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TMI Blog2021 (2) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... he liquidator is personally liable to pay the amount of Tax. With this proposition, the Income Tax Department is to be treated as a secured creditor and in liquidation proceedings such dues shall get priority. Whereas, as per Section 53 (1) (e) of the Code, the legislature assigned the 5th position in the order of priority to government dues (including Income Tax Dues). Thus, in Section 53(1) (e) of the Code and in Section 178 of the IT Act for Government dues priority is different. Section 178 (6) of the IT Act and Section 53 of the Code both Sections start with non-obstante clause, therefore, legislature in its wisdom to give effect to the scheme of the Code amended Section 178(6) of the IT Act. By virtue of the amendment the whole of Section 178 has no application to the liquidation proceedings initiated under the Code. With the aforesaid, it was necessary to amend Section 178(6) of the IT Act - Section 194 IA of the IT Act provides that where the consideration for transfer of the immovable property is more than 50 Lakhs, then the transferee is responsible to deduct the amount which is 1% of the consideration as Income Tax. As per Section 194 IA of the IT Act 1% TDS is recovered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in law - Respondent No.1 is directed to refund the amount of TDS to the Appellant which is deposited by the Respondent No. 2 with the department - Appeal allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... aintain or update the Books of Account till the Liquidation commencement date and however, during the liquidation period there is no requirement of maintaining profit and loss account and balance sheet of the Corporate Debtor and to get the same audited. The Income Tax Return is filed after 6 months' end of the financial year and filing of Income Tax Return and getting refund of TDS is a long drawn process and goes directly against the scheme and specific regulations provided under the Code. He has also submitted that in such company on an overall basis it is always be a capital loss and hence, there is no such provision inbuilt either in the Code or the Regulation for filing of Income Tax Return and hence mode of distribution is provided based on existence of Liquidation Estate on liquidation commencement date. 7. Learned PCA representing the Appellant further submitted that when the Company is in liquidation under the provisions of Code then there is no requirement of filing of return of a Company as it is directly in conflict with the whole scheme of the Liquidation stipulated under the Code. It is that for filing of return requires financial statements to be drawn which is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision whereby TDS is required to be made in case of sale of immovable property for a consideration more than 50 lacs. The other determines priority amongst different stake holder in case of distribution of sale proceeds of assets of Corporate Debtor under liquidation. Thus, both the provisions operate under entirely different domain having different purposes and there is no conflict between them. 10. Ld. Counsel for the Respondent No. 1 also submitted that the assessment proceedings were outside pale of jurisdiction of all civil courts including company court. The liquidation court cannot perform the functions of Income Tax officers as held by Hon'ble Supreme Court in the case of S.V. Kondaskar, Official Liquidator and Liquidator of the Colaba Land & Mills Co. Ltd. Vs. VM Deshpande, Income Tax Officer [1972 83 ITR 685(SC)]. Ld. Counsel for the Respondent No. 1 further submitted that ld. Adjudicating Authority has rightly held that the TDS u/s 194-IA of the IT Act does not mean assessment and raising demand for collection of Tax by the Department. Thus, the deduction of TDS does not tantamount to recovery of Income Tax in priority to the other creditors. Hence, the Appeal is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt over debts due to Government on the date of liquidation or for meeting such cost and expenses of the winding up of the company as are in the opinion of the Commissioner reasonable. (4) If the liquidator fails to give the notice in accordance with subsection (1) or fails to set aside the amount as required by subsection (3) or parts with any of the assets of the company or the properties in his hands in contravention of the provisions of that sub-section, he shall be personally liable for the payment of the tax which the company would be liable to pay: Provided that if the amount of any tax payable by the company is notified under sub-section (2), the personal liability of the liquidator under this sub-section shall be to the extent of such amount.] (5) Where there are more liquidators than one, the obligations and liabilities attached to the liquidator under this section shall attach to all the liquidators jointly and severally. (6) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force. (except the provisions of the Insolvency and Bankruptcy Code, 2016) (Inserted by the Insolve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon. (2)xxx (3) xxx Section 53 of I&B Code. 53.Distribution of Assets- (1) Notwithstanding anything to the contrary contained in any law enacted Acted 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; (b) The following debts which shall rank equally between and among the following:- (i) Workman's dues for the period of twenty four months preceding the liquidation commencement date; and (ii) Debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52; (c) Wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with the Section 194 IA of the IT Act and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose Income deduction was made, or the owner of the security or of the depositor or of the owner of the property. 19. Section 45 of the IT Act, reads as under:- "(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H be chargeable to income of the previous year in which the transfer took place." 20. Section 45 of the IT Act, provides that any profits are gains arising from the transfer of a capital asset effected in the previous year shall save as otherwise provided in the Section be chargeable to Income Tax under the head of capital gain and shall be deemed to be the Income of the previous year, in which the transfer took place. Thus, the TDS under Section 194 IA is nothing but advance capital gain tax recovered through transferee (Purchaser) on behalf of the transferor (seller). 21. As per Section 194 IA of the IT Act 1% TDS is recovered on priority to other creditors of the transferor, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2016)" 24. Thus, it is clear that when the Company is wound up under the orders of Court or otherwise the return shall be verified by the Liquidator referred to in Sub-Section 1 of Section 178 of the IT Act, during corporate insolvency resolution process under Section 7, 9 or 10 of the Code, the return shall be verified by the Insolvency Professional appointed by the Adjudicating Authority. However, there is no such provision in the IT Act, Code or IBBI (Liquidation Process Regulation, 2016) that the Liquidator of the Company in Liquidation under the Code is required to file Income Tax Return. For filing of return, the financial statements are required to be annexed but the Code/IBBI (Liquidation Process Regulation 2016) does not assign a duty on the Liquidator to prepare financial statements. Chapter III of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 provides powers and functions of liquidator, Regulation 5 & 6 of the Regulations is reproduced below: "Regulation 5-5. Reporting. (1) The liquidator shall prepare and submit: (a) a preliminary report; (b) an asset memorandum; (c) progress report(s); (d) sale report(s); (e) minu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made in the prescribed form and verified in the prescribed manner. (2) No such claim shall be allowed, unless it is made within the period specified hereunder, namely:- (a) where the claim is in respect of income which is assessable for any assessment year commencing on or before the 1st day of April, 1967 , four years from the last day of such assessment year; (b) where the claim is in respect of income which is assessable for the assessment year commencing on the first day of April, 1968 , three years from the last day of the assessment year; (c) where the claim is in respect of income which is assessable for any other assessment year, one year] from the last day of such assessment year.] (d) where the claim is in respect of fringe benefits which are assessable for any assessment year commencing on or after the first day of April, 2006, one year from the last day of such assessment year. Section 245 - Set off of refunds against tax remaining payable.- Where under any of the provisions of this Act, a refund is found to be due to any person, the [Assessing Officer], [Deputy Commissioner (Appeals)] [, or the Commissioner (Appeals) or Commissioner or [Principal C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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