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2025 (3) TMI 1052 - SC - Income TaxDemands for income tax that were raised after the date of approval of the Resolution Plan - binding nature of an approved Resolution Plan on statutory dues - HELD THAT - In view of the declaration of law made by this Court all the dues including the statutory dues owed to the Central Government if not a part of the Resolution Plan shall stand extinguished and no proceedings could be continued in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval u/s 31 of the IB Code. In this case the income tax dues of the CD for the assessment years 2012-13 and 2013-14 were not part of the approved Resolution Plan. Therefore in view of sub-section (1) of Section 31 as interpreted by this Court in the above decision the dues of the first respondent owed by the CD for the assessment years 2012-13 and 2013-14 stand extinguished. In view of the above discussion the Resolution Plan approved on 21st May 2019 is binding on the first respondent. Therefore the subsequent demand raised by the first respondent for the assessment years 2012-13 and 2013-14 is invalid. Once the Resolution Plan is approved by the NCLT no belated claim can be included therein that was not made earlier. If such demands are taken into consideration the appellants will not be in a position to recommence the business of the CD on a clean slate. The additional demands made by the first respondent in respect of the assessment years 2012-13 and 2013-14 will operate as roadblocks in implementing the approved Resolution Plan and appellants will not be able to restart the operations of the CD on a clean slate. We therefore hold that the demands raised by the first respondent against the CD in respect of assessment years 2012-13 and 2013-14 are invalid and cannot be enforced.
ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Validity of Income Tax Demands Post-Resolution Plan Approval Relevant legal framework and precedents: The judgment revolves around Section 31 of the Insolvency and Bankruptcy Code, 2016, which stipulates the binding nature of an approved Resolution Plan on all stakeholders, including government authorities. The Court referenced the decision in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd., which clarified that statutory dues not included in the Resolution Plan are extinguished upon its approval. Court's interpretation and reasoning: The Court noted that the Income Tax Department did not submit claims for the assessment years 2012-13 and 2013-14 before the Resolution Professional. As per Section 31, claims not part of the approved Resolution Plan are extinguished, and no proceedings can be initiated for such dues. The Court emphasized that the demands raised post-approval were invalid. Key evidence and findings: The Resolution Plan included a provision for contingent liabilities, but the specific income tax liabilities for the years in question were not listed. The Court highlighted that the Resolution Plan was binding on all stakeholders, including the Income Tax Department. Application of law to facts: The Court applied the legal principle from Ghanashyam Mishra, concluding that the demands for the assessment years 2012-13 and 2013-14 were extinguished as they were not part of the Resolution Plan. Treatment of competing arguments: The Court dismissed the argument that the NCLAT's decision was justified because the appellants did not challenge the Resolution Plan. It deemed the NCLAT's reasoning as ignoring binding precedents. Conclusions: The Court concluded that the demands for the assessment years 2012-13 and 2013-14 were invalid and unenforceable. 2. Justification of NCLT and NCLAT Decisions Relevant legal framework and precedents: The Court examined the procedural approach of the NCLT and NCLAT in dismissing the application and appeal, respectively, without considering the merits or providing sufficient reasoning. Court's interpretation and reasoning: The Court criticized the NCLT for dismissing the application as frivolous without adequate reasoning and for imposing costs. It found the NCLAT's dismissal based on procedural grounds to be perverse, especially when a binding Supreme Court precedent was ignored. Key evidence and findings: The NCLT's order did not address the substantive legal issues, and the NCLAT failed to consider the Supreme Court's ruling in Ghanashyam Mishra. Application of law to facts: The Court applied the principle of binding precedent, emphasizing that lower tribunals must adhere to Supreme Court rulings. Treatment of competing arguments: The Court rejected the NCLAT's rationale that the decision in Ghanashyam Mishra was not applicable because it was not cited before the NCLT. Conclusions: The Court set aside the orders of the NCLT and NCLAT, finding them unjustified and procedurally flawed. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: The Court reiterated the principle from Ghanashyam Mishra: "Once a resolution plan is duly approved by the adjudicating authority... all such claims, which are not a part of resolution plan, shall stand extinguished." Core principles established: The judgment reinforced that an approved Resolution Plan under Section 31 of the IB Code is binding on all stakeholders, including government authorities, and extinguishes any claims not included in the plan. Final determinations on each issue: The Court determined that the income tax demands for the assessment years 2012-13 and 2013-14 were invalid. It set aside the NCLT and NCLAT decisions, allowing the appeal and affirming the binding nature of the approved Resolution Plan.
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