2006 (10) TMI 104 - HC - Income Tax

Petitioner is a local Authority pendency of appeal tax arrears - It has been granted a registration u/s 12A of IT Act, 1961. It is the case of the petitioner that it is eligible to claim exemption u/s 11 - Now, what has happened is that clause (20A) has been deleted from section 10. This clause (20A) deals with incomes which do not form part of total income and based thereon, now a demand has been raised for the claimed arrears of tax petitioner was asked to deposit an amount of Rs. one crore towards these arrears which the petitioner has deposited. - Now, because the appeal is getting protracted, the Assistant Director of Income-tax has asked petitioner to pay 25 per cent. of the outstanding demand within a month - held that revenue will not insist on payment of the tax arrears during the pendency and disposal of the appeal which is pending before the Commissioner of Income-tax (Appeals) - recovery will not be insisted upon during the pendency of the appeal

Summary

Issues: Exemption under section 11 of the Income-tax Act for a local authority constituted under the Mumbai Metropolitan Region Development Authority Act, 1974; Demand raised for arrears of tax; Delay in appeal process; Requirement to pay 25% of outstanding demand; Protection sought by the petitioner due to potential project impact.

Analysis:
The petitioner, a local authority constituted under the Mumbai Metropolitan Region Development Authority Act, claimed exemption from income-tax under section 11 of the Income-tax Act. The issue arose when clause (20A) was deleted from section 10, leading to a demand of Rs. 225,26,91,435 for the assessment year 2003-04. The petitioner filed an appeal before the Commissioner of Income-tax (Appeals) regarding the arrears of tax. However, the appeal process was delayed, and the petitioner was asked to deposit Rs. one crore towards the arrears during this period. The Assistant Director of Income-tax later demanded 25% of the outstanding amount, prompting the petitioner to file a petition seeking protection from the recovery process due to potential adverse effects on its projects.

The court considered the submissions made by both parties and noted that despite the pendency of the appeal, the tax authorities were seeking payment. However, recognizing the petitioner as a statutory authority and the potential impact on its projects, the court decided to provide limited protection to the petitioner. The court set aside the demand for payment during the appeal process and for four weeks thereafter in case the decision went against the petitioner. It was clarified that this decision did not reflect on the merits of the arguments presented by either party. The court emphasized that the petitioner deserved the opportunity to present its case before the appellate authority without undue financial burden during the appeal process.

In conclusion, the court granted relief to the petitioner by setting aside the demand for immediate payment of tax arrears and providing protection from recovery during the appeal process and a subsequent period. This judgment aimed to ensure that the petitioner, as a statutory authority, could continue its projects without undue financial constraints while the appeal was being considered by the Commissioner of Income-tax (Appeals).