The Delhi High Court has reaffirmed a critical principle under the Income Tax Act, 1961: depositing 20% of the disputed tax demand is not a mandatory condition for granting a stay during the pendency of an appeal. This interpretation of Section 220(6) provides significant relief to taxpayers and clarifies that Assessing Officers (AOs) must exercise discretion rather than mechanically applying CBDT guidelines.
What Does Section 220(6) Say?
Section 220(6) empowers the AO to treat an assessee as not in default if an appeal is pending before the first appellate authority. However, CBDT issued Office Memorandums (OMs) suggesting a standard 20% deposit for granting stay. Many AOs applied this guideline rigidly, rejecting stay applications solely for non-payment of 20%.
Delhi High Court’s Position
The Court has consistently held that CBDT instructions are administrative guidelines, not binding rules. The AO must independently exercise discretion and consider factors such as:
- Prima facie merits of the case
- Undue hardship to the assessee
- Likelihood of success in appeal
- Revenue interests
Key Case Laws
1. NASSCOM v. DCIT (2024)
In National Association of Software and Services Companies (NASSCOM) v. DCIT (Exemption) Circle 2(1), Delhi & Ors (W.P.(C) 9310/2022), the Court held:
“The administrative circular would not operate as a fetter upon the power otherwise conferred on a quasi-judicial authority. It would be wholly incorrect to view the OM as mandating the deposit of 20%, irrespective of the facts of an individual case.”
This landmark judgment emphasized that CBDT OMs cannot override statutory discretion.
2. Centre for Policy Research v. DCIT (2025)
In Centre for Policy Research v. DCIT (W.P.(C) 6651/2024), the Court reiterated:
“The 20% which is spoken of in the OM cannot possibly be viewed as being an inviolate or inflexible condition.”
The Bench stressed that the AO must evaluate each case individually, considering prima facie case, undue hardship, and likelihood of success.
3. Latest Ruling: Clearmedi Healthcare Pvt Ltd v. DCIT (2025)
On 29 December 2025, in Clearmedi Healthcare Pvt Ltd v. DCIT, Circle 4(2), Delhi & Ors, a Division Bench of Justices V. Kameswar Rao and Vinod Kumar reaffirmed this principle. The AO had rejected the petitioner’s stay application solely because 20% of the disputed demand was not deposited.
The Court held that:
- 20% deposit is not mandatory under Section 220(6).
- CBDT guidelines are not binding and cannot fetter AO’s discretion.
- AO must consider prima facie merits, undue hardship, and likelihood of success before deciding on a stay.
The impugned order was set aside, and the matter was remanded for fresh consideration.
Impact of the Rulings
These judgments collectively ensure that:
- AOs cannot mechanically apply the 20% rule.
- Taxpayers are protected from unnecessary financial burden during litigation.
- Judicial discretion prevails over rigid administrative instructions.
Practical Takeaways for Taxpayers
- File a detailed stay application highlighting:
- Strong prima facie case
- Financial hardship
- Balance of convenience
- Cite relevant case laws like NASSCOM, Centre for Policy Research, and Clearmedi Healthcare.
- Request AO to exercise discretion rather than applying the 20% rule blindly.