Devendra P. Jain Liquidator Of ... vs Officeof Assistant Commissioner Of ...

[Arising out of orders dated 23.10.2020 in IA 84 of 2020 in CP(IB) 113/2017 passed by the Ld. Adjudicating Authority (National Company Law Tribunal), Indore Bench at Ahmedabad Court 1.]

IN THE MATTER OF: Devendra P. Jain Liquidator of Sandhyaprakash Limited Top Floor, C/O Swati Jewellers, Spring Field, Judges Bungalow Road, Vastrapur, Ahmedabad, Gujrat - 380054 ...... Appellant.

Versus

1. Office of Assistant Commissioner of Income Tax, Room No. 328, 3rd Floor, Metro Walk Bhawan, Income Tax Office, E-5, Areara Colony, Bittan Market, Bhopal-(M.P.)- 462016. ....... Respondent No. 1. 2. Asst. Director of Income Tax CPC-Banglore, Karnataka-560500. ....... Respondent No. 2. Present: For Appellant: Mr. Gaurav Mitra and Ms. Honey Satpal, Advocates. For Respondent: None.

JUDGMENT

(17th February, 2022)

Justice Anant Bijay Singh;

This Appeal has been preferred by the Appellant being aggrieved and

dissatisfied by the order dated 23.10.2020 passed by the Ld. Adjudicating

Authority (National Company Law Tribunal), Indore Bench at Ahmedabad 2

Court 1 in IA 84 of 2020 in CP(IB) 113/2017 whereby and where under the

Application bearing I.A. No. 84/2020 filed by Liquidator - Appellant herein for

claiming refund of amount Rs. 28,53,000/- for the assessment year 2017-

2018 and Rs. 38,67,570 for the assessment year 2019-2020 from Income Tax

Department was rejected holding that it is not within our jurisdiction to direct

Income Tax Department to give refund and further directed the liquidator to

approach proper authority, the I.A. No. 84 of 2020 was not maintainable.

2. The facts giving rise to this Appeal are as follows:

i) The Appellant filed I.A. No. 84 of 2020 before the Ld. Adjudicating

Authority seeking refund of amount Rs. 28,53,000/- for the assessment year

2017-2018 and Rs. 38,67,570 for the assessment year 2019-2020 from

Income Tax Department.

ii) Further case of the Appellant is that vide order dated 20.09.2019

passed by the Ld. Adjudicating Authority, the Corporate Debtor was put to

liquidation and the Appellant was appointed as Liquidator.

iii) That in terms of the Liquidation Regulations, the Appellant made a

public announcement inviting for submission of claims from stakeholders on

07.10.2019. The public notice was published in Dainik Jagran and Free Press

Journal (Annexure A-3 at page 37 to 38 of the Appeal).

iv) The Appellant vide email dated 24.10.2019 intimated the Respondents

about initiation of the Liquidation Process and informed about the public

announcement with respect to submission of claim against the Corporate

Debtor (Annexure A-4 at page 39 to 40 of the Appeal).

Company Appeal (AT) (Insolvency) No. 70 of 2021 3

v) Further case of the Appellant is that the Respondent filed its claim

under Form-C as Operational Creditor on 02.11.2019. The total claim of

Respondent as per the form amounts to Rs. 16,83,77,923/- and along with

the form Respondents had attached various notices of demand under Section

156 of Income Tax Act, 1961 to prove the debt. (Annexure A-5 at page 41 to

54B of the Appeal). The Appellant acknowledged the receipt of the claim form

vide mail dated 16.11.2019.

vi) The Appellant thereafter received a notice under Section 156 issued by

the Respondent No. 1 for the Assessment Year 2017-18 demanding payment

of Rs. 0 (Zero). With the computation sheet attached to notice, the liquidator

came to the conclusion that Rs. 28,53,000/- was refundable to the account

of Corporate Debtor. The refund was due to the TDS paid by the Corporate

Debtor for the FY 2016-17 (Annexure A-7 at page 57 to 65 of the Appeal).

vii) Further case of the Appellant is that vide mail dated 20.02.2020 the

Respondent proposed for adjustment of refund towards the outstanding

demand(s) (Annexure A-8 at page 66 of the Appeal).

