Facts of the Case

The Petitioner, M/s Dabur India Limited, challenged the order dated 26.10.2022 whereby its application for stay of demand was rejected and it was directed to deposit 20% of the outstanding tax demand.

The demand arose from orders passed under Sections 201/201(1A) of the Income Tax Act 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 alleged that free samples/goods distributed by the petitioner under sales promotion schemes constituted commission or brokerage. Consequently, a demand of approximately ₹17.65 crore was raised.

The petitioner filed appeals before the Commissioner of Income Tax (Appeals) and sought stay of demand, which was rejected.

Issues Involved

  1. Whether free samples or promotional goods given to stockists fall under “commission or brokerage” under Section 194H of the Income Tax Act.
  2. Whether payment of 20% of disputed tax demand is mandatory for grant of stay.
  3. Whether the rejection of stay application without proper reasoning is sustainable in law.

Petitioner’s Arguments

  • The petitioner contended that free samples provided under sales promotion schemes are trade incentives and not commission or brokerage.
  • It relied on the precedent of CIT vs Jai Drinks Pvt. Ltd. (336 ITR 383 Del) to argue that such incentives do not attract Section 194H.
  • It was argued that no service is rendered by stockists; hence, there is no principal-agent relationship.
  • The rejection of stay was arbitrary and non-speaking, ignoring relevant factors.
  • The requirement of depositing 20% demand should not be applied mechanically.

Respondent’s Arguments

  • The Revenue argued that the direction to deposit 20% of the demand is in line with CBDT Office Memorandums dated 29.02.2016 and 31.07.2017.
  • It maintained that the petitioner failed to justify financial hardship or provide sufficient grounds for waiver of deposit.

Court’s Findings / Order

  • The Court held that the requirement of depositing 20% of the disputed demand is not mandatory in all cases and can be relaxed depending on facts.
  • It emphasized that authorities must exercise discretion and consider:
    • Prima facie case
    • Balance of convenience
    • Irreparable injury
  • The Court relied on PCIT vs LG Electronics India Pvt. Ltd. (2018) 18 SCC 447, holding that lesser deposit can be allowed.
  • The impugned order was found to be non-speaking and arbitrary, as it failed to consider relevant factors.

Final Order

  • The impugned order dated 26.10.2022 was set aside.
  • Matter remanded back to the Commissioner of Income Tax for fresh decision.
  • Personal hearing to be granted.
  • No coercive action to be taken until disposal of stay application.

Important Clarification

  • Deposit of 20% of disputed tax demand is not a rigid rule.
  • Authorities must apply judicial discretion.
  • Stay applications must be decided through reasoned orders considering settled principles.

Sections Involved

  • Section 194H – Commission or Brokerage (TDS)
  • Section 201 & 201(1A) – Assessee in Default
  • Relevant Office Memorandums dated 29.02.2016 & 31.07.2017

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

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