2019 (4) TMI 712 - HC - Income Tax

Stay petition - petitioner obtained exemption from payment of income tax u/s 12A(a) - high pitched tax assessment - assessed market rent for the properties let out to specified person u/s 13(3) - HELD THAT - Prima facie case has been made out by the petitioner since the Associate Companies who are their tenants from the date when the petitioner obtained exemption from payment of income tax u/s 12A(a) right from the year 1973 onwards. In the instant case, the Income Tax Department has raised the issue only for the Assessment Year 2016-17 even though income tax returns were filed by the petitioner disclosing the tenancy, right from the date when they got exemption from payment of Income tax u/s 12A(a). The Assessing Officer ought to have considered all these aspects and should have granted stay of the impugned order. This Court is of the considered view that the Assessing Officer has committed an error and has not exercised his discretion available to him for the grant of stay in the instant case. However, since the appeal has already been filed by the petitioner as against the order dated 14.12.2018 before the second respondent and as it is a revenue matter involving substantial sums of money, the Appeal will have to be disposed of expeditiously. The Commissioner of Income Tax (Appeals) has got inherent powers to grant stay of recovery as per the assessment order pending disposal of the appeal. This Court has already considered the said issue and held in the decision reported in 2018 (7) TMI 136 - MADRAS HIGH COURT referred to supra by the learned counsel for the petitioner that when a prima facie case has been made out, the Commissioner of Income Tax (Appeals) is not bound by the internal circular involving high pitched tax assessment. In the instant case also, it is an high pitched tax assessment as seen from the assessment order, which is subject matter of challenge before the Commissioner of Income Tax (Appeals).

Summary

Issues:
Challenge to order passed by first respondent in PAN: AAATT1082B regarding tax assessment and stay application.

Analysis:
The petitioner, a Public Charitable Trust with exemption under section 12A(a) of the Income Tax Act, challenged an order by the Assessing Officer regarding tax assessment. The Department alleged that the petitioner's property was let out to an Associate Company below market rent, resulting in a tax demand of ?82,70,246. The petitioner appealed this order, seeking a stay on recovery pending appeal. The Assessing Officer dismissed the stay application, citing the requirement to deposit 20% of the assessed tax and interest. The petitioner argued that the circular from CBDT defines "income" in a commercial sense and claimed that all income was utilized for charitable purposes, thus not liable for tax on notional income.

In a detailed discussion, the Court acknowledged the long-standing relationship between the petitioner and their tenants, emphasizing that the tax issue arose only in the assessment year 2016-2017 despite consistent filings since 1973. The Court referred to a previous judgment highlighting that the Commissioner of Income Tax (Appeals) has discretionary powers to grant stay on recovery, especially in cases of high pitched tax assessments. The Court found that a prima facie case was established by the petitioner, as the tax demand was substantial and the tenants were associated with the petitioner for decades. The Assessing Officer was criticized for not considering these factors and failing to exercise discretion in granting the stay.

Ultimately, the Court quashed the order passed by the first respondent and issued an injunction against recovery proceedings until the appeal was disposed of. The second respondent was directed to expedite the appeal process within three months. The Court's decision was based on the failure of the Assessing Officer to exercise discretion and the need for a timely resolution of the appeal. The writ petition was disposed of with no costs, concluding the legal proceedings in this matter.