viii) The Appellant vide mail dated 31.03.2020 (Annexure A-9 at page 67 to

73 of the Appeal) and also letters sent on 25.06.2020 through a post

responded to mail of 20.02.2020 showing disagreement to adjustment and to

state that the Respondent department has been intimated various times

before of the ongoing proceedings and that according to provision of

Insolvency and Bankruptcy Code, recovery of pending amount till Insolvency

Commencement Debt / Liquidation Commencement date can only be made

Company Appeal (AT) (Insolvency) No. 70 of 2021 4

by filing claim on the prescribed format and therefore no person whomsoever

it may be is not allowed to recover and adjust any amount in any other mode.

ix) The Respondent was further informed that the Corporate Debtor has

filed claim of Rs. 16,83,77,923/- including interest of AY 2008-09, 2009-10,

2010-11, 2011-12, 2012-13, 2014-15 and 2016-17. In light of the above it

was requested to Respondent to withdraw the intimation issued under Section

245 of the Income Tax Act, 1961 and issue pending refund at the earliest.

x) The Appellant approached the Ld. Adjudicating Authority against the

illegal action of the Respondent of adjustment of refund amount beyond the

provisions of the Code and that too post filing of claim under the provisions

of the Code, by filing I.A. No. 84 of 2020, thereafter, the Ld. Adjudicating

Authority, after hearing, rejected the said Application. Hence this Appeal.

Submissions on behalf of the Appellant

3. The Learned Counsel for the Appellant during the course of argument

and in his memo of Appeal along with Written Submissions submitted that

the Ld. Adjudicating Authority failed to consider that the Respondent

Department, even after filing its claim with the Liquidator, could adjust its

crystalized debt with the amount of refund attributable to the Appellant

thereby jumping the queue of Section 53 of the Code.

4. It is further submitted that the Respondent Department is an Operation

Creditor in terms of Section 5(20) of the Code and debt of the Respondent is

Operational Debt in terms of Section 5(21) of the Code.

Company Appeal (AT) (Insolvency) No. 70 of 2021 5

5. It is further submitted that the Respondent herein filed its claim of Rs.

16,83,77,923/- including interest of AY 2008-09, 2009-10, 2010-11, 2011-

12, 2012-13, 2014-15 and 2016-17 under FORM Cas Operational Creditor as

on 02.11.2019. The Appellant acknowledged the receipt of the claim form vide

mail dated 16.11.2019. Thereafter, the Appellant received a notice under

Section 156 of the Income Tax Act, 1961 issued by the Respondent No. 1 for

the Assessment Year 2017-2018 demanding payment of Rs. 0 (Zero). The

Liquidator came to know that Rs. 28,53,000/- was refundable to the account

of Corporate Debtor. The refund was due to the TDS paid by the Corporate

Debtor for the FY 2016-17 (Annexure A-7 at page 60 & 64 of the Appeal).

6. It is further submitted that the Liquidation Estate under Section 36 of

the Code is wide enough to cover the monetary asset of the Corporate Debtor

held by the Respondent Department. The Liquidation Estate under Section

36 of the Code also covers the money recovered under avoidable transactions.

The Section 53 is not limited to the distribution of sale proceed only. The

Respondent cannot state that since the refund retained by the Department is

not proceeds of sale thus cannot be distributed. The adjustment of refund is

in preference to other stakeholders of the Corporate Debtor.

7. The Learned Counsel for the Appellant further relied on the judgment

passed by Hon'ble Supreme Court in the case of "M/s Embassy Property

Developments Pvt. Ltd. Vs. State of Karnataka & Ors., Civil Appeal No.

9170 of 2019" held that where the Income Tax liability has attained finality,

then such dues come within the definition of expression of operation debt and

can only be adjudicating in terms of the provisions of the Code:

Company Appeal (AT) (Insolvency) No. 70 of 2021 6

" It will be a different matter, if proceedings under statutes

like Income Tax Act had attained finality, fastening a

liability upon the corporate debtor, since, in such cases, the

dues payable to the Government would come within the

meaning of the expression "operational debt" under Section

5(21), making the Government an "operational creditor" in

terms of Section 5(20). The moment the dues to the

Government are crystalised and what remains is only

payment, the claim of the Government will have to be

adjudicated and paid only in a manner prescribed in the

resolution plan as approved by the Adjudicating Authority,

namely the NCLT."

