1. Sections 220 to 232 of the Income-tax Act deals with collection and recovery of taxes. These provisions will become active every year in the months of February and March. Probably each officer or Commissioner may have to report to the higher authority the taxes outstanding, and total collection of taxes in their charge. As the scope of this Article is very limited. I will not deal with various controversial issues of Recovery Proceedings and will restrict only to few provisions which are useful in our day-to-day practice.
2. Recovery proceedings under the Act can be started against a person only when he is in default or deemed to be in default in making payment of taxes. The assessee who is in default or is deemed to be in default in making payment of taxes may make an application, requesting the Assessing Officer not to treat him as the assessee in default in respect of the amount in dispute in the appeal preferred by the assessee. The Assessing Officer may in his discretion and with or without imposing any conditions pass an order, not treating the assessee as an assessee in default in respect of such disputed amount till the appeal is pending.
3. It may be noted that mere filing of an appeal does not suo motu stay the proceedings of recovery of the tax in demand. Therefore, it is necessary that as soon as an order raising the demand is received, assessee must make an application to stay and keep the demand in abeyance.
4. While filing Stay application before the Assessing Officer, the assessee will have to give the brief facts as under:
1. The assessment history of the assessee,
2. His conduct and co-operation with the department,
3. Points raised in the appeal,
4. The chances of recovery in case the appeal is dismissed and
5. The hardship that would be caused to the assessee by persistent demand of the tax by the department.
5. If an assessee's application u/s. 220(6) is not replied by the Assessing Officer, even though the same was filed in time, the assessee can always contend before the Tax Recovery Officer that before taking any action against the assessee, his application for stay of demand should be disposed of. The Tax Recovery Officer can also consider the assessee's applications u/s. 225(1) and grant time for the payment of any tax till the disposal of the assessee's appeal by the First Appellate Authority.
6. In the event of Assessing Officer rejecting assessee's application u/s. 220(6) of the Income-tax Act, the assessee can prefer an application to the Commissioner of Income-tax under whose jurisdiction assessee's case falls for staying the demand of tax in dispute till the hearing and final disposal of the assessee's appeal by the Commissioner of Income-tax (Appeals).
7. If the Commissioner fails to discharge his duty, the assessee may file a Writ Petition under Article 226 of the Constitution of India. However, when an appeal is pending before the Income Tax Appellate Tribunal, the assessee can file a Stay Petition before the Income Tax Appellate Tribunal to stay the recovery proceedings.
8. The Central Board of Direct taxes in its circular No.530 dated 6-3-1989 [176 ITR St. (240) and Circular No. 589 dated 16-1-1991, 187 ITR St. (79)] has laid down the guidelines for the Assessing Officer to exercise his jurisdiction u/s. 220(6) of the Act where an assessee has preferred an appeal.
9. The discretionary power conferred by section 220 (6) upon the Assessing Officer is coupled with a duty and if he does not exercise it when the occasion calls for it or if he exercise it in such a manner that it is no exercise of discretion at all, he can be compelled to discharge his duty by an order of the court.
[Ladhuram Taparia vs. B. K. Bagchi, 20 ITR 51, (Cal.) Shivangi Steels P. Ltd. vs ACIT, 226 ITR 62, 63 (All)]
10. Protective recovery of tax is not permissible even though protective assessment can be validly made. [Sunil Kumar vs. CIT, 139 ITR 880 (Bom.)]
11. Representative assessee
Where an assessee dies before the issue of the certificate, unless his legal representatives are served with a notice of demand under section 156 and they fail to comply with that notice within 30 days from the date of receipt of the notice, they cannot be said to be "assessee in default" and consequently no recovery proceedings can be taken against them. [Satya Pal Verma vs. ITO, 106 ITR 540 (All) : Bai Chandanben Jivanlal vs. I. D. Joshi, Collector, 74 ITR 448, (Guj)]
A recovery certificate issued or drawn up by Tax Recovery Officer against a person who is already dead, is a nullity. The certificate must be against a defaulter who is alive. [Isha Beevi vs. TRO, 80 ITR 82, (Ker) on appeal 101 ITR 449, (SC)]. If an assessee in default dies before the issue of a certificate in his name, proceedings under Section 159 of the Act are necessary to bring on record the name or names of the legal representative or representatives.
