Madras HC Clarifies: Income Tax AO Can Grant Relief Under Section 220(6) Below 20%

Income Tax Relief Under Section 220(6): Madras HC’s Clarification

In a significant ruling, the Madras High Court has clarified that an Assessing Officer (AO) has the authority to grant relief under Section 220(6) of the Income Tax Act, 1961, even when the assessee has deposited less than 20% of the total amount.

Background of the Case

VME Infrastructure Private Limited, the petitioner, had filed an appeal against an assessment order before the Commissioner of Income Tax (Appeals) and sought a stay of demand under Section 220(6) of the Income Tax Act. However, the AO declined to grant relief, citing Central Board of Direct Taxes (CBDT) instructions that mandated a 20% deposit of the disputed amount.

Key Implications of the Ruling

The Madras High Court, referring to the precedent set in M/s Queen Agencies v. The Assistant Commissioner of Income Tax, emphasized that the AO, as a quasi-judicial authority, is not bound by administrative instructions. The court highlighted that the AO has the discretion to grant relief below the 20% threshold, depending on the facts and circumstances of each case.

Main Takeaways

• The AO has the authority to grant relief under Section 220(6) even with deposits below 20%.
• The AO’s decision must be based on the facts and circumstances of each case.
• The AO is not bound by administrative instructions and must pass a speaking order.

Future Implications and Possible Developments

This ruling provides relief to assessees who may not be able to deposit 20% of the disputed amount. It also underscores the importance of the AO’s discretion in tax matters. Going forward, it will be interesting to see how this ruling impacts the way AOs exercise their discretion and how it influences future tax cases.