Tax Thoughts

Stay provisions under the Income-tax Act, 1961- legislative changes needed

Mr. Arvind Datar (Senior Advocate)
Mar 27, 2017

After an assessment is complete, most taxing statutes provide for a right of appeal. This is often accompanied by a requirement of pre-deposit of some portion of the tax or duty.   In most indirect tax statutes, both at the State and Central levels, the appellate authority has the power to grant full or partial waiver of  the tax  or duty.

Indeed, in Mohd. Kunhi v ITO, 71 ITR 815 (SC), it has been held that the power to grant interim relief is an inherent part of the powers of an appellate authority.  It is the appellate authority who can decide whether interim orders should be passed based on the prima facie merits of the case, the balance of convenience and irreparable hardship.

One would have thought that it would be in the fitness of things to confer the power to grant  interim relief to the Commissioner of Income-tax (Appeals). But the Income-tax Act, 1961 has unusual provisions for grant of interim relief. Under section 220(6) of the Act, when an appeal is filed, it is the Assessing Officer (AO) who has the power to determine the amount of tax that is required to be paid pending disposal of the appeal. This is highly incongruous and  almost unique. It would be very odd indeed if a trial court which gives the judgment and decree, is also empowered to decide the interim relief that a litigant has to get while his appeal is being disposed of. Equally, odd would it be for the High Courts, after deciding tax appeals, have to determine the amount of tax that has to be deposited pending disposal of the appeal by the Supreme Court.    If the High Court were to grant a full stay, it would mean that it has serious doubts about the correctness of its own judgment!

In reality, the absurd statutory state of affairs creates hardship for assessees.  Until recently, a direction to pay 50% of the tax due was made in almost every case. Recently, a Board Instruction has reduced this to 15%.  While this is a welcome change, it leaves no room for any discretion when an extremely high-pitched assessment is made and an assessee is asked to deposit 15% of the demand. An actual example is where a charitable trust did not have any tax  liability but was asked to pay Rs.4000 crores in tax. The entire demand was wholly unsustainable and yet it was required to pay 15% of the amount demanded pending appeal.

It is imperative, therefore,  that the Income-tax Act, 1961 is suitably changed and the provisions relating to pre-deposit and the waiver thereof  are decided only by the Commissioner of Income-tax (Appeals).  This will bring the Income-tax Act, 1961 not only in alignment with other tax laws but also in harmony with general principles that are applicable to appeals.

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(*The writer is a Senior Advocate of the Madras High Court)

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