2018 (12) TMI 1866 - HC - Income Tax

Recovery proceedings - Proceedings under Section 201(1) and 201(1-A) of the Income Tax Act being initiated for the alleged failure on the part of the petitioners to deduct the Tax Deducted at Source (TDS) on certain foreign remittances - petitioners have also initiated proceedings under Section 10 of the Insolvency and Bankruptcy Code, 2016 seeking initiation of Corporation Insolvency Resolution Process (CIRP) and sought for further time from the respondents - HELD THAT - When the respondents are not going to take any coercive measures, and they are going to treat the impugned orders as only intimation of demand, without enforcing the demand and the impugned orders are only the orders passed under Section 201(1-A)(3) of the Income Tax Act, and since the financial year of the petitioners is 2010-2011, as per Section 201(1-A)(3) of the said Act, the respondents, before expiry of seven years, namely on or before 31.03.2018, should make an order under Section 201(1) of the said Income Tax Act and in default for failure to deduct the whole or any part of tax from a person who is resident in India, the second respondent, after giving notice, has passed the present impugned orders and since the impugned orders are passed under Section 201(1) and 201(1-A) of the Income Tax Act, it is to be treated only as an intimation of the existing demand sent to the assessee holding PIN, and hence, it cannot be construed as coercive measures being taken against the petitioner-Companies. Once an order of moratorium is granted by the NCLT, the legal fiction under Section 14 of the IBC will come to the rescue of the corporate debtor. Therefore, taking into consideration all the abovesaid provisions of law and also the ratio laid down by the Apex Court 2018 (8) TMI 1775 - SC ORDER , as also the Delhi High Court 2017 (9) TMI 1907 - DELHI HIGH COURT holding that when once the Moratorium is granted by the NCLT, it will continue till the completion of Corporate Insolvency Resolution Process or until it approves the resolution plan under Section 31(1) of the IBC or passes an order of liquidation of corporate debtor under Section 33 of the IBC, as the case may be, the present Writ Petitions shall stand disposed of, directing the respondents to keep the impugned orders in respect of both the petitioners, in abeyance, till the disposal of the proceedings pending before the NCLT, Mumbai and also the further appeal(s), if any that may be filed by any of the parties to these Writ Petitions.

Summary

Issues:
Challenging jurisdiction and legality of Income Tax proceedings under Sections 201(1) and 201(1-A) of the Income Tax Act, 1961 in light of insolvency proceedings initiated under the Insolvency and Bankruptcy Code, 2016.

Detailed Analysis:

1. Jurisdiction and Legality of Income Tax Proceedings:
The petitioner-companies sought Writs of Certiorari to challenge the jurisdiction and legality of the Income Tax proceedings initiated under Sections 201(1) and 201(1-A) of the Income Tax Act, 1961. The petitioners argued that the actions taken by the respondents were arbitrary, illegal, and violative of the Constitution of India and the provisions of the Income Tax Act. They contended that the respondents had initiated recovery proceedings based on alleged failures to deduct Tax Deducted at Source (TDS) on certain foreign remittances, which the petitioners disputed.

2. Insolvency Proceedings under IBC:
The petitioners had also initiated proceedings under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking the initiation of Corporate Insolvency Resolution Process (CIRP). The National Company Law Tribunal (NCLT), Mumbai, had admitted the applications and declared a "Moratorium" under Section 14 of the IBC. The petitioners argued that the Moratorium prevented any coercive action against their properties and prohibited the institution of suits or continuation of pending proceedings against them.

3. Legal Precedents and Interpretation of IBC:
The petitioners relied on legal precedents, including a decision of the Delhi High Court and a Supreme Court ruling, to support their argument that the IBC provisions would override any inconsistent provisions of other enactments, including the Income Tax Act. They emphasized that the Moratorium granted by the NCLT protected them from any coercive measures by the Income Tax authorities.

4. Interplay between IBC and Income Tax Act:
The respondents argued that the Income Tax proceedings were not in conflict with the IBC provisions, as the Income Tax Act did not refer to Section 14 or Section 238 of the IBC. They contended that the impugned orders were merely intimation of demand and not coercive actions, as no recovery steps had been taken. The respondents highlighted the completion of assessment within the time limits imposed under the Income Tax Act.

5. Resolution and Disposition:
The High Court, after considering the provisions of the IBC, the legal precedents cited, and the implications of the Moratorium granted by the NCLT, directed the respondents to keep the impugned orders in abeyance until the disposal of the proceedings pending before the NCLT, Mumbai. The Court emphasized that the Moratorium would continue until the completion of the Corporate Insolvency Resolution Process or approval of a resolution plan, as per the IBC. The Court disposed of the Writ Petitions accordingly, without imposing any costs.

In conclusion, the High Court's judgment addressed the complex interplay between the Insolvency and Bankruptcy Code and the Income Tax Act, emphasizing the protective nature of the Moratorium granted by the NCLT and ensuring that the petitioners were shielded from coercive actions during the insolvency resolution process.