Tata Steel Limited Vs DCIT (Delhi High Court)
The case of Tata Steel Limited versus DCIT has brought to light a critical legal question – whether the provisions of the Insolvency and Bankruptcy Code (IBC) 2016 override those of the Income Tax Act 1961 when inconsistencies are found. In this article, we delve into the Delhi High Court’s perspective on this matter and examine the key factors and precedents involved.
Statement of Objects and Reasons:
One of the central arguments supporting the primacy of the IBC 2016 Code is found in the Statement of Objects and Reasons. This document clearly articulates the objectives behind the 2016 Code, including the consolidation and amendment of laws relating to reorganization and insolvency resolution. The intent was to ensure a time-bound resolution process, maximize asset value, promote entrepreneurship, facilitate credit access, and balance the interests of all stakeholders, even if it involved altering the priority of payments concerning government dues. This overarching objective underscores the need for the 2016 Code to make amendments to various statutes, including the 1961 Act.
The Preamble and Section 238:
The Preamble of the IBC 2016 leaves no room for doubt about its purpose, reinforcing the emphasis on reorganization and insolvency resolution. Section 238 of the 2016 Code explicitly states that its provisions “shall” have effect, prevailing over any inconsistency with other laws in force or any instruments under such laws. This implies that if the provisions of the 2016 Code, including those concerning the insolvency resolution of corporate entities, clash with other statutes, notably the Income Tax Act 1961, the former takes precedence. This interpretation is crucial to ensure that the legislative intent behind the 2016 Code is preserved. This view is further strengthened by the Finance Minister’s speech in Rajya Sabha, which explicitly underlines the overriding effect of the IBC.
Alternate Remedies:
The revenue’s contention that Tata Steel Limited (TSL) should resort to remedies provided by the 1961 Act and its accompanying rules is a common legal stance. Courts may direct litigants towards alternate remedies if they are effective. However, the existence of an alternate remedy doesn’t oust the jurisdiction of a constitutional court, especially when dealing with issues such as fundamental rights, violations of natural justice, jurisdictional questions, or statutory vires. This principle of convenience and policy has a few exceptions, as highlighted in various judgments. In essence, TSL’s recourse to the Delhi High Court is well-founded, considering the unique circumstances of their case.
Precedent from Ghanshyam Mishra’s Case:
It is worth noting that the Supreme Court, in Ghanshyam Mishra’s case, has already addressed a similar situation. The Court overturned a judgment by the Allahabad High Court, stating that compelling a party to seek an alternative remedy when the claims involved were not permissible in law would be futile. This principle is applicable to the present cases, emphasizing that litigants should not be forced to navigate multiple forums when the law does not permit it.
Conclusion:
The Tata Steel Limited vs. DCIT case underscores the importance of interpreting the IBC 2016 Code as an overriding statute when inconsistencies emerge with the Income Tax Act 1961. The legislative intent, as outlined in the Statement of Objects and Reasons, the Preamble, and Section 238, reinforces this perspective. Furthermore, the principle of convenience and policy, with exceptions highlighted in past judgments, supports TSL’s pursuit of justice in the Delhi High Court. Legal precedents, such as Ghanshyam Mishra’s case, have already acknowledged the futility of diverting parties to alternative remedies when the law itself does not permit it. This case serves as a vital reference point in understanding the interplay between the IBC and the IT Act when matters of inconsistency arise.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. At the outset, it is noted that even though the petitioner has not filed an amended memo of parties, the cause title, as captured above, reflects the amended name of the petitioner, as per this Court’s order dated 24.03.2022.
2. This writ action seeks to lay challenge to the notice dated 28.08.2018 issued under Section 221(1) of the Income Tax Act, 1961 [in short, “the Act”] and the order dated 17.10.2018. Via order dated 17.10.2018, the respondent [hereafter referred to as “revenue”] rejected the petitioner’s, i.e., Tata Steel Ltd.’s [hereafter referred to as “TSL”], objections preferred qua the notice dated 28.08.2018.
