Case Law Details
Murli Industries Ltd Vs DCIT (ITAT Nagpur)
Introduction: In a significant ruling, the Income Tax Appellate Tribunal (ITAT) in Nagpur has delivered a judgment in the case of Murli Industries Ltd Vs Deputy Commissioner of Income Tax, providing crucial clarity on the treatment of income tax dues in the context of the Corporate Insolvency Resolution Process (CIRP). The appeals, arising from separate orders for the assessment years 2010-11, 2015-16, and 2016-17, address the critical issue of whether income tax dues claims can be considered extinguished upon the approval of a resolution plan if they were not part of the said plan.
Detailed Analysis:
The core of the dispute revolves around the applicability and interpretation of the Insolvency and Bankruptcy Code, 2016 (the Code), and its impact on pending income tax dues claims against a corporate debtor undergoing CIRP. The ITAT considered the provisions of the Code and the landmark Supreme Court decision in Ghanashyam Mishra And Sons vs. Edelweiss Asset Reconstruction, which clarified that once a resolution plan is approved by the Adjudicating Authority, all claims not included in the resolution plan shall stand extinguished.
The ITAT’s ruling emphasizes that the moratorium declared under Section 13 of the Code prohibits the continuation of any pending suits or proceedings against the corporate debtor, including those related to income tax dues. The Tribunal noted that for claims to stand extinguished, they must not be part of the resolution plan approved by the Adjudicating Authority. This principle was reinforced by referring to the jurisdictional High Court’s decision in the case of Murli Industries Limited vs. ACIT, which aligned with the Supreme Court’s judgment in Ghanashyam Mishra And Sons.
The Tribunal’s analysis underscores that the Insolvency and Bankruptcy Code has an overriding effect over other laws, including the Income Tax Act, 1961, in cases of inconsistency. This ruling clarifies that statutory dues, including income tax claims for periods prior to the approval date of the resolution plan, are extinguished if not part of the plan, thereby providing a clean slate to the corporate debtor post-approval of the resolution plan.
Conclusion: The Nagpur ITAT’s judgment in the case of Murli Industries Ltd Vs DCIT marks a pivotal clarification in the interplay between the Insolvency and Bankruptcy Code and the Income Tax Act. By reiterating that income tax dues claims not included in a resolution plan stand extinguished upon its approval, the Tribunal provides a significant relief mechanism for corporate debtors undergoing insolvency proceedings. This ruling is instrumental in ensuring the effectiveness of the resolution process under the Code, aiming to revitalize distressed entities by settling their liabilities in a manner that is binding on all stakeholders, including the tax authorities. The decision further solidifies the legal framework governing corporate insolvency in India, offering a clearer path for resolution professionals and corporate debtors in navigating the complexities of insolvency and tax claims.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
These are the appeals filed by the assessee directed against the separate orders of the National Faceless Appeal Centre, Delhi [‘NFAC’) dated 26.04.2022 for the assessment years 2010-11, 2015-16 & 2016-17 respectively.
2. Since the identical facts and common issues are involved in all the above captioned four appeals of the assessee, we proceed to dispose of the same by this common order.
3. For the sake of convenience and clarity, the facts relevant to the appeal in ITA 182/NAG/2022 for the assessment year 2010-11 are stated herein.
ITA No.182/NAG/2022, A.Y. 2010-11 :
4. At the outset, it is evident from the record that the Corporate Insolvency Resolution Proceedings (CIRP) are pending against the assessee and as of now, Hon’ble National Company Law Appellate Tribunal (NCLAT) is seized with the jurisdiction.
5. We have considered the issue in the light of the provisions of Insolvency and Bankruptcy Code, 2016 (“the Code”) and the decision of the Hon’ble Apex Court in the case of Ghanashyam Mishra And Sons vs. Edelweiss Asset Reconstruction (2021) 126 taxmann.com 132 (SC). Under section 13 of the Code, the adjudicating authority after admission of the application under section 7 or 9 or 10 of the Code shall declare a moratorium which shall include the prohibition of the institution of suits or continuation of pending suits or proceedings against the corporate debtor in any court of law or tribunal. In Ghanashyam Mishra And Sons (supra), it was held that, (i) That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan; (ii) 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect; and (iii) Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued.
