Case Note & Summary
The petitioner, an assessee, filed a writ petition under Article 226 of the Constitution before the Bombay High Court challenging the rejection of its application for stay of demand and the direction to pay the entire tax demand of Rs.36,56,61,776 within one week of the assessment order. An assessment order was passed on 9 March 2012 under Section 143(3) read with Section 147 of the Income Tax Act, 1961, raising the demand. The petitioner was directed to deposit the entire amount by 16 March 2012, despite the normal period of 30 days provided under Section 220(1). The petitioner applied for stay under Section 220(6) on 12 March 2012, but the Assessing Officer rejected it on the ground that it did not meet the CBDT guidelines. The Commissioner of Income Tax also dismissed the stay application on 19 March 2012, citing lack of documentary evidence. Prior to these events, on 7 October 2011, the Assessing Officer had already levied a provisional attachment under Section 281B on mutual funds worth Rs.36.54 Crores, which nearly covered the entire demand. Despite this attachment, the Assessing Officer issued a letter under Section 226(3) to the mutual fund to pay the amount. The court examined the proviso to Section 220(1), which permits reduction of the 30-day payment period only if the Assessing Officer has reason to believe that allowing the full period would be detrimental to Revenue, with the previous approval of the Joint Commissioner. The court held that this power cannot be exercised casually and must be based on a reasonable belief of detriment, with recorded reasons. It found that the existing provisional attachment adequately secured the Revenue's interests, leaving no basis for such belief. Consequently, the direction to pay within seven days was held to be highhanded and contrary to law. The rejection of the stay application was also deemed improper. The court disposed of the petition by directing that the provisional attachment under Section 281B shall continue to remain in force pending the disposal of the appeal before the Commissioner of Income Tax (Appeals) and for eight weeks thereafter, enabling the assessee to pursue further legal remedies. No further coercive steps were to be taken for recovery pending the appeal. No costs were awarded.
Headnote
A) Income Tax - Collection and Recovery - Proviso to Section 220(1) of the Income Tax Act, 1961 - Reduction of Payment Period - The proviso to Section 220(1) creates an exception and can be invoked only if the Assessing Officer has reason to believe that allowing the full 30-day period would be detrimental to Revenue; the mere end of the financial year is not sufficient detriment. Held, the direction to pay the entire demand in seven days was unjustified where a provisional attachment under Section 281B already protected Revenue (Paras 5-6). B) Income Tax - Collection and Recovery - Section 220(1) Proviso - Joint Commissioner Approval - The previous approval of the Joint Commissioner must involve application of mind and recording of reasons, which must be made available to the assessee on request. Held, the mandatory requirement was not satisfied (Para 5). C) Income Tax - Provisional Attachment - Section 281B of the Income Tax Act, 1961 - Adequate Protection of Revenue - A provisional attachment under Section 281B that covers the demand amount adequately protects Revenue interests, thereby negating any reason to believe that allowing 30 days would be detrimental. Held, the attachment shall continue pending appeal (Paras 6-7). D) Income Tax - Stay of Demand - Section 220(6) of the Income Tax Act, 1961 - Arbitrary Rejection - Where the payment period was arbitrarily reduced and Revenue's interests were already secured by attachment, rejection of the stay application was improper. Held, the High Court directed continuation of attachment and barred coercive steps pending appeal and for eight weeks after disposal of appeal (Paras 2-4, 7-8).
Issue of Consideration
Whether the Assessing Officer was justified in directing the petitioner to pay the entire demand within seven days instead of the statutory 30 days under the proviso to Section 220(1) of the Income Tax Act, 1961, and whether the rejection of the stay application under Section 220(6) was valid when a provisional attachment under Section 281B already covered the demand amount.
Final Decision
The High Court disposed of the writ petition by directing that the provisional attachment under Section 281B shall remain in force pending disposal of the appeal before the Commissioner of Income Tax (Appeals) and for eight weeks thereafter; no further coercive steps shall be taken for recovery pending the appeal. The court held that the reduction of the payment period was unjustified and high-handed, and that the existing attachment adequately protected the Revenue. No costs were awarded.
Law Points
- Proviso to Section 220(1) is an exception to the 30-day rule
- requiring reason to believe that allowing full period would be detrimental to Revenue
- reduction of payment period cannot be casual
- Joint Commissioner must apply mind and record reasons for approval
- mere end of financial year is not detriment
- existing provisional attachment under Section 281B covering demand adequately protects Revenue
- negating any reason to believe
- rejection of stay application under Section 220(6) in such circumstances is improper
