125 April 2018

November 2018

The Bombay High Court decision on the application for stay of

demand

Recently, the Bombay High Court in the case of taxpayer may not have an opportunity to even
Bhupendra Murji Shah1 (the taxpayer) has dealt argue his appeal on merits, or the appeal would
with the issue with respect to the grant of stay become infructuous if the demand was enforced
application till the disposal of appeal by the and executed during its pendency. In that event,
Commissioner of Income-tax (Appeals) [CIT(A)]. the right to seek protection against collection and
recovery pending appeal by making an application
In the instant case2, the Assessing Officer (AO) for a stay would also be defeated and frustrated.
passed an assessment order raising the tax Such can never be the mandate of the law.
demand against the taxpayer. The taxpayer
challenged the tax demand before the CIT(A). In the The High Court while disposing of both the appeals
meantime, the taxpayer filed a stay application directed that the appellate authority shall decide
before the AO requesting to grant stay till the the appeals as expeditiously as possible, and
disposal of appeal before the CIT(A). However, the during pendency of these appeals, the taxpayer
AO dismissed the stay application and requested shall not be called upon to make payment of any
the taxpayer to pay 20 per cent of the outstanding sum, much less to the extent of 20 per cent under
amount as per the CBDT Circular3. the assessment order/confirmed demand or claim
to be outstanding by the tax department.
Aggrieved, the taxpayer filed a writ petition before
the Bombay High Court contending that the subject The High Court clarified that it had not expressed
matter of tax was in dispute and the appeal filed any opinion on merits. The order was passed on
before the CIT(A) challenging the assessment order the peculiar facts and circumstances of the
was pending, and hence the High Court should taxpayer’s case and only because the taxpayer
keep the demand in abeyance till the disposal of stated that the CIT(A) had scheduled the matter for
this appeal. hearing shortly. In fact, CIT(A) has heard it in part,
and it is, therefore, clear that when the appeal is
The Bombay High Court observed that once the being heard, the demand is raised on the taxpayer
appeal has been filed, and it is pending, then, the by treating him as an ‘assessee in default’. The
taxpayer should have been given an opportunity to High Court held that this order should not be
seek a stay during the pendency of the appeal. The treated as a precedent for all cases of this nature.
AO should have held the demand in abeyance as
prayed by the taxpayer. The High Court directed that during the pendency
of these appeals, the attachment if any, levied on
The High Court observed that if the tax demand the taxpayer's bank account to stand raised
was under dispute and was subject to the appellate forthwith. However, this was without prejudice to
proceedings, then, the right of appeal vested in the the power conferred in the tax department to
taxpayer by virtue of the statute should not be collect and recover taxes, which were due and
rendered illusory and nugatory. That right can be payable. The High Court recorded the statement
defeated by relevant communication from the tax made by the taxpayer on instructions as an
department. If the amount as directed by the AO undertaking to the High Court and to this effect
through his communication being not brought in, the during the pendency of the appeals before the
CIT(A), the taxpayer shall not dispose of or create
__________________ the third party right in respect of his movable
1
assets and properties. This, however, shall not
Bhupendra Murji Shah v. DCIT (Writ Petition No. 2157 of 2018 and 2160
of 2018) – Taxsutra.com prevent the taxpayer from utilising his assets and
2
During the Assessment Year 2015-2016 properties in the ordinary and normal course of
3
CBDT Circular dated 29 February 2016
business.
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.
 Our comments In certain cases, the taxpayer may request for a
stay of demand on the condition of proposed
The issue with respect to the stay of demand during filing of an appeal against orders of appellate
the pendency of the appeal before the CIT(A) has authorities. Whether this would be considered as
been a subject matter of debate before the a valid ground for stay application? The
Courts/Tribunal. In the present case, the AO had Bangalore Tribunal while dealing with a similar
asked the taxpayer to pay 20 per cent of tax demand issue in the case of Google India (P) Ltd8 held
relying on the CBDT circular4. The AO tried to use that merely because the taxpayer was proposing
his powers (collection and recovery) through to file an appeal before the High Court against
coercive means. When the tax demand is under orders of the Tribunal and also intends to file a
dispute and subject to the appellate proceedings, the miscellaneous application before the Tribunal,
taxpayer faces grave difficulty in terms of payment of the same cannot be a valid ground for a stay of
tax demand. Practically, the taxpayer’s right to seek demand.
protection against collection and recovery while the
appeal is pending has not been entertained by the The Bombay High Court based on peculiar facts
AO. This causes the financial crunch in the business of the present case has observed that once the
when the AO ask the taxpayer to pay the tax demand order was appealable and the appeal has been
despite the matter is being disputed before the filed before the appellate authorities and CIT(A)
appellate authorities. has scheduled the matter in a short time, then,
the taxpayer should be given an opportunity to
Recently, the Madras High Court5 had an occasion to seek a stay during the pendency of the appeal.
deal with taxpayer’s stay application wherein it was
held that though the office memorandum of 2016
fixes a percentage of tax to be paid for entitlement of
stay, an exception has been provided in certain
cases. The Court held that the AO could not pass the
order without taking note of the taxpayer's case and
without considering as to whether the taxpayer has
made out a prima facie case for grant of interim
relief.

