The Hindu Business Line : Stay of I-T demands

Petitions concerning stay of demands become necessary when assessments are made on incomes, which are much more than what have been returned by the taxpayers and, thus, beyond the capacity of taxpayers to pay. In such situations, applications for stay of demand till the disposal of first appeals are made by the taxpayers to the income-tax authorities and support for stay is made by reference to Instruction No. 96 dated August 21, 1969. One of the points that came up for co nsideration in the eighth meeting of the Informal Consultative Committee was that income-tax assessments were arbitrarily pitched at high figures and that the collection of disputed demands as a result thereof was also not stayed in spite of the specific provision in the matter in Section 220(6).

The then Deputy Prime Minister had observed:

“…..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 appeals, provided there were no lapse on the part of the assessee.

“…the Board desires that the above observations may be brought to the notice of all the ITOs… and the powers of stay of recovery in such cases up to the stage of first appeal may be exercised by the IAC/CIT.”

Instructions ignored

Regretfully, these instructions are being ignored by the I-T authorities and requests for stay are rejected on the basis of two later Circulars of the CBDT — Circular No. 530 dated March 6, 1989 and Circular No. 589 of January 16, 1991.

In Circular No. 530 (the other Circular is only clarificatory in nature) only two situations have been mentioned where stay of demand till the disposal of first appeal can be granted: the demand in dispute has arisen because the assessing officer (AO) had adopted an interpretation of law in respect of which there exists 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 judgement; or

the demand in dispute relates to issues that have been decided in favour of the assessee in an earlier order by an appellate authority or court in the assessee’s own case.

There is no mention in these Circulars regarding stay up to the disposal of appeals by CIT(A) and no reference to Instruction No. 95 has been made in these Circulars, which is, prima facie, wrong. Apparently, this Instruction is still in force as the High Courts have been giving stay on the basis of Instruction No. 96 to the assessees. The Delhi High Court, in its decision of May 20, 2008, in the Valvoline Cummins Ltd vs DCIT (2008 217 CTR Delhi 292) case, directed the I-T Department — relying on Instruction No. 96 — to keep the demand in abeyance till the disposal of appeal.

Issues for consideration

The basic issues requiring consideration is as to why the assurance given by the then Deputy Prime Minster to the Consultative Committee of Parliament is not being honoured by the field-officers and the requests for stay of demand till the disposal of appeals by the CIT(A) are being rejected with no mention about it in Circulars 530 and 589 (supra). And why are the assessees being made to go through the inconvenience of approaching various administrative and appellate bodies up to High Courts because of non-adherence to the assurance given to a Parliamentary Committee.

The disposal of stay application disregarding assurance given to a Committee of Parliament can be construed as contempt of Parliament. For this reason and for avoiding unnecessary hardship to the taxpayers, the CBDT needs to make its stand clear regarding Instruction No. 96.

(The author is a former Chairman of CBDT.)

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