Delhi High Court in an important case namely Virgin Mobile India (P.) Ltd. v. Assistant Commissioner of Income tax has held that while disposing off the stay application of an assessee the assesseing officer must apply his mind and should dispose not outrightly reject the stay application without reasons.
It is generally seen that stay applications are rejected by assessing officers in a mechanical manner. Even no reasons are given while disposing off the stay applications. The AOs while disposing off stay applications just try to safeguard the interests of revenue and they dont try to see the hardship being caused to assessees if the stay application is rejected. This judgement is a good one to cite before AOs during the hearing of stay applications.
Facts: While an appeal was pending before the Commissioner (Appeals), the assessee moved an application for stay before the Assessing Officer under section 220(6). The Assessing Officer, by an unreasoned order, rejected the application. The impugned order was in flagrant violation of the principles of natural justice besides not disclosing any application of mind. The revenue contended that the proceedings under section 220(6) provide for an efficacious alternative remedy especially with a higher authority i.e., the administrative Commissioner can be approached for suspension of the default demand.
Held: The use of the expressions 'discretion' and 'subject to such conditions as he may think fit to impose in the circumstances of the case' under section 220(6) imply that the Assessing Officer is under a duty to apply his mind and after taking into account the necessary and appropriate circumstances, pass the most suitable order as may be warranted on the facts before him. The relevant instructions only reinforce the element of discretion; by no means can it be construed as limiting the choice of the Assessing Officer who may have a greater latitude in taking into account other circumstances depending on the facts of the given case.
It is a cardinal principle of construction that when a legislation confers power, its amplitude cannot be cut down by instructions or rules or regulations made by subordinate authorities. Instructions and rules can only supplement but can never supplant or limit the width of the statutory powers.
In this case, the Assessing Officer - as is evident from a reading of the impugned order - has not applied his mind at all to the facts much less considered what are the circumstances which either justify the grant of relief or its refusal. Furthermore, even the petitioner does not appear to have been given any opportunity to make even a briefest submission in support of its case. [Para 11]
For the above reason, the impugned order of the Assessing Officer is hereby set aside. The writ petitioner is directed to appear before the concerned Assessing Officer. The said officer shall thereafter decide the application after considering the submissions made on behalf of the petitioner.
Full Judgement is as follows:
HIGH COURT OF DELHI
HIGH COURT OF DELHI
Virgin Mobile India (P.) Ltd.
v.
Assistant Commissioner of Income-tax*
S. Ravindra Bhat and R.V. Easwar, JJ.
W.P.(c) NO. 4983 of 2012
August 17, 2012
Section 220 of the Income-tax Act, 1961 - Collection
and recovery of tax - When tax payable and when assessee deemed in
default
- Whether while dealing with matter of stay, Assessing Officer is under
duty to
apply his mind - Held, yes -
Assessing Officer rejected stay application without applying his mind at
all to facts much less considering what were circumstances which either
justified grant of relief or its refusal - Furthermore, assessee was
not given any opportunity to make even briefest submission in support of
its case
- Whether order of Assessing Officer rejecting application for stay was
to be set aside - Held, yes [Paras 11 & 13]
[In favour of assessee]
Circulars & Notifications : Instruction No. 96 dated 21-8-1969 Circular No. 530 dated 6-3-1989,
and Circular No. 589 dated 16-1-1991
Words & Phrases : 'Discretion' and
'subject to such condition as he may think fit to impose in the circumstances of
the case' as occurring in section 220(6) of the Income-tax Act, 1961
FACTS
HELD
• [Para 13]
Ms. Surekha Raman and Anuj Sharma for the
Petitioner. Abhishek Maratha for the Respondent.
JUDGMENT
S. Ravindra Bhat, J. - Issue Notice. Mr. Abhishek
Maratha, Sr. Standing Counsel accepts notice on behalf of respondent.
With the consent of the counsel, the petition was taken up for disposal.
2. The petitioner prefers the present proceedings
under Article-226, questioning the order dated 19.7.2012 issued by the
Assessing Officer.
