2026 (4) TMI 228 - AT - IBC

TDS refund claims in liquidation must first be decided by Income Tax Authorities, not insolvency fora.

Questions relating to refund of TDS deducted on interest from fixed deposits during liquidation, and any claim to income-tax exemption, must be determined ... Jurisdiction of the Adjudicating Authority and the Appellate Tribunal for the direction to place a simpliciter account before the Income Tax Authorities - Seeking refund of TDS deducted on interest from fixed deposits during liquidation - Competence of Income Tax Authorities in TDS refund - Liquidation proceedings - Alternate remedy - Cause of action - Statutory domain. Prematurity of appeal - Interlocutory order - HELD THAT: - The Appellate Tribunal held that the impugned order did not decide the appellant's claim on merits, but only directed submission of a simpliciter account of income and expenditure for the company in liquidation. Since the question whether refund of TDS could be granted, and whether any exemption under Section 140 of the Income Tax Act could be claimed, was still left for consideration by the Income Tax Authorities, the appellant's challenge was only to an anticipatory or apprehended consequence. A challenge to such an enabling and interlocutory direction was therefore held to be premature. [Paras 27, 29, 30, 31, 34] The appeal was not maintainable at this stage, as no final decision on the appellant's request had yet been taken by the competent tax authority. Competence of Income Tax Authorities in TDS refund - Jurisdiction under the I&B Code - HELD THAT: - Under I & B Code, 2016, there is no such provision of law, which prescribes for conferring of the power on the Ld. Adjudicating Authority, to issue any such direction for refund of the TDS already made on the interest accruing on the fixed deposit. The exercise of powers of refund of the TDS, would always be the prerogative to be exercised by the Income Tax Authorities under prevailing income tax laws, particularly when they have to consider the aspect of their ambit and exercise of their powers of deduction of TDS on the interest accruing on the fixed deposit, in relation to a company which is under liquidation, whether there could be a refund or not. These are all the issues which are yet to be decided by the Income Tax Authorities, which has been directed to be considered by the Income Tax Authorities in pursuance to the impugned order of 25.11.2025. The Appellate Tribunal held that refund of TDS, and the allied question whether deduction of TDS on such interest was legally sustainable in the case of a company under liquidation, fall within the domain of the Income Tax Authorities. The I&B Code contains no provision empowering the Adjudicating Authority to order refund of TDS. The direction requiring the liquidator to submit an account statement was therefore only to enable the tax authorities to examine the refund request. The Tribunal also declined to examine, at this stage, the appellant's contention based on Section 140 of the Income Tax Act and the plea of inconsistency with the I&B Code, since those questions would arise only after the tax authority took a decision. [Paras 24, 25, 26, 32, 33] The claim for refund of TDS and any issue concerning exemption or return verification under the Income Tax Act were left to be considered by the Income Tax Authorities, and no direction for refund could be issued in insolvency proceedings. Final Conclusion: The Appellate Tribunal dismissed the company appeal, holding that the impugned order was only an interlocutory and enabling direction and that the claim for refund of TDS must first be pursued before the Income Tax Authorities. Questions relating to Section 140 of the Income Tax Act and any claimed exemption were left open for decision by the competent tax authority. Issues: (i) Whether the appeal challenging the direction to place a simpliciter account before the Income Tax Authorities and seeking refund of TDS was premature and outside the jurisdiction of the Adjudicating Authority and the Appellate Tribunal.Analysis: The relief claimed concerned refund of TDS deducted on interest from fixed deposits during liquidation. The Tribunal held that such refund, and any decision on exemption or applicability of the income tax provisions, lies within the domain of the Income Tax Authorities. It found that the impugned order merely required the Liquidator to submit account details showing income and expenditure during liquidation so that the Income Tax Authorities could process the request. The challenge was treated as anticipatory, since no final decision had yet been taken by the Income Tax Authorities and no enforceable direction for refund had been issued by the Adjudicating Authority.Conclusion: The appeal was held to be premature and not maintainable at this stage, and the challenge to the impugned order failed.Ratio Decidendi: Questions relating to refund of TDS and entitlement to any income-tax exemption must be decided by the competent Income Tax Authorities in the first instance, and the insolvency fora cannot pre-empt that statutory process by ordering refund on a premature challenge.