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Recovery of Government dues: Section 53 (1) (e) of IBC shall have overriding effect over Section 194 IA of the IT Act
Recovery of Government dues: Section 53 (1) (e) of IBC shall have overriding effect over Section 194 IA of the IT Act The National Company Law Appellate Tribunal (NCLAT) has held that in regard to recovery of the Government dues (Including Income Tax) from the Company in Liquidation under the Code, there is inconsistency between Section 194IA of the Income Tax Act, 1961 and Section 53(1)...
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Recovery of Government dues: Section 53 (1) (e) of IBC shall have overriding effect over Section 194 IA of the IT Act
The National Company Law Appellate Tribunal (NCLAT) has held that in regard to recovery of the Government dues (Including Income Tax) from the Company in Liquidation under the Code, there is inconsistency between Section 194IA of the Income Tax Act, 1961 and Section 53(1) (e) of the Insolvency and Bankruptcy Code, 2016 (Code). Therefore, by virtue of Section 238 of the Code, Section 53 (1) (e) of the Code shall have overriding effect on the provisions of the Section 194 IA of the IT Act.
The NCLAT allowed the Appeal against Chief Commissioner of Income Tax (TDS) and UPL Limited. Herein, the appellant Liquidator had filed the Appeal against the order passed by the Adjudicating Authority (National Company Law Tribunal) Principal Bench, New Delhi. The NCLT declined to issue direction to successful bidder (Respondent No. 2) and the Income Tax Authority (Respondent No. 1) not to deduct 1 % TDS from the sale consideration.
The Liquidator had filed an Application before the Adjudicating Authority for direction against the successful bidder (Respondent No.2) in auction held for sale of assets of the Corporate Debtor and, Income Tax Authority (Respondent No. 1) not to deduct 1 % TDS from the sale consideration Rs. 43 Crores on the premise that Income Tax dues can be recovered by the department as per waterfall mechanism set out under Section 53 of Insolvency and Bankruptcy Code (Code).
The Adjudicating Authority had held that the deduction of Tax at source under Section 194-IA of the IT Act does not mean assessment and raising demand for collection of Tax by the Department. The deduction of TDS does not tantamount to payment of Government dues in priority to other creditors because it is not a Tax demand for realization of Tax dues.The NCLT dismissed the Application.
The Hon'ble NCLAT observed that the TDS under Section 194 IA is nothing but advance capital gain tax recovered through transferee (Purchaser) on behalf of the transferor (seller).
The NCLAT further observed that Section 53 of the Code starts with a non-obstante clause, whereas Section 194 IA of the IT Act, does not start with a non-obstante clause, and it would necessarily be subject to overriding effect of the Code and therefore, there was no requirement to amend the Section 194 IA of the IT Act.
It was also affirmed that the Liquidator of a Company in liquidation under the Code is not required to file Income Tax Return, then there is no question of claiming refund of TDS deducted under Section 194 IA of the IT Act.
As per the Hon'ble NCLAT the Adjudicating Authority had erroneously held that the deduction of Tax at source does not mean raising demand for collection of tax by the Department.
TDS under Section 194 IA, is an advance capital gain tax, recovered through transferee on priority with other creditors of thecompany. Hence, inconsistent with the provision of Section 53 (1) (e) of the Code and by virtue of Section 238 of the Code, the provision of Section 53(1) (e) shall have overriding effect. Thus, the impugned order was held to be not sustainable in law and was set aside.