of TDS does not arise, and submitted Form 26AS to support their claim. However, the second respondent issued a show cause notice alleging non-deduction of TDS for assessment years 2017-18 to 2023-24, resulting in a demand order for Rs. 771,38,94,001/-.The court considered the petitioner's argument that the entities involved are exempt from TDS and noted the petitioner's submission of Form 26AS. However, the court did not make a determination on the merits of this argument, as it deferred to the appellate process for a detailed examination of the facts and applicable exemptions.2. Rejection of Stay and Rectification PetitionsThe petitioner filed appeals and stay petitions against the demand order, which were rejected by the first respondent on the grounds that a stay could only be granted upon payment of 20% of the disputed tax. The petitioner argued that this condition was onerous, given the amount involved was Rs. 126 crore.The court examined the respondents' position that the petitioner must provide detailed and verifiable information to claim exemptions and that the failure to do so justified the demand. The respondents emphasized the need for compliance with procedural requirements, including furnishing correct PAN details and relevant circulars or notifications.The court noted the petitioner's willingness to deposit Rs. 30 crore as a gesture of good faith and considered the petitioner's status as a State-owned corporation involved in significant public welfare schemes. This factor influenced the court's decision to stay the demand order conditionally.3. Court's Intervention and Stay of Demand OrderThe court acknowledged the petitioner's role in executing welfare schemes and the potential impact of the demand on its operations. Balancing the interests of the petitioner and the revenue department, the court decided to stay the demand order pending the appeal, subject to the deposit of Rs. 30 crore by the petitioner.The court emphasized that this decision was made in light of the petitioner's status and public functions, and directed that the appellate authority dispose of the appeals on their merits without being influenced by the court's observations.SIGNIFICANT HOLDINGSThe court held that:The impugned demand order dated 28.02.2024 is stayed until the disposal of the appeals, contingent upon the petitioner depositing Rs. 30 crore within three weeks.The petitioner is entitled to present all issues before the appellate authority, which must decide the appeals based on their merits and in accordance with the law, uninfluenced by the court's observations.Core Principles EstablishedThe judgment underscores the principle of balancing the enforcement of tax demands with considerations of fairness and the operational realities of State-owned entities. It highlights the court's role in ensuring that procedural requirements do not unduly burden entities engaged in public welfare, while also upholding the necessity for compliance with tax laws.