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TMI Blog2020 (11) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... served that Sec 178 of Income Tax Act, 1961 provides for a priority in appropriation of the amount set aside by the liquidator for clearance of tax dues but it is to consider that the liquidation of accompany could be under the provisions of different enactments. And as for liquidation under IBC, Sec 178 of IT Act stands excluded by virtue of amendment of Section 178(6) with effect from 01.11.2016, in accordance with the provision of Sec 247 of the IBC read with Third Schedule appended there to, therefore, as the corporate debtor is in liquidation under the Code, the Income Tax Department can no longer claim a priority in respect of clearance of tax dues as provided Under Sec 178(2) and (3) of the Income Tax Act, 1961. As per Sec 238 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount realised and further he has to proceed with the distribution of the pending amounts in accordance with the waterfall mechanism prescribed under Sec 53 of the Insolvency and Bankruptcy Code, 2016. However, he is faced with the issue as to whether the capital gains tax would be attracted on sales of such assets as part of liquidation estate to be included as liquidation costs, if so, he would be required to first make provision for the capital gains and accordingly after deduction of the amount, the balance shall be distributed amongst the stakeholders. 3. Further the counsel for the liquidator has referred Sec 52 of the Code wherein a secured creditor has the option to either: a) Relinquish its security interest to the liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterfall mechanism provided in Sec 53 of the IBC which is as quoted 53. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:-- (a) The insolvency resolution process costs and the liquidation costs paid in full; secured creditor in liquidation proceedings, (b) The following debts which shall rank equally between and among the following:-- (i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the debts owed to a secured creditor and workmen are on higher hierarchy rather than the liability towards government dues and no provision has been pointed out nor any claim has been laid by the respondent by which sate dues would get precedence over the distribution proposed to be made to the secured, unsecured financial creditor and workmen. 7. Further referring to Sec 238 of IBC and Sec 178(6) of the Income Tax Act which provides as follows: Section 238 : Provisions of this Code to override other laws. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Section 178(6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable to income Tax under the head Capital gain. 10. Further it was contented on behalf of Income Tax Department that the bare reading of provisions of Sec 238 of IBC it is seen that the provisions of the Code override the provisions of the Act to the extent the provisions of the Act are inconsistent with the provisions of the Code and in the present case there is no inconsistency with respect chargeability of tax on capital gains between the provision of Code and Act and provisions of Sec 45 of IT Act shall remain in operation and further stated that decision of NCLT New Delhi Bench in matter of M/s. Shree Ram Lime Products Private Limited on which the applicant relied will not be applicable to the facts of the present case. 11. Af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the corporate debtor is in liquidation under the Code, the Income Tax Department can no longer claim a priority in respect of clearance of tax dues as provided Under Sec 178(2) and (3) of the Income Tax Act, 1961 as also held in case of Leo Edibles Fats Ltd. v. Income Tax Department. 14. Further as per Sec 238 of the Code, the provision of the Code shall have an overriding effect on any other enactment and Sec 53 of the Code provides the waterfall mechanism for distribution of assets in which Sec 53(b) i.e. the debt owed to the secured creditors has been given priority over government dues as reflected under Sec 53(i) and has to be dealt accordingly. 15. Therefore, the tax liability arising out of the sale of assets by the liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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