8. It is further submitted that the Ld. Adjudicating Authority has not

considered these aspects of the matter and rejected the Application filed by

Liquidator - Appellant herein. Based on these submissions the impugned

order is fit to be set aside and the Appeal be allowed.

Submissions on behalf of the Respondent

9. The Respondent has filed Reply Affidavit to the instant Appeal although

the date of hearing dated 06.01.2022 when the matter was finally heard and

after completion of the pleadings, nobody appeared on behalf of the

Respondent nor argued the matter.

Company Appeal (AT) (Insolvency) No. 70 of 2021 7

10. After perusal of the Reply filed on behalf of the Respondent it is stated

that the assessee claimed refund of Rs. 25,87,650/- for AY 2017-18 and Rs.

37,36,790/- for AY 2019-20 in its return of income. From the return of income

of the assessee for AY 2017-18 and AY 2019-20, it is observed that the

assessee has claimed refund on account of TDS in return of income and such

TDS was deducted on receipts of income from business and profession and

not on account of TDS deducted on sale of assets.

11. It is further stated that the refund arisen in the hands of the assessee

on account of TDS claimed in return of income were adjusted against the

outstanding demand of the assessee under Section 245 of the Income Tax Act.

The priority in distribution of proceeds from sale of liquidation assets

(waterfall mechanism) as per Section 53 of the IBC applies when the

liquidation assets are sold. From the return of income for AY 2017-18 and AY

2019-20 it is observed that no liquidation assets were sold and therefore, the

occasion of bypassing the waterfall mechanism as per Section 53 of the IBC

does not arise in adjusting income tax refunds against outstanding tax

demand.

12. It is further stated that the assessee has contended that the liquidation

estate comprises of assets that may not be in possession of the Corporate

Debtor including not limited to encumbered assets as per Section 36(3)(b) of

the IBC. It is true that refund claimed in return of income is an asset in the

hands of the assessee as refund receivable, but Section 36 of the IBC does not

override/hinders the operation of Section 245 of the Income Tax Act for

adjusting refunds arising on account of TDS deducted on receipts from

Company Appeal (AT) (Insolvency) No. 70 of 2021 8

business and profession against outstanding tax demands as it does not have

a non obstante clause.

13. It is further stated that on account of adjustment of refund, the

liquidation asset in the form of income tax refund is not sold and applicability

of Section 53 of the IBC does not arise.

14. It is further stated that the refund receivable may be part of liquidation

asset at one point of time but operation of Section 245 of the Income Tax Act,

can reduce the liquidation asset in the hands of the liquidator by adjusting

refunds receivable against outstanding tax demands, which is as per law,

when such refunds arisen in the hands of the assessee are not on account of

TDS deducted on sale of liquidation assets and therefore, the petition of the

assessee be rejected.

15. It is further stated that the refunds for AY 2017-18 and AY 2019-20

have been adjusted in due accordance with law and therefore, the petition of

the assessee pleaded to be rejected.

16. It is further stated that the refunds for AY 2017-18 and AY 2019-20

have been adjusted against outstanding demand as per law and therefore, the

petition of the assessee be rejected.

FINDINGS

17. After hearing the parties and having gone through the pleadings made

on behalf of the parties, we are of the considered view that there is no illegality

committed by the Ld. Adjudicating Authority while passing the impugned

Company Appeal (AT) (Insolvency) No. 70 of 2021 9

order, in view of provisions of Section 245 of the Income Tax Act, 1961.

Therefore, we do not need to interfere in the impugned order. The impugned

order dated 23.10.2020 passed by the Ld. Adjudicating Authority (National

Company Law Tribunal), Indore Bench at Ahmedabad Court 1 in IA 84 of 2020

in CP(IB) 113/2017 is hereby affirmed. There is no merit in the Appeal. The

Appeal is hereby dismissed and the Appellant is further directed to move

before the Income Tax Department who are competent to adjudicate the

matter.

18. Registry to upload the Judgment on the website of this Appellate

Tribunal and send the copy of this Judgment to the Ld. Adjudicating Authority

(National Company Law Tribunal), Indore Bench at Ahmedabad, forthwith.

[Justice Anant Bijay Singh] Member (Judicial)

[Ms. Shreesha Merla] Member (Technical)

New Delhi 17th February, 2022 R. Nath.

Company Appeal (AT) (Insolvency) No. 70 of 2021