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2014 (11) TMI 852 - HC - Income TaxStay application stay of demand of ₹ 53.71 Crores Held that - The parameters for disposing of an application for stay pending disposal of Appeal before the Appellate Authority under the Act are fairly settled as decided in KEC International Limited v/s. B. R. Balakrishnan 2001 (3) TMI 32 - BOMBAY High Court - the manner in which the AO has disposed of the application for stay by order dated 30th May, 2014 is in complete breach of the directions of the Court - besides in any event the tests applied to dispose of the stay application by the order dated 30th May, 2014 are not at all germane to disposing of the stay application - though there was substance in the assessee s claim of Charitable purposes, keeping in view the fact that the Petitioner s registration u/s 12A of the Act has been cancelled assessee is not entitled to the benefit of exemption u/s 11 of the Act for the subject AY 2011-12 - unconditional grant of stay of the demand till the disposal of the appeal by the CIT(A) would not be warranted. However where the issue is not concluded one way or the other by a decision of a higher forum, then the Authority considering the stay application would have to prima facie consider on the face of the impugned order, the likelihood of the applicant succeeding in appeal - This need not be detailed examination but a first look examination and on that basis it is for the authority to exercise his discretion in law and grant such stay depending upon likelihood of success in appeal - At this stage various other factors such as financial hardship, balance of convenience etc. would enter into consideration to decide the terms of the stay of demand, if any assessee is directed to deposit 10% of the amount of ₹ 53.71 Crores as pre-deposit, there would be a complete stay of recovery of balance demand raised u/s 156 of the Act for the Assessment Year 2011-12, till the disposal of the case Partial stay granted.
Issues Involved:
1. Rejection of the stay application by the Assessing Officer and Director of Income Tax (Exemption). 2. Applicability of Section 11 exemption under the Income Tax Act, 1961. 3. Interpretation of 'charitable purpose' under Section 2(15) of the Act. 4. Financial hardship as a criterion for granting stay. 5. Compliance with judicial guidelines for disposing of stay applications. Detailed Analysis: 1. Rejection of the Stay Application: The petition challenges the orders dated 30th May 2014 by the Assessing Officer and 25th July 2014 by the Director of Income Tax (Exemption), which rejected the Petitioner's application for a stay of demand of Rs. 53.71 Crores. The Petitioner sought a stay pending the disposal of its appeal by the Commissioner of Income Tax (Appeal) [CIT(A)]. 2. Applicability of Section 11 Exemption: The Petitioner, a statutory authority under the Maharashtra Slum Areas (Improvement, Clearance, and Redevelopment) Act, 1971, claimed exemption from income tax under Section 11 of the Income Tax Act, 1961, from Assessment Year 2003-04 onwards. The Assessing Officer had previously denied this exemption for Assessment Years 2003-04 to 2008-09, but the CIT(A) upheld the Petitioner's claim. The Income Tax Appellate Tribunal (Tribunal) dismissed the Revenue's appeal for Assessment Years 2005-06, 2007-08, and 2008-09, holding that the Petitioner's activities were charitable under Section 2(15) of the Act. 3. Interpretation of 'Charitable Purpose': With the Finance (No. 2) Act, 2009, a proviso was added to Section 2(15) of the Act, stating that advancement of any other object of general public utility would not be considered charitable if it involved trade, commerce, or business. For Assessment Years 2009-10 and 2010-11, the Assessing Officer initially raised this issue but granted the exemption. However, for Assessment Year 2011-12, the Assessing Officer denied the exemption, citing the proviso to Section 2(15) and classifying the Petitioner's slum rehabilitation activity as commercial. 4. Financial Hardship as a Criterion: The Assessing Officer partially rejected the stay application, directing the Petitioner to pay 50% of the demand. The reasons included the Petitioner's failure to plead financial hardship and the principle that mere filing of an appeal does not warrant a stay. The Director of Income Tax (Exemption) further rejected the stay application, requiring the Petitioner to pay the entire amount demanded, emphasizing the newly added proviso to Section 2(15). 5. Compliance with Judicial Guidelines: The High Court referred to the parameters set in KEC International Limited v/s. B. R. Balakrishnan and UTI Mutual Funds v/s. ITO for disposing of stay applications. These guidelines include setting out the case of the assessee, considering financial difficulties, and balancing the interest of the assessee with the protection of the Revenue. The Court found that the Assessing Officer had not adhered to these guidelines, particularly in not addressing the prima facie merits of the Petitioner's case and the impact of the Tribunal's previous orders. Conclusion: The High Court concluded that while the Petitioner's activities might be considered charitable, the cancellation of its registration under Section 12A for the subject Assessment Year precluded an unconditional stay. The Court directed the Petitioner to deposit 10% of the demand within six weeks, granting a stay on the remaining amount until the disposal of the appeal by the CIT(A). The Court emphasized that these observations were confined to the stay application and would not prejudice the pending appeal.
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