Delhi HC Stays ₹1,140 Crore Angel Tax Demand Against OYO, Offering Temporary Relief Ahead of IPO Plans

In a recent development, the Delhi High Court stayed a Rs. 1,140 crore angel tax demand raised by the Income Tax Department against Oravel Stays Pvt. Ltd, the parent company of travel tech firm OYO, for the assessment year 2020-21.

The stay provides temporary relief to the SoftBank-backed startup as it works toward a public listing ahead of a looming debt repayment deadline.

The tax demand was issued under Section 56(2)(viib) of the Income Tax Act, commonly known as the angel tax provision. This provision applies when an unlisted company issues shares at a price exceeding their fair market value, with the excess being treated as taxable income.

In this case, the department argued that OYO had issued shares to its investors at a premium, making the transaction taxable under this section.

OYO challenged the demand through a writ petition, arguing that the capital raised from its foreign holding company and subsequently infused into its Indian subsidiary was capital in nature and not income. Their Counsel Manuj Sabharwal, argued that such transactions are internal to the corporate structure, and should not attract tax under the angel tax provisions.

The Delhi High Court directed the Commissioner of Income Tax (Appeals) to grant OYO a personal hearing and to decide the matter within eight weeks. The court also ordered that if the CIT(A) rules against OYO, the tax demand would not be enforced for a further two weeks, allowing the company sufficient time to file an appeal. The case was disposed.

This interim relief comes at an important time for OYO, which is preparing for an initial public offering. According to a Bloomberg report from March, creditors including Mizuho Financial Group Inc. have required founder Ritesh Agarwal to repay $383 million borrowed as part of a broader loan package if the company fails to launch its IPO by October.

A substantial unresolved tax liability could potentially derail these plans, making the court's order a crucial reprieve for the startup.

Judgement is awaited in the matter of OYO Hotels and Homes Private Limited vs. Principal Commissioner of Income-Tax Delhi - 7 & Ors., W.P.(C) 9488/2025.

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