2009 (1) TMI 87 - HC - Income Tax

Trust huge demands - Whether C.I.T. (A) is justified in declining to grant absolute stay of demands during pendency of appeals CIT (A) directed the petitioner to pay 10% of the demands i.e.1.5 crore now and remaining till disposal of appeal - fact that the undisclosed income on account of donation been taxed in the hands of trust as well as the principle trustee, order of C.I.T. (A) is modified - stay of recovery shall be subjected to furnishing of bank guarantee in sum of 1.50 crore

Summary

Issues:
Challenge to order of CIT (A) regarding stay applications for A.Y. 2005-06 and A.Y. 2006-07.

Analysis:
The petitioner, a trust established for educational purposes, challenged an order by the CIT (A) directing payment of 10% of demands raised for A.Y. 2005-06 and A.Y. 2006-07, along with monthly payments until appeals are heard. The trust had its registration under Section 12A of the Income Tax Act, exempting its income from tax. The cancellation of registration was later set aside by the ITAT. Assessments were made for various years, with demands stayed for some. The main dispute was whether the CIT (A) was justified in not granting absolute stay for A.Y. 2005-06 and A.Y. 2006-07 due to additions made on donations received by the trust, allegedly siphoned off. The petitioner argued for a stay based on CBDT instructions and a Rajasthan High Court decision.

The petitioner contended that the demands should have been stayed until appeals were decided, citing high assessments and no lapses on their part. They argued against the addition of Rs. 22.45 crores as undisclosed income, stating that donations were properly recorded. The petitioner faced financial challenges in meeting the demands, proposing a bank guarantee instead. The respondents supported the CIT (A) order, alleging donations were siphoned off and investments made in violation of the Act. They argued that the order was fair and reasonable, opposing a bank guarantee.

The Court noted the differences in assessments for A.Y. 2005-06 and A.Y. 2006-07 compared to previous years, leading to a reconsideration of the stay applications. The addition of Rs. 22.45 crores as undisclosed income was based on donations received for admissions, with evidence indicating diversion of donations. The Court highlighted the need to determine if donations were actually received and recorded, to be addressed during the appeals. The Court rejected the petitioner's reliance on CBDT instructions and the Rajasthan High Court decision, finding them inapplicable.

The Court differentiated the case from the Dunlop India Limited decision cited by the respondents, emphasizing the nature of the dispute over income and tax liability. Considering the upcoming appeal hearings and the taxation of undisclosed income, the Court modified the CIT (A) order. The petitioner was required to furnish a bank guarantee of Rs. 1.50 crores within four weeks, with specific instructions for the appeal proceedings. The CIT (A) was directed to decide the appeals impartially. The rule was made absolute with no costs awarded.