In a decisive ruling, the Calcutta High Court has quashed all fresh proceedings and adjustments relating to the pre-transfer period, holding that statutory dues stand extinguished if not part of the approved Resolution Plan and that Section 238 of the IBC overrides the Income Tax Act. The Court explained that once a Resolution Plan is approved by the NCLAT under Section 31 of the IBC, all claims stand frozen and any claim not forming part of the approved plan is extinguished, and no fresh proceedings can be initiated or continued in respect of such claims.
The Court said that income tax dues, being ‘crown debts’, carry no priority over secured creditors and stand extinguished upon approval of the Resolution Plan if not included therein. Section 238 of the IBC gives the Code overriding effect over any inconsistent provision of any other law for the time being in force, including the Income Tax Act. The Income Tax Department, having submitted its claim before the Resolution Professional and having had it rejected after collation, cannot subsequently revive or adjust pre-CIRP demands against refunds arising in the post-transfer period.
Accordingly, the High Court directed the Income Tax Authorities to refund all wrongfully adjusted amounts along with prevailing banking interest within six weeks, and cautioned that authorities must act with greater circumspection and withdraw pre-transfer demands immediately upon approval of a Resolution Plan.
A Single Judge Bench of Justice Smita Das De observed that the Income Tax Department, being an operational creditor, had submitted proof of debt in Form ‘B’ before the Resolution Professional claiming Rs. 24.06 crores, which was rejected after collation. The Court noted that despite an interim order dated July 08, 2021, restraining the respondents from giving effect to the impugned orders, the Centralized Processing Centre (CPC) adjusted the refunds against demands for the pre-transfer period.
The Court took judicial notice of all documents including the intimation issued under Section 245 and the judgments cited at the bar. The Court further observed that the Income Tax Authorities ought to be more circumspect, prudent and vigilant henceforth, and upon approval of a Resolution Plan under the IBC, they are expected to forthwith withdraw all demands pertaining to the pre-transferred period instead of persisting with frivolous and untenable proceedings.
Briefly, Ultra Tech Cement Limited, the successful resolution applicant of Binani Cement Limited under the Insolvency and Bankruptcy Code, 2016 (IBC), filed a writ challenging the legality of orders and notices issued by the Income Tax Department. The petitioner specifically challenged the adjustment of three refund amounts, namely, Rs. 1.43 crores, Rs. 67.69 lakhs, and Rs. 1.12 crores, pertaining to Assessment Year 2019-2020, which were adjusted against outstanding demand for A.Y. 2011-2012, all relating to the period from A.Y. 2007-2008 to 2015-16, i.e., the period prior to the Transfer Date.
The Corporate Insolvency Resolution Process (CIRP) in respect of Binani Cement Limited commenced on July 25, 2017, pursuant to an application under Section 7 of the IBC filed by Bank of Baroda. The Resolution Plan submitted by Ultratech Cement Ltd. was unanimously approved by the Committee of Creditors and approved by the National Company Law Appellate Tribunal (NCLAT) on Nov 14, 2018, which was affirmed by the Supreme Court on July 26, 2019, with the effective date of takeover being Nov 20, 2018.
