Section 194Jwere Not Applicable To The Case Of The Petitioner But Held That The Petitioner Was Nonetheless Required To Deduct Tax At Source Under Section194C v. "After Considering The Rival Submissions And Perusing The

IN THE HIGH COURT OF JDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (L) NO. 2022 OF 2011 Maharashtra State ElectricityDistribution Co. Ltd. Mumbai ...Petitioner. Vs.The Assistant Commissioner of Income Tax-10, Mumbai and Ors...Respondents. Mr. J.D. Mistry, Sr. Advocate with Mr. Satish R. Mody and Ms. Aasifa Khan for the Petitioner. Mr. Suresh Kumar for the Respondent. CORAM : DR. D.Y. CHANDRACHUD AND A.A. SAYED, JJ. DATE : 21 SEPTEMBER, 2011. P.C. 1.This petition is directed against an order of the Income Tax Appellate Tribunal dated 16 September 2011 passed on an application made by the Petitioner for stay of a demand in the amount of Rs. 840,61,70,960/- inclusive of interest for assessment year 2007-08, till the disposal of an appeal pending before the Tribunal. 2.On 30 October 2007, the Petitioner filed a return of income for assessment year 2007-08 declaring a Nil total income, after set off of 2wpl2022.11.sxw brought forward business losses/unabsorbed depreciation in the amount of Rs. 7,71,27,33,787/-. The Assessing Officer passed an assessment order on 31 December 2009 under Section 143 (3) of the Income Tax Act, 1961 after making various additions and disallowances. On 4 January 2011 the CIT (Appeals) passed an order partly allowing the appeal. Thereafter on 2 May 2011 the First Respondent passed an order of rectification determining the total income of the Petitioner at Rs. 1626,73,34,850/- and a demand of Rs. 840,61,70,960/- was raised. The Petitioner filed an application for stay before the Income Tax Appellate Tribunal on 7 July 2011. On 29 August 2011 the First Respondent passed an order under section 220(4) rejecting an application for stay moved by the Petitioner. On 16 September 201l the Tribunal had passed its impugned order and rejected the application for stay. 3.The case of the Petitioner both before the Tribunal and in this proceeding is that the demand in question is as a result of a disallowance under Section 40(a)(ia). This disallowance has been made on the ground that the Petitioner was liable to deduct tax at source, on wheeling and transmission charges paid by the Petitioner to two entities MSETCL and PGCIL, the deductee assesses. The Assessing Officer held that the Petitioner was liable to deduct tax at source under section 194J. The Commissioner (Appeals) by an order dated 4 January 2011 held that the provisions of Section 194Jwere not applicable to the case of the Petitioner but held that the Petitioner was nonetheless required to deduct tax at source under Section194C. 4.Before the Tribunal the Petitioner relied upon a decision of the Jaipur Bench Bench of the ITAT in Jaipur Vidyut Vitran Nigam Ltd. V. DeputyCommissioner of Income Tax1. The submission which has been urged on behalf of the Petitioner in this proceeding is that the decision of the Jaipur Bench dealt with similar facts where the Assessing Officer had held that payments made by an assessee for transmission of electricity through a transmission network were subject to deduction of tax at source under Section 194J and also under Section 194C. The Jaipur Bench of the Tribunal by its decision delivered on 30 April 2009 held that there was no liability to deduct tax at source on the payment of transmission/wheeling charges under section 194J or for that matter, under Section 194C. The Tribunal adverted to the submission made by the Petitioner. However, the only observation that is found in the order of the Tribunal on this aspect is as follows. "After considering the rival submissions and perusing the relevant material on record, at this preliminary stage we find that prima facie there is some substance in the arguments advanced by both the sides in favour or against the disallowance u/s 40(a)(ia)." "After considering the rival submissions and perusing the relevant material on record, at this preliminary stage we find that prima facie there is some substance in the arguments advanced by both the sides in favour or against the disallowance u/s 40(a)(ia)." The Tribunal observed that the Petitioner had also started deducting tax at source under Section 194C on similar payments from assessment year 2009-10. As regards the financial position of the Petitioner, the attention of the Tribunal was drawn to the fact that for financial year 2009-10 the Petitioner had sustained a loss before tax of Rs. 782.77 crores. The Tribunal however, held that despite there being a business loss, the Petitioner had net current assets of Rs. 1756.35 crores. On this ground, the Tribunal held that the liquidity position of the Petitioner appears to be "quite good" and hence no case was made out for stay of the demand. 5.In paragraph 4(i) of the Writ Petition in this Court, the Petitioner has averred that in the stay petition before the Tribunal the Petitioner has averred that the Commissioner (Appeals) while passing an order for assessment year 2006-2007 had directed the First Respondent to give relief of an amount of Rs. 320,72,00,000/- for assessment year 2007-08, pursuant to which the demand of the Petitioner would be reduced by Rs. 107,00,00,000/-. We clarify that we have left this issue open to be determined by the Tribunal. 5wpl2022.11.sxw 6.We are inclined to accept the submission made on behalf of the Petitioner that the order of the Tribunal, despite recording the submission which was based on the decision of the Jaipur Bench of the Jaipur in JaipurVidyut Vitran Nigam Ltd. (Supra) has not consideredthe submission while evaluating prima facie the merits of the application before it. All that the Tribunal observed is that prima facie there is some substance in the arguments advanced by both the sides. The Petitioner, it must be noted, had sought to urge before the Tribunal that the issue as to whether tax is liable to be deducted at source under sections 194C and 194J on payments made for transmission and wheeling charges has specifically been determined by a Co-ordinate Bench at Jaipur. That submission deserved application of mind, which we find absent in the order of the Tribunal. Application of mind must in a judicial order emerge from the reasons adduced and not merely from recording submissions. A prima facie evaluation of merits is required on an application for stay. In these circumstances, we are of the view that the ends of justice would warrant that there should be an order of remand so as to enable the Tribunal to pass a fresh order on the application for stay. 7.For these reasons, we set aside the impugned order of the Tribunal and remit the proceedings back for fresh consideration of the application for stay. We leave open all questions to be evaluated prima facie by the Tribunal in determining the merits of the application for stay. The Petition accordingly disposed of. There shall be no order as to costs. 8.In order to enable the Petitioner to pursue the remedy before the Tribunal we direct that for two weeks from today no coercive steps for enforcement of recovery shall be taken, which forms the subject matter of the demand. ( A.A. SAYED, J. ) (DR. D.Y.CHANDRACHUD, J.)