The Delhi High Court has invalidated the income tax notifications and directives passed before the approval date of the resolution plan.
The panel of Justice Rajiv Shakdher and Justice Girish Kathpalia has noted the notices and directives concerning the income tax demands of the respondents or department relating to the period long before the granting of the resolution plan. The department issued the orders and notices following the public announcement as stated in Section 15 of the Code concerning the Corporate Insolvency Resolution Process (CIRP) of the taxpayer.
The public announcement under Section 15 of the Code required the filed claims by January 21, 2019, however, the department submitted a claim that date or even afterward. The assessment order issued by the department and the demand notice, both dated December 12, 2019, only subsequent to the approval of the resolution plan.
The petitioner/taxpayer assumed control of a company, namely Albus India Ltd., the former corporate debtor, per the resolution plan. The petitioner submitted the plan that was granted legal acceptance under Section 31(1) of the Insolvency and Bankruptcy Code by the National Company Law Tribunal (NCLT). As a result, Albus India Ltd. became TUF India Ltd., which was incorporated into the taxpayer and became operative from April 1, 2021, under the authority of the Indian Government.
Regarding initiating the Corporate Insolvency Resolution Process (CIRP), a public advertisement following Section 15 of the Code was announced, specifying the final date for claim submissions as January 21, 2019. However, until that date or even afterward, the department chose not to file any claim.
On December 2, 2019, the Assistant Commissioner of Income Tax, Circle-2(2), Delhi, was informed about the acceptance of the resolution plan and the change in management of Albus India Ltd. under the Tribunal’s order dated November 5, 2019. This information was conveyed by the Chairman of the Monitoring Committee responsible for implementing the accepted plan.
Subsequently, on December 12, 2019, the department issued an assessment directive and demand notice, claiming a tax amount of Rs. 9,71,79,357. On September 10, 2021, the department further imposed a penalty of Rs. 10,000 through an order under Section 272A(1)(d) and issued a demand notice. The department served two show cause notices on January 27, 2022, under Sections 270A and 270AAC(1), to which the taxpayer responded, asserting that the demands were nullified upon the approval of the resolution plan by the Tribunal.
A demand notice was issued by the department following Section 156, subsequent to an order dated March 16, 2022, imposing a penalty under Section 270A against the taxpayer. In the end, a demand notice and order were issued by the department, imposing a fine on the taxpayer.
The taxpayer argued that all the alleged demands and claims arising from pre-CIRP accountabilities and obligations were rendered invalid after the resolution plan was approved under Section 31(1) of the Code.
The department contended that the revenue’s stance is different from other creditors, thus asserting that the income tax claims of the revenue should remain unaffected by the provisions of the Code.
The main issue at hand was whether the department could rightfully assert and collect any sum of money from the petitioners as income tax for the period before the department approved the resolution plan under Section 31 of the Code.
The court granted the petition, and notices and orders were nullified.
| Case Title | TUF Metallurgical Pvt. Ltd Vs Union of India |
| Citation | W.P.(C) 10528/2022 |
| Date | 12.12.2023 |
| For Petitioner | Mr Vaibhav Mahajan and Ms Shrishti Agrawal |
| For Respondent | Mr Sunil Agarwal, Mr Shivansh B. Pandya, Mr Utkarsh Tiwari |
| Delhi High Court | Read Order |