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Judgment
The appellants by the present motions have prayed to grant stay of recovery of tax and interest for the assessment years 1998-99 to 2003-04 which are the subject matter of the dispute till the disposal of the appeal admitted by this Court.
The provisions of appeal are governed by Section 260A of the Income Tax Act. That provides for application of the provisions of the CPC relating to appeals to the High Court under Order 41 of the Code of Civil Procedure. Order 41 Rule 5(1) reads as under.
An appeal shall not operate as a stay of proceeding under a decree or order appealed from except so far as the Appellate Court may order, nor shall execution of a decree be stayed by reason only of an appeal having been preferred from the decree; but the Appellate Court may for sufficient cause order stay of execution of such decree.
Order 41 Rule 5(3) thereafter reads as under.
No order for stay of execution shall be made under Sub-rule (1) or Sub-rule (2) unless the Court making it is satisfied-
(a) that substantial loss may result to the party applying for stay of execution unless the order is made;
(b) that the application has been made without unreasonable delay; and
(c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him.
A consideration therefore, of the provision would make it clear that pursuant to the provisions of the CPC being made applicable, the Appellate Court before whom the appeal is preferred has power to stay the order but none the less the predicates of Order 41 Rule 5 (iii) have to be satisfied.
The requirements are as already set out earlier (a) that substantial loss may result to the party applying for stay of execution unless the order is made; b) that the application has been made without unreasonable delay and c) that security has been given by the applicant for the due performance of such decree or order as may ultimately be binding upon him.
In matters of Government dues or tax dues as noted by the Supreme Court in the case of Dunlop Tyres, granting of stay by directing a bank guarantee by itself may not be proper. Courts in such cases have considered the nature of the security to be furnished depending on the fact of each case. In so far as if present appeals are concerned, they were filed on 20.9.2007. On 1.8.2008, the appeals were admitted and the hearing of the appeal was expedited. On 12.8.2008, the motions came up for hearing. The matter was adjourned on that day to enable the revenue to file their replies. On 16.10.2008 a learned bench of this Court noted that it was brought to their attention by Senior Counsel for the assessee that a rectification application dated 23rd July, 2007 has already been filed before the concerned Asstt. Commissioner of Income Tax and that is pending. Noting that, the court directed that the rectification application be heard and also observed as under.
Needless to say that the respondent shall not adopt any coercive measures till the aforesaid application is decided and for a further period of two weeks thereafter.
The rectification application has been disposed subsequent to the passing of the above order. Subsequent to that, the assessee has moved the present motions on 5.9.2008.
At the hearing of the motions on behalf of the appellants, their learned Counsel sought to bring to our attention, that apart from the fact that the appeals have been admitted, the appellants have a very good case to succeed on merits. It is also submitted that the appellants had an agreement with Minicon whereby a property was given on lease by the assessee to Minicon. Minicon after incurring expenditure has given the premises for use to others. It is submitted that the income received by Minicon has already been assessed to tax and the tax has been paid by them. If this be the case, it is submitted that the appellants to that extent, should not be called upon to pay the said amount once again. In terms of the chart handed over to us, it is submitted that Minicon had paid Rs. 36,78,428/- as tax assessed from income from the said property.
Minicon is being assessed separately. An Undertaking has been filed by V.S. Sharma, General Manager of Minicon Insulated Wires Pvt. Ltd. who has set out that out of the total tax of Rs. 44,62,686/- paid by the Minicon during the assessment years 1998-99 to 2003-04, the tax attributed to the rental income was Rs. 36,78,428/-. The said Undertaking also discloses that they have received a request dated 21.2.2009 from the assessee herein. On that basis, they have filed the undertaking on behalf of the Minicon, that Minicon shall not claim a refund of taxes aggregating Rs. 36,78,428/- paid by the company out of the service charges for the assessment years 1998-99 to 2003-04, in the event, it is held that the service charges received by the company were correctly assessed to tax in the hands of the assessee herein. A resolution of the Board of Directors to that effect has also been annexed.
It is pointed out on behalf of the assessee that if the tax paid by Minicon is adjusted, the amount due and payable as tax is Rs. 11,75,710/-. The interest payable is Rs. 28,09,549/-. The total demand as of now would be Rs. 39,85,259/-.
On behalf of the revenue, the learned Counsel submits that it is the assessee who is liable to pay the tax. It is submitted that in so far as Minicon is concerned, it was assessed by different Assessing Officer under a different circle.
After hearing the parties concerned, we are of the opinion that the assessee herein has made out a case under Order 41 Rule 5(3) of the Code of Civil Procedure. In these circumstances, the question is the nature of the security that appellant assessee should be called upon to furnish for due performance of the order in the event this appeal is dismissed. It may be noted that the assessee is a private limited company. The revenue must be assured in the event, they succeed that money will be available. It is in that context, we propose to consider the matter. As pointed out earlier, the assessee is sought to be assessed for income based on the revenue earned by Minicon in respect of the premises which the assessee had let out to Minicon. Minicon has already paid the tax on the amount which they have received and which income was sought to be assessed in the hands of the assessee herein. Considering the undertaking filed by the Minicon and the resolution, we accept the undertaking filed by the Minicon and the resolution of the Board of Directors of Minicon. We therefore, direct that in the event, this appeal is dismissed, the amount deposited before the concerned A.O. by Minicon will be available in the hands of the A.O. assessing the present appellants for adjustment of the dues. Minicon will not claim refund of the money or any interest thereon.
In so far as balance dues are concerned, in our opinion, the revenue can be protected by directing firstly the assessee appellant to deposit in this Court a sum of Rs. 11,75,710/- and in so far as interest is concerned to secure revenue by furnishing a bank guarantee to the tune of Rs. 2,80,9,549/-. The said bank guarantee to be kept alive pending the hearing and final disposal of the appeal and for a further period of six months thereafter. The amount to be deposited within two months from today and the bank guarantee to be furnished within one month from today. On such deposit/furnishing bank guarantee there will be an interim relief in terms of prayer Clause (a). In the mean time, the respondent is directed not to take coercive steps to recover the amount.
Liberty to the respondent to apply for withdrawal of the amount. If no application for withdrawal is made within two months from deposit then amount to be initially invested for a period of two years and for equal periods thereafter till hearing and final disposal of the appeal.
The aforesaid motions are accordingly, disposed off.