2014 (11) TMI 952 - HC - Income Tax

Grant of stay of demand Stay petition rejected Cardinal test for granting stay, prima facie case and balance of convenience - Whether the first respondent ignoring its earlier order in respect of the AYs 2009-10 to 2011-12 is required to pass an order on the Stay Petition to stay the demand - Held that - A notice was issued to the assessee on 19.9.2014, calling upon the assessee to produce copies of Books of Accounts maintained by them, to verify the balances/fund available as on date - unless and until the assessee places materials before the first respondent, pleading financial incapacity or inability to pay the demand, pending decision of the Appeal, the authority who is consider the Stay Petition cannot be faulted for having taken a decision that the petitioner/applicant has not established a prima facie case - Section 220 of the act would treat an assessee to be an assessee in default when he does not meet the tax liability in respect of the demand raised by demand notice under section 156 of the Act - The discretion conferred on the AO u/s 220(6) is not an arbitrary power, but a power coupled with responsibility and the assessing officer concerned should take all the circumstances into account and all the considerations that could be urged by the assessee as to why he should not be treated as not being in default and then make an order as is provided to the facts of the case. Though the reasoning of the first respondent while rejecting the Stay Petition cannot be faulted in its entirety, but the fact that on the date when the order was passed, the CIT(A) ought to have noted that the appeal arising out of the assessment orders for the years 2007-08 and 2008-09, has been entertained and interim order has also been granted - If the legal issue is now pending before the Hon'ble Division Bench of the Court and order of interim stay has been granted, subject to certain conditions, that should have been considered by the first respondent while passing the impugned order dated 17.10.2014 certain questions of law admitted for consideration Assessee is directed to deposit 50% of the entire demand in respect of all the three AYs viz. 2012-13, 2013-14 and 2014-15 and the remaining amount demanded shall remain stayed till the disposal of the appeal partial stay granted.

Issues Involved:
1. Issuance of writ of certiorari to quash the order rejecting the Stay Petition.
2. Liability to deduct tax at source (TDS) on commission payments for prepaid sim cards.
3. Consideration of previous judgments and pending appeals.
4. Financial incapacity and hardship claims by the petitioner.
5. Prima facie case, balance of convenience, and irreparable hardship.
6. Applicability of Section 194H of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Issuance of writ of certiorari to quash the order rejecting the Stay Petition:
The petitioner sought to quash the order dated 17.10.2014, which rejected their Stay Petition for the assessment years 2012-13, 2013-14, and 2014-15. The court noted that the authority rejected the Stay Petition without proper consideration and reasoning, particularly ignoring the pending appeals and interim orders in related cases.

2. Liability to deduct tax at source (TDS) on commission payments for prepaid sim cards:
The petitioner contended that the transaction between them and their distributors was on a principal-to-principal basis, thus not attracting TDS under Section 194H. They argued that the discount given to distributors did not constitute income until the distributors sold the sim cards. The court examined previous judgments and noted that similar issues were pending before the Supreme Court, and interim relief had been granted in those cases.

3. Consideration of previous judgments and pending appeals:
The petitioner relied on decisions from various High Courts and the Supreme Court, particularly the case of AHMEDABAD STAMP VENDORS ASSN., which was upheld by the Supreme Court. The court observed that the first respondent did not adequately consider these precedents and the pending appeals in the petitioner's own case, which were relevant to establishing a prima facie case.

4. Financial incapacity and hardship claims by the petitioner:
The petitioner failed to produce the required financial records and cash position when requested by the authorities. The court noted that the petitioner did not sufficiently demonstrate financial incapacity or hardship, which is crucial for granting a stay on the demand.

5. Prima facie case, balance of convenience, and irreparable hardship:
The court emphasized that the petitioner must establish a prima facie case, balance of convenience, and irreparable hardship to justify a stay. Given the pending appeals and interim orders in similar cases, the court found that the petitioner had a prima facie case. However, the petitioner's failure to provide financial records weakened their claim of hardship.

6. Applicability of Section 194H of the Income Tax Act, 1961:
The court referred to the Kerala High Court's decision in the petitioner's own case, which held that discounts given to distributors for prepaid services amounted to commission under Section 194H. This decision was followed by other High Courts, supporting the Revenue's stance. The court noted that the petitioner's appeals on this issue were pending before the Supreme Court.

Conclusion:
The court partly allowed the Writ Petitions, directing the petitioner to deposit 50% of the entire demand for the assessment years 2012-13, 2013-14, and 2014-15 within four weeks. If complied with, the remaining amount would be stayed until the disposal of the appeal. If not, the Writ Petition would stand dismissed. The court closed the connected Miscellaneous Petitions and did not award costs.

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