3. The brief facts are that the petitioner, an
incorporated company engaged in the business of trading of telecom
products and also providing consultancy services, had entered into the
understanding with another service provider which had a valid telecom
license. This was to provide services in designing, marketing and
servicing of the brand "Virgin Mobile Products". The petitioner claims
that its relationship with its distributors is on principal to principal
basis under which the property in goods are transferred by it to the
distributors through valid invoices by charging applicable VAT. For the
concerned assessment year, the AO after a survey conducted on 18.11.2011
in terms of Section- 133A of the Income Tax Act collected material and
sought a response from the writ petitioner by its show cause notice
dated 12.01.2012 as to why it should not be treated as an assessee in
default for non-compliance with Section-194H of the Income Tax Act. The
petitioner responded to the notice on 23.1.2012. Ultimately, by the
order dated 28.3.2012, the AO rejected the petitioner's contentions and
imposed a TDS liability for the sum of Rs.3,78,88,166/- under Section
194H and also demanded Rs.4,13,440/- on account of defaults; proceedings
under Section-271C of the Act were also initiated.
4. The Writ Petitioner preferred an appeal under
Section-246A before the CIT (A) and during the pendency of those
proceedings, moved an application for stay before the AO under Section
220 (6), on 2.7.2012.
5. On 19.7.2012, the AO by an unreasoned order
which was not preceded by any hearing, rejected the application under
Section 220 (6) stating as follows: -
"Sir,
Sub: Application for stay of demand for the FY 2009-10 reg.
Please refer to your application for stay of demand
dated 2.7.2012 for F.Y. 2009-2010 on the ground that the deductor
assessee is under appeal against the order passed for the said financial
year.
2. In this regard, it is informed that simply filing an
appeal before the appellate authority cannot be taken as a ground for
granting stay of demand.
3. Your application for stay of demand is hereby
rejected with the above remarks at this stage and you are directed to
pay the demand immediately failing which coercive measures shall be
taken to recover the demand.
Yours faithfully"
6. It is contended that the impugned order is in
flagrant violation of the principles of natural justice besides not
disclosing any application of mind. Learned counsel contended that
Section 220 (6) of the Income Tax Act pre-supposed an application of
mind by the concerned authority invested with the power, when it talked
of use of discretion. Counsel also relied on a Division Bench ruling of
this Court in KLM Royal Dutch Airlines v. Dy. DIT [2011]
332 ITR 224 (Delhi) in support of the contention that the order should
be a composite one and specifically deal with various elements such as
existence of prima facie case etc.
7. Learned counsel for the Revenue contended that
the proceedings under Section-220(6) provide for an efficacious
alternative remedy especially with a higher authority i.e. the
administrative Commissioner of Income Tax can be approached for
suspension of the default demand. In this regard, counsel relied upon
certain instructions and Circular, notably, the CBDT's letter dated
21.08.1969 F.No.1/6/69-ITCC-
Instructions No.96). The said instructions
read as follows: -
Board's letter F.No.1/6/69-ITCC (Instruction No.96)
Minutes of the 8th Meeting of the Informal Consultative
Committee held on 13th May, 1969 - Implementation of assurance given
regarding stay of recovery in certain cases - Sec. 220(6) of the IT Act,
1961
"RECOVERY
SECTIONS 220,
One of the points that came up for consideration in the
8th Meeting of the Informal Consultative Committee was that income-tax
assessments were often arbitrary pitched at higher figures and that the
collection of disputed demand as a result thereof was also not stayed
inspite of the specific provision in the matter in s. 220(6) of the IT
Act, 1961.
2. The then Deputy Prime Minister had observed as under:
"Where the income determined on assessment was
substantially higher than the returned income, say twice the latter
amount or more, the collection of the tax in dispute should be held in
abeyance till the decision on the appeal provided there were no lapses
on the part of the assessees."
3. The Board desire that the above observations may be
brought to the notice of all the ITOs working under you and the powers
of stay of recovery in such cases up to the stage of first appeal may be
exercised by the IAC/CIT.
| ** | ** | ** |
8. Similarly, counsel relied upon the Circular No.530 dated 6.3.1989 which reads as follows: -
"Circular No.530 dated 6th March 1989
Exercise of discretion under S. 220(6) of the IT Act,
1961 to treat the assessee as not being in default in respect of the
amounts disputed in first appeal pending before Dy. CIT (A)/CIT(A)
"1. Under section 220(6) of the I.T. Act, 1961 where an
assessee has presented an appeal u/s 246 of the Act before the Deputy
Commissioner (Appeals) or the Commissioner (Appeals), the Assessing
Officer may, in his discretion, and subject to such conditions as he may
think fit to impose in the circumstances of the case, treat the
assessee as not being in default in respect of the amount in dispute in
the appeal, even though the time for payment has expired, as long as
such appeal remains undisposed of.
