Facts of the Case

The petitioner, M/s Dabur India Limited, filed multiple writ petitions challenging 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 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 on free samples distributed to stockists under sales promotion schemes.

The Revenue treated such free samples as commission/brokerage, leading to a demand of approximately ₹17.65 crores for AY 2013–14 to 2020–21.

The petitioner filed appeals before the Commissioner of Income Tax (Appeals) and sought stay of demand, which was rejected on the ground of non-payment of 20% of the disputed demand.

Issues Involved

  1. Whether free samples given under sales promotion schemes constitute commission or brokerage attracting TDS under Section 194H of the Income Tax Act, 1961.
  2. Whether deposit of 20% of disputed tax demand is a mandatory pre-condition for grant of stay.
  3. Whether the impugned order rejecting 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, hence Section 194H is not applicable.
  • It relied on the precedent of CIT vs. Jai Drinks Pvt. Ltd. (336 ITR 383, Del), where similar benefits were held not to be commission.
  • The petitioner argued that:
    • No service is rendered by stockists in receiving free goods.
    • Hence, the essential condition of “commission” is absent.
  • The rejection of the stay application was:
    • Arbitrary
    • Non-speaking
    • Passed without considering financial hardship or merits.

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 rejection of stay on the ground that:
    • The petitioner failed to comply with the standard condition of deposit.

Court’s Findings / Order

  1. 20% Deposit Not Mandatory in All Cases
    • The Court clarified that payment of 20% of demand is not an absolute pre-condition for granting stay.
    • The condition can be relaxed based on facts of each case.
  2. Reliance on Supreme Court Judgment
    • The Court relied on PCIT vs. LG Electronics India Pvt. Ltd. (2018) 18 SCC 447, holding that authorities may grant stay on deposit of less than 20%.
  3. Impugned Order is Non-Reasoned
    • The authority failed to consider:
      • Prima facie case
      • Balance of convenience
      • Irreparable injury
  4. Order Set Aside & Matter Remanded
    • The impugned order was quashed.
    • Matter remanded for fresh consideration after granting personal hearing.
  5. Protection Granted
    • No coercive action to be taken till disposal of stay application.

Important Clarification by Court

  • The 20% deposit rule is directory, not mandatory.
  • Authorities must exercise judicial discretion based on:
    • Merits of the case
    • Prior precedents
    • Financial hardship
  • Stay applications must be decided through reasoned orders.

Sections Involved

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

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

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