12. Filing of claims
If any part of the property of an applicant is illegally or unjustifiably attached, an objection under rule 11(1) of the second Schedule to the Act may be filed by him before the Tax Recovery Officer who has got the jurisdiction to adjudicate upon it.
Rule 58(a) of the Order XXI of C.P.C. provides that the claim should be preferred before the property so attached is sold.
Where a claim or objection is made under rule 11 against attachment of a property in execution of a recovery certificate, it is the bounden duty of the Tax Recovery Officer to first dispose of the objection and then to proceed further. Investigation of a claim properly filed is essential. Even if the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it, pending such investigation.
Where a claim or an objection preferred under rule 11(1) of the Second Schedule is rejected or dismissed, the party against whom an order rejecting or dismissing the claim or objection is made may institute a suit, under rule 11(6), in a Civil Court to establish the right which he claims to the property. In Sawai Singhai vs. Union of India (AIR) 1966 SC 1968), the Supreme Court observed that the suit brought under Order 21, rule 63 (corresponding to rule 11 (6) of the Second Schedule), concerns not only with the question of possession but also with the question of title.
13. The Hon'ble A. P. High Court in ITO vs. Khalid Mehdi Khan (minor) 110 ITR 79, has taken the view that the Tribunal can not only stay the recovery proceedings but can also stay the proceedings before the Assessing Officer. Therefore, in a case where order under section 263 is passed and if the appeal is pending before Tribunal and in the meantime, if the Assessing Officer starts the assessment proceedings then in such circumstances, the assessee can file stay petition before the Tribunal and the Tribunal can stay the proceedings before the Assessing Officer. Please also see Ritz Hdrs Vyas, 185 ITR 311 (Bom).
14. The Hon'ble Supreme Court in CIT vs. Bansi Dhar & Sons 157 ITR 665 has taken the view that the Tribunal can also stay the proceedings when the reference is pending before the High Court. Therefore, in cases where the assessee has lost before the Tribunal and the reference is pending before the High Court and if the assessee is in a position to establish that he is not in a position to make the payment of tax in dispute, in such circumstances, the Tribunal can stay the proceedings till the disposal of the reference by the High Court.
15. It may be noted here that, before filing the stay petition, it is necessary that the assessee should approach the Commissioner to stay the recovery proceedings. When Commissioner refuses to stay the recovery proceedings, then only the Tribunal will exercise its power. In case the Commissioner grants instalment facility but the assessee shows his inability to make payment in instalment and the Commissioner rejects the stay application then the power of Tribunal can be invoked for stay. It may be further noted that the assessee must also show that he has no liquidity to pay the tax in dispute and if stay is not granted, great hardship will be caused to the assessee.
16. The Finance (No.2) Act, 1998 with effect from 1-10-1998 inserted sub-section (7) in section 253 prescribing for the first time a fee of five hundred rupees whenever an application for stay of demand has to be filed before the Appellate Tribunal.
17. The Finance Act, 2001 inserted two new proviso to sub-section (2A) of section 254 with effect from 1-6-2001. As per the first proviso, where an order of stay is made in any proceedings relating to an appeal filed under section 253(1), the Tribunal shall dispose of the appeal within a period of one hundred and eighty days from the date of such stay order.
As per the second proviso if such appeal is not so disposed of within the period specified in first proviso, the stay order shall stand vacated after the expiry of the said period.
In view of the specific language of the aforesaid second proviso, it is not only desirable but imperative on the part of the assessee to file an application for extension of the stay or granting of fresh stay, well in time before the expiry of the impugned six months period.
18. Rule 35A of the Income Tax Appellate Tribunal Rules, prescribes the procedure for filing the Stay Petition. As per this rule, any assessee filing an appeal under taxation Laws, before the Income Tax Appellate Tribunal may prefer stay application in the following manner.
a. Every application for stay of recovery of demand of tax, interest, penalty, fine, Estate Duty or any other sum shall be presented in Triplicate by the applicant in person, or by his duly authorised agent, or sent by Registered Post to the Registrar/Deputy Registrar or the Assistant Registrar, as the case may be at the Headquarters of a Bench or Benches having jurisdiction to hear the appeals in respect of which the Stay Application arises.
b. Where the application for stay relates to demands, though for more than one assessment year but under only a single statutory enactment, then a single stay application would be sufficient in respect of the demands for which the stay is sought. However, separate applications shall be filed for stay of recovery of demands under different enactments. It may however be noted that in Wipro Ltd vs. ITO, 86 ITD 407 (Bang) the Tribunal held that reparate stay petitions should be filed seeking stay and recovery of different assessment years. But the Bombay bench of the Tribunal in Chirangilal S. Gaonkar vs. WTO, 66 TTJ 728 has held that a single afflication can be filed.
c. The application for stay should, as far as possible, be filed in the form as per specimen as at Appendix X.
