Facts of the Case

The petitioner, M/s Dabur India Limited, filed multiple writ petitions challenging an order dated 26.10.2022 whereby its application for stay of tax demand was dismissed and it was directed to deposit 20% of the outstanding demand.

The demand arose from orders passed under Section 201 and Section 201(1A) of the Income Tax Act, 1961 for Assessment Years 2013–14 to 2020–21, treating the petitioner as an “assessee in default” for non-deduction of TDS under Section 194H.

The Revenue held that free samples and promotional goods given to stockists under sales promotion schemes constituted commission/brokerage, thereby attracting TDS liability.

The total outstanding demand was approximately ₹17.65 crores.

Issues Involved

  1. Whether free samples or promotional goods distributed under sales promotion schemes constitute commission or brokerage under Section 194H of the Income Tax Act, 1961.
  2. Whether deposit of 20% of disputed tax demand is mandatory for granting stay pending appeal.
  3. Whether the rejection of the stay application without proper reasoning is legally sustainable.

Petitioner’s Arguments

  • The petitioner contended that free samples are trade incentives and not commission or brokerage.
  • It relied on the precedent of CIT vs. Jai Drinks Pvt. Ltd. (336 ITR 383, Delhi HC), where similar benefits were held not to attract Section 194H.
  • It was argued that no services were rendered by stockists, hence the essential ingredient of commission was absent.
  • The petitioner submitted that the stay application was rejected arbitrarily without considering relevant factors or providing proper reasoning.
  • It also pointed out that appeals were already pending before the Commissioner of Income Tax (Appeals).

Respondent’s Arguments

  • The Revenue argued that the direction to deposit 20% of the disputed demand was in line with CBDT Office Memorandums dated 29.02.2016 and 31.07.2017.
  • It maintained that the petitioner had failed to justify non-payment of the required percentage for grant of stay.

Court’s Findings / Order

  • The requirement of depositing 20% of disputed demand is not mandatory in all cases and can be relaxed depending on facts.
  • Reliance was placed on PCIT vs. LG Electronics India Pvt. Ltd. (2018) 18 SCC 447, where it was clarified that authorities may grant stay on deposit of less than 20%.
  • The Court found that the impugned order was non-speaking and arbitrary, as it failed to consider:
    • Prima facie case
    • Balance of convenience
    • Irreparable injury
  • The impugned order was set aside.
  • The matter was remanded back to the Commissioner of Income Tax for fresh consideration.
  • A personal hearing was directed to be granted.
  • No coercive action shall be taken against the petitioner until the stay application is decided.

Important Clarification

  • The Court clarified that CBDT instructions are not absolute and do not fetter quasi-judicial discretion.
  • Authorities must consider judicial precedents, financial hardship, and case merits before insisting on deposit.
  • The judgment reinforces that mechanical insistence on 20% deposit is impermissible.

Sections Involved

  • Section 194H – Commission or Brokerage (TDS)
  • Section 201 – Consequences of failure to deduct or pay TDS
  • Section 201(1A) – Interest on TDS default

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/MMH18112022CW158502022_184943.pdf

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