2002 (10) TMI 85 - HC - Income Tax

Appellate Tribunal - Writ - Challenge in this petition under article 226/227 of the Constitution of India is to the order, dated May 23, 2002, passed by the Income-tax Appellate Tribunal, New Delhi (for short the Tribunal ), directing the petitioner to pay a sum of Rs. 1.15 crores in three instalments of Rs. 40 lakhs each, as a condition for stay of realisation of demand created against the petitioner and for disposal of its appeal on out of turn basis. The Tribunal has also directed the petitioner not to alienate or dispose of any of its immovable properties till the final disposal of the appeal. - we allow the writ petition; set aside the impugned order and make the rule absolute with a direction that the appeal of the petitioner shall be heard by the Tribunal without insisting upon any further deposit as a condition precedent for early hearing of the appeal.

Issues Involved:
1. Validity of the Tribunal's order directing the petitioner to pay Rs. 1.15 crores in instalments as a condition for stay of demand.
2. Whether the petitioner was required to deduct tax at source under section 195 of the Income-tax Act.
3. Consideration of the financial condition of the petitioner by the Tribunal.
4. Appropriate exercise of discretion by the Tribunal in granting stay.

Issue-Wise Detailed Analysis:

1. Validity of the Tribunal's Order:
The petitioner challenged the Tribunal's order dated May 23, 2002, which directed the petitioner to pay Rs. 1.15 crores in three instalments as a condition for stay of the demand created against it. The Tribunal also prohibited the petitioner from alienating or disposing of any immovable properties until the final disposal of the appeal. The Tribunal's order was based on the assessment that the petitioner had a comfortable liquid position despite suffering losses, as evidenced by the balance sheet showing net current assets of Rs. 207.33 crores.

2. Requirement to Deduct Tax at Source:
The core issue was whether the petitioner was obligated to deduct tax at source under section 195 of the Income-tax Act on payments made to Merrill Lynch for services rendered in connection with the GDR issue. The Assistant Commissioner held that the services rendered by Merrill Lynch were in the nature of "fees for technical services" under section 9(1)(vii) and thus taxable in India. Consequently, the petitioner was deemed in default for not deducting tax at source, resulting in a demand of Rs. 1,61,63,736 and interest of Rs. 1,85,47,887 under sections 201(1) and 201(1A) respectively.

3. Financial Condition of the Petitioner:
The petitioner argued that the Tribunal did not correctly consider its financial condition. Although the balance sheet reflected a cash and bank balance of over Rs. 14 crores, the petitioner contended that after accounting for cheques issued towards liabilities, the actual bank balance was negligible. The petitioner highlighted that most of its bank accounts had heavy debit balances, which the Tribunal failed to consider adequately.

4. Exercise of Discretion by the Tribunal:
The Tribunal's discretion in granting stay was questioned. The petitioner argued that the Tribunal did not apply the basic principles governing the grant of stay, such as assessing whether there was a prima facie case, balance of convenience, irreparable loss, and safeguarding public interest. The Tribunal's order lacked a prima facie view on the merits of the case, which was deemed necessary to prevent the appeal from being rendered nugatory. The Tribunal's failure to consider the material facts and financial hardship led to the conclusion that the discretion was not judiciously exercised.

Conclusion:
The High Court found that the Tribunal did not properly apply its mind to the facts of the case, particularly the financial condition of the petitioner and the merits of the petitioner's arguments. The Tribunal's approach was deemed incorrect as it failed to express a prima facie view on the merits and did not adequately consider the petitioner's financial hardship. Consequently, the High Court set aside the Tribunal's order and directed the Tribunal to hear the appeal on merits expeditiously without insisting on any further deposit. The High Court also instructed that the amount of Rs. 40 lakhs already deposited by the petitioner be remitted to the respondent, with a provision for refund if the petitioner succeeded in the appeal. The respondents were restrained from taking any coercive steps to realize the demand until the Tribunal's decision.

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