Tribunal Condones Delay in Filing by Income Tax Department, Directs Payment of TDS to Government
In a significant ruling, the National Company Law Tribunal (NCLT), Bengaluru Bench, presided over by Shri Sunil Kumar Aggarwal and Shri Radhakrishna Sreepada, has delivered a judgment in the case of Income Tax Officer (TDS), Ward-1(1) v. M/s Bhuvana Infra Projects Private Limited. The tribunal addressed the contentious issue of statutory TDS deductions made prior to the commencement of liquidation of M/s Bhuvana Infra Projects, and their exclusion from the liquidation estate under the Insolvency and Bankruptcy Code, 2016 (IBC).
The case arose when the Income Tax Department, acting as an operational creditor, sought the payment of Rs. 59,43,080 in TDS dues, which were deducted by M/s Bhuvana Infra Projects but not remitted to the government. The department's claim was initially rejected due to a delay in submission, spanning over four years, attributed to pandemic-related disruptions and communication gaps during the liquidation process. The Income Tax Department argued that these TDS amounts, being public money, should be held in trust for the government and not be part of the company’s assets available for distribution among creditors.
The NCLT, in its judgment dated September 4, 2025, held that statutory TDS deductions made before the start of liquidation are to be excluded from the liquidation estate, as these amounts are held in a fiduciary capacity for the government. The tribunal cited Section 36(4)(a)(i) of the IBC, which excludes assets held in trust from the liquidation estate, thus supporting the claim of the Income Tax Department.
Furthermore, the tribunal addressed the delay in claim submission. Acknowledging the challenges posed by the COVID-19 pandemic and the statutory significance of the claim, the NCLT condoned the delay, enabling the claim to be adjudicated on its merits. The tribunal directed the liquidator to verify the TDS amounts through statutory records and ensure they are paid directly to the Income Tax Department, thereby affirming the fiduciary nature of these funds.
The tribunal also clarified that any other government dues, not qualified as statutory TDS, must follow the prescribed distribution priorities under Section 53 of the IBC, without any preferential treatment.
This ruling reinforces the legal stance that statutory dues, specifically TDS amounts, hold a unique position in insolvency proceedings, emphasizing the principle of holding such deductions in trust for the government. The decision is seen as pivotal in clarifying the treatment of TDS deductions during corporate liquidation, potentially impacting similar cases in the future.
Bottom Line:
Statutory TDS deductions made prior to liquidation commencement date are excluded from the liquidation estate under Section 36(4)(a)(i) of the Insolvency and Bankruptcy Code, 2016, being held in trust for the government.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 36(4)(a)(i), 53