2. Every application shall be neatly typed on one side of the paper and shall be in English and shall setforth concisely the following:
iv. Summary of facts regarding the demand of the tax, interest, penalty, fine, Estate Duty or any other sum, the recovery of which is sought to be stayed;
v. The result of the appeal filed before the Commissioner (Appeals) or the Deputy Commissioner (Appeals), if any;
vi. The exact amount of the tax, interest, penalty, fine, Estate Duty or any other sum demanded, as the case may be, and the amount undisputed therefrom and the amount outstanding;
vii. The date of filing of the appeal before the Tribunal and its number, if known;
viii. Whether any application for stay was made to the revenue authorities concerned and if so, the result thereof (copies of correspondence, if any, with the Revenue authorities to be attached);
ix. Reasons in brief for seeking the stay;
x. Whether the applicant is prepared to offer any security in respect of the demand of tax in dispute and if so, in what form;
xi. Prayer to be mentioned clearly and concisely (stating exact amount sought to be stayed);
xii. The contents of the application shall be supported by an affidavit sworn by the applicant or his duly authorised agent; (Specimen application is enclosed)
A specimen Stay Petition
CITC Ltd. vs. Deputy Commissioner of Income Tax
1. Stay application with Annexure giving detailed reasons for seeking stay
2. Exhibits :
a. Copy of stay application filed before Assessing Officer.
b. Copy of letter rejecting the stay application passed by Assessing Officer
c. Copy of stay application filed before Commissioner
d. Copy of letter rejecting the stay application passed by Commissioner.
e. Copy of the acknowledgment of appeal filed before the Tribunal.
3. Affidavit in support
Appendix - X
(Specimen Form of Stay Application)
IN THE INCOME TAX APPELLATE TRIBUNAL
STAY APPLICATION No. ————— of ————
IN THE CASE OF ———————— FOR THE ASSESSMENT YEAR(S) —————
UNDER THE ———— ACT, ———— FOR STAY OF RECOVERY OF TAX/INTEREST/
1 Name and address of the applicant :
2 Act under which the demand is raised (i.e. Income-tax etc. for which stay application is moved) :
3 Assessment year(s) involved :
4 Date of filing of appeal before the Tribunal and its number, if known :
5 From the demand give break up :
6 (a) Amount already paid :
(b) Amount outstanding :
(c) Amount which is not disputed out of (b) :
7 (a) Details of application for stay made to the revenue authorities. :
1. A.O. 2. C.I.T. :
(b) Result :
8 * Reasons for seeking stay : Annexure 'A'
(a) Whether the applicant is prepared to offer security :
(b) If yes, in what form :
9 Prayer stating exact amount soughtto be stayed :
10 If stay is sought in relation to a matter pending in reference before the High Court give full particulars of R.A. No. and date etc. :
Date : Signature of applicant
* Separate sheet may be used if space is not sufficient
1. The application shall be made in triplicate and shall be neatly typed on one side of the paper with copies of all the relevant document including demand notice, copies of correspondence with the Revenue Authorities for stay of demand and copies of the letter refusing stay of demand.
2. The content of the application shall be supported by affidavit duly sworn in by the applicant or his authorised agent.
3. The application shall be presented by the applicant in person or by his authorised agent or sent by registered post to the Bench of the Tribunal where appeal was filed or which has got jurisdiction to hear the appeal.
Before the Income Tax Appellate Tribunal Bombay
Stay Application No.—————— of 1999
Bombay - 400 058 .... Petitioner
Deputy Commissioner of Income tax,
Asst. Range, IV (A), Bombay .... Respondent
The humble application of the petitioner above named most respectfully sheweth:
1. The Petitioner is a company engaged in the business of house building activities for CIDCO, PWD etc. The relevant Assessment Year is 1996-97 (previous year ending on 31-3-1996). The Petitioner Company filed the return of income on 29-7-96 showing income of Rs.2,00,000/-. The Petitioner had maintained regular books of account and shown the profit as per the books of account maintained by them. The Petitioner further states that for earlier years also, the books of account maintained by the Petitioner has been accepted by the Assessing Officer. The Deputy Commissioner of Income-tax, Asst. Range rejected the book results of the Petitioner and estimated the income of the Petitioner at 10% of the gross receipts and assessed the income of the Petitioner at Rs.10,00,000/- (Hereto marked Exhibit 'A' is the copy of the order passed by the Deputy Commissioner of Income-tax.)
