Court rules Income Tax Department's actions as illegal, orders refund of adjusted amounts with interest
In a significant ruling, the Calcutta High Court has quashed the Income Tax Department's actions of adjusting tax refunds against pre-Corporate Insolvency Resolution Process (CIRP) demands for Ultra Tech Cement Limited. The court ruled that once a resolution plan is approved under the Insolvency and Bankruptcy Code, 2016 (IBC), all claims not included in the plan are extinguished.
The case involved Ultra Tech Cement Limited, which successfully acquired Binani Cement Ltd. under the IBC framework. After the resolution plan was approved by the National Company Law Appellate Tribunal (NCLAT) and affirmed by the Supreme Court, the Income Tax Department attempted to adjust refunds for the assessment year 2019-20 against outstanding demands from prior assessment years.
Justice Smita Das De, presiding over the case, determined that the Income Tax Department's actions violated Sections 31 and 238 of the IBC. These sections ensure that all claims not part of the approved resolution plan are frozen and extinguished, binding all stakeholders, including government authorities.
The court referenced key Supreme Court judgments, including Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., which established that all dues, including statutory ones, not included in the resolution plan, stand extinguished. It emphasized that income tax dues, often considered "crown debts," do not hold priority over secured creditors when a resolution plan is in place.
The court directed the Income Tax Department to refund the adjusted amounts to Ultra Tech Cement along with prevailing banking interest. It also instructed that no fresh proceedings or reassessments be initiated for periods before the transfer date of the resolution plan.
This judgment underscores the IBC's supremacy in resolving corporate insolvency matters and highlights the need for tax authorities to comply with approved resolution plans.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 - Approval of resolution plan - Income Tax Department cannot raise, continue or enforce pre-CIRP/pre-transfer tax demands not forming part of approved resolution plan - Adjustment of subsequent refund under Section 245 of Income Tax Act against such past demands impermissible - Such demands and proceedings stand extinguished in view of Sections 31 and 238 of IBC.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 31 and 238; Income Tax Act, 1961 Section 245
Ultra Tech Cement Limited v. Union of India, (Calcutta) : Law Finder Doc id # 2991179
