Of 9 Wp(L).259.2014 v. Rule. Respondents Waives Service. By Consent, The Rule Is Made Returnable Forthwith And Writ Petition Is Taken Up For Hearing And Final Disposal

1 of 9 WP(L).259.2014 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (L) NO.259 OF 2014 SHCIL Services Limited, MumbaiPetitioner versus Assistant Commissioner of Income Tax 4(2),Mumbai and anotherRespondents Mr.F.V.Irani with Mr.Jitendra Jain and Mr.Atul K. Jasani for Petitioner. Mr.Suresh Kumar for Respondents. CORAM : MOHIT S. SHAH, C.J. AND M.S.SANKLECHA, J. PC : DATE : 7 February 2014 1.Rule. Respondents waives service. By consent, the Rule is made returnable forthwith and writ petition is taken up for hearing and final disposal. 2.By this petition under Article 226 of the Constitution of India, the Petitioner has challenged the orders dated 2 January 2014 and 20 January 2014 at Exhibits-O and Q respectively of the Assistant Commissioner of Income Tax, Circle-4(2), Mumbai and the Commissioner of Income Tax-4, Mumbai respectively. By the impugned orders dated 2 January 2014 and 20 January 2014, the 2 of 9 WP(L).259.2014 Petitioner's application to unconditionally stay the balance demand of tax of Rs.9.00 crores was rejected notwithstanding the fact that appeal before the Commissioner of Income Tax (Appeals) was partially heard. 3.The Petitioner is an wholly owned subsidiary of Stock Holding Corporation of India Limited (SHCIL) which in turn is promoted and owned by nine All India Financial Institutions, such as, GIC, LIC, UTI etc. The Petitioner is engaged in the business of stock brokerage. 4.For the assessment year 2010-11, the Petitioner filed its return of income declaring an income of Rs.3.18 crores and the amount of net tax payable was shown at Rs.1.08 crores. The Petitioner in its return had claimed as expenditure an amount of Rs.26.20 crores paid to SHCL being 75% of the brokerage earned (increased from 50% in the earlier assessment year). The Assessing Officer by order dated 8 March 2013 disallowed the entire amount of Rs.26.20 crores paid to SHCL on the ground of the same being excessive under Section 40A(2)(b) of the Income Tax Act, 1961 (`Act') and also for failure to deduct tax at source under Section 194J of the Act for having received professional services. Thus, the Petitioner's income was determined by the Assessing Officer at Rs. 29,52,75,300/- as under : “Income From Business (As per Computation filed with Returns) : 3 of 9 WP(L).259.2014 i.Disallowances u/s 14A of the IT Act, 137751961.1961. ii.Disallowance on account of sub-26,20,00,780brokerage paidbrokerage paid iii.Disallowance out of Sundry 13,75,838CreditorsCreditors Net Income :29,52,75,297Assessed Income (Rounded off to u/s 29,52,75,300288) 5.Being aggrieved, the Petitioner filed an appeal to Commissioner of Income Tax (Appeals). Pending its appeal, the CIT by order dated 21 August 2013 stayed the demand of tax of Rs.12.00 crores on payment of Rs.3.00 crores till 31 December 2013. The Petitioner deposited the amount of Rs.3.00 crores and on expiry of the period of stay, sought further extension of stay with the Assistant Commissioner of Income Tax, Circle-4(2). However, the Assistant Commissioner of Income Tax by order dated 2 January 2014 rejected the application for stay in view of the fact that the stay granted by the Commissioner of Income Tax for A.Y.2010-11 by order dated 21 August 2013 has expired on 31 December 2013. On further application, the Commissioner of Income Tax-4 by order dated 20 January 2014 granted conditional stay of demand on further payment of Rs.3.00 crores by 31 January 2014 and balance 50% of the total demand of Rs.6.00 crores is stayed up to 31[st] March 2014 or up to the disposal of first appeal, whichever is earlier. However, the Assessing Officer is now seeking to make coercive recovery on the ground of non compliance of the above conditional stay order. 4 of 9 WP(L).259.2014 4 of 9 WP(L).259.2014 6.Learned counsel for the Petitioner in support of the petition submits that the impugned orders dated 2 January 2014 and 20 January 2014 rejecting stay are unsustainable for the following reasons : (a)Neither of the impugned orders have applied the principles laid down by this Court in case of KEC International Limited Vs. B.R.Balkrishnan and others {(2001)2510ITR-158 (Bom)} for disposing of its stay application. Therefore, the prima facie case of the Petitioner for unconditional stay has not even been considered; (b)Section 194H of the Act requires an assessee to deduct at source, the tax on payment of commission or brokerage. However, it specifically excludes payment made in respect of transactions in securities. Therefore, the Petitioner is not required to deduct at source the tax on the commission or brokerage paid to its holding company under Section 194H of the Act. However, in spite of such specific legislative exclusion, the Assessing Officer has applied the provisions of Section 194J of the Act, which pertains to fees for professional services or technical services for the purposes of disallowing the entire expenditure. It is submitted that in view of Section 194H of the Act, there is no occasion to apply Section 194J of the Act. (c)In any case the recipient of Rs.26.20 crores i.e. SHCL has already paid the tax on the amount. Therefore, there is no justification to disallow the same on account of failure to deduct tax. 5 of 9 WP(L).259.2014 (d)The disallowances under Section 40A(2)(b) of the Act of sub-brokerage paid is contrary to law and without any basis or justification. The sub-brokerage @ 50% paid to its holding company up to the A.Y.2009-10 was allowed as expenditure by the Assessing Officer without raising any dispute. However, in the A.Y.2010-11, the payment of sub-brokerage was up to 75% of the gross brokerage earned by the Petitioner company, which was in conformity with the market trends for the A.Y.2010-11. In any case, the payment of sub-brokerage @ 50% of the gross brokerage earned by the petitioner should have been allowed as allowed for A.Y.2009-10. The learned counsel has placed before us following computation of tax payable (including interest), if no disallowance was made in respect of sub-brokerage up to 50% : 6 of 9 WP(L).259.2014 7.It is submitted that on the basis of the above table, the tax payable by the Petitioner including surcharge and education cess would have been Rs.4,09,94,697/- and after deducting advance tax paid and calculating interest on the tax amount, the Petitioner's liability would have been Rs.4,01,67,131/-, against which the Petitioner has already paid Rs.3.00 crores as mentioned by Commissioner of Income Tax in the impugned order dated 20 January 2014. Even according to the Respondents, as indicated in their affidavit-in-reply dated 7 February 2014, an amount of Rs.3.41 crores is to be refunded to the Petitioner. Therefore, the balance oustadnding amount would only be of Rs.60,67,131. Without prejudice to its rights and contentions, the Petitioner is ready and willing to deposit the said amount of Rs.60,67,131/- within four weeks from today. Therefore, nothing more would be payable by the Petitioner. 