2. Being aggrieved by the order of the Deputy Commissioner of Income-tax, the Petitioner filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), reduced the income estimated by the Deputy Commissioner of Income-tax to 5% of the gross receipts and confirmed the balance addition made by the Deputy Commissioner of Income-tax, though in the earlier years net profit shown by the Petitioner at 3% was accepted by the Income-tax authorities. [Hereto marked Exhibit 'B' is the copy of the order passed by the CIT (A)].
3. Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the Petitioner filed an appeal before the Tribunal on 1-4-1999 and the same is pending.
4. The Petitioner submits that the estimate of income confirmed by the Commissioner of Income-tax (Appeals) was not correct. In the past also the book results of the Petitioner was accepted by the Income-tax authorities.
5. The Petitioner states that though the appeal is pending before the Tribunal, the Deputy Commissioner of Income-tax started the recovery proceedings against the Petitioner. The Petitioner vide their letter dated 1-4-99 requested the Assessing Officer to keep the demand in abeyance till the decision of the Hon'ble Tribunal. However, the Assessing Officer vide his letter dated 15-4-99 rejected the petition of the Petitioner and refused to keep the demand in abeyance, till the decision of the Hon'ble Tribunal.
6. Thereafter, the Petitioners vide their letter dated 16-4-99 requested the Commissioner of Income-tax to keep the demand of tax in abeyance till the decision of the Hon'ble Tribunal. However, the Hon'ble Commissioner vide his letter dated 20-4-99 rejected the application of the Petitioner to keep the demand in abeyance till the decision of the Hon'ble Tribunal. Hereto marked Exhibits 'C' 'D' 'E' and 'F' are the correspondence with the tax authorities.
7. The Petitioner further states that they are not having bank balance or liquidity to make the payment of tax in dispute and if the department proceeds further to recover the tax in dispute, great hardship will be caused to the Petitioner and the business of the Petitioner may be ruined. The Petitioner is also enclosing herewith the latest balance sheet of the company and the bank statement to show that, the financial status and the bank balance as of date (Hereto marked exhibit 'G' is the copy of Balance Sheet and exhibit 'H' is the copy of bank statement).
8. The petitioner further states that they are prepared to offer the assets of the Company as security for satisfaction of the department.
9. The Petitioner, therefore, prays:
a. That the Recovery Proceedings initiated against the Petitioner may be stayed till the disposal of appeal by the Hon'ble Tribunal.
b. The Deputy Commissioner of Income-tax, or the Commissioner of Income-tax or their subordinates or their successors may be restrained from taking any action as regards recovery of tax, interest and penalty levied or leviable for the relevant assessment year.
c. The hearing of the Appeal may be expedited.
d. Any other relief which the Hon'ble members may deem fit and proper in the nature and circumstances of the case may be granted.
I, the Director of CITC Ltd., state that whatever is stated hereinabove in the Stay Petition is true to the best of my knowledge and information.
27th day of April, 1999 at Bombay For CIT Ltd.
I, S. S. K., Director of CITC Ltd., having office at Andheri (West) Bombay - 400 058, do hereby on solomn affirmation state as under:
1. That we have filed the return of income of the Company showing income of Rs.2,00,000.
2. That the Deputy Commissioner of Income-tax assessed the income of the company at Rs.10,00,000.
3. That in appeal, the Commissioner of Income-tax (Appeals) partly reduced the additions made by the Deputy Commissioner of Income-tax.
4. That being aggrieved by the order of the Commissioner of Income Tax (Appeals), we have filed an appeal to the Tribunal and the same is pending.
5. That we are sure that we have a fair chance of succeeding in appeal before the Tribunal.
6. That we have no liquidity or bank balance to make the payment of tax in dispute.
I say that whatever is stated hereinabove and in the Stay Petition of even date is true to the best of my knowledge and believe the same to be true.
Solemnly affirmed at Bombay on the 27th day of April, 1999.
Identified by me