The Ahmadabad bench of the National Company Law Tribunal (NCLT) directed the Income Tax Department to refund Rs, 28.92 lakhs tax deducted at source (TDS), under Section 194IA of the Income Tax Act from e-Auction Purchasers to Corporate Debtor (CD).
The issue to be decided was whether the amount of Tax Deducted Source (TDS) by the Income Tax Authorities under Section 194IA of the Income Tax Act, on e-auction of assets on liquidation, should be refunded.
The Bank of Baroda had initiated the Resolution Process against Varia Engineering Works under Section 7 of the Insolvency and Bankruptcy Code through CP (IB) No.149 of 2017. Following the Corporate Insolvency Resolution Process (CIRP), the company went into liquidation on 22.07.2019, with the applicant serving as the liquidator.
The subsequent sale of Corporate Debtor’s assets via e-auctions encountered challenges due to multiple TDS deductions of Rs. 28,92,101/-, prompting concerns about the consistency of Section 194-IA of the Income Tax Act with Section 53(1)(e) of the IBC in the petitioner.
Adv.Vishal Dave, Adv. Pragati Tiwari, Adv.Nandish Chudgar, Adv. Aravindakshan V. Nair appearing for the applicant submitted that the applicant-liquidator faced hurdles accessing the Corporate Debtor’s Income Tax Portal, with the Deputy Commissioner denying access and summoning the applicant for discussion.
The applicant highlighted a limitation in the liquidation process, stating the liquidator cannot file a return, leaving Tax Deducted at Source (TDS) unclaimed. The applicant sought a directive for the Income Tax Department to credit the TDS amount into the Corporate Debtor’s account, raising the contention that Section 53 of the IBC overrides Section 194IA of the Income Tax Act.
The Income Tax Department Adv. Maithili Mehta, argued that Section 194-IA of the Income Tax Act does not cover outstanding demands, treating tax deducted at source (TDS) as prepaid.
They stressed the responsibility on purchasers to credit TDS with the department. Corporate Debtors in liquidation must file returns and fulfill TDS obligations for property sales under Section 194-IA, with no exemption altering the Income Tax Act.
The department maintained that the Income Tax Act mandates TDS even for property sales exceeding 50 lakhs. They assert alignment between Section 194-IA of the IT Act and Section 54 of the IBC, with different intents. No pending refund application exists, and any surplus after settling tax liabilities will be refunded to deductors, the respondent counsel stated, urging the application’s dismissal.
The liquidator’s-applicant submitted that assets of the Corporate Debtor, including Land and Building (Bawla), Office (Titanium), and Factory (Vatva), were sold. Successful purchasers deducted TDS amounts of Rs. 22,50,750/-, Rs. 2,29,582/-, and Rs. 4,11,750/- for the respective assets, representing a capital gain for the Corporate Debtor at 1% of the sale consideration as per Section 194-IA of the Income Tax Act.
The liquidator highlighted the divergence between Section 53(1) (e) of the IBC, assigning government dues 5th priority, and Section 178(3) and (4) of the IT Act, treating the tax department as a secured creditor.
Section 194-IA mandates a 1% deduction for property transfers exceeding 50 lakhs, with Section 199 clarifying such deductions as tax payments on behalf of the concerned parties.
Section 45 of the Income Tax Act designates TDS under Section 194-IA as an advanced capital gain tax recovered from purchasers.
The two member bench of the tribunal comprising V.G Venkata Chalapathy, Technical Member and Chithra Hankare Judicial Member concluded that the Income Tax department is liable to return the amount of Rs.28,92,101/- deducted as TDS, into the account of Corporate Debtor as refund.
The application was allowed. The Income Tax Department was thus directed to return the amount of Rs.28, 92,101/- into the account of Corporate Debtor within one month from the date of the order.
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