Facts of the Case

  • The petitioner hospital was treated as an “assessee-in-default” under Sections 201(1) and 201(1A) for short deduction of TDS for AY 2013–14 and 2014–15.
  • Total tax demand exceeded ₹36 crore cumulatively.
  • The petitioner filed appeals along with stay applications against recovery of demand.
  • The authorities passed orders dated 06.09.2022 and 07.11.2022, rejecting stay and directing payment of 20% of demand.
  • These orders were non-speaking and did not consider petitioner’s submissions.

Issues Involved

  1. Whether deposit of 20% of disputed tax demand is mandatory for granting stay?
  2. Whether non-speaking orders rejecting stay applications are valid in law?
  3. Whether first proviso to Section 201 applies when deductees have already paid taxes?

Petitioner’s Arguments

  • The hospital had entered into contracts for service (independent consultants), not contracts of service.
  • Consultant doctors had already paid taxes, hence benefit of first proviso to Section 201 should apply.
  • The Office Memorandum requiring 20% deposit is directory, not mandatory.
  • Reliance placed on Pr. CIT v. LG Electronics India Pvt. Ltd. (SC) holding that lesser deposit can be allowed.
  • Authorities failed to apply judicial mind and passed non-speaking orders.

Respondent’s Arguments

  • Doctors were not allowed to work elsewhere, indicating contract of service (employment relationship).
  • Therefore, TDS liability was validly imposed.
  • The benefit of first proviso to Section 201 was not applicable.

Court Findings / Order

  • The Delhi High Court held that:
    • 20% deposit condition is NOT mandatory and can be relaxed in appropriate cases.
    • Authorities must consider:
      • Prima facie case
      • Balance of convenience
      • Irreparable injury
    • The impugned orders were non-reasoned and legally unsustainable.
  • Orders were set aside and matter remanded for fresh adjudication.
  • Direction issued:
    • Grant personal hearing to petitioner
    • Decide stay application afresh
  • No coercive action to be taken until disposal of stay application.

Important Clarification

  • The Court clarified that:
    • The 20% pre-deposit rule is only a guideline, not a rigid rule.
    • Authorities have discretion to grant stay on lesser deposit depending on facts.
    • Stay orders must be reasoned and judicially sound.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/MMH25112022CW162872022_192810.pdf

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