Facts of the Case

The petitioner, M/s Toshiba Corporation, filed a writ petition challenging multiple orders directing it to deposit 20% of the outstanding tax demand. The dispute arose from an order dated 12 November 2021 passed under Sections 201(1) and 201(1A) of the Income Tax Act, 1961, along with a demand notice issued under Section 156.

The petitioner had purchased 12,70,276 unlisted equity shares of UEM India Private Limited (now Toshiba Water Solutions Pvt. Ltd.) from non-residents and deducted TDS at 10% along with applicable surcharge and cess.

However, the tax authorities re-characterised the transaction as a purchase of depreciable assets and computed short-term capital gains, raising a demand of over ₹33 crores.

Subsequently, despite filing an appeal and seeking a stay under Section 220(6), the authorities directed payment of 20% of the disputed demand without adequately addressing the petitioner’s submissions.

Issues Involved

  1. Whether payment of 20% of disputed tax demand is mandatory for granting stay of recovery proceedings.
  2. Whether tax authorities can reject stay applications without giving reasons.
  3. Whether authorities must consider prima facie case, balance of convenience, and irreparable injury while deciding stay applications.
  4. Validity of mechanical application of CBDT Office Memorandums dated 29.02.2016 and 31.07.2017.

Petitioner’s Arguments

  • The petitioner contended that the 20% pre-deposit requirement was applied mechanically without considering case-specific facts.
  • It argued that the authorities failed to deal with submissions and passed non-speaking orders.
  • The petitioner emphasized that it had a strong prima facie case and recovery should be stayed pending appeal.
  • It also challenged the rejection of its stay application solely on the ground of non-payment of 20%.

Respondent’s Arguments

  • The Revenue contended that the transaction was a colourable device to avoid tax liability.
  • It argued that directing deposit of 20% was in line with CBDT Office Memorandums governing stay of demand.
  • The respondents maintained that the action was legally justified and consistent with departmental guidelines.

Court Findings / Order

The Delhi High Court held:

  • The 20% deposit requirement is not mandatory in all cases and can be relaxed depending on facts.
  • Authorities must exercise discretion judiciously and not mechanically apply CBDT instructions.
  • The impugned orders were non-reasoned and invalid, as they failed to consider:
    • Prima facie case
    • Balance of convenience
    • Irreparable injury

Important Clarifications by the Court

  • The CBDT instruction prescribing 20% deposit is not an absolute rule.
  • Authorities can grant stay on lower or even nil deposit depending on circumstances.
  • Reliance placed on PCIT vs LG Electronics India Pvt. Ltd. (2018 SCC 447) clarifying discretionary power of tax authorities.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1045-DB/MMH23032022CW46392022_233138.pdf

 

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