NCLT orders Income Tax Dept to release refund during moratorium period

The NCLT concluded that the Income Tax Department's adjustment of the refund during the moratorium period was unjustified. The Tribunal directed the Department to release the refund of Rs. 43,49,040/- with interest to the applicant. The judgment reaffirmed that tax dues are operational debts and fall within the jurisdiction of the NCLT under the IBC, 2016. The appeal was allowed and disposed of accordingly.

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Issues Involved:
1. Release of Income Tax refund for Assessment Year 2018-19.
2. Adjustment of refund against pre-CIRP demand.
3. Jurisdiction of NCLT to direct Income Tax authorities.
4. Classification of tax dues as operational debt.

Issue-wise Detailed Analysis:

1. Release of Income Tax refund for Assessment Year 2018-19:
The applicant, Mr. Sumat Gupta, Resolution Professional of M/s International Mega Food Park Limited, sought a direction to the Income Tax Department to release a refund of Rs. 43,49,040/- for Assessment Year 2018-19. The Income Tax Department had set off this refund against the demand for Assessment Year 2016-17, which was not contested by the applicant initially. The applicant argued that post-CIRP initiation, the refund should not have been adjusted against pre-CIRP dues.

2. Adjustment of refund against pre-CIRP demand:
The Income Tax Department justified the adjustment by citing a notice under Section 245 issued on 20.09.2019. The applicant contended that the adjustment was impermissible during the moratorium period declared under Section 14 of the IBC, 2016. The applicant emphasized that the refund crystallized post-CIRP initiation and should not be adjusted against pre-CIRP demands.

3. Jurisdiction of NCLT to direct Income Tax authorities:
The Income Tax Department argued that NCLT lacks the power to direct any authority under the Income Tax Act, referencing decisions from the NCLT Ahmedabad Bench and the Supreme Court in the case of Swiss Ribbons Private Limited. The applicant countered by asserting that tax dues are operational debts and the Income Tax Department is an operational creditor, thus falling within NCLT's jurisdiction.

4. Classification of tax dues as operational debt:
The applicant relied on the Supreme Court judgment in M/s Embassy Property Developments Pvt. Ltd., which classified government dues as operational debt. The NCLAT's decision in Pr. Director General of Income Tax (Admn. & TPS) Vs. M/s. Synergies Dooray Automotive Ltd. supported this view, holding that statutory dues like Income Tax are operational debts. The Income Tax Department's argument that the demand for Assessment Year 2016-17 had not crystallized due to a pending appeal was rejected, as the Department had already treated it as a crystallized demand.

Conclusion:
The NCLT concluded that the Income Tax Department's adjustment of the refund during the moratorium period was unjustified. The Tribunal directed the Department to release the refund of Rs. 43,49,040/- with interest to the applicant. The judgment reaffirmed that tax dues are operational debts and fall within the jurisdiction of the NCLT under the IBC, 2016. The appeal was allowed and disposed of accordingly.

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