Revenue Failed to lodge Claim under IBC before RP Notice Demanding Income Tax not valid: Delhi HC Rules in favour of Tata Steel Ltd [Read Order]

In the case of Tata Steel Limited, the Delhi High Court held that revenue failed to lodge a claim under the Insolvency Bankruptcy Code (IBC) before the Resolution Process(RP) notice demanding income tax is not valid.

The petitioner challenged the notice issued under Section 221(1) of the Income Tax Act, 1961 [“the Act”] and the order. Via order, the respondent ["revenue"] rejected the petitioner’s, i.e., Tata Steel Ltd.’s [“TSL”], objections preferred qua the notice. 

The impugned notice called upon TSL to deposit tax against demands for Assessment Years (AYs) 2001-02, 2009-10, 2010-11 and 2013-14. The cumulative value of the demand raised for the said AYs is Rs. 257,80,81,038/-. Besides this, the revenue via the very same notice, sought a response from TSL as to why a penalty under Section 221(1) of the Income Tax Act, 1961 [“Act”] ought not to be imposed.

TSL challenged the demand raised by the revenue by contending that it concerns periods which precede the date of approval of the Resolution Plan [RP] by the concerned bench of the National Company Law Tribunal [NCLT] and, therefore, fall within the ambit of the “clean slate” principle. In other words, the submission is that once the RP is approved, all stakeholders, i.e., secured creditors, unsecured creditors, shareholders, workers and employees, are bound by the terms contained therein. In this context, TSL asserts that the revenue is not any different from the other creditors. 

The RP submitted by TSL on 03.02.2018 was approved by the NCLT on 15.05.2018. Under the NCLT's order dated 15.05.2018, Bamnipal Steel Ltd., a wholly-owned subsidiary of TSL, took over the management of BSL. The appeals preferred against the NCLT’s order dated 15.05.2018 were dismissed by the National Company Law Appellate Tribunal [NCLAT].

The revenue did not lodge any claim concerning penalty. Thus, as per Clause 8.6.11, such claims stand irrevocably and unconditionally extinguished. TSL, i.e., the successful resolution applicant, cannot be made to bear the burden of undecided claims lodged by creditors [which includes the revenue], except as per the terms contained in the RP.

Since the demands raised via the impugned notice dated 23.08.2018 were in addition to the demand reported during the resolution process, the revenue commenced a process for recovery of the impugned demand.

A division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that the claim in respect of the demand which is the subject matter of the present proceedings was not lodged by respondent no.   2   after public announcements were issued under Sections 13 and 15 of the IBC. As such, on the date on which the Resolution Plan was approved by the NCLT, all claims stood frozen, and no claim, which is not a part of the Resolution Plan, would survive.

The Court set aside the impugned notice and order. 

To Read the full text of the Order CLICK HERE

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