The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) has ruled that the Adjudicating Authority (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC) does not possess the jurisdiction or power to direct the refund of TDS deducted on interest accruing on fixed deposits; and that the exercise of powers regarding the refund of TDS is the exclusive prerogative of the Income Tax Authorities under the prevailing income tax laws.
The Tribunal clarified that the determination of whether a Liquidator is entitled to exemptions under Section 140 of the Income Tax Act regarding the verification and filing of income tax returns falls strictly within the decision-making domain of the Income Tax Authorities. Any challenge or appeal preferred before the NCLT or NCLAT prior to such determination by the Income Tax Authorities is premature and not maintainable.
The overriding effect of Section 238 of the IBC over the Income Tax Act cannot be invoked prematurely; it can only be subjected to judicial scrutiny after the Income Tax Authorities have made a definitive decision regarding the exemptions claimed, particularly because the IBC, 2016 is silent on the specific aspect of TDS refunds.
A Single Judicial Member Justice Sharad Kumar Sharma observed that the direction issued by the Adjudicating Authority (NCLT) was merely an enabling direction for the Liquidator to submit a simpliciter account showing the income and expenditure of the Corporate Debtor during the liquidation period, which was required before the Income Tax Authorities could consider the refund request. The Tribunal noted that the Appellant’s challenge was a ‘challenge in premonition’, attempting to forestall the process and nip the problem at its bud based on an apprehension that the Income Tax Authorities would demand regular returns.
The Tribunal observed that under the IBC, 2016, there is no provision conferring power on the Adjudicating Authority to issue directions for the refund of TDS already made on the interest accruing on the fixed deposit. The exercise of powers for the refund of TDS is the prerogative of the Income Tax Authorities under prevailing income tax laws.
The intricacies of Section 140 of the Income Tax Act, its judicial interpretation, and the conditions for TDS deduction are questions required to be considered by the competent income tax authority itself, as the refund must flow from the Income Tax Authorities and not from authorities constituted under the IBC, added the Tribunal.
Regarding the Appellant’s argument on the inconsistency of law and the overriding effect of Section 238 of the IBC over Section 140 of the Income Tax Act, the Tribunal observed that taxation laws operate within their own domain. The aspect of inconsistency would only come into play when the Income Tax Authorities actually take a decision pertaining to the extension or denial of the benefit under Section 140 of the Income Tax Act.
The Tribunal further noted that the IBC is silent on the aspect of refund of TDS, and inconsistency prevails only when both laws have equivalent, contradictory provisions on the subject matter. The actual cause of action to approach the competent authorities under the IBC would only arise after a decision is rendered by the Income Tax Authorities.
Briefly, the Appellant was appointed as the Liquidator of M/s. Servalakshmi Paper Limited in pursuance of the order passed by the NCLT, Chennai Bench. The assets of the Corporate Debtor were sold on a going concern basis via an e-auction held on Oct 05, 2022, realizing a sale consideration of Rs. 105 Crores. Pending distribution to stakeholders, the sale consideration was kept in a fixed deposit with Respondent No. 2 (State Bank of India), which accrued interest.
Respondent No. 2 deducted TDS on the interest accruing on the fixed deposit before remitting it to the liquidation account. The Appellant wrote to Respondent No. 2 on April 13, 2023 seeking a refund of the deducted TDS and a restraint on future deductions, but Respondent No. 2 persisted with the deductions. The Appellant subsequently wrote to Respondent No. 1 (Income Tax Department), who requested the Liquidator to file the return of income tax for all assessment years to claim the refund.
The Appellant filed application before the Adjudicating Authority seeking a direction to the Income Tax Department to return the TDS of Rs. 1.57 crores with 12% interest, and a direction to State Bank of India not to deduct TDS in the future. By the impugned order dated Nov 25, 2025, the Adjudicating Authority disposed of the application by directing the Liquidator to submit a simplicitor account as relevant for the company in liquidation, and directed the Income Tax Authorities to do the process thereafter. The Appellant challenged this order, contending exemption from filing returns under Section 140 of the Income Tax Act.
Appearances:
Advocate S. Satish, for the Appellant
Advocate Raj Jhabakh, for the Respondent