The Karnataka High Court in the case of Flipkart

India (P.) Ltd.6 had an occasion to examine the
approach followed by the income-tax authorities in
respect of the grant of a stay of demand. The High
Court observed that the income-tax authorities were
required to examine whether the assessment was
‘unreasonably high-pitched' or whether the demand
for depositing 15 per cent of the disputed demand
amount would lead to a genuine hardship being
caused to the taxpayer or not'. Similarly, various
Courts 7 have held on similar lines.

_____________
4
CBDT Office Memorandum, dated 29 February 2016
5
Samms Juke Box v. ACIT (Writ Petition No. 3735 of 2018) (Mad)
6
Flipkart India (P.) Ltd. v. ACIT [2017] 79 taxmann.com 159 (Kar)
7
PCT v. LG Electronics India Pvt Ltd (Civil Appeal No. 6850 of 2018) (SC),
Jagdish Gandabhai Shah v. PCIT (Special Civil application No. 5679 of
2017, 28 March 2017) (Guj), Maharashtra Airport Development Co. Ltd _________________
(Writ Petition No. 1471 of 2015) (Bom)
8
Google India (P) Ltd v. DCIT [2017] 87 taxmann.com 149 (Bang)

© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.
 www.kpmg.com/in

Ahmedabad Hyderabad Mumbai

Commerce House V, 9th Floor, Salarpuria Knowledge City, 1st Floor, Lodha Excelus,
902, Near Vodafone House, 6th Floor, Unit 3, Phase III, Apollo Mills,
Corporate Road, Sy No. 83/1, Plot No 2, N. M. Joshi Marg,
Prahlad Nagar, Serilingampally Mandal, Mahalaxmi, Mumbai – 400 011.
Ahmedabad – 380 051. Ranga Reddy District, Tel: +91 22 3989 6000
Tel: +91 79 4040 2200 Hyderabad – 500 081.
Tel: +91 40 6111 6000 Noida
Bengaluru Unit No. 501, 5th Floor,
Maruthi Info-Tech Centre, Jaipur Advant Navis Business Park,
11-12/1, Inner Ring Road, Regus Radiant Centre Pvt Ltd., Tower-A, Plot# 7, Sector 142,
Koramangala, Level 6, Jaipur Centre Mall, Expressway Noida,
Bengaluru – 560 071. B2 By pass Tonk Road Gautam Budh Nagar,
Tel: +91 80 3980 6000 Jaipur – 302 018. Noida – 201 305.
Tel: +91 141 – 7103224 Tel: +91 0120 386 8000
Chandigarh
SCO 22-23 (1st Floor), Kochi Pune
Sector 8C, Madhya Marg, Syama Business Centre, 9th floor, Business Plaza,
Chandigarh – 160 009. 3rd Floor, NH By Pass Road, Westin Hotel Campus,
Tel: +91 172 664 4000 Vytilla, Kochi – 682 019. 36/3-B, Koregaon Park Annex,
Tel: +91 484 302 5600 Mundhwa Road, Ghorpadi,
Chennai Pune – 411 001.
KRM Towers, Kolkata Tel: +91 20 6747 7000
Ground Floor, 1, 2 & 3 Floor, Unit No. 604,
Harrington Road, 6th Floor, Tower – 1, Vadodara
Chetpet, Chennai – 600 031. Godrej Waterside, Ocean Building, 303, 3rd Floor,
Tel: +91 44 3914 5000 Sector – V, Salt Lake, Beside Center Square Mall,
Kolkata – 700 091. Opp. Vadodara Central Mall,
Gurugram Tel: +91 33 4403 4000 Dr. Vikram Sarabhai Marg,
Building No.10, 8th Floor, Vadodara – 390 023.
DLF Cyber City, Phase II, Tel: +91 265 619 4200
Gurugram, Haryana – 122 002.
Tel: +91 124 307 4000 Vijayawada
Door No. 54-15-18E, Sai Odyssey,
Gurunanak Nagar Road, NH 5,
Opp. Executive Club, Vijayawada,
Krishna District,
Andhra Pradesh – 520 008.
Tel: +91 0866 669 1000

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and
timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such
information without appropriate professional advice after a thorough examination of the particular situation.

© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

This document is meant for e-communication only