Facts of the Case

The petitioner, M/s Dabur India Limited, challenged the 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 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 on free samples distributed under sales promotion schemes.

The revenue authorities treated the value of such free samples as commission/brokerage. The total outstanding demand was approximately ₹17.65 crores.

Issues Involved

  1. Whether free samples provided under sales promotion schemes constitute commission/brokerage under Section 194H of the Income Tax Act.
  2. Whether payment of 20% of disputed tax demand is mandatory for granting stay pending appeal.
  3. Whether the impugned order rejecting stay application without proper reasoning is legally sustainable.

Petitioner’s Arguments

  • Free samples distributed under sales promotion schemes are trade incentives and not commission or brokerage.
  • Section 194H is not applicable as no services are rendered by stockists.
  • Reliance was placed on CIT vs Jai Drinks Pvt. Ltd. (336 ITR 383, Delhi HC) holding that such incentives are not commission.
  • The stay application was rejected arbitrarily and without considering relevant factors.
  • Financial hardship and merits of the case were not properly evaluated.

Respondent’s Arguments

  • The direction to deposit 20% of the demand is consistent with CBDT Office Memorandums dated 29.02.2016 and 31.07.2017.
  • The petitioner failed to justify non-payment of the prescribed percentage for grant of stay.

Court’s Findings / Order

  • The Court held that deposit of 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, wherein it was held that authorities can grant stay on deposit of lesser amount.
  • The impugned order was found to be non-speaking and arbitrary, as it failed to consider:
    • Prima facie case
    • Balance of convenience
    • Irreparable injury
  • The order dated 26.10.2022 was set aside.
  • The matter was remanded back to the Commissioner of Income Tax for fresh consideration.
  • Direction issued to provide personal hearing to the petitioner.
  • No coercive action to be taken till disposal of the stay application.

Important Clarifications

  • Payment of 20% of tax demand is not an absolute pre-condition for grant of stay.
  • Authorities must exercise judicial discretion and consider case-specific factors.
  • A reasoned order is mandatory while deciding stay applications.
  • Existence of favorable precedents or prior reliefs can justify relaxation.

Sections Involved

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

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

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