Facts of the Case

The petitioner, M/s Dabur India Limited, challenged the order dated 26th October 2022 whereby its application for stay of demand was dismissed and it was directed to deposit 20% of the outstanding 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 held that free samples/goods provided under sales promotion schemes to stockists constituted commission or brokerage. Accordingly, TDS liability was imposed. The total outstanding demand amounted to approximately Rs. 17.65 crores.

The petitioner had filed appeals before the Commissioner of Income Tax (Appeals) and sought stay of demand pending disposal of such appeals.

Issues Involved

  1. Whether free samples or goods given under sales promotion schemes constitute “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 pending appeal.
  3. Whether the impugned order rejecting the stay application was passed in a reasoned and lawful manner.

Petitioner’s Arguments

  • The petitioner contended that free samples distributed under sales promotion schemes are trade incentives and not commission or brokerage.
  • It relied upon the judgment in CIT vs. Jai Drinks Pvt. Ltd. (336 ITR 383 Del) to argue that such incentives do not attract Section 194H.
  • It was submitted that purchasers/stockists do not render any service; hence, the essential ingredient of “commission” is absent.
  • The rejection of the stay application was arbitrary and non-speaking, as relevant considerations were not examined.
  • It was further argued that insistence on 20% deposit was unjustified in the facts of the case.

Respondent’s Arguments

  • The Revenue contended that the requirement of deposit of 20% of the disputed demand is in accordance with CBDT Office Memorandums dated 29.02.2016 and 31.07.2017.
  • It justified the impugned order on the ground that the petitioner failed to establish financial hardship or sufficient cause for waiver of deposit.

Court’s Findings / Order

  • The Delhi High 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.
  • The Court relied on the Supreme Court decision in PCIT vs. LG Electronics India Pvt. Ltd. (2018) 18 SCC 447, which clarified that authorities have discretion to grant stay on lesser deposit.
  • It observed that the impugned order was non-reasoned and failed to consider:
    • Prima facie case
    • Balance of convenience
    • Irreparable injury
  • Accordingly:
    • The impugned order was set aside
    • Matter was remanded for fresh decision
    • Personal hearing was directed
    • No coercive action to be taken till disposal of stay application

Important Clarification by Court

  • Payment of 20% of demand is not a universal pre-condition for granting stay.
  • Authorities must exercise discretion based on:
    • Merits of the case
    • Past judicial precedents
    • Facts and circumstances
  • Administrative circulars cannot override quasi-judicial discretion.

Sections Involved

  • Section 194H of the Income Tax Act, 1961
  • Section 201 & 201(1A) of the Income Tax Act, 1961

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

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