Refund of Old Income Tax Adjustment is not allowable after approval of resolution plan by NCLT: Orissa HC [Read Order]

In a recent case, the Orissa High Court has held that a refund of old Income tax adjustment is not allowable after approval of a resolution plan by the National Company Law Tribunal (NCLT).

Sree Metaliks Limited, Keonjhar and Another, the petitioner filed the writ petition on 16th July, 2024, when revenue obtained direction for filing counter.  He relies on judgment of the Supreme Court in Ghanashyam Mishra and Sons (P) Ltd. v. Edelweiss Asset Reconstruction Company Limited,

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“102.1. That once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.”

Mr. Kedia, advocate, Junior Standing Counsel appears on behalf of revenue and draws attention to paragraph-3.2, page-110 in the writ petition. In the stated table of statutory/other legal liabilities  there  is  provision  for  ‘income  tax  old’  at ₹14,26,69,327.27/-. Subsequent disclosure in the writ petition also provides for manner, in which said amount, approved in the resolution process, was to be paid by petitioner. It remains unpaid. In the circumstances, adjustment of the refund against old income tax dues was duly made.

In reply Mr. Ray refers to appeal effect order dated 23rd April, 2024. He reiterates, the refund was due to his client and there was no tax dues placed for approval in the resolution process. Clear admission is there in the counter. Furthermore, no notice of the adjustment to be made was given to his client. In the circumstances, there be direction for disbursement of the refund on holding the adjustment made to be bad.

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A division bench of Justice Arindam Sinha, Acting Chief Justice and Justice M.S.Sahoo ascertained that ‘old income tax dues’ were considered in the resolution process. The process received approval on 7th November, 2017 by the National Company Law Tribunal (NCLT). The Supreme Court in Ghanashyam Mishra reiterated operation of section 31(1).

It appears from the appeal effect order, relevant assessment year was 2010-11, in respect of which there was refund of ₹6,00,71,354/-. This amount, revenue has adjusted. Old income tax dues, taken into consideration in the resolution process, thereby stands reduced by the refund amount. It is not necessary for us to go into working of manner of liquidation of the old dues approved in the resolution process.

As aforesaid, adjustment of the refund pertaining to assessment year 2010-11, an assessment within the period giving rise to old tax dues in balance sheet of the corporate debtor, considered in the resolution process and approved, thus has effect of reducing said dues by the adjustment made.

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The court rejected the  petitioner’s claim to have the refund because petitioner can only claim to step into and manage affairs of the corporate debtor from date of approval of the resolution plan. Petitioner cannot claim to have paid tax on assessment made for assessment year 2010-11.

It was held that refund in respect of that assessment year cannot be due to petitioners, who stepped into shoes of management of the corporate debtors on and from 7th November, 2017 and proceeded to revive it per the approved resolution plan. Petitioners having assailed the adjustment made by filing the writ petition, cannot still rely on alleged omission to notice them on the adjustment.

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