Facts of the Case

The petitioner filed writ petitions challenging orders dated 06 September 2022 and 07 November 2022 whereby the tax authorities rejected its stay applications and directed payment of 20% of the total tax demand arising under Section 201(1) of the Income Tax Act for Assessment Years 2013-14 and 2014-15.

The petitioner had earlier been held as an “assessee-in-default” under Sections 201(1) and 201(1A) for short deduction of TDS, resulting in substantial tax liabilities. Appeals were filed along with stay applications, which were dismissed through non-speaking orders.

Issues Involved

  1. Whether payment of 20% of disputed tax demand is mandatory for grant of stay pending appeal.
  2. Whether the impugned orders rejecting stay applications without reasons are sustainable in law.
  3. Whether tax authorities are required to consider principles of prima facie case, balance of convenience, and irreparable injury while deciding stay applications.

Petitioner’s Arguments

  • The petitioner contended that agreements with consultant doctors constituted contracts for service and not contracts of service.
  • It was argued that since the doctors had already paid taxes, the first proviso to Section 201 applies.
  • The condition of depositing 20% of demand as per Office Memorandums is directory and not mandatory.
  • Reliance was placed on Pr. CIT v. LG Electronics India Pvt. Ltd., wherein it was held that authorities may grant stay on lesser deposit depending on facts.

Respondent’s Arguments

  • The Revenue contended that consultant doctors were effectively in a contract of service, as they were not permitted to work elsewhere.
  • It was further argued that the first proviso to Section 201 was not applicable in the present case.

Court’s Findings / Order

  • The Court held that payment of 20% of disputed demand is not a mandatory pre-condition for grant of stay in all cases.
  • The requirement can be relaxed depending on facts and circumstances, as also clarified in relevant Office Memorandums and Supreme Court precedent.
  • The impugned orders were found to be non-speaking and passed without considering relevant factors, including:
    • Prima facie case
    • Balance of convenience
    • Irreparable injury
  • Accordingly, the Court:
    • Set aside the impugned orders
    • Remanded the matter for fresh adjudication
    • Directed grant of personal hearing to the petitioner

Important Clarification

  • No coercive action shall be taken against the petitioner until the stay applications are decided afresh.
  • Tax authorities must exercise discretion and cannot mechanically insist on 20% deposit in every case.

Sections Involved

  • Section 201(1), Income Tax Act, 1961
  • Section 201(1A), Income Tax Act, 1961
  • First Proviso to Section 201
  • Office Memorandum dated 29.02.2016
  • Office Memorandum dated 31.07.2017

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

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