TDS u/s. 194-IA deducted on assets sold during liquidation should be refunded to corporate debtor

Sunil Kumar Agarwal Liquidator for Varia Engineering Works Pvt Ltd Vs Chief Commissioner of Income Tax (TDS) (NCLT Ahmedabad)

NCLT Ahmedabad held that the amount of TDS deducted under section 194-IA on assets sold during the process of liquidation should be returned (refunded) back by income tax department into the account of Corporate Debtor.

Facts- Bank of Baroda filed application u/s. 7 of the Insolvency and Bankruptcy Code, 2016 for initiation of Resolution Process against Varia Engineering Works Private. In application bearing CP(IB) No.149 of 2017, CIRP was initiated by an order dated 21.12.2017. In pursuant to CIRP process the order for liquidation of company was passed on 22.07.2019 by appointing applicant as a liquidator. Accordingly, the applicant sold assets of Corporate Debtor by conducting various e-auctions. Sale Certificates were also issued to successful bidders. The applicant further stated that multiple amounts of TDS to the extent of total amount of Rs.28,92,101/- were deducted as per provisions of Income Tax Act by the successful purchasers. The applicant further submitted that the provisions of Section 194-IA are inconsistent with provision of Section 53 (1)(e) of the IBC.

The applicant demanded access to Income Tax Portal of Corporate Debtor but Deputy Commissioner of Income Tax did not grant access to it and call him in office. During the liquidation process, the liquidator is only bound to prepare receipts of payments and cannot file a return of Corporate Debtor. In such a case, TDS would remain unclaimed in the account of Corporate Debtor. Hence, prayed for directing Income Tax Department to credit the amount of Rs.28,92,101 deducted as TDS into the account of Corporate Debtor.

Conclusion- With respect to recovery of government dues from the company in liquidation there is inconsistency between Section 194-IA of Income Tax Act and Section 53 of the IBC. By virtue of Section 238 of the IBC Section 53(1)(e) shall have overriding effect on the provision of Section 194-IA (Section 53 of the IBC has non-obstante clause while Section 194 of Income Tax Act has no non-obstante clause). The IBC does not provide for filing of any Income Tax Return by the liquidator. Therefore, the liquidator cannot claim refund of TDS deposited by the purchaser. The Income Tax deducted and paid by the purchaser amounts to recovery of tax from Corporate Debtor on priority with other creditors as mentioned in Section 53 of the IBC, which is against the object and provisions of IBC. The Hon’ble NCLAT observation in case of Om Prakash Agarwal, Liquidator of S. Kumars Natinowide Limited vs. Chief Commissioner of Income Tax (TDS) is squarely applicable to the present application.

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