2.1 The impugned notice dated 28.08.2018 called upon TSL to deposit tax against demands for Assessment Years (AYs) 2001-02, 2009-10, 2010-11 and 2013-14. The cumulative value of the demand raised for the said AYs is Rs. 257,80,81,038/-. Besides this, the revenue via the very same notice, sought a response from TSL as to why a penalty under Section 221(1) of the Income Tax Act, 1961 [in short, “Act”] ought not to be imposed.
3. TSL has approached this Court by way of the instant writ petition, questioning the very jurisdiction of the revenue to enforce the demand for tax and penalty. The broad ground on which TSL seeks to assail the demand raised by the revenue is that it concerns periods which precede the date of approval of the Resolution Plan [in short, “RP”] by the concerned bench of National Company Law Tribunal [NCLT] and, therefore, fall within the ambit of the “clean slate” principle. In other words, the submission is that once the RP is approved, all stakeholders, i.e., secured creditors, unsecured creditors, shareholders, workers and employees, are bound by the terms contained therein. In this context, TSL asserts that the revenue is not any different from the other creditors.
3.1 Quite obviously, the revenue contends to the contrary.
4. Thus, for adjudication of the instant writ action, the following broad facts are required to be noticed:
5. The corporate entity against which a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 [hereafter referred to as “2016 Code”] was filed by one of the financial creditors, i.e., State Bank of India [SBI], went by the name Bhushan Steel Ltd. [BSL]. The adjudicating authority, i.e., the concerned bench of NCLT, admitted SBI’s application on 26.07.2017. Via the said order, the NCLT issued two significant directions. Firstly, it appointed an Interim Resolution Professional [IRP] and, secondly, imposed a moratorium, in consonance with the provisions of the 2016 Code.
6. The revenue, against the public announcement dated 26.07.2017 [which was published in (three) newspapers on 28.07.2017], submitted its claims with the IRP in the prescribed form on 28.09.2017, 24.10.2017 and 25.10.2017.
6.1 The claims lodged by the revenue related to the AYs 2009-10, 201011 and 2013-14.
6.2 As indicated above, the impugned demand notice dated 28.08.2018, apart from the AYs referred to above, also alludes to the demand qua AY 2001-02.
7. Insofar as AY 2001-02 is concerned, the revenue sought to tax the subsidy received by BSL [as it then existed] from the State Government of Uttar Pradesh for setting up a plant at Sahibabad. The addition made by the Assessing Officer (AO) in this regard, was reversed by the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”] via an order dated 31.03.2003. The appeal preferred by the revenue against the CIT(A)’s order was dismissed by the Income Tax Appellate Tribunal [in short, “Tribunal”] via order dated 05.01.2005. The revenue, however, succeeded in persuading this Court to rule in its favour in an appeal preferred by it. Via order dated 04.08.2017, this Court held that the sales tax subsidy received by BSL was in the nature of a revenue receipt and, hence, was taxable.
7.1 Thus, the demand outstanding for AY 2001-02, as per the impugned notice dated 28.08.2018, is Rs.3,52,12,038/-.
8. Insofar as AYs 2009-10, 2010-11 and 2013-14 are concerned, reassessment proceedings were triggered against BSL in 2015. Consequentially, an assessment order under Section 153A, read with Section 143(3) of the Act, was passed on 30.12.2016. However, the appeal lodged with CIT(A) by BSL was rejected via order dated 29.12.2017. Furthermore, the CIT(A) also triggered penalty proceedings against BSL under Section 271(1)(c) of the Act via an order dated 23.04.2018. TSL’s challenges to the orders of the CIT(A) dated 29.12.2017 and 23.04.2018 are currently pending before the Tribunal. It is against this backdrop that via the impugned order dated 28.08.2018, demands were raised for the aforementioned AYs, i.e., AYs 2009-10, 2010-11 and 2013-14.
8.1 The initiation of penalty proceedings ultimately resulted in the imposition of a cumulative penalty amounting to Rs. 2,542,869,000/- via order dated 23.04.2018 concerning AYs 2009-10, 2010-11 and 2013-14.
9. Thus, the cumulative demand, as indicated hereinabove, which included AY 2001-02, was pegged at Rs.257,80,81,038/-. The break-up of the cumulative demand is set forth hereafter:
