Facts of the Case

The Petitioner, M/s Dabur India Limited, filed multiple writ petitions challenging the order dated 26th October 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 dated 4th August 2021 and 8th September 2020 passed under Section 201/201(1A) of the Income Tax Act, 1961, treating the Petitioner as an assessee in default for non-deduction of TDS under Section 194H.

The Revenue contended that free samples and goods provided under sales promotion schemes to stockists constituted commission/brokerage, thereby attracting TDS liability. The total outstanding demand was approximately ₹17.65 crores for Assessment Years 2013-14 to 2020-21.

Issues Involved

  1. Whether free samples and promotional goods given to stockists amount to commission/brokerage under Section 194H of the Income Tax Act?
  2. Whether deposit of 20% of disputed demand is mandatory for grant of stay pending appeal?
  3. Whether the impugned order rejecting stay was arbitrary and non-speaking?

Petitioner’s Arguments

  • The Petitioner argued that free samples given under sales promotion schemes are trade incentives, not commission or brokerage.
  • It relied on CIT vs. Jai Drinks Pvt. Ltd. (336 ITR 383, Delhi High Court), wherein similar incentives were held not liable under Section 194H.
  • It was submitted that no service was rendered by stockists, hence the essential condition for commission was absent.
  • The stay application was rejected without considering financial hardship or merits, making the order arbitrary.
  • The Petitioner emphasized that appeals were already pending before the Commissioner of Income Tax (Appeals).

Respondent’s Arguments

  • The Revenue contended that the requirement of depositing 20% of the disputed demand was in line with CBDT Office Memorandums dated 29.02.2016 and 31.07.2017.
  • It argued that the Petitioner failed to provide sufficient justification for waiver or reduction of the deposit requirement.

Court’s Findings / Order

  • The Delhi High Court held that payment of 20% of disputed demand is not mandatory in all cases and can be relaxed depending on facts.
  • It relied on the Supreme Court judgment in PCIT vs. LG Electronics India Pvt. Ltd. (2018) 18 SCC 447, which clarified that authorities can grant stay on less than 20% deposit.
  • The Court observed that the impugned order was:
    • Non-reasoned
    • Failed to consider prima facie case, balance of convenience, and irreparable injury

Final Order:

  • The impugned order was set aside.
  • Matter remanded back to the Commissioner of Income Tax for fresh consideration.
  • Direction to provide personal hearing to the Petitioner.
  • No coercive action to be taken until the stay application is decided.

Important Clarifications by the Court

  • 20% deposit rule is not absolute; discretion must be exercised judiciously.
  • Authorities must evaluate:
    • Prima facie merits
    • Financial hardship
    • Balance of convenience
  • Administrative circulars cannot override quasi-judicial discretion.

Sections Involved

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

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


Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.