8.On the other hand, Mr.Suresh Kumar, learned counsel for the Respondents has opposed the petition and submitted that when as per the assessment order the Petitioner's liability to pay the income tax is Rs.12.16 crores and has paid so far only Rs.3.00 crores. Therefore, it is submitted that this Court should not grant any relief to the Petitioner. 7 of 9 WP(L).259.2014 8.On the other hand, Mr.Suresh Kumar, learned counsel for the Respondents has opposed the petition and submitted that when as per the assessment order the Petitioner's liability to pay the income tax is Rs.12.16 crores and has paid so far only Rs.3.00 crores. Therefore, it is submitted that this Court should not grant any relief to the Petitioner. 7 of 9 WP(L).259.2014 9.Having heard the learned counsel for the parties, we find considerable substance in the submissions made by the learned counsel for the Petitioner that both the Assistant Commissioner of Income Tax and the Commissioner of Income Tax-4 have ignored the parameters laid down by this Court in KEC International Ltd. (supra) for disposing a stay application pending appeal before the appellate authority as under : “a.While considering the stay application, the authority concerned will at least briefly set out the case of the assessee; b.In cases where the assessed income under the impugned order far exceeds returned income, the authority will consider whether the assessee has made out a case for unconditional stay. If not, whether looking to the questions involved in appeal, a part of the amount should be ordered to be deposited for which purpose, some short prima facie reasons could be given by the authority in its order; c.In cases where the assessee relies upon financial difficulties, the authority concerned can briefly indicate whether the assessee is financially sould and viable to deposit the amount if the authority wants the assessee to so deposit; d.The authority concerned will also examine whether the time to prefer an appeal has expired. Generally, coercive measures may not be adopted during the period provided by the statue to go in appeal. However, if the authority concerned comes to the conclusion that the assessee is like to defeat the demand, it may take recourse to coercive action for which brief reasons may be indicated in the order; and e.We clarify that if the authority concerned 8 of 9 WP(L).259.2014 complies with the above parameters while passing orders on the stay application, then the authorities on the administrative side of the Department like respondent no.2 herein need not once again give reasoned order.” 10.It is apparent that neither the Assistant Commissioner of Income Tax nor the Commissioner of Income Tax has referred to the Petitioner's case nor has given some short prima facie reasons for requiring the Petitioner to deposit 50% of the tax liability. Prima facie, there appears to be substance in the Petitioner's contention that in view of specific provision for deduction of tax on account of brokerage being provided in Section 194H of the Act, the occasion to apply Section 194J of the Act would not arise. Besides, we find that at this stage, the Petitioner's alternative submission that if sub-brokerage paid by the Petitioner to its holding company is considered excessive or unreasonable, then in that event, as in the earlier years the sub-brokerage paid @ 50% be allowed as an admissible expenditure. On that basis, the Petitioner would not be liable to pay anything more than about Rs.60.00 lakhs based on the detailed calculations given by the Petitioner. 11.In view of the above discussion and accepting the statement made by the learned counsel for the Petitioner to deposit a sum of Rs.60,67,101 within four weeks from today, we allow this petition, set aside the impugned orders dated 2 January 2014 and 20 January 2014 and grant interim stay on recovery during pendency of the appeal before CIT(Appeals) and the tax demanded by the Assessing Officer i.e. the Assistant Commissioner of Income Tax on condition that the 9 of 9 WP(L).259.2014 Petitioner deposits a sum of Rs.60,67,131/- within four weeks from today without prejudice to its rights and conrentions. 11.In view of the above discussion and accepting the statement made by the learned counsel for the Petitioner to deposit a sum of Rs.60,67,101 within four weeks from today, we allow this petition, set aside the impugned orders dated 2 January 2014 and 20 January 2014 and grant interim stay on recovery during pendency of the appeal before CIT(Appeals) and the tax demanded by the Assessing Officer i.e. the Assistant Commissioner of Income Tax on condition that the 9 of 9 WP(L).259.2014 Petitioner deposits a sum of Rs.60,67,131/- within four weeks from today without prejudice to its rights and conrentions. 12.It is clarified that since the hearing of the appeal has already commenced, the CIT (Appeals) shall not wait for deposit of the aforesaid amount. The stay granted by this order shall further continue to operate for a period of four weeks from the date on which the order in original passed by CIT (Appeals) is communicated to the Petitioner and if the said decision is adverse to the Petitioner. 13.The petition is disposed of in above terms. No order as to costs. (CHIEF JUSTICE) MST (M.S.SANKLECHA, J.)