Telangana High Court Sets Aside 20% Pre-Deposit Condition For Tax Demand Stay In VSAIPPL-SMC Case

The Telangana High Court on 20 August set aside orders directing VSAIPPL-SMC (JV) to pay 20% of its outstanding tax demand as a condition for staying recovery of the remaining demand, while allowing three writ petitions concerning Assessment Years 2022-23, 2023-24 and 2024-25.

A Division Bench comprising Justices P. Sam Koshy and Vakiti Ramakrishna Reddy noted that authorities cannot mechanically impose a condition requiring payment of 20% of an outstanding tax demand for granting stay of recovery and must independently exercise their discretion based on the facts and circumstances of each case. The judges held:

"A plain reading of the provisions of Section 220(6) of the Act, in itself, very emphatically makes it clear that the authority concerned has to exercise its discretion by taking into consideration the overall facts and circumstances of the case, decide the stay application, and also decide whether any conditions, if at all, have to be imposed, and, if so, what should be the nature of such conditions and to what extent..."

The petitioner, a joint venture, had challenged orders dated 9 April 2025 and 30 January 2026, which imposed a condition requiring payment of 20% of the outstanding demand for staying recovery of the remaining demand.

It argued that while deciding an application under Section 220(6) of the Income Tax Act, 1961 (which allows an assessing authority to treat a taxpayer as not being in default while an appeal is pending), the authorities must independently consider the stay application and cannot treat CBDT instructions prescribing payment of 20% of the disputed demand as binding.

The Income Tax Department defended the orders, contending that although the authorities had referred to the CBDT instructions, they had also considered the petitioner's submissions before imposing the 20% payment condition.

The Court, however, found that the authorities had predominantly relied on the CBDT instructions while deciding the stay applications. It observed that an authority exercising discretion under Section 220(6) must independently consider the circumstances of each case and cannot base its decision merely on executive instructions.

It noted that Section 220(6) requires the concerned authority to consider the overall facts and circumstances while deciding whether recovery should be stayed and whether any conditions should be imposed. Where conditions are considered necessary, the authority must also determine their nature and extent based on the individual case.

The Bench found that this exercise was absent from the impugned orders and held that the orders dated 9 April 2025 and 30 January 2026 were unsustainable.

It set aside the orders and remanded the stay applications to the concerned authority for fresh consideration under Section 220(6), strictly in accordance with the Income Tax Act and without being influenced by the CBDT instructions relied upon in the earlier orders.

Further, the judges also directed the authority to take a fresh decision within four weeks. In the meantime, it restrained the Income Tax Department from taking any coercive steps to recover the outstanding demand.

Accordingly, the High Court allowed the writ petitions with no order as to costs.

For Petitioner: Advocate A.V.A. Siva Kartikeya

For Respondent: Senior Standing Counsel Raja Shekar Rao Salvaji