TaxTMI 
TaxTMI 
2021 (2) TMI 364
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....he 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 (In Brief 'Code'). The provision of deduction of TDS u/s 194-IA, Income Tax Act, 1961 (in brief "IT Act") is inconsistent with Section 53 (1) (e) of the Code and by virtue of Section 238 of Code, Section 53 of Code has over-riding effect. 3. Learned Adjudicating Authority 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. Collection of Tax will arise only after passing orders under the IT Act subsequent to filing of Income Tax Return by the assesse. Thus, 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. It is the duty of the purchaser to credit TDS to the Income Tax Department. Therefore, dismissed the ....
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....n 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 envisaged anywhere in the Code and Regulation thereto. It is notable that the Liquidation Process is required to be completed within a year as per Regulation 44 of the IBBI (Liquidation Process Regulation 2016). It is argued on behalf of the Respondent No. 1 that the Liquidator may seek refund is also misplaced as no refund is possible without due filing of return as explained above. The Code does not stipulate of filing of return by a Company in Liquidation under the Code. Thus, the provisions under Section 194 IA of the IT Act are inconsistent with Section 53 of the Code. Therefore, by virtue of Section 238 of the Code, the provision of Section 53 of the Code shall have overriding effect. Learned Adjudicating Authority has incorrectly interpreted the law. Therefore, the impugned order is liable to be set aside and the Respondent No. 1 be directed to refund the amount of TDS which is deposited by....
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.... 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 liable to be dismissed. 11. After hearing Ld. counsel for the parties we have perused the record and gone through the relevant provisions of the Code and the IT Act. The Question for our consideration is: "Whether the provisions of u/s 194-IA of the Income Tax Act, 1961 are inconsistent with Section 53 (1) (e) of the Insolvency and Bankruptcy Code, 2016?" 12. First of all, we have considered what was the necessity to amend Sub- Section 6 of Section 178 of the IT Act. Section 247 of the Code deals with the amendment to the IT Act, 1961 and provides that the said IT Act shall be amended in the manner specified in the Third schedule. The amendment brought into effect from 01.11.2016 after the amendment sub-Section 6 of Section 178 of the IT Act reads as under: - "Company in liquidation 178. (1) Every person- (a) who is the liquidator of any company which ....
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....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 Insolvency and Bankruptcy Code, w.e.f 01.11.2016.)" 13. Hon'ble Supreme Court in the case of Imperial Chit funds (P) Ltd. Vs. Income Tax Officer (1996) 219 ITR 498 considered Section 178 of the IT Act, in relation to the preferential payments covered by Section 530 of the Companies Act, 1956. The Supreme Court took the view that the Income Tax Department is to be treated as a secured creditor in the light of the words occurring in Sections 178 (3) and (4) of the IT Act to the effect that the liquidator shall set aside the amount notified by the Income Tax Officer and if it is not so done, the 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 p....
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.... (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 liquidation commencement date; (d) Financial debts owed to unsecured creditors; (e) The following dues shall rank equally between and among the following:- (i) Any amount due to the Central Government and the State Government including the amount to be received on account of the consolidated fund of India and the consolidated fund of a Stat, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) Debts owed to a secured creditor for any amount following the enforcement of security interest; (f) Any remaining debts and dues; (g) Preference shareholders, if any; and (h) Equity shareholders or pa....
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....at 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, which is partial capital gain tax, whereas, Section 53(1)(e) of the Code in waterfall mechanism provides that the Government dues comes fifth in order of priority. Thus, 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 IT Act and Section 53(1) (e) of the 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. Otherwise also Section 53 starts with a non-obstante clause, whereas Section 194 IA of the....
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....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) minutes of consultation with stakeholders; and (f) the final report prior to dissolution to the Adjudicating Authority in the manner specified under these Regulations. (2) The liquidator shall preserve a physical as well as an electronic copy of the reports and minutes referred to in sub-regulation (1) for eight years after the dissolution of the corporate debtor. (3) Subject to other provisions of these Regulations, the liquidator shall make the reports and minutes referred to sub-regulation (1) available to a stakeholder in either electr....
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....sessment 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 Chief Commissioner or Chief Commissioner] or [Principal Commissioner or Commissioner]], as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section." 27. All these....