High Court in the case of Centre for Policy Research v. DCIT (2025) 475 ITR 96 (Delhi)

This case addresses whether a taxpayer’s application for stay of demand under section 220(6) can be rejected solely for non-payment of 20% of the disputed demand. The Delhi High Court clarified that the pre-deposit is not mandatory and the Assessing Officer must consider prima facie merits, undue hardship and Revenue’s interests.

1. Brief Facts of the Case

The taxpayer, a charitable trust registered under sections 12A, 12AA and 12AB(4) of the Income-tax Act, 1961, had its registration cancelled retrospectively. This cancellation became the subject of a separate writ petition, where interim protection was granted by the Court.

Subsequently, for AY 2022-23, the Assessing Officer (AO) passed an assessment order. The taxpayer filed an appeal before the Commissioner (Appeals) under section 246A and simultaneously applied for stay of demand under section 220(6).

The AO, however, rejected the stay request on the ground that the taxpayer had not deposited 20% of the outstanding demand as required under CBDT Office Memoranda (OMs) dated 29 February 2016 and 31 July 2017. The AO stated that the stay could not be entertained without this pre-deposit. Aggrieved, the taxpayer filed a writ petition before the Delhi High Court challenging the AO’s order dated 3 May 2024.

2. High Court’s Observations

The Court noted that the AO’s order suffered from serious infirmities:

  • The AO had not examined the prima facie merits of the taxpayer’s case nor addressed the aspect of undue hardship, which are key factors under section 220(6).
  • The AO had proceeded mechanically, assuming that a 20% pre-deposit was mandatory, whereas the OMs themselves only prescribe it as a standard rate and not an inflexible condition.
  • The Supreme Court in PCIT v. LG Electronics India Pvt. Ltd. and the Delhi High Court in NASSCOM v. DCIT (Exemptions) had clarified that administrative circulars cannot restrict the discretionary, quasi-judicial powers of the AO.

The Court emphasized that the requirement of pre-deposit is not “etched in stone.” Each case must be evaluated on its own facts considering:

  1. Existence of a strong prima facie case.
  2. Potential undue hardship to the taxpayer.
  3. Safeguarding of the Revenue’s interest.

The Court also noted that rigid insistence on 20% deposit undermines the appellate remedy, especially where interim relief is necessary to avoid irreparable hardship. Thus, the impugned order dated 3 May 2024 was set aside, restoring the taxpayer’s opportunity for a fair stay determination.

Key Judicial Principles

  • Discretion under section 220(6): The AO has quasi-judicial discretion to grant stay of demand subject to conditions; this discretion cannot be curtailed by rigid administrative circulars.
  • CBDT OMs provide only indicative guidelines; the deposit percentage can be higher, lower, or even waived depending on the case.
  • While granting stay, the AO must evaluate prima facie merits, financial/undue hardship and balance with Revenue protection.

This ruling reinforces that taxpayers cannot be compelled to deposit 20% of disputed demand as a precondition for stay. The AO must adopt a case-specific approach, balancing Revenue’s interest with taxpayer’s rights. It underscores that interim protection should not be denied mechanically and that the appellate remedy must remain meaningful.

Overall, the case strengthens judicial control over tax recovery proceedings, ensuring fairness, reasoned decision-making and flexibility in applying administrative instructions.