2. Having regard to the proper and efficient management
of the work of collection of revenue, the Board has considered it
necessary and expedient to order that on an application being filed by
the assessee in this behalf, the Assessing Officer will exercise his
discretion u/s 220(6) of the Act (subject to such conditions as he may
think fit to impose) so as to treat the assessee as not being in default
in respect of the amount in dispute in the appeal in the following
situations:
(i) the demand in dispute has arisen
because the Assessing Officer had adopted an interpretation of law in
respect of which, there exist conflicting decisions of one or more High
Courts or, the High Court of jurisdiction has adopted a contrary
interpretation but the Department has not accepted that judgment, or
(ii) the demand in dispute relates to issue
that have been decided in favour of the assessee in an earlier order by
an appellate authority or Court in assessee's own case.
3. It is clarified that in the situations mentioned in
para 2 above, the assessee will be treated as not in default only in
respect of the amount attributable to such disputed points. Further,
where it is subsequently found that the assessee has not co-operated in
the early disposal of appeal or where a subsequent pronouncement by a
higher appellate authority or Court alters the situation referred to in
para 2 above, the Assessing officer will no longer be bound by the
instructions and will exercise his discretion independently."
9. The last Circular which was relied upon is No.589 dated 16.1.1991. The relevant part of that Circular reads as follows: -
"Circular No.589 dated 16th January, 1991
Exercise of discretion under S. 220(6) of the IT Act,
1961 to treat the assessee as not being in default in respect of the
amounts disputed in first appeal pending before Dy. CIT (A)/CIT(A)
| ** | ** | ** |
3. Representations have been received by the Board that
the exclusion of financial capacity of the assessee to pay the demand,
from the factors relevant for exercise of AO's discretion under S.
220(6) of the IT Act, is prejudicial to those assessees who are not
financially sound.
4. The matter has been considered by the Board. It has
been decided to substitute paragraph 4 of the Circular No.530 by the
following paragraph.
In respect of other cases not covered by paragraph 2
above, the AO, while considering the situation for treating the
assessees to be not in default, would consider all relevant factors
having a bearing on the demand raised and communicate his decision to
the assessee in the form of a speaking order."
10. Section-220 (6) of the Income Tax Act reads as follows: -
"(6) Where an assessee has presented an appeal under
section 246, the [Assessing] Officer may, in his discretion, and subject
to such conditions as he may think fit to impose in the circumstances
of the case, treat the assessee as not being in default in respect of
the amount in dispute in the appeal, even though the time for payment
has expired, as long as such appeal remains undisposed of."
11. Facially, the use of the expressions
"discretion" and "subject to such conditions as he may think fit to
impose in the circumstances of the case" imply that AO is under a duty
to apply his mind and after taking into account the necessary and
appropriate circumstances, pass the most suitable order as may be
warranted on the facts before him. The Instructions relied upon only
reinforce the element of discretion; by no means can it be construed as
limiting the choice of the AO who may have a greater latitude in taking
into account other circumstances depending on the facts of the given
case. It is a cardinal principle of construction that when a legislation
confers power, its amplitude cannot be cut down by instructions or
rules or regulations made by subordinate authorities. Instructions and
Rules can only supplement but can never supplant or limit the width of
the statutory powers. In this case, the AO - as is evident from a
reading of the impugned order - has not applied his mind at all to the
facts much less considered what are the circumstances which either
justify the grant of relief or its refusal. Furthermore, even the
petitioner does not appear to have been given any opportunity to make
even a briefest submission in support of its case.
12. This Court is reinforced in the view that it
has expressed with regard to the correct interpretation of Section-220
(6) by the previous ruling in KLM Royal Dutch Airlines case (supra) which pertinently had stated that: -
"……In the circumstances of the case, we are of the view
that rather than to fall back on the reasoning in the assessment order,
even keeping its close proximity so far as time is concerned, it would
be better that the order refusing stay under Section 220(6) of the
Income-Tax Act must be a composite order. That is, it must also
specifically deal with the existence of prima facie case. On this
technicality the impugned order is set aside…….."
13. For the above reasons, the impugned order dated
19.7.2012 of the Assistant Commissioner of Income Tax is hereby set
aside. The writ petitioner is directed to appear before the concerned
Assistant Commissioner on 27.08.2012 at 11:00 AM. The said officer
shall thereafter decide the application after considering the
submissions made on behalf of the petitioner.
14. The Writ Petition is allowed in the above terms.
15. Copy of this order be given dasti under the signatures of Courtmaster.
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