Delhi HC rejects NewsClick’s request for a stay on the demand of the IT department

Observing that the news portal has a “lot to answer for” in terms of its financial dealings, the Delhi High Court on Tuesday refused to set aside a demand made by the Income Tax (IT) department against NewsClick for allegedly receiving predetermined foreign remittances from the Justice and Education Fund (JEF).

The demand was made after the assessing officer (AO) concluded that the transaction between the petitioner and the foreign entity was a type of “reverse engineering,” according to the court. The portal claimed in its appeal, which is currently pending before the Commissioner of IT (appeals), that it had not established a prima facie case in its favor.

On December 30, 2022, the IT department issued an assessment order against NewsClick, alleging that the portal was acting as the Judicial Educational Fund’s (JEF) agent and that money received from foreign entities in the form of remittances towards services was a means of introducing funds inexplicably.

The agreement stipulates that the party receiving the services must provide 90% of the “budget” even prior to the beginning of the quarter; the provision of this amount is unrelated to the caliber of services to be provided. These kinds of agreements are uncommon in the service sector. In a ruling, the AO said that the practice of accepting prearranged advances goes against both accepted standards in the sphere of services that the firm claims to be discharged and commercial prudence. The AO’s ruling also said that the portal was changed from a limited liability partnership (LLP) to a private limited company only in order to obtain foreign finance.

The site appealed the December 30 decision to the Commissioner of IT, and on February 20 and November 3, the commissioner refused to postpone the demand while the appeal was pending. The portal also filed a complaint with the Delhi High Court against these orders.

This court believes that the petitioner has not shown a substantial case to support its position. The petitioner has a lot of questions to address in the appeal, to put it nicely. The November 29 order, which was made public on Tuesday, said that the petitioner’s request for financial stringency based on its balance sheet “also inspires no confidence as, according to the assessing officer, the accounts have not been properly maintained.” The bench of acting Chief Justice Manmohan and Justice Mini Pushkarna made this statement.

NewsClick contended, via senior attorney Devdatt Kamat, that the business activity was legitimate and that the portal’s service agreement with JEF, the material provided, and receipts via appropriate banking channels was properly declared in its IT reports. It also contended that JEF was to retain sole ownership of the property rights to the articles, films, and short scripts and that the parties’ services agreement explicitly specified the itemized costs of deliverables.

After searching about 30 locations in Delhi, Noida, Gurugram, Mumbai, and Ghaziabad, Delhi Police arrested NewsClick founder Prabir Purkayastha and the company’s head of human resources, Amit Chakraborty, on October 3, 2023, for allegedly receiving money for “pro-China propaganda” in violation of the Unlawful Activities (Prevention) Act and the Indian Penal Code (IPC). They are both detained by the courts until December 22, 2023. 46 other individuals, including journalists and independent authors, are being questioned by police.

In August 2020, the Delhi Police’s Economic Offenses Wing (EOW) filed a formal complaint (FIR) against the news portal for allegedly breaking regulations pertaining to foreign direct investment. The complaints were filed under Sections 406 (criminal breach of trust), 420 (cheating and dishonestly inducing delivery of property), and 120B of the IPC. The Enforcement Directorate (ED) filed a complaint against the site for allegedly overvaluing shares and diverting cash based on the case of EOW.

“The Economic Offences Wing of Delhi Police has not been able to file a charge sheet against Newsclick for offenses under the Indian Penal Code,” the company claimed in a statement dated October 4. In court, the Income Tax Department has been unable to justify its conduct. We vehemently denounce the conduct of a government that disregards the right of journalists to operate independently and views criticism as “anti-national” propaganda or sedition.