High Court directed refund of self assessment tax paid due to insolvency commencement and operation of moratorium under IBC
In a recent judgment, the Hon’ble Orissa High Court has directed Income Tax Department to refund the amount of self assessment tax paid due to commencement of insolvency and operation of moratorium under IBC
ABCAUS Case Law Citation:
ABCAUS 4007 (2024) (05) HC
Important Case Laws relied upon:
Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. & Ors
Ghanashyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company Ltd. & Ors
Pr. CIT vs Monnet Ispat and Energy Limited, (2018) 18 Supreme Court Cases 786
M/S. Ruchi Soya Industries Ltd. v. Union of India &Ors
The assessee was a sick company and registered with Board of Industrial Finance and Reconstruction (BIFR). The assessee was brought under the Corporate Insolvency Resolution Process (CIRP). The resolution process was admitted by the NCLT. A public announcement was made by the Insolvency Professionals calling for the creditors to raise their claims. Insolvency Professionals had processed the resolution plan under section 13(6) of the Insolvency and Bankruptcy Code -2016 (IBC 2016).
For the relevant assessment year, the Assessing Officer had raised a huge demand in crores and same had also been upheld by the CIT(A). However, the Income Tax Department had not raised any claim before the Insolvency Professionals. The resolution plan submitted was accepted by the NCLT. However, the Income Tax Department had not raised its claim before the Insolvency professionals.
In the second appeal before the Tribunal, the case of the assessee was that the revenue has not raised its claim before the Resolution Professionals and the same was not recognised the resolution plan, which has already been approved by the NCLT, all claims stood frozen and the demand against the assessee could not be enforced.
The assessee placed reliance on the decision of Hon’ble Supreme Court wherein, it has been held that the claim in respect of demand not lodged after the public announcements were issued under sections 13 and 15 of the IBC, 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. Further reliance was placed upon the decision of the Hon’ble Supreme Court wherein, it has been held that “Given Section 238 of the IBC 2016, it is obvious that the code will override anything inconsistent contained in any other enactment, including the Income Tax Act. The Hon’ble Supreme Court further went on to make it clear that the income tax dues being in the nature of Crown debts, do not take precedence even over secured creditors, who are private persons.
On the contrary, the Department argued that the Income Tax Department does not need to make any claim insofar as it is not a creditor. The income tax liability is a statutory liability and it is a crown debt. It was submitted that the public announcement does not mention that even statutory claim must be raised before the Resolution Professionals.
The attention of the Tribunal was drawn to the Resolution plan submitted which mentioned “statutory liabilities/other legal liabilities”. It was the submission that under the said classification a “provision for income tax old” had been categorically shown for amount more than the demand raised. Further under the head “statutory liabilities”, it had been specifically mentioned that statutory liabilities being in the nature of operational creditors will have a nil liquidation value, still the company proposes to settle the statutory liabilities in full as provided in the scheme.
Thus, it was the submission of the Revenue that in the resolution plan, the income tax liabilities had been referred to and the resolution plan also provides for the demand of the income tax liabilities. It was the submission that this plan has been approved by the NCLT and consequently, the income tax liabilities continue to exist on the assessee.
The Tribunal remitted the issue to the file of the Assessing Officer for verification of whether the impugned demand was included in the heading “provision for income tax” or not and if it is not included, then in view of the decision of Hon’ble Supreme Court, the liability stood frozen as on the date of approval by the NCLT and no such claim can be made against the assessee company.
Aggrieved by the order of the ITAT, the Revenue preferred an appeal to Hon’ble High Court which dismissed the appeal, since the Assessing Officer while giving effect to the order of the ITAT himself admitted that the demand stood frozen and no such claim can be made.
However, subsequently, the AO, in the pretext of giving effect to the order of the Tribunal, without giving any notice to the assessee, unilaterally charged interest u/s 234A, 234B and 234C and made an enhanced demand
Aggrieved by the such enhanced demand, the assessee filed a Writ Petition before the Hon’ble High Court and contended that the demand was arbitrary, in violation of statutory mandate and principles of natural justice.
It was prayed that the demand be quashed and the assessee be refunded the amount of self assessment tax paid for the relevant assessment year.
The Department argued that the interest & Cess/surcharge are inbuilt factors applied automatically on taxes as per provisions of IT Act and no explanation is required before applying all these factors. Once any income is determined during any proceedings, the system automatically calculates the taxes, cess & interest (till the date or order) etc.
The Hon’ble High Court observed Section 14(1)(a) of IBC-2016 states that on the “Insolvency Commencement Date”, the adjudicating authority shall by order declare moratorium for prohibiting “the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement , degree or order in any court of law, tribunal, arbitrational panel or other authority”_ Section 14 of the IBC does not differentiate between any proceeding s, whether they are assessment, quasi-judicial or judicial in nature. In fact, a moratorium is imposed on all proceedings irrespective of the nature.
The Hon’ble High Court further observed that as per section 31(1) once a resolution plan is duly approved by the adjudicating authority, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, member s, 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 proceeding s in respect to a claim, which is not part of the resolution plan. Admittedl y, the claim in respect of the demand which is the subject matter of the present proceedings was not lodged by the Department after public announcements were issued under Sections .and 15 of the IBC. As such, on the date on which the Resolution Plan was approved by the learned NCLT, all claims stood frozen, and no claim, which is not a part of the Resolution Plan, would survive.
The Hon’ble High Court further observed that the Hon’ble Supreme Court has held that the Supreme Court has made it clear that income-tax dues, being in the nature of Crown debts, do not take precedence even over secured creditors, who are private person. Also, the Hon’ble Supreme Court held that once a resolution plan is duly approved by the adjudicating authority under Section 31(1), 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 stakeholder s. 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.
The Hon’ble High Court in the light of the observations by the Apex Court opined that the amount of demand stood frozen by the operation of moratorium under IBC and also not part of the Resolution Plan. Hence/ no claim could be made against the Petitioner. Hence, the charge of Interest under section 234A, 234B and 234C also does not survive.
Accordingly, the Hon’ble High Court quashed the order passed under Section 254 of the Income Tax Act giving effect to the order of the ITAT and the Notice of Demand under Section 156 with direction that Petitioner be refunded an amount of self assessment tax paid for the relevant Assessment Year.
Still not satisfied, the Department preferred a Review Petition before the Hon’ble High Court praying to review/recall the said order quashing the demand and direction for refund of self assessment tax.
The Revenue stated that that the Hon’ble High Court had fallen in error in ordering the revenue to refund the self assessment tax which was voluntarily paid by the assessee U/S. 143(1)(3) of the Income Tax Act, much before the resolution plan was submitted/insolvency commencement date, which was an error apparent on the face of record and sufficient reason to review the order. It was also submitted that the voluntarily discharge of tax liability cannot be annulled or refunded merely on the grounds of CIRP initiated subsequently and, therefore, the order passed by this Court in writ petition was liable to be reviewed.
The Hon’ble High Court observed that law is well settled that the powers of review should not be exercised on the ground that the decision was erroneous on merits, since that would be in the province of a Court of appeal. Further, a power of review is not to be confused with power of appellate Court. An error may be a ground for review, but it must be one apparent on the face of record and does not require any extraneous matter to show the error. Further, in the garb of review, the party cannot be permitted to reopen the case and to gain a full-fledged hearing on merits.
The Hon’ble High Court opined that the review petition being in the guise of challenging the final order passed in the writ in an appeal before the same Court is not maintainable and liable to be dismissed.
Accordingly, the Review Petition was dismissed.
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