6. A reading of the provisions under section 13 and 14 of the Code along with the decision in Ghanashyam Mishra And Sons (supra), clearly shows that once the proceedings have commenced by institution of application under section 7 or 9 or 10 of the Code, the continuance of the pending proceedings is prohibited and when once they reach the logical conclusion with due approval of the resolution plan by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. At any rate, for the time being, this appeal cannot be proceeded with during the continuance of the proceedings under the Code. However, depending upon the result of such proceedings before the adjudicating authority in respect of the corporate debtor, appropriate steps if any, may be taken by the appellant/respondent. We, therefore, granting leave to the appellant in this appeal to seek the restoration of the appeal, if necessitated by the orders in the Corporate Insolvency Resolution Proceedings, dismiss the appeal in limine. We also derive support for the above proposition from the decision of the Jurisdictional High Court in the case of Murli Industries Limited vs. ACIT 441 ITR 8 (Bom.). The Hon’ble Bombay High Court after referring to the judgement of the Hon’ble Supreme Court in the case of Ghanashyam Mishra And Sons (supra) held that on the date of approval of the resolution plan by the Adjudicating Authority, all such claims which are not a part of the resolution plan, shall stand extinguished and no personnel shall be entitled to initiate or continue any proceedings in respect to a claim, which is not a part of the resolution plan by holding as under :-
“16. Ultimately, the Hon’ble Supreme Court has answered the questions framed in the following manner:
“102.1. That once a resolution plan is duly approved by the Adjudicating Authority under sub section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan;
102.2. 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect;
102.3. Consequently, all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued.”
17. A careful reading of the above findings, would show that even a claim in respect of dues arising under any law for the time being in force, including claims under the Income Tax Act, 1961 which is payable to the Central Government or the State Government, would come within the ambit of Operational Creditors. Further, the claim of operational creditors will also include a claim of statutory authority like Income Tax Department on account of money receivable pursuant to an imposition by a statute. The Hon’ble Supreme Court has also upheld the view taken by the Rajasthan High Court holding that the demand notices issued by the Central Goods and Service Tax Department, for a period prior to the date on which NCLT has granted its approval to the Resolution Plan, are not permissible in law. The concluding remarks of the Hon’ble Apex Court are that, on the date of approval of the Resolution Plan by the Adjudicating Authority, all such claims which are not a part of the Resolution Plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not a part of the Resolution Plan. The expression ‘that no person will be entitled to initiate any proceedings’ would include the proceedings in the nature of notice issued under Section 148 of the Income Tax Act, 1961.
18. As we understand from the above rulings, the aim and object of IBC is to revive the Corporate Debtor by putting quietus to the claims against it. Providing certainty to the Resolution Applicant of “no” claims in future against the Corporate Debtor appears to be the essence of the Resolution Plan. Such inference could further be substantiated on the ground that the provisions of the IBC (Section 238 of IBC) have an overriding effect, if there is any inconsistency with any of the provisions of the law for the time being in force, including the Income Tax Act, 1961. The Hon’ble Apex Court has also held that section 31 of the amended Act will have retrospective effect.
19. Having said so, it is now crystallized that the claims which were not a part of the Resolution Plan including recoverable statutory dues, shall stand extinguished upon approval of the Resolution Plan.”
7. In the present case also, it is not a case of the Department that the claims which are part of subject matter of appeal are part of the resolution Therefore, the ratio of the Jurisdictional High Court in the case of Murli Industries Limited (supra) is also squarely applicable to the facts of the present case. Thus, we do not find any merit in the appeal filed by the assessee and hence stands dismissed as not maintainable.
8. In the result, the appeal of the assessee in ITA No.182/NAG/2022 for A.Y. 2010-11 stands dismissed in limine.
ITA Nos.183 to 185/NAG/2022, A.Ys. 2010-11, 2015-16 & 2016-17 :
9. Since the facts and issues involved in remaining three appeals of the assessee are identical, therefore, our decision in ITA No.182/NAG/2022 for A.Y. 2010-11 shall apply mutatis mutandis to the remaining three appeals of the assessee in ITA Nos.183 to 185/NAG/2022 for A.Ys. 2010-11, 2015-16 & 2016-17 respectively. Accordingly, the remaining three appeals of the assessee in ITA Nos.183 to 185/NAG/2022 for A.Ys. 2010-11, 2015-16 & 2016-17 stands dismissed.
10. To sum up, all the above captioned four appeals of the assessee stands dismissed.
Order pronounced on this 01st day of January, 2024.
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