Case Note & Summary
The petitioners, Uttam Value Steels Ltd. (a company) and its director, challenged multiple notices and communications issued by the Income Tax Department under the Income-tax Act, 1961, after the company had been successfully resolved under the Insolvency and Bankruptcy Code, 2016. The company was admitted into Corporate Insolvency Resolution Process (CIRP) on June 26, 2018, and its resolution plan was approved by the NCLT on May 6, 2020, which included a full waiver of all tax and tax-related interest dues for the period prior to the CIRP. Prior to the CIRP, on April 17, 2018, the Revenue had conducted a search and seizure against the Vinod Jatia group, alleging bogus transactions with the petitioner. After the resolution plan was approved, the Revenue issued notices under Sections 153C, 143(2), 142(1), and 133(6) of the Income-tax Act for assessment years 2013-14 to 2019-20. The petitioners objected, arguing that the resolution plan extinguished all past claims, including tax claims. The Revenue contended that the proceedings related to liabilities that crystallized after the CIRP and thus were not covered by the resolution plan. The court examined Section 31(1) of the IBC, which makes the resolution plan binding on all stakeholders, including the Central Government. Relying on the Supreme Court's decision in Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, the court held that the approved resolution plan binds the tax authorities and that the corporate debtor starts with a clean slate. The court found that the impugned proceedings sought to revive claims that stood extinguished under the resolution plan and were therefore invalid. The court quashed all the impugned notices and communications, holding that the Revenue cannot pursue past tax claims after the resolution plan is approved.
Headnote
A) Insolvency and Bankruptcy Code - Binding Effect of Resolution Plan - Section 31(1) IBC - Clean Slate Principle - Once a resolution plan is approved by the NCLT under Section 31 of the IBC, it is binding on all stakeholders including the Central Government and its agencies in respect of statutory dues. The corporate debtor starts with a clean slate and cannot be pursued for past claims, including tax liabilities that arose prior to the CIRP. (Paras 11-13)
B) Income Tax Act - Proceedings After CIRP - Sections 153C, 143(2), 142(1), 133(6) - Barred by IBC - Notices issued under these sections for assessment years prior to and during the CIRP, after approval of the resolution plan, are invalid as they seek to revive claims that stood extinguished under the resolution plan. The Revenue cannot initiate fresh proceedings for past claims merely because they were not crystallized before the CIRP. (Paras 2-8, 14-16)
C) Insolvency and Bankruptcy Code - Overriding Effect - Section 238 IBC - The IBC overrides the Income-tax Act, 1961. The binding nature of the resolution plan under Section 31 IBC prevails over any inconsistent provisions of the Income-tax Act. (Para 14)
Issue of Consideration
Whether the Income Tax Department can initiate proceedings under the Income-tax Act, 1961 against a corporate debtor that has been successfully resolved under the Insolvency and Bankruptcy Code, 2016, for tax liabilities pertaining to the period prior to the commencement of the Corporate Insolvency Resolution Process.
Final Decision
The court allowed the writ petition, quashing and setting aside all the impugned notices and communications issued by the Revenue under Sections 153C, 143(2), 142(1), and 133(6) of the Income-tax Act, 1961. The court held that the resolution plan approved under Section 31 of the IBC is binding on the Revenue, and the corporate debtor cannot be pursued for past tax claims. Rule was made absolute.
Law Points
- Resolution plan binding on all stakeholders including tax authorities
- Clean slate principle
- Section 31 IBC overrides Income-tax Act
- No fresh proceedings for pre-CIRP claims
Case Details
2024 LawText (BOM) (08) 2822
Writ Petition (L) No. 9420 of 2022
G. S. Kulkarni, Somasekhar Sundaresan
Mr. Vikram Deshmukh, a/w Siddhi Doshi, i/b ALMT Legal for Petitioners; Mr. Suresh Kumar for Respondents
Uttam Value Steels Ltd. and Mr. Subodh Karmarkar
Assistant Commissioner of Income Tax, Deputy Commissioner of Income Tax, Union of India
Subscribe to unlock Case Details (Citation, Judge, Date & more)
Subscribe Now
Nature of Litigation
Writ petition under Article 226 of the Constitution of India challenging notices and communications issued by the Income Tax Department under the Income-tax Act, 1961, against a corporate debtor that had been successfully resolved under the Insolvency and Bankruptcy Code, 2016.
Remedy Sought
The petitioners sought quashing and setting aside of the impugned proceedings, including all notices and communications from the Revenue, on the ground that the resolution plan approved under Section 31 of the IBC is binding on the Revenue and extinguishes all past claims.
Filing Reason
The Income Tax Department initiated proceedings under Sections 153C, 143(2), 142(1), and 133(6) of the Income-tax Act after the resolution plan was approved, despite the plan providing for a full waiver of tax dues for the period prior to the CIRP.
Previous Decisions
The NCLT approved the resolution plan on May 6, 2020. The petitioners made a representation to the Revenue on January 4, 2022, objecting to the proceedings, which was rejected on February 17, 2022. The court granted ad interim relief on March 28, 2022, restraining further steps.
Issues
Whether the Income Tax Department can initiate proceedings under the Income-tax Act, 1961, against a corporate debtor after its resolution plan has been approved under Section 31 of the IBC, for tax liabilities pertaining to the period prior to the CIRP.
Whether the resolution plan, which includes a waiver of tax dues, is binding on the tax authorities.
Submissions/Arguments
Petitioners: The resolution plan approved under Section 31 of the IBC is binding on all stakeholders, including the Revenue. All past claims, including tax claims, stand extinguished. The corporate debtor starts with a clean slate. The Supreme Court's decision in Ghanshyam Mishra supports this position.
Respondents: The proceedings relate to liabilities that crystallized after the CIRP and are not past claims. The search and seizure action was initiated prior to the CIRP, but the tax liabilities were not crystallized then. The Revenue's actions are legitimate and not barred by the resolution plan.
Ratio Decidendi
Once a resolution plan is approved by the NCLT under Section 31 of the IBC, it is binding on all stakeholders, including the Central Government and its agencies. The corporate debtor starts with a clean slate, and no fresh proceedings can be initiated for claims that arose prior to the CIRP, even if such claims were not crystallized before the approval of the plan. The IBC overrides the Income-tax Act under Section 238 of the IBC.
Judgment Excerpts
Even a plain reading of the foregoing would show that once the Adjudicating Authority (the NCLT) approves the resolution plan, it would be binding on, among others, the Central Government and its agencies in respect of payment of any statutory dues arising under any law for the time being in force.
The legislative intent of making the resolution plan binding on all the stakeholders after it gets the seal of approval from the adjudicating authority upon its satisfaction, that the resolution plan approved by CoC meets the requirement as referred to in sub-section (2) of Section 30 is that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. The dominant purpose is that he should start with fresh slate on the basis of the resolution plan approved.
Procedural History
The petitioner-assessee was admitted into CIRP on June 26, 2018. The resolution plan was approved by NCLT on May 6, 2020. On March 15, 2021, the Revenue initiated proceedings under Section 153C for AY 2013-14 to 2018-19, and later issued notices under Sections 143(2), 142(1), and 133(6) for AY 2019-20. The petitioner made a representation on January 4, 2022, which was rejected on February 17, 2022. The petitioner filed the writ petition, and the court granted ad interim relief on March 28, 2022. The petition was finally heard and disposed of on August 28, 2024.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: 31, 238
- Income-tax Act, 1961: 153C, 143(2), 142(1), 133(6), 132
- Constitution of India: 226
